UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended JUNE 30, 1999 Number 0-9209
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RIVERSIDE GROUP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-1144172
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 BELFORT PARKWAY, JACKSONVILLE, FLORIDA 32256
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(Address of principal executive Offices) (Zip Code)
Registrant's telephone number, including area code number
904-281-2200
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Indicate by a check mark whether the 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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
On August 10, 1999, there were 5,287,123 shares of the Registrant's common stock
outstanding.
<PAGE>
RIVERSIDE GROUP, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 (Unaudited)
And December 31, 1998 3
Condensed Consolidated Statements
of Operations
Six months ended
June 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statement
of Common Stockholders' Equity
Six months ended
June 30, 1999 (Unaudited) 5
Condensed Consolidated Statements of
Cash Flows
Six months ended
June 30, 1999 and 1998 (Unaudited) 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16
PART II.
Item 2. Changes in Securities 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 31
2
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands)
<TABLE>
June 30, December 31,
1999 1998
------------- ---------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 419 $ 509
Accounts receivable, less allowance for doubtful
accounts of $341 at 1999 and $337 at 1998 258 246
Notes receivable 30 197
Inventory 142 1
Prepaid expenses 46 46
--------- ---------
Total current assets 895 999
Investment in Wickes Inc. 13,662 14,995
Investment in real estate 9,613 9,667
Property, plant and equipment, net 450 402
Other assets (net of accumulated amortization of
$861 at 1999 and $796 at 1998) 367 339
--------- ---------
Total assets $ 24,987 $ 26,402
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 12,763 $ 10,356
Accounts payable 819 223
Accrued liabilities 1,863 1,377
Deferred revenue 102 112
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Total current liabilities 15,547 12,068
Long-term debt - 415
Mortgage debt 11,345 11,345
Net liabilities of discontinued operations 21 22
Other long-term liabilities 84 184
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Total liabilities 26,997 24,034
Commitments and contingencies (Note 3 )
Common stockholders' equity :
Common stock, $.10 par value; 20,000,000 shares authorized; 529 529
5,287,123 issued and outstanding in 1999 and 1998
Additional paid in capital 16,838 16,838
Retained earnings (deficit) (19,377) (14,999)
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Total common stockholders' equity (2,010) 2,368
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Total liabilities and common stockholders' equity $ 24,987 $ 26,402
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -----------------------------
1999 1998 1999 1998
----------- ---------- ----------- -----------
Revenues:
<S> <C> <C> <C> <C>
Sales and service revenues $ 270 $ 237,308 $ 751 $ 406,169
Net investment loss (7) (36) (36) (51)
Net realized investment gains - - - 437
Other operating income 24 1,727 49 4,178
---------- ---------- ---------- ----------
287 238,999 764 410,733
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 140 181,182 218 309,063
Provision for doubtful accounts 63 (131) 4 1,202
Depreciation, goodwill and trademark amortization 94 1,451 154 2,871
Restructuring and unusual items - - - 5,431
Selling, general and administrative expenses 1,732 47,055 3,316 88,836
Interest expense 650 6,093 1,303 12,260
---------- ---------- ---------- ----------
2,679 235,650 4,995 419,663
---------- ---------- ---------- ----------
Earnings (loss) before income taxes, equity in related parties,
and minority interest: (2,392) 3,349 (4,231) (8,930)
Income tax expense (benefit) - 2,249 - (1,630)
Equity in (earnings) losses of Wickes, Inc. (1,178) - 147 -
Minority interest, net of income taxes - 1,374 - (1,928)
---------- ---------- ---------- ----------
Net loss $ (1,214) $ (274) $ (4,378) $ (5,372)
========== ========== ========== ==========
Basic and diluted loss per common share:
Loss from continuing operations $ (0.23) $ (0.05) $ (0.84) $ (1.03)
Weighted average number of common shares
used in computing earnings per share 5,213,186 5,227,571 5,213,186 5,227,571
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Common Stockholder's Equity
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Total
Additional Retained Common
Common Paid-In Earnings Stockholders'
Stock Capital (Deficit) Equity
---------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 529 $ 16,838 $ (14,999) $ 2,368
Net loss, six months ended June 30, 1999 -- -- (4,378) (4,378)
---------- ---------- ----------- ---------
Balance, June 30, 1999 $ 529 $ 16,838 $ (19,377) $ (2,010)
========== =========== =========== ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------------------
Cash Flow from Operating Activities 1999 1998
---------------- ----------------
<S> <C> <C>
Net loss $ (4,378) $ (5,372)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 93 2,372
Amortization expense 321 1,332
Amortization of bond discount 113 97
Provision for doubtful accounts (4) 1,202
Gain on sale of fixed assets -- (1,501)
Net realized investment gains on investments -- (437)
Benefit for deferred income taxes -- (2,201)
Equity in earnings of unconsolidated subsidiaries (113) --
Minority interest -- (1,928)
Change in other assets and liabilities:
(Increase)decrease in accounts receivable (8) (18,443)
Decrease in notes receivable 167 2,182
Increase in inventory (141) (14,324)
(Increase)decrease in other assets (89) 509
Increase decrease in accounts payable and accrued liabilities 1,082 13,449
Net liabilities of discontinued operations, other liabilities
and current income taxes (111) 63
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Net Cash Used In Operating Activities (3,068) (23,000)
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Investing Activities
Purchase of investments:
Property, plant and equipment (131) (2,276)
Investment in real estate -- --
Sale of investments:
Property, plant and equipment -- 3,549
Investment in real estate 44 3,808
Securities of Wickes Inc. 1,186 --
---------- ---------
Net Cash Provided By Investing Activities 1,099 5,081
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Cash Flows from Financing Activities
Net borrowings under the revolving line of credit -- 19,463
Repayment of debt (153) (3,985)
Increase in borrowings 2,032 100
--------- ---------
Net Cash Provided By Financing Activities 1,879 15,578
Net Decrease in Cash and Equivalents (90) (2,341)
Cash and equivalents at beginning of period 509 3,154
--------- ---------
Cash and equivalents at end of period $ 419 $ 813
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
RIVERSIDE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements present the financial
position, results of operations, and cash flows of Riverside Group, Inc. and its
wholly-owned and majority-owned subsidiaries (the "Company"). The Company no
longer owns a majority interest in Wickes Inc. ("Wickes") and at September 30,
1998, the Company began to report its investment in Wickes on the equity method.
Accordingly, the Company's consolidated balance sheet at December 31, 1998 does
not include the accounts of Wickes. The Company's condensed consolidated
statements of operations and cash flows for period ending June 30, 1998, include
Wickes on a consolidated basis.
The condensed consolidated balance sheets as of June 30, 1999, the
condensed consolidated statements of operations for the six months ended June
30, 1999 and 1998, the condensed consolidated statement of common stockholders'
equity for the six months ended June 30, 1999 and the condensed consolidated
statements of cash flows for the six months ended June 30, 1999 and 1998, have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
June 30, 1999, and for all periods presented have been made. The results for the
three month period ended June 30, 1999 is not necessarily indicative of the
results to be expected for the full year or for any interim period.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements, the related Auditor's report, and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission.
EARNINGS PER SHARE
Basic and diluted earnings per common share is calculated in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
Earnings per share are based on the weighted average number of shares of common
stock outstanding during each period (5,213,186 shares in 1999 and 1998). Since
the Company had a net loss, the options had an anti-dilutive effect, and
therefore, are excluded from the calculation of diluted earnings per share.
7
<PAGE>
2. INVESTMENT IN WICKES
For information concerning the Company's accounting for its investment
in Wickes, see Note 1 - Summary of Significant Accounting Policies - Basis of
Financial Statement Presentation.
Summary financial information of Wickes for the second quarter of 1999
follows (in thousands):
<TABLE>
<CAPTION>
(unaudited) (audited)
June 26, 1999 Dec. 26, 1998
------------- -------------
<S> <C> <C>
Balance Sheet Data
Current assets $ 272,645 $ 210,311
Total assets 362,219 292,750
Current liabilities 91,335 74,175
Long term debt and other long-term liabilities 246,880 194,913
Common stockholders' equity 24,004 23,662
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
WICKES INC.
At June 26, 1999, Wickes had accrued approximately $129,000 (included in
accrued liabilities at June 26, 1999) for remediation of certain environmental
and product liability matters, principally underground storage tank removal.
Many of the sales and distribution facilities presently and formerly
operated by Wickes contained underground petroleum storage tanks. All such tanks
known to Wickes located on facilities owned or operated by Wickes have been
filled or removed in accordance with applicable environmental laws in effect at
the time. As a result of reviews made in connection with the sale or possible
sale of certain facilities, Wickes has found petroleum contamination of soil and
ground water on several of these sites and has taken, and expects to take,
remedial actions with respect thereto. In addition, it is possible that similar
contamination may exist on properties no longer owned or operated by Wickes the
remediation of which Wickes could under certain circumstances be held
responsible. Since 1988, Wickes has incurred approximately $2.0 million of
costs, net of insurance and regulatory recoveries, with respect to the filling
or removing of underground storage tanks and related investigatory and remedial
actions. Insignificant amounts of contamination have been found on excess
properties sold over the past four years. Wickes has currently reserved $47,500
for estimated clean up costs at 13 of its locations.
8
<PAGE>
Wickes has been identified as having used two landfills which are now
Superfund clean up sites, for which it has been requested to reimburse a portion
of the clean-up costs. Based on the amounts claimed and Wickes's prior
experience, Wickes has established a reserve of $28,000 for these matters.
Wickes is one of many defendants in two class action suits filed in
August of 1996 by approximately 200 claimants for unspecified damages as a
result of health problems claimed to have been caused by inhalation of silica
dust, a byproduct of concrete and mortar mix, allegedly generated by a cement
plant with which Wickes has no connection other than as a customer. Wickes has
entered into a cost sharing agreement with its insurers, and any liability is
expected to be minimal.
Wickes is one of many defendants in approximately 110 actions, each of
which seeks unspecified damages, in various Michigan state courts against
manufacturers and building material retailers by individuals who claim to have
suffered injuries from products containing asbestos. Each of the plaintiffs in
these actions is represented by one of two law firms. Wickes is aggressively
defending these actions and does not believe that these actions will have a
material adverse effect on Wickes. Since 1993, Wickes has settled 16 similar
actions for insignificant amounts, and another 187 of these actions have been
dismissed. As of July 31, 1999 none of these suits have made it to trial.
Losses in excess of the $129,000 reserved as of June 26, 1999 are
possible but an estimate of these amounts cannot be made.
THE PARENT GROUP AND WICKES
The Company and Wickes are involved in various other legal proceedings
which are incidental to the conduct of their businesses. The Company does not
believe that any of these proceedings will have a material adverse effect on the
Company.
In connection with the sale of Dependable, the Company agreed to
indemnify the purchaser for certain losses on various categories of liabilities.
Terms of the indemnities provided by the Company vary with regards to time
limits and maximum amounts. American Financial Acquisition Corporation
subordinated debentures in the amount of $2.1 million are pledged as collateral
on these indemnities. Although future loss development will occur over a number
of years, the Company believes, based on all information presently available,
that these indemnities will not have a material adverse effect on the Company's
financial position or results of operations.
On December 1, 1997, the Company completed the sale of its mortgage
lending operation to an unrelated third party. The Company did not realize any
gain or loss from the transaction, but agrees to indemnify the purchaser against
losses on the construction loan portfolio that was transferred. The Company
currently has 62,500 shares of its Wickes' common stock pledged as collateral
for this indemnification obligation. As the construction loan portfolio
decreases, the shares held as collateral will be released. The Company believes
that these indemnities will not have a material adverse effect on the Company's
financial position or results of operations.
9
<PAGE>
PARENT COMPANY LIQUIDITY AND MANAGEMENT'S PLANS
The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. In light of the
Company's current projected earnings and cash flow, management believes the
Company does not have the financial resources to maintain its current level of
operations through the third quarter of 1999. Therefore, the Company will need
to obtain significant additional funds through asset sales or additional
borrowings or other financing for such purposes and may need to reduce the level
of its operations. As described below, the principal source of funds for these
purposes in the past, and for the payment of interest on the Company's
indebtedness, has been sales of shares of Wickes common stock. The Company is
currently working on additional options as discussed below.
The principal user of the Company's cash has been and continues to be
Buildscape, Inc. ("Buildscape"). The Company has reached a preliminary
understanding with third party investors to issue preferred stock in Buildscape,
pursuant to terms currently being negotiated. It is anticipated that the
issuance of preferred stock will give Buildscape the capital required to operate
independently of the Company and its other subsidiaries. See the discussion
below.
At August 10, 1999, the Company estimates that it will have
approximately $1,108,000 of accounts payable and other current liabilities,
approximately $575,000 of which are past due. In addition, $239,518 of these
current liabilities are principal and interest payments due to Wickes that were
overdue but which were deferred until June, 1999 by Wickes. The Company
anticipates bringing this debt current and prepaying a portion of interest or
principal with the proceeds of the loan from Imagine Investments, Inc.
("Imagine") described below. The Company has recorded this debt as current on
the June 30, 1999 Condensed Consolidated Balance Sheet. Also, the Company is not
in compliance with certain of the terms of the original loan agreement with
Imagine and has obtained a waiver of default through September 15, 1999. See the
discussion below of the terms of $3.0 million of indebtedness of the Company due
on September 15, 1999 to Imagine that is proposed to be converted into equity of
Cybermax Tech. In addition, $625,000 of interest is due September 30, 1999 on
the Company's 11% secured notes. See discussion below. There can be no assurance
that the Company will be able to make the required payments of principal and
interest on its indebtedness on a timely basis if the transactions described
below are not complete.
The principal asset that could be sold by the Parent Company would be its
shares of Wickes common stock. At August 10, 1999, approximately 2,078,668 of
the Parent Company's 3,000,515 shares of Wickes common stock are pledged to
secure various obligations of the Company. In addition, the Company's shares of
Wickes common stock are subject to securities law restrictions on resale. The
Company has granted to Imagine, a right of first refusal with respect to all the
shares of Wickes beneficially owned by it. Pursuant to previously existing
registration rights, at the Company's request, Wickes has filed a shelf
registration statement with respect to 1,000,000 shares of Wickes common stock
held by the Company. At the Company's request, Wickes has not, however, sought
to have this registration statement declared effective by the Securities and
Exchange Commission pending the Company's consideration of the various financing
alternatives available to it.
<PAGE>
The Company may also seek to sell shares of Greenleaf common stock.
Effective September 30, 1998, the Company exchanged all of the outstanding
shares of its wholly-owned subsidiary, GameVerse, Inc. for approximately 40% of
the outstanding securities of Greenleaf. These securities presently may not be
sold in the open market, and the Company anticipates that its ability to sell
significant amounts of these securities will be limited. Greenleaf and the
Company have, as a result of Greenleaf's dissatisfaction with the transaction,
had discussions regarding possible adjustments to the merger consideration that
would reduce the Company's percentage of ownership in Greenleaf. These
discussions led to a proposal whereby a portion of the Company's shares of
Greenleaf was to have been sold to a third party investor identified by
Greenleaf with proceeds of the sale to be split between Greenleaf and the
Company. This proposal was not implemented. However, in August informal
discussions were reestablished between the parties. No proposals have been made
at this date.
The Company has received verbal consent from all the holders of the
Company's $10 million 13% Subordinated Notes ("the 13% Notes") that were
previously scheduled to mature in September 1999. All legal documents have been
executed and are being held in escrow pending receipt of the final paperwork
from 15% of the Note Holders. It is anticipated these will be received and the
refinancing closed by the end of August. The Notes will be replaced with new
unsubordinated promissory notes due September 30, 2000 bearing 11% interest. The
notes will be secured by a junior lien on the collateral securing the Company's
real estate indebtedness and 10 million shares of Greenleaf common stock. In
connection with the refinancing, the holders of the notes will issue a release
to the Company and its officers and directors, releasing them from all
liabilities and claims which the holders of the Notes may have with respect to
acts or omissions by such persons prior to the delivery of the new notes. See
Notes 4 and 7 of Notes to Condensed Consolidated Financial Statements included
elsewhere herein.
The Company's $11.3 million of real estate indebtedness is secured by
the Company's real estate and 2,002,337 shares of Wickes common stock. The
amount of required collateral for this indebtedness is adjusted quarterly.
Additional collateral would be required in the event there is any collateral
deficit, at any quarterly valuation date, which would depend upon factors
including the market value of Wickes' common stock and the timing and amount of
real estate sales.
In order to obtain funds for the continuation of Buildscape's
operations, on March 11,1999, Buildscape entered into a short-term loan
agreement with Imagine pursuant to which Buildscape borrowed $500,000 in March
1999 and $500,000 in April 1999. On May 20 and August 11, 1999, Buildscape and
Imagine amended the short-term loan agreement, increasing the loan to $3,350,000
with $3,000,000 to be fully advanced as of August 12 and the balance of
$350,000, subject to Imagine's approval to be drawn by August 20, 1999. This
loan is due September 15, 1999. The total loan bears interest at the annual rate
of 10% is guaranteed by Riverside and certain of its subsidiaries, and is
secured by a pledge of the stock of Buildscape and certain of the Company's
<PAGE>
subsidiaries and by a security interest in the assets of Buildscape and these
subsidiaries. In connection with this loan, Riverside granted Imagine an option
to purchase 30% of Buildscape's current outstanding shares at 80% of the price
for such shares set in any venture capital financing or if venture capital
financing is not obtained for an amount equal to the Company's investment in
Buildscape as calculated on a per share basis. The documents related to this
loan place various restrictions of the Company and Buildscape, including, among
other things, a requirement that the Company maintain a least $1 million of
stockholders' equity and a prohibition against incurrence by the Company,
Buildscape, or any of the Company's subsidiaries that guaranteed the loan, from
incurring additional debt. As discussed above, the Company has had to obtain a
waiver of compliance with certain of these restrictions.
On July 30, the Company and Imagine entered into a letter of
understanding pursuant to which Imagine would acquire a controlling interest in
Cybermax Tech, the parent company of Buildscape, in exchange for shares of
Buildscape common and preferred stock, 520,000 shares of Riverside stock, $4
million in cash and cancellation of Buildscape's indebtedness to Imagine
discussed above. The preferred shares would be newly issued shares of preferred
stock purchased subject to terms currently being negotiated by third party
investors and Buildscape. The proposed transaction is subject to the receipt of
appropriate corporate authorizations and the completion of a fairness opinion
with respect to the overall transaction. Upon completion of the proposed
exchange, it is anticipated that Cybermax Tech will own approximately 83% of
Buildscape and third party investors will own 17%.
The Company's assessment of the matters described in this note and
other forward-looking statements ("Forward-Looking Statements") in these notes
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 and are inherently subject to uncertainty. The
outcome of certain matters described in this note may differ from the Company's
assessment of these matters as a result of a number of factors including but not
limited to: matters unknown to the Company at the present time, development of
losses materially different from the Company's experience, Wickes' ability to
prevail against its insurers with respect to coverage issues to date, the
financial ability of those insurers and other persons from whom Wickes may be
entitled to indemnity, and the unpredictability of matters in litigation.
In addition, the discussion above of the Company's future operations,
liquidity needs and sufficiency constitutes Forward-Looking Information and is
inherently subject to uncertainty as a result of a number of risk factors
including, among other things: (i) Buildscape's ability to successfully
negotiate the terms of their preferred stock issue and closing this in a timely
manner, (ii) the success of and level of negative cash flow generated by the
Parent Company's Internet, e- commerce and advertising operations, (iii) the
Company's ability to achieve the level of real estate sales required to meet
scheduled real estate debt principal and interest payments and to avoid the
requirement that the Company provide additional collateral for this debt, (iv)
the Company's ability to borrow, which may depend upon, among other things, the
trading price of Wickes common stock, the value and liquidity of the Company's
Greenleaf securities, and the success of the Parent Company's internet,
e-commerce and advertising operations, (v) the ability of the Company to raise
<PAGE>
funds through sales of Wickes common stock and Greenleaf securities, (vi) the
outcome of the Company's discussions with Greenleaf, and (vii) uncertainty
concerning the possible existence of indemnification claims resulting from the
Company's discontinued operations. Future real estate sales depend upon a number
of factors, including interest rates, general economic conditions, and
conditions in the commercial real estate markets in Atlanta, Georgia and
Jacksonville, Florida. In addition to the factors described above, the Company's
ability to sell Wickes common stock or Greenleaf securities would depend upon,
among other things, the trading prices for these securities, and, in light of
the relatively low trading volume for these securities, possibly the Company's
ability to find a buyer or buyers for these securities in a private transaction
or otherwise.
4. LONG TERM AND MORTGAGE DEBT
Consolidated long-term and mortgage debt is comprised of the following
at June 30, 1999 (in thousands):
LONG-TERM DEBT
Subordinated Notes $ 9,940
Other 2,823
Less: current maturities (12,763)
-----------
Total Company long-term debt less current maturities --
-----------
MORTGAGE DEBT
Mortgage debt, non-recourse 11,345
----------
Total long-term and mortgage debt
less current maturities $ 11,345
==========
SUBORDINATED NOTES ("THE 13% NOTES")
These notes may be prepaid in whole or in part prior to their September
30, 1999 due date without payment of a premium. These notes were recorded at an
original discount of $1,256,000 which is being amortized using the interest
method over the term of the notes. The Company has received verbal commitment
from all Note Holders to refinance the notes and anticipates receiving the final
documents and closing this in August. See Note 3 under the heading "Parent
Company Liquidity and Management's Plans". See Note 7 to the Condensed Consoli-
dated Financial Statements included elsewhere herein.
Wickes Promissory Note
In February of 1998, Riverside completed the acquisition of e-commerce
and advertising operations formerly owned by Wickes. The disposition of these
operations by Wickes was part of the determination made by Wickes to discontinue
or sell non-core operations. For these operations, Riverside paid consideration
of approximately $872,000 in the form of a 3-year unsecured promissory note. The
terms of the promissory note include interest based on the prime lending rate
plus two percentage points due monthly and principal due in thirteen equal
quarterly installments, beginning May 15, 1998 and ending May 15, 2001. In
addition, Riverside agreed to pay ten percent of future net income of these
operations, subject to a maximum of $429,249 plus interest. At August 10, 1999,
the Company had made payments of $195,752 under the Wickes promissory note but
was
<PAGE>
delinquent with respect to required payments of approximately $239,518 of
principal and interest. Wickes had deferred these payments and interest thereon
until June 30, 1999. During this extension, the interest rate was based on
the prime lending rate plus four percentage points. The Company has not received
an extension of the waiver at this date. The Company anticipates bringing this
debt current and prepaying a portion of principal and interest with the proceeds
of the loan from Imagine described under the heading "Parent Company Liquidity
and Management's Plan" of Note 3. The Company has recorded this debt as current
on the June 30, 1999 Condensed Consolidated Balance Sheet.
14
<PAGE>
5. INCOME TAXES
The Company's effective tax rate was 0% for the six months ended June 30,
1999 and 1998. For the six months ended June 30, 1998, Wickes results of
operations were consolidated with the Company's for financial reporting purposes
(see Note 1. "Summary of Significant Accounting Policies) and included a tax
benefit of $3.9 million. An effective tax rate of 39% was used to calculate the
federal income taxes for the second quarter of 1998. In addition to the
effective federal rate used for that period, state income and franchise taxes
were calculated on a separate basis and included in the provision reported.
The Company has established a reserve for the full amount of deferred tax
assets. In management's opinion, it is unlikely the deferred tax assets will be
utilized in the near future.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," standardizes the accounting for
derivative instruments by requiring that all derivatives be recognized as assets
and liabilities and measured at fair value. The statement is effective for
fiscal years beginning after June 15, 2000. The Company believes adoption of the
statement will not have a material effect on its financial statements.
7. SUBSEQUENT EVENTS
The Company and the 13% Note Holders have agreed to replace the
Company's 13% Notes that were originally scheduled to mature in September 1999
with new unsubordinated promissory notes due September 2000, bearing 11%. The
Company anticipates receiving the final documents and closing this in August of
1999. For further information see Note 3 under the heading "Parent Company
Liquidity and Management's Plans".
On July 30, 1999, the Company and Imagine entered into a letter of
understanding pursuant to which Imagine would acquire a controlling interest in
Cybermax Tech, the parent company of Buildscape, in exchange for shares of
Buildscape common and preferred stock, 520,000 shares of Riverside stock, $4.0
million in cash and cancellation of Buildscape's indebtedness to Imagine
described under the heading "Parent Company Liquidity and Management's Plans".
<PAGE>
At August 10, 1999, the Company had made payments of $195,752 under its
promissory note to Wickes but was delinquent with respect to required payments
of approximately $239,518 of principal and interest. Wickes had deferred these
payments and interest thereon until June 30, 1999. The Company has not received
an extension of the waiver at this date. The Company anticipates bringing this
debt current and prepaying a portion of principal or interest with the proceeds
of the loan from Imagine described under the heading "Parent Company Liquidity
and Management's Plans" of Note 3.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto contained elsewhere herein
and in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and analysis of Financial Condition and Results of
Operations contained in the Company's Annual report on Form 10-K for the year
ended December 31, 1998.
RESULTS OF OPERATIONS
GENERAL
The Company reported results of operations for the six months ended June
30, 1999 and 1998, as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(unaudited) (unaudited)
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings(loss) before income taxes,
equity in related parties, and
minority interest(1)(2) $ (2,392) $ 3,349 $ (4,231) $ (8,930)
Income tax (benefit) expense -- 2,249 -- (1,630)
Equity in (earnings) losses
of Wickes Inc.(3) (1,178) -- 147 --
Minority interest, net of income taxes(3) -- 1,374 -- (1,928)
--------- --------- -------- --------
Net loss $(1,214) $ (274) $ (4,378) $ (5,372)
======== ========= ========= =========
</TABLE>
(1) Includes realized investment gains of $0 for the three months ended June
30, 1999 and 1998, and $0 and $437,000 for the first six months ended
June 30, 1999 and 1998, respectively.
(2) Includes a restructuring charge from Wickes of $5.4 million in 1998. This
charge consisted of $3.7 million in anticipated losses on the disposition
of closed center assets and liabilities and $2.0 million in severance and
post employment benefits related to the 1998 Plan, and a benefit of $0.3
million for adjustments to prior years restructuring accruals.
(3) The Company accounted for its investment in Wickes' under the equity
method for the first and second quarters of 1999. During the first and
second quarters of 1998 the Company consolidated Wickes' operations with
those of the Company and its subsidiaries.
16
<PAGE>
LINES OF BUSINESS
The following table sets forth certain financial data for the three months
and six months ending June 30, 1999 and 1998, respectively, for the following
segments: e-commerce and advertising, web design and internet connectivity,
building materials, and other segments. The Company accounted for its investment
in Wickes' under the equity method for the first and second quarters of 1999.
Wickes' operations are consolidated with those of the Company and its
subsidiaries for the first and second quarters of 1998. "Other" includes real
estate, parent company, financial services, and discontinued operations and all
eliminating entries for inter-company transactions.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
SALES:
E-Commerce & Advertising $ 114 $ -- $ 179 $ --
Web Design & Internet Access 143 62 543 177
Building Materials(1) -- 237,141 -- 405,887
Other 13 105 29 105
--------- --------- --------- ---------
Total $ 270 $ 237,308 $ 751 $ 406,169
========= ========= ========= =========
COST OF SALES
E-Commerce & Advertising $ 91 $ -- $ 123 --
Web Design & Internet Access 48 23 91 140
Building Materials(1) -- 181,051 -- 308,815
Other 1 108 4 108
--------- --------- --------- ----------
Total $ 140 $ 181,182 $ 218 $ 309,063
========= ========= ========= ==========
OTHER OPERATING INCOME:
E-Commerce & Advertising $ -- $ -- $ -- $ --
Web Design & Internet Access -- -- 1 --
Building Materials(1) -- 1,397 -- 3,764
Other 24 330 48 414
--------- -------- --------- ----------
Total $ 24 $ 1,727 $ 49 $ 4,178
========= ========= ========= ==========
INVESTMENT INCOME AND REALIZED
GAINS/(LOSSES):
E-Commerce & Advertising $ -- $ -- $ -- $ --
Web Design & Internet Access -- -- -- --
Building Materials(1) -- -- -- --
Other (7) (36) (36) 386
--------- ----------- --------- ---------
Total $ (7) $ (36) $ (36) $ 386
========= =========== ========= =========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
EXPENSES:
E-Commerce & Advertising $ 1,301 $ 60 $ 2,417 $ 90
Web Design & Internet Access 445 14 998 645
Building Materials(1) -- 46,989 -- 90,282
Other 143 1,312 59 1,892
-------- --------- --------- --------
Total $ 1,889 $ 48,375 $ 3,474 $ 92,909
======== ========= ========= ========
RESTRUCTURING AND UNUSUAL ITEMS:
E-Commerce & Advertising $ -- $ -- $ -- $ --
Web Design & Internet Access -- -- -- --
Building Materials(1) -- -- -- 5,431
Other -- -- -- --
-------- --------- --------- ---------
Total $ -- $ -- $ -- $ 5,431
======== ========= ========== =========
INTEREST EXPENSE:
E-Commerce & Advertising $ 46 $ 22 $ 83 $ 41
Web Design & Internet Access 1 2 2 3
Building Materials(1)(2) 382 5,800 763 11,576
Other 221 269 455 640
-------- --------- --------- ---------
Total $ 650 $ 6,093 $ 1,303 $ 12,260
======== ========= ========= =========
EARNINGS(LOSS) BEFORE INCOME TAXES,
EQUITY IN RELATED PARTIES AND MINORITY
INTEREST:
E-Commerce & Advertising $ (1,324) $ (82) $ (2,444) $ (131)
Web Design & Internet Access (351) 23 (547) (611)
Building Materials(1) (382) 4,698 (763) (6,453)
Other (335) (1,290) (477) (1,735)
-------- -------- --------- ----------
Total $ (2,392) $ 3,349 $ ( 4,231) $ (8,930)
======== ======== ========= ==========
IDENTIFIABLE ASSETS:
E-Commerce & Advertising $ 713 $ 40 $ 713 $ 40
Web Design & Internet Access 569 395 569 395
Building Materials(1) 13,662 319,453 13,662 319,453
Other 10,043 15,975 10,043 15,975
-------- -------- --------- ---------
Total $ 24,987 $ 335,863 $ 24,987 $ 335,863
======== ========= ========= =========
</TABLE>
(1) During the first six months of 1999, the Company accounted for its
investment in Wickes on the equity method. During the same period in 1998, the
Company consolidated Wickes operations
18
<PAGE>
with those of the Company.
(2) Includes an interest allocation from Riverside on its 13% notes of $382,000
and $374,000 for the three months ended June 30, 1999 and 1998, respectively,
and $763,000 and $747,000 for the first six months ended June 30, 1999 and 1998,
respectively.
E-COMMERCE AND ADVERTISING
The following table sets forth information concerning the results of
Buildscape for 1999 and 1998, respectively: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(unaudited) (unaudited)
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 114 $ -- $ 179 $ --
Cost of sales 91 -- 123 --
------- ------- -------- --------
Net profit 23 -- 56 --
Selling, general and administrative 1,262 59 2,365 89
Depreciation and amortization 39 1 52 1
Interest expense 46 22 83 41
------- ------- -------- --------
Total expenses 1,347 82 2,500 131
------- ------- -------- ---------
Net loss $ (1,324) $ (82) $ (2,444) $ (131)
========= ======== ======== =========
</TABLE>
Comparisons between periods are not meaningful, since Buildscape
operations did not start until after the first quarter of 1998. Buildscape
launched its website, Buildscape.com, and began sales in the fourth quarter of
1998. In March 1999, Buildscapeauction.com was introduced. Although these
websites are conducting sales, development costs continue as the site content is
expanded and the functionality of the sites is enhanced and improved. Selling,
General and Administrative Expense ("SG&A") includes personnel and technology
costs relevant to developing the technology for the websites and the marketing
and sales plan for the Company. These costs are fully expensed in accordance
with the Statement of Financial Accounting Standards No 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed".
19
<PAGE>
WEB DESIGN AND INTERNET ACCESS
The following table sets forth information concerning the results of Cybermax,
Inc. ("Cybermax") for 1999 and 1998, respectively: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(unaudited) (unaudited)
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 143 $ 62 $ 543 $ 177
Cost of sales 48 23 91 140
------- ------- ------- -------
Net profit 95 39 452 37
Selling, general and administrative 414 (4) 944 620
Depreciation and amortization 31 18 53 25
Interest expense 1 2 2 3
------- ------- ------- -------
Total expenses 446 16 999 648
------- ------- ------- -------
Net loss $ (351) $ 23 $ (547) $ (611)
======= ======== ======= =======
</TABLE>
The Company purchased the assets of Cybermax on January 31, 1998. During
1998, the Company incurred various start-up costs, which makes comparisons
between periods not meaningful.
WICKES INC.
The Company estimates that the Company's results of operations for the
second quarter of 1999 include profits of $796,000 attributable to Wickes,
compared to profits of $939,000 for the same period in 1998. the Company
estimates that its results of operations include losses of $909,000 and
$2,936,000 attributable to Wickes, for the first six months ended June 30, 1999
and 1998, respectively.
THE FOLLOWING DISCUSSION WAS OBTAINED FROM THE WICKES' QUARTERLY REPORT
ON FORM 10-Q FOR THE SECOND QUARTER OF 1999.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto contained elsewhere herein
and in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Wickes' Annual Report on Form 10-K for the year ended
December 26, 1998.
20
<PAGE>
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain expense and income items. This information
includes the results from all sales and distribution and component manufacturing
facilities operated by Wickes, including those closed or sold during the period.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
---- ---- ---- ---
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 23.0% 23.6% 23.4% 23.9%
Selling, general and
administrative expense 19.0% 19.3% 20.7% 21.3%
Depreciation, goodwill and
trademark amortization 0.6% 0.5% 0.6% 0.6%
Provision for doubtful
accounts 0.0% 0.0% 0.1% 0.3%
Restructuring and unusual
items -- -- -- 1.3%
Other operating income (0.8)% (0.6)% (0.6)% (0.9)%
Income from operations 4.2% 4.4% 2.6% 1.3%
</TABLE>
NET EARNINGS
Weather conditions during the first six months of 1999 were relatively
close to seasonal averages. In the first quarter of 1998 Wickes's largest
region, the Midwest, experienced a very mild winter, which allowed for favorable
building conditions, which was partially offset by increased precipitation in
the Northeast and South. The second quarter and first half of 1999 had favorable
economic conditions for the building materials supply industry. Single family
housing starts in 1999 were 4.4% and 8.5% higher during the second quarter and
first six months of 1999, than during the comparable periods of 1998.
Net income for the three months ended June 26, 1999 was $3.6 million
compared with a net income of $2.8 million for the three months ended June 27,
1998. The increase in net income for the three-month period is primarily the
result of increased sales and gross profit, and other operating income. The
positive impact of these changes was partially offset by increases in SG&A,
interest and depreciation expenses.
Net income for the first six months of 1999 was $311,000 compared with
a loss of $4.0 million for the first six months of 1998. The increase in net
income for the six month period is primarily the result of increased sales and
gross profit, and reductions in restructuring charges and the provision for
doubtful accounts. The positive impact of these changes was partially offset by
increases in SG&A, depreciation and interest expenses as well as a reduction in
other operating income.
21
<PAGE>
THREE MONTHS ENDED JUNE 26, 1999 COMPARED
WITH THE THREE MONTHS ENDED JUNE 27, 1998
NET SALES
Net sales for the second quarter of 1999 increased 21.8% to $288.8
million from $237.1 million for the second quarter of 1998. Same store sales
increased 20.1% compared with the same period last year. Same store sales to
Wickes's primary customers, building professionals, also increased 22.0% when
compared with the second quarter of 1998. Consumer same store sales increased by
5.2% for the quarter. As of June 26, 1999 Wickes operated 101 sales and
distribution facilities, the same number it operated at the end of the second
quarter of 1998.
Wickes estimates that inflation in lumber prices increased total sales
for the quarter by approximately $8.7 million, compared with the 1998 comparable
period.
Wickes believes that the sales increase results primarily from its recent
investments in its target major markets, re-merchandised conventional market
sales and distribution facilities, recent acquisitions of several component
manufacturing facilities as well as favorable economic conditions. Same store
sales increased 27.6% in Wickes' nine target major markets, while same store
sales increased 26.7% in the eleven conventional market building centers Wickes
remerchandised during 1997 and 1998. Component manufacturing facilities acquired
since the second quarter of 1998 account for $4.4 million of the second quarter
1999 sales increase. Single family housing starts were 4.4% higher, nationally,
in the second quarter of 1999 than in the comparable period of 1998. In Wickes'
primary geographical market, the Midwest, single family housing starts were 7.8%
higher.
GROSS PROFIT
1999 second quarter gross profit increased to $66.3 million from $56.1
million for the second quarter of 1998, a 18.2% increase. Gross profit as a
percentage of sales decreased to 23.0% for the second quarter of 1999 from 23.6%
in 1998. The decrease in gross profit as a percentage of sales is primarily
attributable to rising lumber prices, increased percentage of sales to building
professionals, and the expansion of Wickes' installed sales programs, partially
offset by increased sales and gross profit margins on internally manufactured
products.
Wickes believes that while inflation in lumber prices did increase gross
profit by approximately $1.2 million in the quarter, gross profit as a percent
of sales decreased due to significant and rapid cost increases over the quarter,
which cannot be passed on to customers as quickly. Lumber and related products
accounted for 57.3% of sales in the second quarter of 1999, compared with 56.2%
for the second quarter of 1998. Sales to building professionals as a percentage
of sales increased to 89.2% in the second quarter of 1999 compared with 87.7% in
1998.
22
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expense decreased to 19.0% of net sales in the second quarter of
1999 compared with 19.3% of net sales in the second quarter of 1998. Much of the
decrease is attributable to operating leverage achieved through increased sales
volume and reduced spending on major market expansion programs in 1999.
Decreases as a percentage of sales in salaries, wages and benefits,
equipment rental and headquarters administrative expense were partially offset
by increases in professional fees and maintenance expense. Salaries, wages and
employee benefits decreased as a percentage of sales by 0.3%. As of June 26,
1999, Wickes had 4,380 full time and part time employees, an increase of 13.3%
from June 27, 1998.
DEPRECIATION, GOODWILL AND TRADEMARK AMORTIZATION
Depreciation, goodwill and trademark amortization increased to $1.6
million for the second quarter of 1999 compared with $1.3 million for the same
period in 1998. This increase is primarily due to depreciation on three
component manufacturing facilities acquired since the second quarter of 1998 as
well as capital additions as a result of Wickes's major market program.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts was relatively unchanged between the
second quarters of 1999 and 1998. Wickes recorded a $42,000 benefit from the
provision for doubtful accounts in the second quarter of 1999, compared with a
benefit of $124,000 in the second quarter of 1998.
OTHER OPERATING INCOME
Other operating income for the second quarter of 1999 was $2.2 million
compared with $1.4 million for the second quarter of 1998. During the second
quarter of 1999 Wickes sold four pieces of excess real estate and recorded gains
of $1.4 million. There were no sales of excess real estate in the second quarter
of 1998. Wickes also recorded $347,000 in expenses related to casualty losses
during the second quarter of 1999, including a fire at one of its component
manufacturing facilities. In the second quarter of 1998 Wickes recorded a gain
of approximately $180,000 on the difference between insured replacement cost and
book value of inventory, as a result of a fire at one of its sales and
distribution facilities.
INTEREST EXPENSE
In the second quarter of 1999 interest expense increased to $6.0 million
from $5.5 million during the second quarter of 1998, resulting primarily from an
increase in average total long term debt of approximately $23.0 million. This
was partially offset by a decrease in the effective borrowing rate on total long
term debt of approximately 33 basis points. The decrease in the effective
borrowing rate is primarily due to a reduction in interest rate on Wickes'
revolving line of credit as a result of
23
<PAGE>
decreases in the average prime and LIBOR rates as well as a 25 basis point
reduction in Wickes' borrowing spreads, effective with Wickes' new revolving
credit agreement in February of 1999. Approximately 92% of Wickes' second
quarter average borrowings on its revolving credit facility were LIBOR-based.
PROVISION FOR INCOME TAX BENEFIT
Wickes recorded income tax expense of $2.6 million for the second quarter
of 1999 compared with expense of $2.2 million in the second quarter of 1998. An
effective federal and state income tax rate of 38.2% was used to calculate
income taxes for the second quarter of 1999, compared with an effective rate of
39.0% for the second quarter of 1998. In addition to the effective income tax
rate, state franchise taxes were calculated separately and are included in the
provision reported for both years.
Wickes continues to review future earnings projections to determine that
there is sufficient support for its deferred tax assets and valuation allowance.
In spite of the losses incurred during 1995, 1997, and 1998 management believes
that it is more likely than not that Wickes will receive full benefit of its
deferred tax asset and that the valuation allowance is properly stated. This
assessment constitutes Forward-Looking Information made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and is
inherently subject to uncertainty and dependent upon Wickes' future
profitability, which in turn depends upon a number of important risk factors
including but not limited to: the effectiveness of Wickes' operational efforts,
cyclicality and seasonality of Wickes' business, the effects of Wickes'
substantial leverage and competition.
SIX MONTHS ENDED JUNE 26, 1999 COMPARED
WITH THE SIX MONTHS ENDED JUNE 27, 1998
NET SALES
Net sales for the first six months of 1999 increased 18.2% to $479.9
million from $405.9 million for the first six months of 1998. Same store sales
increased 18.1% compared with the same period last year. Same store sales to
Wickes' primary customers, building professionals, increased 19.7% when compared
with the first six months of 1998. Consumer same store sales increased 2.2% for
the same period. As of June 26, 1999 Wickes operated 101 sales and distribution
facilities, the same number it operated at the end of the first six months of
1998. Sales of approximately $4.0 million were recorded, in the first quarter of
1998, for the 10 sales and distribution facilities that were sold or closed
during that quarter.
Wickes estimates that inflation in lumber prices increased total sales
for the first six months by approximately $7.7 million, compared with the 1998
comparable period.
24
<PAGE>
Wickes believes that the sales increase results primarily from its recent
investments in its target major market, re-merchandised conventional market
sales and distribution facilities, recent acquisitions of several component
manufacturing facilities as well as favorable economic conditions. Same store
sales increased 22.8% in Wickes' nine target major markets, while same store
sales increased 21.9% in the eleven conventional market building centers Wickes
remerchandised during 1997 and 1998. Component manufacturing facilities acquired
since the second quarter of 1998 account for $5.4 million of the six month 1999
sales increase. Single family housing starts were 8.5% higher, nationally, in
the first six months of 1999 than in the comparable period of 1998. In Wickes'
primary geographical market, the Midwest, single family housing starts were 8.8%
higher.
GROSS PROFIT
Gross profit for to the first six months of 1999 increased to $112.2
million from $97.1 million for the first six months of 1998, a 15.6% increase.
Gross profit as a percentage of sales decreased to 23.4% for the first six
months of 1999 from 23.9% in 1998. The decrease in gross profit as a percentage
of sales is primarily attributable to rising lumber prices, increased percentage
of sales to building professionals, and the expansion of Wickes' installed sales
programs, partially offset by increased sales and gross profit margins on
internally manufactured products.
Wickes believes that while inflation in lumber prices did increase gross
profit by approximately $1.1 million in the first six months of 1999, gross
profit as a percent of sales decreased due to significant and rapid cost
increases, primarily during the second quarter, which could not be passed on to
customers as quickly. Lumber and related products accounted for 55.6% of sales
in the first six months of 1999, compared with 54.4% for the same period in
1998. Sales to building professionals as a percentage of sales increased to
90.2% in the first six months of 1999 compared with 88.5% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expense decreased to 20.7% of net sales in the first six months of
1999 compared with 21.3% of net sales in the first six months of 1998. Much of
the decrease is attributable to operating leverage achieved through increased
sales volume, expense reductions achieved as a result of the 1998 first quarter
restructuring and reduced spending on major market expansion programs in 1999.
Decreases as a percentage of sales in salaries, wages and benefits,
employee relocation, equipment rental and headquarters administrative expense
were partially offset by increases in professional fees, marketing and
maintenance expense. Salaries, wages and employee benefits decreased as a
percentage of sales by 0.5%.
DEPRECIATION, GOODWILL AND TRADEMARK AMORTIZATION
Depreciation, goodwill and trademark amortization increased to $3.0
million for the first six months of 1999 compared with $2.6 million for the same
period in 1998. This increase is primarily due to depreciation on three
component manufacturing facilities acquired since the second quarter
25
<PAGE>
of 1998 as well as capital additions as a resultof Wickes' major market program.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts decreased to $0.4 million for the
first six months of 1999 from $1.2 million in the first six months of 1998. The
primary reasons for the decrease are improved delinquency on 1999 outstanding
accounts and increased expense in the first quarter of 1998 as a result of the
delinquency of a major account.
RESTRUCTURING AND UNUSUAL ITEMS
In February of 1998, Wickes announced and completed a plan for additional
restructuring activities, which included the closing or consolidation of eight
building centers and two component manufacturing facilities in February, the
sale of two additional building centers in March, and further reductions in
headquarters staffing. Wickes recorded a restructuring charge of $5.4 million,
which included $3.7 million in anticipated losses on the disposition of closed
center assets and liabilities, $2.0 million in severance and post employment
benefits related to the 1998 Plan, and a benefit of $300,000 for adjustments to
prior years' restructuring accruals. No restructuring or unusual items were
recorded in the first six months of 1999.
OTHER OPERATING INCOME
Other operating income for the first six months of 1999 was $3.1 million
compared with $3.8 million for the first six months of 1998. In both of the
first six months of 1999 and 1998 Wickes recorded gains of approximately $1.6
million on the sale of excess real estate and equipment. In 1999, Wickes
recorded costs of $269,000 for carrying costs of closed operations and $317,000
for casualty losses, including a fire at one of its component manufacturing
facilities. In 1998 Wickes recorded no closed operation carrying costs and
recorded a gain of $118,000 for casualty losses. The gain on casualty losses was
a result of a $180,000 gain on the difference between insured replacement cost
and book value of inventory, as a result of a fire at one of its sales and
distribution facilities.
INTEREST EXPENSE
In the first six months of 1999 interest expense increased to $11.3
million from $10.9 million during the first six months of 1998, resulting
primarily from an increase in average total long term debt of approximately
$15.4 million. This was partially offset by a decrease in the effective
borrowing rate on total long term debt of approximately 29 basis points. The
decrease in the effective borrowing rate is primarily due to a reduction in
interest rate on Wickes's revolving line of credit as a result of decreases in
the average prime and LIBOR rates as well as a 25 basis point reduction in
Wickes' borrowing spreads, effective with Wickes' new revolving credit agreement
in February of 1999. Approximately 90% of Wickes' average borrowings on its
revolving credit facility, during the first six months of 1999, were
LIBOR-based.
26
<PAGE>
PROVISION FOR INCOME TAX BENEFIT
Wickes recorded income tax expense of $844,000 for the first six months
of 1999 compared with a benefit of $1.6 million in the first six months of 1998.
An effective federal and state income tax rate of 39.1% was used to calculate
income taxes for the first six months of 1999, compared with an effective rate
of 39.0% for the first six months of 1998. In addition to the effective income
tax rate, state franchise taxes were calculated separately and are included in
the provision reported for both years.
For a discussion of Wickes' deferred tax assets and valuation allowance,
see "Provision for Income Tax Benefit" in the discussion above of the
comparative results for the three months.
PARENT COMPANY AND OTHER SUBSIDIARIES
The following discussion relates to the operations of the Parent Company
and its subsidiaries, other than Buildscape, Cybermax and Wickes (the "Parent
Group").
Non-interest operating expenses for the three months ended June 30, 1999
decreased to $143,000 from $1,312,000 for the same period in 1998. The 1998
expenses include approximately $338,000 from operations the Company discontinued
in the fourth quarter of 1998. Also, included is approximately $631,000 of
expenses that the Parent Company incurred on behalf of its subsidiaries, which
was not allocated to these subsidiaries during the second quarter of 1998.
The Parent Group's non-interest operating expenses for the first six months of
1999 and 1998 were $59,000 and $1,892,000, respectively. The 1998 expenses
include approximately $666,000 from operations the Company discontinued in the
fourth quarter of 1998. Also included is approximately $1,062,000 of expenses
that the Parent Company incurred on behalf of its subsidiaries, which was not
allocated to these subsidiaries during the first six months of 1998.
Revenues of the Parent Group (excluding investment income) for the three months
ended June 30, 1999 and 1998 were $37,000 and $435,000, respectively. Included
in 1998 was $415,000 received in settlement of a lawsuit.
Interest expense (excluding an interest allocation to Wickes for the Parent
Company's 13% subordinated notes of $382,000 in 1999 and $374,000 in 1998) for
the three months ending June 30, 1999 and 1998, were $221,000 and $269,000,
respectively. In 1999 interest consisted of $2,000 on the Parent Company's other
bank debt and $219,000 on the Parent Company's real estate mortgage debt. In
1998, interest consisted of $6,000 on the Parent Company's other bank debt and
$263,000 on the Parent Company's real estate mortgage debt.
Interest expense (excluding an interest allocation to Wickes for the Parent
Company's 13% subordinated notes of $763,000 in 1999 and $747,000 in 1998) for
the six months ending June 30,
27
<PAGE>
1999 and 1998 were $455,000 and $640,000, respectively. In 1999, interest
consisted of $3,000 on the Parent Company's other bank debt and $452,000 on the
Parent Company's real estate mortgage debt. In 1998, interest consisted of
$13,000 on the Parent Company' other bank debt and $627,000 on the Parent
Company's real estate mortgage debt.
The Parent Company's real estate debt will continue to decrease as a result of
real estate sales. The Company did not have any real estate sales during the
second quarter of 1999. As a result, the principal balance was not reduced.
During the second quarter of 1998, the principal balance was reduced by
approximately $3.2 million.
REAL ESTATE INVESTMENTS
The Company's real estate investments consist of $7,358,000 in Georgia
properties, $2,247,000 in Florida properties and $8,000 in other states.
INCOME TAXES
The Company's effective tax rate was 0% for the six months ended June
30, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
THE PARENT GROUP
The Parent Company's general liquidity requirements consist primarily of
funds for payment of debt and related interest and for operating expenses and
overhead.
Operations (exclusive of Wickes, which is prohibited from paying
dividends under its debt instruments) consist primarily of real estate sales and
the Parent Company's Internet, e-commerce and advertising operations. The Parent
Company's e-commerce and advertising operations are in the start-up phase and
are expected to be net users of cash at least through 1999. Also, real estate
sales proceeds are required to be applied to real estate debt reduction and are
not available to the Parent Company for other purposes.
The Parent Company's cash on hand and available borrowings will not be
sufficient to support its operations and overhead through the third quarter of
1999. The Parent Company has had preliminary discussions with Imagine regarding
the Company obtaining a loan from Imagine in an amount sufficient to provide for
the repayment of the Wickes debt, the interest due September 30, 1999 on the
Notes and to cover operating shortfalls of the Company and its subsidiaries into
the fourth quarter, exclusive of Buildscape. Shares of Wickes stock would
collateralize the loan. The Company anticipates reaching an agreement on the
terms of this loan before the end of August.
FOR A DETAILED DISCUSSION OF THE PARENT COMPANY'S LIQUIDITY AND
MANAGEMENT'S PLANS RELATED THERETO, SEE NOTE 3. "COMMITMENTS AND CONTINGENCIES".
28
<PAGE>
On July 7, 1999, the Company no longer met the quantitative maintenance
requirements for continued listing on the NASDAQ SmallCap Market. As of July 8,
1999, the Company's quotations for the Company's Common Stock are available on
the OTC-Bulletin Board under the symbol RSGI.
During the first six months of 1999, stockholders' equity decreased by a
net of $4.3 million. The Company's startup costs incurred for the Buildscape
operations accounted for approximately 56% of the decrease. Losses attributable
to Wickes accounted for approximately 12% of the decrease.
YEAR 2000
The Year 2000 relates to the inability of certain computer programs and
computer hardware to properly handle dates after December 31, 1999. As a result,
businesses may be at risk for system failures, miscalculations, the inability to
process transactions, send invoices, or process similar business activities.
The Company is currently assessing the Year 2000 issue. The Company has
focused its assessment into three major categories: (1) internal financial
software system (2) internal non-financial software and (3) technology software.
In August of 1998, the Company purchased an accounting system from Clarus Inc.
This system is Year 2000 compliant and runs on NT 4.0 and SQL Server version
6.5. The total cost for the system and implementation was approximately
$306,000. The Company completed the implementation process during the fourth
quarter of 1998 and is currently processing the 1999 financial information on
the new system.
The Company is currently assessing the potential effect of, and costs of
remediating the Year 2000 problem on its office and facilities equipment, such
as fax machines, photocopiers, telephone equipment, and other common devices
that may be affected by the Year 2000 problem.
In addition, the Company is in the process of identifying problems the
Year 2000 may have on its Technology Department. In February of 1999, the
Company hired a Chief Technical Officer. The Technology Department is currently
evaluating all of the equipment and software that are used in the Company's
operations. The Company anticipates that since most of the equipment and
software relating to the Company's Technology Department was acquired in 1998,
that all of the equipment and software will be in compliance.
The Company estimates the total cost of completing any required
modifications, upgrades, or replacements of its software or equipment will not
have a material adverse effect on the Company's business or results of
operations.
29
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
Item 5. Other Information
For a description of letter of understanding that the
Company and Imagine entered into on July 30, 1999,
pursuant to which Imagine would acquire a controlling
interest in Cybermax Tech, the parent company of
Buildscape, in exchange for shares of Buildscape
common and preferred stock, 520,000 shares of
Riverside stock, $4.0 million in cash and
cancellation of Buildscape's indebtedness to Imagine.
See Note 3 to Notes to Condensed Consolidated
Financial Statements included elsewhere herein.
On August 11, 1999 Robert T. Shaw resigned from the
Company's Board of Directors. The Company plans on
filling this vacancy in the near future.
Item 6. Exhibits and Reports on Form 8-K
4.1 (a) Credit Agreement dated April 1,1999 between the registrant and
the signatories thereto.
(b) Form of 11% Secured Promissory Note dated April 1, 1999.
4.2 (a) Amendment to Loan Agreement dated May 20, 1999 among the
registrant, Cybermax, Inc., Cybermax Tech, Inc., Buildscape,
Inc.
and Imagine Investments, Inc.
(b) Amended and Restated Term Promissory Note dated May 20, 1999.
(c) Amendment to Stock Option Agreement dated May 20, 1999 between
Cybermax Tech, Inc. and Imagine Investments, Inc.
4.3 (a) Loan Agreement dated August 12, 1999 among the registrant,
Cybermax, Inc., Cybermax Tech, Inc., Buildscape, Inc. and
Imagine Investments, Inc.
(b) Promissory Note dated August 12, 1999.
(c) Stock Option Agreement dated August 12, 1999 between Cybermax
Tech, Inc. and Imagine Investments, Inc.
<PAGE>
10.1 Letter of Understanding dated July 30, 1999 between the registrant and
Imagine Investments, Inc.
27.1 Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K
None
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RIVERSIDE GROUP, INC.
By /S/ J. STEVEN WILSON
- -------------------------
J. Steven Wilson
Chairman of the Board,
President and
Chief Executive Officer
By /S/ CATHERINE J. GRAY
- -------------------------
Catherine J. Gray
Senior Vice President and
Chief Financial Officer
Date: August 13, 1999
31
<PAGE>
CREDIT AGREEMENT
This Credit Agreement is made as of the 1st day of April, 1999 by and
among RIVERSIDE GROUP, INC., a Florida corporation (the "Company"), the PARTIES
EXECUTING THIS AGREEMENT AS HOLDERS (the "Holders") and MITCHELL W. LEGLER, as
agent for the Holders for purposes set forth herein ("Agent").
STATEMENT OF FACTS
A. The Holders are willing to make loans (the "Loans") to the Company evidenced
by promissory notes in the form attached hereto as Exhibit A (as they may be
extended, renewed or modified, the "Notes") for the purposes set forth herein.
B. The Notes are to be secured as described herein and in the Collateral
Documents, as defined below.
C. Agent has been appointed as agent for the Holders with the duties, powers and
authority set forth herein.
D. The parties hereto wish to set forth certain provisions relating to the Loans
as more fully set forth below.
AGREEMENT
In consideration of the mutual agreements contained herein and to
induce the Holders to make the Loans to the Company, and for $10.00 and other
good and valuable consideration, parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. Unless otherwise defined herein, the following terms
shall have the meanings set forth below:
"Affiliate" means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with a
Person.
"AFL" means American Founders Life Insurance Company, its
successors and assigns.
"AFL Collateral" has the meaning set forth in Section 4.2.
"AFL Collateral Documents" means the mortgages, security
agreements and other instruments encumbering the AFL Collateral for the benefit
of AFL.
"AFL Obligations" means all present and future obligations
owed to AFL by the Company secured as of the date hereof by the AFL Collateral.
"Agreement" means this Agreement as amended or supplemented or
otherwise modified from time to time.
"Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the
Company or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital stock" means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock.
"Change of Control Event" means (i) any event during the life
of J. Steven Wilson that causes J. Steven Wilson, Courtenay Sands Wilson and
their children, or any of them, or any trust or similar entity established for
the benefit of any thereof (collectively, "Wilson Interests") to directly or
indirectly beneficially own (as that term is defined in the Securities Exchange
Act of 1934, as amended, and in the rules and regulations promulgated
thereunder) less than 25% of the shares of Common Stock outstanding at any time;
(ii) the obtaining by any person other than Mr. Wilson or an Affiliate of Mr.
Wilson or any other Wilson Interests of direct or indirect beneficial ownership
of more than 50% of the outstanding shares of Common Stock; (iii) unless
consented to by the 50% Holders, the consummation of (x) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation, other than a merger or consolidation in which the holders of Common
Stock immediately prior thereto receive as a result securities entitling such
holders to exercise immediately thereafter more than 50% of the total voting
power of all outstanding securities entitled to vote in the election of
directors of the surviving corporation or (y) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of the Company.
"Collateral" means the assets of the Company now or hereafter encumbered
by the Collateral Documents.
"Collateral Analysis" means the Collateral analysis contained in Exhibit
D hereto.
"Collateral Documents" has the meaning set forth in Section 4.1.
"Common Stock" means the common stock, par value $.10 per share, of the
Company.
"The Company" means the corporation named as the Company in the first
paragraph of this Agreement, and any successor or assign.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Debt," with respect to any person, means any indebtedness,
liabilities or obligations, including, without limitation, principal, premium,
if any, interest, fees, costs and expenses, in respect of (i) money borrowed,
funds provided or any other transaction which is evidenced by bonds, notes,
debentures or similar instruments or (ii) letters of credit and bankers'
acceptances issued for the account of such person or (iii) the balance deferred
and unpaid of the purchase price of any property (including pursuant to
financing leases), except any such balance that constitutes a trade payable or
(iv) unfunded vested benefits under plans covered by Title IV of the Employee
Retirement Income Security Act of 1974, as amended, and (v) to the extent not
otherwise included, the guarantee of items which would be included within this
definition.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default, and "Event of Default" means any
event specified in Section 9.1 hereof.
"50% Holders" means Holders holding more than 50% of the
aggregate outstanding principal amount of the Notes.
"Greenleaf Shares" has the meaning set forth in Section 4.1.
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions are not required to be open in Jacksonville, Florida.
"Holder" or "Noteholder" means a person executing this
Agreement as a Holder and such Person's assigns as registered on the Company's
books.
"Intercreditor Agreement" has the meaning set forth in Section
4.2.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Note" or "Notes" has the meaning set forth in the Statement
of Facts.
"Officer" means the Chairman, the Vice Chairman, the Chief
Executive Officer, the President, each Senior Vice President, each Vice
President, the Chief Financial Officer, the Chief Accounting Officer, the
Treasurer, the Secretary or the Controller of the Company.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary
of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal" of a debt security means the amount stated as
principal on the face of the security, less amounts thereof paid, plus, when
appropriate, the premium, if any, on the security.
"Repurchase Date" shall have the meaning ascribed to it in
Section 10.6 hereof.
"Subordinated Notes" has the meaning set forth in Section 2.2.
"Subsidiary" means any corporation of which at least a
majority of the outstanding capital stock having voting power under ordinary
circumstances to elect a majority of the board of directors shall at the time be
owned, directly or indirectly, by the Company, or by the Company and/or one or
more Subsidiaries.
"Wickes Shares" has the meaning set forth in Section 4.1.
1.2 RULES OF CONSTRUCTION. Unless the context otherwise requires, as used
herein:
(a) a term has the meaning ascribed to it;
(b) an accounting term not otherwise defined has the meaning ascribed to it in
accordance with generally accepted accounting principles;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in the plural
include the singular;
(e) provisions apply to successive events and transactions;
(f) "herein," "hereof" and other words of similar import refer to this Agreement
as a whole and not to any particular Article, Section or other subdivision.
ARTICLE II
LOANS AND NOTES
2.1 LOANS. Each of the Holders severally agrees to make a Loan in a principal
amount set forth opposite such Holder's name on Exhibit B. The Company shall
execute a Note to the order of such Holder in such amount. A Loan may be made by
surrendering obligations of the Company held by a Holder in the same principal
amount.
2.2 USE OF PROCEEDS. The proceeds of the Notes will be used solely for the
purpose of paying the principal obligations of the Company under such of its 13%
Subordinated Notes due September 30, 1999 (the "Subordinated Notes") as are
described in Exhibit B hereto. Each Note is in the principal face amount of the
corresponding Subordinated Note being repaid and is dated as of April 1, 1999.
Interest on the Notes shall accrue from April 1, 1999, which is the last date
interest was paid on the Subordinated Notes, until the date of delivery of the
executed Notes at 13% per annum and thereafter at 11% per annum, all as set
forth in the Notes. It is intended that the Notes evidence accrued interest
under the Subordinated Notes from April 1, 1999 until such date of delivery of
the Notes.
ARTICLE III
ADMINISTRATION OF CREDIT
3.1 PAYMENT. Unless and until the Company shall have received written notice to
the contrary from the Agent, the Company shall make all payments of principal,
premium and accrued interest under the Notes, and any purchase proceeds relating
to repurchase of the Notes to the Agent, as agent for the Holders, in accordance
with written payment instructions given by the Agent to the Company. The Agent
shall, within one business day, disburse all payments received to the Holders
PRO RATA in accordance with the principal balances of their Notes.
3.2 DEFAULT INTEREST. Any amount of principal of, and to the extent permitted by
law, accrued interest on, a Note that is not paid when due shall thereafter bear
interest at the rate of fourteen percent (14%) per annum (or the highest lawful
rate, if less) from such date until paid in full.
ARTICLE IV
SECURITY
4.1 COLLATERAL. The Company shall execute and deliver to the Agent, for the
benefit of the Holders, the following documents (together with the Intercreditor
Agreement, as defined below, called collectively, the "Collateral Documents"):
(a) Second-priority mortgages and/or deeds to secure debt and security
agreements encumbering the Company's real estate and related personal property
presently encumbered by security instruments in favor of AFL, in form reasonably
satisfactory to Agent;
(b) A second-priority security agreement pledging 2,002,337 shares of Wickes,
Inc. common stock (the "Wickes Shares") presently pledged to AFL;
(c) A first-priority security agreement pledging 10,000,000 shares of Greenleaf
Technologies Corporation owned by the Company (the "Greenleaf Shares"); and
(d) Financing statements, control agreements and other documents and instruments
necessary to perfect such liens and security interests.
4.2 PRIORITY; INTERCREDITOR AGREEMENT.
The liens and security interests of the Holders in the
Collateral described in subsections 4.1(a) and (b) above (the "AFL Collateral")
are acknowledged to be subject and subordinate to the liens and security
interests of AFL securing AFL Obligations in the outstanding principal amount of
approximately $11,344,672 as of June 30, 1999.
THE AGENT IS IRREVOCABLY AUTHORIZED TO ENTER INTO AN INTERCREDITOR AGREEMENT (AS
AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE
"INTERCREDITOR AGREEMENT") WITH THE COMPANY AND AFL SUBSTANTIALLY IN THE FORM
ATTACHED HERETO AS EXHIBIT C, WHICH INTERCREDITOR AGREEMENT SHALL BE A BINDING
OBLIGATION ON THE HOLDERS. THE INTERCREDITOR AGREEMENT PROVIDES FOR, AMONG OTHER
THINGS, THE RELEASE OF COLLATERAL UPON A SALE OR REFINANCING OF AFL COLLATERAL
THROUGH PRE-EXECUTED RELEASES AND POWERS OF ATTORNEY TO BE DELIVERED TO AFL;
LIMITED PROVISIONS FOR AFL TO MAKE FUTURE ADVANCES SECURED BY THE AFL
COLLATERAL; THE RIGHT OF AFL TO AMEND THE AFL OBLIGATIONS AND RELATED DOCUMENTS;
CONSENT BY AFL TO THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING THE PAYMENT OF
THE SUBORDINATED NOTES; AND AGREEMENT BY AFL TO ACT AS STAKEHOLDER AND
COLLATERAL AGENT FOR THE PURPOSE OF PERFECTING THE SECURITY INTERESTS OF THE
AGENT AND HOLDERS IN THE WICKES SHARES. THE INTERCREDITOR AGREEMENT ALSO
PROVIDES THAT AFTER ACCELERATION BY AFL OF THE AFL OBLIGATIONS, THE RIGHT OF
HOLDERS TO RECEIVE PAYMENTS ON THE NOTES SHALL BE SUBJECT AND SUBORDINATE AND BE
POSTPONED UNTIL PAYMENT IN FULL OF THE AFL OBLIGATIONS EXCEPT AS TO (A) PAYMENTS
TO THE HOLDERS REPRESENTING PROCEEDS OF COLLATERAL THAT IS NOT AFL COLLATERAL
AND (B) PAYMENTS MADE PURSUANT TO ANY ORDER OF A BANKRUPTCY COURT OR OTHER COURT
OF COMPETENT JURISDICTION. BY EXECUTION OF THIS AGREEMENT AND ACCEPTANCE OF ITS
NOTE, EACH HOLDER AGREES TO SUCH SUBORDINATION AND AGREES TO DELIVER, AND
AUTHORIZES THE AGENT TO DELIVER, TO AFL ANY PAYMENTS OR PREPAYMENTS ON THE NOTES
TO WHICH SUCH HOLDER IS NOT ENTITLED BY REASON OF THE INTERCREDITOR AGREEMENT.
(c) THE SUMMARY OF THE INTERCREDITOR AGREEMENT PROVISIONS SET FORTH ABOVE IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FORM OF INTERCREDITOR AGREEMENT
ATTACHED IN EXHIBIT C AND TO THE PROVISIONS IN THE NOTE RELATING TO THE
INTERCREDITOR AGREEMENT, INCLUDING THE REPRESENTATIONS AND WARRANTIES THEREIN.
EACH HOLDER HEREBY REPRESENTS AND WARRANTS TO THE AGENT THAT SUCH HOLDER HAS
READ AND UNDERSTANDS THE INTERCREDITOR AGREEMENT AND NOTE, AUTHORIZES THE AGENT
TO EXECUTE THE INTERCREDITOR AGREEMENT AS AGENT FOR SUCH HOLDER AND AGREES TO BE
BOUND BY THE TERMS OF THE INTERCREDITOR AGREEMENT TO THE SAME EXTENT AS IF THE
HOLDER HAD SIGNED THE INTERCREDITOR AGREEMENT PERSONALLY.
4.3 RELEASE OF GREENLEAF SHARES. So long as no Default exists and the aggregate
fair market value (determined as set forth in the immediately following
sentence) of the Collateral other than Greenleaf Shares to be released (net of
the amount of indebtedness secured by encumbrances thereon which are senior to
the Holders' interest in the Collateral), in the good faith judgment of the
Agent, equals or exceeds 120% of the outstanding principal balance of the Notes,
the Agent and the Holders agree that the Company may receive and retain, and the
Agent shall release to the Company, 50% of the net sales proceeds from any sale
of Greenleaf Shares and the Agent shall immediately apply the remaining 50% of
such net sales proceeds to the prepayment of the Notes. For purposes of this
Section 4.3, the fair market value of any real estate comprising part of the
Collateral shall be determined in a manner consistent with the Collateral
Analysis attached hereto as Exhibit D or as determined pursuant to Section 4.5
below, as applicable, (b) the fair market value of the Wickes Shares shall be
the average closing price of the Wickes Shares on the National Association of
Securities Dealers Automated Quotations National Market (or if the Wickes Shares
are not listed on such market, on the principal market or exchange on which the
Wickes Shares are then trading) for the most recent 20 trading days preceding
the date of determination, and (c) the fair market value of the Greenleaf Shares
shall be 50% of the average bona fide "pink sheet" closing price for the five
trading days preceding the date of determination. The Company agrees that,
unless the Agent shall otherwise consent, it will sell Greenleaf Shares which
are Collateral before selling or otherwise disposing of any such shares which
are not Collateral, provided that the Company is entitled to the release of 50%
of the net proceeds as set forth above or, if not so entitled, the Agent agrees
to such release.
4.4 RELEASE OF AFL COLLATERAL.
(a) Upon a cash sale by the Company of any parcels of real estate listed on the
Collateral Schedule in a bona fide arm's length transaction for not less than
80% of fair market value as shown on the Collateral Schedule (or as determined
pursuant to Section 4.5), the Agent shall, if no Default exists, release such
parcel provided that 100% of the net proceeds of such sale are paid to AFL to
reduce the AFL Obligations or, if the AFL Obligations have been paid in full, to
the Agent for application to the Holder Obligations.
(b) Upon a cash sale by the Company of any Wickes Shares in a bona fide sale or
other arm's length transaction for not less than the fair market value
(determined in accordance with Section 4.3), the Agent shall, if no Default
exists, release such shares from the Collateral Documents provided that 100% of
the net proceeds of such disposition are paid to AFL to reduce the AFL
Obligations or, if the AFL Obligations have been paid in full, to the Agent for
application to the Holder Obligations.
(c) The Company covenants that it will not, without the prior written consent of
the Agent, request any release from AFL of any Collateral unless such release is
in connection with a bona fide arm's length sale and the sale price meets the
requirements of Subsection (a) or (b) above, as applicable. Any such request not
meeting both such requirements, whether or not granted by AFL, shall constitute
an Event of Default hereunder entitling the Agent, in addition to any other
remedies, to seek and obtain an injunction prohibiting such sale and release.
The Company acknowledges and agrees that the Agent has entered into the
Intercreditor Agreement and delivered pre-executed releases and powers of
attorney as required by AFL in reliance upon the agreement by the Company not to
seek releases except as permitted herein.
4.5 APPRAISAL. The Agent may, at its election, obtain or require the Company to
obtain (in any case at the Company's expense) an appraisal of some or all of the
real property Collateral by an MAI appraiser or appraisers satisfactory to the
Agent, provided that the Company shall not be obligated to pay for more than one
such appraisal per property. The appraiser shall be instructed to utilize a
discount rate equal to the rate of interest borne by the AFL Obligations in
determining the present value of future income streams. At the election of the
Agent, the fair market value of a property as determined by such appraisal shall
be substituted for the fair market value as determined pursuant to Subsection
4.3(a) above.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS TO THE HOLDER'S OBLIGATIONS. The obligations of the Holders to
make the Loans shall be conditioned upon satisfaction or waiver by the Holders
of the following conditions:
(a) NOTES. The Notes shall have been executed and delivered by the Company.
(b) COLLATERAL DOCUMENTS. The Collateral Documents, in form reasonably
satisfactory to the Holders, shall have been executed and delivered to the
Agent, as agent for the Holders, and the security interests and liens of the
Holders shall have been duly perfected and shall be subject only to the prior
security interests of AFL (as to the AFL Collateral only).
(c) SATISFACTION OF SUBORDINATED NOTES. Not less than 90% (or such lesser
percentage as may be determined by the Company in its sole discretion) of the
principal amount of all outstanding Subordinated Notes shall have been paid in
full and satisfied simultaneously with the making of the Loans.
(d) OPINION. The Agent and Holders shall have received a satisfactory opinion of
counsel for the Company as to such matters as they may reasonably require.
(e) TITLE EVIDENCE. The Agent and Holders shall have received such evidence of
title and lien searches as they may reasonably require evidencing good and
marketable title to the Collateral subject to no liens, claims or encumbrances
except, as to the AFL Collateral only, the AFL Collateral Documents and except
for such other matters as may be acceptable to the Agent and Holders. The
Holders acknowledge that no title insurance or title opinions are being
required.
(f) CLOSING DOCUMENTS. The Agent and Holder shall have received such good
standing certificates, certified articles of incorporation, certified
resolutions, consents and other documentation as they may reasonably require.
(g) AFL DOCUMENTATION. AFL and the Company shall have executed and delivered the
Intercreditor Agreement and any related documents.
(h) PAYMENT OF EXPENSES. The Company shall have paid all reasonable expenses,
including reasonable and invoiced legal fees and expenses of Mitchell W. Legler,
P.A. and Foley & Lardner, incurred by the Holders in connection with the seeking
or securing of refinancing of the Subordinated Notes, whether or not the
transactions described herein shall close.
5.2 CONSENTS. Wickes, Inc. and Imagine, Inc. shall have consented in
writing to this Agreement, the Collateral Documents and the transactions con-
templated thereby.
5.3 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the Company to
execute the Notes shall be conditioned upon satisfaction or waiver by the
Company of the following conditions:
(a) The Holders shall have delivered to the Company a release, reasonably
satisfactory to the Company, releasing the Company and its officers and
directors from all liabilities and claims which the Holders may have, in their
capacity as holders of the Subordinated Notes, with respect to actions or
omissions of such persons prior to the date of delivery of the Notes.
(b) This Agreement shall have been signed by Holders holding at least 90% (or
such lesser percentage determined in accordance with Section 5.1(c)) in
outstanding principal amount of the Subordinated Notes.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 COMPANY'S REPRESENTATIONS. In order to induce the Holders to make the Loans
as provided herein, the Company hereby represents and warrants to the Holders
and Agent as follows:
ORGANIZATION. The Company is a corporation duly organized and
existing in good standing under the laws of the jurisdiction under which it was
incorporated, and has all requisite power and authority, corporate or otherwise,
to conduct its business and to own its properties. The Company has only the
Subsidiaries listed on Schedule 1.1. The Company is duly licensed or qualified
to do business in all jurisdictions in which such qualification is required, and
failure to so qualify would have a material adverse effect on the property,
financial condition or business operations of the Company and the Subsidiaries
taken as a whole.
AUTHORITY. The execution, delivery and performance of this
Agreement, the Notes and the Collateral Documents are within the corporate
powers of the Company, have been duly authorized by all necessary corporate
action and do not (i) require any consent or approval of the stockholders of the
Company which has not been obtained, (ii) violate any provision of the articles
of incorporation or by-laws of the Company or of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to the Company; (iii) require the consent or
approval of, or filing or registration with, any governmental body, agency or
authority; or (iv) result in a breach of or constitute a default under, or
result in the imposition of any lien, charge or encumbrance upon any property of
the Company pursuant to, any indenture or other agreement or instrument under
which the Company is a party or by which it or its properties may be bound or
affected (except the Collateral Documents). This Agreement constitutes, and each
of the Notes and each of the Collateral Documents when executed and delivered
hereunder will constitute, legal, valid and binding obligations of the Company
or other signatory enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy or similar laws affecting the
enforceability of creditors' rights generally.
1.1 INTENT AND EFFECT OF TRANSACTIONS. This Agreement and the transactions
contemplated herein (i) are not made or incurred with intent to hinder, delay or
defraud any person to whom the Company has been, is now, or may hereafter become
indebted; (ii) do not render the Company insolvent nor is the Company insolvent
on the date of this Agreement within the meaning of the Bankruptcy Law; (iii) do
not leave the Company with an unreasonably small capital with which to engage in
its business or in any business or transaction in which it intends to engage;
and (iv) are not entered into with the intent to incur, or with the belief that
the Company would incur debts that would be beyond its ability to pay as such
debts mature.
6.2 HOLDER REPRESENTATIONS. Each Holder, by executing this Agreement, represents
and warrants to the Agent and each other Holder that (a) such Holder has the
full right, power and authority to execute and deliver this Agreement, (b) that
this Agreement, the Intercreditor Agreement and the terms of the Note held by
such Holder constitute the binding obligation of such Holder enforceable in
accordance with their terms (subject to applicable bankruptcy and other laws
relating to creditors' rights generally and to the discretion of a court of
equity, and (c) such Holder has read and understands this Agreement, the
Intercreditor Agreement and the Collateral Documents and has been afforded the
opportunity for itself and its counsel to ask questions of, and obtain further
information from, the Agent and the Company, and (d) the representations and
warranties of the Holder in the Note and Intercreditor Agreement are true,
correct and complete in all material respects, and the Agent, by executing the
Intercreditor Agreement is authorized to bind the Holder to the terms thereof.
Each Holder agrees to indemnify, defend and hold harmless the Agent and other
Holders against any loss, costs, liabilities or damages (including reasonable
attorneys' fees and costs) resulting from the breach of any of the
representations and warranties of such Holder or from the breach or repudiation
by such Holder of its obligations hereunder, under the Intercreditor Agreement
or relating thereto.
ARTICLE VII
AFFIRMATIVE COVENANTS
7.1 PAYMENT OF THE NOTES. The Company shall pay the principal of and interest on
the Notes on the dates and in the manner provided in the Notes. If a payment
date is a Legal Holiday, payment shall be made on the next succeeding day that
is not a Legal Holiday, and interest shall accrue for the intervening period.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate, including
any default interest under Section 3.2, if any, then borne by the Notes; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest at the same rate to the
extent lawful.
7.2 CORPORATE EXISTENCE. The Company shall preserve and keep in full force and
effect its corporate existence under the laws of the state in which it is
incorporated.
7.3 TAXES. The Company will, and will cause each Subsidiary to, pay when due all
taxes, foreign and domestic, that, if not paid when due would materially and
adversely affect the consolidated financial condition or operations of the
Company and its Subsidiaries, taken as a whole, except as contested in good
faith, during a period when enforcement of such obligations is stayed.
7.4 COMPLIANCE WITH STATUTES, ETC. The Company will, and will cause each
Subsidiary to, comply with all applicable statutes, regulations and orders of,
and all applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property other than where the failure so to comply would not have a materially
adverse effect on the business, properties or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole or on the ability of the
Company to perform its obligations hereunder or under the Notes.
7.5 REPORTS. The Company will furnish to the Agent:
(a) Within 60 days after the close of each of the first three quarterly
accounting periods in each fiscal year of the Company, the unaudited
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such quarterly period and the related unaudited consolidated statements of
operations, stockholders' equity and cash flows for the elapsed portion of the
fiscal year ended with the last day of such quarterly period (and in the case of
the consolidated statements of operations, for such quarterly period), and in
each case setting forth comparative figures for the related period in the prior
fiscal year (or in the case of the consolidated balance sheet the end of the
prior fiscal year);
(b) Within 100 days after the close of each fiscal year of the Company, the
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such fiscal year and the related consolidated statements of operations,
stockholders' equity and cash flows for such fiscal year, setting forth
comparative figures for the preceding fiscal year and certified by independent
certified public accountants of recognized national standing;
(c) Concurrently with each delivery of financial statements pursuant to clause
(a) or (b) of this Section 7.5, the Company will furnish a certificate signed on
behalf of the Company by a principal financial officer, stating that the signer
has reviewed the provisions of this Agreement and the performance or observance
thereof by the Company, and either stating that to the signer's knowledge no
event has occurred and is continuing and no condition exists that constitutes a
Default or Event of Default or, if any such event has occurred and is continuing
or condition exists, specifying the nature and status of such event or condition
of which the signer has knowledge and what action the Company has taken, is
taking or proposes to take with respect thereto; and
(d) Promptly upon their becoming available, (A) copies of all reports and
registration statements, applications and schedules, and amendments of any
thereof, filed by the Company with the Securities and Exchange Commission, and
(B) copies of all proxy statements, financial statements and reports which the
Company may send or make generally available to its stockholders.
7.6 NOTICE OF EVENTS OF DEFAULT. The Company will promptly notify each Holder of
the occurrence of a Default or an Event of Default.
7.7 MAINTENANCE OF PROPERTIES, ETC. The Company shall, and shall cause each of
its Subsidiaries to, maintain its properties and assets in good working order
and condition to the extent customary within the relevant industries and make
all necessary repairs, renewals, replacements, additions, betterments and
improvements thereto to the extent customary within the relevant industries,
except in such cases where the failure to do so would not have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
7.8 BOOKS AND RECORDS. The Company shall, and shall cause each of its
Subsidiaries to, keep true books, records and accounts in which full and correct
entries in all material respects will be made of all its business transactions,
in accordance with sound business practices, and reflect in its financial
statements adequate accruals and appropriations to reserves, all in accordance
with generally accepted accounting principles.
ARTICLE VIII
NEGATIVE COVENANTS
8.1 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Agreement; and the
Company (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Holders, but
will suffer and permit the execution of every such power as though no such law
has been enacted.
8.2 MERGER, SALE OF ASSETS, ETC. The Company shall not consolidate with, merge
with or into or sell, assign, lease or transfer all or substantially all of its
properties and assets to another person unless (i) such person is a corporation
organized and existing under the laws of the United States or any state thereof
or the District of Columbia, (ii) the surviving or transferee entity expressly
assumes, by an agreement supplemental hereto, all of the obligations of the
Company hereunder and under the Notes, and (iii) upon giving effect to such
transaction, no event that constitutes a Default or an Event of Default shall
have occurred and be continuing.
In connection with any consolidation, merger, transfer or
lease contemplated by this Section 8.2, the Company shall deliver, or cause to
be delivered, to the Holders, in form and substance satisfactory to the Holders,
an Officers' Certificate stating that such consolidation, merger, transfer or
lease and the supplemental agreement in respect thereto comply with this Article
VIII and that all conditions precedent herein provided relating to such
transaction have been complied with.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with this Section
8.2, the successor person formed by such consolidation or into or with which the
Company is merged or the person to which such transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Agreement with the same effect as if such successor had been named as
the Company herein.
8.3 NO FUTURE ADVANCES. The Company shall not permit the aggregate amount of AFL
Obligations to exceed $11,344,672 in principal amount, plus accrued interest
from the last scheduled interest payment date, reduced by all principal payments
made or amounts applied hereafter with respect to such principal obligations,
and shall not amend or modify the AFL Obligations or AFL Collateral Documents to
increase the interest rate thereon, provide for additional obligations
thereunder or otherwise increase the potential amount of the obligations secured
by the AFL Collateral Documents; provided, however, that the Company may borrow
up to an additional $400,000 secured by AFL Collateral solely to fund
improvements to real property Collateral and an additional $200,000 secured by
the AFL Collateral provided that the proceeds of such advances are paid to the
Company.
8.4 MARGIN STOCK. None of the Loan proceeds shall be used to purchase or carry
any margin stock, as defined in Federal Reserve Board Regulations.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on any Note when the same
becomes due and payable, whether on its semiannual payment date, by virtue of
acceleration or otherwise, and the default continues for a period of five
business days;
(b) the Company defaults in the payment of principal of any Note when the same
becomes due and payable, whether on maturity of the Note, by virtue of
acceleration or otherwise;
(c) the Company fails to comply in any material respect with any of its other
covenants in or provisions of the Notes, this Agreement or any Collateral
Documents or any representation or warranty made in or in connection with the
Notes, this Agreement or any Collateral Document shall be untrue in any material
respect as of the date made or deemed made, and in either such case such failure
to comply with such covenant or failure of such representation or warranty to be
so true shall continue for more than 30 days after notice thereof to the Company
by the Agent except that no notice or grace period shall be afforded with
respect to defaults under (i) Sections 4.4, 7.5, 7.6, 8.2 or 8.3 hereof or (ii)
Sections 1 or 9 of the Mortgage and Security Agreement of even date herewith
from the Company to the Agent or (iii) the warranties of title in, and the other
warranties and covenants in Sections 1.6(b) or Section 1.9 of, the Deed to
Secure Debt and Security Agreement of even date herewith from the Company to the
Agent;
(d) any AFL Obligations shall not be paid at maturity or any default shall
occur, or notice or declaration of default shall be given, under the AFL
Obligations or instruments evidencing or securing the AFL Obligations, the
effect of which default or notice or declaration is to cause, or to permit the
holder or holders of the AFL Obligations to cause, with the giving of notice if
required, the AFL Obligations to become due prior to their stated maturity;
PROVIDED, however, that if any such default or declaration has been cured or
waived or any acceleration with respect thereto rescinded, the Event of Default
arising under this Section 9.1(d) by virtue thereof shall be deemed cured and
any acceleration under this Section 9.1(d) pursuant to Section 9.2 hereof shall
ipso facto be rescinded so long as such rescission does not conflict with any
judgment or decree; provided, however, that such cure and reinstatement shall
not impair the obligation of the Company to pay all expenses incurred by the
Agent and/or Holders in connection with such Event of Default;
(e) A default in the payment of principal or interest when due, whether at
maturity or otherwise, occurs with respect to any Debt of the Company or any
Subsidiary, any obligations the payment of which is guaranteed by the Company or
a Subsidiary, whether such Debt or guaranty now exists or shall be created
hereafter, if the result of such default is to permit the holder to accelerate
payment of such Debt prior to its expressed maturity or to exercise any other
remedies with respect to such Debt together with any other defaulted Debt
aggregates $500,000 or more; provided, however, that if any such default has
been cured or waived and any acceleration with respect thereto rescinded, or if
such other Debt has been repaid or otherwise discharged, the Event of Default
arising under this Section 9.1(e) by virtue thereof shall be deemed cured and
any acceleration under this 9.1(e) pursuant to Section 9.2 hereof shall IPSO
FACTO be rescinded so long as such rescission does not conflict with any
judgment or decree; provided, however, that such cure and reinstatement shall
not impair the obligation of the Company to pay all expenses incurred by the
Agent and/or holders in connection with such Event of Default;
(f) There shall have been rendered against the Company and/or any of its
Subsidiaries final judgments, individually or in the aggregate, in an amount of
$1,000,000 or more by a court or courts of competent jurisdiction, that shall
remain undischarged for a period of 60 days after the entry thereof, unless
stayed pending appeal, or, if so stayed, for a period of 60 days after the date
on which any stay has expired;
(g) The Company pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding,
(ii) consents to the entry of an order for relief against it in an
involuntary case or proceeding,
(iii) consents to the appointment of a Custodian for it or for all or
substantially all of its property, or
(iv) makes a general assignment for the benefit of its creditors;
(h) A court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company in an involuntary case or proceeding,
(ii) appoints a Custodian for the Company or for all or substantially all
of its property,
(iii) orders the liquidation of the Company, or
(iv) approves as properly filed a petition seeking reorganization of the
Company under any Bankruptcy Law;
and, in each case, the order or decree remains unstayed and in effect for 60
consecutive days;
(i) A petition for proceedings in bankruptcy or reorganization, or the
readjustment of indebtedness, under any Bankruptcy Law shall be filed
against the Company or any of its Subsidiaries and the Company or such
Subsidiary admits in writing the material allegations thereof or such
petition or action is not dismissed within 60 days;
(j) This Agreement, any Notes or any Collateral Documents shall be invalid
or unenforceable in any material respect or should be repudiated by the
Company;
(k) A default shall occur and be continuing beyond any applicable grace period
under any Collateral Documents or the Collateral shall be subject to any prior
rights, claims, security interests or liens except as permitted hereunder or
under the Collateral Documents and , as to the AFL Collateral, the rights of
AFL.
ACCELERATION. If an Event of Default (other than an Event of Default specified
in Sections 9.1(g), (h) or (i) hereof) occurs and is continuing, the Agent may,
and upon direction from 50% Holders, shall, by notice to the Company, declare
all unpaid principal, premium and accrued interest to the date of acceleration
on the Notes then outstanding (if not then due and payable) to be due and
payable. Upon any such declaration, such principal, premium and interest shall
become and be immediately due and payable. If an Event of Default specified in
Section 9.1(g), (h) or (i) hereof occurs, all unpaid principal, premium and
accrued interest relating to the Notes then outstanding shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Holders.
9.3 OTHER REMEDIES. If an Event of Default occurs and is continuing, the Agent
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal or interest on the Notes and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursement and advances of the Holders,
their agents and counsel, whether incurred at trial, on appeal or in bankruptcy
proceedings, or to enforce the performance of any provisions of the Notes or
this Agreement.
Upon the occurrence of an Event of Default, the Agent may, and
upon written direction of the 50% Holders shall, exercise any of the remedies
available under the Collateral Documents or applicable law.
A delay or omission by the Agent in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence of in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
9.4 WAIVER OF EXISTING DEFAULTS. Except as set forth in Section 11.2 hereof, the
50% Holders may direct the Agent to waive an existing Default or Event of
Default and its consequences. When a Default or Event of Default is waived, it
is cured and it ceases; provided, that no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon or impair the
obligation of the Company to pay any expenses incurred by the Agent and/or
Holders in connection with such Default or Event of Default.
9.5 COLLECTION SUIT BY THE HOLDERS If an Event of Default occurs and is
continuing, the Holders, or the Agent on their behalf, may recover the whole
amount of principal, premium and interest remaining unpaid, together with, to
the extent that payment of such interest is lawful, interest on the on overdue
principal and interest on overdue installments of interest, in each case at the
rate per annum then borne by the Note (including default interest under Section
3.2, if any), and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Agent or Holders, their agents and counsel,
whether incurred at trial, on appeal or in bankruptcy proceedings, and any other
amounts due the Holders hereunder or under the Notes.
9.6 PRIORITIES. If the Holders or Agent collect any money pursuant to this
Agreement or under the Collateral Documents, they shall apply the money in the
following order, after application of such money to any Person having a prior
claim thereon:
First: to the reasonable costs and expenses of collection and enforcement,
including reasonable attorneys' fees and costs, whether or not suit be brought
and including such fees and costs on appeal and in insolvency proceedings;
Second: to the Agent to reimburse the Agent for the Agent's fees and expenses;
Third: to the Holders, to reimburse such Holders for any expenses incurred
by the Holders with the consent of the 50% Holders;
Fourth: to the Holders for amounts due and unpaid on the Notes for
principal, premium and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the
Notes for principal, premium and interest, respectively; and
Fifth: to the Company or as otherwise payable pursuant to applicable law or
order. 9.7 FIRST REFUSAL RIGHTS. The Agent and Holders acknowledge that Imagine
Investments, Inc. ("Imagine") has certain rights of first refusal relating to
the Wickes Shares pursuant to Section 4.01 of the Stock Purchase Agreement
between the Company and Imagine dated October 5, 1998 and agree to comply with
such rights in connection with any disposition of Wickes Shares. In addition,
the Agent shall provide to Imagine a copy of any notice of proposed disposition
concerning the Wickes Shares that it is required to provide to the Company and
shall provide to Imagine 15 Business Days after such notice to cure any Event of
Default that is susceptible of cure prior to disposing of any Wickes Shares.
Each Holder agrees to sell to Imagine, on a non-recourse, non-warranted basis
all, but not less than all, of the Notes at par plus all accrued but unpaid
interest thereon provided that all accrued but unpaid expenses of the Agent and
all transaction costs of the sale are paid by Imagine.
ARTICLE X
PRINCIPAL PAYMENTS AND REPURCHASES
10.1 NOTICE OF PREPAYMENT. If the Company elects to prepay the Notes pursuant to
the optional prepayment provisions of the Notes, at least 15 days but not more
than 60 days before a prepayment date it shall notify the Agent in writing of
the amount of principal to be prepaid and the prepayment date.
10.2 EFFECT OF NOTICE OF PREPAYMENT. Once notice of prepayment is given, the
principal amount specified in the prepayment notice shall become due and payable
on the prepayment date. All prepayments shall be applied to the Notes in
proportion to their outstanding principal balances.
10.3 PREPAYMENT. On the prepayment date, the Company shall pay the principal
amount specified in the prepayment notice and accrued interest thereon to the
Agent in the manner provided in the Notes and the prepayment premium, if any,
provided for in the Notes. Notwithstanding the foregoing, the Company shall not
be required to pay the principal amount of any Note to the extent otherwise
paid, repurchased or cancelled.
If any prepayment required to be paid under this Section 10.3
shall not be so paid, interest will be paid, from the prepayment date until such
prepayment is paid, on the unpaid amount of such prepayment and, to the extent
permitted by law, on any interest not paid on such unpaid amount through the
prepayment date, in each case at the rate and in the manner provided in the
Notes (including default interest under Section 3.2, if any).
10.4 MANDATORY PAYMENTS. The Company shall make principal payments on each Note
as set forth in the Notes. Notwithstanding the foregoing, the Company shall not
be required to pay the principal amount of any Note to the extent otherwise
paid, repurchased or cancelled, and the Company's obligation in respect of the
principal payment thereof shall be satisfied to the extent of the principal
amount so applied.
10.5 RATABLE PAYMENTS. The Company shall not pay any amounts due under any Note,
or purchase any Note or interest therein and no Holder shall accept such
payments or sell such interest, unless all Holders shall be treated ratably
according to the respective principal balance of their Notes and all payments
are made to the Agent for distribution in accordance with this Agreement. It is
the intention of this Agreement that all Holders shall be treated PARI PASSU as
to their Notes.
10.6 CHANGE OF CONTROL EVENT. In the event that there shall occur a Change of
Control Event, then the 50% Holders shall have the right to direct the Agent to
require the Company to purchase, and upon the exercise of such right the Company
shall purchase, all or any part of the Notes on the date (the "Repurchase Date")
that is 60 days after the date of such Change of Control Event, at a purchase
price of 100% of the principal amount thereof, together with accrued and unpaid
interest to the Repurchase Date.
Within 20 days following any Change of Control Event, the
Company shall give notice to the Agent stating (i) that a Change of Control
Event has occurred and the date thereof; (ii) the Repurchase Date, (iii) the
date by which the repurchase right must be exercised, which shall not be less
than 30 days after such notice, (iv) the price at which the repurchase is to be
made, if the repurchase right is exercised, and (v) a description of the
procedure that a Holder must follow to exercise a repurchase right, including,
without limitation, the obligation of the Holder to surrender such Note to the
Company prior to the close of business on the Repurchase Date. No failure of the
Company to give this notice shall limit the right of the 50% Holders to exercise
a repurchase right. Exercise of the repurchase right at the direction of the 50%
Holders shall bind all Holders.
10.7 SHARING OF PAYMENTS. Each Holder agrees that if it shall, through the
exercise of a right of setoff or counterclaim against the Borrower, or pursuant
to a secured claim under Section 506 of Title 11 of the United States Code or
other security or interest arising from, or in lieu of, such secured claim,
received by such Bank under any applicable bankruptcy, insolvency or other
similar law or otherwise, or by any other means, obtain payment (voluntary or
involuntary) in respect of any Note as a result of which the unpaid principal
portion of its Note shall be proportionately less than the unpaid principal
portion of the Notes of any other Holders, it shall be deemed simultaneously to
have purchased from such other Holders at face value, and shall promptly pay to
such other Holders the purchase price for, a participation in the Notes of such
other Holders, so that the aggregate unpaid principal amount of the Notes and
participations in Notes held by each Holder shall be in the same proportion to
the aggregate unpaid principal amount of all Notes then outstanding as the
principal amount of its Notes prior to such exercise of setoff or counterclaim
or other event was to the principal amount of all Notes outstanding prior to
such exercise of setoff or counterclaim or other event; provided, however, that
if any such purchase or purchases or adjustments shall be made pursuant to this
section and the payment giving rise thereto shall thereafter be recovered, such
purchase or purchases or adjustments shall be rescinded to the extent of such
recovery and the purchase price or prices or adjustment restored without
interest. The Company expressly consents to the foregoing arrangements and
agrees that any Holder holding a participation in a Note so purchased may
exercise any and all rights of setoff or counterclaim with respect to any and
all moneys owing by the Company to such Holder by reason thereof as fully as if
such Holder had made a loan directly to the Borrower in the amount of such
participation.
ARTICLE XI
TERMINATION, WAIVER AND AMENDMENT
11.1 TERMINATION. This Agreement may be terminated by the Company if it shall
have paid or caused to be paid all sums payable under the Notes, the Collateral
Documents and hereunder.
11.2 AMENDMENT AND WAIVER. This Agreement may be amended by the Company and
Agent with the written consent of the 50% Holders. The 50% Holders may direct
the Agent to waive compliance by the Company with any term of this Agreement or
the Notes; provided, however, that notwithstanding the other provisions hereof,
without the consent of each Holder affected, an amendment or waiver may not:
(a) Reduce the principal amount of Notes whose Holders must consent to an
amendment or waiver;
(b) Reduce the rate of or extend the time for payment of interest, including
defaulted interest, on any Note;
(c) Reduce the principal of or extend the fixed maturity of any Note or alter
the redemption provisions thereof;
(d) Waive a default in the payment of the principal of or the interest on, or
redemption or other payment with respect to, any Note;
(e) Make any Note payable in money other than that stated in the Note; or
(f) Alter the provisions of this Agreement so as to reduce the percentage of
Holders required to consent to any amendment hereof or of the Notes or to waive
compliance with any term hereof or of the Notes.
After an amendment or waiver becomes effective, it shall bind
every Holder unless it makes a change described in any of clauses (a) through
(f) above. In that case, the amendment or waiver shall bind every Holder who has
consented to it and every subsequent holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note.
11.3 AMENDMENTS NOT AFFECTING COMPANY. Amendments to or waivers of any provision
herein relating to the rights, duties or obligations of the Agent or Holders and
any other amendments not adversely affecting the Company shall not require the
joinder of the Company.
ARTICLE XII
1933 ACT TRANSFER RESTRICTIONS AND FEDERAL WITHHOLDING
12.1 1933 ACT TRANSFER RESTRICTIONS. The Notes will not be registered under the
1933 Act or any securities act of any state or other jurisdiction, in reliance
on registration exemptions under such statutes for private offerings. Each
Holder, by its acceptance of any Note, hereby represents and warrants to the
Company and the Agent that the Notes are being acquired solely for the Holder's
own account, for investment, and are not being purchased with a view to or for
the resale or distribution thereof. The Notes may not be sold or otherwise
transferred except in accordance with the 1933 Act and all other applicable
securities laws, and prior to any transfer (other than pursuant to an effective
registration statement under the 1933 Act and otherwise in compliance with
applicable law) the Holder must furnish to the Company a written opinion of
counsel, in form and substance satisfactory to the Company, to the effect that
registration under the 1933 Act is not required and that all requisite action
has been taken under all applicable securities laws in connection with the
proposed transfer. The Notes will bear a legend substantially in the following
form until the Company's counsel determines that the legend is no longer
advisable:
This Note has not been registered under the Securities Act of 1933, as
amended (the "Act") or under the securities laws of any jurisdiction,
and must be held indefinitely unless it is transferred pursuant to an
effective registration statement under the Act and in compliance with
all applicable securities laws, or after receipt of an opinion of
counsel, in form and substance satisfactory to Riverside Group, Inc., to
the effect that registration is not required and the transfer does not
violate any applicable securities law.
Appropriate stop transfer orders will be noted on the Company's records with
respect to the Notes. 12.2 FEDERAL WITHHOLDING. Each Holder, if it is a citizen
or organized under the laws of any jurisdiction other than the United States of
America or any political subdivision thereof, (i) represents to the Company that
under applicable law and treaties no taxes will be required to be withheld by
the Company with respect to any payments to be made to the Holder under the
Notes, (ii) has furnished to the Company either U.S. Internal Revenue Service
Form 4224 or Form 1001 (wherein the Holder claims entitlement to complete
exemption from United States federal withholding tax on all payments under the
Notes), (iii) will furnish the Company a new form 4224 or Form 1001, or similar
statement or documents, upon the obsolescence of any previously delivered form,
and (iv) will comply from time to time with all applicable United States laws
and regulations with respect to withholding tax exemption. Each Holder agrees
that it will not transfer any interest in any Note to any person that is a
citizen or organized under the laws of any jurisdiction other than the United
States of America or any political subdivision thereof unless the transferee in
writing represents to the Company and agrees to the provisions of this Section
12.2.
ARTICLE XIII
THE AGENT
13.1 APPOINTMENT AND POWERS. Each of the Holders hereby appoints Agent as agent
for the Holders hereunder, and authorizes the Agent to take such action as Agent
on its behalf and to exercise such powers as are specifically delegated to the
Agent by the terms hereof, or by separate agreement, specifically including,
without limitation, the execution and delivery of the Intercreditor Agreement
and the Collateral releases and powers of attorney described therein, together
with such powers as are reasonably incidental thereto. Without limiting the
generality of the foregoing, the Agent is appointed as the collateral agent of
the Holders for purposes of perfecting the liens and security interest of the
Holders under the Collateral Documents. The Agent shall be named as
mortgagee/grantee and secured party under the Collateral Documents. The Agent
shall be entitled to engage counsel, accountants and other professionals of the
Agent's choosing. The Agent shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
of this Agreement, the Notes or any related document, or to enforce such
performance, or to inspect the property (including the books and records) of the
Company or any of its Subsidiaries; and the Agent shall not be required to take
any action (i) which exposes the Agent to personal liability; (ii) which is
contrary to this Agreement or the Notes or applicable law; or (iii) unless the
Agent, in Agent's sole discretion, determines that funds are available to pay
all fees and expenses of the Agent. The Agent is appointed to act as agent upon
the express terms and conditions contained in this Article.
13.2 RESPONSIBILITY. The Agent (i) makes no representation or warranty to any
Holder and shall not be responsible to any Holder for any oral or written
recitals, reports, statements, warranties or representations made in or in
connection with this Agreement, the Intercreditor Agreement or any Note or any
Collateral Document; (ii) shall not be responsible for the due execution,
legality, validity, enforceability, genuineness, sufficiency, collectibility or
value of this Agreement, any Note or any Collateral Document or any other
instrument or document furnished pursuant thereto; (iii) may treat the payee of
any Note as the owner thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
the Agent; (iv) may execute any of the Agent's duties under this Agreement by or
through employees, agents and attorneys in fact and shall not be answerable for
the default or misconduct of any such employee, agent or attorney in fact
selected by the Agent with reasonable care; (v) may (but shall not be required
to) consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by the Agent in accordance with advice of such counsel,
accountants or experts; (vi) shall be entitled to rely upon any notice, consent,
waiver, amendment, certificate, affidavit, letter, telegram, telex, cable or
other document or communication believed by the Agent to be genuine and signed
or sent by the proper party or parties, and may rely upon statements contained
therein without further inquiry or investigation. Neither the Agent nor any of
Agent's agents or employees shall be liable for any action taken or omitted to
be taken by it or them under or in connection with this Agreement or the Notes,
except for his, its or their own gross negligence or willful misconduct.
13.3 AGENT'S INDEMNIFICATION. The Holders agree to indemnify and reimburse the
Agent (to the extent not reimbursed by the Company), ratably from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments and suits, and reasonable costs, expenses and disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent as such in any way relating to or arising out of this
Agreement, the Intercreditor Agreement or any other Collateral Document or any
action taken or omitted by the Agent under this Agreement, the Intercreditor
Agreement or any other Collateral Document, provided that no Holder shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Holder agrees to reimburse the Agent promptly upon demand
for its ratable share of any out-of-pocket expenses (including counsel and
accounting fees) incurred by the Agent in connection with the preparation,
execution, administration or enforcement of, or the preservation of any rights
under, this Agreement, the Intercreditor Agreement or any other Collateral
Document to the extent that the Agent is not reimbursed for such expenses by the
Company. The Agent shall have the right to deduct from any funds in its
possession or control such amounts as may be owing to the Agent.
13.4 RIGHTS AS A HOLDER. With respect to any Notes which it may hold or acquire,
the Agent, in its individual capacity as a Holder, shall have, and may exercise,
the same rights and powers under this Agreement and the Notes payable to it as
any other Holder has under this Agreement and Notes.
13.5 CREDIT INVESTIGATION. Each of the Holders severally represents and warrants
to each of the other Holders and to the Agent that it has made its own
independent investigation and evaluation of the financial condition and affairs
of the Company and its Subsidiaries, and all Collateral, in connection with such
Holder's execution and delivery of this Agreement and the making of its Loans
and has not relied on any information or evaluation provided by any other Holder
or the Agent in connection with any of the foregoing (other than information
provided by the Company to the Agent for transmittal to the Holders in
connection with the foregoing); and each Holder represents and warrants to each
other Holder and to the Agent that it shall continue to make its own independent
investigation and evaluation of the credit-worthiness of the Company and its
Subsidiaries, and all the Collateral, while the Notes are outstanding.
13.6 DISPUTES. If at any time, there should be any dispute as to any action to
be taken by the Agent or if the Agent is unsure of its right or obligation to
undertake the action, or to refrain from taking any action, the Agent may
request written instructions from the Holders, in which case the Holders shall
promptly respond to such request. Agent shall be entitled to rely upon written
instructions signed by 50% Holders unless such instructions are clearly in
violation of the requirements of Section 11.1.
13.7 UNANIMOUS CONSENT OF THE HOLDERS. If at any time a dispute should arise as
to any property or funds under the control of the Agent, the Agent shall have
the right to interplead such property or funds into the custody and control of a
court of appropriate jurisdiction and shall thereupon be relieved of further
liabilities and responsibilities with respect thereto. Any expenses, including
attorney's fees, incurred by Agent in connection with such interpleader shall be
paid by the Holders as set forth in Section 13.3 above.
13.8 RESIGNATION. The Agent may, with reasonable cause as determined in its sole
discretion, resign as such at any time upon ten calendar days' prior written
notice to the Company and the Holders, effective at the end of said ten days or
upon the earlier appointment of a successor. If the Agent resigns, the 50%
Holders shall appoint a successor, which may be one of the Holders, and such
successor, upon its acceptance of such appointment, shall become the Agent upon
the express conditions contained in this Article. If at any time there is no
Agent acting hereunder, the Company shall make all required payments to, and
otherwise deal directly with, the 50% Holders.
13.9 FEES. The Company agrees to pay the reasonable fees and expenses of the
Agent within 10 days following a receipt of an invoice therefor, together with a
statement in reasonable detail setting forth the calculation thereof. The Agent
shall be paid fees equal to the Agent's usual and customary fees, which, if the
Agent is an attorney at law, shall equal the Agent's usual and customary then
current hourly rate for the time expended.
13.10 AGENT CAPACITY. The Agent is acting solely as agent for the Holders and
not in Agent's personal capacity. Neither the Agent personally nor any of the
Agent's assets shall have any liability hereunder and, in the event of a
dispute, the Company and each of the Holders agrees to look solely to any assets
or interests of the Agent held on behalf of the Holders to satisfy any judgment
which may result in such party's action against the Agent from such dispute. The
Company agrees to exculpate the Agent and the Agent's personal assets with
respect to any claims that the Company now has or may hereafter have with
respect to any actions taken or omitted by the Agent on behalf of the Holders.
13.11 AGENT'S REPRESENTATIONS. The parties acknowledge and agree that Agent, or
Agent's law firm, represents the Holders, or certain of them, in connection with
matters relating to the Company and consent to such continuing representation.
ARTICLE XIV
MISCELLANEOUS
14.1 EXPENSES; INDEMNITY
(a) The Company shall pay, or reimburse the Agent and each Holder for (i) all
reasonable out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses of Mitchell W. Legler, P.A. and Foley &
Lardner) paid or incurred by such Person in connection with the negotiation,
preparation, execution and delivery of this Agreement, the Notes, the Collateral
Documents and any other document required hereunder or thereunder, including
without limitation any amendment, supplement, modification or waiver of or to
any of the foregoing; (ii) all reasonable out-of-pocket costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) paid or
incurred by such Person before and after judgment in enforcing, protecting or
preserving its rights under this Agreement, the Notes, the Collateral Documents
and any other document required hereunder or thereunder, including without
limitation the enforcement of rights against, or realization on, any collateral
or security therefor; and (iii) any and all recording and filing fees and any
and all stamp, excise, intangibles and other taxes, if any, (including, without
limitation, any sales, occupation, excise, gross receipts, franchise, general
corporation, personal property, privilege or license taxes, but not including
taxes levied upon the net income of such Person by the federal government or the
state (or political subdivision of a state) where such Person's principal office
is located or franchise taxes paid in lieu of such net income taxes), which may
be payable or determined to be payable in connection with the negotiation,
preparation, execution, delivery, recording, administration or enforcement of
this Agreement, the Notes, the Collateral Documents or any other document
required hereunder or thereunder or any amendment, supplement, modification or
waiver of or to any of the foregoing, or consummation of any of the transactions
contemplated hereby or thereby, including all costs and expenses incurred in
contesting the imposition of any such tax, and any and all liability with
respect to or resulting from any delay in paying the same, whether such taxes
are levied upon such Person, the Company or otherwise.
(b) The Company agrees to indemnify the Agent and each Holder against any and
all losses, claims, damages, liabilities and expenses, (including, without
limitation, reasonable attorneys' fees and expenses) incurred by such Person
arising out of, in any way connected with, or as a result of (i) the
construction or operation of any facility owned or operated by Company, or
resulting from any pollution or other environmental condition on the site of, or
caused by, any such facility, (ii) except as otherwise limited under this
Agreement, the negotiation, preparation, execution, delivery, administration,
and enforcement of this Agreement, the Notes, the Collateral Documents and any
other document required hereunder or thereunder, including without limitation
any amendment, supplement, modification or waiver of or to any of the foregoing
or the consummation or failure to consummate the transactions contemplated
hereby or thereby, or the performance by the parties of their obligations
hereunder or thereunder, (iii) any claim, litigation, investigation or
proceedings related to any of the foregoing, whether or not such Person is a
party thereto; provided, however, that such indemnity shall not apply to any
such losses, claims, damages, liabilities or related expenses arising from (A)
any unexcused breach by such Person of its obligations under this Agreement or
(B) any commitment made by such Person to a Person other than the Company which
would be breached by the performance of such Person's obligations under this
Agreement or (C) the gross negligence or willful misconduct of the Agent or any
Holder or any Affiliate or agents of any thereof.
(c) The foregoing agreements and indemnities and all indemnification provisions
in the any Collateral Document shall remain operative and in full force and
effect regardless of termination of this Agreement, the consummation of or
failure to consummate either the transactions contemplated by this Agreement or
any amendment, supplement, modification or waiver hereof, the repayment of any
Loans made hereunder, the invalidity or unenforceability of any term or
provision of this Agreement or any of the Notes or any Collateral Document, or
any other document required hereunder or thereunder, any investigation made by
or on behalf of the Agent, any Holder or the Company, or the content or accuracy
of any representation or warranty made under this Agreement, any Collateral
Document or any other document required hereunder or thereunder.
14.2 SURVIVAL. All agreements, representations and warranties made herein shall
survive the execution of this Agreement, the making of the Loans hereunder and
the execution and delivery of the Notes.
14.3 COUNTERPARTS. This Agreement may be signed in any number of counterparts or
by separate signature pages with the same effect as if the signatures thereto
and hereto were upon the same instrument.
14.4 CHOICE OF FORUM. COMPANY BY ITS EXECUTION HEREOF (A) HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF FLORIDA AND TO
THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF
FLORIDA, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF
OR BASED UPON THIS AGREEMENT, THE NOTES OR ANY COLLATERAL DOCUMENT OR THE
SUBJECT MATTER HEREOF OR THEREOF, WHETHER BROUGHT BY THE COMPANY, ANY HOLDER OR
THE AGENT, OR ANY OF THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, UNLESS THE HOLDERS
SHALL AGREE OTHERWISE IN WRITING, AND (B) HEREBY WAIVES TO THE EXTENT NOT
PROHIBITED BY LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE, IN ANY SUCH PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY
TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR
IMMUNE FROM ATTACHMENT OR EXECUTION, THAT ANY SUCH PROCEEDING BROUGHT IN ONE OF
THE ABOVE-NAMED COURTS IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN ONE OF THE ABOVE-NAMED COURTS IS IMPROPER, OR
THAT THIS AGREEMENT, THE NOTES OR ANY COLLATERAL DOCUMENT OR THE SUBJECT MATTER
HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT.
14.5 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH
CANNOT BE WAIVED, AGENT, EACH HOLDER AND COMPANY, AFTER CONSULTATION WITH
COUNSEL, HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF
OR BASED UPON THIS AGREEMENT, THE NOTES OR ANY COLLATERAL DOCUMENT OR THE
SUBJECT MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF AGENT, ANY HOLDER OR COMPANY IN CONNECTION WITH
ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. COMPANY ACKNOWLEDGES THAT IT
HAS BEEN INFORMED BY THE HOLDERS THAT THE PROVISIONS OF THIS SECTION 10.11
CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE HOLDERS HAVE RELIED, ARE RELYING
AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY HOLDER OR COMPANY MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF ITS CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 14.6
NOTICES. All notices, consents and other communications hereunder shall be in
writing and shall be deemed to have been duly given, when delivered personally
or three business days after having been sent by certified mail return receipt
requested, postage prepaid, or upon delivery by courier or express delivery or
upon receipt by telecopy, facsimile or similar electronic medium at the
following address (or at such other address for a party as shall be specified by
like notice):
If to the Company to: Riverside Group, Inc.
7800 Belfort Parkway
Suite 100
Jacksonville, FL 32256
Facsimile: (904) 296-0584
Attention: Edward Salem
If to the Agent or
the Holders to: Mitchell W. Legler, Esq.
300-A Wharfside Way
Jacksonville, FL 32207
Facsimile: (904) 346-3299
With a copy to: John M. Welch, Jr., Esq.
Foley & Lardner
200 Laura Street
Jacksonville, FL 32202
Facsimile: (904) 359-8700
14.7 MISCELLANEOUS. This Agreement supersedes all prior negotiations and
agreements (written and oral) among the parties with respect to the subject
matter covered hereby. This Agreement shall inure to the benefit of and be
binding upon the parties named herein and their respective heirs, personal
representatives, successors and assigns. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
under or by reason of this Agreement. The section headings contained in this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any of the provisions of this Agreement. This Agreement shall
be construed and enforced in accordance with the laws of the State of Florida
without regard to its conflict of law provisions.
14.8 NO USURY. Notwithstanding anything herein or in the Notes, no person shall
be entitled to receive, nor shall the Company be required to pay, any interest
or amounts in the nature of interest to the extent such charges or amounts would
violate any applicable usury laws and any provision to the contrary is hereby
modified to comply with such usury laws. In the event any such excess amounts
are received by any Holder, such excess shall be deemed to have been applied to
reduce the principal of such Holder's Note as of the date received and if no
principal remains, shall be paid to the Company together with interest thereon
at the highest lawful rate.
14.9 RELEASE. Each of the Holders and the Agent hereby relinquishes and releases
any claims or causes of action against the shareholders, officers and directors
of the Company arising from any breach or alleged breach of fiduciary duty,
contravention or alleged contravention of the Florida Business Corporation Act
or any federal or state securities laws, failure or alleged failure to maximize
the value of the Company for the benefit of creditors or any similar claims,
arising from any actions or inactions by such persons prior to the date of this
Agreement; provided, however, the foregoing shall not be construed to release or
otherwise amend the Company's obligations arising from or relating to the Notes,
this Agreement, any Collateral documents or any other documents, instruments or
agreements executed or delivered in connection therewith.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be executed on its behalf by its officers
thereunto duly authorized, all as of the date first above written.
THE RIVERSIDE GROUP, INC.
By: ____________________________________
Its ____________________________________
_______________________________________
MITCHELL W. LEGLER, as Agent for the
Holders
THE HOLDERS HAVE EXECUTED THIS AGREEMENT ON SEPARATE SIGNATURE PAGES
<PAGE>
EXHIBIT A
[FORM OF NOTE]
<PAGE>
EXHIBIT B
[LIST OF HOLDERS OF SUBORDINATED NOTES]
<PAGE>
EXHIBIT C
[INTERCREDITOR AGREEMENT]
<PAGE>
Exhibit A
to Credit Agreement
[FORM OF NOTE]
April 1, 1999
Number _______________ $________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR UNDER THE SECURITIES LAWS OF
ANY JURISDICTION, AND MUST BE HELD INDEFINITELY UNLESS IT IS
TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND IN COMPLIANCE WITH ALL APPLICABLE SECURITIES
LAWS, OR AFTER RECEIPT OF AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE SATISFACTORY TO RIVERSIDE GROUP, INC., TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED AND THE TRANSFER DOES NOT
VIOLATE ANY APPLICABLE SECURITIES LAW.
RIVERSIDE GROUP, INC.
SECURED PROMISSORY NOTE
DUE SEPTEMBER 30, 2000
RIVERSIDE GROUP, INC., a Florida corporation (hereafter referred to as
"the Company") for value received, hereby promises to pay to the order of
_________________________ or registered assigns, on the date specified in the
title of this Note, the principal sum of $___________________ at the office of
the Agent (as defined below) in Jacksonville, Florida, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest from April 1,
1999, semiannually in arrears on March 31 and September 30 of each year
commencing September 30, 1999, on the outstanding principal amount hereof from
time to time at said office, in like coin or currency, at the rate of 13% per
annum from and including April 1, 1999 to and including _________, 1999 and
thereafter at the rate of 11% per annum until the principal sum hereof has been
paid in full. Any principal amounts payable hereunder, and to the extent
permitted by law, any accrued interest, which are not paid when due shall bear
interest from the date due until paid at fourteen percent (14%) per annum.
The entire outstanding principal balance hereof shall be due and
payable on September 30, 2000.
<PAGE>
This Note is one of a duly authorized issue of Notes of the Company,
designated as set forth on the face hereof (the "Notes"), issued or to be issued
under and pursuant to a Credit Agreement by and among the Company, the original
holderHolders of the Notes and the Agent ("Agent") as defined in such agreement,
dated as of _________, 1999 (the "Agreement"), to which Agreement and all
agreements supplemental thereto reference is hereby made for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holdersHolders of the Notes. As described in the
Agreement, this Note is secured by, among other collateral, second liens on
certain real property and shares of Wickes, Inc. stock owned by the Company and
encumbered by first liens in favor of American Founders Life Insurance Company
(together with its successors and assigns, called "AFL") securing certain
obligations of the Company to AFL (the "AFL Obligations"). AFL and the Agent
have entered into an Intercreditor Agreement, a form of which is attached to the
Agreement (the "Intercreditor Agreement"), providing for certain rights and
obligations of the Agent, AFL and the Holders from time to time of the Notes
("Holders"). By acceptance of this Note, the Holder agrees to be bound by the
terms of the Agreement and the Intercreditor Agreement as it relates to the
Holders.
Effective upon receipt by the Agent of written notice from AFL of a
default under the AFL Obligations, the rights of the Holder of this Note to
receive further payments on this Note shall be junior, inferior and subordinate
in all respects to, and postponed until payment in full of, the AFL Obligations
except as to payments representing proceeds of collateral for this Note which is
not collateral for the AFL Obligations and to payments made pursuant to any
order of a bankruptcy court or another court of competent jurisdiction. By
acceptance of this Note, the Holder hereof agrees that (a) any payments received
by it after the Agent receives the aforementioned notice of default from AFL
shall be held in trust by the Holder for the sole and exclusive benefit of AFL
and promptly delivered by the Holder in the form received directly to AFL as
directed by AFL to the Agent; (b) if any such amounts are not paid to AFL within
three business days after the receipt thereof by the Holder, the Holder shall
pay to AFL interest on such amounts at the lesser of 18% per annum simple
interest or the maximum rate permitted by law from the date of receipt until
full payment is made to AFL; (c) AFL shall have the unfettered right, from time
to time, to amend any one or more of the loan documents relating to the AFL
Obligations by agreement with the Company and such amendments shall not affect
the priority of AFL's liens and security interests in its collateral, which
shall continue to be superior and prior to the liens and security interests in
such collateral of the Agent and/or the Holders without any requirements to
obtain any consent, approval or subordination from the Agent and/or the Holders.
By acceptance of this Note, the payee represents and warrants for the benefit of
AFL and the Agent as follows:
(1) The Agent has the full right, power and authority to execute and
deliver and perform the Agent's obligations under the Intercreditor Agreement
without the consent of any other person;
<PAGE>
(2) As of the date of delivery of this Note by the Company, the person
named as Agent in the Intercreditor Agreement is the incumbent agent under the
Agreement and has the full right, power and authority to release Collateral (as
defined in the Intercreditor Agreement) as provided in the Intercreditor
Agreement without the consent of the Holders of the Notes;
(3) The payees of the Notes, by execution of the Agreement, have
authorized the Agent to execute, deliver and perform the Agent's obligations
under the Intercreditor Agreement and to bind Holders of the Notes to the terms
thereof; and the execution, delivery and performance of the Agreement has been
authorized by all necessary corporate and other actions on behalf of the payee
of this Note; and
(4) The Agent has full power to act on behalf of the Holders of these
Notes and AFL shall be entitled to rely upon any agreement executed by the Agent
during the term of the Intercreditor Agreement without the necessity of
confirming or verifying the authority of the Agent to so act on behalf of the
Holders of the Notes and without the necessity of obtaining the approval or
consent of such Holders.
(5) Agent has the full right, power and authority to execute, deliver
and perform its obligations under this Agreement and to bind the Holders without
the consent of any other person, including any regulatory agency and all such
actions have been authorized by all necessary corporate or other actions on the
part of the payee.
(6) The payee has not assigned any of its rights in and to the
Subordinated Notes, the Subordinated Note Agreement, the Subordinated Mortgages,
the Subordinated Pledge, the Holder Loans (as such terms are defined in the
Intercreditor Agreement) or any other agreement between the payee and the
Company to any other person except such persons as would take their interests
subject to the payee's obligations under the Credit Agreement and Intercreditor
Agreement.
(7) The Intercreditor Agreement is binding and enforceable against the
Holder and the Agent in accordance with its terms; subject to bankruptcy,
fraudulent transfer, moratorium and other laws for the benefit of creditors
generally and to the discretion of a court in the enforcement of equitable
remedies.
The Holder of this Note acknowledges and agrees that AFL and the Agent shall be
entitled to rely upon the provisions set forth in this Note.
The Agreement contains provisions permitting the Company and the Agent,
with the written consent of the holdersHolders of more than 50 percent of the
aggregate principal amount of the Notes at the time outstanding ("50% Holders")
<PAGE>
to amend any of the provisions of the Agreement or modify in any manner the
rights of the holdersHolders of the Notes; provided, however, that no such
amendment shall (i) reduce the principal amount of Notes whose Holders must
consent to an amendment or waiver; (ii) reduce the rate of or extend the time
for payment of interest, including defaulted interest, on any Note; (iii) reduce
the principal of or extend the fixed maturity of any Note or alter the
redemption provisions thereof; (iv) waive a default in the payment of the
principal of or the interest on, or redemption or other payment with respect to,
any Note; (v) make any Note payable in money other than that stated in the Note
or (vi) alter the provisions of the Agreement so as to reduce the percentage of
holdersHolders of Notes required to consent to any amendment of the Agreement or
of this Note or to waive compliance with any term of the Agreement or of this
Note. It is also provided in the Agreement that, prior to any declaration
accelerating the maturity of the Notes, the 50% Holders at the time outstanding
may on behalf of the holdersHolders of all of the Notes direct the Agent to
waive any past default under the Agreement and its consequences, except a
default in the payment of, principal of, or premium, if any, or interest on, the
Notes. Any such consent or waiver by any holderHolder of this Note shall be
conclusive and binding upon such holderHolder and upon all future holdersHolders
and owners of this Note and any Notes which may be issued in exchange or
substitution hereof, irrespective of whether or not any notation thereof is made
upon this Note or such other Notes.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Agreement.
No reference herein to the Agreement and no provision of this Note or
of the Agreement shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note at the place, at the respective times, at the rate and in
the coin or currency herein prescribed.
This Note may be prepaid at the option of the Company as a whole, or
from time to time in part, on any date prior to maturity, upon giving notice of
such prepayment not less than 15 nor more than 60 days prior to the date fixed
for prepayment to the holderHolder hereof, all as provided in the Agreement,
provided that accrued interest to the date fixed for prepayment shall be also be
paid together with such prepayment.
Upon the occurrence of a Change of Control Event (as defined in the
Agreement), the 50% Holders have the right, in the Agreement, to direct the
Agent to require the Company to purchase all or a portion of the Notes in this
manner, for the price and on the terms described in the Agreement. Such
repurchase election shall be binding on all holdersHolders of Note as to their
ratable share of the aggregate principal to be purchased.
<PAGE>
The Company shall, unless otherwise directed in writing by the Agent or
50% Holders, make all payments due hereunder to the Agent on behalf of the
holdersHolders and shall be fully protected in doing so. In all respects, unless
otherwise directed by 50% Holders, the Company may rely upon any action of the
Agent as representing the action of the holdersHolders of the Notes.
The Holder hereof, if it is a citizen or organized under the laws
of any jurisdiction other than the United States of America or any political
subdivision thereof, (i) represents to the Company that under applicable law and
treaties no taxes will be required to be withheld by the Company with respect to
any payments to be made to the holderHolder hereunder, (ii) has furnished to the
Company either U.S. Internal Revenue Service Form 4224 or Form 1001 (wherein the
holderHolder claims entitlement to complete exemption from United States federal
withholding tax on all payments hereunder), (iii) will furnish the Company a new
form 4224 or Form 1001, or similar statement or documents, upon the obsolescence
of any previously delivered form and (iv) will comply from time to time with all
applicable United States laws and regulations with respect to withholding tax
exemption. No interest herein may be transferred to any person that is a citizen
or organized under the laws of any jurisdiction other than the United States of
America or any political subdivision thereof unless the transferee in writing
represents to the Company and agrees to the provisions of this paragraph.
[The remainder of this page is blank intentionally.]
<PAGE>
IN WITNESS WHEREOF, RIVERSIDE GROUP, INC. has caused this Note to be
signed in its name by its _____ President, its corporate seal to be imprinted
hereon, and attested by its Secretary.
Dated:
RIVERSIDE GROUP, INC.
By:
Its
President
[CORPORATE SEAL]
Attest:
Secretary
<PAGE>
AMENDMENT TO LOAN AGREEMENT
This Amendment to Loan Agreement ("Amendment") is entered into and
effective as of this 20th day of May, 1999, by and among: (i) Imagine
Investments, Inc., a Delaware corporation with a principal place of business in
Dallas, Texas (the "Lender"), (ii) Buildscape, Inc., a Florida corporation with
a principal place of business in Jacksonville, Florida (the "Borrower"), (iii)
Riverside Group, Inc., a Florida corporation ("Riverside"), (iv) Cybermax, Inc.,
a Florida corporation ("Cybermax"), and (v) Cybermax Tech, Inc., a Florida
corporation ("Cybermax Tech").
Recitals:
A. Pursuant to that certain Term Note given by Borrower in favor of
Lender on March 12, 1999 ("Term Note"), and that certain Loan Agreement (the
"Loan Agreement") dated as of March 12, 1999, among the parties to this
Amendment, Lender made a loan to Borrower in the original face principal amount
of $1,000,000 (the "Term Loan").
B. Borrower has requested that Lender loan Borrower an additional One
Million Dollars ($1,000,000) (the "Additional Loan") and increase the face
principal amount of the Term Loan to a total face principal amount of Two
Million Dollars ($2,000,000).
C. In order to induce Lender to enter into this Amendment, without
which inducement Lender would be unwilling to take such actions, and in
consideration of the benefits they will receive therefrom, Riverside, Cybermax
and Cybermax Tech are willing and desire to enter into this Amendment and
reaffirm their respective guarantees of Borrower's obligations under the Loan
Agreement.
Agreement:
Now, Therefore, the parties hereby agree as follows:
1. Definitions. Capitalized terms used this Amendment, to the extent not
otherwise defined herein, shall have the same meanings as set forth in the Loan
Agreement.
2. Modification of Defined Terms. The following words or terms in the Loan
Agreement are hereby amended and restated as follows:
2.1 Term Loan . The term, "Term Loan", shall hereinafter mean the
aggregate loan made by Lender to Borrower in the amount of Two Million Dollars
($2,000,000).
2.2 Term Note. The term, "Term Note", shall hereinafter mean the
Amended and Restated Term Promissory Note made by Borrower in favor of Lender on
even date herewith in the amount of Two Million Dollars ($2,000,000).
2.3 Indebtedness. The term, "Indebtedness", shall hereinafter mean all
sums and obligations owed under the Amended and Restated Term Promissory Note.
2.4 Stock Option. Section 3.7 of, and Exhibit B to, the Loan Agreement
is amended to reflect that in an Amendment to Option Agreement, of even date
herewith, Cybermax Tech, owner of 100% of the issued and outstanding common
capital stock of Borrower (the "Common Stock"), shall grant Lender the exclusive
right and option to purchase an additional ten percent (10%) of the Common Stock
upon the terms and conditions set forth in the Option Agreement, as amended. All
references to ten percent (10%) in Section 3.7 and Exhibit B are hereby deleted
and replaced with twenty percent (20%).
3. Disbursements. The additional loan made by Lender to Borrower pursuant to
this Amendment shall be disbursed in two installments. Contemporaneously with
the execution of this Amendment, Lender shall disburse Five Hundred Thousand
Dollars ($500,000) of the Additional Loan proceeds to Borrower or on Borrower's
behalf in the amounts and to the parties shown on Exhibit A attached hereto and
made a part hereof by wire transfer. Lender's legal fees incurred in connection
with this Amendment shall be paid from the disbursement of Five Hundred Thousand
Dollars ($500,000) made contemporaneously herewith and shall be wired directly
from Lender's banking accounts to Greenebaum, Doll & McDonald pllc.
Lender shall make the second disbursement of Five Hundred Thousand
Dollars ($500,000) upon receiving five (5) business days' written notice (the
"Notice"). The Notice shall set forth (a) the date on which Borrower would like
to receive the disbursed funds, (b) wiring instructions and (c) a statement that
all representations, warranties and covenants set forth in the Loan Agreement
(to the extent they are applicable) are true and correct in all material
respects as if made on, and as of, the day the Notice is given by Borrower. The
Notice shall be sent in the manner and to the addresses set forth in Section 9
of the Loan Agreement.
The maximum amount to be disbursed under the Amended and Restated Term
Promissory Note is Two Million Dollars ($2,000,000), the face principal amount
of the Amended and Restated Term Promissory Note. Borrower hereby represents
that to date, including the amount disbursed to Borrower and on Borrower's
behalf on even date herewith, One Million Five Hundred Thousand Dollars
($1,500,000) has been disbursed under the Amended and Restated Term Promissory
Note.
4. Fee. Borrower agrees to pay a fee to Lender in the amount of $10,000.00 for
agreeing to make the Additional Loan and hereby instructs Lender to immediately
pay such fee to Lender out of the proceeds of the Term Loan to be disbursed on
even date herewith.
5. Reaffirmation. Except as amended hereby, the parties hereto hereby reaffirm
and confirm all of the terms and provisions of the Loan Agreement. Borrower,
<PAGE>
Cybermax, Cybermax Tech and Riverside hereby represent that, with the exception
of those defaults waived in a letter dated April 1, 1999 from Cathe Gray, Senior
Vice President of Riverside, to Lender and signed by Harry Carneal on behalf of
Lender, all representations, warranties and covenants set forth in the Loan
Agreement, as amended, (to the extent they are applicable) are true and correct
in all material respects as if made on, and as of, the execution of this
Amendment.
6. Miscellaneous Provisions.
6.1 Severability. In the event that any one or more of the provisions
contained herein 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 hereof, and this Amendment shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
6.2 Binding Agreement and Benefits. This Amendment shall bind the
parties hereto and their respective successors and assigns, and shall inure to
the benefit of Lender and its successors and assigns.
6.3 Captions and Section Numbers. The captions and section numbers in
this Amendment are inserted only as a matter of convenience and in no way
define, limit, construe, or describe the scope or intent of such sections or in
any way affect this Amendment.
6.4 Modifications. This Amendment may be modified or amended only by
written agreement executed by all of the parties hereto.
6.5 Document Titles. The terms, "Loan Agreement" and "Term Note" as
used therein, herein and elsewhere, shall mean the Loan Agreement and Amended
and Restated Term Promissory Note, as amended.
6.6 Counterparts. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
In Witness Whereof, the parties have entered into this Amendment as of
the date first written above.
Imagine Investments, Inc.
By:______________________
Title: __________________
("Lender")
Buildscape, Inc.
By: _____________________
Title:___________________
("Borrower")
Riverside Group, Inc.
By: _____________________
Title:___________________
("Riverside")
Cybermax, Inc.
By:______________________
Title:___________________
("Cybermax")
Cybermax Tech, Inc.
By:______________________
Title:___________________
("Cybermax Tech")
<PAGE>
AMENDED AND RESTATED TERM PROMISSORY NOTE
$2,000,000.00 Louisville, Kentucky
May 20 , 1999
For Value Received, and in substitution for, that certain Promissory
Note dated March 12, 1999, in the original amount of One Million Dollars
($1,000,000) made by "Maker",
nd payable to the order of "Payee", the undersigned, Buildscape, Inc., a
Florida corporation with a principal office and place of business in
Jacksonville, Florida ("Maker"), hereby promises
nd agrees to pay to the order of Imagine Investments, Inc., a Delaware
corporation, or to any older of this Term Note ("Payee"), the principal sum of
TWO MILLION DOLLARS $2,000,000.00) or the aggregate principal amount advanced
and which shall be outstanding under
this Term Note, together with interest upon such principal balance at the rate
provided below, in legal tender of the United States of America. The unpaid
principal balance of, and all accrued interest on, this Term Note shall be due
and payable in full on September 15, 1999, which date shall be the final
maturity date of this Term Note. All payments under this Term Note shall be paid
to Payee at 8150 North Central Expressway, Suite 1901, Dallas, Texas 75206, or
to such other person or at such other place as may be designated in writing by
Payee or any subsequent holder of this Term Note.
1. Interest Rate. The principal balance of this Term Note shall bear
interest at the rate of ten percent (10%) per annum. All interest on the
principal balance of this Term Note shall be computed on the basis of the actual
number of days elapsed over an assumed year of 360 days. All parties hereto
hereby specifically agree that this Term Note has been delivered in the
Commonwealth of Kentucky and that the laws of the Commonwealth of Kentucky shall
govern this Term Note.
2. Disbursements of Principal. Payee shall make disbursements of
principal to Maker as set forth in that certain Loan Agreement, among Maker,
Payee, Riverside Group, Inc. ("Riverside"), Cybermax, Inc. ("Cybermax"), and
Cybermax Tech, Inc. ("Cybermax Tech"), dated March 12, 1999, and amended on even
date herewith (the "Loan Agreement"). Riverside, Cybermax and Cybermax Tech are
hereinafter collectively referred to as "Guarantors." This is not a revolving
note, and amounts disbursed hereunder may not be paid down and subsequently
reborrowed by Maker. All advances under this Term Note shall be recorded by
appropriate entries into a ledger maintained by Payee and shall be prima facie
evidence of the amount outstanding under this Term Note from time to time.
3. Repayment of Principal and Payment of Interest Prepayment. The
principal balance of this Term Note, together with all accrued interest thereon,
shall be paid in full on the maturity date or earlier acceleration of this Term
Note. This Term Note may be prepaid in whole or in part at any time and from
time to time without penalty.
4. Application of Payments. Payments made under this Term Note shall be
applied, at the holder's sole option, first to any expenses or sums advanced by
Payee or other amounts (other than principal and interest) payable to Payee in
respect of and in accordance with the terms of this Term Note, the Loan Agree-
ment or under the terms of any document or instrument securing the repayment
of this Ter Note; second, to accrued but unpaid interest upon the principal
balance of this Term Note and then to the principal balance of this Term Note.
5. Overdue Payments; Default Rate. All overdue payments of principal or
interest on this Term Note shall bear additional interest until paid in full at
the rate per annum (calculated on the basis of an assumed year of 360 days as
aforesaid) of five percent (5%) in excess of the rate otherwise payable under
the terms of this Term Note or the highest rate allowed by applicable law,
whichever is lower, and shall be due and payable on demand of the holder hereof.
The collection of default rate interest shall not be deemed a waiver of an Event
of Default.
6. Security. This Term Note is secured by: (i) a pledge of all the
capital stock of Cybermax pursuant to a Stock Pledge Agreement, dated March 12,
1999, and amended on even date herewith between Riverside and Payee, (ii) a
pledge of all the capital stock of Maker pursuant to a Stock Pledge Agreement,
dated March 12, 1999, and amended on even date herewith between Cybermax Tech
and Payee, (iii) a pledge of all the capital stock of Cybermax Tech pursuant to
a Stock Pledge Agreement, dated March 12, 1999, and amended on even date
herewith between Cybermax and Payee, (iv) Riverside's guarantee as set forth in
an Unconditional Guaranty Agreement, dated March 12, 1999, and amended on even
date herewith, (v) Cybermax's guarantee as set forth in a Limited Guaranty
Agreement, dated March 12, 1999, and amended on even date herewith, (vi)
Cybermax Tech's guarantee as set forth in a Limited Guaranty Agreement, dated
March 12, 1999, and amended on even date herewith, (vii) a security interest in
Cybermax's intellectual property as set forth in a Security Agreement between
Cybermax and Payee, dated March 12, 1999, and amended on even date herewith,
(viii) a security interest in Cybermax Tech's intellectual property as set forth
in a Security Agreement between Cybermax Tech and Payee, dated March 12, 1999,
and amended on even date herewith, and (ix) a security interest in all of
Maker's assets as set forth in a Security Agreement between Maker and Payee,
dated March 12, 1999, and amended on even date herewith. This Term Note has been
issued pursuant to the Loan Agreement (such Loan Agreement and the foregoing
Stock Pledge Agreements, Guaranty Agreements, and Security Agreements are
hereinafter collectively referred to as the "Security Documents"), and is
subject to all terms and conditions of the Loan Agreement and is entitled to all
the benefits of the Security Documents.
7. Events of Default. Each of the following events shall constitute an
event of default under this Term Note, the occurrence of any of which shall
entitle the holder hereof to declare the entire principal balance of this Term
Note, together with all accrued interest and all other liabilities, indebtedness
and obligations of Maker and/or Guarantors to Payee, whether now existing or
hereafter created, to be immediately due and payable, and to take any and all
action allowed Payee by law or equity, under the terms of this Term Note, under
the terms of any of the Security Documents, and under the terms of any other
agreements between Maker and/or Guarantors and Payee:
2
<PAGE>
(a) The failure of Maker to make any payment of principal
or interest provided for in this Term Note on the
date upon which it is due; or
(b) The occurrence of an Event of Default under any Security
Document.
8. No Waiver, Cumulative Remedies. The failure of Payee to exercise any
of its rights and remedies shall not constitute a waiver of the right to
exercise them at that or any other time. All rights and remedies of Payee in the
event of a default shall be cumulative to the greatest extent permitted by law.
9. Expenses. If there is any default under this Term Note or any
Security Document and this Term Note is placed in the hands of any attorney for
collection or is collected through any court including any bankruptcy court,
Maker promises and agrees to pay to Payee its attorneys' fees, court costs, and
all other expenses incurred in collecting or attempting to collect or securing
or attempting to secure this Term Note as provided by the laws of the
Commonwealth of Kentucky, or any other state where the collateral or any part of
it is situated. This section shall be deemed supplemental to, and not to be in
substitution for, that section of any Security Document dealing with the
reimbursement of expenses.
10. Waivers. Maker waives (a) presentment, demand, notice of dishonor,
protest, notice of protest and non-payment, and (b) all exemptions to which
Maker may now or hereafter be entitled under the laws of the Commonwealth of
Kentucky, of any other state, or of the United States, and agrees that Payee
shall have the right (i) to grant Maker or any guarantor of this Term Note any
extension of time for payment of this Term Note or any other indulgence or
forbearance whatsoever, and (ii) to release any security for or guarantor of
payment of this Term Note, without in any way affecting the liability of Maker
under this Term Note or the Guarantors under the Security Documents, and without
waiving any rights Payee may have under this Term Note or by virtue of the laws
of the Commonwealth of Kentucky, or any other state of the United States.
11. Time of Essence. Time is of the essence in the payment and
performance of all of Maker's obligations under this Term Note, the Security
Documents and all documents securing this Term Note or relating hereto.
12. Venue and Jurisdiction. Maker further agrees that in the event of
any litigation for collection of or relating to this note, jurisdiction and
venue shall be proper and appropriate in any court sitting in Louisville or
Jefferson County Kentucky, and Maker hereby consents to such jurisdiction and
venue.
13. Waiver of Jury Trial. MAKER VOLUNTARILY AND INTENTIONALLY WAIVES
AND SHALL NOT ASSERT ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION ARISING FROM OR CONNECTED WITH THIS TERM NOTE, THE SECURITY
DOCUMENTS OR ANY AGREEMENT MADE OR CONTEMPLATED TO BE MADE IN CONNECTION
THEREWITH, OR ANY COURSE OF
3
<PAGE>
DEALING, COURSE OF CONDUCT, STATEMENT OR ACTIONS OF ANY PARTY IN CONNECTION WITH
THIS TERM NOTE.
14. Limitation on Interest. It is the intention of the parties hereto
to conform strictly to applicable usury laws. Accordingly, all agreements
between Maker and Payee with respect to this Term Note and the Loan Documents,
as defined in the Loan Agreement, are hereby expressly limited so that in no
event, whether by reason of acceleration of maturity or otherwise, shall the
amount paid or agreed to be paid to Payee or charged by Payee for the use,
forbearance or detention of the money to be lent hereunder or otherwise, exceed
the maximum amount allowed by law. If this loan would be usurious under
applicable law, then, notwithstanding anything to the contrary in this Term Note
or in the Loan Documents: (a) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for, taken,
reserved, charged or received under this Term Note or the Loan Documents shall
under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on this Term Note by the holder
thereof, or, at Payee's option, refunded to Maker; and (b) if maturity is
accelerated by reason of an election by Payee, or in the event of an prepayment,
then any consideration which constitutes interest may never include more than
the maximum amount allowed by applicable law. In such case, excess interest, if
any provided for in this Note, the Loan Documents or otherwise, to the extent
permitted by applicable law, shall be amortized, prorated, allocated and spread
from the date of advance until payment in full so that the actual rate of
interest is uniform through the term hereof. If such amortization, proration,
allocation and spreading is not permitted under applicable law, then such excess
interest shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited on this Note, or, at
Payee's option, refunded to Maker. The terms and provisions of this Section
shall control and supersede every other provision of this Term Note and the Loan
Documents. This Term Note is a contract made under and shall be construed in
accordance with and governed by the laws of Kentucky, except that if at any time
the laws of the United States America permit Payee to contract for, take,
reserve, charge or receive a higher rate of interest than is allowed by the laws
of Kentucky (whether such federal laws directly so provide or refer to the law
of any state), then such federal laws shall to such extent govern as to the rate
of interest which Payee may contract for, take, reserve, charge or receive under
this Note.
15. Partial Invalidity. If any one or more of the provisions of this
Term Note, or the applicability of any such provision to a specific situation,
shall be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Term Note
and all other applications of any such provision shall not be affected thereby.
In the event such provision(s) cannot be modified to make it or them
enforceable, the invalidity or unenforceability of any such provision(s) of this
Term Note shall not impair the validity or enforceability of any other provision
of this Term Note.
16. Binding Effect. This Term Note shall bind the successors and
assigns of Maker and shall inure to the benefit of Payee and its successors and
assigns. Maker shall not assign or allow the assumption of its rights and
obligations hereunder without Payee's prior written consent.
4
<PAGE>
In Witness Whereof, the undersigned Maker has executed this Term Note
as of the date first above written.
Buildscape, Inc.
By: ______________________________
Title: ______________________________
("Maker")
<PAGE>
AMENDMENT TO STOCK OPTION AGREEMENT
This Amendment to Stock Option Agreement ("Amendment") is entered into
and effective as of this 20 day of May, 1999, by and among: (i) Cybermax Tech,
Inc., a Florida corporation ("Cybermax Tech"), (ii) Buildscape, Inc., a Florida
corporation ("Borrower"), and (iii) Imagine Investments, Inc., a Delaware
corporation ("Lender").
Recitals:
A. Pursuant to that certain Loan Agreement (the "Loan Agreement") dated
as of March 12, 1999 among Lender; Borrower; Cybermax Tech; Cybermax, Inc., a
Florida corporation ("Cybermax"); and Riverside Group, Inc., a Florida
corporation ("Riverside"), Lender made a loan to Borrower in the original face
principal amount of $1,000,000 (the "Term Loan"), and Cybermax Tech, the owner
of 100% (1,000 shares) of the common capital stock of Borrower (the "Common
Stock"), granted Lender an option to purchase ten percent (10%) of the Common
Stock, as more specifically set forth in that certain Stock Option Agreement
between Cybermax Tech, Borrower and Lender, dated March 12, 1999 (the "Option
Agreement").
B. Borrower has requested that Lender loan Borrower an additional One
Million Dollars ($1,000,000) and increase the face principal amount of the Term
Loan to a total face principal amount of Two Million Dollars ($2,000,000).
C. In recognition of the substantial benefit to Cybermax Tech of
Borrower obtaining the additional loan from Lender, and to induce Lender to make
the additional loan, Cybermax Tech is willing to amend the Option Agreement and
to grant Lender an option to purchase 100 more shares of the Common Stock (the
"Additional Shares"), for a total of 200 shares, pursuant to the terms and
conditions of the Option Agreement.
Agreement:
Now, Therefore, Lender, Borrower and Cybermax Tech hereby agree as follows:
1. Definitions. Capitalized terms used this Amendment, to the extent not
otherwise defined herein, shall have the same meanings as set forth in the
Option Agreement.
2. Grant of Option. In consideration of the payment by Imagine to Cybermax Tech
of the sum of $10,000.00, the receipt and sufficiency of which they hereby
acknowledge, Cybermax Tech hereby grants to Imagine the exclusive right and
option to purchase the Additional Shares. The Additional Shares shall be subject
to the same terms and conditions set forth in the Option Agreement.
3. Modification of Defined Terms. The following words or terms in the Option
Agreement are hereby amended and restated as follows:
3.1 Note. The term, "Note", shall hereinafter mean the Amended and
Restated Term Promissory Note made by Borrower in favor of Lender on even date
herewith in the amount of Two Million Dollars ($2,000,000).
3.2 Shares. The term, "Shares", shall hereinafter mean 200 shares of
the issued and outstanding shares of common capital stock of Borrower owned by
Cybermax Tech.
3.3 Option Consideration. The term,"Option Consideration", shall here-
inafter mean the sum of $20,000.
3.4 Option. The term, "Option", shall hereinafter mean the exclusive
right and option given by Cybermax Tech to Imagine to purchase the Shares (as
defined as 200 shares of the issued and outstanding shares of common capital
stock of Borrower owned by Cybermax Tech).
4. Section 1.5. Section 1.5 of the Option Agreement is hereby modified to
reflect that the maximum funding amount under the Note is $2,000,000. Reference
to $1,000,000 is hereby deleted.
5. Reaffirmation. Except as amended hereby, the parties hereby reaffirm and
confirm all of the terms and provisions of the Option Agreement. Furthermore,
Cybermax Tech and Buildscape hereby represent that all representations,
warranties and covenants set forth in the Option Agreement, as amended, (to the
extent they are applicable) are true and correct in all material respects as if
made on, and as of, the execution of this Amendment.
<PAGE>
6. Miscellaneous Provisions.
6.1 Severability. In the event that any one or more of the provisions
contained herein 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 hereof, and this Amendment shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
6.2 Binding Agreement and Benefits. This Amendment shall bind the
parties hereto and their respective successors and assigns, and shall inure to
the benefit of Lender and its successors and assigns.
6.3 Captions and Section Numbers. The captions and section numbers in
this Amendment are inserted only as a matter of convenience and in no way
define, limit, construe, or describe the scope or intent of such sections or in
any way affect this Amendment.
6.4 Modifications. This Amendment may be modified or amended only by
written agreement executed by all of the parties hereto.
6.5 Document Titles. The term, "Loan Agreement", as used therein,
herein and elsewhere, shall mean the Loan Agreement, as amended.
6.6 Counterparts. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
In Witness Whereof, the parties have entered into this Amendment as of
the date first written above.
Cybermax Tech, Inc.
By: _____________________________
Title: _____________________________
("Cybermax Tech")
Imagine Investments, Inc.
By: ______________________________
Title:______________________________
("Lender")
Buildscape, Inc.
By: ____________________________
Title: ____________________________
("Borrower")
<PAGE>
LOAN AGREEMENT
August 12, 1999
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. The Loan..................................................................2
1.1 Amount, Purpose and Interest..........................................2
1.2 Disbursements.........................................................2
1.3 Prepayment............................................................3
1.4 Maturity Date.........................................................3
1.5 Fee 3
2. Security for the Indebtedness.............................................3
2.1 Stock Pledge Agreement Pertaining to Cybermax Tech....................3
2.2 Stock Pledge Agreement Pertaining to Riverside........................3
2.3 Stock Pledge Agreement Pertaining to Cybermax.........................3
2.4 Security Agreement Pertaining to Borrower.............................4
2.5 Security Agreement Pertaining to Cybermax.............................4
2.6 Security Agreement Pertaining to Cybermax Tech........................4
2.7 Other Security........................................................4
2.8 Guaranty 4
3. Conditions Precedent......................................................4
3.1 Resolutions and Approvals.............................................4
3.2 Legal Opinion.........................................................5
3.3 Loan Documents........................................................5
3.4 Representations, Warranties and Covenants.............................5
3.5 Consents of Third Parties.............................................5
3.6 Corporate Matters.....................................................5
3.7 Stock Option..........................................................5
3.8 No Event of Default...................................................5
4. Affirmative Covenants.....................................................5
4.1 Money Obligations.....................................................6
4.2 Financial Statements..................................................6
4.3 Financial Records.....................................................7
4.4 Existence and Licenses................................................8
4.5 Notice................................................................8
4.6 Agreements............................................................8
4.7 Stock.................................................................8
4.8 Compliance with Laws and Agreements...................................8
4.9 Subordination.........................................................8
4.10Payment of Note and Other Indebtedness................................9
4.11Domain Names..........................................................9
5. Negative Covenants........................................................9
5.1 Material Adverse Changes..............................................9
5.2 Minimum Tangible Net Worth...........................................10
5.3 Advances, Repayment of Debts and Dividends...........................11
5.4 Repurchase of Stock..................................................11
5.5 Mergers, Sales and Transfers.........................................11
5.6 Subsidiaries.........................................................11
5.7 New Business.........................................................11
5.8 Capital Contributions................................................11
5.9 Prepayment of Other Debts............................................12
5.10 Indebtedness........................................................12
5.11 Loans...............................................................12
6. Additional Agreements Regarding Stock....................................12
7. Events of Default........................................................12
7.1 Payments.............................................................12
7.2 Defaults Under Loan Documents........................................12
7.3 Covenants and Agreements.............................................12
7.4 Failure to Pay Other Indebtedness....................................13
7.5 Accuracy of Statements...............................................13
7.6 Solvency and Other Matters...........................................13
7.7 Cross Defaults.......................................................14
7.8 Other Defaults.......................................................14
8. Remedies Upon Default....................................................14
8.1 Optional Acceleration................................................14
8.2 Automatic Acceleration...............................................14
8.3 Offsets..............................................................14
8.4 Rights Under Security Instruments....................................15
8.5 Rights Cumulative....................................................15
9. Notices..................................................................15
9.1 Giving of Notices....................................................15
9.2 Time Notices Deemed Given............................................16
10. Guaranty of Guarantors...................................................17
11. Fees and Expenses........................................................17
12. Miscellaneous Provisions.................................................17
12.1 Construction.......................................................17
12.2 Counterparts.......................................................17
12.3 Entire Agreement...................................................17
12.4 Further Assurances.................................................18
12.5 Governing Law......................................................18
12.6 Headings ..........................................................18
12.7 Invalidity of Provisions; Severability.............................18
12.8 Limitation on Interest.............................................18
12.9 Binding Effect.....................................................19
12.10 Modifications......................................................19
12.11 Time of Essence....................................................19
12.12 Waiver.............................................................19
12.13 Interpretation.....................................................19
12.14 Assignment.........................................................19
12.15 Survival of Covenants, Agreements, Warranties and Representations..20
13. Jury Trial Waiver........................................................20
<PAGE>
EXHIBIT A - DISBURSEMENT SCHEDULE
EXHIBIT B - STOCK OPTION AGREEMENT
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is entered into and effective as of the ___ day of
August 1999, by and among: (i) IMAGINE INVESTMENTS, INC., a Delaware corporation
with a principal place of business in Dallas, Texas (the "Lender"), (ii)
BUILDSCAPE, INC., a Florida corporation with a principal place of business in
Jacksonville, Florida (the "Borrower"), (iii) RIVERSIDE GROUP, INC., a Florida
corporation ("Riverside"), (iv) CYBERMAX, INC., a Florida corporation
("Cybermax"), and (v) CYBERMAX TECH, INC., a Florida corporation ("Cybermax
Tech"). Cybermax, Cybermax Tech and Riverside are hereinafter collectively
referred to as "Guarantors".
RECITALS:
A. Pursuant to the following listed loan agreements and notes, Lender has
loaned Borrower the sum of $2,656,907.00.
<TABLE>
<CAPTION>
Date Made Amount Maturity
--------- ------ --------
<S> <C> <C> <C> <C>
"First Loan" "First Loan Agreement" March 12, 1999 $1,000,000.00 September 15, 1999
and "Term Note"
Amendment to First May 20, 1999 $1,000,000.00 September 15, 1999
Loan Agreement
"Second Loan" "Second Loan July 15, 1999 $336,907.00 Upon Demand
Agreement" and "First
Demand Note"
"Third Loan" "Third Loan Agreement" July 30, 1999 $320,000.00 Upon Demand
and "Second Demand
Note"
</TABLE>
C. Borrower has requested that Lender make a fourth loan to Borrower in the
amount of One Million Three Hundred Fifty Thousand Dollars ($1,350,000.00) (the
"Loan") for the purposes of paying off the outstanding principal balances of the
Second and Third Loans, together with all interest accrued thereon, and to use
the balance of the Loan to pay various obligations as and when the same are due
and payable.
<PAGE>
E. In order to induce Lender to enter into this Loan Agreement and to
extend the Loan, without which inducement Lender would be unwilling to take such
actions, and in consideration of the benefits they will receive therefrom,
Borrower, Riverside, Cybermax and Cybermax Tech are willing and desire to make
the agreements as set forth herein.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. THE LOAN. Subject to the terms and conditions contained herein, Lender
hereby agrees to make the Loan to Borrower, in accordance with the following
provisions:
1.1 AMOUNT, PURPOSE AND INTEREST. The amount of the Loan shall be One
Million Three Hundred Fifty Thousand Dollars ($1,350,000.00); however, upon the
execution of this Loan Agreement and related documents and at any time
thereafter, Lender shall only be obligated to fund One Million Dollars
($1,000,000.00) of the Loan. The remaining proceeds of the Loan may be disbursed
at such later date, in Lender's sole discretion, as set forth in Section 1.2
below. The Loan is evidenced by and shall be payable and otherwise be made on
the terms set forth in the Note made by Borrower to Lender of even date herewith
(the "Note") and on the terms established in this Loan Agreement. All payments
on the Note shall be made in immediately available funds at the principal office
of Lender as specified in the Note or this Loan Agreement. The outstanding
principal balance of the Note shall bear interest from the date hereof at the
rate of ten percent (10%) per annum.
The proceeds of the Loan shall be used by Borrower to pay the entire
outstanding principal balances, and interest accrued thereon, of the First
Demand Note and the Second Demand Note. Borrower hereby acknowledges that Lender
has made demand of payment of the Second and Third Loans in accordance with the
terms of the First and Second Demand Notes.
1.2 DISBURSEMENTS. Contemporaneously with the execution of this Loan
Agreement and the Note and the fulfillment of all conditions precedent to the
disbursement of the proceeds of the Loan, Lender shall disburse One Million
Dollars ($1,000,000.00) of the proceeds of the Loan (the "Initial Disbursement")
to Borrower or on Borrower's behalf as set forth on EXHIBIT A, and Borrower
shall pay down the entire outstanding balance, and interest accrued thereon, due
under the First Demand Note and the Second Demand Note and retain the balance of
the Initial Disbursement. In Lender's sole discretion, Lender, instead, may
apply the Initial Disbursement to pay off the entire outstanding principal
balances due under the First Demand Note and the Second Demand Note, together
with all interest accrued thereon, and disburse to Borrower the remaining
portion of the Initial Disbursement as set forth on EXHIBIT A. In either case,
upon Borrower paying off all amounts due under the First and Second Demand
Notes, the First and Second Demand Notes shall be deemed paid in full and
canceled. This Loan is NOT a revolving loan, and amounts borrowed and repaid
under the Note may not be reborrowed in whole or in part.
<PAGE>
If Borrower desires to borrow the remaining Three Hundred Fifty Thousand
Dollars of the Loan, or any portion thereof, Borrower shall submit a written
request to be received by Lender no later than on August 20, 1999, setting forth
the amount which Borrower desires to borrow, up to the maximum amount of
$350,000.00 (the "Request"). Lender shall respond to Borrower's Request no later
than on August 23, 1999 stating whether Lender will loan to Borrower the amount
set forth in the Request, or any portion thereof. If Lender agrees to fund and
disburse an amount in excess of the Initial Disbursement pursuant to the
Request, Lender shall disburse that amount to Borrower or on Borrower's behalf
no later than on August 25, 1999. The Request shall be sent in the manner and to
the address set forth in Section 9 herein and signed by an authorized officer of
Borrower. Borrower understands that Lender is not obligated to disburse any
amounts in excess of the Initial Disbursement.
In accordance with Section 11 of this Agreement, legal fees in the amount
of $7,500.00 incurred in connection with the preparation and documentation of
this Loan and the Third Loan shall be paid from the Initial Disbursement to
Lender's counsel, Greenebaum, Doll & McDonald, PLLC.
1.3 PREPAYMENT. Any portion of the principal balance of the Note, or any
accrued interest thereon, may be prepaid at any time, in whole or in part,
without the written consent of Lender.
1.4 MATURITY DATE. The maturity date of the Note, at which time all
outstanding principal and accrued interest on the Note shall be due and payable
in full, is September 15, 1999.
1.5 FEE. Borrower agrees to pay a fee to Lender in the amount of
$10,000.00 for agreeing to make this Loan and hereby instructs Lender to
immediately pay such fee to Lender out of the proceeds of the Loan.
2. SECURITY FOR THE INDEBTEDNESS. The Note, the Loan Agreement and all sums
and obligations owed thereunder (collectively, the "Indebtedness"), are and
shall be secured by a lien in certain property and the guaranty by certain
parties, all as evidenced by the following: (all of the following are sometimes
hereinafter collectively referred to as the "Security Instruments"; the Security
Instruments, this Loan Agreement and the Note are sometimes hereinafter
collectively referred to as the "Loan Documents"):
2.1 STOCK PLEDGE AGREEMENT PERTAINING TO CYBERMAX TECH. That certain
Stock Pledge Agreement between Cybermax Tech and Lender of even date herewith,
pursuant to which Cybermax Tech pledges to Lender 100% of the capital stock of
Borrower (the "Buildscape Stock") and delivers to Lender the original
certificates of the Buildscape Stock, together with the appropriate blank stock
powers, if not previously delivered to Lender.
2.2 STOCK PLEDGE AGREEMENT PERTAINING TO RIVERSIDE. That certain Stock
Pledge Agreement between Riverside and Lender of even date herewith, pursuant to
which Riverside pledges 100% of the capital stock of Cybermax (the "Cybermax
Stock") and delivers to Lender the original certificates of the Cybermax Stock,
together with the appropriate blank stock powers, if not previously delivered to
Lender.
<PAGE>
2.3 STOCK PLEDGE AGREEMENT PERTAINING TO CYBERMAX. That certain Stock
Pledge Agreement between Cybermax and Lender of even date herewith, pursuant to
which Cybermax pledges 100% of the capital stock of Cybermax Tech (the "Cybermax
Tech Stock") and delivers to Lender the original certificates of the Cybermax
Tech Stock, together with the appropriate blank stock powers, if not previously
delivered to Lender.
2.4 SECURITY AGREEMENT PERTAINING TO BORROWER. That certain Security
Agreement between Borrower and Lender of even date herewith, pursuant to which
Borrower pledges and grants Lender a security interest in, and assigns to
Lender, all of Borrower's assets.
2.5 SECURITY AGREEMENT PERTAINING TO CYBERMAX. That certain Security
Agreement between Cybermax and Lender of even date herewith, pursuant to which
Cybermax grants Lender a security interest in, and assigns to Lender all of
Cybermax's web sites and domain names, Internet listing and numbers, trademarks,
service marks, trade names, service names, royalty payments, patents,
copyrights, licenses, licensing agreements and other rights in intellectual
property, rights as lessee under any lease of real or personal property,
literary rights, goodwill, applications, documentation, hardware, software,
computer data files, books and records in whatever media (paper, electronic or
otherwise), rights in applications for any of the foregoing, and anything used
or useful in connection with all web sites and domain names owned or operated by
Cybermax or any of its affiliates, regardless whether now existing or hereafter
acquired or arising.
2.6 SECURITY AGREEMENT PERTAINING TO CYBERMAX TECH. That certain
Security Agreement between Cybermax Tech and Lender of even date herewith,
pursuant to which Cybermax Tech grants Lender a security interest in, and
assigns to Lender, all of Cybermax Tech's web sites and domain names, Internet
listing and numbers, trademarks, service marks, trade names, service names,
royalty payments, patents, copyrights, licenses, licensing agreements and other
rights in intellectual property, rights as lessee under any lease of real or
personal property, literary rights, goodwill, applications, documentation,
hardware, software, computer data files, books and records in whatever media
(paper, electronic or otherwise), rights in applications for any of the
foregoing, and anything used or useful in connection with all web sites and
domain names owned or operated by Cybermax Tech or any of its affiliates,
regardless whether now existing or hereafter acquired or arising.
2.7 OTHER SECURITY. Other security and instruments, if any, granted by
Borrower and/or Guarantors to Lender, whether of even date herewith or hereafter
or heretofore granted, to secure the Note and/or any other Indebtedness.
2.8 GUARANTY. The guaranty agreements of Guarantors pursuant to
SECTION 10 hereunder.
- ----------
3. CONDITIONS PRECEDENT. Lender's obligations under this Loan Agreement
shall be subject to the fulfillment to Lender's satisfaction of each of the
following conditions precedent, unless such condition or conditions shall be
waived by Lender in writing, in the sole discretion of Lender:
<PAGE>
3.1 RESOLUTIONS AND APPROVALS. Borrower and Guarantors shall furnish
certified copies of all consents, resolutions and approvals as may be required
by Lender, evidencing approval of the execution of the Loan Documents, all in
form and substance acceptable to Lender.
3.2 LEGAL OPINION. Lender shall have received a favorable written
opinion of counsel for Borrower and Guarantors (i.e. Holland & Knight), dated
and effective as of the date on which the Loan Documents are executed and
delivered, addressed to Lender and satisfactory in form and substance to Lender,
with only such modifications, exceptions, assumptions and qualifications as
shall be acceptable to Lender and its counsel.
3.3 LOAN DOCUMENTS. All the Loan Documents, and such other documents or
instruments as Lender may reasonably require, all in form and substance
acceptable to Lender, shall have been duly executed and delivered to Lender,
and, where appropriate, duly recorded in the proper public offices, and all of
the Loan Documents shall be in full force and effect.
3.4 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Borrower and Guarantors contained herein and in the other Loan
Documents shall be true and correct on, and as of, the execution of this
Agreement. Borrower and Guarantors shall be in compliance with all covenants
contained in the Loan Documents.
3.5 CONSENTS OF THIRD PARTIES. Such third party consents, estoppels or
agreements as Lender may require, all of which shall be in form and content
satisfactory to Lender in its sole discretion.
3.6 CORPORATE MATTERS. Lender shall have been provided with true and
correct copies of all articles of incorporation, by-laws and corporate minutes
of Borrower and shall have been provided such further information as shall have
been requested by Lender with regard to the business, properties, finances and
operations of Borrower and Guarantors.
3.7 STOCK OPTION. Borrower and Cybermax Tech shall have executed and
delivered a Stock Option Agreement in favor of Lender, of even date herewith, a
copy of which is attached hereto as EXHIBIT B and incorporated herein by
reference (the "Option Agreement"), pursuant to which Cybermax Tech shall have
granted Lender the exclusive right and option (the "Option") to purchase ten
percent (10%) of the common capital stock of Borrower subject to the terms of
the Option Agreement. This Option is in addition to the option to purchase
twenty percent (20%) of the common capital stock of Borrower to which Lender is
already entitled pursuant to that certain Stock Option Agreement between
Borrower, Lender and Cybermax Tech dated as of March 12, 1999, and amended on
May 20, 1999.
3.8 NO EVENT OF DEFAULT. No "Event of Default" and no event which would
constitute an Event of Default with the giving of notice, passage of time, or
both (a "Possible Default") shall have occurred or shall occur after giving
effect to the requested disbursement.
<PAGE>
4. AFFIRMATIVE COVENANTS. Borrower and Guarantors jointly and severally
agree that until the principal of and all interest accrued on the Note and all
the other Indebtedness shall have been paid in full and this Loan Agreement
terminated, Borrower and Guarantors, as applicable, shall perform and observe
all of the following terms and provisions:
4.1 MONEY OBLIGATIONS. Borrower and Guarantors, to the extent provided
in Guarantors' respective Guaranty Agreements, shall pay in full:
(A) Prior in each case to the date when penalties would attach,
all taxes, assessments and governmental charges and levies hereafter due by
Borrower and/or Guarantors (except only those so long as and to the extent that
the same shall be contested in good faith by appropriate and timely legal
proceedings and for which a bond staying execution or enforcement thereof shall
have been posted to the satisfaction of the Lender); and
(B) All their respective debts, obligations and liabilities
incurred after the date hereof, on or prior to their respective due dates, for
which they respectively may be or become liable or to which any or all their
properties may be or become subject.
4.2 FINANCIAL STATEMENTS.
(A) Borrower shall furnish to Lender, within thirty (30) days
after the end of each calendar quarter, an income statement of Borrower for that
quarter and for the period from the beginning of the applicable fiscal year of
the Borrower to the end of such quarter and a balance sheet of Borrower as of
the end of each such quarter, certified by the President or Chief Financial
Officer of Borrower to be true, correct and accurate.
(B) Borrower shall furnish to the Lender, within ninety (90) days
after the end of each fiscal year of Borrower, (i) a complete financial report,
consisting of balance sheet, statement of profit and loss, application of funds,
change in financial position and the like, prepared or reviewed by a firm of
independent public accountants of recognized standing acceptable to Lender.
(C) Borrower shall furnish to Lender, immediately upon Lender's
written request, such other information about the financial condition,
properties and operations of Borrower as Lender may from time to time reasonably
request.
(D) Each Guarantor shall furnish to Lender, (i) on or before
March 31 of each year, Guarantor's own financial statements, in a form approved
by Lender, as of the preceding December 31, certified as true and correct by
Guarantor, (ii) a copy of Guarantor's signed federal tax returns within five (5)
business days of the filing of such return with the Internal Revenue Service,
and (iii) promptly on demand of Lender, such other financial information
concerning Guarantor as Lender may request from time to time;
<PAGE>
(E) All financial statements specified in SECTION 4.2(A), (B),
and (C) above shall be furnished to Lender with comparative figures for the
corresponding period in the preceding fiscal year; and all financial statements
referred to in SECTION 4.2(A), (B), and (C) above shall be prepared on the
accrual basis of accounting, in accordance with GAAP applied on a basis
consistent with prior years of Borrower, on a consolidated (and consolidating)
basis and shall be accompanied by a certificate of the president of Borrower:
(1) stating that there exists no Event of Default or
Possible Default hereunder; or
(2) describing with particularity any Event of Default or
Possible Default, stating the nature thereof, the period of existence
thereof and what action Borrower, its subsidiaries and/or Guarantors have
taken or propose to take with respect thereto.
(F) Borrower shall furnish to Lender, prompt written notice of
any condition or event which has resulted in or might result in:
(1) a material adverse change in the consolidated condition
(financial or otherwise) or operations of Borrower or Guarantors; or
(2) a breach of or noncompliance with any term, condition or
covenant contained herein or in any document delivered pursuant hereto; or
(3) a material breach of, or noncompliance with, any term,
condition or covenant of any material contract to which Borrower and/or any
of its subsidiaries or the Guarantors are a party or by which they or their
property may be bound.
(G) Borrower and Guarantors shall furnish to Lender prompt
written notice of any claims, proceedings or disputes (whether or not
purportedly on behalf of Borrower or Guarantors) against, or to the knowledge of
Borrower or Guarantors, threatened or affecting Borrower or Guarantors which, if
adversely determined, would have a material adverse effect on the business,
properties or condition (financial or otherwise) of Borrower or any subsidiaries
or Guarantors or any labor controversy resulting in or threatening to result in
a strike against Borrower or Guarantors, or of any proposal by any public
authority to acquire any of the material assets or business of Borrower.
4.3 FINANCIAL RECORDS. Borrower and Guarantors, as applicable, shall:
(A) At all times keep true and complete financial records in
accordance with GAAP consistently applied;
(B) At all reasonable times, permit Lender to examine any or all
of their financial and other records and to make excerpts therefrom and
transcripts thereof;
(C) Maintain their books and records at their respective current
principal office which are the same address as listed for the Borrower and
Guarantors in SECTION 9 hereof; and
(D) Maintain their current fiscal years.
<PAGE>
4.4 EXISTENCE AND LICENSES. Borrower shall preserve its corporate
existence in good standing and will be and remain qualified to do business in
good standing in all states in which it is required to be so qualified, and will
maintain all permits, licenses and other similar matters necessary or
appropriate for its business.
4.5 NOTICE. Guarantors and Borrower shall notify Lender in writing,
within no more than twenty-four (24) hours (and without the benefit of any grace
period afforded in any provision of this Loan Agreement or any Security
Instrument) after either of the Guarantors or Borrower or any of Borrower's
officers or directors learns of any of the following:
(A) the existence or occurrence of any Event of Default or
Possible Default under this Loan Agreement, or any default under the Note or any
of the Security Instruments;
(B) any representation or warranty made herein, or in any related
writing, not being or ceasing to be, for any reason, in any material respect,
true and complete and not misleading; or
(C) the institution of, or adverse determination in, any
litigation, arbitration or governmental proceeding (including but not limited to
an audit or examination by the Internal Revenue Service) which could have a
material and adverse effect upon Borrower or Guarantors, which notification
shall describe the nature thereof, what happened with respect thereto and what
steps are being taken by Borrower or Guarantors, as the case may be, with
respect thereto.
4.6 AGREEMENTS. Borrower shall comply timely with all its agreements and
valid obligations to and with all parties, and shall not commit or permit to be
committed any default thereunder.
4.7 STOCK. Borrower, Cybermax and Cybermax Tech shall instruct their
respective Secretaries and stock transfer agents not to issue any additional
capital stock, warrants, options or rights with respect thereto or instruments
convertible into their respective capital stock, and Borrower, Cybermax and
Cybermax Tech shall not issue any additional capital stock, warrants, options or
rights with respect thereto, or instruments convertible into their respective
capital stock, unless the same is directly pledged and delivered to Lender as
security for the Note pursuant to the Stock Pledge Agreements referred to in
SECTION 2 hereof.
4.8 COMPLIANCE WITH LAWS AND AGREEMENTS. Borrower and Guarantors shall
comply with the applicable statutes, regulations, ordinances and other laws
applicable to their operations and activities.
<PAGE>
4.9 SUBORDINATION. Borrower and Guarantors hereby agree that all current
and future debts of Borrower, with the exception of reimbursement for travel
expenses incurred on behalf of Borrower, and/or any of its subsidiaries to any
of Guarantors or any other stockholder or director of Borrower or any of their
spouses, in laws, or blood relatives shall, and are hereby declared to be, fully
subordinated to the prior repayment of all the Indebtedness, including the Note,
and, no payments of principal or interest on such other debts shall be made,
without the prior written consent of Lender, until the Indebtedness, including
the Note, has been paid in full.
4.10 PAYMENT OF NOTE AND OTHER INDEBTEDNESS. Borrower shall timely pay
the Note and all the other Indebtedness in accordance with their respective
terms. All payments on the Note and the other Indebtedness shall be made to
Lender in immediately available funds at Lender's principal office on the date
due by no later than 2:00 p.m. Lender's local time. Funds received by Lender
after that time shall be deemed to be received by Lender on the following
business day.
4.11 DOMAIN NAMES. Borrower shall maintain its web sites, domain names,
Internet listings and numbers, trademarks (including any applications therefor),
applications, documentation, hardware, software, computer data files and
anything used or useful in connection with its web sites and domain names
(collectively the "Internet Property") owned or operated by Borrower or any of
its affiliates (collectively, the "Internet Property") in good working
condition, preserve its rights in all Internet Property and shall notify Lender
upon the creation of any additional domain names, web sites, trademarks,
trademark applications or other similar property. Immediately upon Lender's
request and at Borrower's sole expense, Borrower shall execute and deliver to
Lender such UCC-1 Financing Statements and assignments with the U.S. Patent and
Trademark Office, and cooperate with Lender in taking any other actions or
measures, which in Lender's sole discretion are necessary to perfect and/or
continue perfected Lender's security interest in the Internet Property, whether
now existing or hereafter acquired or arising.
5. NEGATIVE COVENANTS. Borrower and Guarantors jointly and severally agree
that, until the principal of and all interest on the Note and all the other
Indebtedness shall have been paid in full and this Loan Agreement terminated,
Borrower and Guarantors, as applicable, shall observe and comply with each of
the following provisions:
5.1 MATERIAL ADVERSE CHANGES. Borrower shall not permit a "material
adverse change" (as hereinafter defined) to occur. A "material adverse change"
shall be deemed to have occurred upon any of the following:
(A) Any real estate of Riverside is sold for less than 90% of the
amount shown on Riverside's Collateral Analysis Schedule, a copy of which has
already been provided to Lender and shall be updated quarterly (the "Collateral
Analysis Schedule"); or in the event there are no sales, future values (as
reflected on any future Collateral Analysis Schedule or, if lower, appraisals
secured as provided in SECTION 5.2 (b) below) of such real estate diminish more
than 15% in the aggregate from their present value reflected on the initial
Collateral Analysis Schedule.
(B) The operating revenues and cash flows from Cybermax at the
end of any fiscal quarter in 1999 (on a cumulative basis) is less than 90% of
those recorded for the same period in 1998 or if the negative cash flow from
Cybermax is more than $1,000,000 at any time during 1999.
<PAGE>
(C) If it becomes applicable, during fiscal year 2000 and 2001 of
Cybermax, following approval of the executive committee (consisting of Harry
Carneal, Robert Shaw and Wilson) (the "Executive Committee") of Cybermax's
business plan, if on a cumulative basis, the gross profits of Cybermax are less
than 75% of amounts projected in such business plan, or expenses are more than
10% above amounts projected in such business plan.
(D) Riverside's investment in Greenleaf, Inc. results in a
material negative cash effect on Riverside. Examples of a negative effect
associated with this investment would be if Riverside incurs any substantial
negative cash flow or is involved in material litigation in connection with
Greenleaf, Inc.
(E) Following approval of the Executive Committee of Borrower's
business plan, and provided significant outside capital is not invested in
Borrower, if on a cumulative basis, the gross profits of Borrower are less than
75% of amounts projected in such business plan, expenses are more than 10% above
amounts projected in such business plan, or the stages of completion of the
basic infrastructure of Borrower are more than six (6) weeks delinquent. If
significant outside capital is invested in Borrower, the foregoing business plan
shall be modified to reflect such investment and submitted to the Executive
Committee, for approval and if such modified business plan is not approved by
the Executive Committee within 20 days after such capital infusion, that shall
be deemed a material adverse change; if such modified business plan is approved
by such Executive Committee; and if gross profits are less than 25% of those
projected in such modified business plan and expenses of Borrower exceed those
projected in such modified business plan that has been approved by such
Executive Committee, no material adverse change will be deemed to have occurred
under this clause, but otherwise a material adverse change under this clause
will be deemed to have occurred.
Each of the foregoing items will be considered not individually but rather
in the aggregate, such that if an individual item has occurred but there is a
positive offset with respect to another item, Lender will consider the net
effect when making its determination as to whether a "material adverse change"
has occurred, but the Lender shall be entitled to make such determination in its
sole and unfettered discretion. As an example, in the event Riverside's
investment in Greenleaf, Inc. ultimately results in the realization of clear
value (i.e. cash), then this will be taken into consideration in evaluating the
progress or results of any of the other items.
5.2 MINIMUM TANGIBLE NET WORTH. Borrower and Riverside shall not
permit Riverside to fail to meet the following test:
<PAGE>
Riverside shall maintain a minimum GAAP net worth of $1,000,000, and at
no time will the calculated net realizable value of the assets of Riverside be
less than $10,000,000 in excess of Riverside's liabilities. The calculated net
realizable value of the assets will be computed at the end of each calendar
quarter. The calculated net realizable value of the assets will be based upon
the market price of the Wickes, Inc. shares owned by Riverside (which shall be
the average closing price of the Wickes, Inc. stock over the last 20 trading
days of the calendar quarter), the net realizable value of any real estate
(determined as set forth below), the estimated value of Borrower (as determined
by Lender in its sole discretion), plus the net current assets and less all
liabilities (adjusted for any amounts included in the calculations above) of
Riverside. For purposes of this SECTION 5.2, the net realizable value of the
real estate shall be as reflected on the Collateral Analysis Schedule prepared
by the Riverside's real estate manager using comparable sales figures and
updated for past sales. The Lender reserves the right, at its sole discretion,
to request a third party appraisal no more than once in a twelve month period.
If the Lender exercises this right, then the minimum net realizable value of any
given piece of real estate for the twelve months following receipt of the
appraisal shall not be greater than the amount shown on the appraisal.
As used herein, the term GAAP refers to generally accepted accounting
principals in effect in the United States of America from time to time and
applied in a manner consistent with past practices.
5.3 ADVANCES, REPAYMENT OF DEBTS AND DIVIDENDS. Without the prior
written consent of Lender, Borrower shall not make any advances or make any
payment of principal or interest on any debt owed to Guarantors, and shall not
pay any actual or constructive dividends in cash, stock or other property, and
shall not make any other distributions whatsoever with respect to any of its
capital stock, or set aside any funds for any of such purposes.
5.4 REPURCHASE OF STOCK. Without the prior written consent of Lender,
neither Borrower nor any of its subsidiaries nor any of the Guarantors shall
purchase, acquire, redeem or retire any of Borrower's capital stock or rights
with respect thereto, nor shall Borrower liquidate or dissolve or take any
action with a view towards same.
5.5 MERGERS, SALES AND TRANSFERS. Without the prior written consent of
Lender, Borrower, Borrower's subsidiaries or Guarantors shall not:
(A) Be or become a party to any consolidation, reorganization
or merger;
(B) Sell all or substantially all of its assets;
(C) Purchase all or a substantial part of the assets of any other
corporation, partnership, limited liability company or other business
enterprise; or
(D) Effect any change in its capital structure, or amend its
Articles of Incorporation.
5.6 SUBSIDIARIES. Without the prior written consent of Lender, neither
Borrower nor any of Borrower's subsidiaries shall create any new subsidiaries or
acquire any capital stock or other securities or interests in another
corporation, limited liability company, entity, partnership, joint venture or
business. Borrower shall not transfer, assign or lend any money or other
property to any subsidiary or affiliate.
5.7 NEW BUSINESS. Borrower shall not change materially the nature of
its business in any manner.
<PAGE>
5.8 CAPITAL CONTRIBUTIONS. Without the prior written consent of Lender,
neither Borrower nor any of its subsidiaries shall make any capital contribution
to, or investment in, any subsidiary or purchase or commit to purchase any
additional stock or securities of any kind from any subsidiary.
5.9 PREPAYMENT OF OTHER DEBTS. Neither Borrower nor any of the
Guarantors shall prepay prior to their respective presently existing maturities
any debts or liabilities.
5.10 INDEBTEDNESS. Without the prior written consent of Lender, neither
Borrower nor any of its subsidiaries nor any of the Guarantors shall incur any
indebtedness for borrowed money whatsoever or guaranty or become directly or
contingently liable on any note or other evidence of indebtedness, letter of
credit or contract of any kind, or enter any contract or agreement requiring it
to make payments regardless of the performance by the other party or that has
the effect of constituting a guaranty (and Borrower and Guarantors shall not
make any guaranty for any affiliate), except only for trade payables incurred by
Borrower or Guarantors in the ordinary course of business, and capital leases
and equipment purchases of $100,000 or less in the aggregate per annum.
5.11 LOANS. Neither Borrower nor any of its subsidiaries nor any of the
Guarantors shall make any loans other than the creation of accounts receivable
in the ordinary course of business, or advance any funds whatsoever, without the
prior written consent of Lender.
6. ADDITIONAL AGREEMENTS REGARDING STOCK. As additional security for the
Loan, Borrower and Guarantors hereby assign to Lender all of the respective
rights, titles and interests of Borrower and Guarantors under any and all
registration rights and similar agreements with respect to the stock of
Borrower, Cybermax and Cybermax Tech, to the extent Lender has from time to time
foreclosed upon or otherwise acquired or thereafter does foreclose or otherwise
acquire any of the stock of the Borrower.
7. EVENTS OF DEFAULT. The occurrence of any or all of the following events
constitute an "Event of Default" under this Loan Agreement:
7.1 PAYMENTS. If any installment of principal or interest on any of the
Indebtedness, including, but not limited to the Note, shall not be paid in full
punctually when due and payable.
7.2 DEFAULTS UNDER LOAN DOCUMENTS. If any default or Event of Default
occurs under any Loan Document.
7.3 COVENANTS AND AGREEMENTS. If Borrower or either of the Guarantors
shall violate or fail to perform or observe any covenant, agreement, condition,
representation, warranty, or other provision (other than as governed by SECTION
7.1 OR 7.2 hereof) contained or referred to in any of the Loan Documents and
such failure or omission shall not have been fully corrected to the complete
satisfaction of Lender within 15 days (or such shorter grace period as may be
provided in the particular Loan Document for the particular default) after
Lender has given written notice thereof to Borrower and Guarantors.
<PAGE>
7.4 FAILURE TO PAY OTHER INDEBTEDNESS. If Borrower or any of its
subsidiaries shall fail to pay or perform any other obligation it may have or be
subject to with respect to any party within any applicable grace period.
7.5 ACCURACY OF STATEMENTS. If any representation or warranty or other
statement of fact contained herein or in any of the Security Instruments or in
any writing, certificate, report or statement at any time furnished by or for
Borrower and/or Guarantors to Lender pursuant to or in connection with this Loan
Agreement or otherwise in connection with the transactions contemplated hereby
shall be false or misleading in any material respect or shall omit to state a
material fact required to be stated therein in order to make the statements
contained therein, in light of the circumstances under which made, not
misleading, on the date as of which made, whether or not made with knowledge of
same.
7.6 SOLVENCY AND OTHER MATTERS. If Borrower or any of its subsidiaries
or any of the Guarantors shall:
(A) discontinue business; or
(B) make a general assignment for the benefit of creditors; or
(C) apply for or consent to the appointment of a custodian,
receiver, trustee or liquidator of all or a substantial part of its or their
assets; or
(D) be adjudicated a bankrupt or insolvent; or
(E) file a voluntary petition in bankruptcy or file a petition or
an answer seeking a composition, reorganization or an arrangement with creditors
or seeking to take advantage of any other law (whether federal or state)
relating to relief for debtors, or admit (by answer, default or otherwise) the
material allegations of any petition filed against them in any bankruptcy,
reorganization, composition, insolvency or other proceeding (whether federal or
state) relating to relief for debtors; or
(F) suffer or permit to continue unstayed and in effect for
thirty (30) consecutive days any judgment, decree or order entered by a court or
governmental agency of competent jurisdiction, which assumes control of Borrower
(or Guarantors) or approves a petition seeking a reorganization, composition or
arrangement of Borrower (or Guarantors) or any other judicial modification of
the rights of any of its (or Guarantors) respective creditors, or appoints a
custodian, receiver, trustee or liquidator for Borrower or either of the
Guarantors or for all or a substantial part of any of their business or assets;
or
(G) not be paying their respective debts as they become due; or
(H) be enjoined or restrained from conducting all or a material
part of any of their respective businesses as now conducted and the same is not
dismissed and dissolved within thirty (30) days after the entry thereof.
<PAGE>
7.7 CROSS DEFAULTS. If an event of default occurs under the First Loan
Agreement, the Term Note or any related loan documents. Likewise, if any Event
of Default occurs under this Loan Agreement or under the Note, then all sums due
under the Term Note shall be immediately accelerated and shall become
immediately due and payable to Lender.
7.8 OTHER DEFAULTS. If any of the following shall occur:
(A) Any lien, garnishment, levy, attachment or encumbrance of any
kind is placed against any property which serves as collateral for the Note;
(B) The issuance of any tax lien or levy against Borrower or
either of the Guarantors or any of its property or Borrower's or either of the
Guarantors failure to pay, withhold, collect or remit any tax when assessed or
due;
(C) There shall hereafter occur any material and adverse change
in the business operations and condition, financial or otherwise, of Borrower or
either of the Guarantors or in the value of the collateral securing payment of
the Note; and
(D) If a final judgment or judgments for the payment of money in
the aggregate in excess of $10,000.00 shall be rendered against Borrower or any
of the Guarantors and such judgment(s) shall remain unsatisfied or unstayed for
a period of thirty (30) days.
8. REMEDIES UPON DEFAULT. Notwithstanding any contrary provision or
inference herein or elsewhere Lender shall have the following rights and
remedies:
8.1 OPTIONAL ACCELERATION. If any Event of Default referred to in
SECTIONS 7.1 through 7.7 hereof shall occur, Lender, in its absolute discretion,
without further notice to the Borrower or either of the Guarantors, may declare
all or any of the Indebtedness, including, but not limited to, the Note, to be,
whereupon the same shall be, accelerated and immediately due and payable in
full, all without any presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by Borrower and Guarantors.
8.2 AUTOMATIC ACCELERATION. If any Event of Default referred to in
SECTION 7.8 hereof shall occur, all of the Indebtedness, including the Note,
shall thereupon become accelerated and immediately due and payable in full, all
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by Borrower and Guarantors.
<PAGE>
8.3 OFFSETS. If any Event of Default or Possible Default shall occur or
begin to exist, Lender shall have the right then, or at any time thereafter, to
set off against, and to appropriate and apply toward the payment of the
Indebtedness (in such order as Lender may select in its sole discretion),
including but not limited to the indebtedness evidenced by the Note, whether or
not such indebtedness shall then have matured or be due and payable and whether
or not Lender has declared the Note and/or other Indebtedness to be in default
and immediately due, any and all deposit balances and other sums and
indebtedness and other property then held or owed by the Lender to or for the
credit or account of Borrower and/or Guarantors, and in and on all of which
Borrower and Guarantors hereby grant Lender a first security interest and lien
to secure all the Indebtedness, all without notice to or demand upon Borrower or
Guarantors all such notices and demands being hereby expressly waived.
8.4 RIGHTS UNDER SECURITY INSTRUMENTS. If any Event of Default shall
occur, Lender shall also have all rights and remedies granted it under any and
all of the Security Instruments or other Loan Documents securing or intended to
secure the Indebtedness.
8.5 RIGHTS CUMULATIVE. All of the rights and remedies of Lender upon
occurrence of an Event of Default or Possible Default hereunder shall be
cumulative to the greatest extent permitted by law and shall be in addition to
all those rights and remedies afforded Lender at law or equity.
9. NOTICES.
9.1 GIVING OF NOTICES. All notices, requests, consents, approvals,
waivers, demands and other communications hereunder (collectively, "Notices")
shall be deemed to have been given if in writing and (1) personally delivered
against a written receipt, or (2) sent by confirmed telephonic facsimile, or (3)
delivered to a reputable express messenger service (such as Federal Express, DHL
Courier and United Parcel Service) for overnight delivery, addressed as follows
(or to such other address as a party shall have given Notice to the other):
If to Lender:
Imagine Investments, Inc.
8150 North Central Expressway
Suite 1901
Dallas, Texas 75206
Attn: Gary Goltz, General Counsel
Telephone: (214) 365-1905
Fax: (214) 365-6905
cc: Michael M. Fleishman, Esq.
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Telephone: (502) 587-3530
Fax: (502) 540-2131
If to Borrower:
Buildscape, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attn: (904) 281-2200
Fax (904) 296-0584
<PAGE>
cc: Malcolm Graham, Esq.
Holland & Knight
One Independent Drive, Suite 2000
Post Office Box 1559
Jacksonville, Florida 32201-1559 (32202 street address)
Telephone: (904) 354-4141
Fax: (904) 358-2199
If to Guarantors:
Riverside Group, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attn: Cathe Gray
(904) 281-2200
Fax (904) 296-0584
cc: Malcolm Graham, Esq.
Holland & Knight
One Independent Drive, Suite 2000
Post Office Box 1559
Jacksonville, Florida 32201-1559 (32202 street address)
Telephone: (904) 354-4141
Fax: (904) 358-2199
Cybermax, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attn: Cathe Gray
Telephone: (904) 281-2200
Fax (904) 296-0584
Cybermax Tech, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attn: Cathe Gray
Telephone: (904) 281-2200
Fax (904) 296-0584
9.2 TIME NOTICES DEEMED GIVEN. All Notices shall be effective upon being
properly personally delivered, or upon confirmation of a telephonic facsimile,
or upon the delivery to a reputable express messenger service. The period in
which a response to any such notice must be given shall commence to run from the
date on the receipt of a personally delivered notice, or the date of
confirmation of a telephonic facsimile or two days following the proper delivery
of the Notice to a reputable express messenger service, as the case may be.
<PAGE>
10. GUARANTY OF GUARANTORS. Guarantors, to the extent permitted in their
respective guaranty agreements executed on even date herewith, unconditionally
guarantee each and every covenant, agreement, warranty, representation and
obligation of Borrower under this Loan Agreement and consent to all the terms
hereof and thereof, and hereby waive all suretyship and guarantors' defenses
generally. All obligations of Borrower and Guarantors under this Loan Agreement
shall be joint and several.
11. FEES AND EXPENSES. Borrower and Guarantors agree that they shall be
responsible for and shall pay Lender's expenses incurred in negotiating and
effecting the Loan and the Loan Documents, including Lender's attorneys' fees
which, Borrower hereby agrees to have paid out of the Initial Disbursement and
wired to Greenebaum Doll & McDonald, PLLC.
Further, in the event of any default under this Loan Agreement, the
Note or any of the Security Instruments or any related instruments, Borrower and
Guarantors will pay to Lender, to the extent allowable by applicable law, such
further amounts as shall be sufficient to reimburse fully the Lender for all of
its costs and expenses of enforcing its rights and remedies under this Loan
Agreement, the Note and the Security Instruments, and in protecting or
preserving any security for the Indebtedness including without limitation,
Lender's reasonable attorneys', appraisers' and accountants' fees, court costs,
security costs and maintenance costs, and the same shall be deemed evidenced by
the Note and secured by all the Security Instruments. All obligations provided
for in this Section shall survive termination or cancellation of this Loan
Agreement for any reason whatsoever.
12. MISCELLANEOUS PROVISIONS. This Loan Agreement shall be subject to the
following miscellaneous provisions:
12.1 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Loan Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Loan Agreement shall be
construed as if drafted jointly by the parties and no presumption of burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Loan Agreement. Unless the context clearly
states otherwise, the use of the singular or plural in this Loan Agreement shall
include the other and the use of any gender shall include all others. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Loan Agreement. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
12.2 COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original copy of this Loan
Agreement and all of which, when taken together, shall be deemed to constitute
one and the same agreement.
12.3 ENTIRE AGREEMENT. This Loan Agreement embodies the entire agreement
and understanding of the parties hereto with respect to the subject matter
herein contained, and supersedes all prior agreements, correspondence,
arrangements and understandings relating to the subject matter hereof.
<PAGE>
12.4 FURTHER ASSURANCES. Borrower and Guarantors agree (a) to furnish
upon Lender's request such further information, (b) to execute and deliver such
other documents, and (c) to do such other acts and things, all as Lender may
reasonably request for the purpose of carrying out the intent of this Loan
Agreement and the documents referred to in this Loan Agreement.
12.5 GOVERNING LAW. This Loan Agreement and all other Loan Documents are
executed and delivered in, and shall be governed by the laws of, the
Commonwealth of Kentucky, without giving effect to any conflict of law rule or
principle that might require the application of the laws of another
jurisdiction.
12.6 HEADINGS. The headings in this Loan Agreement are included for
purposes of convenience only and shall not be considered a part of this Loan
Agreement in construing or interpreting any provision hereof.
12.7 INVALIDITY OF PROVISIONS; SEVERABILITY. If any provision of this
Loan Agreement or the application thereof to any person or circumstance shall to
any extent be held in any proceeding to be invalid, illegal or unenforceable,
the remainder of this Loan Agreement, or the application of such provision to
persons or circumstances other than those to which it was held to be invalid,
illegal or unenforceable, shall not be affected thereby, and shall be valid,
legal and enforceable to the fullest extent permitted by law, but only if and to
the extent such enforcement would not materially and adversely frustrate the
parties' essential objectives as expressed herein. Notwithstanding the
foregoing, each party hereto agrees that it has reviewed the provisions of this
Loan Agreement, and that the same, taken as a whole, are fair and reasonable.
<PAGE>
12.8 LIMITATION ON INTEREST. It is the intention of the parties hereto to
conform strictly to applicable usury laws. Accordingly, all agreements between
Borrower and Lender with respect to the Note and the Loan Documents are hereby
expressly limited so that in no event, whether by reason of acceleration of
maturity or otherwise, shall the amount paid or agreed to be paid to Lender or
charged by Lender for the use, forbearance or detention of the money to be lent
hereunder or otherwise, exceed the maximum amount allowed by law. If the Loan
would be usurious under applicable law, then, notwithstanding anything to the
contrary in the Note or in the Loan Documents: (a) the aggregate of all
consideration which constitutes interest under applicable law that is contracted
for, taken, reserved, charged or received under the Note or the Loan Documents
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on the Note by the holder
thereof or, at Lender's option, refunded to Borrower; and (b) if maturity is
accelerated by reason of an election by Lender, or in the event of an
prepayment, then any consideration which constitutes interest may never include
more than the maximum amount allowed by applicable law. In such case, excess
interest, if any provided for in the Note, the Loan Documents or otherwise, to
the extent permitted by applicable law, shall be amortized, prorated, allocated
and spread from the date of advance until payment in full so that the actual
rate of interest is uniform through the term hereof. If such amortization,
proration, allocation and spreading is not permitted under applicable law, then
such excess interest shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited on the
Note or, at Lender's option, refunded to Borrower. The terms and provisions of
this Section shall control and supersede every other provision of the Note and
Loan Documents. The Note is a contract made under and shall be construed in
accordance with and governed by the laws of Kentucky, except that if at any time
the laws of the United States America permit Lender to contract for, take,
reserve, charge or receive a higher rate of interest than is allowed by the laws
of Kentucky (whether such federal laws directly so provide or refer to the law
of any state), then such federal laws shall to such extent govern as to the rate
of interest which Lender may contract for, take, reserve, charge or receive
under the Note.
12.9 BINDING EFFECT. The provisions of this Loan Agreement shall bind and
benefit Borrower, Guarantor and Lender and their respective successors, heirs,
personal representatives and assigns, including each subsequent holder, if any,
of the Note or any other Indebtedness.
12.10 MODIFICATIONS. This Loan Agreement may be modified only in writing
executed by Lender and Borrower, and Guarantors shall automatically be bound by
all such modifications even though one or both of the Guarantors does not join
therein or consent thereto, Guarantors hereby agreeing that Borrower's execution
thereof shall be irrevocably and conclusively deemed Guarantors' consent thereto
as Guarantors' irrevocable attorney-in-fact, even though it does not so state.
12.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower and Guarantors of all the obligations set forth in this Loan Agreement
and in all of the other Loan Documents.
12.12 WAIVER. The rights and remedies of Lender hereunder are cumulative
and not alternative. Neither the failure nor any delay by Lender in exercising
any right, power, or privilege under this Loan Agreement or the documents
referred to in this Loan Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. Each such
right, power, remedy or privilege may be exercised by Lender, either
independently or concurrently with others, and as often and in such order as
Lender may deem expedient. To the maximum extent permitted by applicable law, no
waiver that may be given by a party will be applicable except in the specific
instance for which it is given. No waiver or consent granted by Lender with
respect to this Loan Agreement, the Indebtedness or any Security Instrument or
related writing shall be binding upon Lender, unless specifically granted in
writing by a duly authorized officer of Lender, which writing shall be strictly
construed.
12.13 INTERPRETATION. The parties hereto hereby agree that this Loan
Agreement shall be so interpreted to give effect and validity to all the
provisions hereof to the fullest extent permitted by law.
<PAGE>
12.14 ASSIGNMENT. Neither the Borrower nor either of the Guarantors may
assign any of their rights under the Loan Agreement or any of the Loan Documents
to any other party. Lender may assign its rights and obligations under this Loan
Agreement and the other Loan Documents, in whole or in part, without the need
for consent from Borrower or either of the Guarantors, and such assignee shall
be entitled to the benefits of Lender's rights hereunder.
12.15 SURVIVAL OF COVENANTS, AGREEMENTS, WARRANTIES AND REPRESENTATIONS.
All covenants, agreements, warranties and representations made by Borrower and
Guarantor herein shall survive the making of the Loan and delivery of the Note,
this Loan Agreement and any and all Security Instruments for the Note and other
Indebtedness, and shall be deemed to be continuing covenants, agreements,
representations and warranties at all times while any portion of the
Indebtedness, including the Note, remains unpaid.
13. JURY TRIAL WAIVER. BORROWER AND GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION OR ANY OTHER PROCEEDING BASED ON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER WRITTEN OR
ORAL) OR ACTIONS OF THE BORROWER, GUARANTORS OR LENDER.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Loan Agreement as of
the date first written above.
IMAGINE INVESTMENTS, INC.
By: ________________________
Title:_______________________
("Lender")
BUILDSCAPE, INC.
By: _________________________
Title:________________________
("Borrower")
RIVERSIDE GROUP, INC.
By: __________________________
Title:________________________
("Guarantor")
CYBERMAX, INC.
By: _________________________
Title: _______________________
("Guarantor")
CYBERMAX TECH, INC.
By: _________________________
Title: _______________________
(Guarantor")
<PAGE>
PROMISSORY NOTE
$1,350,000.00 LOUISVILLE, KENTUCKY
AUGUST 12, 1999
FOR VALUE RECEIVED, the undersigned, BUILDSCAPE, INC., a Florida
corporation with a principal office and place of business in Jacksonville,
Florida ("Maker"), hereby promises and agrees to pay to the order of IMAGINE
INVESTMENTS, INC., a Delaware corporation, or to any holder of this Note
("Payee"), the principal sum of ONE MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS
($1,350,000.00), or the aggregate principal amount advanced and which shall be
outstanding under this Note, together with interest upon such principal balance
at the rate provided below, in legal tender of the United States of America. The
unpaid principal balance of, and all accrued interest on, this Note shall be due
and payable in full on September 15, 1999, which is the maturity date of this
Note (the "Maturity Date"). All payments under this Note shall be paid to Payee
at 8150 North Central Expressway, Suite 1901, Dallas, Texas 75206, or to such
other person or at such other place as may be designated in writing by Payee or
any subsequent holder of this Note.
1. INTEREST RATE. The principal balance of this Note shall bear
interest at the rate of ten percent (10%) per annum. All interest on the
principal balance of this Note shall be computed on the basis of the actual
number of days elapsed over an assumed year of 360 days. All parties hereto
hereby specifically agree that the laws of the Commonwealth of Kentucky shall
govern this Note.
2. REPAYMENT OF PRINCIPAL AND PAYMENT OF INTEREST PREPAYMENT. The
principal balance of this Note, together with all accrued interest thereon,
shall be paid in full on the Maturity Date or earlier acceleration of this Note.
This Note may be prepaid in whole or in part at any time and from time to time
without penalty.
3. APPLICATION OF PAYMENTS. Payments made under this Note shall be
applied, at the holder's sole option, first to any expenses or sums advanced by
Payee or other amounts (other than principal and interest) payable to Payee in
respect of and in accordance with the terms of this Note, the Loan Agreement or
under the terms of any document or instrument securing the repayment of this
Note; second, to accrued but unpaid interest upon the principal balance of this
Note and then to the principal balance of this Note.
4. OVERDUE PAYMENTS; DEFAULT RATE. All overdue payments of principal or
interest on this Note shall bear additional interest until paid in full at the
rate per annum (calculated on the basis of an assumed year of 360 days as
aforesaid) of five percent (5%) in excess of the rate otherwise payable under
the demands of this Note or the highest rate allowed by applicable law,
whichever is lower, and shall be due and payable on demand of the holder hereof.
The collection of default rate interest shall not be deemed a waiver of an Event
of Default.
<PAGE>
5. SECURITY. This Note is secured by a pledge or grant of a security
interest in the following: (i) all the capital stock of Cybermax, Inc.
("Cybermax") pursuant to that certain Stock Pledge Agreement, dated as of even
date herewith, between Riverside Group, Inc. ("Riverside") and Payee, (ii) all
the capital stock of Maker pursuant to that certain Stock Pledge Agreement,
dated as of even date herewith between Cybermax Tech, Inc. ("Cybermax Tech") and
Payee, (iii) all the capital stock of Cybermax Tech pursuant to that Stock
Pledge Agreement, dated as of even date herewith between Cybermax and Payee,
(iv) Cybermax's intellectual property as set forth in that certain Security
Agreement between Cybermax and Payee, dated as of even date herewith, (v)
Cybermax Tech's intellectual property as set forth in that certain Security
Agreement between Cybermax Tech and Payee, dated as of even date herewith, and
(vi) all of Maker's assets as set forth in that certain Security Agreement
between Maker and Payee, dated as of even date herewith. This Note is further
secured by the following: (i) Riverside's guarantee as set forth in that certain
Unconditional Guaranty Agreement, dated on even date herewith, (ii) Cybermax's
guarantee as set forth in that certain Unconditional Guaranty Agreement, dated
on even date herewith, (iii) Cybermax Tech's guarantee as set forth in that
certain Unconditional Guaranty Agreement, dated on even date herewith. This Note
has been issued pursuant to the Loan Agreement among Maker, Payee, Riverside,
Cybermax, and Cybermax Tech, dated on even date herewith (the "Loan Agreement")
(such Loan Agreement and the foregoing Stock Pledge Agreements, Guaranty
Agreements, and Security Agreements, as amended, are hereinafter collectively
referred to as the "Security Documents"), and is subject to all terms and
conditions of the Loan Agreement and is entitled to all the benefits of the
Security Documents.
6. EVENTS OF DEFAULT. Each of the following events shall constitute an
event of default under this Note, the occurrence of any of which shall entitle
the holder hereof to declare the entire principal balance of this Note, together
with all accrued interest and all other liabilities, indebtedness and
obligations of Maker and/or Guarantors to Payee, whether now existing or
hereafter created, to be immediately due and payable, and to take any and all
action allowed Payee, under this Note, under the Security Documents, and under
any other agreements between Maker and/or Guarantors and Payee or as allowed by
applicable law or equity:
(a) The failure of Maker to make any payment of principal or interest
provided for in this Note on the date upon which it is due;
(b) The occurrence of an Event of Default under any Security Document;
(c) The occurrence of an Event of Default under the Loan Agreement
among Maker, Payee, Cybermax, Cybermax Tech and Riverside, dated as of March 12,
1999, and amended as of May 20, 1999, (the "First Loan Agreement"), or under the
Term Note, dated as of March 12, 1999, and amended as of May 20, 1999, (the
"Term Note") and security documents related thereto.
7. CROSS DEFAULT; ACCELERATION. If Maker fails to make any payment of
principal or interest provided for in this Note on the date upon which it is due
or otherwise defaults under this Note or related loan documents, all sums and
amounts due under the First Loan
2
<PAGE>
Agreement, the Term Note and all related security documents shall be immediately
accelerated and shall become immediately due and payable to Payee.
8. NO WAIVER, CUMULATIVE REMEDIES. The failure of Payee to exercise any
of its rights and remedies shall not constitute a waiver of the right to
exercise them at that or any other time. All rights and remedies of Payee in the
event of a default shall be cumulative to the greatest extent permitted by law.
9. EXPENSES. If there is any default under this Note or any Security
Document and this Note is placed in the hands of any attorney for collection or
is collected through any court including any bankruptcy court, Maker promises
and agrees to pay to Payee its attorneys' fees, court costs, and all other
expenses incurred in collecting or attempting to collect or securing or
attempting to secure this Note as provided by the laws of the Commonwealth of
Kentucky, or any other state where the collateral or any part of it is situated.
This section shall be deemed supplemental to, and not to be in substitution for,
that section of any Security Document dealing with the reimbursement of
expenses. Further, Maker agrees to pay all of Payee's legal fees and expenses in
connection with the making and documentation of the loan evidenced by this Note.
10. WAIVERS. Maker waives (a) presentment, demand, notice of dishonor,
protest, notice of protest and non-payment, and (b) all exemptions to which
Maker may now or hereafter be entitled under the laws of the Commonwealth of
Kentucky, of any other state, or of the United States, and agrees that Payee
shall have the right (i) to grant Maker or any guarantor of this Note any
extension of time for payment of this Note or any other indulgence or
forbearance whatso ever, and (ii) to release any security for or guarantor of
payment of this Note, without in any way affecting the liability of Maker under
this Note or the Guarantors under the Security Documents, and without waiving
any rights Payee may have under this Note or by virtue of the laws of the
Commonwealth of Kentucky, or any other state of the United States.
11. TIME OF ESSENCE. Time is of the essence in the payment and
performance of all of Maker's obligations under this Note, the Security
Documents and all documents securing this Note or relating hereto.
12. VENUE AND JURISDICTION. Maker further agrees that in the event of
any litigation for collection of or relating to this note, jurisdiction and
venue shall be proper and appropriate in any court sitting in Louisville or
Jefferson County Kentucky, and Maker hereby consents to such jurisdiction and
venue.
13. WAIVER OF JURY TRIAL. MAKER VOLUNTARILY AND INTENTIONALLY WAIVES
AND SHALL NOT ASSERT ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION ARISING FROM OR CONNECTED WITH THIS NOTE, THE SECURITY DOCUMENTS
OR ANY AGREEMENT MADE OR CONTEMPLATED TO BE MADE IN CONNECTION THEREWITH, OR ANY
COURSE OF DEALING, COURSE OF CONDUCT, STATEMENT OR ACTIONS OF ANY PARTY IN
CONNECTION WITH THIS NOTE.
3
<PAGE>
14. LIMITATION ON INTEREST. It is the intention of the parties hereto
to conform strictly to applicable usury laws. Accordingly, all agreements
between Maker and Payee with respect to this Note and the Loan Documents, as
defined in the Loan Agreement, are hereby expressly limited so that in no event,
whether by reason of acceleration of maturity or otherwise, shall the amount
paid or agreed to be paid to Payee or charged by Payee for the use, forbearance
or detention of the money to be lent hereunder or otherwise, exceed the maximum
amount allowed by law. If this loan would be usurious under applicable law,
then, notwithstanding anything to the contrary in this Note or in the Loan
Documents: (a) the aggregate of all consideration which constitutes interest
under applicable law that is contracted for, taken, reserved, charged or
received under this Note or the Loan Documents shall under no circumstances
exceed the maximum amount of interest allowed by applicable law, and any excess
shall be credited on this Note by the holder thereof, or, at Payee's option,
refunded to Maker; and (b) if maturity is accelerated by reason of an election
by Payee, or in the event of an prepayment, then any consideration which
constitutes interest may never include more than the maximum amount allowed by
applicable law. In such case, excess interest, if any provided for in this Note,
the Loan Documents or otherwise, to the extent permitted by applicable law,
shall be amortized, prorated, allocated and spread from the date of advance
until payment in full so that the actual rate of interest is uniform through the
terms hereof. If such amortization, proration, allocation and spreading is not
permitted under applicable law, then such excess interest shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited on this Note, or, at Payee's option,
refunded to Maker. The terms and provisions of this Section shall control and
supersede every other provision of this Note and the Loan Documents. This Note
is a contract made under and shall be construed in accordance with and governed
by the laws of Kentucky, except that if at any time the laws of the United
States America permit Payee to contract for, take, reserve, charge or receive a
higher rate of interest than is allowed by the laws of Kentucky (whether such
federal laws directly so provide or refer to the law of any state), then such
federal laws shall to such extent govern as to the rate of interest which Payee
may contract for, take, reserve, charge or receive under this Note.
15. PARTIAL INVALIDITY. If any one or more of the provisions of this
Note, or the applicability of any such provision to a specific situation, shall
be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Note and all
other applications of any such provision shall not be affected thereby. In the
event such provision(s) cannot be modified to make it or them enforceable, the
invalidity or unenforceability of any such provision(s) of this Note shall not
impair the validity or enforceability of any other provision of this Note.
16. BINDING EFFECT. This Note shall bind the successors and assigns of
Maker and shall inure to the benefit of Payee and its successors and assigns.
Maker shall not assign or allow the assumption of its rights and obligations
hereunder without Payee's prior written consent.
[SIGNATURE ON FOLLOWING PAGE]
4
<PAGE>
IN WITNESS WHEREOF, the undersigned Maker has executed this Note as of
the date first above written.
BUILDSCAPE, INC.
By: ______________________________
Title: ______________________________
("Maker")
5
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") is made and entered into as
of August 12, 1999, by and among: (i) CYBERMAX TECH, INC., a Florida
corporation, ("Cybermax Tech"), (ii) IMAGINE INVESTMENTS, INC., a Delaware
corporation with its principal office and place of business in Dallas, Texas
("Imagine"), and (iii) BUILDSCAPE, INC., a Florida corporation ("Buildscape").
RECITALS:
A. Cybermax Tech owns one hundred percent (100%), consisting of 1,000
shares, of the outstanding common stock of Buildscape (the "Common Stock").
B. Pursuant to that certain Stock Option Agreement by and between the
parties hereto, dated as of March 12, 1999, and amended on May 20, 1999,
Cybermax Tech granted Imagine the option to purchase 200 shares of the Common
Stock.
C. In connection with the note executed by Buildscape on even date herewith
in favor of Imagine in the amount of $1,350,000.00 (the "Note"), Cybermax Tech
is willing to grant to Imagine another option to purchase an ADDITIONAL 100
shares of the Common Stock (the "Shares"), and Imagine desires to acquire such
option from Cybermax Tech, upon the terms and provisions set forth herein.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. OPTION.
1.1 GRANT OF OPTION. In consideration of the payment by Imagine to Cybermax
Tech of the sum of $10,000, the receipt and sufficiency of which they hereby
acknowledge (the "Option Consideration"), Cybermax Tech hereby grants to Imagine
the exclusive right and option to purchase the Shares (the "Option").
1.2 PURCHASE PRICE. The purchase price for each share shall be determined
as follows (the "Option Price"):
(A) If a third party not affiliated or related to Buildscape or
Cybermax Tech, including but not limited to a venture capital concern ("Third
Party"), invests an amount in excess of $1,000,000 (a "Third Party Investment")
in exchange for Common Stock or securities, warrants, options or other rights
convertible into Common Stock ("Convertible Securities") at any time after the
execution of this Agreement but prior to, or on, September 14, 1999 (the
"Valuation Period"), the Option Price shall be eighty percent (80%) of the price
paid per share of the Common Stock (or in the case of Convertible Securities,
the price of the Convertible Security divided by the number of shares of Common
Stock into which it may be converted), by Third
1
<PAGE>
Party, or if during the Valuation Period, Third Party acquires an option,
warrant or any other right (a "Third Party Option") to purchase Common Stock,
the Option Price shall be eighty percent (80%) of the price to be paid per share
by Third Party pursuant to the Third Party Option. Imagine shall be entitled to
have its Option Price calculated using the lowest per share purchase price paid
by a Third Party, or to be paid for a Third Party Option.
(B) If there is no Third Party Investment during the Valuation
Period, the Option Price shall be a price equal to "capital stock" plus
"additional paid-in capital" on a per share basis for the Common Stock, as
reflected on Buildscape's books as of the close of business on the last day of
the month immediately prior to Imagine's exercise of the Option. Buildscape's
books shall be prepared in accordance with Generally Accepted Accounting
Principals ("GAAP").
1.3 OPTION TERM.
(A) In the event of a Third Party Investment during the Valuation
Period, the term of the Option (the "Option Term") shall commence on the date of
the closing of the Third Party Investment (the "Third Party Closing Date") and
expire on the 31st day after the Third Party Closing Date.
(B) In the absence of a Third Party Investment during the
Valuation Period, the Option Term shall commence on September 15, 1999 and shall
expire on March 15, 2000.
1.4 MANNER OF EXERCISE.
(A) Imagine may exercise the Option as to any or all of the Shares
at any time during the Option Term by delivery of written notice of such
exercise ("Notice of Exercise") to Cybermax Tech, setting forth the number of
Shares to be purchased pursuant to exercise of the Option and the date for the
closing of the transfer of the Shares which date shall not be more than 30 days
following the date Notice of Exercise is delivered, unless mutually agreed
otherwise (the "Closing Date"). On the Closing Date, Imagine shall deliver to
Cybermax Tech a certified or cashier's check payable to Cybermax Tech or wire
immediately available funds in an amount equal to (i) the Option Price,
MULTIPLIED BY (ii) the total number of Shares then being purchased by Imagine
pursuant to exercise of the Option; provided, however, if the Note has not then
been paid in full, Imagine may elect, but shall have no obligation, to pay for
all or a portion of the Shares purchased pursuant to this Agreement by assigning
the Note without recourse to Cybermax Tech, and Cybermax Tech agrees to credit
such assignment of amounts due and outstanding under the Note towards the
purchase price paid for the Shares, without discount or reduction.
(B) On the Closing Date, Cybermax Tech shall deliver to Imagine
the certificate(s), accompanied by duly executed stock powers, evidencing the
Shares being purchased pursuant to the exercise of the Option, free and clear of
all liens and encumbrances, and shall take any and all such other actions, and
deliver such other documents, as Imagine may reasonably request to effectuate
the contemplated transfer.
2
<PAGE>
1.5 OPTION PROPORTIONATE TO FUNDING. If Imagine disburses to, or on behalf
of, Buildscape less than the maximum funding amount of $1,350,000.00 set forth
in the Note, the number of shares subject to Imagine's Option under this
Agreement shall be proportionately reduced to reflect the actual amounts
disbursed under the Note.
2. FURTHER ASSURANCES. Each party shall execute such additional documents and
take such other actions as the other party shall reasonably request to
consummate the transactions contemplated hereby and otherwise as may be
necessary to effectively carry out the terms and provisions of this Agreement.
3. REPRESENTATIONS AND WARRANTIES. Cybermax Tech and Buildscape hereby represent
and warrant to Imagine that (i) both Cybermax Tech and Buildscape have full
power and authority to execute and deliver this Agreement and to consummate
their respective transactions contemplated hereby in accordance with the terms
hereof, (ii) the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized, (iii)
Cybermax Tech owns 1000 shares of the Common Stock, which constitutes 100% of
the issued and outstanding capital stock of Buildscape, (iv) Cybermax Tech is
the sole legal and beneficial owner of the Shares, and the Shares are free and
clear of all liens, claims, encum brances, charges and restrictions of any
nature whatsoever (except for liens or interests in favor of Imagine), (v) the
execution and delivery of this Agreement and the sale of the Shares to Imagine
pursuant to the provisions hereof will not breach or constitute a default under
any contract or agreement to which either Cybermax Tech or Buildscape is a
party, (vi) this Agreement constitutes the valid and binding obligations of each
of Cybermax Tech and Buildscape, enforceable against them in accordance with its
terms. The foregoing representations and warranties of Cybermax Tech and
Buildscape shall survive the execution of this Agreement.
4. COVENANTS.
4.1 REPAYMENT OF NOTE. Notwithstanding anything to contrary contained in
the Note, in the event of a Third Party Closing, Buildscape shall repay the Note
at such Third Party Closing.
4.2 APPOINTMENT OF DIRECTORS. During the Option Term and thereafter for so
long as Imagine owns any Common Stock or holds any interest in Buildscape,
Cybermax Tech or Cybermax, Inc. ("Cybermax"), the Board of Directors of each of
Buildscape, Cybermax and Cybermax Tech shall each consist of at least one
director appointed by Imagine.
4.3 NEGATIVE COVENANTS; SHAREHOLDERS' AGREEMENT.
(A) During the Option Term and thereafter, if Imagine exercises
the Option and purchases any Shares, for so long as Imagine owns any Common
Stock, Buildscape shall not and Cybermax Tech shall not allow Buildscape to
(i) issue or grant any additional capital stock or other
equity securities of any kind or options, subscription rights,
warrants or other instruments with respect thereto or any
other instruments
3
<PAGE>
convertible into shares of its capital stock, or sell or issue
any treasury stock, unless such issuance or grant is (A) in
favor of a Third Party and Buildscape receives full and fair
market value for the interest being sold, conveyed or
exchanged, or (B) made for the purpose of an employee stock
ownership plan or similar plan and the issuance is unanimously
approved by Buildscape's Board of Directors; or
(ii) declare any stock dividend or stock split without
Imagine's written consent, provided that if Imagine so
consents, the number of Shares subject to the Option shall be
increased to reflect the change in the total capitalization of
Buildscape.
The covenants contained in this Section 4.3(a) shall survive the
termination of this Agreement, the Option Term and the purchase of the Shares by
Imagine.
(B) During the Option Term, Cybermax Tech shall not sell, convey,
assign, transfer, grant or dispose of any of the Common Stock, nor shall it
acquire any additional Common Stock or other capital stock of Buildscape or any
warrants, options or other similar rights relating thereto.
5. INDEMNIFICATION. Cybermax Tech and Buildscape, jointly and severally, shall
indemnify and hold Imagine harmless against and in respect of:
(A) Any damage, deficiency, liability or costs resulting from any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement on the part of Cybermax Tech or Buildscape under this Agreement; and
(B) Any claim, action, suit, proceeding, demand, judgment,
assessment, cost and expense, including reasonable counsel fees, resulting from
any misrepresentation, breach of warranty or non-fulfillment of any covenant or
agreement on the part of Cybermax Tech or Buildscape under this Agreement.
6. MISCELLANEOUS.
6.1 NOTICE. All notices, requests, consents, approvals, waivers, demands
and other communications, including the Notice of Exercise ("Notices") hereunder
shall be deemed to have been given if in writing and (1) personally delivered
against a written receipt, or (2) sent by confirmed telephonic facsimile, or (3)
delivered to a reputable express messenger service (such as Federal Express, DHL
Courier and United Parcel Service) for overnight delivery, addressed as follows
(or to such other address as a party shall have given notice to the other):
4
<PAGE>
If to Imagine:
Imagine Investments, Inc.
8150 North Central Expressway
Suite 1901
Dallas, Texas 75206
Attn: Gary Goltz, General Counsel
Telephone: (214) 365-1905
Fax: (214) 365-6905
cc: Michael M. Fleishman, Esq.
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Telephone: (502) 587-3530
Fax: (502) 540-2131
If to Cybermax Tech or Buildscape:
Cybermax Tech, Inc. and/or Buildscape, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attn: Cathe Gray
Telephone: (904) 281-2200
Fax: (904) 296-0584
cc: Malcolm Graham, Esq.
Holland & Knight
One Independent Drive, Suite 2000
Post Office Box 1559
Jacksonville, Florida 32201-1559 (32202 street address)
Telephone: (904) 354-4141
Fax: (904) 358-2199
All Notices shall be effective upon being properly personally
delivered, or upon confirmation of a telephonic facsimile, or upon the delivery
to a reputable express messenger service. The period in which a response to any
such notice must be given shall commence to run from the date on the receipt of
a personally delivered notice, or the date of confirmation of a telephonic
facsimile or two days following the proper delivery of the notice to a reputable
express messenger service, as the case may be.
6.2 WAIVER. The failure of any party to enforce any provision of this
Agreement cannot be construed to be a waiver of such provision or of the right
hereafter to enforce the same, and no waiver of any breach shall be construed as
an agreement to waive any subsequent breach of the same or any other provision.
5
<PAGE>
6.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof, and no prior or
collateral promises or conditions in connection with or with respect to the
subject matter hereof not incorporated herein shall be binding upon the parties
hereto.
6.4 AMENDMENT. No modification, extension, renewal, rescission, termination
or waiver of any of the provisions contained herein or any future
representation, promise or condition in connection with the subject matter
hereof shall be binding upon either of the parties unless made in writing and
duly executed by the parties or their authorized representatives.
6.5 SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs
and legal and personal representatives. Imagine may assign its rights under this
Agreement, in whole or in part, and from time to time, without the need for
consent from Cybermax Tech or Buildscape.
6.6 COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
6.7 CAPTIONS. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this document.
6.8 GOVERNING LAW. This Agreement is executed and delivered in, and shall
be construed and enforced in accordance with the laws of, the Commonwealth of
Kentucky.
[SIGNATURES ON FOLLOWING PAGE]
6
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
CYBERMAX TECH, INC.
By: _____________________________
TItle: __________________________
("Cybermax Tech")
IMAGINE INVESTMENTS, INC.
By: _______________________________
Title:_____________________________
("Imagine")
BUILDSCAPE, INC.
By: ______________________________
Title: ____________________________
("Buildscape")
7
<PAGE>
IMAGINE INVESTMENTS, INC.
- ----------------------------------------------------------------------
8150 North Central Expressway, Suite 1901 Tel. 214-365-1901
Dallas, Texas 75206 Fax. 214-365-6910
Harry T. Carneal
Executive Vice President
July 30, 1999
Steve Wilson
Chief Executive Officer
Riverside Group, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, FL 32245
Re: Letter of Understanding
Dear Steve:
The purpose of this letter is to confirm our understanding concerning
certain transactions involving Buildscape, Inc. ("Buildscape") and its
affiliates. Your agreement to permit and to cause the following transactions to
occur and conditions to be met, each at our sole option, is a condition to our
agreement to advance an additional $320,000 to Buildscape.
1. The accounting entry that shows the debt relating to the acquisition of
Wickes Plus assets (both principal and interest) ("Wickes Plus
Acquisition Debt") at Buildscape will be reversed and shown on the
books of Riverside Group, Inc. ("Riverside"), the entity that
originally incurred the debt. Buildscape will have no liability for
this debt.
2. Riverside will borrow $1 - $1.5 million from Imagine (an amount in
excess of $1.5 million will be made available to be borrowed subject
to a mutually approved cash projection for Riverside and its
subsidiaries excluding Buildscape), which loan will be secured by all
Wickes stock owned by Riverside that is not currently pledged and
by all the stock of CyberMax. The loan will bear interest at a rate
between 10.0% and 12.75% per annum (the interest rate is subject to
mutual agreement) and require quarterly interest payments. The debt
will be evidenced by a demand note pursuant to which demand can be
made no sooner than one year from the date of the loan. The proceeds
of this loan will be used to pay off the existing Wickes Plus Acquisi-
tion Debt and to fund current liabilities and future operating short-
falls of Riverside and CyberMax, including the Riverside quarterly sub-
debt interest payment that comes due in September 1999.
3. Buildscape will increase its authorized common stock to at least 12
million shares, effect a stock split that will cause the 1,000 shares
currently outstanding to become 5 million shares, allocate a total of 2
million common shares to be used in its Stock Option Plan, and
authorize a class of convertible preferred stock (the "Buildscape
Preferred Stock").
4. CyberMax Tech will increase its authorized common stock to at least
3,000 (if not already at such amount). CyberMax Tech will authorize a
class of convertible preferred that will have cumulative dividends and
a liquidation preference (the "CMT Preferred Stock").
<PAGE>
5. In addition to the $2 million loan, Imagine has loaned to Buildscape
$336,907 (as evidenced by the Demand Promissory Note dated July 15,
1999). Imagine will commit to loan up to an additional $663,093.
Related to this additional $1 million in loans, CyberMax Tech will give
Imagine an option to purchase an additional 10% of the outstanding
Buildscape common stock consistent with the terms of the existing
Imagine option for 20% of outstanding Buildscape common stock.
6. Buildscape's $3 million in loans from Imagine plus related interest
will be assumed by CyberMax Tech and treated as a contribution by
CyberMax Tech to the capital of Buildscape.
7. Imagine will exercise its option from CyberMax Tech to acquire
1,250,000 shares of Buildscape common stock for $2.40/share, which
shares will represent 25% of the outstanding common stock of
Buildscape. The exercise price is 80% of the fair market value of a
single share, based on a $15 million present pre-money valuation of
Buildscape. You have told us that the exercise of such option, and the
resulting elimination of the related Buildscape debt will produce a $15
million present pre-money value of Buildscape.
8. Wickes ($1.0 mil), Payless ($1.0 mil), Hagemeyer ($2.0 mil), and
Imagine ($1.0 million) will collectively pay $5 million to Buildscape
to acquire 1,666,667 shares of the newly authorized Buildscape
Preferred Stock at $3.00 per share. The purchase price will be paid in
cash except that Imagine's purchase price will be paid with a
combination of cash and the cancellation of any bridge loans (loans in
excess of the cumulative total of $3 million previously discussed) made
by Imagine to Buildscape. Each share of Buildscape Preferred Stock may
be converted into one share of common stock of Buildscape. The purchase
price is based on a $15 million present pre-money valuation of
Buildscape.
9. Wickes will be offered "Home Run" warrants under the same terms of
Payless' "Home Run" warrants in return for becoming an alliance partner
under the same terms as Payless' alliance partner agreement.
10. Upon completion of the above transactions, you have told us that
CyberMax Tech will be worth $11,250,000. Imagine will exchange its
520,000 shares of Riverside stock with CyberMax in exchange for an
amount of CyberMax Tech common stock ranging from 168.25 to 242.67
(the manner for calculating such amount to be agreed to between the
Imagine and Riverside) of the currently outstanding 1,000 shares of
CyberMax Tech common stock that is held by CyberMax. In the discretion
of Imagine, Imagine may require that the share exchange transaction
be unwound and replaced by a transaction in which Imagine acquires such
shares of CyberMax Tech for cash in an amount ranging from approx-
imately $1.9 million to approximately $2.7 million.
11. Imagine will give consideration with a total value of $8,750,000
(consisting of $4 million in cash, 1,250,000 shares of Buildscape
common stock, and 333,333 shares of Buildscape Preferred Stock) to
CyberMax Tech in exchange for 777.77 newly issued shares of CMT
Preferred Stock, which shares are convertible to 777.77 shares of
CyberMax Tech common stock.
12. CyberMax Tech will acquire 1,333,333 shares of newly authorized
Buildscape Preferred Stock for $4.0 million at $3.00 per share. The
purchase price is based on a $15 million pre-money valuation of
Buildscape. CyberMax Tech will use the $4 million invested in it by
Imagine to make such purchase.
13. A voting agreement will be entered into pursuant to which Imagine
obtains the voting rights on Buildscape stock owned by CyberMax Tech
and on CyberMax Tech stock owned by CyberMax. We intend it to be a
binding document and have a term of one year.
14. A fairness opinion on the transactions involving Imagine will be
obtained from an appropriate independent third party as a condition to
such transactions. Such opinion will be obtained and paid for by
Riverside. If we are unable to obtain such fairness opinion by 9/15/99,
then all the loans owed by Buildscape and its affiliates (excluding
Imagine's loan to Wilson Financial) to Imagine will be due and payable
in full (if not on their own terms due and payable earlier) on 30 days
notice.
15. Wickes, Riverside, CyberMax, CyberMax Tech, and Buildscape will be
required to obtain all necessary approvals for all such actions, which
may include lender approval and Related Party Committee approval.
RESULTS OF PROPOSED STEPS: (SEE NOTE A)
1) Approximately $3.1 million in currently existing debt is removed from the
Buildscape balance sheet ($.8 million currently owed to Wickes and $2.3
million currently owed to Imagine).
2) Imagine directly owns Common stock and convertible Preferred stock of
CyberMax Tech representing between 53.2% and 57.4% of all outstanding
Common stock assuming all Preferred stock is converted to Common stock.
3) Imagine has voting control over Buildscape through its voting rights on all
Buildscape shares held by CyberMax Tech and on all CyberMax Tech shares
held by CyberMax.
<PAGE>
4) Imagine has no ownership position in Riverside (or a very small ownership
position if not all the Riverside shares are exchanged).
5) Third party investors own 16.7% of Buildscape through investment of $4
million at the $15 million pre-money value.
6) Riverside retains 100% ownership of CyberMax (giving Riverside an operating
entity to preserve operating company status under the "Investment Company
Act"); CyberMax retains between 46.8% and 42.6% ownership of CyberMax Tech;
CyberMax Tech retains 83.3% ownership of Buildscape.
REMAINING OPEN ITEMS TO BE CLARIFIED:
1) You will agree to provide us the information necessary for us to understand
opening balance sheets, debt and capitalization entries, and inter-company
transactions historically recorded in order to arrive at the current
balance sheets and income statements of Buildscape, CyberMax Tech, CyberMax
and Riverside.
2) You will agree to provide us the information necessary for us to understand
the required Buildscape stock split and the Buildscape stock allocated to
the proposed option pool.
3) You will agree to provide us the information necessary for us to understand
the calculation of the fair value of Riverside shares for purposes of
determining the proper number of shares to be exchanged to assure that
CyberMax is receiving fair value for the CyberMax Tech shares that it is
transferring in exchange for Riverside shares.
4) You will agree to provide us the information necessary for us to understand
Riverside's cash needs for the next 12 months, excluding those related to
Buildscape.
5) You will agree to finalize an outline of our mutual understanding of
Buildscape's operations and we have to reach such understanding.
6) You will agree to provide us the information necessary for us to understand
Buildscape's cash needs prior to closing of the investment round and how
those cash needs will be addressed.
7) You will agree to provide a schedule of all known commitments and contin-
gencies related to CyberMax Tech and Buildscape.
If the foregoing properly reflects your understandings and agreements,
please execute both copies of this letter in the space provided below and return
one executed copy to me to indicate your binding legal agreement, at which time
you will have agreed to, and will have agreed to cause the transactions
described above to occur and conditions described above to be met, each such
item at Imagine's sole option, and to have represented that this letter is a
valid and binding agreement of Riverside. All of the above being subject to the
receipt of appropriate corporate authorization by Riverside and its
subsidiaries.
Sincerely,
Patricia L. Robinson
____________________
SECRETARY
IMAGINE INVESTMENTS, INC.
RIVERSIDE GROUP, INC., on a legally binding basis.
By:
Its:
Stone/Buildscape/Memo-Buildscape Transaction 7-30-99-1.doc
- --------
A. Assuming all preferred stock is converted to common, no stock options in the
proposed option pool are exercised, and that no common stock issue-able under
proposed "Home Run" warrants is issued.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Riverside Group, Inc. and Subsidiaries consolidated balance sheet and condensed
consolidated statement of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<PERIOD-TYPE> Year
<EXCHANGE-RATE> 1
<CASH> 419
<SECURITIES> 0
<RECEIVABLES> 258
<ALLOWANCES> 341
<INVENTORY> 142
<CURRENT-ASSETS> 895
<PP&E> 1,010
<DEPRECIATION> 560
<TOTAL-ASSETS> 24,897
<CURRENT-LIABILITIES> 12,763
<BONDS> 9,940
0
0
<COMMON> 529
<OTHER-SE> (2,539)
<TOTAL-LIABILITY-AND-EQUITY> 24,987
<SALES> 751
<TOTAL-REVENUES> 764
<CGS> 218
<TOTAL-COSTS> 218
<OTHER-EXPENSES> 3,470
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 1,303
<INCOME-PRETAX> (4,378)
<INCOME-TAX> (4,378)
<INCOME-CONTINUING> (4,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,378)
<EPS-BASIC> (.84)
<EPS-DILUTED> (.84)
</TABLE>
