<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMPERIAL MERGER CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
IMPERIAL INDUSTRIES, INC.
(NAME OF REGISTRANT UPON EFFECTIVENESS OF THE MERGER DESCRIBED HEREIN)
DELAWARE 3290 65-0854631
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION)
------------------------
HOWARD L. EHLER, JR.
EXECUTIVE VICE PRESIDENT
IMPERIAL INDUSTRIES, INC.
3009 NORTHWEST 75TH AVENUE 3009 NORTHWEST 75TH AVENUE
MIAMI, FLORIDA 33122 MIAMI, FLORIDA 33122
(305) 477-7000 (305) 477-7000
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OF AGENT FOR SERVICE)
OFFICES)
With a copy to:
KENNETH S. GOODWIN, ESQ.
COLEMAN & RHINE LLP
1120 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 840-3330
(212) 840-3744 (FAX)
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
---------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING
PRICE PER PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE REGISTERED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED(1) REGISTERED SECURITY OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......... 6,807,961(2) $0.36 $ 2,450,866 $ 723(3)
8% Subordinated Debentures............ 300,121(4) $6.375 $ 1,313,029 $ 388(5)
Common Stock.......................... 2,400,968(4) -- -- -- (5)
Common Stock Purchase Warrants(6)..... 150,000 -- -- -- (7)
Common Stock Underlying Warrants(8)... 150,000 $0.38 $ 57,000 $ 17(9)
Total................................. -- -- -- $1,128
</TABLE>
(1) This Registration Statement relates to the proposed merger of Imperial
Industries, Inc. ('Imperial') into the Registrant and the conversion of each
share of (A) common stock of Imperial into one share of common stock
('Common Stock') of the Registrant and (B) convertible redeemable preferred
stock of Imperial, at the option of the holder thereof, into either (C)
$4.50 in cash and eight shares of Common Stock or (D) $2.00 in cash, an
$8.00 principal amount three year 8% subordinated debenture ('Debenture') of
the Registrant and three shares of Common Stock.
(2) Represents shares to be issued in exchange for Imperial common stock,
including: 6,607,961 shares of Common Stock to be exchanged for outstanding
Imperial common stock; and up to 200,000 shares issuable upon exercise of
outstanding Imperial common stock purchase warrants.
(3) Fee calculated pursuant to Rule 457(f)(1) based upon the average of the bid
($0.32) and asked ($0.40) prices on the NASD Electronic Bulletin Board for
existing common stock on September 1, 1998.
(4) Represents the maximum Debentures and Common Stock to be issued upon
exchange of the preferred stock of Imperial.
(5) Fee calculated pursuant to Rules 457(f)(1) and (3) based upon the average of
the bid ($5.50) and asked ($7.25) prices on the NASD Electronic Bulletin
Board for the 300,121 shares of Imperial preferred stock outstanding on
September 1, 1998 and the minimum amount of cash to be paid by the
Registrant ($600,242) in connection with the exchange of such preferred
stock.
(6) Represents Common Stock Purchase Warrants to be issued to the Registrant's
financial advisor in connection with the merger.
(7) No additional fee required pursuant to Rule 457(g).
(8) Represents shares of common stock issuable upon exercise of the financial
advisor's Common Stock Purchase Warrants.
(9) Fee calculated pursuant to Rules 457(g).
------------------------
PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH INDETERMINABLE
NUMBER OF ADDITIONAL SHARES OF COMMON STOCK AS MAY BECOME ISSUABLE PURSUANT TO
ANTI-DILUTION PROVISIONS CONTAINED IN THE ABOVE-REFERENCED COMMON STOCK PURCHASE
WARRANTS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE TABLE
LOCATION IN INFORMATION STATEMENT/PROSPECTUS
REQUIRED BY ITEMS ON FORM S-4
ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
-------------------------------------- -------------------------------------
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.......................... Outside Front Cover of Proxy
Statement/Prospectus; Facing Page
of the Registration Statement
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Special Note Regarding
Forward-Looking Statements;
Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other
Information......................... Available Information; Summary; Risk
Factors; Ratio of Earnings to
Combined Fixed Charges and
Preferred Stock Dividends;
Comparative Per Share Data
4. Terms of the Transaction.............. Summary; The Merger; The Merger
Agreement; Description of Merger
Sub Securities
5. Pro Forma Financial Information....... Unaudited Pro Forma Condensed
Financial Information
6. Material Contracts with the Company
Being Acquired...................... The Merger Agreement; Appendix A
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters........... Not Applicable
8. Interests of Named Experts and
Counsel............................. Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... Not Applicable
10. Information with Respect to S-3
Registrants......................... Not Applicable
11. Incorporation of Certain Information
by Reference........................ Not Applicable
12. Information With Respect to S-2 or S-3
Registrants......................... Not Applicable
13. Incorporation of Certain Information
by Reference........................ Not Applicable
14. Information With Respect to
Registrants Other Than S-3 or S-2
Registrants......................... Summary; Business of Imperial; Price
Range of Imperial Common and
Preferred Stock; Financial
Statements; Imperial Management's
Discussion and Analysis of Results
of Operations and Financial
Condition
15. Information With Respect to S-3
Companies........................... Not Applicable
16. Information With Respect to S-2 or S-3
Companies........................... Not Applicable
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies..... Summary; Comparative Per Share Data
18. Information if Proxies, Consents or
Authorizations Are to be
Solicited........................... Notice of Special Meeting of
Stockholders; Outside Front Cover
Page of Proxy Statement/Prospectus;
The Meeting; The Merger; The Merger
Agreement; Management of Imperial
19. Information if Proxies, Consents or
Authorizations Are Not to be
Solicited, or in an Exchange
Offer............................... Not Applicable
<PAGE>
IMPERIAL INDUSTRIES, INC.
3009 NORTHWEST 75TH AVENUE
MIAMI, FLORIDA 33122
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER , 1998
You are cordially invited to attend a special meeting (the 'Meeting') of
the stockholders of Imperial Industries, Inc., a Delaware corporation
('Imperial' or the 'Company') to be held on [insert], November , 1998, at
10:00 a.m., local time, at the offices of the Company, 3009 Northwest 75th
Avenue, Miami, Florida, for the following purposes:
1. To approve and adopt the Agreement and Plan of Merger dated as of
August 6, 1998 (the 'Merger Agreement') between the Company and Imperial
Merger Corp. ('Merger Sub'), a Delaware corporation and a wholly-owned
subsidiary of the Company, providing for the merger (the 'Merger') of the
Company with and into Merger Sub, with Merger Sub being the surviving
entity. In accordance with the Merger Agreement, (i) each issued and
outstanding share of the Company's common stock, $.10 par value ('Imperial
Common') will be converted, without any action by the holder thereof, into
one share of common stock, $.01 par value ('Sub Common'), of Merger Sub and
(ii) each issued and outstanding share of the Company's $1.10 cumulative
convertible redeemable preferred stock ('Preferred Stock') will be
converted, at the option of the holder thereof, into either (A) $4.50 in
cash and eight shares of Sub Common or (B) $2.00 in cash, an $8.00
principal amount three year 8% subordinated debenture of Merger Sub and
three shares of Sub Common. Upon the effective date of the Merger, the name
of Merger Sub will be changed to Imperial Industries, Inc.; and
2. To transact such other business as may properly come before the
Meeting and any adjournments or postponements thereof.
The Merger and other related matters are more fully described in the
accompanying Proxy Statement/Prospectus and the appendices thereto, which form a
part of this Notice.
The Board of Directors of Imperial has fixed the close of business on
October , 1998 as the record date (the 'Record Date') for the determination of
stockholders entitled to notice of, and to vote at, the Meeting or any
adjournments or postponements thereof. Only holders of Imperial Common and
Preferred Stock of record as of the close of business on the Record Date are
entitled to notice of, and to vote at, the Meeting or any adjournments or
postponements thereof.
The Imperial Board of Directors believes that the terms of the Merger are
fair to, and in the best interests of, Imperial and its stockholders, has
unanimously approved the Merger and the transactions contemplated thereby and
unanimously recommends that you vote FOR the ratification and approval of the
Merger Agreement and the Merger.
In accordance with Section 262 of the Delaware General Corporation Law, a
copy of which is enclosed as Annex D to the accompanying Proxy
Statement/Prospectus, holders of Imperial Common and Preferred Stock are
entitled to appraisal rights with respect to such stock in connection with the
Merger.
Whether or not you plan to attend the meeting, please complete, date, sign
and return promptly the enclosed proxy card. A return envelope is provided for
your convenience and requires no postage for mailing in the United States.
By Order of the Board of Directors,
Howard L. Ehler, Jr.
Secretary
October , 1998
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR PREFERRED STOCK AT THIS
TIME.
HOLDERS OF PREFERRED STOCK ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A NOTICE AND LETTER OF TRANSMITTAL
FROM THE EXCHANGE AGENT.
<PAGE>
PROSPECTUS
IMPERIAL INDUSTRIES, INC.
IMPERIAL MERGER CORP.
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [INSERT], NOVEMBER , 1998
This Proxy Statement/Prospectus is being furnished to holders of the common
stock, par value $.10 per share (the 'Imperial Common'), and holders of the
$1.10 cumulative convertible redeemable preferred stock ('Preferred Stock') of
Imperial Industries, Inc., a Delaware corporation ('Imperial' or the 'Company'),
in connection with the solicitation of proxies by and on behalf of the Board of
Directors of the Company for use at the Special Meeting (the 'Meeting') of
Stockholders of the Company, and any adjournment or postponements thereof. The
Meeting is scheduled to be held on , November , 1998, at 10:00 a.m.,
local time, at the offices of the Company, 3009 Northwest 75th Avenue, Miami,
Florida. It is anticipated that the mailing to stockholders of this Proxy
Statement/Prospectus and the enclosed Form of Proxy will commence on or about
October , 1998.
At the Meeting, stockholders will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated as of
August 6, 1998 (the 'Merger Agreement') between the Company and Imperial Merger
Corp. ('Merger Sub'), a Delaware corporation and a wholly-owned subsidiary of
the Company, providing for the merger (the 'Merger') of the Company with and
into Merger Sub, with Merger Sub being the surviving entity. The Merger will
become effective upon the filing of a Certificate of Merger (the 'Certificate of
Merger') with the Delaware Secretary of State pursuant to the Delaware General
Corporation Law (the 'GCL'). It is expected that the Merger, if approved at the
Meeting, will become effective on or about December 31, 1998 (the 'Effective
Date').
The purpose of the Merger is to restructure the Company's capitalization to
enhance stockholder value for the holders of Imperial Common and Preferred Stock
by retiring all of the outstanding shares of Preferred Stock and thereby
eliminating the accumulated accrued dividends thereon. Upon consummation of the
Merger, each share of Imperial Common outstanding immediately prior to the
consummation of the Merger will be converted, without any action by the holder
thereof, into one share of common stock, par value $.01 per share ('Sub
Common'), of Merger Sub, and each share of Preferred Stock outstanding
immediately prior to the consummation of the Merger will be converted, at the
option of the holder thereof, into either (A) $4.50 in cash and eight shares of
Sub Common or (B) $2.00 in cash, an $8.00 principal amount three year 8%
subordinated debenture of Merger Sub (each, a 'Debenture') and three shares of
Sub Common (collectively, the 'Merger Consideration'). In addition, at the
Effective Date, the name of Merger Sub will be changed to Imperial Industries,
Inc. Commencing 60 days after the Effective Date, all unsubmitted shares of
Preferred Stock, except shares as to which dissenters' rights of appraisal have
been properly asserted, will evidence the right to receive $4.50 in cash and
eight shares of Sub Common. A copy of the Merger Agreement is attached as
Appendix A to this Proxy Statement/Prospectus and is incorporated herein by
reference.
SEE 'RISK FACTORS' BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER DESCRIBED HEREIN AND THE
SECURITIES OFFERED HEREBY.
Merger Sub has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement (the 'Registration Statement') on Form
S-4 (Commission File No. 333- ) under the Securities Act of 1933, as amended
(the 'Securities Act'), with respect to the Sub Common and Debentures to be
issued pursuant to the Merger Agreement. This Proxy Statement/ Prospectus is the
prospectus of Merger Sub filed as part of the Registration Statement.
The Imperial Common and Preferred Stock are included on the NASD Electronic
Bulletin Board under the symbols IPII and IPIIP, respectively. On September 1,
1998, the closing bid quotations for the Imperial Common and Preferred Stock
were $0.32 and $5.50, respectively. Following the Merger, it is anticipated that
the Sub Common will be included on the NASD Electronic Bulletin Board under the
symbol 'IPII'. While the Debentures will be freely tradeable, there can be no
assurance that an active trading market will develop for the Debentures
following the Merger.
In accordance with the GCL, holders of Imperial Common and Preferred Stock
are entitled to appraisal rights in connection with the Merger. See 'The
Merger--Appraisal Rights.'
THE SECURITIES ISSUABLE PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS OCTOBER , 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION............................................ iii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................ iii
SUMMARY.......................................................... 1
General........................................................ 1
The Meeting.................................................... 2
The Merger..................................................... 2
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS...................................................... 6
SELECTED FINANCIAL DATA.......................................... 7
SELECTED UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA............ 8
RISK FACTORS..................................................... 9
Risks Relating to an Investment in Imperial.................... 9
Risks Relating to the Merger................................... 11
Tax Risks...................................................... 13
COMPARATIVE PER SHARE DATA....................................... 14
PRICE RANGE OF IMPERIAL COMMON AND PREFERRED STOCK............... 15
THE MEETING...................................................... 16
General........................................................ 16
Matters to be Considered at the Meeting........................ 16
Record Date.................................................... 16
Proxies........................................................ 16
Quorum......................................................... 17
Vote Required.................................................. 17
THE MERGER....................................................... 17
Background of the Merger....................................... 17
Recommendation of the Board of Directors; Reasons for the
Merger...................................................... 18
Financial Advisor; Fairness Opinion............................ 20
Estimated Fees and Expenses; Sources of Funds.................. 23
Certain Federal Income Tax Consequences of the Merger.......... 23
Interests of Certain Persons in the Merger; Conflicts of
Interest.................................................... 26
Appraisal Rights............................................... 26
Regulatory Approvals........................................... 28
Accounting Treatment........................................... 28
Resale Restrictions............................................ 28
THE MERGER AGREEMENT............................................. 29
The Merger..................................................... 29
Effective Date of the Merger................................... 29
Conversion of Securities....................................... 29
Treatment of Warrants.......................................... 29
Exchange of Certificates....................................... 29
Conditions of the Merger....................................... 30
Management After the Merger.................................... 30
Charter Documents of Surviving Corporation..................... 30
DESCRIPTION OF MERGER SUB SECURITIES............................. 30
Sub Common..................................................... 30
Sub Preferred.................................................. 31
Debentures..................................................... 31
Transfer Agent................................................. 32
IMPERIAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION............................. 33
General........................................................ 33
i
<PAGE>
PAGE
----
Results of Operations.......................................... 33
Liquidity and Capital Resources................................ 34
BUSINESS OF IMPERIAL............................................. 37
General........................................................ 37
Premix......................................................... 37
Acrocrete...................................................... 38
Suppliers...................................................... 38
Marketing and Sales............................................ 38
Seasonality.................................................... 39
Competition.................................................... 39
Environmental Matters.......................................... 39
Employees...................................................... 39
Properties..................................................... 40
Legal Proceedings.............................................. 40
MANAGEMENT OF IMPERIAL........................................... 42
Executive Officers and Directors............................... 42
Board of Directors Meetings and Attendance..................... 43
Compensation and Stock Option Committee........................ 43
Reports Pursuant to Section 16(a) of the Securities and
Exchange Act of 1934........................................ 43
Executive Compensation......................................... 43
Compensation Agreements........................................ 44
Aggregated Option Exercises in Year Ended December 31, 1997 and
Year End Option Values...................................... 45
Director Compensation.......................................... 45
Compensation Committee Interlocks and Insider Participation.... 45
Security Ownership of Certain Beneficial Owners and
Management.................................................. 45
Certain Relationships and Related Transactions................. 47
LEGAL MATTERS.................................................... 47
EXPERTS.......................................................... 47
EXCHANGE AGENT................................................... 47
INFORMATION/SOLICITATION AGENT................................... 47
OTHER MATTERS.................................................... 48
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION..............
INDEX TO FINANCIAL STATEMENTS.................................... F-1
Appendix A Agreement and Plan of Merger
Appendix B Opinion of Auerbach, Pollack & Richardson, Inc.
Appendix C Section 262 of the Delaware General Corporation Law
ii
<PAGE>
AVAILABLE INFORMATION
Imperial is (and following the Merger, Merger Sub will be) subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith files, and will file, reports,
proxy statements and other information with the Commission. The Registration
Statement, as well as reports, proxy statements and other information filed by
Imperial, can be inspected and copied at the Commission's Public Reference Room,
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities maintained by the Commission at its regional
offices located at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Electronic registration statements
and other reports, proxy statements and information filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval system are
publicly available through the Commission's Website (http://www.sec.gov).
Merger Sub has filed the Registration Statement with the Commission
covering the Sub Common and Debentures to be issued pursuant to the Merger
Agreement. As permitted by the rules and regulations of the Commission, this
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto. For further information, please
refer to the Registration Statement, including the exhibits thereto. Statements
contained in this Proxy Statement/Prospectus relating to the contents of any
contract or other document referred to herein are not necessarily complete, and
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
No person is authorized to provide any information or to make any
representations with respect to the matters described in this Proxy
Statement/Prospectus other than those contained herein and, if given or made,
such information or representation must not be relied upon as having been
authorized by Imperial, Merger Sub or any other person. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
any offer to purchase, any securities, or a solicitation of a proxy, in any
jurisdiction in which, or to or from any person to or from whom, it is unlawful
to make such an offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of securities hereunder shall under
any circumstances be deemed to imply that there has been no change in the
assets, properties or affairs of Imperial or Merger Sub since the date hereof or
that the information set forth herein is correct as of any time subsequent to
the date hereof.
The Company has appointed Morrow & Co., Inc. as Information Agent for the
Merger. Questions regarding the enclosed Proxy Statement/Prospectus may be
directed to the Information Agent at (800) [insert].
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Prospective investors should note that this Proxy Statement/Prospectus
contains certain 'forward-looking statements,' as such term is defined in the
Private Securities Litigation Reform Act of 1995, including, without limitation,
statements containing the words 'believes,' 'anticipates,' 'expects,' 'intends,'
'should,' 'seeks to,' and similar words. Prospective investors are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks, assumptions and uncertainties. The future results
and stockholder values of the Company following the Merger may differ materially
from those expressed in these forward-looking statements. Many of the factors
that will determine those results and values are beyond the Company's ability to
control or predict. Stockholders are cautioned not to put undue reliance on any
forward-looking statements. Actual results may differ materially from those in
the forward-looking statements as a result of various factors, including but not
limited to, the risk factors set forth in this Proxy Statement/Prospectus. The
accompanying information contained in this Proxy Statement/Prospectus identifies
certain important factors that could cause such differences.
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Proxy Statement/Prospectus and the appendices hereto. Unless otherwise
indicated, (a) all references herein to the 'Company' or 'Imperial' refer to
Imperial Industries, Inc. and (b) all references to 'Merger Sub' herein refer to
Imperial Merger Corp. Each stockholder is urged to read this Proxy
Statement/Prospectus and its appendices before voting on the matters discussed
herein.
GENERAL
This Proxy Statement/Prospectus is being furnished to stockholders of
Imperial, a Delaware corporation, in connection with the solicitation of proxies
by the Board of Directors of Imperial, for use at a Special Meeting of
Stockholders of Imperial which is scheduled to be held on November , 1998. At
the Meeting, stockholders will be asked to consider and vote upon the proposed
Merger of Imperial with and into Merger Sub, a Delaware corporation, pursuant to
the terms of the Merger Agreement. The Merger Agreement is included in this
Proxy Statement/Prospectus as Appendix A. Upon consummation of the Merger, each
share of Imperial Common outstanding immediately prior to the consummation of
the Merger will be converted, without any action by the holder thereof, into one
share of Sub Common, and each share of Preferred Stock outstanding immediately
prior to the consummation of the Merger will be converted, at the option of the
holder thereof, into either (A) $4.50 in cash and eight shares of Sub Common or
(B) $2.00 in cash, a Debenture and three shares of Sub Common. In addition, at
the Effective Date, the name of Merger Sub will be changed to Imperial
Industries, Inc.
Imperial
The Company is engaged in the manufacture of building materials for sale to
building materials dealers and others located primarily in Florida and Georgia,
and to a lesser extent, other states in the Southeastern United States. The
Company's products are used by developers, general contractors and
subcontractors in the construction or repair and remodeling of residential,
multi-family and commercial buildings and swimming pools. The Company's business
is directly related to the level of activity in the new construction and home
improvement, repair and remodeling markets, as well as the general economic
conditions existing in the Southeastern part of the United States.
The Company has experienced a substantial improvement in its results of
operations since 1994 due principally to introduction of new products, savings
realized from raw material purchases, modifications made to the Company's
manufacturing processes to gain greater production efficiencies, and on-going
cost reduction programs implemented in 1996. These programs, in conjunction with
increased sales derived in part from the opening of distribution outlets
commencing in 1994 to sell its products directly to the end-user, have had a
favorable impact on the Company's profitability.
The Company's manufacturing and sales operations are conducted by its
wholly owned subsidiaries, Premix-Marbletite Manufacturing Co. ('Premix') and
Acrocrete, Inc. ('Acrocrete'). The Company primarily manufactures stucco, roof
tile mortar and plaster products.
Stucco products are applied as a finishing coat to exterior surfaces and to
swimming pools. Roof tile mortar is used to adhere cement roof tiles to the
roofs of structures. Plaster customarily is used to finish interiors of
structures.
Imperial is a Delaware corporation organized in 1968. The Company's
executive offices are located at 3009 Northwest 75th Avenue, Miami, Florida
33122, and the telephone number at such offices is (305) 477-7000.
Merger Sub
Imperial Merger Corp., a Delaware corporation, is a wholly owned subsidiary
of the Company which was formed in July 1998 for the purpose of effectuating the
Merger. The Certificate of Incorporation and Bylaws of Merger Sub are identical
in all material terms to those of the Company. Upon consummation of the Merger,
Merger Sub's name will be changed to Imperial Industries, Inc. Merger Sub shares
offices with Imperial. The officers and directors of Imperial serve in the same
capacity with Merger Sub.
1
<PAGE>
THE MEETING
The Meeting will be held on November , 1998, at 10:00 a.m., local time,
at the offices of the Company, 3009 Northwest 75th Avenue, Miami, Florida. At
the Meeting, including any adjournments or postponements thereof, stockholders
will be asked to consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereby and (ii) such other
business as properly may come before the Meeting.
The close of business on October , 1998 has been fixed as the record date
(the 'Record Date') for the determination of stockholders entitled to notice of,
and to vote at, the Meeting or any adjournments or postponements thereof.
Holders of Imperial Common and holders of Preferred Stock are entitled to one
vote for each share of Imperial Common and Preferred Stock held by them. The
holders of a majority of the outstanding shares of Preferred Stock, together
with the holders of a majority of the outstanding shares of Imperial Common,
present either in person or by properly executed proxies, will constitute a
quorum at the Meeting.
The favorable vote of the holders of a majority of the shares of Imperial
Common outstanding and entitled to vote at the Meeting, and the favorable vote
of the holders of a majority of the shares of Preferred Stock outstanding and
entitled to vote at the Meeting, each voting separately as a class, are required
for the approval of the Merger. As of the Record Date, the Company had 6,607,961
shares of Imperial Common outstanding, and 300,121 shares of Preferred Stock
outstanding. As of the Record Date, the Company's directors, executive officers
and affiliates beneficially owned 2,172,226 shares of Imperial Common (excluding
200,000 shares which may be acquired upon the exercise of warrants which are
exercisable within 60 days of the Record Date) and 2,000 shares of Preferred
Stock, representing 32.9% and 0.7% of the outstanding shares of Imperial Common
and Preferred Stock, respectively. To the best knowledge of the Company, all of
the directors, executive officers and affiliates of the Company intend to vote
their shares of Imperial Common and Preferred Stock in favor of the Merger. See
'The Meeting--Vote Required.'
THE MERGER
Purpose of the Merger. The principal purpose of the Merger is to
restructure the Company's capitalization to enhance stockholder value for the
holders of Imperial Common and Preferred Stock by retiring all of the
outstanding shares of Preferred Stock and eliminating the accumulated accrued
dividends thereon. The Company currently is unable to satisfy its financial
obligations to its Preferred Stockholders and does not expect to be able to do
so in the foreseeable future. The Board of Directors of the Company believes the
elimination of the Preferred Stock dividend and sinking fund obligations and
simplification of the Company's equity ownership would enhance stockholder value
and facilitate the Company's access to capital markets.
Conversion of Securities. Upon consummation of the transactions
contemplated by the Merger Agreement, Imperial will be merged with and into
Merger Sub, with Merger Sub being the surviving corporation (the 'Surviving
Corporation'). Each share of Imperial Common outstanding immediately prior to
the consummation of the Merger will be converted, without any action by the
holder thereof, into one share of Sub Common, and each share of Preferred Stock
outstanding immediately prior to the consummation of the Merger will be
converted, at the option of the holder thereof, into either (A) $4.50 in cash
and eight shares of Sub Common (resulting in the payment of $1,350,545 in cash
and the issuance of 2,400,968 shares of Sub Common, if all holders of Preferred
Stock choose this option) or (B) $2.00 in cash, a Debenture and three shares of
Sub Common (resulting in the payment of $600,242 in cash and the issuance of
300,121 Debentures with an aggregate principal amount of $2,400,968 and 900,363
shares of Sub Common, if all holders of Preferred Stock choose this option). See
'The Merger Agreement--Conversion of Securities.'
The following table illustrates the Merger Consideration to be issued in
the Merger in the event (i) all holders of Preferred Stock elect to receive per
share Merger Consideration consisting of $4.50 in cash and eight shares of Sub
Common ('Option A'), (ii) all holders of Preferred Stock elect to receive per
share Merger
2
<PAGE>
Consideration consisting of $2.00 in cash, an $8.00 principal amount Debenture
and three shares of Sub Common ('Option B') and (iii) holders of an equal number
of shares of Preferred Stock elect Option A or Option B.
100% OPTION A 0% OPTION A 50% OPTION A
0% OPTION B 100% OPTION B 50% OPTION B
------------- ------------- ------------
Cash (1)................. $ 1,350,545 $ 600,242 $ 975,393
Debentures (principal)... $ 0 $ 2,400,968 $1,200,488
Sub Common (shares)(2)... 2,400,968 900,363 1,650,666
- ------------------
(1) A significant portion of the cash component of the Merger Consideration will
be derived from the sale of the Company's Miami, Florida facility scheduled
to be completed by September 30, 1998.
(2) In addition, Imperial Common stockholders will be issued 6,607,961 shares of
Sub Common in exchange for all outstanding Imperial Common.
In arriving at their opinion as to the fairness of the Merger from a
financial point of view, Auerbach, Pollak & Richardson, Inc., the Company's
financial advisor, calculated that Option A has a value, on a pro forma basis,
of $12.68 per share of Preferred Stock and Option B has a value, on a pro forma
basis, of $11.51 per share of Preferred Stock. See 'The Merger--The Financial
Advisor; Fairness Opinion' for additional information regarding the estimated
value of each of the above options.
Description of Securities to be Received.
Sub Common. The Sub Common to be issued in the Merger is identical in all
material respects to the Imperial Common. See 'Description of Merger Sub
Securities--Sub Common.'
Debentures. The Debentures will become due and payable as to principal
three years from the Effective Date. Interest, at the rate of 8% per annum, will
be payable in cash on an annual basis. The Debentures will be unsecured
obligations of Merger Sub. See 'Description of Merger Sub
Securities--Debentures.'
Recommendation of the Board of Directors. The Company's Board of Directors
believes that the terms of the Merger are fair to, and in the best interests of,
the Company and its stockholders. Accordingly, the Board of Directors has
approved the Merger Agreement and unanimously recommends a vote FOR approval and
adoption of the Merger Agreement by the stockholders of the Company. The Board
of Directors of the Company, in reaching its determination to approve the
proposed Merger, considered a number of factors as described herein. The Board
believes that it is in the best interest of all of its stockholders and the
Company to restructure the Company's capitalization by eliminating the Preferred
Stock. Such restructuring will remove an impediment to the Company's future
financings, improve the book value per common share by removing both the
aggregate redemption value and accumulated dividend arrearages for the Preferred
Stock, and also improve the income (loss) from operations per common share by
eliminating the annual Preferred Stock dividend requirements, while providing
the Preferred Stockholders a combination of cash and securities with more
liquidity and potential for appreciation than the Preferred Stock. See 'The
Merger--Background of the Merger,' '--Reasons for the Merger; Recommendation of
the Board of Directors,' '--Financial Advisor; Fairness Opinion' and '--
Interests of Certain Persons in the Merger; Conflicts of Interest.'
Estimated Fees and Expenses and Sources of Funds. Cash required to fund
the Company's obligations resulting from the Merger, including the cash
component of the Merger Consideration, will be derived from available working
capital (a significant portion of which represents the proceeds from the sale of
the Company's Miami, Florida facility in September 1998) and borrowings under
the Company's line of credit. See 'The Merger--Estimated Fees; Expenses and
Sources of Funds.'
Opinion of Financial Advisor. Auerbach, Pollak & Richardson, Inc.
('Auerbach') delivered to the Board of Directors of the Company a written
opinion dated August 6, 1998 that, as of such date and based upon and subject to
certain matters as stated therein, the terms of the Merger are fair to the
holders of Imperial Common and Preferred Stock from a financial point of view.
See 'The Merger--Financial Advisor; Fairness Opinion.' The full text of the
opinion of Auerbach, which sets forth the assumptions made, matters considered
and
3
<PAGE>
limitations on the review undertaken by Auerbach, is attached as Appendix B
hereto and is incorporated herein by reference. Stockholders are urged to read
the opinion carefully in its entirety.
Effective Date of the Merger. If approved by the stockholders, the Merger
will become effective (the 'Effective Date') immediately upon the filing of the
Certificate of Merger with the Delaware Secretary of State in accordance with
the GCL. The Effective Date is currently expected to occur on or about December
31, 1998 and upon satisfaction or waiver of the conditions precedent to the
Merger set forth in the Merger Agreement. On the Effective Date, the name of
Merger Sub will be changed to Imperial Industries, Inc. See 'The Merger
Agreement--Effective Date of the Merger' and '--Conditions of the Merger.'
Conditions of the Merger; Termination. The obligations of Imperial and
Merger Sub to consummate the Merger are subject to the satisfaction of certain
conditions, including, among others, (i) obtaining requisite stockholder
approval and (ii) the effectiveness of the Registration Statement and the
receipt by Merger Sub of all necessary approvals under applicable state
securities laws. The Merger Agreement may be terminated by either company's
Board of Directors for any reason at any time prior to the Effective Date. The
parties currently intend to terminate the Merger Agreement if holders of greater
than 5% of either the Imperial Common or Preferred Stock demand dissenters'
rights of appraisal under the GCL. See 'The Merger Agreement--Conditions of the
Merger.'
Surrender of Preferred Stock Certificates. Immediately following the
Effective Date, holders of Preferred Stock will be furnished with a transmittal
letter to be used to select their desired Merger Consideration and to exchange
their certificates therefor. To ensure that they receive their desired form of
Merger Consideration, holders will be required to return their Preferred Stock
certificates and letters of transmittal within 60 days after the Effective Date.
Certificates representing shares of Preferred Stock timely surrendered by
holders who do not select a desired form of Merger Consideration will be
converted into $4.50 in cash and eight shares of Sub Common (the 'Default Merger
Consideration'). Commencing 60 days after the Effective Date, all unsubmitted or
improperly submitted shares of Preferred Stock, other than shares as to which
dissenters' rights of appraisal have been properly asserted, will evidence the
right to receive the Default Merger Consideration. In addition, shares as to
which dissenters' rights of appraisal have been properly asserted, which rights
are waived or abandoned subsequent to the 60th day after the Effective Date,
similarly will evidence the right to receive the Default Merger Consideration.
It will not be necessary for holders of Imperial Common to surrender or
exchange their certificates for new certificates representing Sub Common. See
'The Merger Agreement--Exchange of Certificates.'
Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a nontaxable reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended and in effect on the date hereof (the 'Code'). Accordingly,
for federal income tax purposes, neither Imperial nor Merger Sub will recognize
any taxable gain or loss as a result of the Merger, and Imperial stockholders
will not recognize any taxable gain or loss on the conversion of their Imperial
Common into Sub Common pursuant to the Merger. Holders of Preferred Stock may
recognize taxable gain or loss in connection with the Merger to the extent they
receive Debentures and cash in the Merger. EACH HOLDER OF IMPERIAL COMMON AND
PREFERRED STOCK SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF THE MERGER IN LIGHT OF SUCH HOLDER'S OWN SITUATION, INCLUDING
THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS. See 'The Merger--Certain Federal Income Tax Consequences of the Merger.'
Accounting Treatment. The Merger will be accounted for as a reorganization
of entities under common control and will reflect the carryover basis of
Imperial. See 'The Merger--Accounting Treatment.'
Interests of Certain Persons in the Merger; Conflicts of Interest.
Howard L. Ehler, Jr., the Company's Executive Vice President, owns 2,000
shares of Preferred Stock.
Dissenters' Rights. Under the GCL, holders of Imperial Common or Preferred
Stock who, prior to the Meeting, properly demand appraisal and do not vote in
favor of the Merger Agreement and the Merger have the right, under certain
circumstances, if the Merger is nonetheless consummated, to require the
Surviving Corporation to purchase their shares for 'fair value' (exclusive of
any element of value arising from the
4
<PAGE>
accomplishment or expectation of the Merger). To exercise such appraisal rights,
such stockholders must, among other things, (i) deliver a written demand for
appraisal by or for the stockholder of record, in a manner that reasonably
informs the Surviving Corporation of the identity of such stockholder, before
the taking of the vote on the Merger and the Merger Agreement at the Meeting,
(ii) not vote for approval of the Merger and the Merger Agreement, and (iii)
continually hold shares of Imperial Common or Preferred Stock subject to the
demand for appraisal from the date of making the demand through the Effective
Date, all in accordance with the requirements of the GCL. Any stockholder who
has properly demanded appraisal may, at any time within 60 days after the
Effective Date, withdraw his or her demand for appraisal and elect to accept the
Merger Consideration to be paid under the Merger Agreement without interest.
Stockholders considering whether to seek appraisal should bear in mind that the
fair value of their Imperial Common or Preferred Stock determined under the GCL
could be more than, the same as or less than the value of the consideration to
be paid pursuant to the Merger Agreement. See 'The Merger--Appraisal Rights' and
Appendix C--Section 262 of the Delaware General Corporation Law.
Resales of Merger Sub Securities. The shares of Sub Common and Debentures
to be issued pursuant to the Merger Agreement have been registered under the
Securities Act and therefore may be resold without restriction by persons who
are not deemed to be 'affiliates' (as such term is defined under the Securities
Act) of either Imperial or Merger Sub. See 'The Merger--Resale Restrictions.'
Risk Factors. There are a number of risks relating to an investment in the
Company (and, following the Merger, Merger Sub), including those relating to:
(i) general economic and business conditions, including the level of new housing
starts and activity in the home improvement, repair and remodeling markets,
which will, among other things, affect demand for the Company's products and
services; (ii) adoption of new environmental laws and regulations and changes in
how they are interpreted and enforced; (iii) the regulatory environment in which
the Company operates, including the Company's ability to comply with the
requirements of various building codes; (iv) the ability of the Company to
implement its business strategy; (v) changes in consumer preference; (vi)
competition; (vii) quality of management; and (viii) availability of qualified
personnel.
In addition, there are a number of risks relating to the Merger, including
those relating to: (i) the lack of assurance that stockholders will realize any
benefits from the Merger; (ii) the immediate dilution to the holders of Imperial
Common of their ownership interest in Merger Sub; (iii) the fact that the Merger
was not negotiated at arms' length; (iv) the limited trading market for Imperial
Common and, following the Merger, the Sub Common; (v) the likelihood that no
public trading market will develop for the Debentures following the Merger; and
(v) the tax impact of the Merger on holders of Preferred Stock. See 'Risk
Factors' for a more complete discussion of the factors which should be
considered in evaluating the Merger and the securities offered hereby.
5
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and Preferred Stock dividends, on a historical and pro forma basis, for
the six months ended June 30, 1998 and for the year ended December 31, 1997. For
the purpose of calculating the ratio on a historical basis, earnings include
income (loss) before income taxes plus fixed charges, excluding Preferred Stock
dividends. Fixed charges include interest expense, Preferred Stock dividends and
an amount equivalent to interest included in rental charges. The Company has
assumed that one-third of rental expense is representative of the interest
factor. For the purpose of calculating the ratio on a pro forma basis, earnings
include income (loss) before income taxes plus fixed charges. Fixed charges
include interest expense and an amount equivalent to interest included in rental
charges.
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1997 1998
------------ --------------
Historical...... 2.3 2.1
Pro Forma....... 2.2 3.2
On a historical basis, earnings were less than combined fixed charges and
Preferred Stock dividends by $56,000, $208,000, $345,000 and $472,00 for the
years ended December 31, 1996, 1995, 1994 and 1993, respectively, and,
accordingly, such years are not included in the preceding table. The Company has
omitted payment of Preferred Stock dividends since the fourth quarter of 1985.
6
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented in the table below have been derived
from Imperial's Consolidated Financial Statements and notes thereto included
elsewhere herein and should be read in conjunction therewith. See also 'Imperial
Management's Discussion and Analysis of Financial Condition and Results of
Operations.' Data as of and for the six months ended June 30, 1998 and June 30,
1997 have been derived from unaudited consolidated financial statements. The
unaudited financial statements include all adjustments consisting of normal
accruals that management considers necessary for a fair presentation of the
financial position and results of operations for those periods. Results of
operations for the six months ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the entire year ending December 31,
1998.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ----------------
1997 1996 1995 1994 1993 1998 1997
------- ------- ------- ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Net sales.................... $15,774 $13,742 $11,615 $7,996 $7,714 $8,785 $8,004
Cost of sales................ 10,867 9,881 8,239 5,726 5,637 5,851 5,500
Selling, general and
administrative expenses.... 3,740 3,313 2,979 2,104 2,068 2,186 1,892
Interest expense............. (329) (317) (282) (204) (168) (137) (167)
Miscellaneous income
(expense).................. 54 43 7 23 17 86 (4)
Income (loss) before income
taxes...................... 892 274 122 (15) (142) 697 441
Income tax benefit, net
(expense).................. 753 -- -- -- -- (244) --
Net income (loss)............ 1,645 274 122 (15) (142) 453 441
Less: dividends on redeemable
preferred stock............ (330) (330) (330) (330) (330) (165) (165)
Net income (loss) applicable
to common stockholders..... $ 1,315 $ (56) $ (208) $ (345) $ (472) $ 288 $ 276
Net income (loss) per share
applicable to common
stockholders:..............
Basic...................... $ .22 $ (.01) $ (.04) $ (.06) $ (.09) $ .04 $ .05
Diluted.................... $ .21 $ (.01) $ (.04) $ (.06) $ (.09) $ .04 $ .05
Weighted average shares...... 6,009 5,471 5,382 5,317 5,217 6,516 5,624
Weighted average and
potentially dilutive
shares..................... 6,267 5,471 5,382 5,317 5,217 6,679 5,961
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------------- -----------
1997 1996 1995 1994 1993 1998
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.............. $ 1,995 $ 872 $ 733 $ 334 $ 417 $ 2,259
Total assets................. $ 5,128 $ 4,116 $ 3,747 $ 3,067 $ 2,668 $ 6,546
Long-term debt, less current
maturities................. $ 819 $ 895 $ 1,000 $ 576 $ 678 $ 948
Redeemable preferred stock... $ 3,001 $ 3,001 $ 3,001 $ 3,001 $ 3,001 $ 3,001
Preferred dividends in
arrears(1)................. $ 4,044 $ 3,714 $ 3,384 $ 3,054 $ 2,723 $ 4,209
Common stock and other
stockholders' deficit...... $ (4,441) $ (5,879) $ (5,846) $ (5,641) $ (5,301) $ (4,127)
Current ratio................ 2.2 to 1 1.4 to 1 1.3 to 1 1.2 to 1 1.3 to 1 1.9 to 1
</TABLE>
- ------------------
(1) No cash dividends have been paid on the Preferred Stock since 1985.
7
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following table presents selected unaudited pro forma condensed
financial information regarding Merger Sub after giving effect to the Merger,
and reflecting the issuance of the Merger Consideration and the elimination of
the outstanding shares of Preferred Stock and accumulated dividends thereon.
Immediately following the Effective Date, the financial statements of Merger Sub
will be the same as the financial statements of the Company immediately prior to
the Effective Date, except as changed incident to the issuance of the Merger
Consideration and the elimination of the outstanding shares of Preferred Stock
and the accumulated dividends thereon. See 'Unaudited Pro Forma Condensed
Financial Information.'
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1998 1997
----------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA
Net sales............................... $ 8,785 $ 15,774
Cost of sales........................... 5,887 10,938
Sellling, general and administrative
expenses.............................. 2,186 3,740
Interest expense........................ (225) (493)
Miscellaneous income.................... 86 54
Income before income taxes.............. 573 657
Income tax (expense) benefit............ (201) 835
Net income.............................. 372 1,492
Less: dividends on redeemable preferred
stock................................. 0 0
Net income applicable to common
stockholders.......................... $ 372 $ 1,492
Net income per share applicable to
common stockholders:
Basic................................. $ 0.05 $ 0.19
Diluted............................... $ 0.04 $ 0.19
Weighted average shares................. 8,167 7,660
Weighted average and potentially
dilutive shares....................... 8,423 8,011
<CAPTION>
JUNE 30,
1998
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA
Working capital......................... $ 1,731
Total assets............................ 6,373
Long-term debt, less current
maturities............................ 1,502
Redeemable preferred stock.............. 0
Preferred stock dividends in arrears.... 0
Common stock and other stockholders'
deficit............................... 1,828
</TABLE>
The unaudited pro forma condensed financial data assume that each share of
Imperial Common will be converted into one share of Sub Common, and each share
of Preferred Stock will be converted, at the option of the Preferred
Stockholder, into either: (A) $4.50 in cash and eight shares of Sub Common, or
(B) $2.00 in cash, a Debenture and three shares of Sub Common. Because Imperial
is unable in advance to determine the proportion of Preferred Stock which will
be converted under (A) versus (B), Imperial has prepared the pro forma condensed
financial data using the arbitrary assumption that 50% of the outstanding shares
of Preferred Stock will be converted under (A) and 50% will be converted under
(B). The pro forma financial data include an adjustment to reflect the
conversion of 300,121 shares of Preferred Stock into 1,650,666 shares of Sub
Common and 150,061 Debentures, the elimination of Preferred Stock dividends, and
the payment of cash to Preferred Stockholders.
The pro forma statements of operations data exclude a charge to common
stockholders of $3,266,000 representing the excess of the fair value of cash and
securities to be issued to Preferred Stockholders on the conversion of their
stock over the fair value of common stock issuable to Preferred Stockholders had
the stock been converted at the conversion rate specified in the Preferred
Stock's governing instrument (the 'excess consideration'). The pro forma
statements of operations data exclude $340,000 of estimated future transaction
costs associated with the proposed Merger which will be recognized as incurred
subsequent to June 30, 1998. The pro forma statements of operations data also
exclude $93,000 of costs representing the estimated fair value of 150,000
warrants to be issued to Auerbach, and a $1,044,000 estimated gain on the sale
of the Company's Miami facility. However, the excess consideration, the
transaction costs, the estimated fair value of the warrants to be issued to
Auerbach and the estimated gain on the sale of the Miami facility are reflected
in common stock and other stockholders' deficit in the pro forma balance sheet
data. See Notes 1 and 2 to the Unaudited Pro Forma Condensed Financial
Information.
8
<PAGE>
RISK FACTORS
The following factors should be considered carefully by stockholders of
Imperial in evaluating the Merger and the securities offered hereby.
RISKS RELATING TO AN INVESTMENT IN IMPERIAL
Operating Losses and Accumulated Deficit. The Company has only recently
become profitable, reporting net income applicable to common stockholders (after
giving effect to accrued unpaid dividends on the Preferred Stock) of $1,315,000
and $288,000 for the year ended December 31, 1997 and six months ended June 30,
1998, respectively, as compared to net losses applicable to common stockholders
of $56,000, $208,000, $345,000 and $472,000 for the years ended December 31,
1996, 1995, 1994 and 1993, respectively. In addition, the Company had an
accumulated stockholders' deficit of $4,441,000 and $4,127,000 at December 31,
1997 and June 30, 1998, respectively. The Company has attempted to generate net
income and adequate cash to support operations by various methods, including the
commencement of manufacturing acrylic stucco products, opening warehouse
distribution outlets to sell its products directly to the end user, the
development and sale of new products, reductions in raw material costs and
changes to manufacturing processes to gain greater production efficiency. There
can be no assurances that these efforts to generate net income and cash will
continue to be effective in the future. See 'Imperial Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
Dependence on the Construction Industry; Economic Conditions. The
Company's business is primarily dependent upon the construction industry and is
directly affected by the level of new housing starts and activity in the home
improvement, repair and remodeling markets in Florida and Georgia and, to a
lesser extent, other states in the Southeastern United States, which comprise
the geographic areas in which the Company operates. The demand for construction
varies depending upon a number of factors, including fluctuations in regional
population and economic growth rates, interest rates and levels of material and
energy supplies. Accordingly, adverse economic conditions in the Company's
markets or a worsening of general economic conditions could adversely affect the
Company's operating results. While at the present time economic conditions for
the construction and building supply industry are favorable in the Company's
areas of operation, these areas have suffered economic difficulties in the past
and there can be no assurance that these economic conditions will not decline
again in the future or that demand for the Company's products will remain at
current levels.
Regulation. The Company is subject to a wide range of federal, state and
local laws, regulations and ordinances. In particular, many of these laws and
regulations pertain to the protection of the environment and regulate water
discharges and air emissions, as well as the handling, use and disposal of
hazardous and non-hazardous waste materials. In addition, the Company's
facilities are subject to regulations and safety standards established by the
Occupation Safety and Health Act, the federal agencies which oversee compliance
with this act and the safety codes of state and local government. Moreover,
certain of the Company's products are required to comply with local and regional
building codes. While the Company believes it is substantially in compliance
with all such applicable laws and regulations, there can be no assurance that
the Company is, or in the future will be, able to comply with, or continue to
comply with, current or future government regulations in every jurisdiction in
which it may conduct its business operations. The Company's operating costs may
be affected by the obligation to pay for the cost of complying with existing
environmental and safety laws, ordinances and regulations. In addition, in the
event any future legislation is adopted, the Company may, from time to time, be
required to make significant capital and operating expenditures in response to
such legislation. See 'Business of Imperial.'
Seasonality. The sale of Premix's and Acrocrete's products in the
construction market for the Southeastern United States is somewhat seasonal,
with a slightly lower rate of sales historically occurring in the period
December through February compared to the rest of the year. See 'Business of
Imperial.'
Competition. The Company's business is highly competitive. Premix and
Acrocrete encounter significant competition from local, regional and national
manufacturers of acrylic, cement and plaster products, most of whom manufacture
products similar to those of Premix and Acrocrete. Many of these competitors are
larger, more established and better financed than the Company. The Company
believes it can compete with the other companies based upon product quality,
customer service and maintaining lower overhead costs than larger national
companies. See 'Business of Imperial.'
9
<PAGE>
Dependence on Key Personnel. The Company's future success will depend to a
significant extent on the efforts of key management personnel, including Howard
L. Ehler, Jr., Executive Vice President and Principal Executive Officer of the
Company and Fred H. Hansen, President of the Company's Premix and Acrocrete
subsidiaries. The Company has entered into employment agreements with each of
Messrs. Ehler and Hansen. The loss of either of these key employees could have a
material adverse effect on the Company's business. See 'Management.'
Risks Associated with Low-priced 'Over-the-counter' Securities. Imperial
Common and Preferred Stock are currently traded in the 'over-the-counter market'
on the 'Electronic Bulletin Board' of the National Association of Securities
Dealers, Inc. (the 'NASD'). See 'Price Range of Imperial Common and Preferred
Stock.' Securities of companies traded on the NASD Electronic Bulletin Board are
generally more difficult to dispose of and to obtain accurate quotations as to
price than securities of companies that are traded on the Nasdaq National
Market, the Nasdaq SmallCap Market or the national securities exchanges.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Such exceptions include any
equity security listed on Nasdaq or a national securities exchange and any
equity security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000 for the last three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
In addition, trading in the Company's securities is currently subject to
Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and non-exchange
listed securities. Pursuant to Rule 15g-9, broker/dealers who recommend the
Company's securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if their market price is at least
$5.00 per share.
The impact of the regulations applicable to penny stocks on the Company's
securities is to reduce the market liquidity of the Company's securities by
limiting the ability of broker/dealers to trade the Company's securities and the
ability of purchasers of the Company's securities to sell their securities in
the secondary market. The low price of the Imperial Common also has a negative
effect on the amount and percentage of transaction costs paid by individual
stockholders and the potential ability of the Company to raise additional
capital by issuing additional shares. The primary reasons for these effects
include the internal policies of certain institutional investors that prohibit
the purchase of low-priced stocks, the fact that many brokerage houses do not
permit low-priced stocks to be used as collateral for margin accounts or to be
purchased on margin and certain brokerage house policies and practices that tend
to discourage individual brokers from dealing in low-priced stocks. In addition,
since broker's commissions on low-priced stocks represent a higher percentage of
the stock price than commissions on higher priced stocks, the current low share
price of the Imperial Common results in individual shareholders paying
transaction costs that are a higher percentage of their total share value than
would be the case if the Imperial Common's share price were substantially
higher.
Nasdaq SmallCap Listing Requirements. Merger Sub intends to apply for
listing of the Sub Common on the Nasdaq SmallCap Market as soon as it meets the
eligibility requirements. Under recently implemented Nasdaq rules, in order to
be eligible for listing on the Nasdaq SmallCap Market, (i) the Sub Common must
have a minimum bid price of $4.00, (ii) Merger Sub must have minimum tangible
net assets (total assets less total liabilities and goodwill) of $4 million or a
market capitalization of at least $50 million or net income of at least $750,000
in the most recent year or in two of the three prior years, (iii) Merger Sub
must have a public float of at least one million shares with a market value of
at least $5 million and (iv) the Sub Common must have at least three market
makers and be held of record by at least 300 shareholders. Merger Sub will not
meet these eligibility requirements immediately following the Effective Date. If
at any time thereafter Merger Sub were to satisfy all listing requirements other
than the minimum bid price of $4.00 per share, then the Board of Directors is
likely to recommend that Merger Sub effect a reverse stock split in order to
meet this minimum trading price listing
10
<PAGE>
requirement. Any such reverse stock split would require stockholder approval.
There can be no assurance that at any time Merger Sub would be able to satisfy
some or all listing requirements or that any proposed reverse stock split will
be approved by the stockholders or successfully implemented following such
approval.
Merger Sub does not intend to apply for listing of the Debentures on any
trading market.
Effects of Certain Anti-Takeover Provisions. Certain provisions of the
Company's and Merger Sub's Certificates of Incorporation and Bylaws and the GCL
could delay or frustrate the removal of incumbent directors and could make
difficult a merger, tender offer or proxy contest involving the Company or
Merger Sub, even if such events could be viewed as beneficial by the Company's
or Merger Sub's stockholders. For example, the Certificates of Incorporation
require a 75% supermajority vote of stockholders to amend certain provisions of
the Bylaws pertaining to the calling of special meetings and the election and
removal of directors. In addition, the Board of Directors of each company has
the ability to issue 'blank check' preferred stock without stockholder approval.
Although Merger Sub does not currently plan to issue any preferred stock, the
rights of the holders of Sub Common may be materially limited or qualified by
the issuance of preferred stock. Other provisions of the Certificates of
Incorporation and Bylaws divide each Board of Directors into three classes, each
class serving three year staggered terms. The Company and Merger Sub are also
subject to provisions of the GCL which prohibit a publicly held Delaware
corporation from engaging in a broad range of business combinations with a
person who, together with affiliates and associates, owns 15% or more of the
corporation's outstanding voting shares (an 'interested stockholder') for three
years after the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. See 'Description of Merger Sub
Securities--Sub Preferred' and 'Management of Imperial.'
Limitation on Liability of Directors to Stockholders. The Company's and
Merger Sub's By Laws limit the monetary liability of their directors in their
capacity as directors to the fullest extent permitted by the GCL.
No Dividends. The Company has not paid any cash dividends on Imperial
Common since 1980. The Company is prohibited from paying any dividends on
Imperial Common until all accrued and unpaid dividends on the Preferred Stock
are paid in full. The Company has omitted cash dividends on its Preferred Stock
since the fourth quarter of 1985, and unpaid dividends aggregated $4,209,000 at
June 30, 1998. Even if the Merger is approved, Merger Sub does not anticipate
paying dividends on Sub Common for the foreseeable future. Earnings, if any,
will be retained to finance the operation and expansion of Merger Sub's
business.
RISKS RELATING TO THE MERGER
No Assurance that Merger Sub or its Stockholders Will Realize Anticipated
Benefits from the Merger. The Company's Board of Directors believes that the
Company and its stockholders will benefit from restructuring the Company's
capitalization to eliminate the Preferred Stock and the accumulated dividend
arrearage thereon. In the opinion of the Board, elimination of the Preferred
Stock will remove an impediment to the Company's future financings, improve the
book value per common share by removing the aggregate redemption value and
accumulated dividend arrearages for the Preferred Stock, and also improve the
income (loss) per common share by eliminating the annual Preferred Stock
dividend requirements, while providing the Preferred Stockholders a combination
of cash and securities with potentially more liquidity and greater potential for
appreciation than the Preferred Stock. There can be no assurance, however, that
Merger Sub and its stockholders will ultimately realize any of the anticipated
benefits of the Merger.
No Arms' Length Negotiation or Independent Representatives. The Merger has
been initiated and structured by individuals who are executive officers and
directors of Imperial. No independent persons were hired to negotiate the terms
of the Merger on behalf of the Company's stockholders. If such persons had been
hired, the terms of the Merger might have been more or less favorable to the
public stockholders of the Company. The Company retained Auerbach as its
financial advisor to assist in developing the structure of the proposed Merger.
See 'The Merger--Financial Advisor; Fairness Opinion.'
Substantial Ownership Interest of Management and Affiliates. Following the
Effective Date, and assuming the maximum and minimum number of shares of Sub
Common are issued in the Merger (2,400,968 shares and 900,363 shares,
respectively), the executive officers and directors of the Company and their
affiliates will beneficially own 2,372,226 shares (including warrants
exercisable within 60 days after the Effective Date), or
11
<PAGE>
approximately 25.8%, if the maximum number of shares of Sub Common are issued,
or 30.8%, if the minimum number of shares of Sub Common are issued, of the
outstanding Sub Common. While such ownership may not allow management to
exercise control over Merger Sub, such ownership, together with their positions
as executive officers and directors of Merger Sub, will enable management to
exercise significant influence on the management and operation of Merger Sub.
Dilution. Holders of Imperial Common will have their ownership interest in
Merger Sub diluted by the issuance of Sub Common in the Merger to holders of
Preferred Stock. A maximum of 2,400,968 shares of Sub Common may be issued in
the Merger to the holders of the Preferred Stock (without giving effect to
150,000 common stock purchase warrants to be issued to Auerbach and an aggregate
of 200,000 warrants held by two directors of the Company). As a result, the
Preferred Stock would have been converted into Sub Common representing
approximately 26.7% of the Sub Common outstanding after the Merger, assuming all
holders of Preferred Stock choose to convert all their shares pursuant to Option
A.
Subordination. The Debentures are general, unsecured obligations of Merger
Sub, subordinated in right of payment to all existing and future Senior Debt
(generally, all indebtedness to institutional and other lenders) of Merger Sub.
The Debentures do not limit the amount of Senior Debt that may be incurred by
Merger Sub.
By reason of such subordination, in the event of the insolvency,
liquidation, reorganization, dissolution or other winding-up of Merger Sub or
upon a default in payment with respect to, or the acceleration of, or if a
judicial proceeding is pending with respect to any default under, any Senior
Debt, the holders of such Senior Debt must be paid in full before the holders of
the Debentures may be paid. Also, under certain circumstances, no payments may
be made with respect to the principal or interest on the Debentures if a
nonpayment default exists with respect to Senior Debt. See 'Description of
Merger Sub Securities.'
No Trustee or Indenture for the Debentures. The Debentures will not be
issued pursuant to an Indenture of Trust, nor will the Debentures be qualified
under the Trust Indenture Act of 1939, as amended. Consequently, holders of the
Debentures will be required to rely on their own resources, rather than upon the
resources of a trustee, to enforce the terms and provisions of the Debentures
against Merger Sub.
No Sinking Fund. Merger Sub has not created any sinking fund or other
similar reserve fund for the payment of principal and interest on the
Debentures. If Merger Sub does not generate sufficient cash flow from operations
or obtain other sources of financing at the time the Debentures mature, Merger
Sub may not have sufficient funds to provide for the payment of principal and
interest owing on the Debentures.
Limited Liquidity. A maximum of $2,400,968 (representing 300,121
Debentures) principal amount of Debentures may be issued in the Merger. In
management's opinion, there will not be a sufficient public 'float' for an
active trading market to develop in the Debentures, nor will Merger Sub assist
in or encourage the development of any such trading market. Accordingly,
although the Debentures will be registered under the Securities Act, it is
likely that the holders of such securities will be required to bear the economic
risk of an investment in the Debentures until the prepayment or maturity
thereof.
Fixed Merger Consideration Despite Change in Common Stock Prices. At the
Effective Date, each share of Preferred Stock outstanding immediately prior to
the Merger will be converted, at the option of the holder thereof, into either
(A) $4.50 in cash and eight shares of Sub Common or (B) $2.00 in cash, an $8.00
principal amount Debenture and three shares of Sub Common. These conversion
options will not be adjusted in the event of any decrease or increase in the
price of Imperial Common prior to the Effective Date. The price of Imperial
Common may vary from its market price at the date of this Proxy
Statement/Prospectus and at the date of the Meeting. Such variations may be the
result of changes in the business, operations or prospects of the Company,
general market and economic conditions and other factors. At the time of the
Meeting, the holders of Preferred Stock will not know the exact value of the Sub
Common that they will receive when the Merger is consummated. Certificates
representing shares of Preferred Stock timely surrendered by holders who do not
select a desired form of Merger Consideration will be converted into the Default
Merger Consideration. Commencing 60 days after the Effective Date, all
unsubmitted, and improperly submitted, shares of Preferred Stock, other than
shares as to which dissenters' rights of appraisal have been properly asserted,
will evidence the right to receive the Default Merger Consideration. In
addition, shares as to which dissenters' rights of appraisal have been properly
12
<PAGE>
asserted, which rights are waived or abandoned subsequent to the 60th day after
the Effective Date, similarly will evidence the right to receive the Default
Merger Consideration.
TAX RISKS
No Ruling Regarding Tax Consequences. The Company will not seek a ruling
from the Internal Revenue Service (the 'IRS') with regard to the proposed
transaction. The opinion of Rosen & Reade, LLP, special tax counsel to the
Company, concerning the federal income tax consequences of the Merger, which is
summarized in the discussion in 'The Merger--Certain Federal Income Tax
Consequences of the Merger,' will not be binding on the IRS and does not
preclude the IRS from adopting positions contrary to those stated in the
discussion.
Valuation of Merger Consideration. The market for shares of Imperial
Common is relatively inactive and it is not known if there will be a market for
the Debentures. It may, therefore, be difficult for a stockholder to estimate
the value, as determined after the proposed transaction, of the Sub Common and
Debentures to be received in the Merger. As the discussion in 'The
Merger--Certain Federal Income Tax Consequences of the Merger' indicates,
whether a gain or loss will be realized by a holder of Preferred Stock will
depend, in part, upon the value of the Sub Common and Debentures to be received
in the Merger. The IRS could, of course, assign values to the Sub Common and to
the Debentures that are different from those determined by a stockholder.
Treatment of Accumulated Dividend Arrearages. The earnings and profits of
the Company and of Merger Sub for 1998 will not be known until the end of 1998.
It will not be possible, therefore, for a holder of Preferred Stock to know, at
the time of the Merger, how much, if any, of the accumulated dividend arrearages
on the Preferred Stock will be treated as a dividend and how much will be
treated as capital gain or as a return of capital. See 'The Merger--Certain
Federal Income Tax Consequences of the Merger; Exchange of Preferred Stock.'
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth: (1) the historical net income (loss)
applicable to common stockholders and the book value of Imperial Common on a per
share basis; and (2) the pro forma net income applicable to common stockholders
and book value of Sub Common, on a per share basis, after giving affect to the
proposed merger of Imperial and Merger Sub. Imperial has not paid any cash
dividends on Imperial Common since 1980. The information presented in this table
should be read in conjunction with the unaudited pro forma condensed balance
sheet at June 30, 1998 and statements of operations for the six months ended
June 30, 1998 and for the year ended December 31, 1997 and the historical
financial statements and the notes thereto of Imperial appearing elsewhere in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
BASIC BASIC DILUTED DILUTED
HISTORICAL PRO FORMA (1) HISTORICAL PRO FORMA (1)
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Per share net income (loss)
applicable to common
stockholders:
Fiscal year ended:
December 31, 1995..... $(0.04) $(0.04)
December 31, 1996..... (0.01) (0.01)
December 31, 1997..... 0.22 $0.19 0.21 $0.19
Six months ended:
June 30, 1997......... 0.05 0.05
June 30, 1998......... 0.04 0.05 0.04 0.04
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- -------------
<S> <C> <C> <C> <C>
Per share book value of
common stock: (1)(2)
At December 31, 1997..... $(0.67)
At June 30, 1998......... (0.62) $0.22
</TABLE>
- ------------------
(1) Assumes holders of an equal number of shares of Preferred Stock choose
Option A and Option B. Includes the issuance of 1,650,666 shares of Sub
Common and 150,061 Debentures upon conversion of all outstanding shares of
Preferred Stock pursuant to the Merger. See Note 2 to Unaudited Pro Forma
Condensed Financial Information.
(2) Includes a charge to common stockholders of $3,266,000 representing the
excess of the fair value of cash and securities to be issued to Preferred
Stockholders on the conversion of their stock over the fair value of the
common stock issuable to preferred stockholders had the stock been converted
at the conversion rate specified in the Preferred Stock's governing
instrument. Also includes estimated future transaction costs of $340,000,
$93,000 estimated fair value of 150,000 warrants issuable to Auerbach upon
consummation of the Merger, and $1,044,000 estimated gain on the sale of the
Company's Miami, Florida facility. See Note 1 to the Unaudited Pro Forma
Condensed Financial Information.
14
<PAGE>
PRICE RANGE OF IMPERIAL COMMON AND PREFERRED STOCK
The Imperial Common and Preferred Stock are traded in the over-the-counter
market. The following table sets forth the high and low bid quotations of the
Imperial Common and Preferred Stock for the quarters indicated, as reported by
the National Quotation Bureau, Inc. Such quotations represent prices between
dealers and do not include retail mark-up, mark-down, or commission, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
IMPERIAL
COMMON PREFERRED STOCK
----------- ----------------
FISCAL 1996 HIGH LOW HIGH LOW
- --------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C>
First Quarter.............. $.06 $.03 $1.75 $1.625
Second Quarter............. .10 .06 2.00 1.625
Third Quarter.............. .14 .07 2.25 1.75
Fourth Quarter............. .14 .08 2.375 1.875
<CAPTION>
FISCAL 1997 HIGH LOW HIGH LOW
- --------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C>
First Quarter.............. $.20 $.08 $3.25 $2.25
Second Quarter............. .28 .20 2.8125 2.625
Third Quarter.............. .45 .20 5.50 2.8125
Fourth Quarter............. .44 .29 5.25 4.50
<CAPTION>
FISCAL 1998 HIGH LOW HIGH LOW
- --------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C>
First Quarter.............. $.40 $.25 $5.75 $5.125
Second Quarter............. .58 .36 8.75 5.75
Third Quarter (through
September 1, 1998)....... .39 .32 7.75 5.375
</TABLE>
On September 1, 1998, the Imperial Common and Preferred Stock were held by
2,095 and .86, respectively, stockholders of record.
As of September 1, 1998, the closing bid and asked prices of the (i)
Imperial Common were $.32 and $.39, respectively, and (ii) Preferred Stock were
$5.50 and $7.25, respectively.
15
<PAGE>
THE MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to stockholders of
Imperial in connection with the solicitation of proxies by the Board of
Directors of Imperial for use at a Special Meeting of Stockholders of Imperial
to be held on , November , 1998, at 10:00 a.m., local time, at the
offices of the Company, 3009 Northwest 75th Avenue, Miami, Florida, and any
adjournments or postponements thereof.
The Proxy Statement/Prospectus, the attached Notice of Meeting and the
accompanying form of proxy are first being mailed to stockholders of Imperial on
or about October , 1998.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of shares of Imperial Common and Preferred Stock
will consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby and (ii) such other business
as properly may come before the Meeting.
The Company's Board of Directors believes that the terms of the Merger are
fair to, and in the best interests of, the Company and its stockholders.
Accordingly, the Board of Directors has approved the Merger Agreement and
unanimously recommends a vote FOR approval and adoption of the Merger Agreement
by the stockholders of the Company. For additional information, see 'The
Merger--Reasons for the Merger; Recommendation of the Board of Directors.'
RECORD DATE
The Board of Directors of Imperial has fixed the close of business on
October , 1998 as the Record Date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting. Accordingly, only holders of
record of Imperial Common and Preferred Stock as of the close of business on the
Record Date are entitled to notice of, and to vote at, the Meeting. As of the
Record Date, 6,607,961 shares and 300,121 shares of Imperial Common and
Preferred Stock, respectively, were outstanding and held of record by [2,095]
and [86] stockholders, respectively.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not attend the Meeting and does not return the
signed proxy card, such stockholder's shares will not be voted. If a stockholder
returns a signed proxy card but does not indicate how his or her shares are to
be voted, such shares will be voted FOR approval of the Merger Agreement and the
transactions contemplated thereby. As of the date of this Proxy
Statement/Prospectus, the Company's Board of Directors does not know of any
other matters which are to come before the Meeting. If any other matters are
properly presented at the Meeting for consideration, the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Imperial, at or before the taking of the vote at the
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares of Imperial
Common or Preferred Stock and delivering it to the Secretary of Imperial before
the taking of the vote at the Meeting or (iii) attending the Meeting and voting
in person (although attendance at the Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to the Company at 3009
Northwest 75th Avenue, Miami, Florida, 33122, Attention: Corporate Secretary, or
hand delivered to the Secretary of Imperial at or before the taking of the vote
at the Meeting.
Imperial will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Imperial in person or by
telephone or other means of communication. Such directors, officers and
employees will not be additionally
16
<PAGE>
compensated, but may be reimbursed for out-of-pocket expenses incurred in
connection with such solicitation. Arrangements also will be made with
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Imperial will reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith. In
addition, Morrow & Co., Inc. (the 'Information Agent') will assist in the
solicitation of proxies by Imperial, and will act as Information Agent for the
Merger. The Information Agent will receive a fee totaling $5,000 plus
out-of-pocket expenses for such services.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE PROCEDURES FOR THE EXCHANGE OF SECURITIES AFTER THE MERGER IS CONSUMMATED
ARE SET FORTH BELOW IN THIS PROXY STATEMENT/PROSPECTUS.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of Preferred Stock, together
with the holders of a majority of the outstanding shares of Imperial Common, is
necessary to constitute a quorum at the Meeting. Both abstentions and broker
non-votes are considered present for purposes of determining a quorum but are
excluded from votes cast.
VOTE REQUIRED
Holders of Imperial Common and Preferred Stock are entitled to one vote at
the Meeting for each share of Imperial Common and Preferred Stock held of record
by them on the Record Date. The affirmative vote of the holders of a majority of
the shares of Imperial Common outstanding and entitled to vote at the Meeting,
and the affirmative vote of the holders of a majority of the shares of Preferred
Stock outstanding and entitled to vote at the Meeting, voting separately as a
class, are required for the approval of the Merger. Abstentions and broker
non-votes will have the effect of votes against the Merger Agreement. As of the
Record Date, the Company's directors, executive officers and affiliates
beneficially owned 2,172,226 shares of Imperial Common (excluding 200,000 shares
which may be acquired upon the exercise of warrants which are exercisable within
60 days of the Record Date) and 2,000 shares of Preferred Stock, representing
32.9% and 0.7% of the outstanding shares of Imperial Common and Preferred Stock,
respectively. To the best knowledge of the Company, all of the directors,
executive officers and affiliates of the Company intend to vote their shares of
Imperial Common and Preferred Stock in favor of the Merger.
THE MERGER
BACKGROUND OF THE MERGER
The Company originally issued the Preferred Stock in a February 1983 public
offering of its securities. Each share of Preferred Stock is entitled to
cumulative quarterly dividends at the rate of $1.10 per annum. The Company has
omitted payment of dividends on the Preferred Stock since the fourth quarter of
1985 aggregating $4,209,000 through June 30, 1998. In addition, the Preferred
Stock is subject to redemption through a mandatory sinking fund at a redemption
price of $10.00 per share, at the rate of approximately 66,000 shares a year,
starting in 1986, less any shares of Preferred Stock converted into Imperial
Common. Through June 30, 1998, an aggregate of 359,879 shares of Preferred Stock
were converted into 1,199,557 shares of Imperial Common. As a result of these
conversions, the Company was required to redeem 36,121 shares in 1991 and 66,000
shares for each year thereafter through 1995, at which time the Preferred Stock
was intended to be fully retired. The Company did not redeem any shares of the
Preferred Stock as required on April 1, 1991, or during any year thereafter.
Under the provisions of the sinking fund requirements, if an annual sinking fund
requirement is not met, it is added to the requirements for the next year. Among
other things, the Company is prohibited from paying any cash dividends on
Imperial Common at any time that the Company is in default in the payment of any
dividends on the Preferred Stock or if the sinking fund requirements are in
arrears. The Company is currently unable to satisfy the dividend and sinking
fund arrearages, and it does not anticipate that it will be able to satisfy
these obligations in their entirety in the foreseeable future.
17
<PAGE>
In management's view, the actual intrinsic stockholder value of Imperial is
significantly higher than is reflected in the market price of Imperial Common,
but for the ongoing and increasing Preferred Stock dividend accruals and sinking
fund arrearages. Management believes that maximum value to holders of Imperial
Common and Preferred Stock alike would best be attained by utilizing future cash
generated by operations or from external sources to implement the Company's
growth and expansion goals rather than for the satisfaction of dividend and
sinking fund arrearages. Accordingly, on several occasions the Board of
Directors, in response to inquiries from holders of Preferred Stock and during
the Board's meetings incident to considering whether the Company could declare
dividends on and/or make partial redemptions of the Preferred Stock, considered
the related issue of whether the Preferred Stock should be retired or otherwise
restructured prior to final redemption. At the Company's November 1993 Annual
Meeting of Stockholders, the Board of Directors proposed that, in return for a
payment of $1.00 per share, the holders of the Preferred Stock approve an
amendment to the Certificate of Designation of Rights and Preferences (the
'Certificate of Designation') relating to the Preferred Stock which, if adopted,
would have, among other changes, eliminated (i) the dividend arrearages, (ii)
the ongoing requirement to pay cumulative dividends and (iii) the mandatory
sinking fund redemption provisions. The amendment was rejected, primarily
because, according to several significant holders of Preferred Stock, in light
of the Company's then financial condition the proposed amendment did not provide
sufficient value to such holders.
In 1997, the Company began to realize an improvement in its results of
operations and management came to the conclusion that it would be increasingly
difficult, if not impossible, for the Company to increase its stockholder value
and realize its expansion goals without restructuring its capitalization to
eliminate the Preferred Stock dividend and sinking fund arrearages. In late
1997, management contacted seven of the larger holders of Preferred Stock to
explore their interest in a restructuring of their holdings. In the spring of
1998, the Company retained Auerbach as its financial advisor to assist it in
structuring a transaction which would accomplish this objective, while
maximizing the potential for the Company to accomplish its business plan for
future growth and enhancing overall stockholder value.
Thereafter, the Company's management, assisted by its financial and legal
advisors, commenced the process of structuring a proposed transaction.
Management determined that any consideration issuable to the holders of
Preferred Stock in any such transaction would be limited by the Company's
then-current financial condition, limited resources, and the likelihood of
significant transaction costs. Management further determined that the Company
was limited as to the number of new shares of common stock that could be offered
to the holders of Preferred Stock without jeopardizing both the Company's
financial flexibility and its ability to utilize its approximately $11,000,000
of net operating loss ('NOL') carry-overs for income tax purposes. Management
therefore informed its advisors of its preference that the consideration
actually issued to the holders of the Preferred Stock in any such transaction
approximate no greater than (i) 2,400,000 newly issued shares of common stock,
(ii) $1,500,000 principal amount of indebtedness and (iii) $1,000,000 in cash.
In May 1998, the Board of Directors, together with its financial and legal
advisors, considered several proposed transactions. Following review of these
proposals, the Board of Directors preliminarily approved the proposed Merger
described herein, believing such proposal was the fairest to its stockholders of
the various transactions considered and had the highest likelihood for
acceptance and approval by such stockholders.
In late July 1998, Auerbach orally advised management that the terms of the
proposed Merger described in this Proxy Statement/Prospectus are fair, from a
financial point of view, to Imperial's stockholders. On August 6, 1998, the
Board of Directors, after considering various factors, including the fairness
opinion of Auerbach, ratified its approval of the Merger, the Merger Agreement
and the transactions contemplated by the Merger Agreement, and resolved to
recommend to Imperial's stockholders that they vote to approve the proposal to
adopt the Merger Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of Imperial believes that the Merger is fair to and
in the best interests of Imperial and its stockholders and unanimously
recommends that Imperial's stockholders vote for approval of the Merger
Agreement and the transactions contemplated thereby. In reaching its
determination, the Board of Directors
18
<PAGE>
consulted with Imperial management, as well as its financial advisors and legal
counsel, and considered a number of factors, both positive and negative,
including, without limitation, the following:
The following positive factors, among others, were considered:
1. Improved Book Value. Elimination of the Preferred Stock from the
Company's capital structure will improve the book value per common share by
$.84, from $(.62) to $.22 on a pro forma basis at June 30, 1998, assuming
holders of an equal number of shares of Preferred Stock choose Option A or
Option B. The improvement will result primarily from the elimination of
$3,001,000 of Preferred Stock and $4,209,000 of accumulated dividends
thereon less the issuance of $984,000 of Debentures and cash paid to
Preferred Stockholders of $975,000.
2. Enhancement of the Company's Financial Flexibility. By
eliminating the Preferred Stock liquidation preference and dividend
arrearages, the Company's balance sheet will be strengthened and its
financing alternatives enhanced.
3. Greater Value for Preferred Stockholders. The Sub Common together
with the cash and Debentures to be received by the Preferred Stockholders
should provide them with an opportunity to realize greater liquidity and
value than the current Preferred Stock provides. Average daily trading
volume of the Preferred Stock was approximately 511 shares for the first
eight months of 1998 (prior to the announcement of the proposed Merger),
compared to the average daily trading volume of approximately 3,260 shares
for the Imperial Common during the same period. Moreover, the cash and debt
components of the Merger Consideration will provide the holders of the
Preferred Stock with an additional readily ascertainable element of value.
4. Greater Ability to Pursue Growth Opportunities. The Company
intends in the future to pursue growth opportunities, both internally and
through acquisitions. Although the Company believes that as a result of the
Merger, it may be in a more favorable position to make acquisitions that
will enhance the Company's operations, there can be no assurance that any
such events will occur. The Company does not currently have any plans,
understandings, commitments or agreements relating to any proposed
acquisition or financing.
5. Fairness Opinion. The opinion of Auerbach that the Merger
Consideration is fair, from a financial point of view, to Imperial's
stockholders.
The following negative factors, among others, were considered:
1. Dilution. If the Merger is approved, holders of Imperial Common
could have their ownership interest in the Company diluted by up to
2,400,968 shares, representing approximately 26.7% of the Sub Common
outstanding after the Merger. However, the Board of Directors determined
that the Merger would likely result in less dilution and cost to the
Company than would be experienced if the Preferred Stock were redeemed
pursuant to the terms of the Certificate of Designation governing the
Preferred Stock by raising additional capital from third parties.
2. Value of Merger Consideration. Holders of Preferred Stock will
receive Merger Consideration having an estimated value less than the
current combined current redemption price and dividend arrearages of the
Preferred Stock. However, the Board of Directors believes that the Merger
Consideration has potentially greater value than the current market price
of the Preferred Stock.
3. Adverse Impact on Company Liquidity. The Merger will require the
Company to pay significant out-of-pocket transaction costs, as well as cash
consideration to the holders of the Preferred Stock. If all holders of
Preferred Stock were to elect to receive $4.50 per share in cash and eight
shares of Sub Common, the Company would be required to pay aggregate cash
consideration of $1,350,545, in addition to approximately $400,000 in
estimated out-of-pocket transaction costs. If all holders of Preferred
Stock were to elect to receive $2.00 in cash, an $8.00 principal amount
Debenture and three shares of Sub Common, the Company would be required to
pay aggregate cash consideration of $600,242 and would incur aggregate
indebtedness of $2,400,968 (and annual interest obligations thereon of
approximately $192,100), together with out-of-pocket transaction costs.
However, management believes that cash from operations, together with the
strengthening of its balance sheet as a result of the Merger, will provide
it with sufficient financial flexibility and liquidity to fund both its
ongoing operations and the costs associated with the Merger.
19
<PAGE>
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Merger, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
THE BOARD OF DIRECTORS OF IMPERIAL UNANIMOUSLY RECOMMENDS THAT IMPERIAL'S
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT.
In the event that the Merger is not approved by the Company's stockholders,
the Preferred Stock will continue to accrue dividends in arrears and the Company
would continue to be obligated to redeem the Preferred Stock and pay the
accumulated dividend arrearages. The Company does not know when it will resume
the payment of dividends on, and the redemption of, the Preferred Stock. The
Company does not currently expect to resume payment of dividends or continue
redemptions for the foreseeable future. Although it is likely the Company would
be able to continue to operate indefinitely in its current condition, the
Company would continue to be limited in taking any steps necessary to enhance
stockholder value in the future.
FINANCIAL ADVISOR; FAIRNESS OPINION
In March 1998, the Company retained Auerbach to assist the Company in its
consideration and evaluation of possible transactions. In July 1998, Imperial's
Board asked Auerbach to render an opinion as to the fairness of the Merger to
the holders of Imperial Common and Preferred Stock from a financial point of
view. Imperial's Board did not place limitations on the investigations to be
made or the procedures to be followed by Auerbach in preparing and rendering its
opinion.
On August 6, 1998, Auerbach delivered its written opinion that the terms of
the Merger are fair to the holders of Imperial Common and Preferred Stock from a
financial point of view.
The full text of the written opinion of Auerbach, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix B hereto and is
incorporated herein by reference. Stockholders are urged to, and should, read
such opinion in its entirety and consider it carefully. The Auerbach opinion is
directed to Imperial's Board and does not constitute a recommendation to any
individual stockholder as to how such stockholder should vote at the Meeting.
The summary of Auerbach's opinion set forth in this Proxy Statement/Prospectus
is qualified in its entirety by reference to the full text of such opinion.
Auerbach relied upon and assumed, without independent verification, the
accuracy and completeness of all publicly available financial information and
all financial information furnished or otherwise communicated to it by Imperial.
Auerbach did not make any appraisal of the assets of Imperial. Auerbach does not
express any opinion as to what the value of the Merger Consideration actually
will be when issued pursuant to the Merger or the price at any time at which the
Sub Common will trade. Auerbach's opinion does not address the underlying
business decision to enter into the Merger.
Auerbach also assumed that: (i) the Merger will be accounted for as a
reorganization of entities under common control; and (ii) any material
liabilities (contingent or otherwise, known or unknown) of Imperial are set
forth in the consolidated financial statements of Imperial. Auerbach assumes no
responsibility for the legal, tax or accounting aspects of the Merger.
In connection with its evaluation and opinion, Auerbach reviewed, among
other things: (i) the Merger Agreement; (ii) Imperial's most recently available
Annual Report on Form 10-K; (iii) certain Quarterly Reports on Forms 10-Q of
Imperial; and (iv) certain internal financial analyses and forecasts prepared by
Imperial's management. Auerbach also met with management to discuss the
Company's business and business prospects. Auerbach assumed that all financial
projections provided by Imperial were based upon assumptions reflecting the
best, currently available estimates and good faith judgment of management as to
the future performance of Imperial and that management does not have any
information or beliefs that would make the projections materially misleading.
In connection with preparing its evaluation and opinion, Auerbach performed
a variety of financial and comparative analyses, including, but not limited to,
those described below. Auerbach believes that its analyses must be considered as
a whole and that selecting portions of the analyses and of the factors
considered by it,
20
<PAGE>
without considering all factors and analyses, could create a misleading view of
the processes underlying its evaluation and opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to a
partial analysis or summary description. In its analysis, Auerbach made numerous
implicit assumptions about industry and general economic conditions, and other
matters which are beyond the control of Imperial and may not be indicative of
future results or actual values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies or assets do not
purport to be appraisals or necessarily reflect the prices at which companies
and assets may actually be sold. Because such estimates are inherently subject
to uncertainty, Auerbach assumes no responsibility for their accuracy.
Comparable Company Analysis. Using publicly available information,
Auerbach reviewed certain financial information and ratios of each of the
following publicly-traded companies that Auerbach deemed, through experience and
discussions with management of Imperial, to be reasonably similar to Imperial:
ABT Building Products Corporation, Monroc Inc., Dal-Tile International, Inc.,
Hydraulic Press Brick Co. and Smith-Midland Corp. (the 'Publicly-Traded
Comparables').
Auerbach's review of the Publicly-Traded Comparables included analysis of
(i) latest twelve month ('LTM') revenues, (ii) LTM earnings before interest,
taxes, depreciation and amortization ('EBITDA') and (iii) LTM net income.
Auerbach evaluated the market multiples for such companies to determine the
highest, lowest and median market multiples for each of the selected items (i)
through (iii) above.
This analysis indicated that the approximate enterprise value multiples of
revenue ranged from 0.65x to 1.81x, with a median multiple of 0.87x; and the
approximate enterprise value multiples of EBITDA ranged from 4.40x to 13.88x,
with a median multiple of 6.95x. The market multiple analysis of net income was
not included due to the lack of meaningful information from the Publicly-Traded
Comparable Companies.
Auerbach subsequently used the median multiples derived from the
Publicly-Traded Comparables and applied such multiplies to the corresponding
financial information for Imperial, based on Imperial's financial statements for
the LTM ended December 31, 1997, to determine Imperial's approximate imputed
enterprise value. The resulting range of imputed enterprise values for Imperial
were then adjusted to account for pro forma net debt (debt minus cash), by
subtracting approximately $3.1 million of pro forma debt, yielding a range of
imputed equity values for Imperial.
Based upon the revenue multiples, the imputed enterprise value of Imperial
ranged from approximately $10.3 million to approximately $28.5 million; after
subtracting net debt, the imputed equity value of Imperial ranged from
approximately $7.2 million to approximately $25.4 million. Based upon the EBITDA
multiples, the imputed enterprise value of Imperial ranged from approximately
$6.0 million to approximately $19.0 million; after subtracting net debt, the
imputed equity value of Imperial ranged from approximately $2.9 million to
approximately $15.9 million.
None of the Publicly-Traded Comparables utilized as a comparison are
identical to Imperial. Accordingly, an analysis of publicly-traded comparable
companies is not mathematical. Rather it involves complex consideration and
judgements concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
and market values of the comparable companies or company to which they are being
compared.
Discounted Cash Flow Analysis. Auerbach performed a discounted cash flow
('DCF') analysis, by calculating (x) the present value of Imperial's projected
unleveraged free cash flows for the years ending December 31, 1998, 1999 and
2000 with (y) the present value of a range of terminal values described below.
Free cash flow represents the amount of cash generated and available for
principal, interest and dividend payments after providing for ongoing business
operations; these free cash flow figures were based upon operating and financial
forecasts provided to Auerbach by the management of Imperial.
The range of terminal values represents the residual value of Imperial at
the end of the three year forecast period; this range of terminal values was
calculated by applying a range of imputed multiples to Imperial's: (i) revenues;
(ii) EBITDA and (iii) perpetual growth rates, in the final year of the forecast
period.
As part of the DCF analysis, Auerbach utilized discount rates based upon
several assumptions including interest rates, the inherent business risk of
Imperial and Imperial's estimated cost of capital.
21
<PAGE>
Based upon a range of terminal value multiples of 7.0x to 8.0x, and a range
of discount rates of 18% to 20%, the imputed enterprise value of Imperial ranged
from approximately $10.6 million to approximately $12.2 million
The resulting range of imputed enterprise values for Imperial was then
adjusted to account for net debt, yielding a range of imputed equity values for
Imperial of approximately $7.5 million to approximately $9.1 million.
Pro Forma Analysis. Auerbach reviewed and analyzed the projections for
Imperial based upon operating and financial projections provided to it by
Imperial's management and the terms of the Merger. Auerbach noted that under the
terms of the Merger Agreement, the Merger Consideration issuable to the holders
of Preferred Stock, depending on the form of Merger Consideration chosen,
included components ranging from a minimum to a maximum of (i) 900,363 shares to
2,400,968 shares of Sub Common, (ii) $0 to $2,400,968 principal amount of
Debentures and (iii) $600,242 to $1,350,545 in cash. Furthermore, based upon
discussions with management, Auerbach assumed (i) a 4% cost of funding to the
Company with respect to the cash component of the Merger Consideration and (ii)
8% interest per annum on the Debentures issued in the Merger.
Auerbach reviewed certain pro forma financial effects resulting from the
Merger for each of the fiscal years ending December 31 in the three year period
ending December 31, 2000. Auerbach estimated, on a pro forma basis, the Merger
would be accretive to the earnings per share ('EPS') of Imperial in each of such
periods. Such estimates were, in part, based upon management's projections of
net income through fiscal 2000, the elimination of Preferred Stock dividend
obligations and arrearages and other post-Merger savings or revenue
enhancements.
Based on its analysis as described above, Auerbach valued, on a pro forma
basis, the per share Merger Consideration to be received by the holders of the
Preferred Stock at (A) $12.68, if a holder elected to have each of his or her
shares converted into $4.50 in cash and eight shares of Sub Common or (B)
$11.51, if a holder elected to have each of his or her shares converted into
$2.00 in cash, a Debenture and three shares of Sub Common. Auerbach determined
the imputed value of the Merger Consideration proposed to be issued to the
holders of the Preferred Stock by utilizing: (i) an imputed, pro forma market of
the Sub Common of (x) $0.98, if all holders of Preferred Stock chose Option A
above, (y) $1.02, if all holders of Preferred Stock chose Option B above and (z)
$1.00, if an equal number of holders of Preferred Stock chose Options A and B
above; (ii) a market value of the Debenture of 82% cash value; and (iii) the
cash component of the two choices of Merger Consideration to be offered in the
Merger.
Auerbach is an investment banking and advisory firm, which as part of its
investment banking business is regularly engaged in the valuation of businesses
and their securities in connection with mergers, acquisitions, underwritings,
sales and distributions of securities, private placements and valuations for
corporate and other purposes. Auerbach is a recognized investment banking firm
whose principals have substantial experience in transactions similar to the
Merger and are familiar with Imperial and its business. Auerbach had not
previously rendered services to, or engaged in any transaction with, Imperial or
its affiliates, prior to rendering services as Imperial's financial advisor.
Imperial has paid Auerbach $25,000 for its services as financial advisor,
and has agreed, in the event the Merger is consummated, to pay Auerbach an
additional $50,000 and to issue to Auerbach warrants to purchase 150,000 shares
of Sub Common exercisable for a period of five years, commencing on the
Effective Date, at an exercise price of $0.38 per share (which was the average
closing price of Imperial Common on the NASD Electronic Bulletin Board for the
five days prior to Imperial's retention of Auerbach as its financial advisor),
subject to adjustment. Imperial agreed to pay Auerbach a fee of $25,000 upon the
delivery of the fairness opinion, of which $12,500 had been paid as of August
31, 1998. In addition, Imperial has agreed to indemnify Auerbach to the full
extent lawfully permitted from and against certain liabilities that may arise
out of its engagement by Imperial and in the rendering of its opinion, and to
reimburse Auerbach for reasonable out-of-pocket expenses.
22
<PAGE>
ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS
Estimated cash expenditures for fees and expenses incurred, or to be
incurred, by the Company in connection with the Merger Agreement and the
transactions contemplated thereby are approximately as follows:
<TABLE>
<S> <C>
Cash Portion of Merger Consideration... $1,350,545(1)
Financial Advisory Fees and Expenses... 105,000
Legal Fees and Expenses................ 140,000
Accounting Fees and Expenses........... 30,000
SEC Filing Fees........................ 1,128
Printing and Mailing Expenses.......... 70,000
Miscellaneous Expenses................. 53,872
----------
$1,750,545(2)
----------
----------
</TABLE>
- ------------------
(1) Assumes all holders of Preferred Stock elect to receive per share Merger
Consideration consisting of $4.50 in cash and eight shares of Sub Common.
(2) Includes fees and expenses of $60,000 incurred through June 30, 1998.
The total amount required to pay the cash portion of the Merger
Consideration and the expenses incident to the Merger and the consummation of
the transactions contemplated thereby will be paid from borrowings under the
Company's line of credit with its commercial lender and cash on hand (a
significant portion of which will be derived from the proceeds or the sale of
the Company's Miami, Florida facility which is scheduled to occur on September
30, 1998).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FOLLOWING DISCUSSION IS A SUMMARY OF MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO THE STOCKHOLDERS OF IMPERIAL WHO HOLD IMPERIAL
COMMON AND PREFERRED STOCK ON THE EFFECTIVE DATE. THE DISCUSSION IS INTENDED
ONLY AS A SUMMARY AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE FOR THE APPROVAL OF
THE MERGER. THE DISCUSSION IS BASED ON CURRENT PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE 'CODE'), THE TREASURY REGULATIONS
THEREUNDER, AND APPLICABLE JUDICIAL AND ADMINISTRATIVE INTERPRETATIONS ON THE
DATE HEREOF, ALL OF WHICH ARE SUBJECT TO CHANGE (POSSIBLY WITH RETROACTIVE
EFFECT) AND TO DIFFERING INTERPRETATIONS. THIS DISCUSSION DOES NOT ADDRESS ALL
ASPECTS OF FEDERAL TAXATION THAT MAY BE RELEVANT TO PARTICULAR STOCKHOLDERS IN
LIGHT OF THEIR PERSONAL CIRCUMSTANCES OR TO STOCKHOLDERS SUBJECT TO SPECIAL
TREATMENT UNDER THE CODE. IN ADDITION, THIS DISCUSSION DOES NOT ADDRESS ANY
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE MERGER.
EACH STOCKHOLDER OF IMPERIAL COMMON OR PREFERRED STOCK IS URGED TO CONSULT
ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO
SUCH HOLDER.
Tax Opinion. In the opinion of Rosen & Reade, LLP, special tax counsel to
Imperial (the 'Tax Opinion'), subject to the assumptions, limitations,
qualifications and other considerations described below under 'Certain
Considerations with Respect to Tax Opinion,' the Merger will constitute a
'reorganization' for Federal income tax purposes within the meaning of Code
Section 368(a), and Imperial and Merger Sub will each be a party to such
reorganization within the meaning of Code Section 368(b).
Effect of Merger on Imperial and Merger Sub. Neither Imperial nor Merger
Sub will realize gain or loss as a result of the Merger.
Exchange of Common Stock. Upon consummation of the Merger, each share of
Imperial Common outstanding immediately prior to the Merger will be converted
into one share of Sub Common. Such exchange will be tax-free.
Exchange of Preferred Stock. Each share of Preferred Stock outstanding
immediately prior to the Effective Date will be converted, under Option A, into
$4.50 cash and eight shares of Sub Common, or, under Option B, into $2.00 cash,
three shares of Sub Common and an $8.00 principal amount Debenture.
23
<PAGE>
The receipt of shares of Sub Common in exchange for Preferred Stock will be
tax-free. The federal tax treatment for the cash and Debentures received in
exchange for the Preferred Stock will depend on whether, in the case of Option
A, the value of the Sub Common and the $4.50 cash exceeds the adjusted tax basis
of the Preferred Stock in the hands of the Preferred Stockholder, or, in the
case of Option B, the value of the Sub Common, the $2.00 in cash and the
Debenture exceeds such basis. The Sub Common and the Debenture will be valued,
for this purpose, immediately following the Merger.
If there is an excess, gain will be realized to the extent of such excess.
If, however, the basis of the Preferred Stock exceeds the value of the Sub
Common and the cash (and the Debenture, in the case of Option B), the Preferred
Stockholder will realize a loss on the exchange, but the loss will not be
deductible for federal income tax purposes.
If a Preferred Stockholder realizes a gain on the exchange, the gain will
be taxable, but not in an amount greater than the amount of the cash (plus the
value of the Debenture, in the case of Option B) received in the exchange.
The portion of the gain determined to be taxable under the above discussion
will be treated as a dividend to the extent of the lesser of (a) the dividends
in arrears on the Preferred Stock given up in the exchange, or (b) the Preferred
Stockholder's ratable share of the accumulated earnings and profits of Imperial
as of December 31, 1997 and the current earnings and profits of Imperial and
Merger Sub for the calendar year 1998. The dividends in arrears on the Preferred
Stock were $4,209,000, or $14.025 per share as of June 30, 1998. There were no
accumulated earnings and profits of Imperial as of December 31, 1997. The
combined earnings and profits of Imperial and of Merger Sub for the calendar
year 1998 cannot be determined until the end of 1998. The portion of the gain
determined to be taxable under the above discussion that is not treated as a
dividend will be taxed as capital gain if the Preferred Stock is a capital asset
in the hands of the Preferred Stockholder. The capital gain will be short-term
or long-term depending upon whether the Preferred Stock surrendered in the
exchange has been held for longer than one year.
Basis and Holding Period. The basis of the Sub Common received in exchange
for Imperial Common will be the same as the basis of the shares of Imperial
Common which are surrendered in the exchange. The holding period of the Sub
Common will include the holding period for the Imperial Common.
The basis of the Sub Common that is received in exchange for Preferred
Stock will be equal to the basis of the Preferred Stock surrendered in the
exchange, minus the value of the Debenture, if a Debenture is received under
Option B, minus the amount of cash received in the exchange, plus the amount
treated as a dividend, and plus the amount of gain that is recognized in the
exchange (not including any amount treated as a dividend). The basis of the
Debenture will be its fair market value immediately after the exchange. The
holding period for the Debenture will begin on the date of the Merger.
Original Issue Discount. The Debenture will have original issue discount
to the extent that its 'stated redemption price at maturity' exceeds its 'issue
price.' The stated redemption price of the Debenture at its maturity is the face
amount of the Debenture issued to the Preferred Stockholder in the exchange. The
issue price of the Debenture will be its value immediately after the exchange.
As noted above, it is the view of Auerbach that the Debenture will have a market
value of 82% of its face amount. While this view is not determinative of the
value of the Debenture, it is highly likely that the Debenture will have
original issue discount.
If the Debenture has original issue discount, the holder must include in
income, in addition to any interest paid on the Debenture, a portion of the
original issue discount for each day during the taxable year that the Debenture
is held until the due date of the Debenture. By way of illustration, if the
Debenture is issued in late 1998, is payable in late 2001, and it is determined
that there is original issue discount of $18 for each principal amount of $100,
the holder (and, subject to adjustment, any subsequent holder) will be required
to include as ordinary income an annual portion of the original issue discount
in each of the calendar years 1998, 1999, 2000 and 2001. Merger Sub will be
entitled to a corresponding deduction in each of those years.
The holder's tax basis for the Debentures will be increased each year by
the amount of original issue discount included in income by the holder. If the
Debenture is held to its maturity and the Debenture is paid according to its
terms, and if the holder has reported as income each annual portion of the
original issue discount, the holder will not need to report any further gain on
payment of the Debenture.
24
<PAGE>
If a holder (other than an owner of Preferred Stock) acquires a Debenture
at a 'market discount,' as defined in Code Sections 1276-1278, and thereafter
recognizes gain on a disposition of the Debenture, the portion of the market
discount that accrues while the Debenture is held will be treated as ordinary
income at the time of its disposition. This may affect the market value of the
Debentures.
Backup withholding may be applicable to interest paid each year on a
Debenture and to the original issue discount includible in the gross income of
the holder for such year.
Stockholders Exercising Appraisal Rights. A stockholder who exercises
statutory appraisal rights and receives cash in exchange for his Imperial stock
will be treated, for federal income tax purposes, as surrendering his stock for
redemption. The income tax treatment of amounts received stockholder in
redemption of his stock will be determined under the rules of Code Sections 301
and 302. In general, amounts received by a stockholder in a redemption which
results in the complete termination of the stockholder's interest in a
corporation are taxed as capital gain or loss. In determining whether a
stockholder has had a complete termination of his interest in a corporation, the
attribution rules of Code Section 318 must be considered. Under these rules,
stock which is owned by persons and entities who are related to the stockholder
are treated, for the purposes of Code Section 302, as owned by the stockholder.
This attributed stock ownership may cause the stockholder to fail to have a
complete termination of his interest in a corporation.
The amount of the gain or loss realized on redemption of shares which is
treated as a complete termination of the stockholder's interest in the
corporation is determined by comparing the amount of cash and other property
received by the redeeming stockholder with his adjusted tax basis for the shares
surrendered. The gain is long-term or short-term capital gain depending upon
whether his holding period for the stock redeemed is longer or shorter than one
year.
A holder of both Preferred Stock and Imperial Common who exercises his
appraisal rights and receives cash for only one of these stock issues, while
retaining the other stock issue, will not have a complete termination of his
interest in Imperial. A stockholder in that circumstance should consult his tax
advisor to determine whether the redemption, as to him, is 'essentially
equivalent to a dividend.' Amounts received by such stockholder which are
treated as 'essentially equivalent to a dividend' will be treated as a dividend
to the extent of the stockholder's ratable share of earnings and profits of
Imperial and Merger Sub. Any amount received in excess of such ratable share of
such earnings and profits would be treated as a reduction in the basis for the
holder's remaining shares of Imperial and any amount in excess of such basis
would be treated as capital gain. The gain would be long-term or short-term
depending upon whether the holding period of the stock redeemed is longer or
shorter than one year.
Backup Withholding. In order to avoid backup withholding, Merger Sub is
required to obtain from each stockholder and each Debenture holder his taxpayer
identification number (social security number or employer identification number)
and his certification that such number is correct. Accordingly, each stockholder
should complete and sign the substitute Form W-9 included as part of the
transmittal letter (which will be mailed after the Effective Date). If backup
withholding is required, Merger Sub must withhold 31% of any amount paid as a
dividend on Sub Common. Merger Sub, in that case, must also withhold 31% of the
interest paid each year to a Debenture holder and an amount equal to 31% of the
original issue discount includible in the gross income of the holder of the
Debenture for such year, but not in excess of the amount of the cash payment on
the Debenture in such year.
Certain Considerations with Respect to Tax Opinion. The Tax Opinion and
the foregoing summary of federal income tax consequences of the Merger are and
will be subject to certain assumptions, limitations and qualifications and based
on current law and, among other things, certain representations of Imperial.
Reference is made to the full text of the Tax Opinion which sets forth the
assumptions made and matters considered in connection therewith, a copy of which
has been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. The opinion of counsel is not binding on the IRS
and does not preclude the IRS from adopting a contrary position. In addition, if
any of such representations or assumptions are inconsistent with the actual
facts, the federal income tax consequences of the Merger could be adversely
affected.
25
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
Howard L. Ehler, Jr., the Executive Vice President of the Company, owns
2,000 shares of Preferred Stock, and will receive the same Merger Consideration
as all other holders of Preferred Stock. No officer or director of the Company
has any interest in the Merger in addition to any interest they may have as
stockholders of the Company generally.
APPRAISAL RIGHTS
Holders of Imperial Common and Preferred Stock (collectively, 'Imperial
Capital Stock') are entitled to rights of appraisal under Section 262 of the GCL
('Section 262') in connection with the Merger. If the Merger is accomplished,
holders of Imperial Capital Stock who hold such shares of record on the date of
making a written demand for appraisal as described below, continuously hold such
shares through the Effective Date and otherwise comply fully with the procedures
prescribed in Section 262 will be entitled to a judicial determination of the
'fair value' of their shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) and to receive from the Surviving
Corporation payment of such fair value in cash.
Shares of Imperial Capital Stock which are outstanding immediately prior to
the Effective Date and with respect to which appraisal shall have been properly
demanded in accordance with Section 262 shall not be converted into the right to
receive the Merger Consideration in the Merger at or after the Effective Date
unless and until the holder of such shares withdraws his or her demand for such
appraisal or becomes ineligible for such appraisal.
Under Section 262, not less than 20 days prior to the Meeting, Imperial is
required to notify each stockholder eligible for appraisal rights of the
availability of such appraisal rights. The Notice of Special Meeting of
Stockholders of Imperial dated October , 1998 constitutes notice to holders of
Imperial Capital Stock that appraisal rights are available to them.
The following is a brief summary of the statutory procedures to be followed
by a holder of Imperial Capital Stock in order to perfect appraisal rights under
the GCL. ALTHOUGH SETTING FORTH THE MATERIAL TERMS OF SECTION 262, THIS SUMMARY
IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SECTION 262 WHICH IS ATTACHED HERETO AS APPENDIX C AND IS INCORPORATED HEREIN BY
REFERENCE. ANY IMPERIAL STOCKHOLDER CONSIDERING DEMANDING APPRAISAL IS ADVISED
TO READ THE FULL TEXT OF SECTION 262 CONTAINED IN APPENDIX C AND TO CONSULT
LEGAL COUNSEL.
If any holder of Imperial Capital Stock elects to exercise such
stockholder's appraisal rights, such stockholder must satisfy each of the
following conditions:
(i) A written demand for appraisal of shares of Imperial Capital Stock
must be delivered to Imperial by any holder thereof seeking appraisal
before the taking of the vote on the Merger and the Merger Agreement at the
Meeting. Such demand must reasonably inform Imperial that the stockholder
intends thereby to demand appraisal of his or her shares. Merely voting
against, or failing to vote in favor of, the approval of the Merger and the
Merger Agreement will not constitute a demand for appraisal within the
meaning of Section 262.
(ii) Stockholders electing to exercise their appraisal rights under
Section 262 must not vote for approval of the Merger and the Merger
Agreement. A failure to vote will satisfy this condition. If, however, a
stockholder votes for approval of the Merger and the Merger Agreement or
returns a signed proxy but does not specify a vote against the approval of
the Merger and the Merger Agreement or a direction to abstain, the proxy
will be voted for the approval of the Merger and the Merger Agreement,
which will have the effect of waiving such stockholder's appraisal rights.
(iii) Such stockholder must continually hold such shares from the date
of making of the demand through the Effective Date.
(iv) A demand for appraisal must be executed by or for the Imperial
stockholder of record, fully and correctly, as such stockholder's name
appears on his or her Imperial stock certificates. If Imperial Capital
Stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand
26
<PAGE>
must be executed by the fiduciary. If Imperial Capital Stock is owned of
record by more than one person, as in a joint tenancy or tenancy in common,
such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record, so long as the agent identifies the
record owner and expressly discloses the fact that, in exercising the
demand, such agent is acting as agent for the record owner.
A record owner who holds Imperial Capital Stock as a nominee for others may
exercise appraisal rights with respect to the shares held for all or fewer than
all beneficial owners of shares of Imperial Capital Stock as to which the holder
is the record owner. In such case, the written demand must set forth the number
of shares covered by such demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all shares of Imperial Capital
Stock outstanding in the name of such record owner. BENEFICIAL OWNERS WHO ARE
NOT RECORD OWNERS AND WHO INTEND TO EXERCISE APPRAISAL RIGHTS SHOULD INSTRUCT
THE RECORD OWNER TO COMPLY STRICTLY WITH THE STATUTORY REQUIREMENTS WITH RESPECT
TO THE DELIVERY OF WRITTEN DEMAND FOR APPRAISAL. A DEMAND FOR APPRAISAL
SUBMITTED BY A BENEFICIAL OWNER WHO IS NOT THE RECORD OWNER WILL NOT BE HONORED.
If any holder of Imperial Capital Stock fails to comply with any of the
conditions of Section 262 and the Merger becomes effective, such stockholder
will be entitled to receive the consideration provided for in the Merger
Agreement, but will have no appraisal rights with respect to such stockholder's
Imperial Capital Stock.
An Imperial stockholder who elects to exercise appraisal rights must mail
or deliver the written demand for appraisal to: Imperial Industries, Inc., 3009
Northwest 75th Avenue, Miami, Florida 33122, Attention: Corporate Secretary. The
written demand for appraisal should specify the stockholder's name and mailing
address and the number of shares of Imperial Capital Stock covered by the
demand, and should state that the stockholder is thereby demanding appraisal in
accordance with Section 262.
Within 10 days after the Effective Date, the Surviving Corporation must
provide notice as to the date of effectiveness of the Merger to all Imperial
stockholders who have duly and timely delivered demands for appraisal and
otherwise complied with Section 262 ('Dissenting Stockholders').
Within 120 days after the Effective Date, any Dissenting Stockholder is
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares not voted in favor of the
Merger and with respect to which demands for appraisal have been received by the
Surviving Corporation, and the number of holders of such shares. Such statement
must be mailed within 10 days after the written request therefor has been
received by the Surviving Corporation.
Within 120 days after the Effective Date, either the Surviving Corporation
or any Dissenting Stockholder may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of each share of Imperial
Common and/or Preferred Stock. If a petition for an appraisal is timely filed,
after a hearing on such petition, the Delaware Court of Chancery will determine
which former Imperial stockholders are entitled to appraisal rights and
thereafter will appraise the shares of Imperial Capital Stock owned by such
stockholders, determining the fair value of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest to be paid, if any, upon the amount
determined to be fair value.
In determining fair value, the Delaware Court of Chancery is to take into
account all relevant factors. In Weinberger v. UOP, Inc., et al., the Delaware
Supreme Court discussed the factors that could be considered in determining fair
value in an appraisal proceeding, stating that 'proof of value by any techniques
or methods which are generally considered acceptable in the financial community
and otherwise admissible in court' should be considered and that '[f]air price
obviously requires consideration of all relevant factors involving the value of
a company.' The Delaware Supreme Court stated that in making this determination
of fair value, the Delaware Court of Chancery and the appraiser may consider
'all factors and elements which reasonably might enter into the fixing of
value,' including 'market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other factors which were known or which could
be ascertained as of the date of merger and which throw any light on future
prospects of the merged corporation . . . .' The Delaware Supreme Court has
construed Section 262 to mean that 'elements of future value, including the
nature of the enterprise, which are
27
<PAGE>
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered.' However, the Court noted that Section 262
provides that fair value is to be determined 'exclusive of any element of value
arising from the accomplishment or expectation of the merger.'
Stockholders of Imperial considering whether to seek appraisal should bear
in mind that the fair value of their Imperial Capital Stock determined under
Section 262 could be more than, the same as or less than the value of the
consideration to be paid pursuant to the Merger Agreement, and that an opinion
of an investment banking firm as to fairness from a financial point of view is
not necessarily an opinion as to fair value under Section 262 of the DGCL.
The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and assessed upon the parties as the Court deems equitable in
the circumstances. Upon application of a Dissenting Stockholder, the Court may
order that all or a portion of the expenses incurred by any Dissenting
Stockholder in connection with the appraisal proceeding, including without
limitation reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all shares entitled to appraisal. In the
absence of such a determination or assessment, each party bears its own
expenses.
A Dissenting Stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Date, be entitled to vote for any
purpose the Imperial Capital Stock subject to such demand or to receive payment
of dividends or other distributions on such Imperial Capital Stock except for
dividends or other distributions payable to stockholders of record at a date
prior to the Effective Date.
At any time within 60 days after the Effective Date, any Dissenting
Stockholder may withdraw his or her demand for appraisal and accept the
consideration to be paid under the Merger Agreement without interest. After this
period, a Dissenting Stockholder may withdraw his or her demand for appraisal
only with the consent of the Surviving Corporation. If no petition for appraisal
is filed with the Delaware Court of Chancery within 120 days after the Effective
Date, Dissenting Stockholders' rights to appraisal shall cease and they shall be
entitled to receive the consideration to be paid under the Merger Agreement
without interest. Since the Surviving Corporation has no obligation or intention
to file such a petition, any Imperial stockholder who desires such a petition to
be filed is advised to file it on a timely basis. No petition timely filed in
the Delaware Court of Chancery demanding appraisal shall be dismissed as to any
Imperial stockholder without the approval of the Delaware Court of Chancery, and
such approval may be conditioned upon such terms as the Delaware Court of
Chancery deems just.
FAILURE TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF
APPRAISAL RIGHTS MAY RESULT IN THE TERMINATION OR WAIVER OF SUCH RIGHTS.
REGULATORY APPROVALS
The Company is not aware of any license or regulatory permit which is
material to its business and which is likely to be adversely affected by
consummation of the Merger or any approval or other action by any state, federal
or foreign government or governmental agency that would be required prior to the
Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a reorganization of entities under
common control and will reflect the carryover basis of Imperial.
RESALE RESTRICTIONS
All shares of Sub Common and Debentures received by stockholders in the
Merger will be freely transferable, except that shares of Sub Common and
Debentures received by persons who are deemed to be 'affiliates' (as such term
is defined under the Securities Act) of Imperial prior to the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 under the Securities Act or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of a party generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal stockholders of such party.
28
<PAGE>
THE MERGER AGREEMENT
The detailed terms and conditions to the Merger are contained in the Merger
Agreement, which is included in full as Appendix A to this Proxy
Statement/Prospectus and incorporated herein by reference. The following summary
of the material terms of the Merger Agreement is qualified in its entirety by,
and made subject to, the more complete information set forth in the Merger
Agreement
THE MERGER
Subject to the terms and conditions of the Merger Agreement, at the
Effective Date, Imperial will be merged with and into Merger Sub, with Merger
Sub being the Surviving Corporation, and thereupon the separate existence of
Imperial will cease. The Merger will have effects specified in the GCL.
EFFECTIVE DATE OF THE MERGER
Upon the satisfaction or waiver of all conditions to the Merger, and
provided that the Merger Agreement has not been terminated or abandoned,
Imperial and Merger Sub will cause the Certificate of Merger to be filed with
the Secretary of State of the State of Delaware. The Merger will become
effective upon the filing of the Certificate of Merger or at such later time as
Imperial and Merger Sub have agreed upon and designated in such filing as the
Effective Date. The Effective Date is currently expected to occur on or shortly
after December 31, 1998. On the Effective Date, the name of Merger Sub will be
changed to Imperial Industries, Inc.
CONVERSION OF SECURITIES
Each share of Imperial Common outstanding immediately prior to the
consummation of the Merger will be converted, without any action by the holder
thereof, into one share of Sub Common, and each share of Preferred Stock
outstanding immediately prior to the consummation of the Merger will be
converted, at the option of the holder thereof, into either (A) $4.50 in cash
and eight shares of Sub Common or (B) $2.00 in cash, a Debenture and three
shares of Sub Common. All shares of Preferred Stock converted in the Merger will
no longer be outstanding and will automatically be canceled and retired and will
cease to exist, and each holder of a certificate representing any such shares
will cease to have any rights with respect thereto, except the right to receive,
without interest, the Merger Consideration upon surrender of such certificate.
TREATMENT OF WARRANTS
All outstanding Imperial common stock purchase warrants, all of which are
currently exercisable, will remain outstanding and will be exercisable for
shares of Sub Common. Thereafter, the material terms and conditions pursuant to
which such warrants will be exercisable will be the same as are currently in
effect.
EXCHANGE OF CERTIFICATES
Following the Effective Date, holders of Preferred Stock will be furnished
with a transmittal letter by Continental Stock Transfer and Trust Company
('Continental' or the 'Exchange Agent') to be used to select their desired
Merger Consideration and to exchange their certificates therefor. To ensure that
they receive their desired form of Merger Consideration, holders will be
required to promptly return their Preferred Stock certificates and letters of
transmittal so that these documents are received by the Exchange Agent within 60
days after the Effective Date. Certificates representing shares of Preferred
Stock timely surrendered by holders who do not select a desired form of Merger
Consideration will be converted into $4.50 in cash and eight shares of Sub
Common (the 'Default Merger Consideration'). Commencing 60 days after the
Effective Date, all unsubmitted, or improperly submitted, shares of Preferred
Stock, other than shares as to which dissenters' rights of appraisal have been
properly asserted, will evidence the right to receive the Default Merger
Consideration. In addition, shares as to which dissenters' rights of appraisal
have been properly asserted, which rights are waived or abandoned subsequent to
the 60th day after the Effective Date, similarly will evidence the right to
receive the Default Merger Consideration.
It will not be necessary for holders of Common Stock to surrender or
exchange their certificates for new certificates representing Sub Common.
29
<PAGE>
HOLDERS OF PREFERRED STOCK ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A NOTICE AND LETTER OF TRANSMITTAL
FROM THE EXCHANGE AGENT.
After the close of business on the day prior to the Effective Date, there
will be no transfers on the transfer books of Imperial of shares of Preferred
Stock which were outstanding immediately prior to the Effective Date.
In the event any certificate representing Preferred Stock is lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and, if required by
Merger Sub, the posting by such person of a bond in such amount, form and with
such surety as Merger Sub may direct as indemnity against any claim that may be
made against it with respect to such certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed certificate the appropriate
Merger Consideration in respect of such certificate.
CONDITIONS OF THE MERGER
The obligations of Imperial and Merger Sub to consummate the Merger are
subject to the satisfaction of certain conditions, including, among others, (i)
obtaining requisite stockholder approval and (ii) the effectiveness of the
Registration Statement and the receipt by Merger Sub of all necessary approvals
under applicable state securities laws. The Merger Agreement may be terminated
for any reason at any time prior to the Effective Date. The parties currently
intend to terminate the Merger Agreement if holders of greater than 5% of either
the Imperial Common or Preferred Stock assert dissenters' rights of appraisal
under the GCL.
MANAGEMENT AFTER THE MERGER
Merger Sub's Board of Directors currently consists, and immediately after
the Merger will consist, of the persons serving on the Company's Board of
Directors immediately prior to the Merger. Merger Subs's executive officers
currently consists, and immediately after the Merger will consist, of persons
serving as the Company's executive officers immediately prior to the Merger in
their respective positions. See 'Management of Imperial.'
CHARTER DOCUMENTS OF SURVIVING CORPORATION
If the Merger is approved, the Certificate of Incorporation and Bylaws of
Merger Sub will become the charter documents of the Surviving Corporation.
Merger Sub's Certificate of Incorporation is substantially the same as the
Company's Certificate of Incorporation, with the following exception: Article
First of the Company's Certificate of Incorporation provides that the corporate
name is Imperial Industries, Inc., while Article First of Merger Sub's
Certificate of Incorporation provides that the corporate name is Imperial Merger
Corp.; and the par value of Imperial Common is $.10 per share, while the par
value of Sub Common is $.01 per share. Upon consummation of the Merger, the name
of Merger Sub, as the Surviving Corporation, will be changed to Imperial
Industries, Inc. The Bylaws of Merger Sub are identical to the Company's Bylaws.
The books, records and accounts of the Company, upon consummation of the
Merger, will become the books, records and accounts of the Surviving
Corporation.
DESCRIPTION OF MERGER SUB SECURITIES
The authorized capital stock of Merger Sub consists of 5,000,000 shares of
Preferred Stock, par value $.01 per share (the 'Sub Preferred'), none of which
is presently issued and outstanding, and 20,000,000 shares of Sub Common, par
value $.01 per share, of which 200 shares were issued and outstanding as of the
date of this Proxy Statement/Prospectus and all of which are beneficially owned
by Imperial. Holders of capital stock of the Company have no preemptive or other
subscriptive rights.
SUB COMMON
Subject to prior rights of any Sub Preferred then outstanding and to
contractual limitations, if any, the holders of outstanding shares of Sub Common
are entitled to receive dividends out of assets legally available therefor, as
declared by the Board of Directors and paid by Merger Sub.
30
<PAGE>
In the event of any liquidation, dissolution or winding-up of Merger Sub,
holders of Sub Common will be entitled to share equally and ratably in all
assets available for distribution after payment of creditors, holders of any
series of Sub Preferred Stock outstanding at the time, and any other debts,
liabilities and preferences. Since Merger Sub's Board of Directors has the
authority to fix the rights and preferences of, and to issue, Merger Sub's
authorized but unissued Sub Preferred Stock without approval of the holders of
its Sub Common, the rights of such holders may be materially limited or
qualified by the issuance of the Sub Preferred.
The Sub Common presently outstanding is, and the Sub Common to be issued
upon consummation of the Merger will be, fully paid and non-assessable.
The Sub Common owned by Imperial will be canceled upon the Effective Date.
SUB PREFERRED
The Board of Directors of Merger Sub is empowered to issue Sub Preferred
from time to time in one or more series, without stockholder approval, and with
respect to each series to determine (subject to limitations prescribed by law)
(1) the number of shares constituting such series, (2) the dividend rate on the
shares of each series, whether such dividends shall be cumulative and the
relation of such dividends to the dividends payable on any other class of stock,
(3) whether the shares of each series shall be redeemable and the terms of any
redemption thereof, (4) whether the shares shall be convertible into Common
Stock or other securities and the terms of any conversion privileges, (5) the
amount per share payable on each series or other rights of holders of such
shares on liquidation or dissolution of Merger Sub, (6) the voting rights, if
any, for shares of each series, (7) the provision of a sinking fund, if any, for
each series, and (8) generally any other rights and privileges not in conflict
with the Certificate of Incorporation for each series and any qualifications,
limitations or restrictions thereof. Merger Sub currently has no plans to issue
any Sub Preferred.
DEBENTURES
General
The Debentures will be unsecured subordinated obligations of Merger Sub and
will mature on the third anniversary (the 'Due Date') of the Effective Date. The
Debentures will bear interest at the rate of 8% per annum and will be payable
annually as to interest only on July 1 of each year to each Debenture holder of
record on such date, through and including the Due Date, commencing July 1,
1999. Interest on the Debentures will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
The Debentures will be issued in registered form, without coupons, and in
denominations of $8.00 and integral multiples thereof.
Merger Sub will act as Paying Agent, and Continental will act as Transfer
Agent, for the Debentures. The Debentures may be presented for registration of
transfer and exchange at the offices of Continental, at 2 Broadway, New York,
New York 10004.
Redemption
The Debentures will be subject to redemption, in whole or in part, at the
option of Merger Sub at any time after issuance, at a redemption price of 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
redemption date.
If less than all the Debentures are to be redeemed at any time, selection
of Debentures for redemption will be made by Merger Sub on a pro rata basis.
Notice of redemption will be mailed by first class mail at least 30 but not more
than 60 days before the redemption date to each holder of Debentures to be
redeemed at its registered address. If any Debenture is to be redeemed in part
only, the notice of redemption that relates to such Debenture will state the
portion of the principal amount thereof to be redeemed. A new Debenture in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Debenture. On and
after the redemption date, interest will cease to accrue on Debentures or
portions of them called for redemption.
31
<PAGE>
Subordination
The Debentures will be general, unsecured obligations of Merger Sub,
subordinated in right of payment to all indebtedness to institutional and other
lenders ('Senior Debt') of Merger Sub. The Debentures do not limit the amount of
Senior Debt Merger Sub may incur.
Certain Restrictions
The Debentures will contain certain representations, warranties and
covenants by Merger Sub, including:
-- obligations to continue to timely comply with the reporting
obligations of the Exchange Act;
-- limitations on the sale or other disposal of properties necessary
for the conduct of Merger Sub's business;
-- limitations on the creation of liens, except for liens created with
respect to Senior Debt or in connection with purchase money
obligations incurred in the ordinary course of business;
-- limitations on distributions from subsidiaries without fair
consideration;
-- limitations on mergers, consolidations or other extraordinary
corporate transactions; and
-- limitations on transactions with affiliates other than
subsidiaries.
Events of Default and Remedies
The Debentures will provide that an Event of Default will occur if: (i)
Merger Sub defaults in the payment of interest on the Debentures when the same
become due and payable and such default continues for a period of 30 days; (ii)
Merger Sub defaults in the payment of principal on the Debentures when the same
becomes due and payable upon maturity, upon redemption or otherwise; (iii) any
representation or warranty of Merger Sub in the Debentures shall be false,
incorrect or incomplete when made as to any material fact or facts; (iv) Merger
Sub fails to comply with any of its other covenants or other agreements in the
Debentures and such failure continues for a period of 60 days following written
notice from the Holder; (v) Merger Sub or any material subsidiary pursuant to or
within the meaning of any Bankruptcy Law (A) commences a voluntary case, (B)
consents to the entry of an order for relief against it in an involuntary case,
(C) consents to the appointment of a custodian for all or substantially all of
its property, or (D) makes a general assignment for the benefit of its
creditors; (vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (A) is for relief against Merger Sub or a
subsidiary in an involuntary case, (B) appoints a custodian of Merger Sub or a
material subsidiary for all or substantially all of its property, or (C) orders
the liquidation of Merger Sub or any material subsidiary, and the order or
decree remains unstayed and in effect for 60 days of the entry thereof; (vii) a
judgment in an amount exceeding $250,000 is entered against Merger Sub or any of
its material subsidiaries and such judgment is not satisfied or stayed within 60
days; or (viii) the holder of any indebtedness of Merger Sub aggregating at
least $250,000 shall seize, dispose of or apply in satisfaction of such
indebtedness, any assets of Merger Sub having a fair market value in excess of
$250,000 individually or in the aggregate. For purposes of the Debentures, the
term 'Bankruptcy Law' means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors and the term 'Custodian' means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
If any Event of Default occurs and is continuing, holders aggregating
33 1/3% of the principal amount of the then-outstanding Debentures may declare
all the Debentures to be due and payable immediately.
TRANSFER AGENT
ChaseMellon Shareholder Services, 4 Station Square, Suite 301, Pittsburgh,
PA 15219-1173, is the transfer agent for the Sub Common.
32
<PAGE>
IMPERIAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company's business is related primarily to the level of construction
activity in Florida and Georgia. The majority of the Company's products are sold
to building materials dealers located principally in Florida and Georgia who
provide materials to contractors and subcontractors engaged in the construction
of residential, commercial and industrial buildings and swimming pools. One
indicator of the level and trend of construction activity is the amount of
construction permits issued for the construction of buildings. The level of
construction activity is subject to population growth, inventory of available
housing units, government growth policies and construction funding, among other
things.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO 1997
Net sales for the six months ended June 30, 1998 increased $781,000, or
approximately 10%, compared to the same period in 1997. The sales of landscape
stone products derived from the Company's new distribution outlet in Tampa,
Florida, acquired effective February 1, 1998, accounted for approximately
$673,000 of the increase in sales for the six months ended June 30, 1998.
Gross profit as a percentage of net sales for the first six months was
approximately 33% compared to 31% in the comparable period in 1997. The increase
in gross profit margin was principally due to savings realized from raw material
purchases, modifications made to the Company's manufacturing process to gain
greater production efficiency, and cost reduction programs implemented in 1996
which continue to focus on manufacturing processes for opportunities to reduce
cost.
Selling, general and administrative expenses as a percentage of net sales
for the first six months was approximately 25% compared to 24% for the
comparable period in 1997. Selling, general and administrative expenses
increased $294,000, or approximately 16%, for the six months ended June 30, 1998
compared to the same period in 1997. The increase in expenses was primarily due
to additional sales expenses associated with servicing the increased volume of
business and costs related to the Company's new distribution facility in Tampa,
Florida which was acquired effective February 1, 1998 and professional and
consulting fees of $60,000 related to preparation of the Company's plan to
restructure its capitalization.
Miscellaneous income for the six months ended June 30, 1998 includes
$62,000 of reimbursements the Company received from the State of Florida
environmental authorities insurance program for costs the Company incurred in
prior years related to the removal of underground fuel tanks located at its
facilities.
For the six months ended June 30, 1998, in accordance with SFAS 109,
'Accounting for Income Taxes,' the Company recognized income tax expense of
$244,000 representing income before taxes at the statutory rate of 35%. Based on
the Company's net operating loss carryforwards, the Company is not expected to
pay such taxes on its federal income tax returns. The Company did not recognize
income tax expense in the six month period ended June 30, 1997.
As a result of the above factors and after giving effect to preferred stock
dividends accrued, but not paid, the Company derived net income applicable to
common stockholders of $288,000, or $.04 per share on a diluted basis, for the
six months ended June 30, 1998, compared to net income of $276,000, or $.05 per
share on a diluted basis, in 1997. Net income applicable to common stockholders
includes charges of $165,000 in the 1998 and 1997 six month periods for unpaid
cumulative dividends on preferred stock.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO 1996
Net sales for 1997 increased $2,032,000, or approximately 15%, compared to
1996. Approximately $1,184,000 of the increase in sales for 1997 was derived
from the sale of Acrocrete products, together with certain complementary
products manufactured by other companies which were sold through the Company's
33
<PAGE>
wholesale distribution facilities. Premix products, principally a roof tile
mortar product, accounted for the balance of the increase in sales.
Gross profit as a percentage of net sales for 1997 was approximately 31%,
compared to 28% in 1996. The increase in gross profit margins was due to savings
realized from raw material purchases, modifications made to the Company's
manufacturing process to gain greater production efficiency and cost reduction
programs implemented in 1996 which continue to focus on manufacturing processes
for opportunities to reduce cost.
Selling, general and administrative expenses as a percentage of net sales
for 1997 was approximately 24%, the same as 1996. Selling, general and
administrative expenses increased $427,000, or approximately 13%, compared to
1996. The increase in expenses was primarily due to expenses associated with the
expanded operations and additional sales and delivery expenses associated with
servicing the increased volume of business.
In fiscal year ended December 31, 1997, the Company recognized an $800,000
tax credit as a result of a reevaluation of a portion of the valuation allowance
of the Company's net operating losses.
As a result of the above factors and after giving effect to accrued unpaid
dividends on the Preferred Stock, the Company derived net income applicable to
common stockholders of $1,315,000, or $.21 per share in 1997 on a diluted basis,
compared to a net loss of $56,000, or $.01 per share, in 1996 on a diluted
basis. Net income applicable to common stockholders includes charges of $330,000
in 1997 and 1996 for unpaid cumulative dividends on Preferred Stock.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
Net sales in 1996 increased $2,127,000, or approximately 18%, compared to
1995. The increase in sales was derived primarily from increased sales of
Acrocrete products, together with certain complementary products manufactured by
other companies, sold through the Company's distribution outlets.
Gross profit as a percentage of net sales for 1996 was approximately 28%,
compared to 29% in 1995. The decrease in gross profit margins was principally
due to higher manufacturing expenses and a greater proportion of sales of lower
gross profit margin products, including certain complementary products
manufactured by other companies. The Company has been reviewing all raw material
purchases to ensure it realizes the lowest cost possible and is in the process
of streamlining and updating its manufacturing processes by acquiring and
modifying certain equipment to gain greater production efficiency. As a result,
the Company anticipates achieving higher gross profit margins in 1997 compared
to 1996.
Selling, general and administrative expenses as a percentage of net sales
for 1996 was approximately 24% compared to 26% in 1995. In 1995, selling,
general and administrative expenses included start-up costs associated with the
opening of two of the Company's three distribution outlets. However, selling,
general and administrative expenses increased $334,000 or approximately 11% in
1996, compared to 1995. The increase in expenses was primarily due to expenses
associated with the expanded operations, particularly additional sales expenses
related to the Company's distribution outlets. Selling, general and
administrative expenses as a percentage of net sales decreased in 1996 compared
to 1995 because of spreading expenses over greater revenues without the
corresponding increase of overhead. Interest expense was greater in 1996
compared to 1995, primarily because of increased borrowings under the Company's
line of credit with its commercial lender to fund working capital requirements
resulting from increased sales.
Due to the above factors and after giving effect to Preferred Stock
dividends accrued but not paid, the Company incurred a net loss applicable to
common stockholders of $56,000, or $.01 per share in 1996 on a diluted basis,
compared to a net loss of $208,000 or $.04 per share in 1995 on a diluted basis.
Net loss to common stockholders includes charges of $330,000 in 1996 and 1995
for unpaid cumulative dividends on Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of approximately
$2,259,000 compared to working capital of $1,995,000 at December 31, 1997. As of
June 30, 1998, the Company had cash and cash equivalents of $542,000. On
September 30, 1998, the Company expects to sell its Miami, Florida facility and
receive net cash proceeds of $750,000.
34
<PAGE>
The Company's principal source of short-term liquidity is existing cash on
hand and the utilization of a $2,000,000 line of credit with a commercial lender
scheduled to expire on June 19, 1999. The line of credit is automatically
extended for an additional one year term unless either party gives the other
notice of nonextension 60 days prior to the expiration date. Premix and
Acrocrete, the Company's subsidiaries, borrow on the line of credit, based upon,
and collateralized by, their respective eligible accounts receivable and
inventory. Generally, accounts not collected within 120 days are not eligible
accounts receivable under the Company's borrowing agreement with its commercial
lender. At June 30, 1998, $1,017,000 had been borrowed against $2,000,000 in
available lines of credit.
Trade accounts receivable represent amounts due from building materials
dealers located principally in Florida and Georgia who have purchased products
on an unsecured open account basis and sales directly to the end-user
(contractors and subcontractors), through Company owned warehouse distribution
outlets. The Company presently owns and operates three warehouse distribution
outlets.
The Company's common stockholders' deficit of $4,127,000 at June 30, 1998
resulted primarily from losses incurred in 1987 and prior years, and unpaid
cumulative dividends required by the Company's issued and outstanding Preferred
Stock. The Company has attempted to generate net income and adequate cash to
support operations by various methods, including the commencement of
manufacturing acrylic stucco products, opening warehouse distribution outlets to
sell its products directly to the end user, the development and sale of new
products, reductions in raw material costs and changes to manufacturing
processes to gain greater production efficiency. For the six months ended June
30, 1998, these actions enabled the Company to derive income before taxes and
the application of unpaid dividends on the redeemable preferred stock of
$697,000 compared to income of $441,000 in the same six month period in 1997.
The Company has omitted payment of cash dividends on its Preferred Stock
since the fourth quarter of 1985, and has accrued $4,209,000 of dividends in
arrears on the Preferred Stock as of June 30, 1998. The Company is continuing
its efforts to develop a plan to satisfy the Preferred Stock dividend arrearage
and mandatory sinking fund requirements which would be acceptable to its
stockholders.
On March 6, 1998, the Company entered into an agreement with Auerbach to
provide advisory services to the Company in connection with the development of a
plan to satisfy the Preferred Stock dividend arrearage and mandatory sinking
fund requirements, which resulted in the merger proposal described elsewhere
herein. Auerbach has received cash consideration of $37,500 and is entitled to
receive additional consideration based upon the success of the merger proposal.
Effective February 1, 1998, Acrocrete acquired the property, plant,
equipment and inventory of a wholesale distribution facility located in Tampa,
Florida engaged in the sale of landscape stone and building materials. The total
purchase price was approximately $400,000. A portion of the purchase price was
financed through the issuance of a $215,000 mortgage note payable monthly over
four years, with interest at the rate of 7 1/2% per annum.
The Company expects other capital expenditures in 1998 for improvements to
its equipment and manufacturing facilities to require aggregate cash
expenditures of approximately $275,000. In the first quarter of 1998, the
Company added approximately 6,000 square feet of warehouse space to its
Casselberry, Florida manufacturing facility to consolidate Florida manufacturing
operations to more closely mirror market geographic demands. Other projects
planned in 1998 are aimed at relocating and expanding the Company's
manufacturing facility in Atlanta, Georgia, and the proposed sale and relocation
of the Company's manufacturing/distribution facility in Miami to a leased
location in Broward County. The Company expects to complete the above cost
reduction projects in 1998 from cash on hand, or borrowings under its lines of
credit, and will continue to focus on the efficient utilization of its resources
in its efforts to accomplish further cost reductions.
In the first quarter of 1998, the Company entered into a contract for the
sale of its Miami facility providing for a closing on September 30, 1998,
subject to certain contingencies. The buyer has deposited $100,000 in escrow. In
April 1998, the Company entered into a lease agreement for a new 20,400 square
foot facility in Kennesaw, Georgia.
The Company believes its cash on hand, the anticipated cash receipts from
the sale of its Miami, Florida facility and the maintenance of its borrowing
arrangement with its commercial lender will provide sufficient cash
35
<PAGE>
to supplement any cash shortfalls from operations and provide adequate liquidity
for the next twelve months to complete the merger proposal, support the cash
requirements of its capital expenditure programs. A significant component of the
Merger Consideration will be derived from the sale of the Company's Miami,
Florida facility scheduled to be completed by September 30, 1998.
The ability of the Company to maintain and improve its long-term liquidity
is dependent upon the Company's ability to successfully: (i) achieve long-term
profitable operations; (ii) pay or otherwise satisfy omitted Preferred Stock
dividend and redemption requirements as provided in the merger proposal; and
(iii) resolve current litigation on terms favorable to the Company.
YEAR 2000 ISSUES
Management has undertaken a company wide program to prepare the Company's
computer systems and other applications for the year 2000. The year 2000
problem, which is common to most businesses, concerns the inability of such
systems to properly recognize dates and date-sensitive information on and beyond
January 1, 2000. In 1997, the Company began to assess the vulnerability of its
systems to the year 2000 problem. Based on such asessment, the Company has
developed a year 2000 compliance plan, under which all key information systems
are being tested, and non-compliant software is scheduled to be replaced by
January 1, 1999. The Company expects to complete testing and verification of
such systems for year 2000 compliance during 1999. The Company is also surveying
the year 2000 compliance status and compatibility of customers' and suppliers'
systems which interface with the Company's systems or could otherwise impact the
Company's operation.
The Company currently believes that it will be able to modify or replace
its affected systems in time to minimize any detrimental effects on its
operations. The most reasonably likely worst case scenario of failure by the
Company, or its customers, or suppliers, to resolve the year 2000 problem would
be a temporary slowdown of operations at one or more of the Company's facilities
and a temporary inability on the part of the Company to timely process orders
and billing and deliver finished products to its customers. The Company is
currently considering and identifying various contingency options, including
manual alternatives to systems operations, which would minimize the risk of any
unresolved year 2000 problems of their operation.
The Company believes any internal staff costs, replacement of systems and
consulting expenses to prepare the systems for the year 2000 are not expected to
be material to the Company's operating results, liquidity or financial position.
36
<PAGE>
BUSINESS OF IMPERIAL
GENERAL
The Company is engaged in the manufacture of building materials for sale to
building materials dealers and others located primarily in Florida and Georgia,
and to a lesser extent, other states in the Southeastern United States. In
addition, the Company has three distribution outlets through which it markets
certain of its products directly to end users.
The Company's business is directly related to the level of activity in the
new construction and home improvement, repair and remodeling markets in Florida
and Georgia, and to a lesser extent other states in the Southeastern United
States. The Company's products are used by developers, general contractors and
subcontractors in the construction or repair and remodeling of residential,
multi-family and commercial buildings and swimming pools. In Florida, demand for
new construction is related to, among other things, population growth.
Population growth, in turn, is principally a function of migration of new
residents to the state. When economic conditions reduce migration, demand for
new construction decreases. Construction activity is also affected by the size
of the inventory of available housing units, mortgage interest rates,
availability of funds and local government growth management policies. The
Company's operations are directly related to the general economic conditions
existing in the Southeastern United States.
The Company's manufacturing and sales operations are conducted by its
wholly owned subsidiaries, Premix and Acrocrete. The Company primarily
manufactures stucco, roof tile mortar and plaster products.
Stucco products are applied as a finishing coat to exterior surfaces and to
swimming pools. Roof tile mortar is used to adhere cement roof tiles to the
roofs of structures. Plaster customarily is used to finish interiors of
structures.
PREMIX
Premix, together with its predecessors, has been in business for
approximately 40 years. The names 'Premix' and 'Premix-Marbletite' are among the
registered trademarks of Premix. The Company believes the trade names of its
manufactured products represent a substantial benefit to the Company because of
industry recognition and brand preference. Premix manufactures stucco, roof tile
mortar, plaster and swimming pool finishes. The products manufactured by Premix
basically are a combination of portland (or masonry) cement, sand, lime, marble
and a plasticizing agent and other chemicals, including colorimpregnating
materials. Premix accounted for approximately 49%, 49% and 59% of the Company's
consolidated annual revenues in the fiscal years ended December 31, 1997, 1996
and 1995, respectively, and 47% and 49% of the Company's consolidated revenues
in the six month periods ended June 30, 1998 and 1997, respectively.
In August 1994, the Company entered into a five year licensing agreement
with an unaffiliated company to exclusively manufacture and sell a new roof tile
mortar product throughout Florida. The Company has the option to renew the
agreement for two additional five year periods. Premix has also entered into
agreements to manufacture this product on behalf of selected wholesalers' who
distribute this product under the wholesalers' names through their existing
established dealer networks to service the roofing contractor industry. To date,
a majority of all roof tile mortar sales have been derived from South Florida.
Until 1996, the Company's licensed roof tile mortar product was the only mortar
product approved by Miami--Dade County, Florida, building authorities for use to
adhere all types of cement roof tiles to roofs. In 1997, the Company's roof tile
mortar was approved by the Broward and Palm Beach County building authorities
along with other competitive products. Other adhesive products used for similar
purposes are also used by the industry. The manufacturing of this new product
did not require any significant change to the current manufacturing facility.
The Company has expanded its marketing efforts for this product to other areas
of Florida based on product performance rather than only as required by building
code requirements.
37
<PAGE>
ACROCRETE
Acrocrete manufactures synthetic acrylic stucco products. The Company's
trade name 'Acrocrete' and certain of its manufactured products are described by
trade names protected by registered trademarks. Acrocrete's products, used
principally for exterior wall coatings, broaden and complement the range of
products produced and sold by Premix. Management believes acrylic stucco
products have certain advantages over traditional cementitious stucco products
for certain types of construction applications because synthetic acrylic
products provide a hard durable finish with stronger color retention properties.
Further, acrylic stucco products have improved flexibility characteristics,
which minimizes the problems of cracking of cement coating. Acrocrete's product
system provides for energy efficiency for both residential and commercial
buildings. For the fiscal years ended December 31, 1997, 1996 and 1995,
Acrocrete's sales accounted for approximately 51%, 51% and 41%, respectively, of
the Company's consolidated annual revenues. For the six month periods ended June
30, 1998 and 1997, Acrocrete's sales accounted for approximately 53% and 51%,
respectively, of the Company's consolidated revenues.
SUPPLIERS
Premix's raw materials and products are purchased from approximately 26
suppliers. While five suppliers account for approximately 64% of Premix's
purchases, Premix is not dependent on any one supplier for its requirements.
Equivalent materials are readily available from other sources at similar prices.
Acrocrete's raw materials are purchased from approximately 20 suppliers, of
which five account for approximately 84% of Acrocrete's raw material purchases.
However, equivalent materials are available from several other sources at
similar prices, and Acrocrete is not dependent on any one supplier for its
requirements.
MARKETING AND SALES
The Company's marketing and sales strategy is to create a profit center for
the products it manufactures, as well as enlarging its product offering by
selling certain complementary products manufactured by other companies that are
part of wall system applications. The complementary items are purchased by the
Company and held in inventory, together with manufactured products, for sale to
customers. Generally, sales orders are filled out of existing inventory within
several days of receipt of the order. The total package sales approach to the
new and renovation construction markets is targeted at both the end user of the
Company's products, being primarily the contractor or subcontractor, and the
distributor, principally building materials dealers who purchase products from
the Company and sell to the end user, and in some instances, to retail
customers. A majority of the Company's sales are made directly by the Company to
approximately 250 distributors.
While the Company's sales are typically to distributors, the Company
focuses marketing efforts on the contractor/subcontractor end user to create a
brand preference for the Company's products. One distributor accounted for
approximately 11% of total sales in 1995 but only 5% and 3% of total sales in
1996 and 1997, respectively. The loss of that distributor would not cause a
material loss in sales because the brand preference contractors and
subcontractors have developed for the Company's products generally cause the
user to seek a distributor who carries the Company's products. Sales by other
distributors as well as direct sales to end users contributed to the percentage
decline in sales to the one distributor. The Company primarily markets its
products to distributors through Company salesmen, who promote both Premix and
Acrocrete products, located in the Southeastern United States.
In April 1994, the Company started a pilot program in Savannah, Georgia to
sell its Acrocrete products directly to the end user. The Company's products and
certain complementary products manufactured by other companies are inventoried
and sold from a leased warehouse distribution facility. In January 1995, the
Company opened a second distribution facility in Jacksonville, Florida. In May
1995, the Company opened a third distribution facility in Norcross, Georgia.
Each leased facility contains between approximately 7,500 to 8,500 square
feet. The distribution facilities are designed to promote product brand
preference to the contractor and sub-contractor, and also to improve service
capabilities, increase market share, and to increase profit margins from the
sale of the Company's
38
<PAGE>
products. The Company sells Acrocrete and complementary products of other
manufacturers at such distribution facilities. The Company closed the Savannah
Facility at the end of the first quarter of 1997.
Effective February 1, 1998, the Company acquired a facility in Tampa,
Florida that was engaged primarily in the distribution of landscape stone
products. The Company intends to utilize this distribution facility to gain
market share for the sale of its products on the West Coast of Florida. The
Company presently does not have any plans to open other warehouse distribution
facilities.
SEASONALITY
The sale of Premix's and Acrocrete's products in the construction market
for the Southeastern United States is somewhat seasonal, with a slightly lower
rate of sales historically occurring in the period December through February
compared to the rest of the year.
COMPETITION
The Company's business is highly competitive. Premix and Acrocrete
encounter significant competition from local, independent firms, as well as,
regional and national manufacturers of acrylic, cement and plaster products,
most of whom manufacture products similar to those of Premix and Acrocrete. Many
of these competitors are larger, more established and better financed than the
Company. The Company believes it can compete with the other companies based upon
product performance and quality, customer service and price, through maintaining
lower overhead costs than larger national companies.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
laws and regulations in the normal course of its business. Although the Company
believes that its manufacture, handling, use, sale and disposal of its raw
materials and products are in accord with current environmental regulations,
future developments could require the Company to make unforeseen expenditures
relating to environmental matters. Increasingly strict environmental laws,
standards and environmental policies may increase the risk of liability and
compliance costs associated with the Company's operations. Capital expenditures
for this purpose were not material in 1997, and expenditures for 1998 to comply
with existing laws and regulations are also not expected to have a material
effect on the Company's financial position, results of operations or liquidity.
In 1992, the Company removed its fuel pumps and underground tanks at its
facilities in Miami and Casselberry, Florida, rather than upgrade the storage
tank systems to comply with more stringent environmental standards which went in
effect December 31, 1992. Upon removal of the tanks, test results showed
evidence of soil and ground water contamination at each site. The contaminated
soil was removed from the properties and the regulatory authorities required the
Company to test the groundwater and provide engineering reports to determine
what remedial actions, if any, were necessary. In December 1994 and June 1995,
the environmental authorities released the Company from having to undertake any
additional remedial action to its Casselberry and Miami, Florida facilities,
respectively.
Premix is eligible for reimbursement of certain allowable costs associated
with the removal of the contamination and engineering studies that were required
in connection with the assessment of contamination through an insurance program
established by the State of Florida environmental authorities. The Company
received $62,000 of such reimbursement during the first quarter of 1998.
EMPLOYEES
The Company and its subsidiaries had 90 full-time employees as of June 30,
1998. The Company considers its employee relations to be satisfactory. The
Company's employees are not subject to any collective bargaining agreement.
39
<PAGE>
PROPERTIES
The Company and its subsidiaries maintain a total of six facilities in
Florida and Georgia. The location and size of the Company's facilities and the
nature of the operations in which such facilities are used, are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQ. FOOTAGE OWNED/LEASED COMPANY PRODUCTS
- -------------------- ----------- ------------- -------------------------
<S> <C> <C> <C>
Miami, Fl........... 30,000 Owned Premix (Manufacturing)
Casselberry, Fl..... 26,000 Owned Premix (Manufacturing)
Tampa, Fl........... 8,470 Owned Acrocrete (Distribution)
Atlanta, Ga......... 14,750 Leased Acrocrete (Manufacturing)
Jacksonville, Fl.... 7,500 Leased Acrocrete (Distribution)
Norcross, Ga........ 7,600 Leased Acrocrete (Distribution)
</TABLE>
The Miami and Casselberry facilities are encumbered by first mortgage liens
with outstanding principal balances at June 30, 1998, of $467,000 and $307,000,
respectively. In the first quarter of 1998, the Company entered into a contract
of sale of its Miami facility providing for a closing on September 30, 1998. In
June 1998, the Company entered into a lease agreement for a 19,600 square foot
facility in Pompano Beach, Florida. See Note 15(b) of Notes to Consolidated
Financial Statements. The Tampa facility, acquired effective February 1, 1998,
is encumbered by a first mortgage lien in the amount of $197,000 at June 30,
1998.
The lease on the Atlanta facility expires April 30, 2000 with early
termination rights, and provides for rental payments of $3,340 per month. The
Company has exercised its rights under the lease to terminate the lease
effective October 31, 1998. In April 1998, the Company entered into a new lease
agreement for a 20,400 square foot facility in Kennesaw, Georgia.
The facilities located in Norcross, Georgia and Jacksonville, Florida are
utilized for the distribution of Acrocrete's products directly to the end-user
(contractor/subcontractor). The lease on the Jacksonville facility expires
December 31, 1998, and provides for rental payments of $3,036 per month.
Acrocrete leases the Norcross facility at $2,920 per month, through the lease
expiration date of April 30, 1999. The Company plans to renew the lease for the
Jacksonville facility. Comparable properties at equivalent rentals are available
for replacement of this facility if such lease is not extended.
Management believes that the Company's facilities and equipment are
well-maintained, in good operating condition and sufficient for its present
operating needs. The Company is presently undertaking certain projects aimed at
consolidating, upgrading and expanding its manufacturing operations which
involves relocating certain operations to new facilities. See 'Imperial
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources'.
LEGAL PROCEEDINGS
In April 1996, Premix was dismissed as defendants, to which they had been a
party with other unaffiliated companies, in the remaining 27 asbestos lawsuits
pending in various circuit courts in Alabama and Florida. Such lawsuits sought
unspecified damages alleging injuries to persons exposed to products containing
asbestos. As of August 31, 1998, Premix is not a defendant in any lawsuits which
allege injuries due to asbestos exposure.
The Company and Premix are parties to an Interim Agreement for Defense and
Indemnity of Asbestos Bodily Injury Cases (the 'Agreement') with certain of its
insurance carriers under which each party agreed to pay a negotiated percentage
share of defense costs and indemnification expenditures, subject to policy
limits, for the pending and future asbestos claims. The Agreement has been
extended until May 15, 1999, and is subject to cancellation upon sixty days
notice by any party. The insurance carriers have agreed to pay, in the
aggregate, approximately 93% of the damages, costs and expenditures related any
litigation to which the Agreement applies. Premix would be responsible for the
remaining 7%.
The Company believes, based upon the Agreement with its insurance carriers,
and its experience in these claims to date, that it has adequate insurance
coverage for any future similar type of claims. To date, no case has gone to
trial with Premix as a defendant. Premix has either settled for a nominal amount
of money or been
40
<PAGE>
voluntarily dismissed without payment in approximately 193 cases. Based upon
historical results, the Company does not believe any potential future claims
would be material. However, there can be no assurance that insurance will
ultimately cover the aggregate liability for damages to which Premix may be
exposed. Premix is unable, at this time, to determine the exact extent of its
exposure or outcome of the litigation of any other similar cases that may arise
in the future.
Acrocrete was a co-defendant in a lawsuit captioned 'Stephen P. Zabow, II
and Karen I. Zabow, et al. vs. M/I Schottenstein Homes, Inc., Heiner
Construction Company and Acrocrete, Inc.', filed October 2, 1996 in Wake County,
North Carolina. The lawsuit involved claims by owners of eight homes in Cary,
North Carolina, against the general contractor, a subcontractor, and Acrocrete.
The claims related to the use of synthetic stucco in the construction of such
homes which was allegedly manufactured by Acrocrete. The lawsuit alleged
negligent misrepresentation, breach of warranty, unfair and deceptive trade
practices, fraud and negligence due to defective material, and requests punitive
damages. The plaintiffs alleged that Acrocrete knew of inherent defects
prevalent in synthetic stucco wall systems that permitted water intrusion to
cause moisture damage to the interior and wood framing of the houses. In October
1997, the plaintiffs voluntarily dismissed Acrocrete with prejudice as a result
of the plaintiffs settlement with the general contractor defendant.
On October 17, 1997, Acrocrete was named a co-defendant in a lawsuit
captioned 'M/I Schottenstein Homes, Inc. vs. Acrocrete, Inc., et al', filed in
Wake County, North Carolina. The lawsuit involves subrogation claims by CNA
Insurance on behalf of M/I Schottenstein Homes, Inc. based on the claims of
owners of 52 homes constructed by M/I Schottenstein Homes, Inc., the general
contractor, that the use of synthetic stucco in the system of construction of
the exterior finish of their homes, allegedly manufactured by Acrocrete, caused
moisture intrusion damages. Eight of the homeowners were the parties to the
previously described lawsuit filed against Acrocrete. As part of its settlement
with the homeowner, M/I Homes received an assignment of any claims which the
homeowners may have against any other contractors, subcontractors, material men,
or suppliers which might be responsible for any damages pertaining to the
alleged defects. The initial complaint against Acrocrete and the other parties
alleges negligent misrepresentation, breach of warranty, fraud, unfair and
deceptive trade practices and requests for punitive damages. On June 29, 1998,
the Court severed the lawsuit requiring the plaintiffs to file 52 separate
amended complaints relating to the construction of each of the separated issues
at issue in the original complaint.
While Acrocrete has not yet been provided with the separate amended
complaints referred to above, from its review of the original complaint, it
believes that it has meritorious defenses against the claim as well as a
counter-claim against the general contractor and installers of the product. The
Company's insurance carrier has accepted coverage and is providing Acrocrete
with a defense under a reservation of rights. Acrocrete is unable, at this time,
to determine the exact extent of its exposure or possible outcome of this
litigation.
In addition, Acrocrete has been named in nine similar lawsuits filed
against Acrocrete and other parties, (contractors and subcontractors), by
homeowners, or their insurance companies, claiming moisture intrusion damages on
single family residences.
Acrocrete is vigorously defending all of these cases and believes it has
meritorious defenses, counter-claims and claims against third parties. The
Company's insurance carriers have accepted coverage for all of the above claims
and are providing defense under a reservation of rights. Acrocrete is unable to
determine the exact extent of its exposure or outcome of litigation of these
lawsuits.
In the fourth quarter of 1993, the Company incurred a $100,000 charge to
settle a product liability lawsuit for which the Company was not insured. The
Company entered into an agreement to settle this lawsuit for $100,000, payable
in equal monthly installments of $2,083 over a four year period with an annual
interest rate of 7 1/2%. The final installment was paid in August 1998.
Premix and Acrocrete are engaged in other legal actions and claims arising
in the ordinary course of its business, none of which are believed to be
material to the Company.
41
<PAGE>
MANAGEMENT OF IMPERIAL
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------- --- -----------------------------------------------
<S> <C> <C>
S. Daniel Ponce........ 49 Chairman of the Board--Class III
Lisa M. Brock.......... 40 Director--Class III
Leonard C. Ferri....... 83 Director--Class II
Morton L. Weinberger... 68 Director--Class II
Fred H. Hansen......... 51 President, Premix and Acrocrete
Howard L. Ehler, Jr.... 54 Principal Executive Officer/Executive Vice
President and Secretary
Betty J. Murchison..... 58 Principal Accounting Officer/Assistant Vice
President
</TABLE>
The Company's Board of Directors is divided into three classes. In
accordance with the Company's Certificate of Incorporation, the members of each
Class are designated to serve for three year staggered terms. Class I directors
were to serve until the 1994 annual meeting or until their successors were
elected, Class II directors were to serve until the 1995 annual meeting or until
their successors were elected, and Class III directors were to serve until the
1996 annual meeting or until their successors were elected. The Company did not
have an annual meeting of stockholders in 1994, 1995, 1996 and 1997.
Accordingly, Class I, Class II and Class III directors will serve until the next
annual meeting to be held by the Company. The Company currently has no Class I
directors.
Subject to certain contractual rights, each officer serves at the
discretion of the Board of Directors.
S. Daniel Ponce. Mr. Ponce has been Chairman of the Board of the Company
since 1988. Mr. Ponce has been engaged in the practice of law for over 20 years
and is currently a stockholder in the law firm of Hanzman, Criden, Korge,
Chaykin, Ponce & Heise, P.A. Mr. Ponce is a member of the Board of Directors of
the University of Florida Foundation, Inc. and serves as Chairman of its audit
committee. He is also a non-practicing certified public accountant.
Lisa M. Brock. Mrs. Brock has been a director of the Company since 1988.
Mrs. Brock was employed by the Company and its subsidiaries, Premix and
Acrocrete, as Vice President for over five years until December 1994. Mrs. Brock
continues to serve as a consultant to the Company. Mrs. Brock is the niece of
Leonard C. Ferri.
Leonard C. Ferri. Mr. Ferri has been a director of the Company since 1976.
Mr. Ferri has been an independent management consultant since 1975. In 1975, Mr.
Ferri retired as Managing Director of Xerox de Mexico, S.A. From 1965 to 1970,
he served as Managing Director of Xerox de Peru, S.A. For the 19 years prior
thereto, he was employed by Radio Corporation of America (RCA), the last six
years as Regional Director-- Latin America in RCA's international division. Mr.
Ferri serves as a consultant to the Company. Mr. Ferri is the uncle of Lisa M.
Brock.
Morton L. Weinberger. Mr. Weinberger has been a director of the Company
since 1988. Mr. Weinberger, a certified public accountant, has been an
independent consultant to various professional organizations for the past 12
years. He provides consulting services to the Company. For the previous 25
years, he was engaged in the practice of public accounting. During such period,
he was a partner with Peat Marwick Mitchell & Co., now known as KPMG Peat
Marwick, and thereafter BDO Seidman, both public accounting firms.
Fred H. Hansen. Mr. Hansen has been President of Premix and Acrocrete
since September 1996. Prior thereto, from 1986 to 1996, he was employed by
Dryvit Systems Canada Ltd., a manufacturer of synthetic stucco products, the
last six years acting as Vice President and General Manager. From 1982 to 1986,
Mr. Hansen was the National Sales Manager for W.R. Grace & Co. of Canada Ltd., a
manufacturer and distributor of building materials.
42
<PAGE>
Howard L. Ehler, Jr. Mr. Ehler has been Principal Executive Officer of the
Company since March 1990 and Executive Vice President, Chief Financial Officer
and Secretary of the Company since April 1988. Prior thereto he was Vice
President, Chief Financial Officer and Assistant Secretary of the Company for
over five years.
Betty J. Murchison. Ms. Murchison has been Principal Accounting Officer of
the Company since June 1995. Prior thereto, from October, 1991 to June 1995, she
was Principal Accounting Officer of Royce Laboratories, Inc., a manufacturer of
generic pharmaceutical products. For over 25 years prior thereto, she was
employed by the Company, the last three years acting as the Company's Principal
Accounting Officer.
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE
The Board of Directors met five times during 1997. Each director attended
all of the Board of Directors meetings in 1997.
COMPENSATION AND STOCK OPTION COMMITTEE
Messrs. Ponce, Ferri, Weinberger and Ms. Brock serve on the Compensation
and Stock Option Committee, with Mr. Ponce serving as Chairman. The Compensation
and Stock Option Committee met three times during 1997. Each member attended all
of the meetings.
REPORTS PURSUANT TO SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934
The Company's officers and directors are required to file Forms 3, 4 and 5
with the Commission in accordance with Section 16(a) of the Exchange Act, and
the rules and regulations promulgated thereunder. Based solely on a review of
such reports furnished to the Company as required by Rule 16a-3(e), in 1997 no
officer or director failed to file any such report on a timely basis except Mr.
Hansen. Fred H. Hansen filed one late Form 4 report relating to one purchase
transaction.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued for each of
the three fiscal years in the three year period ended December 31, 1997 for the
Company's principal executive officer and each other executive officer whose
total annual salary and bonus exceeded $100,000 for any fiscal year (the 'Named
Executive Officers').
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
-------------------------------------------------- RESTRICTED
OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS(4)
- --------------------------------- ---- -------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Howard L. Ehler, Jr. ............ 1997 $100,000 $ 40,000 -- $18,750
Principal Executive Officer, 1996 98,555 32,000 -- 3,500
Executive Vice President and 1995 95,685 15,000 -- --
Secretary
Fred H. Hansen .................. 1997 $117,601(3) $ 85,000 -- $41,667
President, Premix and Acrocrete 1996 37,000 10,000 15,000 --
</TABLE>
- ------------------
(1) Bonuses shown were earned in the year indicated even though actually paid in
a subsequent year.
(2) Except as indicated, none of the named individuals above have received
personal benefits or perquisites that exceed the lesser of $50,000 or 10% of
the total annual salary and bonus reported for the named executive officer
in the above table. Mr. Hansen's Other Annual Compensation in 1996 included
$15,000 in moving and relocation expenses.
(Footnotes continued on next page)
43
<PAGE>
(Footnotes continued from previous page)
(3) Mr. Hansen's employment began September 2, 1996 at an annual salary of
$117,601.
(4) The restricted stock included in the table in 1997 represents the market
value of the entire stock award on the date of grant pursuant to the terms
of the Company's Restricted Stock Plan, even though no shares were vested as
of such date. As of December 31, 1997, based on the average of the bid and
asked market price of Imperial Common on that date of $.42, Mr. Ehler held
75,000 shares of restricted stock valued at $31,500, and Mr. Hansen held
166,667 shares of restricted stock valued at $70,000. The values indicated
are not necessarily indicative of the actual values which may be realized by
the Named Executive Officers. Mr. Ehler's restricted stock is schedule to
vest at the rate of 25,000 shares per year over a three year period ending
December 31, 1999. Mr. Hansen's restricted stock is scheduled to vest as
follows: 33,333 shares in 1997, 66,667 shares in 1998, 33,333 shares in
1999, and 33,334 shares in 2000. The restricted stock becomes vested when
and if Plan vesting requirements are attained. Dividends are paid on the
restricted stock at the same time and same rate as paid to all Imperial
Common stockholders and such shares may be voted.
COMPENSATION AGREEMENTS
The Company is party to a one year renewable employment agreement (the
'Employment Agreement') with Howard L. Ehler, Jr. Mr. Ehler serves as Executive
Vice President, Principal Executive Officer and Chief Financial Officer of the
Company at a current base salary of $120,000. The Employment Agreement provides
for automatic renewal for additional one year periods on July 1st of each year,
unless the Company or Mr. Ehler notifies the other party of such party's intent
not to renew at least 90 days prior to each June 30 of the initial term and any
extended term thereafter. Mr. Ehler receives a car allowance, as well as certain
other benefits, such as health and disability insurance. Mr. Ehler is also
entitled to receive incentive compensation based upon targets formulated by the
Compensation Committee.
Prior to a Change in Control (as defined in the Employment Agreement), the
Company has the right to terminate the Employment Agreement, without cause, at
any time upon thirty days written notice, provided the Company pays to Mr. Ehler
a severance payment equivalent to 50% of his then current annual base salary. As
part of the Employment Agreement, Mr. Ehler has agreed not to disclose
information and not to compete with the Company during his term of employment
and, in certain cases, for a two year period following his termination.
In the event of a Change in Control, the Employment Agreement is
automatically extended for a three year period. Thereafter, Mr. Ehler will be
entitled to terminate his employment with the Company for any reason at any
time. In the event Mr. Ehler so terminates employment, Mr. Ehler will be
entitled to receive the lesser of (i) a lump sum equal to the base salary
payments and all other compensation and benefits Mr. Ehler would have received
had the Employment Agreement continued for the full term; or (ii) three times
Mr. Ehler's base salary then in effect on the effective date of termination. The
Executive would also be entitled to such severance in the event the Company
terminates Mr. Ehler without cause after a Change of Control.
In addition, Mr. Ehler was issued 75,000 shares of Imperial Common on July
30, 1997 pursuant to the terms of the Company's Restricted Stock Plan. See Note
12(c) of Notes to Consolidated Financial Statements.
During the third quarter of 1996, the Company entered into an employment
arrangement with Fred H. Hansen to serve as President of the Company's
subsidiaries, Premix and Acrocrete. Mr. Hansen presently receives an annual base
salary of $150,000 and a bonus based upon earnings performance of the
subsidiaries. Under this arrangement, Mr. Hansen received 33,333 shares of
Imperial Common in February 1997. In addition, Mr. Hansen was issued 166,667
shares of Imperial Common on July 31, 1997 pursuant to the terms of the
Company's Restricted Stock Plan. See Note 12(d) of Notes to Consolidated
Financial Statements. Also, Mr. Hansen received a moving allowance of $15,000 in
1996 and is entitled, at his election, to the use of a Company car, or car
allowance of $650 per month during his employment, as well as certain other
benefits, such as health and disability insurance. As part of the employment
agreement, Mr. Hansen agreed not to disclose confidential information and not to
compete with the Company during his term of employment and for a one year period
following his termination.
44
<PAGE>
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1997 AND YEAR END OPTION
VALUES
The following table sets forth certain aggregated option information for
each of the Named Executive Officers for the fiscal year ended December 31,
1997.
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED(1)
- --------------------------- --------------- -----------
<S> <C> <C>
Howard L. Ehler, Jr........ 83,550 $12,525
Fred H. Hansen............. -- --
</TABLE>
- ------------------
(1) Represents the difference between the option exercise price and the closing
market price of Imperial Common on the date of exercise.
No options were granted during the year ended December 31, 1997, and no
unexercised options were outstanding at December 31, 1997.
DIRECTOR COMPENSATION
During the year ended December 31, 1997, each director received an annual
retainer of $6,000, payable in quarterly installments. Effective June 1, 1994
and January 1, 1995, and renewed each year thereafter, the Company entered into
separate consulting agreements with Messrs. Ferri and Weinberger, and Ms. Brock,
respectively, to provide various management consulting services to the Company.
Each Agreement provides for monthly fees of $833 and may be terminated by either
party upon 60 days notice.
On May 29, 1997, each director received 35,000 shares of Imperial Common.
The average of the bid and asked market price on said date was $.25 per share.
Effective May 20, 1998, each director received an additional 25,000 shares of
Imperial Common. The average of the bid and asked market price on said date was
$.39 per share. Commencing September 1994, Mr. Ponce was provided the use of a
Company car at a current cost of approximately $786 per month.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, the Compensation and Stock Option
Committee consisted of Messrs. Ponce, Ferri, Weinberger and Ms. Brock. None of
these directors has been an officer or employee of the Company or its
subsidiaries during the last ten years, except Ms. Brock, who was formerly Vice
President of Premix and Acrocrete until December 31, 1994. In 1997, the Company
paid legal fees to a law firm in which Mr. Ponce is affiliated. See '--Certain
Relationships and Related Transactions.' There are no other relationships
required to be disclosed pursuant to applicable Commission rules and
regulations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 1, 1998
with respect to the beneficial ownership of the Company's equity securities by
(i) each director of the Company, (ii) each Named Executive Officer, (iii) each
person known to the Company to own more than 5% of each class of equity
securities, and
45
<PAGE>
(iv) all executive officers and directors as a group. (Except as otherwise
provided herein, the information below is supplied by the holder):
<TABLE>
<CAPTION>
SHARES
TITLE OF BENEFICIALLY PERCENT
CLASS OWNED(1) CLASS(2)
--------- ------------------ -----------
<S> <C> <C> <C>
Maureen P. Ferri ............ Common 656,981 9.9%
7335 Old Elm Drive
Hialeah, Fl 33015
Jimmy V. Brabham(3) ......... Common 374,000 5.7
412 Rory Street
Lake Charles, La 70601
Estate of
M.G. Woodward(4) .......... Preferred 27,000 9.0
147 Maison Place N.W.
Atlanta, Ga 30327
Estate of
Latham G. Kays(5) ......... Preferred 15,275 5.1
8 Paris Court
Lake St. Louis, Mo 63367
Derco Ltd.(6) ............... Preferred 23,863 8.0
P.O. Box 1790
Georgetown Grand Cayman
Cayman Islands
Lisa M. Brock ............... Common 296,506(7) 4.5
Howard L. Ehler, Jr. ........ Common 253,245(8) 3.8
Preferred 2,000 .3
Leonard C. Ferri ............ Common 238,200 3.6
Fred H. Hansen ............... Common 220,000(9) 3.3
S. Daniel Ponce ............. Common 501,966(10) 7.4
Morton L. Weinberger ........ Common 199,210 3.0
All directors and officers as
a group (7 persons) ....... Common 1,715,245(11) 25.2
Preferred 2,000 .3
</TABLE>
- ------------------
(1) Except as set forth herein, all securities are owned directly and the sole
investment and voting power are held by the person named. Unless otherwise
indicated, the address for each beneficial owner is the same as the
Company.
(2) The percent of class for preferred stockholders is based on 300,121 shares
of Preferred Stock outstanding. The percent of class for common
stockholders is based upon 6,607,961 shares of Imperial Common outstanding
and such shares of Imperial Common such individual has the right to acquire
within 60 days upon exercise of options or warrants that are held by such
person (but not those held by any other person).
(3) Based on the Company's stockholder list at August 31, 1998. To the
Company's knowledge, no Schedule 13D has been filed with the Commission.
(4) Based upon oral representations made by the son of such deceased
stockholder. To the Company's knowledge, no Schedule 13D has been filed
with the Commission.
(5) On August 31, 1992, Latham G. Kays filed a Schedule 13D with the
Commission, indicating he beneficially owns 15,275 shares of Preferred
Stock, or 5.1% of the outstanding Preferred Stock. In 1995, the Company was
advised that Mr. Kays had died.
(Footnotes continued on next page)
46
<PAGE>
(Footnotes continued from previous page)
(6) On November 30, 1993, Derco Ltd. submitted a proxy at the Company's Annual
Meeting of Stockholders, indicating that Derco Ltd. beneficially owned an
aggregate of 23,863 shares of Preferred Stock, or 8.0% of the outstanding
Preferred Stock. To the Company's knowledge, no Schedule 13D has been filed
with the Commission.
(7) Includes 50,000 shares of Imperial Common issuable upon exercise of
warrants.
(8) Includes 50,000 shares of restricted Imperial Common subject to vesting
requirements.
(9) Includes 133,334 shares of restricted Imperial Common subject to vesting
requirements.
(10) Includes 150,000 shares of Imperial Common issuable upon exercise of
warrants.
(11) Includes 200,000 shares of Imperial Common issuable upon the exercise of
warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Hanzman, Criden, Korge, Chaykin, Ponce & Heise, P.A., in
which Mr. Ponce, the Company's Chairman of the Board, is a stockholder,
currently serves as general counsel to the Company. In addition, the law firm
represents the Company in all its outstanding litigation.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by
Coleman & Rhine LLP, 1120 Avenue of the Americas, New York, New York 10036. The
federal income tax consequences in connection with the Merger will be passed
upon by Rosen & Reade, LLP, 757 Third Avenue, New York, New York 10017.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 included in
this Proxy Statement/Prospectus have been so included in reliance upon the
report of PricewaterhouseCoopers LLP, independent certified public accountants,
given on the authority of such firm as experts in auditing and accounting.
EXCHANGE AGENT
The Company has appointed Continental as Exchange Agent for the Merger.
Certificates representing shares of Preferred Stock should not be submitted for
exchange until the holder thereof receives a letter of transmittal from the
Exchange Agent following the Effective Date of the Merger. It will not be
necessary for the holders of Imperial Common to surrender or exchange their
Imperial Common certificates for new certificates representing Sub Common.
Merger Sub will pay the fees and expenses of the Exchange Agent.
INFORMATION/SOLICITATION AGENT
The Company has appointed Morrow & Co., Inc. as Information Agent for the
Merger. Any questions regarding or requests for additional copies of this Proxy
Statement/Prospectus may be directed to the Information Agent at the address and
telephone number below:
909 Third Avenue
New York, New York 10022-4799
(800) [insert]
Merger Sub will pay the fees and expenses of the Information Agent.
47
<PAGE>
OTHER MATTERS
At the date of this Proxy Statement/Prospectus, the Board of Directors
knows of no other matters which will be presented for consideration at the
Meeting. If any such other matters are properly presented for action at the
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the shares represented by the proxy in accordance with their
judgment on such matters.
48
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed balance sheet at June 30, 1998
and the unaudited pro forma condensed statements of operations for the six
months ended June 30, 1998 and the year ended December 31, 1997 give effect to
the proposed merger of Imperial with and into its wholly-owned subsidiary,
Merger Sub. The proposed Merger will be accounted for as a reorganization of
entities under common control. The unaudited pro forma condensed balance sheet
presents the financial position of Imperial and Merger Sub as of June 30, 1998
assuming the proposed Merger had occurred as of June 30, 1998. Such information
is based upon the historical balance sheet of Imperial as of that date adjusted
for the conversion of Imperial Common and Preferred Stock upon consummation of
the Merger. The unaudited pro forma condensed statements of operations give
effect to the proposed Merger of Imperial and Merger Sub by adjusting the
historical results of operations of Imperial for the six months ended June 30,
1998 and and for the year ended December 31, 1997 as if the proposed Merger had
become effective January 1, 1997. These unaudited pro forma financial statements
should be read in conjunction with the historical financial statements and notes
thereto of Imperial included elsewhere in this proxy statement.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the proposed Merger had been consummated on January
1, 1997 with respect to the pro forma statements of operations or at June 30,
1998 with respect to the pro forma balance sheet, nor is it indicative of the
future operating results or financial position of the combined company.
49
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
IMPERIAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 542,000 $ 542,000
Trade accounts receivable, net... 2,397,000 2,397,000
Inventories...................... 1,512,000 1,512,000
Deferred taxes................... 106,000 106,000
Other current assets............. 217,000 217,000
------------ ------------
Total current assets.......... 4,774,000 4,774,000
Property, plant and equipment,
net.............................. 1,213,000 $ (173,000)(2a) 1,040,000
Deferred taxes..................... 450,000 450,000
Other assets....................... 109,000 109,000
------------ ------------- ------------
$ 6,546,000 $ (173,000) $ 6,373,000
------------ ------------- ------------
------------ ------------- ------------
LIABILITIES AND COMMON STOCK
AND OTHER STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable.................... $ 1,017,000 $ 565,000(2b) $ 1,582,000
Current portion of long-term
debt.......................... 171,000 (37,000)(2c) 134,000
Accounts payable................. 1,069,000 1,069,000
Accrued expense and other
liabilities................... 258,000 258,000
------------ ------------- ------------
Total current liabilities..... 2,515,000 528,000 3,043,000
Long-term debt, less current
maturities....................... 948,000 554,000(2c) 1,502,000
Preferred dividends, in arrears.... 4,209,000 (4,209,000)(2d) 0
Redeemable preferred stock, $1 par
value, $1.10 cumulative
convertible series; 300,121
shares outstanding at $10 per
share redemption value........... 3,001,000 (3,001,000)(2d) 0
Common stock and other
stockholders' deficit:
Common stock, $.10 par value
($.01 pro forma par value),
authorized 20,000,000 shares;
6,655,824 and 8,306,490 shares
issued, respectively.......... 666,000 (583,000)(2e) 83,000
Additional paid-in capital....... 7,061,000 9,193,000(2f) 16,255,000
Accumulated deficit.............. (11,748,000) (2,655,000)(2g) (14,403,000)
------------ ------------- ------------
(4,021,000) 5,955,000 1,934,000
Less 47,863 treasury shares at
cost.......................... (106,000) (106,000)
------------ ------------- ------------
Total common stock and other
stockholders' deficit....... (4,127,000) 5,955,000 1,828,000
------------ ------------- ------------
$ 6,546,000 $ (173,000) $ 6,373,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales........................ $8,785,000 $8,785,000
Cost of sales.................... 5,851,000 $ 36,000(2h) 5,887,000
---------- ----------- ----------
Gross profit................... 2,934,000 (36,000) 2,898,000
Selling, general and
administrative expenses........ 2,186,000 2,186,000
---------- ----------- ----------
Operating income............... 748,000 (36,000) 712,000
Other (expenses) income, net..... (51,000) (88,000)(2i) (139,000)
---------- ----------- ----------
Income before income taxes..... 697,000 (124,000) 573,000
Income tax (expense) benefit..... (244,000) 43,000(2j) (201,000)
---------- ----------- ----------
Net income (loss)................ 453,000 (81,000) 372,000
Less dividends on redeemable
preferred stock................ (165,000) 165,000(2k) 0
---------- ----------- ----------
Net income available to common
stockholders................ $ 288,000 $ 84,000 $ 372,000
---------- ----------- ----------
---------- ----------- ----------
Earnings per common share:
Basic.......................... $ 0.04 $ 0.05
---------- ----------
---------- ----------
Diluted........................ $ 0.04 $ 0.04
---------- ----------
---------- ----------
Weighted average shares.......... 6,516,000 8,167,000
---------- ----------
---------- ----------
Weighted average and potentially
dilutive shares................ 6,679,000 8,423,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
51
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................ $15,774,000 $15,774,000
Cost of sales.................... 10,867,000 $ 71,000(2h) 10,938,000
----------- ----------- -----------
Gross profit................... 4,907,000 (71,000) 4,836,000
Selling, general and
administrative expenses........ 3,740,000 3,740,000
----------- ----------- -----------
Operating income............... 1,167,000 (71,000) 1,096,000
Other (expense) income, net...... (275,000) (164,000)(2i) (439,000)
----------- ----------- -----------
Income (expense) before income
taxes....................... 892,000 (235,000) 657,000
Income tax benefit............... 753,000 82,000(2j) 835,000
----------- ----------- -----------
Net income (loss)................ 1,645,000 (153,000) 1,492,000
Less dividends on redeemable
preferred stock................ (330,000) 330,000(2k) 0
----------- ----------- -----------
Net income available to common
stockholders................ $ 1,315,000 $ 177,000 $ 1,492,000
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share:
Basic.......................... $ 0.22 $ 0.19
----------- -----------
----------- -----------
Diluted........................ $ 0.21 $ 0.19
----------- -----------
----------- -----------
Weighted average shares.......... 6,009,000 7,660,000
----------- -----------
----------- -----------
Weighted average and potentially
dilutive shares................ 6,267,000 8,011,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
52
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
Upon consummation of the proposed Merger, each share of Imperial Common
will be converted, without action of the holder, into one share of Sub Common
and each share of Preferred Stock will be converted, at the option of the
Preferred Stockholder, into either; (A) $4.50 in cash and eight shares of Sub
Common or (B) $2.00 in cash, a Debenture and three shares of Sub Common. Because
Imperial is unable in advance to determine the proportion of Preferred Stock
which will be converted under (A) versus (B), Imperial has prepared the pro
forma combined financial statements using the arbitrary assumption that 50% of
the preferred stock will be converted under (A) and 50% will be converted under
(B). The unaudited pro forma balance sheet and statements of operations have
been prepared based upon the foregoing conversions. In addition, the following
table illustrates the consideration to be issued to Preferred Stockholders in
the event that all Preferred Stockholders elect to receive either (A) $4.50 in
cash and eight shares of Sub Common, or (B) $2.00 in cash, a Debenture and three
shares of Sub Common.
<TABLE>
<CAPTION>
100% (A) 0% (A)
0% (B) 100% (B)
---------- ----------
<S> <C> <C>
Cash.................................. $1,351,000 $ 600,000
Debentures (principal)................ $ 0 $2,401,000
Sub Common (shares)................... 2,401,000 900,000
</TABLE>
The pro forma statements of operations exclude a charge to common
stockholders of $3,266,000 representing the excess of the fair value of cash and
securities to be issued to Preferred Stockholders on the conversion of their
stock over the fair value of Imperial Common issuable to Preferred Stockholders
had the stock been converted at the conversion rate specified in the Preferred
Stock's governing instrument (the 'excess consideration') and is calculated as
follows:
<TABLE>
<S> <C> <C>
Fair value of consideration issued to
Preferred Stockholders on conversion
under the Merger:
Cash................................ $ 975,000
Debentures.......................... 984,000
Sub Common.......................... 1,651,000 $3,610,000
----------
Fair value of Imperial Common issuable
under Preferred Stock's original
governing instrument:
Shares of Preferred Stock........... 300,121
Original conversion rate............ x1.149
----------
Sub Common shares issued on
conversion.......................... 344,839
Fair value per Sub Common share at
Merger date...................... $ 1.00 344,000
---------- ----------
Excess consideration.................. $3,266,000
----------
----------
</TABLE>
The pro forma statements of operations exclude $340,000 of estimated future
transaction costs associated with the proposed merger which will be recognized
as incurred subsequent to June 30, 1998. The pro forma statements of operations
also exclude $93,000 of costs representing the estimated fair value of 150,000
warrants to purchase 150,000 shares of Sub Common issuable upon consummation of
the Merger to Auerbach for serving as Imperial's financial advisor. The pro
forma statements of operations also exclude a $1,044,000 estimated gain on the
sale of the Company's Miami, Florida facility which is expected to occur by
September 30, 1998 and the proceeds from which will form a significant portion
of the cash portion of the Merger Consideration. However, the pro forma
accumulated deficit has been adjusted to reflect the excess consideration, the
transaction costs, the estimated fair value of the warrants and the gain on the
sale in the common stock and other stockholders' deficit section of the
unaudited pro forma condensed balance sheet at June 30, 1998.
Pro forma basic and diluted earnings per common share for the respective
periods has been computed based on the pro forma weighted average common shares,
and pro forma weighted average and potentially dilutive shares outstanding,
including the effects of converting all Preferred Stock into Sub Common and
Debentures. Potentially dilutive shares outstanding include 93,000 shares,
assumed issued to Auerbach upon exercise of its 150,000 warrants, computed under
the treasury stock method.
53
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION--(CONTINUED)
2. PRO FORMA ADJUSTMENTS
(a) Represents sale of Miami, Florida corporate headquarters and production
facility, at carrying value.
(b) Includes borrowings under the Company's line of credit of $975,000 to
fund the Preferred Stock conversion, and to pay transaction costs of $340,000,
less estimated proceeds of $750,000 received on the sale of the Miami facility.
(c) Includes reductions in current ($37,000) and long term ($430,000)
portions of mortgage debt in connection with the sale of the Miami facility, and
issuance of long term debt consisting of 150,061 Debentures, at a fair value of
$6.56 per Debenture pursuant to the Preferred Stock conversion, totaling
$984,000.
(d) Represents dividends and Preferred Stock eliminated pursuant to the
Preferred Stock conversion.
(e) Issuance of 1,650,666 shares of $.01 par value Sub Common pursuant to
the Preferred Stock conversion less the recapitalization of 6,655,824 (including
47,863 treasury shares) shares of Imperial Common, with a par value of $.10 per
share, for Sub Common with a par value of $.01 per share.
(f) Includes the following:
<TABLE>
<S> <C>
Conversion of Preferred Stock......... $4,385,000
Elimination of preferred dividends, in
arrears............................. 4,209,000
Recapitalization of 6,655,824 shares
of Imperial Common.................. 599,000
----------
$9,193,000
----------
----------
</TABLE>
(g) Includes the following:
<TABLE>
<S> <C>
Excess consideration to preferred
stockholders on the conversion...... $(3,266,000)
Transaction costs..................... (340,000)
Value of warrants to Auerbach......... (93,000)
Gain on sale of Miami facility........ 1,044,000
-----------
$(2,655,000)
-----------
-----------
</TABLE>
(h) Rental expense to replace the Miami facility net of depreciation
eliminated in connection with the sale of the Miami facility as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, 1998 DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
Replacement facility rents............................ $44,000 $88,000
Miami facility depreciation........................... (8,000) (17,000)
---------- -----------------
$36,000 $71,000
---------- -----------------
---------- -----------------
</TABLE>
(i) Includes interest expense on the Debentures, and on the line of credit
borrowings, less interest eliminated on the Miami facility's mortgage debt as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, 1998 DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
Debentures interest................................... $ (84,000) $(158,000)
Line of credit interest............................... (29,000) (59,000)
Mortgage interest..................................... 25,000 53,000
---------- -----------------
$ (88,000) $(164,000)
---------- -----------------
---------- -----------------
</TABLE>
(j) Assumes tax benefit at 35% statutory rate applied to income before
income taxes.
(k) Elimination of dividends on Preferred Stock converted to Sub Common.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IMPERIAL INDUSTRIES, INC.--HISTORICAL
Report of Independent Certified Public Accountants....................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 (Audited), and at June 30, 1998 (Unaudited).... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997 (Audited), and
for the Six Months Ended June 30, 1997 and 1998 (Unaudited)........................................... F-4
Consolidated Statements of Changes in Common Stock and Other Stockholders' Deficit for the Years Ended
December 31, 1995, 1996 and 1997 (Audited), and for the Six Months Ended June 30, 1998 (Unaudited).... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 (Audited), and
for the Six Months Ended June 30, 1997 and 1998 (Unaudited)........................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Imperial Industries, Inc.
In our opinion, the consolidated financial statements listed in the Index
appearing on page F-1 present fairly, in all material respects, the financial
position of Imperial Industries, Inc. and its subsidiaries at December 31, 1996
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
March 27, 1998
F-2
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 455,000 $ 552,000 $ 542,000
Accounts receivable, net of
allowance of $145,000 and
$176,000 at December 31, 1996
and 1997, respectively and
$209,000 at June 30, 1998..... 1,508,000 1,534,000 2,397,000
Inventories...................... 1,272,000 1,204,000 1,512,000
Deferred taxes................... -- 350,000 106,000
Prepaid expenses and other
current assets................ 22,000 60,000 217,000
----------- ----------- -----------
Total current assets.......... 3,257,000 3,700,000 4,774,000
Property, plant and equipment, at
cost............................. 2,789,000 2,974,000 3,317,000
Less accumulated depreciation.... (2,020,000) (2,100,000) (2,104,000)
----------- ----------- -----------
Net property, plant and
equipment................... 769,000 874,000 1,213,000
Deferred taxes..................... -- 450,000 450,000
Other assets....................... 90,000 104,000 109,000
----------- ----------- -----------
$ 4,116,000 $ 5,128,000 $ 6,546,000
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND COMMON STOCK
AND OTHER STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable.................... $ 1,424,000 $ 778,000 $ 1,017,000
Current portion of long-term
debt.......................... 161,000 130,000 171,000
Accounts payable................. 660,000 580,000 1,069,000
Accrued expenses and other
liabilities................... 140,000 217,000 258,000
----------- ----------- -----------
Total current liabilities..... 2,385,000 1,705,000 2,515,000
Long-term debt, less current
maturities....................... 895,000 819,000 948,000
Preferred dividends in arrears..... 3,714,000 4,044,000 4,209,000
Redeemable preferred stock, $1.00
par value, $1.10 cumulative
convertible series; 300,121
shares outstanding; at $10 per
share redemption value........... 3,001,000 3,001,000 3,001,000
Commitments and contingencies...... -- -- --
Common stock and other
stockholders' deficit:
Common stock, $.10 par value,
authorized 20,000,000 shares;
5,710,324, 6,631,824, and
6,655,824 issued,
respectively.................. 571,000 663,000 666,000
Additional paid-in-capital....... 7,229,000 7,260,000 7,061,000
Accumulated deficit.............. (13,351,000) (12,036,000) (11,748,000)
----------- ----------- -----------
(5,551,000) (4,113,000) (4,021,000)
Less cost of shares in treasury
(147,863 shares in 1996 and
1997 and 47,863 shares in
1998.......................... (328,000) (328,000) (106,000)
----------- ----------- -----------
Total common stock and other
stockholders' deficit....... (5,879,000) (4,441,000) (4,127,000)
----------- ----------- -----------
$ 4,116,000 $ 5,128,000 $ 6,546,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $11,615,000 $13,742,000 $15,774,000 $8,004,000 $8,785,000
Cost of sales........... 8,239,000 9,881,000 10,867,000 5,500,000 5,851,000
----------- ----------- ----------- ---------- ----------
Gross profit.......... 3,376,000 3,861,000 4,907,000 2,504,000 2,934,000
Selling, general and
administrative
expenses.............. 2,979,000 3,313,000 3,740,000 1,892,000 2,186,000
----------- ----------- ----------- ---------- ----------
Operating income...... 397,000 548,000 1,167,000 612,000 748,000
Other income (expense):
Interest expense...... (282,000) (317,000) (329,000) (167,000) (137,000)
Miscellaneous income.... 7,000 43,000 54,000 (4,000) 86,000
----------- ----------- ----------- ---------- ----------
(275,000) (274,000) (275,000) (171,000) (51,000)
----------- ----------- ----------- ---------- ----------
Income before income
taxes.............. 122,000 274,000 892,000 441,000 697,000)
----------- ----------- ----------- ---------- ----------
Income tax benefit
(expense):
Current............... -- -- (47,000) -- (244,000)
Deferred.............. -- -- 800,000 -- --
----------- ----------- ----------- ---------- ----------
-- -- 753,000 -- (244,000)
----------- ----------- ----------- ---------- ----------
Net income.............. $ 122,000 $ 274,000 $ 1,645,000 $ 441,000 $ 453,000
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Less: Dividends on
redeemable preferred
stock................. (330,000) (330,000) (330,000) (165,000) (165,000)
----------- ----------- ----------- ---------- ----------
Net income (loss)
applicable to
common
stockholders..... $ (208,000) $ (56,000) $ 1,315,000 $ 276,000 $ 288,000
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Basic earnings (loss)
per common share... $ (.04) $ (.01) $ .22 $ .05 $ .04
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Weighted average
common shares...... 5,382,000 5,471,000 6,009,000 5,624,000 6,516,000
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Diluted earnings
(loss) per common
share.............. $ (.04) $ (.01) $ .21 $ .05 $ .04
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Weighted average
common and
potentially
dilutive shares.... 5,382,000 5,471,000 6,297,000 5,961,000 6,679,000
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK
AND OTHER STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL DEFICIT STOCK TOTAL
-------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................. $556,000 $7,384,000 $(13,087,000) $(494,000) $(5,641,000)
Issuance of 50,000
shares of common
stock............. -- (108,000) -- 111,000 3,000
Accrued dividends in
arrears on
preferred stock... -- -- (330,000) -- (330,000)
Net income........... -- -- 122,000 -- 122,000
-------- ---------- ------------ --------- -----------
Balance at December 31,
1995................. 556,000 7,276,000 (13,295,000) (383,000) (5,846,000)
Issuance of 175,000
shares of common
stock............. 15,000 (47,000) -- 55,000 23,000
Accrued dividends in
arrears on
preferred stock... -- -- (330,000) -- (330,000)
Net income........... -- -- 274,000 -- 274,000
-------- ---------- ------------ --------- -----------
Balance at December 31,
1996................. 571,000 7,229,000 (13,351,000) (328,000) (5,879,000)
Issuance of 921,500
shares of common
stock............. 92,000 31,000 -- -- 123,000
Accrued dividends in
arrears on
preferred stock... -- -- (330,000) -- (330,000)
Net income........... -- -- 1,645,000 -- 1,645,000
-------- ---------- ------------ --------- -----------
Balance at December 31,
1997................. 663,000 7,260,000 (12,036,000) (328,000) (4,441,000)
Issuance of 124,000
shares of common
stock............. 3,000 (199,000) -- 222,000 26,000
-------- ---------- ------------ --------- -----------
Accrued dividends in
arrears on
preferred stock... -- -- (165,000) -- (165,000)
Net income........... -- -- 453,000 -- 453,000
-------- ---------- ------------ --------- -----------
Balance at June 30,
1998 (Unaudited)..... $666,000 $7,061,000 $(11,748,000) $(106,000) $(4,127,000)
-------- ---------- ------------ --------- -----------
-------- ---------- ------------ --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $ 122,000 $ 274,000 $1,645,000 $ 441,000 $ 453,000
Adjustments to reconcile net
income to net cash provided by
(used in):
Depreciation.................. 119,000 133,000 149,000 71,000 83,000
Amortization.................. 13,000 16,000 19,000 11,000 9,000
Provision for doubtful
accounts.................... 137,000 99,000 126,000 62,000 38,000
Deferred taxes, net........... -- -- (800,000) -- --
Income tax expense............ -- -- -- -- 244,000
Loss (gain) on disposal of
fixed assets................ (3,000) 4,000 1,000 2,000 (3,000)
Compensation expense--issuance
of stock.................... 3,000 23,000 41,000 41,000 32,000
(Increase) decrease in:
Accounts receivable......... (421,000) (236,000) (152,000) (710,000) (909,000)
Inventories................. (243,000) 8,000 68,000 74,000 (308,000)
Prepaid expenses and other
assets................... (48,000) -- (38,000) (103,000) (171,000
(Decrease) increase in:
Accounts payable............ 286,000 (48,000) (80,000) 136,000 489,000
Accrued expenses and other
liabilities.............. (65,000) 40,000 77,000 140,000 41,000
--------- --------- ---------- --------- ---------
Net cash (used in) provided
by operating
activities............... (100,000) 313,000 1,056,000 165,000 (2,000)
--------- --------- ---------- --------- ---------
Cash flows from investing
activities:
Proceeds received from sale of
property and equipment........ 3,000 11,000 9,000 8,000 13,000
Purchases of property, plant and
equipment..................... (224,000) (201,000) (263,000) (114,000) (432,000)
--------- --------- ---------- --------- ---------
Net cash used in investing
activities.................... (221,000) (190,000) (254,000) (106,000) (419,000)
--------- --------- ---------- --------- ---------
Cash flows from financing
activities:
Increase (decrease) in notes
payable banks-- net........... 201,000 179,000 (646,000) (29,000) 239,000
Proceeds from issuance of
long-term debt................ 703,000 66,000 60,000 -- 275,00
Repayment of long-term debt...... (569,000) (165,000) (167,000) (89,000) (105,000)
Proceeds received from the
exercise of stock options..... -- -- 48,000 2,000 2,000
--------- --------- ---------- --------- ---------
Net cash provided by (used in)
financing activities........ 335,000 80,000 (705,000) (116,000) 411,000
--------- --------- ---------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................. 14,000 203,000 97,000 (57,000) (10,000)
Cash and cash equivalents,
beginning of period.............. 238,000 252,000 455,000 455,000 552,000
--------- --------- ---------- --------- ---------
Cash and cash equivalents, end of
period........................... $ 252,000 $ 455,000 $ 552,000 $ 398,000 $ 542,000
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Supplemental disclosure of cash
flow information:
Cash paid during the year for
interest...................... $ 284,000 $ 314,000 $ 329,000 $ 169,000 $ 136,000
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Imperial Industries, Inc. (the 'Company') and its subsidiaries are
primarily involved in the manufacturing and sale of exterior and interior
finishing wall coating and mortar products for the construction industry. The
Company also manufactures and sells finishing coat products for swimming pools.
The consolidated financial statements contain the accounts of the Company
and its wholly owned subsidiaries, Acrocrete, Inc. ('Acrocrete') and
Premix-Marbletite Manufacturing Company ('Premix'), as well as other
subsidiaries which did not have significant operations during 1995 through 1997.
A summary of the significant accounting policies followed in the
preparation of the accompanying consolidated financial statements is presented
below.
(a) Interim financial data
The interim financial data as of June 30, 1998 and for the six months ended
June 30, 1998 and June 30, 1997 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods.
(b) Basis of presentation
The consolidated financial statements of the Company and its subsidiaries
have been prepared in accordance with generally accepted accounting principles
which assume that assets will be realized and liabilities will be satisfied in
the normal course of business.
(c) Significant customers
During 1995, one distributor accounted for approximately 11% of total
sales. During 1997 and 1996, no single customer accounted for more than 10% of
the Company's sales.
(d) Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
(e) Inventories
Inventories are stated at the lower of cost or market (net realizable
value), on a first-in, first-out basis. Finished goods include the cost of raw
materials, freight in, direct labor and overhead.
(f) Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line basis over the
estimated useful lives of the depreciable assets. Expenditures for maintenance
and repairs are charged to expense as incurred, while expenditures which extend
the useful life of assets are capitalized.
(g) Income taxes
The Company records income taxes using the liability method. Under this
method, deferred tax liabilities are recognized for temporary differences that
will result in taxable amounts in future years. Deferred tax assets are
recognized for temporary differences that will result in deductible amounts in
future years. These temporary differences are primarily the result of net
operating loss carryforwards. Valuation allowances are recognized if it is more
likely than not that some or all of the deferred tax assets will not be
realized. See 'note 7.'
F-7
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
(h) Earnings (loss) per share of common stock
The Company has adopted Statement of Financial Accounting Standards No.
128, Earnings Per Share ('FAS 128) which requires that dual presentation of
basic and diluted earnings per share for the years ending after December 15,
1997. Basic earnings (loss) per common share is computed by dividing net income,
after deducting preferred stock dividends accumulated during the year ('net
income applicable to common stockholders'), by the weighted average number of
shares of common stock outstanding each year. Diluted earnings (loss) per common
share is computed by dividing net income applicable to common stockholders by
the weighted-average number of shares of common stock and common stock
equivalents outstanding during each year. In accordance with the provision of
FAS 128, the Company has retroactively restated earnings (loss) per common
share. (See Note (10) - Earnings (Loss) Per Common Share).
(i) Cash and cash equivalents
The Company has defined cash and cash equivalents as those highly liquid
investments with a maturity of three months or less, when purchased. Included in
cash and cash equivalents at December 31, 1997 and 1996 are short term time
deposits of $259,000 and $153,000, respectively.
(j) Revenue recognition policy
Revenue from sales transactions is recorded upon shipment and delivery of
inventory to the customer, net of discounts and allowances.
(k) Stock based compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting For Stock Based
Compensation (SFAS 123). SFAS 123, the disclosure provisions of which must be
implemented for fiscal years beginning subsequent to December 15, 1995,
establishes a fair value based method of accounting for stock based compensation
plans, the effect of which can either be disclosed or recorded. The Company has
adopted the disclosure requirement provisions of SFAS 123 in 1996. However, the
Company has retained the intrinsic value method of accounting for stock based
compensation, based on APB Opinion No. 25. Had the fair value based accounting
provisions of SFAS 123 been adopted, the effect would not be significant.
(l) Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(m) Financial instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximated fair value as
of December 31, 1997 and 1996 because of the relatively short maturity of these
instruments.
2. INVENTORIES
At December 31, 1997 and 1996, inventories consist of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials......... $ 364,000 $ 376,000
Finished goods........ 614,000 710,000
Packaging materials... 226,000 186,000
---------- ----------
$1,204,000 $1,272,000
---------- ----------
---------- ----------
</TABLE>
F-8
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
A summary of the cost of property, plant and equipment at December 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
1997 1996 (YEARS)
---------- ---------- -----------
<S> <C> <C> <C>
Land.......................... $ 74,000 $ 74,000 --
Buildings and improvements.... 834,000 823,000 10-40
Machinery and equipment....... 1,296,000 1,129,000 3-10
Vehicles...................... 574,000 570,000 2- 8
Furniture and fixtures........ 196,000 193,000 3-12
---------- ----------
$2,974,000 $2,789,000
---------- ----------
---------- ----------
</TABLE>
The net book value of property, plant and equipment pledged as collateral
under notes payable and various long-term debt agreements aggregated $480,000
and $509,000 at December 31, 1997 and 1996, respectively. See 'Note 6.'
4. NOTES PAYABLE
Included in notes payable at December 31, 1997 and 1996 is $778,000 and
$1,424,000, respectively, which represents the amounts outstanding under a $2
million line of credit from a commercial lender to Premix and Acrocrete. The
line of credit is collateralized by Premix and Acrocrete's accounts receivable
and inventory, bears interest at prime rate plus 4% (12 1/2% at December 31,
1997) and expires June 19, 1998, subject to annual renewal. Effective January 1,
1998, the Company amended its line of credit to bear interest at prime rate plus
2% and extended the maturity date to June 19, 1999, subject to annual renewal.
The weighted average effective interest rate on the line of credit was 17.04%,
15.06%, and 14.86% during the years ended December 31, 1997, 1996 and 1995,
respectively.
The line of credit is automatically extended for an additional one year
term on each June 19th unless either party gives the other notice of
nonextension 60 days prior to the preceding June 19th. At December 31, 1997, the
line of credit limit available for borrowing aggregated $1,580,000, of which
$778,000 had been borrowed. The average month end amounts outstanding during
1997 and 1996 were $1,316,000, and $1,308,000, respectively. The maximum amounts
outstanding at any month end during 1997 and 1996 were $1,585,000 and
$1,424,000, respectively.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Employee compensation related items.... $ 72 000 $ 46,000
Taxes, other than income taxes......... 38,000 32,000
Income taxes........................... 30,000 --
Interest............................... 7,000 8,000
Legal fees............................. -- 1,000
Other.................................. 70,000 53,000
-------- --------
$217,000 $140,000
-------- --------
-------- --------
</TABLE>
F-9
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
Long-term debt of the Company is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Adjustable rate mortgage note payable, interest at
10.5% at December 31, 1997, principal in the amount
of $3,111 together with interest is payable
monthly, with a balloon payment of approximately
$376,000 due December 5, 2000...................... $485,000 $ 523,000
Adjustable rate mortgage note payable, interest at
12% at December 31, 1997, principal and interest
payable monthly in the amount of approximately
$3,600, with a balloon payment of approximately
$292,000 due September 1, 2000..................... 310,000 316,000
Litigation settlement agreement, interest at 7.5% due
monthly, principal payable in 48 equal 48 monthly
periods in the amount of approximately $2,083
through August 1998................................ 19,000 43,000
Equipment notes payable, interest at various rates
ranging from 8.75% to 15.39%, per annum, principal
and interest payable monthly....................... 135,000 174,000
-------- ----------
949,000 1,056,000
Less current maturities.............................. (130,000) (161,000)
-------- ----------
$819,000 $ 895,000
-------- ----------
-------- ----------
</TABLE>
As of December 31, 1997, long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------
<S> <C>
1999................... $ 71,000
2000................... 727,000
2001................... 15,000
2002................... 6,000
--------
$819,000
--------
--------
</TABLE>
In the fourth quarter of 1993, the Company incurred a $100,000 charge to
settle a product liability lawsuit for which the Company had no insurance. The
Company entered into an agreement to settle this lawsuit for $100,000, payable
monthly over a four-year period with interest at the rate of 7 1/2% per annum.
In accordance with the terms of the agreement, in the event of the Company's
bankruptcy, the plaintiff will be permitted to file a claim for $160,000, less
any amounts previously paid.
7. INCOME TAXES
At December 31, 1997, the deferred tax asset of $800,000 primarily consists
of the tax effect of net operating loss carryforwards of $11,300,000 less a
valuation allowance of $3,300,000. Net operating losses expire in varying
amounts through 2009.
During 1997 the Company recognized $800,000 of deferred tax assets as a
result of releasing a portion of the valuation allowance previously established
due to the uncertainty of realizing net operating losses. The remaining deferred
tax assets are fully reserved at December 31, 1997. The ultimate realization of
the remaining deferred tax assets is largely dependent on the Company's ability
to generate sufficient future taxable income. Management believes that the
valuation allowance at December 31, 1997 is appropriate, given the cyclical
nature of the construction industry and other factors including but not limited
to the uncertainty of future taxable income expectations beyond the Company's
strategic planning horizon.
The current income tax expense represents state taxes and alternative
minimum taxes payable for the year ended December 31, 1997.
F-10
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK
(a) Common Stock
At December 31, 1997, the Company had outstanding 6,483,961 shares of
Common Stock (5,562,461 shares in 1996 with a $.10 par value per share ('Common
Stock'). The holders of Common Stock are entitled to one vote per share on all
matters, voting together with the holders of Preferred Stock. In the event of
liquidation, holders of Common Stock are entitled to share ratably in all the
remaining assets of the Company, if any, after satisfaction of the liabilities
of the Company and the preferential rights of the holders of outstanding
preferred stock, if any.
On February 7, 1995, the Company issued 50,000 shares of Common Stock from
treasury to the former President of Premix and Acrocrete as part of his
employment compensation.
On May 23, 1996, the Company issued from treasury 25,000 shares of Common
Stock to an employee of the Company as part of his employment compensation. On
July 12, 1996, the Company issued an aggregate of 150,000 shares of Common Stock
to the Directors and Executive vice President of the Company as part of their
compensation for services rendered.
On February 4, 1997, the Company issued 33,333 shares of authorized, but
unissued Common Stock to the President of Premix and Acrocrete as part of his
employment compensation.
On May 1, 1997, 25,400 shares of Common Stock were issued upon the exercise
of stock options previously granted under the Company's stock option plans.
On May 29, 1997, the Company issued an aggregate of 144,000 shares of
Common Stock to its Directors and certain employees of the Company as part of
their compensation for services rendered.
In July 1997, the Company's Board of Directors adopted a Restricted Stock
Plan (the 'Plan') for the benefit of certain key employees. An aggregate of
241,667 shares of Common Stock were reserved for issuance under the Plan. The
Plan is administered by the Company's Compensation Committee. On July 31, 1997,
an aggregate of 241,667 restricted shares were issued to two employees, subject
to certain vesting requirements over a three year period. An aggregate of
175,000 shares will vest over a three year period based on certain performance
goals set forth in the Plan. An aggregate of 66,667 shares will vest over a two
year period based on continued employment with the Company by the holder. If the
vesting requirements are not met, the restricted shares theretofore issued will
be forfeited and thereafter be subject to reallocation under the plan. Prior to
vesting, the holders will receive all of the benefits of ownership of the
restricted shares, including voting rights, but will not have the right to
transfer such unvested shares. Effective January 21, 1998, an aggregate of
58,333 had met the Plan vesting requirements and were released and reissued to
two employees.
On July 15, 1997, the Company issued 25,000 shares of Common Stock to an
employee of the Company as part of his employment compensation. In July 1997, an
aggregate of 452,100 shares of Common Stock were issued to the Company's
Directors and the Executive Vice President of the Company upon the exercise of
Stock Options previously granted under the Company's stock option plans. The
Company received aggregate cash proceeds of $45,210.
(b) Redeemable Preferred Stock--$1.10 Cumulative Convertible Series
The authorized preferred stock of the Company consists of 5,000,000 shares,
$1.00 par value per share. The preferred stock is issuable in series, each of
which may vary, as determined by the Board of Directors, as to the designation
and number of shares in such series, the voting power of the holders thereof,
the dividend rate, redemption terms and prices, the voluntary and involuntary
liquidation preferences, and the conversion rights and sinking fund
requirements, if any, of such series.
At December 31, 1997 and 1996, the Company had issued and outstanding
300,121 shares of $1.10 cumulative convertible redeemable preferred stock
('Preferred Stock'). The holders of Preferred Stock are entitled to one vote per
share on all matters without regard to class, except that the holders of
Preferred Stock are
F-11
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
entitled to vote as a separate class with regard to the issuance of any equity
securities which ranks senior or on parity with the Preferred Stock, or to
change or repeal any of the express terms of the Preferred Stock in a manner
substantially prejudicial to the holders thereof. Each share of the Preferred
Stock is entitled to cumulative quarterly dividends at the rate of $1.10 per
annum and is convertible into 1.149 shares of common stock. The liquidation
preference of the Preferred Stock is $10.00 per share, plus accrued but unpaid
dividends. The Preferred Stock is callable, in whole or in part, by the Company
at its option at any time upon 30 days prior notice, at $11.00 per share, plus
accrued and unpaid dividends.
The Company has omitted dividends on its Preferred Stock since the fourth
quarter of 1985 aggregating $4,044,000 through December 31, 1997 ($3,714,000
through December 31, 1996). The omission of Preferred Stock dividends is a
reduction of net income applicable to Common Stockholders and is recorded as a
non-current liability in the accompanying consolidated balance sheets.
The Preferred Stock is subject to redemption through a mandatory sinking
fund at a redemption price of $10.00 per share, at the rate of approximately
66,000 preferred shares a year, starting in 1986, less any preferred shares
converted into common stock. Through December 31, 1997, an aggregate of 359,879
shares of Preferred Stock were converted into 1,199,557 shares of Common Stock.
As a result of these conversions, the Company was required to redeem 36,121
shares in 1991 and 66,000 shares for each year thereafter through 1995, at which
time the Preferred Stock was intended to be fully retired. The Preferred Stock
has not been included in common stock and other stockholders' deficit because of
its mandatory redemption feature.
The Company did not redeem any shares of the Preferred Stock as required on
April 1, 1991, or any year thereafter. Under the provisions of the sinking fund
requirements, if an annual sinking fund requirement is not met, it is added to
the requirements for the next year.
The Company is prohibited from paying any cash dividends on Common Stock
and from purchasing or otherwise acquiring for value, any shares of either
preferred or common stock, at any time that the Company is in default in the
payment of any dividends on the Preferred Stock or if the sinking fund
requirements are in arrears.
(c) Warrants
At December 31, 1997, the Company had the following outstanding series of
warrants:
(i) 1,316,999 warrants issued in the Company's public offering in
1983. Each warrant entitles the holder to purchase one share of Common
Stock at $4.80 per share. During February, 1997, the Company's Board of
Directors authorized an extension of the expiration date of these warrants
from March 31, 1997 to March 31, 1998. In March 1998, the Board of
Directors extended the expiration date of the warrants to April 30, 1998.
The warrants are not registered nor are they exercisable until a
registration statement covering the underlying Common Stock is declared
effective by the Securities and Exchange Commission.
(ii) 200,000 warrants issued in connection with financing arrangements
in 1988. Each warrant entitles the holder to purchase one share of Common
Stock at $.10 per share. The expiration date was extended to June 29, 2000
from June 28, 1997 on June 20, 1997. Two directors acquired 150,000 and
50,000 warrants, respectively, in connection with a $400,000 financing in
1988. The loan has since been repaid by the Company.
(d) Stock Options
The Company's 1979 Non-Qualified Stock Option Plan (the '1979 Plan')
expired in 1989 and no additional options may be granted thereunder. At December
31, 1997, 2,500 shares of common stock were reserved for issuance upon exercise
of outstanding stock options originally granted under the 1979 Plan.
The Company's 1984 Stock Option Plan (the '1984 Plan') expired in 1994 and
no additional options may be granted thereunder. At December 31, 1997, options
for 21,500 shares of common stock were outstanding under the 1984 Plan.
F-12
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
Option activity under these plans is summarized as follows:
<TABLE>
<CAPTION>
FAIR MARKET VALUE
AT DATE OF GRANT
NUMBER OF PRICE --------------------
SHARES PER SHARE TOTAL PER SHARE TOTAL
--------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Outstanding and exercisable
at December 31, 1994..... 505,500 $ .10 $50,000 $.02-.20 $50,000
--------- --------- ------- --------- -------
--------- --------- ------- --------- -------
Granted during 1995........ -- -- -- -- --
Exercised during 1995...... -- -- -- -- --
Terminated during 1995..... -- -- -- -- --
--------- --------- ------- --------- -------
--------- --------- ------- --------- -------
Outstanding and exercisable
at December 31, 1995..... 505,500 $ .10 $50,000 $.02-.20 $50,000
--------- --------- ------- --------- -------
--------- --------- ------- --------- -------
Granted during 1996........ -- -- -- -- --
Exercised during 1996...... -- -- -- -- --
Terminated during 1996..... -- -- -- -- --
--------- --------- ------- --------- -------
--------- --------- ------- --------- -------
Outstanding and exercisable
at December 31, 1996..... 505,500 $ .10 $50,000 $.02-.20 $50,000
--------- --------- ------- --------- -------
--------- --------- ------- --------- -------
Granted during 1997........ -- -- -- -- --
Exercised during 1997...... (477,500) .10 48,000 -- 48,000
Terminated during 1997..... (4,000) $ .10 -- -- --
--------- --------- ------- --------- -------
--------- --------- ------- --------- -------
Outstanding and exercisable
at December 31, 1997..... 24,000 $ .10 $ 2,000 $.02-.20 $ 2,000
--------- --------- ------- --------- -------
--------- --------- ------- --------- -------
</TABLE>
The following options to purchase the Company's common stock, all of which
are vested, were outstanding under the Plans on December 31, 1997:
<TABLE>
<CAPTION>
YEAR OF GRANT NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
------------- ---------------- -------------- ---------------
<S> <C> <C> <C>
1989 5,000 .10* 7/29/99**
1994 19,000 .10 3/27/99
-------
24,000
-------
-------
</TABLE>
- ------------------
* In 1993, the exercise price per share was reduced from $.20 per share to
$.10.
** In 1994, the expiration date was extended from 7/29/94 to 7/29/99.
9. OTHER INCOME (EXPENSE)
A summary of miscellaneous income (expense) for the years ended December
31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Interest income..................... $10,000 $ 5,000 $4,000
(Loss) gain on disposal of property,
plant and equipment............... (1,000) (4,000) 3,000
Other, net.......................... 45,000 42,000 --
------- ------- ------
$54,000 $43,000 $7,000
------- ------- ------
------- ------- ------
</TABLE>
F-13
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EARNINGS (LOSS) PER COMMON SHARE
Below is a reconciliation between basic and diluted earnings (loss) per
common share under FAS 128 for the years ended December 31, 1997, 1996 and 1995
(in thousands except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- ---------------------------
PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income......... $1,645 $ 274 $ 122
Less dividends on
redeemable
preferred
stock......... (330) (330) (330)
------ ------ --------- ------ ------ --------- ------ ------ ---------
Basic earnings
(loss) per
common share..... $1,315 6,009 $ .22 $ (56) 5,471 $ (0.01) $ (208) 5,382 $ (0.04)
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
Effect of dilutive
securities:
Stock options.... 24
Warrants......... 200
------ ------ --------- ------ ------ --------- ------ ------ ---------
Diluted earnings
(loss) per
common share..... $1,315 6,267 $ .21 $ (56) 5,471 $ (0.01) $ (208) 5,382 $ (0.04)
------ ------ --------- ------ ------ --------- ------ ------ ---------
------ ------ --------- ------ ------ --------- ------ ------ ---------
</TABLE>
11. RELATED PARTY TRANSACTIONS
The Company and its subsidiaries paid legal fees of approximately $37,000,
$29,000 and $35,000 in 1997, 1996 and 1995, respectively, to law firms with
which the Chairman of the Board was affiliated.
12. COMMITMENTS AND CONTINGENCIES
(a) In April 1996, the Company and Premix were dismissed as a defendant, to
which it had been a party with other unaffiliated companies, in the remaining 27
asbestos lawsuits pending in various circuit courts in Alabama and Florida. Such
lawsuits sought unspecified damages alleging injuries to persons exposed to
products containing asbestos. As of March 2, 1998, the Company is not a
defendant in any lawsuits which allege injuries due to asbestos exposure.
The Company and Premix are parties to an Interim Agreement for Defense and
Indemnity of Asbestos Bodily Injury Cases (the 'Agreement') with certain of its
insurance carriers under which each party agreed to pay a negotiated percentage
share of defense costs a nd indemnification expenditures, subject to policy
limits, for the pending and future asbestos claims. The Agreement has been
extended until May 15, 1999, and is subject to cancellation upon sixty days
notice by any party.
The insurance carriers have agreed to pay, in the aggregate, approximately
93% of the damages, costs and expenditures related to the litigation. Premix is
responsible for the remaining 7%.
The Company believes, based upon the Agreement with its insurance carriers,
and its experience in these claims to date, it has adequate insurance coverage
for any future similar type of claims. To date, no case went to trial with
Premix as a defendant. Premix has either settled for a nominal amount of money
or been voluntarily dismissed without payment from approximately 193 cases.
Based upon historical results, the Company does not believe any potential future
claims would be material. However, there can be no assurance that insurance will
ultimately cover the aggregate liability for damages to which Premix may be
exposed. Premix is unable, at this time, to determine the exact extent of its
exposure or outcome of the litigation of any other similar cases that may arise
in the future.
F-14
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Acrocrete was a co-defendant in a lawsuit captioned 'Stephen P. Zabow, II
and Karen I. Zabow, et al. vs. M/I Schottenstein Homes, Inc., Heiner
Construction Company and Acrocrete, Inc.', filed October 2, 1996 in Wake County,
North Carolina. The lawsuit involved claims by owners of eight homes in Cary,
North Carolina, against the general contractor, a subcontractor, and Acrocrete.
The claims related to the use of synthetic stucco in the construction of such
homes which was allegedly manufactured by Acrocrete. The lawsuit alleged
negligent misrepresentation, breach of warranty, unfair and deceptive trade
practices, fraud and negligence due to defective material, and requests punitive
damages. The plaintiffs alleged that Acrocrete knew of inherent defects
prevalent in synthetic stucco wall systems that permitted water intrusion to
cause moisture damage to the interior and wood framing of the houses. In October
1997, the Plaintiffs voluntarily dismissed Acrocrete with prejudice as a result
of the Plaintiff settlement with the general contractor defendant.
On October 17, 1997, Acrocrete was named a co-defendant in a lawsuit
captioned 'M/I Schottenstein Homes, Inc. vs. Acrocrete, Inc., et al filed in
Wake County, North Carolina. The lawsuit involves claims by owners of 52 homes
constructed by M/I Schottenstein Homes, Inc., the general contractor, that the
use of synthetic stucco in the system of construction of the exterior finish of
their homes, allegedly manufactured by Acrocrete, caused moisture intrusion
damages. Eight of the homeowners were the parties to the previously described
lawsuit filed against Acrocrete. As part of its settlement with the homeowner,
M/I Homes received an assignment of any claims which the homeowners may have
against any other contractors, subcontractors, material men, or suppliers which
might be responsible for any damages pertaining to the alleged defects. The
lawsuit against Acrocrete and the other parties alleges negligent
misrepresentation, breach of warranty, fraud, unfair and deceptive trade
practices and requests punitive damages.
Acrocrete believes it has meritorious defenses against the claim as well as
a counter claim against the general contractor and installer of the product. The
Company's insurance carriers has accepted coverage and is providing defense
under a reservation of rights. Acrocrete is unable, at this time, to determine
the exact extent of its exposure or outcome of the litigation of this lawsuit.
In addition, Acrocrete has been named in seven similar lawsuits filed
against Acrocrete and other parties, (contractors and subcontractors), by
homeowners, or their insurance companies, claiming moisture intrusion damages on
single family residences.
Acrocrete is vigorously defending all of these cases and believes it has
meritorious defenses, counter-claims and claims against third parties. The
Company's insurance carriers have accepted coverage for five of the above claims
and are providing defense under a reservation of rights. The Company expects its
insurance carriers to accept coverage for the other two remaining claims.
Acrocrete is unable to determine the exact extent of its exposure or outcome of
litigation of these lawsuits.
Premix and Acrocrete are engaged in other legal actions and claims arising
in the ordinary course of its business, none of which are believed to be
material to the Company.
(b) The Company pays aggregate monthly rent of approximately $9,300 for
three of its operating facilities. The leases expire at various dates ranging
from April 30, 1998 to April 30, 2000. Comparable properties at equivalent
rentals are available for replacement of these facilities if such leases are not
extended.
In addition, the Company leases one automobile under an agreement which
provides for a minimum monthly payment of $600 through June, 1998. The Company
is subject to an operating lease agreement for certain computer equipment which
provides for monthly rental payments of $1,000 through February, 1998.
Rental expenses incurred for operating leases were approximately $128,000,
$129,000 and $122,000, for the years ended December 31, 1997, 1996 and 1995,
respectively.
(c) Howard L. Ehler, Jr., ('the Executive'), is employed by the Company
pursuant to a one year renewable agreement (the 'Employment Agreement'). Mr.
Ehler serves as Executive Vice President, Principal Executive
F-15
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Officer and Chief Financial Officer of the Company at a current annual base
salary of $120,000. The Employment Agreement provides for automatic renewal for
additional one year periods as of July 1, of each year, unless the Company or
the Executive notifies the other party of an intent not to renew at least 90
days prior to expiration of the existing term. The executive receives a car
allowance, as well as certain other benefits, such as health and disability
insurance. The Executive is also entitled to receive incentive compensation
based upon targets formulated by the Company's Compensation Committee.
Prior to a change in control, the Company has the right to terminate the
Employment Agreement without cause at any time upon thirty days written notice,
provided the Company pays to the Executive a severance payment equivalent to 50%
of his then current annual base salary. As part of the Employment Agreement, the
Executive has agreed not to disclose confidential information and not to compete
with the Company during his term of employment and, in certain cases, for a two
(2) year period following his termination.
In the event of a 'Change in Control' (as defined in the Employment
Agreement), the Employment Agreement is automatically extended to a three year
period. Thereafter, the Executive will be entitle to terminate his employment
with the Company for any reason at any time. In the event the Executive
terminates his employment after a Change of Control, the Executive will be
entitled to receive the lesser of (i) a lump sum amount equal to the base salary
payments and all other compensation and benefits the Executive would have
received had the Employment Agreement continued for the full term; or (ii) three
times Executive's base salary then in effect on the effective date of
termination. The Executive would also be entitled to such severance in the event
the Company terminates the Executive without cause after a Change of Control.
In addition, Mr. Ehler was issued 75,000 shares of Common Stock of the
Company on July 31, 1997 pursuant to the terms of the Company's Restricted Stock
Plan. See 'Note (8)(a) Common Stock'.
(d) During the third quarter of 1996, the Company entered into an
employment arrangement with Fred H. Hansen to serve as President of the
Company's subsidiaries, Premix and Acrocrete. Mr. Hansen presently receives an
annual base salary of $150,000 and a bonus based upon earnings performance of
the Subsidiaries. Under this arrangement, Mr. Hansen received 33,333 shares of
Common Stock in February 1997. In addition, Mr. Hansen was issued 166,667 shares
of Common Stock on July 31, 1997 pursuant to the terms of the Company's
Restricted Stock Plan. See 'Note (8)(a) Common Stock'. Also Mr. Hansen received
a moving allowance of $15,000 and is entitled to the use of a Company auto, or a
car allowance of $650 per month during his employment, as well as certain other
benefits, such as health and disability insurance.
13. CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the number of entities comprising the Company's customer base.
However, trade accounts receivable represent amounts due from building materials
dealers located principally in Florida and Georgia who have purchased products
on an unsecured open account basis. At December 31, 1997, accounts aggregating
$53,000, or approximately 3% of total gross trade accounts receivable were
deemed to be ineligible for borrowing purposes under the Company's borrowing
agreement with its commercial lender. The allowance for doubtful accounts at
December 31, 1997 of $176,000 is considered sufficient to absorb any losses
which may arise from uncollectible accounts receivable.
The Company places its cash with high quality commercial banks, however, at
December 31, 1997, the Company has cash balances with banks in excess of Federal
Deposit Insurance Corporation insured limits. Management believes the credit
risk related to these deposits is minimal.
F-16
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUBSEQUENT EVENT
Effective as of February 1, 1998, Acrocrete acquired the property, plant,
equipment and inventory of a wholesale distribution facility, engaged in the
sale of landscape stone and building materials. The closing for this transaction
occurred on March 2, 1998 for a total purchase price of approximately $400,000.
On March 6, 1998, the Company entered into an agreement with an investment
banker to provide advisory services to the Company in connection with the
development of a plan to satisfy the Company's Redeemable Preferred Stock
dividend arrearage and mandatory sinking fund requirements. The investment
banker received cash consideration of $25,000 and is entitled to receive
additional consideration based upon the success of the plan
15. INTERIM FINANCIAL DATA--SUBSEQUENT EVENTS (UNAUDITED)
(a) Capital Stock
In April 1998, an aggregate of 24,000 shares of Common Stock were issued to
employees of the Company upon the exercise of stock options previously granted
under the Company's stock option plans. The exercise price of all such options
was $.10 per share. All options outstanding under the Company's stock option
plans have been exercised. No additional options may be granted under any of the
Company's stock option plans.
In May 1998, the Company issued from treasury an aggregate of 100,000
shares of Common Stock to its Directors as part of their compensation for
services rendered.
The term, as extended, of 1,316,999 warrants issued in the Company's 1983
public offering expired on April 30, 1998.
(b) Commitments and Contingencies
In the first quarter of 1998, the Company entered into a contract for the
sale of its Miami facility providing for a closing September 30, 1998, subject
to certain contingencies. The buyer has deposited $100,000 in escrow.
In April 1998, the Company entered into a lease agreement for approximately
20,400 square feet of warehouse and office space in a building to be constructed
in Kennesaw, Georgia. The lease, scheduled to commence upon the Company's
occupancy on October 1,, 1998 and expire on September 30, 2005, provides for
initial monthly rental payments of $6,715, with escalations in monthly rent on
each annual anniversary date of the lease. The lease contains a renewal option
for five years. The Company terminated the lease at its Atlanta, Georgia
facility effective October 31, 1998.
In June 1998, the Company entered into a lease agreement for a 19,600
square foot facility in Pompano Beach, Florida. The term of the lease will
commence September 1, 1998 and expire on August 31, 2008. The lease provides for
minimum monthly rental payments of $7,350, with cost of living increases on each
anniversary date of the lease.
Management has undertaken a company wide program to prepare the Company's
computer systems and other applications for the year 2000. Possible year 2000
problems create a risk for a company in that unforeseen problems in its own
computer systems or those of its third party suppliers could have a material
impact on a company's ability to conduct its business operations. The purpose of
the Company's program is to identify significant year 2000 exposures and to
update its computer systems and business operations to deal with those
exposures. Any internal staff costs as well as consulting and other expenses to
prepare the systems for the year 2000 are not expected to be material to the
Company's operating results. The Company believes the software used in its
internal operations is 2000 year compliant.
F-17
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ('Merger Agreement'), dated as of August
6, 1998, among IMPERIAL INDUSTRIES, INC., a Delaware corporation ('Imperial'),
and IMPERIAL MERGER CORP., a newly-formed Delaware corporation and a
wholly-owned subsidiary of Imperial ('Merger Sub').
RECITALS
WHEREAS, the parties wish to provide for the merger (the 'Merger') of
Imperial with and into Merger Sub, whereby it is contemplated that (i) each
issued and outstanding share of Imperial's common stock, $.10 par value
('Imperial Common'), will be converted, without any action by the holder
thereof, into one share of common stock, $.01 par value ('Sub Common'), of
Merger Sub and (ii) each issued and outstanding share of Imperial's $1.10
cumulative convertible redeemable preferred stock ('Preferred Stock') will be
converted, at the option of the holder thereof, into either (A) $4.50 in cash
and eight shares of Sub Common or (B) $2.00 in cash, an $8.00 principal amount
three year 8% subordinated debenture (each, a 'Debenture') of Merger Sub and
three shares of Sub Common, in accordance with the terms set forth in this
Merger Agreement; and
WHEREAS, the parties hereto desire to set forth certain covenants and
agreements made by Imperial to Merger Sub, and by Merger Sub to Imperial, and
the conditions precedent to the consummation of the Merger; and
WHEREAS, the Boards of Directors of Imperial and Merger Sub have approved
and adopted this Merger Agreement and the Merger as a plan of reorganization
under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the 'Code');
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants herein contained, Imperial and Merger Sub
hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 At the Effective Time (as hereinafter defined) of the Merger, Imperial
shall be merged with and into Merger Sub, which shall be the surviving
corporation (hereinafter sometimes called the 'Surviving Corporation').
1.2 All shares of Merger Sub capital stock, if any, that are owned
directly or indirectly by Imperial shall be canceled without any action on the
part of the holder of such shares, and no stock of Merger Sub or other
consideration shall be delivered in exchange therefor.
1.3 Shares of Imperial Common and Preferred Stock (collectively, 'Imperial
Capital Stock') issued and outstanding immediately prior to the Effective Time
shall be converted at the Effective Time as follows:
(a) Each share of Imperial Common shall by virtue of the Merger and
without any action by the holder thereof, be converted into one share of
Sub Common;
(b) Each share of Preferred Stock shall be converted into the right to
receive, at the option of the holder thereof and subject to the terms
below, either (A) $4.50 in cash and eight shares of Sub Common or (B) $2.00
in cash, a Debenture and three shares of Sub Common (collectively, the
'Merger Consideration').
i. Certificates representing shares of Preferred Stock surrendered
to Merger Sub within 60 days after the Effective Time by holders thereof
who do not select a desired form of Merger Consideration will be
converted into $4.50 in cash and eight shares of Sub Common (the
'Default Merger Consideration').
ii. All shares of Preferred Stock not surrendered, or not properly
submitted, to Merger Sub within 60 days after the Effective Time, other
than shares as to which dissenters' rights of appraisal have been
properly asserted, will evidence the right to receive only the Default
Merger Consideration.
A-1
<PAGE>
1.4 At the Effective Time, Merger Sub shall make available to an exchange
agent selected by Merger Sub and reasonably acceptable to Imperial (the
'Exchange Agent'), for the benefit of those persons who immediately prior to the
Effective Time were the holders of Preferred Stock, sufficient cash and a
sufficient number of certificates representing Debentures and shares of Sub
Common required to effect the delivery of the aggregate Merger Consideration
required to be issued pursuant to Section 1.3 (such aggregate Merger
Consideration being hereinafter referred to as the 'Exchange Fund'). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger
Consideration contemplated to be issued pursuant to Section 1.3. The Exchange
Fund shall not be used for any other purpose.
(a) As soon as practicable after the Effective Time, the Exchange Agent
shall send a notice and transmittal form to each holder of record of the
Preferred Stock immediately prior to the Effective Time advising such holder of
the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent (who may appoint forwarding agents with the approval of Merger
Sub) the certificate or certificates to be exchanged pursuant to the Merger (the
'Certificates'). Upon the surrender for exchange of Certificates, together with
such letter of transmittal duly completed and properly executed in accordance
with instructions thereto and such other documents as may be required pursuant
to such instructions, the holder shall be paid promptly, without interest
thereon and subject to any required withholding of taxes, the Merger
Consideration to which such holder is entitled hereunder, and such Certificates
shall forthwith be canceled. Until so surrendered and exchanged, the
Certificates shall represent solely the right to receive the Merger
Consideration pursuant to Section 1.3, subject to any required withholding of
taxes. If any payment for the Preferred Stock is to be made to a person other
than the person in whose name the Certificates for such shares surrendered are
registered, it shall be a condition of the exchange that the person requesting
such exchange shall pay to the Exchange Agent any transfer or other taxes
required by reason of the delivery of such payment to a person other than the
registered owner of the Certificates surrendered or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(b) In the event any Certificates shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Merger Sub,
the posting by such person of a bond in such amount, form and with such surety
as Merger Sub may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the amount of Merger
Consideration deliverable (and unpaid dividends and distributions) in respect
thereof pursuant to this Agreement.
(c) Subject to the agreement of the Exchange Agent, among other things: (i)
the Exchange Agent shall maintain the Exchange Fund as a separate fund to be
held for the benefit of holders of the Preferred Stock, which shall be promptly
applied by the Exchange Agent to making payments provided for in Sections 1.3
and 1.4; (ii) any portion of the Exchange Fund that has not been paid to holders
of the Preferred Stock pursuant to Sections 1.3 and 1.4 prior to that date which
is six months from the Effective Time shall be paid to Merger Sub, and any
holders of Preferred Stock who shall not have theretofore complied with Section
1.4 shall thereafter look only to Merger Sub for payment of the Merger
consideration to which they are entitled under this Agreement; (iii) the
Exchange Fund shall not be used for any purpose that is not provided for herein;
and (iv) all expenses of the Exchange Agent shall be paid directly by Merger
Sub. Promptly following the date which is six months from the Effective Time,
the Exchange Agent shall return to Merger Sub the cash, securities and any other
instruments in its possession relating to the transactions described in this
Agreement, and the Exchange Agent's duties shall terminate. Thereafter, each
holder of Certificates formerly representing Preferred Stock may surrender such
Certificates to Merger Sub and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the Merger Consideration
payable with respect thereto pursuant to Sections 1.3 and 1.4 hereof, without
interest, but shall have no greater rights against Merger Sub than may be
accorded to general creditors of Merger Sub under the General Corporation Law of
the State of Delaware (the 'DGCL'). The Exchange Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the Sub Common held by
it from time to time hereunder
(d) No dividends or other distributions with respect to Sub Common with a
record date after the Effective Time shall be paid to the holders of any
unsurrendered Certificates with respect to the Sub Common represented thereby
until the surrender of such Certificates in accordance with this Section 1.4.
Subject to the effect of applicable laws, following surrender of any such
Certificates, there shall be paid to the holder of the Certificates
A-2
<PAGE>
representing whole shares of Sub Common issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such shares of sub Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such shares of Sub Common.
1.5 If any holders of Imperial Capital Stock elect to exercise rights of
appraisal under Section 262 of the DGCL, Imperial shall give Merger Sub notice
thereof and Merger Sub shall have the right to participate in all negotiations
and proceedings with respect to any such exercise. If any dissenting holder of
Imperial Capital Stock shall fail to perfect or shall have effectively withdrawn
or lost any right to appraisal that such holder may have, the shares of Imperial
Capital Stock held by such holder shall be thereupon treated as though such
shares of Imperial Capital Stock had been converted into cash and/or securities
of Merger Sub pursuant to Section 1.3 hereof.
1.6 At the Effective Time, each outstanding stock option, convertible
debenture, warrant or any other right to acquire shares of Imperial Common (but
not including any such rights existing prior to the Effective Time incident to
the Preferred Stock) outstanding immediately prior to the Effective Time shall
be converted into a stock option, convertible debenture, warrant or other right
to acquire the shares of Sub Common, giving the holder the same rights with
respect to the same number of shares of Sub Common that the holder had with
respect to Imperial Common under such outstanding stock option, convertible
debenture, security, warrant or other right.
1.7 At the Effective Time, each outstanding share of Imperial Common held
as treasury stock by Imperial shall automatically, and without any action by
Imperial or Merger Sub, be converted into one share of Sub Common.
1.8 Each outstanding certificate which immediately prior to the Effective
Time represented shares of Imperial Common or warrants to purchase Imperial
Stock shall be deemed for all purposes to evidence ownership of an equal number
of shares of Sub Common or warrants to purchase Sub Common, respectively. No
exchange of such certificates will be required in order to evidence such
ownership.
1.9 All Merger Consideration delivered upon the surrender for exchange of
shares of Preferred Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such shares
of Preferred Stock. There shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Preferred
Stock which were outstanding immediately prior to the Effective Time of the
Merger. If, after the Effective Time of the Merger, certificates formerly
representing Preferred Stock are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article 1.
1.10 Unless otherwise provided for by the parties to this Merger
Agreement, upon and after the Effective Time of the Merger, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises, and
be subject to all the restrictions, disabilities and duties, of Imperial; and
all rights, privileges, powers and franchises of Imperial, and all property,
real, personal and mixed, and all debts due to Imperial shall be vested in and
be the property of the Surviving Corporation; and all debts, liabilities and
duties of Imperial shall thenceforth attach to the Surviving Corporation and may
be enforced against it to the same extent as if such debts, liabilities and
duties had been incurred or contracted by it.
ARTICLE 2
EFFECTIVE TIME
2.1 Subsequent to the execution of this Merger Agreement, Imperial shall
submit this Merger Agreement to its stockholders for their approval pursuant to
the applicable provisions of the DGCL.
2.2 Following the approval of the Merger by the stockholders of Imperial
and upon fulfillment or waiver of the conditions specified in Section 5.1
hereof, and provided that this Merger Agreement has not been terminated and
abandoned pursuant to Section 5.2 hereof, the parties will cause a Certificate
of Merger to be executed, acknowledged and filed with the Secretary of State of
the State of Delaware as provided in Section 251 of the DGCL and a copy of the
Certificate of Merger, certified by the Secretary of State of the State of
Delaware,
A-3
<PAGE>
to be recorded thereafter in the Office of the Recorder of New Castle County in
the State of Delaware, all in accordance with the provisions of Section 103 of
the DGCL.
2.3 The Merger shall become effective on the date and time specified in
the Certificate of Merger filed with the Secretary of State of the State of
Delaware (the date and time so specified in such filing being herein sometimes
referred to as the 'Effective Time').
ARTICLE 3
COVENANTS AND AGREEMENTS
3.1 Imperial shall: (i) present this Merger Agreement for adoption or
rejection by vote of the stockholders of Imperial at a Special Meeting (the
'Meeting') of Stockholders of Imperial; (ii) furnish to such holders such
documents and information in connection therewith as is required by law; (iii)
recommend approval of this Merger Agreement by such holders; and (iv) as sole
stockholder of Merger Sub, vote all shares of Sub Common owned by it to approve
this Merger Agreement.
3.2 Merger Sub shall not, prior to the Effective Time, without obtaining
the written consent of Imperial, permit any change in the Certificate of
Incorporation of Merger Sub or its capital stock.
3.3 Merger Sub as the Surviving Corporation shall be liable for all the
obligations of Imperial outstanding as of the Effective Time and hereby
expressly assumes all such obligations as of the Effective Time.
3.4 At the Effective Time, the Certificate of Incorporation of Merger Sub
shall be amended to change the name of Merger Sub to 'Imperial Industries, Inc.'
ARTICLE 4
CERTIFICATE OF INCORPORATION, BYLAWS
AND BOARD OF DIRECTORS OF SURVIVING CORPORATION
4.1 The Certificate of Incorporation of Merger Sub as constituted at the
Effective Time shall thereafter be the Certificate of Incorporation of the
Surviving Corporation, until it shall be amended as provided by law; provided,
however, that Article First of the Certificate of Incorporation of Merger Sub,
at the Effective Time and upon the filing of the Certificate of Merger, shall be
amended to read as follows:
'First: The name of the corporation is Imperial Industries, Inc.'
4.2 The Bylaws of Merger Sub as constituted at the Effective Time shall
thereafter be the Bylaws of the Surviving Corporation, until they shall be
amended.
4.3 From and after the Effective Time the members of the Board of
Directors of the Surviving Corporation shall consist of those persons serving as
directors of Imperial immediately prior to the Effective Time, to hold office
until the expiration of their current terms and the election and due
qualification of their successors, or their prior resignation, removal or death.
4.5 From and after the Effective Time the officers of the Surviving
Corporation shall consist of those persons serving as officers of Imperial
immediately prior to the Effective Time, and in their respective positions, to
hold office until their successors are duly selected and qualified, or their
prior resignation, removal or death.
ARTICLE 5
CONDITIONS, AMENDMENTS, TERMINATION AND MISCELLANEOUS
5.1 The respective obligations of Merger Sub and Imperial to consummate
the Merger contemplated by this Merger Agreement are subject to the following
conditions, any and all of which (other than the conditions set forth in Section
5.1(a) and (e)), may be waived by Merger Sub and Imperial:
(a) The Registration Statement on Form S-4 (File No. 333- ) (the
'Registration Statement') relating to the Meeting, the Merger and the Sub
Common and Merger Consideration to be issued in connection therewith shall
have been declared effective by the Securities and Exchange Commission, and
no stop order shall be in effect with respect thereto;
A-4
<PAGE>
(b) All other third-party consents which are required in order to
consummate the Merger and to effectuate the transactions incidental or
related thereto shall have been obtained;
(c) Imperial shall have received an opinion of Rosen & Reade, LLP, tax
counsel to Imperial, in form and substance satisfactory to Imperial, with
respect to the tax consequences of the Merger;
(d) Imperial shall have received an opinion of Auerbach, Pollak &
Richardson, Inc., financial advisor to Imperial, in form and substance
satisfactory to Imperial, to the effect that the terms of the Merger are
fair to the stockholders of Imperial from a financial point of view; and
(e) The stockholders of Imperial shall have adopted and approved this
Merger Agreement.
5.2 This Merger Agreement may be terminated and the Merger may be
terminated and abandoned for any reason by resolution adopted by either of the
respective Boards of Directors of Merger Sub and Imperial at any time prior to
the Effective Time, even though this Merger Agreement shall have been approved
by the stockholders of either or both of Merger Sub and Imperial.
5.3 Each party hereto agrees that it will execute and deliver or cause to
be executed and delivered all such further assignments, assurances or other
instruments, and shall take or cause to be taken all such further actions as may
be necessary or desirable to consummate the Merger provided for herein and the
other transactions contemplated by this Merger Agreement.
5.4 This Merger Agreement shall be construed under and in accordance with
the laws of the State of Delaware.
5.5 This Merger Agreement of shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto.
5.6 This Merger Agreement may be executed in separate counterparts, each
of which, when so executed, shall be deemed to be an original, and all such
counterparts when taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, Imperial and Merger Sub have caused this Agreement to
be duly signed all as of the date first written.
IMPERIAL INDUSTRIES, INC.
By: /s/ HOWARD L. EHLER, JR.
---------------------------------
Howard L. Ehler, Jr.
Executive Vice President
IMPERIAL MERGER CORP.
By: /s/ BETTY J. MURCHISON
---------------------------------
Betty J. Murchison
Assistant Vice President
A-5
<PAGE>
APPENDIX B
August 6, 1998
Board of Directors
Imperial Industries, Inc.
3009 NW 75th Avenue
Miami, FL 33122
Ladies and Gentlemen:
Imperial Industries, Inc. (the 'Company'), a Delaware corporation, and
Imperial Merger Corp. ('Merger Sub'), a Delaware corporation and wholly-owned
subsidiary of the Company, have entered into an agreement (the 'Agreement')
providing for the merger (the 'Merger') of the Company with and into Merger Sub,
whereby Merger Sub will be the surviving entity. The proposed consideration (the
'Proposed Consideration') is comprised of (i) the conversion of each issued and
outstanding share of the Company's common stock ('Imperial Common') into one
share of Merger Sub common stock ('Sub Common') and (ii) the conversion of each
issued and outstanding share of the Company's cumulative convertible redeemable
preferred stock ('Imperial Preferred') into, at the option of the holder
thereof, either (a) $4.50 in cash and eight shares of Sub Common or (b) $2.00 in
cash, an $8.00 principal amount three year 8% subordinated debenture of Merger
Sub and three shares of Sub Common. The Merger is expected to be consummated on
or around December 31, 1998.
You have asked us whether or not, in our opinion, the Proposed
Consideration to be received by the holders of Imperial Common and Imperial
Preferred in the Merger is fair, from a financial point of view, to such
shareholders.
In arriving at the opinion set forth below, we have among other things:
(1) Reviewed the Form S-4 Registration Statement relating to the
Merger and the Merger Consideration;
(2) Reviewed the Merger Agreement;
(3) Reviewed Imperial's most recently available Annual Report on Form
10-K; certain Quarterly Reports on Forms 10-Q of Imperial; Imperial's
Certificate of Designation of Preferred Stock; and certain internal
financial analyses and forecasts prepared by Imperial's management;
(4) Conducted meetings with members of management to discuss the
Company's businesses and business prospects;
(5) Performed a variety of financial and comparative analyses,
including, but not limited to:
(i) Evaluation of certain financial information and ratios of
publicly-traded companies similar to the Company;
(ii) Evaluation of projected discounted cash flows of the Company
and Merger Sub; and
(iii) Evaluation of the projected pro forma results of the Merger;
and
(6) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied upon and assumed without
independent verification the accuracy and completeness of all publicly available
financial information and all financial information furnished or otherwise
communicated to us by the Company. We have not made any appraisal of the assets
of the Company or Merger Sub, nor have we expressed any opinion as to what the
value of the Merger Consideration actually will be when issued pursuant to the
Merger or the price at any time at which the Sub Common will trade. Our opinion
does not address the underlying business decision to enter into the Merger.
B-1
<PAGE>
Auerbach, Pollak & Richardson, Inc., is acting as financial advisor to the
Company in connection with the Merger and will receive a fee for our services,
including a fee for rendering this opinion and additional fees for our other
services as financial advisor. A substantial portion of such fees is contingent
upon the effectiveness of the Merger.
It is understood that this letter may not be disclosed or otherwise
referred to without our prior consent, except as may otherwise be required by
law or by a court of competent jurisdiction; provided, however, that we hereby
consent to the inclusion of this opinion in any registration statement or proxy
statement used in connection with the Merger so long as the opinion is included
in its entirety in such registration statement or proxy statement.
It is our opinion that the price of the Sub Common may be adversely
affected by the immediate dilution and liquidity of the converted Imperial
Preferred and/or market perceptions thereof. This fact notwithstanding, and on
the basis of, and subject to the foregoing, we are of the opinion that the
Proposed Consideration in the Merger is fair to the holders of Imperial Common
and Imperial Preferred, from a financial point of view.
Very truly yours,
AUERBACH, POLLAK & RICHARDSON, INC.
By: /s/ MICHAEL P. CONSIDINE
---------------------------------
Michael P. Considine
Executive Vice President
B-2
<PAGE>
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 Appraisal Rights. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word 'stockholder' means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words 'stock' and 'share' mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words 'depository receipt' mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (l) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
(i) Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
(ii) Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
(iii) Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
(iv) Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all
C-1
<PAGE>
or substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal
C-2
<PAGE>
and to accept the terms offered upon the merger or consolidation. Within 120
days after the effective date of the merger or consolidation, any stockholder
who has complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation surviving the
merger or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
C-3
<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors, officers, employees and agents of the Registrant;
allows the advancement of costs of defending against litigation; and permits
companies incorporated in Delaware to purchase insurance on behalf of directors,
officers, employees and agents against liabilities whether or not in the
circumstances such companies would have the power to indemnify against such
liabilities under the provisions of the statute.
The Registrant's Certificate of Incorporation provides for indemnification
of its officers and directors to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law.
The Registrant's Certificate of Incorporation eliminates any liability of a
director to the registrant or its stockholders for monetary damages for breach
of such director's fiduciary duties to the Registrant, except where a director:
(a) breaches his or her duty of loyalty to the Registrant or its stockholders;
(b) fails to act in good faith or engages in intentional misconduct or knowing
violation of law; (c) authorizes payment of an illegal dividend or a stock
repurchase; or (d) obtains an improper personal benefit. While liability for
monetary damages has been eliminated, equitable remedies such as injunctive
relief or rescission remain available if (i) a director breaches, or fails to
perform, his duties as a director, and (ii) the director's breach of, or failure
to perform, those duties constitute: (A) a violation of criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful; (B) a transaction from
which the director derived an improper personal benefit, either directly or
indirectly; (C) a circumstance under which the liability provisions regarding
unlawful distributions are applicable; (D) in a proceeding by or in the right of
the corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation, or
willful misconduct; or (E) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property.
Bylaws. The Registrant's Bylaws provide that the Registrant shall, to the
fullest extent permitted by law, indemnify all directors of the Registrant, as
well as any officers, agents or employees of the Registrant to whom the
Registrant has agreed to grant indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------
<S> <C>
2 -- Merger Agreement (filed as Appendix A to the Proxy
Statement/Prospectus).
3.1 -- Certificate of Incorporation of Registrant.
3.2 -- Bylaws of Registrant.
4.1 -- Form of Common Stock Purchase Warrant of Registrant to be issued to
Auerbach, Pollak & Richardson, Inc.
4.2 -- Form of Subordinated Debenture of Registrant.
4.3 -- Certificate of Designation, filed February 22, 1983, relating to
the Preferred Stock, $1.10 Cumulative Convertible Series, of the
Imperial Industries, Inc. (the 'Co-Registrant') (incorporated by
reference to Exhibit 4.1 to the Co-Registrant's Registration
Statement on Form S-2, File No. 2-81387 (the 'Form S-2')).
4.4 -- Warrant Agreements, dated as of June 20, 1988, between the
Co-Registrant and each of S. Daniel Ponce and Lisa M. Brock
(incorporated by reference to Exhibit 10.2 to the Co-Registrant's
Current Report on Form 8-K dated June 29, 1988 (the 'June 8-K')).
*5 -- Opinion of Coleman & Rhine LLP.
*8 -- Opinion of Rosen & Reade, LLP.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------
<S> <C>
10.1(i) -- Accounts Financing Agreement, dated as of June 20, 1988 (the
'Financing Agreement'), between Congress Financial Corporation
(Florida) and Premix-Marbletite Manufacturing Co. (incorporated by
reference to Exhibit 10.2 to the June 8-K).
10.1(ii) -- Amendment, dated January 12, 1998, to the Financing Agreement.
10.2 -- Employment Agreement, dated as of July 26, 1993, between the
Co-Registrant and Howard L. Ehler, Jr. (incorporated by reference
to Exhibit 10.12 to the Co-Registrant's current report on Form 8-K
dated July 26, 1993).
10.3 -- Employment Agreement, dated as of July 3, 1996, between the
Co-Registrant and Fred H. Hansen.
10.4 -- Restricted Stock Plan of Co-Registrant.
*10.5 -- Contract for sale of property located at 3009 N.W. 75th Avenue,
Miami, Florida.
*10.6 -- License Agreement between Bermuda Roof Company and
Premix-Marbletite Manufacturing Co.
12 -- Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
*23.1 -- Consent of Coleman & Rhine LLP (included in Exhibit 5).
*23.2 -- Consent of Rosen & Reade, LLP (included in Exhibit 8).
23.3 -- Consent of PricewaterhouseCoopers LLP, independent certified public
accountants.
23.4 -- Consent of Auerbach, Pollak & Richardson, Inc. (included in Exhibit
99.4).
24 -- Power of Attorney (included on signature page).
99.1 -- Form of Proxy for Co-Registrant's Common Stock.
99.2 -- Form of Proxy for Co-Registrant's Preferred Stock, $1.10 Cumulative
Convertible Series.
99.3 -- Form of Letter of Transmittal.
99.4 -- Opinion of Auerbach, Pollak & Richardson, Inc. (filed as Appendix B
to the Proxy Statement/Prospectus).
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4.10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any
II-2
<PAGE>
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY OF MIAMI,
STATE OF FLORIDA, ON AUGUST 31, 1998.
IMPERIAL MERGER CORP.
By: /s/ HOWARD L. EHLER, JR.
---------------------------------
Howard L. Ehler, Jr.
Executive Vice President
Each person whose signature appears below hereby authorizes S. Daniel Ponce
and Howard L. Ehler, Jr., and each of them, with full power of substitution and
full power to act without the others, his true and lawful attorney-in-fact and
agent in his name place, and stead, to execute in the name and on behalf of each
such person, individually and as a director of Imperial Merger Corp., a Delaware
corporation (the 'Company'), and to file, the Registration Statement of the
Company on Form S-4 (the 'Registration Statement'), and any and all amendments
to the Registration Statement, including any and all post-effective amendments.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED BELOW ON THE 31ST DAY OF AUGUST, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------ -----------------------------------------------------
<S> <C>
/s/ S. DANIEL PONCE Chairman of the Board of Directors
- ------------------------
S. Daniel Ponce
/s/ LISA M. BROCK Director
- ------------------------
Lisa M. Brock
/s/ LEONARD C. FERRI Director
- ------------------------
Leonard C. Ferri
/s/ MORTON L. WEINBERGER Director
- ------------------------
Morton L. Weinberger
/s/ HOWARD L. EHLER, JR. Executive Vice President, Secretary, Principal
- ------------------------ Executive Officer and Chief Financial Officer
Howard L. Ehler, Jr.
/s/ BETTY J. MURCHISON Assistant Vice President and Principal Accounting
- ------------------------ Officer
Betty J. Murchison
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- --------- ----------------------------------------------------------- ----------
<S> <C> <C>
2 -- Merger Agreement (filed as Appendix A to the Proxy
Statement/Prospectus).
3.1 -- Certificate of Incorporation of Registrant.
3.2 -- Bylaws of Registrant.
4.1 -- Form of Common Stock Purchase Warrant of Registrant to
be issued to Auerbach, Pollak & Richardson, Inc.
4.2 -- Form of Subordinated Debenture of Registrant.
4.3 -- Certificate of Designation, filed February 22, 1983,
relating to the Preferred Stock, $1.10 Cumulative
Convertible Series, of the Imperial Industries, Inc.
(the 'Co-Registrant') (incorporated by reference to
Exhibit 4.1 to the Co-Registrant's Registration
Statement on Form S-2, File No. 2-81387 (the 'Form
S-2')).
4.4 -- Warrant Agreements, dated as of June 20, 1988, between
the Co-Registrant and each of S. Daniel Ponce and Lisa
M. Brock (incorporated by reference to Exhibit 10.2 to
the Co-Registrant's Current Report on Form 8-K dated
June 29, 1988 (the 'June 8-K')).
*5 -- Opinion of Coleman & Rhine LLP.
*8 -- Opinion of Rosen & Reade, LLP.
10.1(i) -- Accounts Financing Agreement, dated as of June 20, 1988
(the 'Financing Agreement'), between Congress Financial
Corporation (Florida) and Premix-Marbletite
Manufacturing Co. (incorporated by reference to Exhibit
10.2 to the June 8-K).
10.1(ii) -- Amendment, dated January 12, 1998, to the Financing
Agreement.
10.2 -- Employment Agreement, dated as of July 26, 1993, between
the Co-Registrant and Howard L. Ehler, Jr. (incorporated
by reference to Exhibit 10.12 to the Co-Registrant's
current report on Form 8-K dated July 26, 1993).
10.3 -- Employment Agreement, dated as of July 3, 1996, between
the Co-Registrant and Fred H. Hansen.
10.4 -- Restricted Stock Plan of Co-Registrant.
*10.5 -- Contract for sale of property located at 3009 N.W. 75th
Avenue, Miami, Florida.
*10.6 -- License Agreement between Bermuda Roof Company and
Premix-Marbletite Manufacturing Co.
12 -- Statement of Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
*23.1 -- Consent of Coleman & Rhine LLP (included in Exhibit 5).
*23.2 -- Consent of Rosen & Reade, LLP (included in Exhibit 8).
23.3 -- Consent of PricewaterhouseCoopers LLP, independent
certified public accountants.
23.4 -- Consent of Auerbach, Pollak & Richardson, Inc. (included
in Exhibit 99.4).
24 -- Power of Attorney (included on signature page).
99.1 -- Form of Proxy for Co-Registrant's Common Stock.
99.2 -- Form of Proxy for Co-Registrant's Preferred Stock, $1.10
Cumulative Convertible Series.
99.3 -- Form of Letter of Transmittal.
99.4 -- Opinion of Auerbach, Pollak & Richardson, Inc. (filed as
Appendix B to the Proxy Statement/Prospectus).
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE>
CERTIFICATE OF
INCORPORATION
OF
IMPERIAL MERGER CORP.
The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of Delaware, does hereby set forth
as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is IMPERIAL MERGER CORP.
SECOND: The address of the corporation's registered office in the
State of Delaware is 15 East North Street, in the City of Dover, County of
Kent, State of Delaware 19901, and the name of the registered agent of the
corporation in the State of Delaware at such address is United Corporate
Services, Inc.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the corporation, which shall be in addition to the authority
of the corporation to conduct any lawful business, to promote any lawful
purpose, and to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware,
is as follows:
To manufacture, prepare, produce, assemble, lease, purchase
and otherwise acquire, install, process, treat and otherwise work on,
and to hold, use, rent, exchange, distribute, sell and otherwise
dispose of, handle, market, store, import, export, deal and trade in
and with lumber, timber, food, sawdust, pulp, paper, fiber,
plasterboard, masonite, beaver board, gypsum board, cork, formica,
bricks, stone, slate, quartz, silicon, rock, asphalt, stucco,
cinders, mortar, terra cotta, asbestos, fibreglass, concrete,
granite, marble, cement, plaster, petroleum, sand and gravel, tar,
lime, clay, feldspar, gypsum and other minerals, iron, steel, tin,
copper, lead, aluminum and other metals, tile, mirrors, glass,
rubber, synthetics, plastics, porcelain, and products made from or
containing any of the foregoing, foundations and foundation
equipment, supplies and materials, roofs and roofing equipment,
supplies and materials, floors and flooring, frames, shanties, doors,
windows, sashes, closets, elevators, shafts, wells, beams, piles,
blocks, shingles, insulation, fronts, fences, gates, fire-escapes,
<PAGE>
chimneys, storm windows and doors, screens, gutters, drains, wells,
tanks, dies, molds and castings, casters, wire, cable, conduits,
solder, generators, motors, dynamos, meters, transformers, sockets,
plugs, light bulbs, lighting fixtures, bells and other electrical and
electronic equipment, tools, supplies and products, pipes, pipe
fittings, plugs, tubes, tanks, radiators, sinks, toilets, baths,
bathrooms, kitchens and other rooms, boilers, valves, gaskets,
governors, pistons, plungers, and other plumbing equipment, tools,
supplies and products, furnaces, ovens, stoves, heating units, air
conditioners, fans, dehumidifiers, sewage and garbage disposal and
water supply equipment and systems, filters and filtering systems,
blower and exhaust systems, fire extinguishers, sprinklers, fire and
smoke detection and alarm systems, controls of every kind and
description, hot water systems, oil burners and other heating,
cooling, freezing, air conditioning, light and power units, systems,
apparatus, appliances, machinery, tools, equipment and products,
lubricating oil, fuel oil, acetylenes, and other oils, gases, fuels
and lubricants, lathes, planes, hammers, nails, tacks, studs, rivets,
files, screws, drilling machines, drills, bits, saw machines, jack
hammers, power tools, pneumatic tools, suction pumps, compressors,
jacks, road cutting machines, lifts, hoists, cranes, elevators,
conveyor belts and other conveying and loading equipment, crushing
and grinding equipment, welding machines and tools, bulldozers, dump
trucks, steam shovels, steam rollers and other vehicles, sanders,
paving machines, graders, dredgers, cement mixers and other mining,
building and construction tools, machinery and equipment, nuts,
bolts, trowels, spades, shovels, rakes, pulleys, hooks, brackets,
hinges, chains, clamps, washers, braces, plates, and other hardware
of every kind and description, wheel barrows, ladders, scaffolding,
drop cloths, sprayers, applicators, pumps, sand blasters, gauges,
work clothes, surveying, weighing and measuring tools and equipment,
acoustic equipment, lawn mowers, awnings, housewares, furnishings,
and all other materials, machinery, tools, equipment, apparatus,
appliances, articles, merchandise and products which may be used,
dealt in, or handled by carpenters, woodworkers, cabinetmakers,
electricians, plumbers, acoustical contractors, stonecutters,
sandblasters, drilling contractors, riveters, roofers, floorers,
glaziers,
2
<PAGE>
tinsmiths, metal workers, masons, brick-layers, excavators, dredgers,
road builders, pavers, miners, plasterers, paperhangers, architects,
draftsman, surveyors, builders, designers, gardeners, and
contractors.
To promote and exercise all or any part of the foregoing
purposes and powers in any and all parts of the world, and to conduct
its business in all or any of its branches as principal, agent,
broker, factor, contractor, and in any other lawful capacity, either
alone or through or in conjunction with any corporations,
associations, partnerships, firms, trustees, syndicates, individuals,
organizations, and other entities in any part of the world, and, in
conducting its business and promoting any of its purposes, to
maintain offices, branches and agencies in any part of the world, to
make and perform any contracts and to do any acts and things, and to
carry on any business, and to exercise any powers and privileges
suitable, convenient, or proper for the conduct, promotion, and
attainment of any of the business and purposes herein specified or
which at any time may be incidental thereto or may appear conducive
to or expedient for the accomplishment of any of such business and
purposes and which might be engaged in or carried on by a corporation
incorporated or organized under the General Corporation Law of the
State of Delaware, and to have and exercise all of the powers
conferred by the laws of the State of Delaware upon corporations
incorporated or organized under the General Corporation Law of the
State of Delaware.
The foregoing provisions of this Article THIRD shall be construed
both as purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specified purposes and powers shall not be held to
limit or restrict in any manner the purpose and powers of the corporation, and
the purposes and powers herein specified shall, except when otherwise provided
in this Article THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article of
this certificate of incorporation; provided, that the corporation shall not
conduct any business, promote any purpose, or exercise any power or privilege
within or without the State of Delaware which, under the laws thereof, the
corporation may not lawfully conduct, promote or exercise.
3
<PAGE>
FOURTH: The aggregate number of shares of stock which the corporation
shall have authority to issue is Twenty-Five Million (25,000,000) shares,
consisting of (i) Twenty Million (20,000,000) shares with a par value of One
Cent ($.01) per share which are designated as Common Stock; and (ii) Five
Million (5,000,000) shares with a par value of One Cent ($.01) per share which
are designated as Preferred Stock.
1. The designations, preferences, privileges, and powers of
the shares of the Common Stock and of the Preferred Stock and the restrictions
and qualifications thereof shall be the same in all respects as though shares
of one class of stock, except that the Board of Directors is hereby vested
with the authority to provide for the issuance of the Preferred Stock, at any
time and from time to time, in one or more series, each of such series to have
such powers, designations, preferences and relative, participating or optional
or other special rights and such qualifications, limitations or restrictions
thereon as expressly provided in the resolution or resolutions, duly adopted
by the Board of Directors providing for the issuance of such shares. The
authority which is hereby vested in the Board of Directors shall include, but
not be limited to, the authority to provide for the following matters relating
to each series of the Preferred Stock:
(a) the number of shares to constitute such
series, and the designations thereof;
(b) the voting power of holders of shares of such series, if
any, and the Board of Directors may, without limitation, determine
the vote or fraction of vote to which such holder may be entitled,
the events upon the occurrence of which such holder may be entitled
to vote, and the Board of Directors may determine to restrict or
eliminate entirely the right of such holder to vote;
(c) the rate of dividends, if any, and the extent of further
participation in dividend distributions, if any, and whether
dividends shall be cumulative or noncumulative;
(d) whether or not such series shall be redeemable, and if
so, the terms and conditions upon which shares of such series shall
be redeemable;
(e) the extent, if any, to which such series shall have the
benefit of any sinking fund provision
4
<PAGE>
for the redemption or purchase of shares;
(f) the rights, if any, of such series, in the event of the
dissolution of the corporation, or upon any distribution of the
assets of the corporation;
(g) whether or not the shares of such series shall be
convertible, and if so, the terms and conditions on which shares of
such series shall be convertible; and
(h) such other powers, designations, preferences and the
relative, participating or optional or other special rights, and such
qualifications, limitations or restrictions thereon, as and to the
extent permitted by law.
2. No holder of Common Stock or Preferred Stock of the
corporation shall be entitled as of right to purchase or subscribe for any
part of any unissued stock of the corporation or any additional stock to be
issued by reason of any increase of the authorized capital stock of the
corporation of any class, or any bonds, certificates of indebtedness,
debentures or other securities convertible into stock of the corporation, but
any such unissued stock or such additional authorized issue of new stock, or
such securities convertible into stock, may be issued and disposed of,
pursuant to resolution of the Board of Directors, to such persons, firms,
corporations or associations, and upon such terms, as may be deemed advisable
by the Board of Directors in the exercise of their discretion.
FIFTH: The corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of the General Corporation Law or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of the
General Corporation Law order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing
5
<PAGE>
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
SEVENTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have the
same meaning, viz., the total number of directors which the corporation would
have if there were no vacancies.
2. The Board of Directors of the corporation shall be
divided into three classes, which shall be designated Class 1, Class II and
Class III. Class I directors shall initially serve until the 1999 Annual
Meeting; Class II directors shall initially serve until the 2000 Annual
Meeting; and Class III directors shall initially serve until the 2001 Annual
Meeting. In the case of each class, the directors shall serve until their
respective successors are duly elected and qualified. At each Annual Meeting
of Stockholders after 2001, directors of the respective class whose term
expires shall be elected, and the directors chosen to succeed those whose
terms shall have expired shall be elected to hold office for a term to expire
at the third succeeding annual meeting of stockholders after their election,
and until their respective successors are elected and qualified. Any vacancy
occurring in the Board of Directors caused by death, resignation, removal or
otherwise, may be filled by a majority of all the directors then in office
although such directors are less than a quorum, or by the sole remaining
director. Each director chosen to fill a vacancy shall hold office until the
next election of the class for which such director shall have been chosen, and
until his successor shall be duly elected and qualified. No amendment to this
certificate of incorporation
6
<PAGE>
shall alter, change or repeal any of the amendments effecting such alteration,
change or repeal unless such proposed amendment shall receive the affirmative
vote of the holders of not less than 75% of the outstanding shares of the
Common Stock of the corporation then entitled to vote at an election of
directors.
3. The power to adopt, amend, or repeal the By-Laws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision relating to the classification of
directors of the corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the State of
Delaware shall be set forth in this Certificate of Incorporation.
4. Whenever the corporation shall be authorized to issue
only one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of stockholders.
Whenever the corporation shall be authorized to issue more than one class of
stock, no outstanding share of any class of stock which is denied voting power
under the provisions of this Certificate of Incorporation shall entitle the
holder thereof to notice of, and the right to vote, at any meeting of
stockholders, except as the provisions of the General Corporation Law shall
otherwise require, including without limitation, paragraph (b)(2) of Section
242 of the General Corporation Law, provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to
vote upon the increase or decrease in the number of authorized shares of said
class.
EIGHTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and other provisions
authorized by law of the State of Delaware at the time in force may be added
or inserted in the manner and at the time prescribed by law and by this
Certificate of Incorporation. No amendment to this Certificate of
Incorporation shall alter, change or repeal any of the provisions of paragraph
(2) of ARTICLE SEVENTH hereof unless such amendment shall receive the
affirmative vote of the holders of not less than 75% of the outstanding shares
of the Common Stock of the corporation entitled to vote thereon. All rights at
any time conferred upon the stockholders of the corporation pursuant to this
Certificate of Incorporation are granted subject to the provisions of this
ARTICLE EIGHTH.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and signed this
Certificate of Incorporation this 23rd day of July, 1998.
/s/ Kenneth S. Goodwin
-----------------------------------
Kenneth S. Goodwin, Incorporator
COLEMAN & RHINE LLP
1120 Avenue of the Americas
New York, New York 10036
8
<PAGE>
BY-LAWS
OF
IMPERIAL MERGER CORP.
(a Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation.
Any of or all the signatures on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue.
Whenever the corporation shall-be authorized to-issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of any lost,
stolen, or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new
certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. In lieu thereof it shall either pay
in cash the fair value of fractions
<PAGE>
of a share, as determined by the Board of Directors, to those entitled thereto
or issue scrip or fractional warrants in registered or bearer form over the
manual or facsimile signature of an officer of the corporation or of its
agent, exchangeable as therein provided for full shares, but such scrip or
fractional warrants shall not entitle the holder to any rights of a
stockholder except as therein provided. Such scrip or fractional warrants may
be issued subject to the condition that the same shall become void if not
exchanged for certificates representing full shares of stock before a
specified date, or subject to the condition that the shares of stock for which
such scrip or fractional warrants are exchangeable may be sold by the
corporation and the proceeds thereof distributed to the holders of such scrip
or fractional warrants, or subject to any other conditions which the Board of
Directors may determine.
3. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for
such shares of stock properly endorsed and the payment of all taxes due
thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to any corporate action in
writing without a meeting, or for the purpose of determining stockholders
entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange. of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a date as the
record date for any such determination of stockholders. Such date shall not be
more than sixty days nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. If no record date is
fixed, the record date for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of
2
<PAGE>
Directors is necessary, shall be the day on which the first written consent is
expressed; and the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. When a determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this paragraph, such determination
shall apply to any adjournment thereof; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate
or vote thereat or to consent or dissent in writing in lieu of a meeting, as
the case may be, the term "share" or "shares" or "share of stock" or "shares
of stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such right where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such
rights notwithstanding that the certificate of incorporation may provide for
more than one class or series of shares of stock, one or more of which are
limited or denied such right thereunder; provided, however, that no such right
shall vest in the event of an increase or decrease in the authorized number of
shares of stock of any class or series which is other wise denied voting
rights under the provisions of the certificate of incorporation.
6. STOCKHOLDERS MEETINGS.
TIME. The annual meeting shall be held on the date and at
the time fixed, from time to time, by the directors, provided, each successive
annual meeting shall be held on a date within thirteen months after the date
of the preceding annual meeting. A special meeting shall be held on the dates
and at the times fixed by the directors.
PLACE. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the directors may,
from time to time fix. Whenever the directors shall fail to fix such place,
the meeting shall be held at the registered office of the corporation in the
State of Delaware.
3
<PAGE>
CALL. Annual meetings and special meetings may be
called by the directors or by any officer instructed by the
directors to call the meeting.
NOTICE OR WAIVER OF NOTICE. Written notice of all meetings
shall be given, stating the place, date, and hour of the meeting and stating
the place within the city or other municipality or community at which the list
of stockholders of the corporation may be examined. The notice of an annual
meeting shall state that the meeting is called for the election of directors
and for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. If any action is proposed to be
taken which would, if taken, entitle stockholders to receive payment for their
shares of stock, the notice shall include a statement of that purpose and to
that effect. Except as otherwise provided by the General Corporation Law, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten days nor more than sixty days before the date of the meeting,
unless the lapse of the prescribed period of time shall have been waived, and
directed to each stockholder at his record address or at such other address
which he may have furnished by request in writing to the Secretary of the
corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States mail. If a meeting is adjourned
to another time, not more than thirty days hence, and/or to another place, and
if an announcement of the adjourned time and/or place is made at the meeting,
it shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice by him before or after the time stated therein. Attendance of a person
at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
STOCKHOLDER LIST. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of
4
<PAGE>
the stockholders, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city or other municipality or community where the meeting is to be held, which
place shall be specified in the notice of the meeting, or if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof,
and may be inspected by any stockholder who is present. The stock ledger shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and
if present and acting - the Chairman of the Board, if any, the Vice-Chairman
of the Board, if any, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen by
the stockholders. The Secretary of the corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the chairman of the
meeting shall appoint a secretary of the meeting.
PROXY REPRESENTATION. Every stockholder may authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or by
his attorney-in-fact. No proxy shall be voted or acted upon after three years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and, if, and
only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether
the interest with which it is coupled is ad interest in the stock itself or an
interest in the corporation generally.
INSPECTORS AND JUDGES. The directors, in advance of
any meeting, may, but need not, appoint one or more inspectors of
election or judges of the vote, as the case may be, to act at the
meeting or any adjournment thereof. If an inspector or
5
<PAGE>
inspectors or judge or judges are not appointed, the person presiding at the
meeting may, but need not, appoint one or more inspectors or judges. In case
any person who may be appointed as an inspector or judge fails to appear or
act, the vacancy may be filled by appointment made by the directors in advance
of the meeting or at the meeting by the person presiding thereat. Each
inspector or judge, if any, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector or
judge at such meeting with strict impartiality and according to the best of
his ability. The inspectors or judges, if any, shall determine the number of
shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine
all challenges and questions arising in connection with the right to vote,
count and tabulate all votes, ballots or consents, determine the result, and
do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the person presiding at the meeting, the
inspector or inspectors or judge or judges, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of an fact found by him or them.
QUORUM. The holders of majority of the outstanding shares of
common stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. However, the foregoing shall not be deemed to
permit a vote upon any transaction as to which the certificate of
incorporation or these By-Laws require approval by a vote of the holders of
not less than 75% of the outstanding shares of common stock of the corporation
unless such holders of not less than 75% of the outstanding shares of common
stock of the corporation are present whether in person or by proxy. The
stockholders present may adjourn the meeting despite the absence of a quorum.
VOTING. Each share of voting stock shall entitle the holder
thereof to one vote. In the election of directors, a plurality of the votes
cast shall elect. Any other action shall be authorized by a majority of the
votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power and except as
otherwise provided in these By-Laws or the certificate of incorporation. In
the election of directors, voting need not be by ballot. Voting by ballot
shall not be required for any other corporate action except as otherwise
provided by the General Corporation Law.
6
<PAGE>
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action which may
be taken at any annual or special meeting of stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing setting forth the action so taken shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which the
holders of all shares entitled to vote thereon were present and voted, and,
provided, that prompt notice of the taking of the corporate action without a
meeting by less than unanimous consent shall be given to those stockholders
who have not consented in writing.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The use of the phrase "whole board" herein refers to the total
number of directors which the corporation would have if there were no
vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors which shall constitute the whole board
shall be such number as from time to time shall be fixed by the Board of
Directors, but in no event shall the number be more than eight (8) nor less
than three (3) until such greater or lesser number shall be established
pursuant to an amendment of these By-Laws adopted by the affirmative vote of
the holders of not less than 75% of the outstanding shares of common stock of
the corporation entitled to vote on an election of directors.
3(a). CLASSIFICATION AND ELECTION OF DIRECTORS. The Board of
Directors of the corporation shall be divided into three classes which shall
be designated Class I, Class II and Class III, and each class shall consist of
as nearly equal a number of directors as possible, with Class I containing the
unequal number of directors, if necessary. Class I directors shall initially
serve until the 1999 Annual Meeting; Class II directors shall initially serve
until the 2000 Annual Meeting; and Class III directors shall initially serve
until the 2001 Annual Meeting. In the case of each class, the directors shall
serve until their respective successors are duly elected and qualified. At
each Annual Meeting of Stockholders after 2001, directors of the respective
class whose term expires shall be elected to hold
7
<PAGE>
office for a term to expire at the third ensuing annual meeting of
stockholders after their election, and until their respective successors are
duly elected and qualified. Elections need not be by ballot and shall be
decided by a plurality vote. No amendment to these By-Laws shall alter, change
or repeal any of the foregoing provisions of this Section unless such proposed
amendment shall receive the affirmative vote of the holders of not less than
75% of the outstanding shares of common stock of the corporation entitled to
vote at an election of directors.
3(b). VACANCIES. Newly created directorships and any
vacancies in the Board of Directors, including vacancies caused by death,
resignation, removal for cause or otherwise, may be filled by the vote of a
majority of the remaining directors then in office, although such remaining
directors are less than a quorum, or by the sole remaining director. Each
director chosen to fill a vacancy shall hold office until the next election of
the class for which such director shall have been chosen and until his
successor shall be duly elected and qualified.
4. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
PLACE. Meetings shall be held at such place within or
without the State of Delaware as shall be fixed by the Board.
CALL. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, or the President, or of a majority of the directors in
office.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be
given for special meetings in sufficient time for the convenient assembly of
the directors thereat. The notice of any meeting need not specify the purpose
of the meeting. Any requirements of furnishing a notice shall be waived by any
director who signs a written waiver of such -notice before or after the time
stated therein.
QUORUM AND ACTION. Unless the certificate of incorporation
or these By-Laws provide otherwise, a majority of
8
<PAGE>
the whole Board shall constitute a quorum except when a vacancy or vacancies
prevents such majority, whereupon a majority of the directors in office shall
constitute a quorum, provided, that such majority shall constitute at least
one-third of the whole Board. A majority of the directors present, whether or
not a quorum is present, may adjourn a meeting to another time and place.
Except as otherwise provided in the certificate of incorporation or these
By-Laws, and except as otherwise provided by the General Corporation Law, the
act of the Board shall be the act by vote of a majority of the directors
present at a meeting, a quorum being present. The quorum and voting provisions
herein stated shall not be construed as conflicting with any provisions of the
General Corporation Law, the certificate of incorporation or these By-Laws
which govern a meeting of directors held to fill vacancies and newly created
directorships in the Board.
CHAIRMAN OF THE MEETING. The Chairman of the Board, if
any and if present and acting, shall preside at all meetings. otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be
removed only upon a showing of good cause by the affirma tive vote of the
holders of 75% of the outstanding shares of the common stock of the
Corporation entitled to vote on an election of directors at a meeting called
for such purpose.
6. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of two or more of the directors of the corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the Board, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers which may
require it. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
7. ACTION IN WRITING. Any action required or
permitted to be taken at any meeting of the Board of Directors or
9
<PAGE>
any committee thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
ARTICLE III
OFFICERS
The directors shall elect a President, a Secretary, and a
Treasurer, and may elect a Chairman of the Board of Directors, a Vice-Chairman
thereof, and one or more Vice-Presidents, Assistant Secretaries, and Assistant
Treasurers, and may elect or appoint such other officers and agents as are
desired. The President may but need not be a director. Any number of offices
may be held by the same person.
Unless otherwise provided in the resolution of election or
appointment, each officer shall hold office until the meeting of the Board of
Directors following the next annual meeting of stockholders and until his
successor has been elected and qualified. Any officer may resign at any time
upon written notice.
Officers shall have the powers and duties defined in the
resolutions appointing them; provided, that the Secretary shall record all
proceedings of the meetings or of the written actions of the stockholders and
of the directors, and any committee thereof, in a book to be kept for that
purpose.
The Board of Directors may remove any officer for cause or
without cause.
ARTICLE IV
INDEMNIFICATION
1. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
10
<PAGE>
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contenders or its equivalent, shall not, of itself, create an assumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
2. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless, and only
to the extent that, the Court of Chancery or the court in which such action or
suit was brought, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court. shall deem proper.
3. To the extent that a director, officer, employee or agent
of the corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in paragraphs (1) and (2), or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
4. Any indemnification under paragraphs (1) and (2) (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that
11
<PAGE>
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in paragraphs (1) and (2). Such determination shall be made (a) by the Board
of Directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
5. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking by or
on behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the corporation as authorized in this Article.
6. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.
ARTICLE V
CORPORATE SEAL
The corporate seal shall be in such form as the Board of
Directors shall prescribe.
12
<PAGE>
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall
be subject to change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BY-LAWS
The power to amend, alter, and repeal these By-Laws and to
adopt new By-Laws, shall be vested in the Board of Directors as well as in the
stockholders, except that no amendment shall amend, alter, change, add to or
repeal any of the provisions of Sections 2, 3 or 5 of Article II of these
By-Laws or this Article VII of these By-Laws unless such amendment shall
receive the affirmative vote of the holders of not less than 75% of the
outstanding shares of common stock of the corporation entitled to vote
thereon.
13
<PAGE>
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME ON OCTOBER , 2003.
IMPERIAL INDUSTRIES, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE 150,000
SHARES OF COMMON STOCK
Certificate No. W-
------------
October , 1998
This Warrant Certificate certifies that Auerbach, Pollak &
Richardson, having an address at 450 Park Avenue, 8th Floor, New York, New
York 10022, or registered assigns, is the registered Holder (the "Holder") of
150,000 Common Stock Purchase Warrants (the "Warrants") to purchase shares of
the common stock, $.10 par value per share (the "Common Stock") of Imperial
Industries, Inc., a Delaware corporation (the "Company").
The Warrants represented by this Warrant Certificate were issued
pursuant to a certain Registration Statement on Form S-4, as amended (File No.
333- ), filed under the Securities Act of 1933, as amended (the "Act"), as
declared effective by the Securities and Exchange Commission (the
"Commission") on September , 1998 (together with the Appendices and Exhibits
thereto, and the Proxy Statement/Prospectus included therein, the
"Registration Statement") relating to a Special Meeting of the Stockholders of
the predecessor of the Company and the related offering by the Company of
shares of Common Stock, 8% subordinated debentures (the "Debentures"), and the
Warrants.
1. EXERCISE OF WARRANT.
(A) Each Warrant enables the Holder, subject to the
provisions of this Warrant Certificate, to purchase from the Company at any
time and from time to time commencing on the date of issuance (the "Initial
Exercise Date") through and including 5:00 p.m., Eastern Time on October ,
2003 (the "Expiration Date") one (1) fully paid and non-assessable share of
Common Stock ("Shares") upon due presentation and surrender of this Warrant
Certificate accompanied by payment of the purchase price of $0.38 per Share
(the "Exercise Price"). Payment shall be made in lawful money of the United
States of America by certified check payable to the Company at its principal
office at [insert],
<PAGE>
or at such other office as the Holder shall be notified of pursuant to Section
13(C) hereof. As hereinafter provided, the Exercise Price and number of Shares
purchasable upon the exercise of the Warrants are subject to modification or
adjustment upon the happening of certain events.
(B) CASHLESS EXERCISE.
i. Determination of Amount. In lieu of the
payment of the Exercise Price in the manner required by paragraph 1(A) above,
the Holder shall have the right (but not the obligation) to pay the Exercise
Price for the shares of Common Stock being purchased with this Warrant upon
exercise by the surrender to the Company of any exercisable but unexercised
portion of this Warrant having a "Value" (as defined below), at the close of
trading on the last trading immediately preceding the exercise of this
Warrant, equal to the Exercise Price multiplied by the number of shares being
purchased upon exercise ("Cashless Exercise Right"). The sum of (a) the number
of shares being purchased upon exercise of the non-surrendered portion of this
Warrant pursuant to this Cashless Exercise Right and (b) the number of shares
underlying the portion of this Placement Agent's Warrant being surrendered,
shall not in any event be greater than the total number of shares of Common
Stock purchasable upon the complete exercise of this Warrant if the Exercise
Price were paid in cash. The "Value" of the portion of the Warrant being
surrendered shall equal the remainder derived from subtracting (a) the
Exercise Price multiplied by the number of shares underlying the portion of
this Warrant being surrendered from (b) the Market Price of the shares
multiplied by the number of shares underlying the portion of this Warrant
being surrendered. As used herein, the term "Market Price" shall have the
meaning set forth in paragraph 8(D) of Section 8 below.
ii. Mechanics of Cashless Exercise. The
Cashless Exercise Right may be exercised by the Holder on any business day on
or after the Initial Exercise Date and not later than the Expiration Date by
delivering the Warrant with a duly executed exercise form attached hereto with
the cashless exercise section completed to the Company, exercising the
Cashless Exercise Right and specifying the total number of shares of Common
Stock the Holder will purchase pursuant to such Cashless Exercise Right.
iii. Validity. The foregoing provisions of this
paragraph 1(B) shall not apply if the securities to be issued upon exercise of
the Cashless Exercise Right may not be validly issued under the laws of the
jurisdiction of incorporation of the Company.
2
<PAGE>
(C) This Warrant Certificate is exercisable at any time on
or after the Initial Exercise Date in whole or in part by the Holder in person
or by attorney duly authorized in writing at the principal office of the
Company.
(D) Warrants may not be exercised by, or Shares issued to,
any registered holder in any state in which such exercise would be unlawful.
2. EXCHANGE, FRACTIONAL SHARES, TRANSFER.
(A) Upon surrender to the Company, this Warrant Certificate
may be exchanged for another Warrant Certificate or Warrant Certificates
evidencing a like aggregate number of Warrants. If this Warrant Certificate
shall be exercised in part, the Holder shall be entitled to receive upon
surrender hereof another Warrant Certificate or Warrant Certificates
evidencing the number of Warrants not exercised.
(B) Anything herein to the contrary notwithstanding, in no
event shall the Company be obligated to issue Warrant Certificates evidencing
other than a whole number of Warrants or issue certificates evidencing other
than a whole number of Shares upon the exercise of this Warrant Certificate;
provided, however, that the Company shall pay with respect to any such
fraction of a Share an amount of cash based upon the current public market
price (or book value, if there shall be no public market price) for Shares
purchasable upon exercise hereof. Market price for the purpose of this
subparagraph 2(B) shall mean as applicable (i) the closing sale price, for
five (5) consecutive trading days (during which the Shares are registered
pursuant to the Act), of the Common Stock, as reported by the Nasdaq National
or SmallCap Market, as the case may be; or (ii) the last reported sale price,
for five (5) consecutive trading days (during which the Shares are registered
pursuant to the Act), on the primary exchange on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange; or
(iii) the closing bid price, for five (5) consecutive trading days (during
which the Shares are registered pursuant to the Act), in the over-the-counter
market as reported by the National Quotation Bureau or similar information
provider.
(C) The Company may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute true and lawful owner
hereof for all purposes whatsoever.
3. RIGHTS OF A HOLDER. No Holder shall be deemed to be the holder of
Common Stock or any other securities of the Company
3
<PAGE>
that may at any time be issuable on the exercise hereof for any purpose nor
shall anything contained herein be construed to confer upon the Holder any of
the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof or to give or withhold consent to any corporate action
(whether upon any reorganization, issuance of stock, reclassification or
conversion of stock, change of par value, consolidation, merger, conveyance,
or otherwise) or to receive notice of meetings or to receive dividends or
subscription rights or otherwise until a Warrant shall have been exercised and
the Common Stock purchasable upon the exercise thereof shall have become
issuable.
4. REGISTRATION OF TRANSFER. The Company shall maintain books for the
transfer and registration of Warrants. Upon the transfer of any Warrants in
accordance with the provisions hereof, the Company shall issue and register
the Warrants in the names of the new Holder. The Warrants shall be signed
manually by the Chairman, Chief Executive Officer, President or any Vice
President and the Secretary or Assistant Secretary of the Company. The Company
shall transfer, from time to time, any outstanding Warrants upon the books to
be maintained by the Company for such purpose upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any transfer, a new Warrant Certificate shall be issued to the
transferee and the surrendered Warrants shall be canceled by the Company.
Warrants may be exchanged at the option of the Holder, when surrendered at the
office of the Company, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Shares. Subject to the terms of this Warrant
Certificate, upon such surrender and payment of the purchase price at any time
after the Initial Exercise Date, the Company shall issue and deliver with all
reasonable dispatch to or upon the written order of the Holder of such
Warrants and in such name or names as such Holder may designate, a certificate
or certificates for the number of full Shares so purchased upon the exercise
of such Warrants. Such certificate or certificates shall be deemed to have
been issued and any person so designated to be named therein shall be deemed
to have become the Holder of record of such Shares as of the date of the
surrender of such Warrants and payment of the purchase price; provided,
however, that if, at the date of surrender and payment, the transfer books of
the Company shall be closed, the certificates for the Shares shall be issuable
as of the date on which such books shall be opened and until such date the
Company shall be under no duty to deliver any certificate for such Shares;
provided, further, however, that such transfer books, unless otherwise
required by
4
<PAGE>
law or by applicable rule of any national securities exchange or interdealer
quotation system, shall not be closed at any one time for a period longer than
20 days. The rights of purchase represented by the Warrant shall be
exercisable, at the election of the Holder, either as an entirety or from time
to time for only part of the Shares at any time on or after the Initial
Exercise Date.
5. STAMP TAX. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Shares issuable upon the exercise
of the Warrants; provided, however, that the Company shall not be required to
pay any tax or taxes which may be payable in respect of any transfer involved
in the issuance or delivery of any certificates for Shares in a name other
than that of the Holder in respect of which such Shares are issued, and in
such case the Company shall not be required to issue or deliver any
certificate for Shares or any Warrant until the person requesting the same has
paid to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
6. DESTROYED, LOST, STOLEN OR MUTILATED CERTIFICATES. In
case this Warrant Certificate shall be destroyed, lost, stolen or mutilated,
the Company may, in its discretion, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant Certificate,
or in lieu of and substitution for the lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate of like tenor representing an
equivalent right or interest, but only upon receipt of evidence satisfactory
to the Company of such destruction, loss, theft or mutilation and an
indemnity, if requested, also satisfactory to it.
7. RESERVED SHARES. The Company warrants that there have been
reserved, and covenants that at all times in the future it shall keep
reserved, out of the authorized and unissued Common Stock, a number of Shares
sufficient to provide for the exercise of the rights of purchase represented
by this Warrant Certificate. The Company agrees that all Shares issuable upon
exercise of the Warrants shall be, at the time of delivery of the certificates
for such Shares, validly issued and outstanding, fully paid and non-assessable
and that the issuance of such Shares will not give rise to preemptive rights
in favor of existing stockholders.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
The Exercise Price in effect at any time and the number and kind of
securities purchased upon the exercise of this Warrant
5
<PAGE>
shall be subject to adjustment from time to time only upon the happening of
the following events:
(A) In case the Company shall (i) declare a dividend on its
Common Stock in Common Stock or make a distribution of Common Stock, (ii)
subdivide its outstanding Common Stock, (iii) combine its outstanding Common
Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its Common Stock other securities of the Company
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), the number of
Shares purchasable upon exercise of this Warrant immediately prior thereto
shall be adjusted so that the Holder of this Warrant shall be entitled to
receive the kind and number of shares of Common Stock or other securities of
the Company which he would have owned or have been entitled to receive after
the happening of any of the events described above, had this Warrant been
exercised immediately prior to the happening of such event or any record date
with respect thereto. An adjustment made pursuant to this paragraph 8(A) shall
become effective immediately after the effective date of such event
retroactive to immediately after the record date, if any, for such event.
(B) In case the Company shall issue rights, options or
warrants to all holders of its Common Stock, without any charge to such
holders, entitling them (for a period expiring within 45 days after the record
date mentioned below in this paragraph 8(B)) to subscribe for or to purchase
Common Stock at a price per share that is lower at the record date mentioned
below than the then current market price per share of Common Stock (as defined
in paragraph 8(D) below), the number of Shares thereafter purchasable upon
exercise of this Warrant shall be determined by multiplying the number of
Shares theretofore purchasable upon exercise of this Warrant by a fraction, of
which the numerator shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the then current market
price per shares of Common Stock. Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective
retroactively to immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
6
<PAGE>
(C) In case the Company shall distribute to all holders of
its shares of Common Stock securities other than Common Stock or evidences of
its indebtedness or assets (excluding cash dividends payable out of
consolidated earnings or retained earnings and dividends or distributions
referred to in paragraph 8(A) above) or rights, options or warrants or
convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock (excluding those referred to in paragraph
8(B) above), then in each case the number of Shares thereafter issuable upon
the exercise of this Warrant shall be determined by multiplying the number of
Shares theretofore issuable upon the exercise of this Warrant, by a fraction,
of which the numerator shall be the current market price per shares of Common
Stock (as defined in paragraph 8(D) below) on the record date mentioned below
in this paragraph 8(C), and of which the denominator shall be the current
market price per shares of Common Stock on such record date, less the then
fair value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the shares of stock other
than Common Stock or assets or evidences of indebtedness so distributed or of
such subscription rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to immediately after
the record date for the determination of stockholders entitled to receive such
distribution.
(D) For the purpose of any computation under paragraphs 8(B)
and 8(C) of this Section 8 and paragraph 1(B) of Section 1, the current market
price per share of Common Stock at any date shall be the average of the daily
closing prices for fifteen (15) consecutive trading days commencing twenty
(20) trading days before the date of such computation. The closing price for
each day shall be the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the closing bid and
asked prices regular way for such day, in either case on the principal
national securities exchange on which the shares are listed or admitted to
trading, or if they are not listed or admitted to trading on any national
securities exchange, but are traded in the over-the-counter market, the
closing sale price of the Common Stock or, in case no sale is publicly
reported, the average of the representative closing bid and asked quotations
for the Common Stock on the Nasdaq Small Cap Market or any comparable system,
or if the shares of Common Stock are not listed on the Nasdaq Small Cap Market
or a comparable system, the closing sale price of the
7
<PAGE>
Common Stock or, in case no sale is publicly reported, the average of the
closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. (the "NASD") selected from time to
time by the Company for that purpose.
(E) No adjustment in the number of Shares purchasable
hereunder or the Exercise Price thereof shall be required unless such
adjustment would require an increase or decrease of at least one percent (1%)
in the number of Shares purchasable upon the exercise of this Warrant;
provided, however, that any adjustments which by reason of this paragraph 8(E)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment, but not later than three years after the happening
of the specified event or events. All calculations shall be made to the
nearest one thousandth of a share. Anything in this Section 8 to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make such changes in the number of Shares purchasable upon the exercise of
this Warrant, in addition to those required by this Section 8, as it in its
discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash
out of consolidated earnings or retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
shares of Common Stock shall not result in any tax to the holders of its
Common Stock or securities convertible into Common Stock.
(F) Whenever the number of Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of Shares purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
Shares so purchasable immediately thereafter.
(G) For the purpose of this Section 8, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the Initial Exercise Date or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from no par value to par value,
or from par value to no par value. In the event that at any time, as a
8
<PAGE>
result of an adjustment made pursuant to paragraph 8(A) above, the Holder
shall become entitled to purchase any shares of capital stock of the Company
other than Common Stock, thereafter the number of such other shares so
purchasable upon exercise of this Warrant and the Exercise Price of such
shares shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
the Shares contained in paragraphs 8(A) through 8(F), inclusive, and
paragraphs 8(H) through 8(M), inclusive, of this Section 8, and the provisions
of Sections 1, 2, 7 and 10 with respect to the Shares, shall apply on like
terms to any such other shares.
(H) Upon the expiration of any rights, options, warrants or
conversion rights or exchange privileges granted pursuant to paragraphs 8(B)
and 8(C) above, if any thereof shall not have been exercised, the Exercise
Price and the number of shares of Common Stock purchasable upon the exercise
of this Warrant shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it originally been adjusted (or
had the original adjustment not been required, as the case may be) as if (i)
the only shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion rights or exchange privileges and (ii) such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate consideration,
if any, actually received by the Company for the issuance, sale or grant of
all of such rights, options, warrants or conversion rights or exchange
privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Exercise Price by an
amount in excess of the amount of the adjustment initially made in respect to
the issuance, sale or grant of such rights, options, warrants or conversion
rights or exchange privileges.
(I) The Company may, at its option, at any time during the
term of this Warrant, reduce the then current Exercise Price to any amount
deemed appropriate by the Board of Directors of the Company.
(J) Whenever the number of Shares issuable upon the exercise
of this Warrant or the Exercise Price of such Shares is adjusted, as herein
provided, the Company shall promptly mail by first class mail postage prepaid,
to each Holder notice of such adjustment or adjustments. The Company shall
retain a firm of independent public accountants (who may be the regular
accountants employed by the Company) to make any computation
9
<PAGE>
required by this Section 8 and shall cause such accountants to prepare a
certificate setting forth the number of Shares issuable upon the exercise of
this Warrant and the Exercise Price of such Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made. Such
certificate shall be conclusive on the correctness of such adjustment and each
Holder shall have the right to inspect such certificate during reasonable
business hours.
(K) Except as provided in this Section 8, no adjustment in
respect of any dividends shall be made during the term of this Warrant or upon
the exercise of the this Warrant.
(L) Notwithstanding any adjustment in the Exercise Price or
the number or kind of shares purchasable upon the exercise of this Warrant,
certificates for Warrants issued prior or subsequent to such adjustment may
continue to express the same price and number and kind of Shares as are
initially issuable pursuant to this Agreement.
9. CONSOLIDATION OR MERGER. The Company covenants and agrees that it
will not merge or consolidate with or into or sell or otherwise transfer all
or substantially all of its assets to any other corporation or entity unless
at the time of or prior to such transaction such other corporation or other
entity shall expressly assume all of the liabilities and obligations of the
Company under this Warrant and (without limiting the generality of the
foregoing) shall expressly agree that the Holder of this Warrant shall
thereafter have the right (subject to subsequent adjustment as nearly
equivalent as practicable to the adjustments provided for in Paragraph 8 of
this Warrant) to receive upon the exercise of this Warrant the number and kind
of shares of stock and other securities and property receivable upon such
transaction by a Holder of the number and kind of shares which would have been
receivable upon the exercise of this Warrant immediately prior to such
transaction.
10. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
The Company shall advise the Holder or its transferee, whether the
Holder holds the Warrant or has exercised the Warrant and holds Shares, by
written notice at least four weeks prior to the filing of any registration
statement under the Act covering any securities of the Company, for its own
account or for the account of others, and will, until five years after the
Initial Exercise Date, upon the request of the Holder, register under the Act
all or any portion of the Shares. In the event that any
10
<PAGE>
registration pursuant to this Section 10 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of Shares to be
included in such an underwriting may be reduced (pro rata among the requesting
Holders of Shares based upon the number of Shares so requested to be
registered) if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that such
number of Shares shall not be reduced if any shares are to be included in such
underwriting for the account of any person other than the Company. In either
case, the Company agrees to use its best efforts to cause the same to become
effective promptly thereafter and to maintain the effectiveness of such
registration statement and keep current a prospectus thereunder until the
expiration or redemption of this Warrant.
11. MISCELLANEOUS.
(A) LAW TO GOVERN. This Warrant shall be governed by and
construed in accordance with the substantive laws of the State of Delaware,
without giving effect to conflict of laws principles.
(B) ENTIRE AGREEMENT. This Warrant Certificate constitutes
and expresses the entire understanding between the parties hereto with respect
to the subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions whether express or
implied, oral or written. Neither this Warrant Certificate nor any portion or
provision hereof may be changed, waived or amended orally or in any manner
other than by an agreement in writing signed by the Holder and the Company.
(C) NOTICES. Except as otherwise provided in this Warrant
Certificate, all notices, requests, demands and other communications required
or permitted under this Warrant Certificate or by law shall be in writing and
shall be deemed to have been duly given, made and received only when delivered
against receipt or when deposited in the United States mails, certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
Company: Imperial Industries, Inc.
[insert]
[insert], Florida [insert]
Attn: Executive Vice President
Holder: At the address shown for the
11
<PAGE>
Holder in the registration book
maintained by the Company.
(D) SEVERABILITY. If any provision of this Warrant
Certificate is prohibited by or is unlawful or unenforceable under any
applicable law of any jurisdiction, such provision shall, as to such
jurisdiction be in effect to the extent of such prohibition without
invalidating the remaining provisions hereof; provided, however, that any such
prohibition in any jurisdiction shall not invalidate such provision in any
other jurisdiction; and provided, further that where the provisions of any
such applicable law may be waived, that they hereby are waived by the Company
and the Holder to the full extent permitted by law and to the end that this
Warrant instrument shall be deemed to be a valid and binding agreement in
accordance with its terms.
12
<PAGE>
IN WITNESS WHEREOF, Imperial Industries, Inc. has caused
this Warrant Certificate to be signed by its Executive Vice President and to
be dated the day and year first above written.
ATTEST [SEAL]
IMPERIAL INDUSTRIES, INC.
By:___________________________ By:_______________________
Name: Name: Howard L. Ehler, Jr.
Title: Assistant Secretary Title: Executive Vice President
13
<PAGE>
PURCHASE FORM
The undersigned hereby elects irrevocably to exercise the within
Warrant and to purchase _____ shares of Common Stock of IMPERIAL INDUSTRIES,
INC. and hereby makes payment of $_________ (at the rate of $0.38 per share)
in payment of the Exercise Price pursuant thereto. Please issue the Common
Stock as to which this Warrant is exercised in accordance with the
instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the
within Warrant and to purchase ___________ Shares of Common Stock of IMPERIAL
INDUSTRIES, INC. by surrender of the unexercised portion of the within Warrant
(with a "Value" of $______________ based on a "Market Price" of $___________).
Please issue the Common Stock in accordance with the instructions given below.
Dated: _________________
Signature: _____________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
Address: _______________________________________
_______________________________________
_______________________________________
_______________________________________
Social Security or Other Identifying
Number of Holder
Signature Guaranteed: ______________________________________
(If Common Stock is to be issued other than to the registered holder of the
within Warrant, signature must be guaranteed by a bank, savings and loan
association, stockbroker, or credit union with membership in an approved
signature guaranty Medallion Program pursuant to Securities Exchange Act Rule
17Ad-15.)
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name __________________________________________________
(Print in Block Letters)
Address __________________________________________
14
<PAGE>
ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________ here sells, assigns and transfers unto
[NAME OF TRANSFEREE] this Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and
appoint_________________ Attorney, to transfer the within Warrant Certificate
on the books of the within-named Company, with full power of substitution.
Dated: ____________________
Signature: __________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Address: ___________________________________
___________________________________
___________________________________
___________________________________
Social Security or Other Identifying
Number of Holder
Signature
Guaranteed: ___________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
15
<PAGE>
IMPERIAL INDUSTRIES, INC.
8% Subordinated Debenture
Due October , 2001
$__________________ No. DB____________
November , 1998
IMPERIAL INDUSTRIES, INC., a corporation organized under the laws of
the State of Delaware (the "Company"), for value received, hereby promises to
pay to _______________________ with an address at _______________________ or
registered assigns (the "Payee" or "Holder") upon due presentation and
surrender of this Debenture, on November , 2001 (the "Maturity Date"), the
principal amount of _____________________________ ($__________) and accrued
interest thereon as hereinafter provided.
This debenture was issued by the Company pursuant to a certain
Registration Statement on Form S-4, as amended (File No. 333- ), filed under
the Securities Act of 1933, as amended (the "Act"), as declared effective by
the Securities and Exchange Commission (the "Commission") on September , 1998
(together with the Appendices and Exhibits thereto, and the Proxy
Statement/Prospectus included therein, the "Registration Statement") relating
to a Special Meeting of the Stockholders of the predecessor of the Company and
the related offering by the Company of shares of common stock, $.01 par value
per share ("Common Stock") and 8% subordinated debentures (the "Debentures").
The holders of such Debentures are referred to hereinafter as the "Holders."
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT; RECORD DATE
1.1 General. Payment of the principal on this Debenture shall be made
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.
Interest (computed on the basis of a 360-day year of twelve 30-day months) on
the unpaid portion of said principal amount from time to time outstanding
shall be paid by the Company at the rate of eight percent (8%) per annum (the
"Stated Interest Rate"), in like coin and currency, payable to the Payee in
twelve (12) month intervals on each July 1 during the term of this Debenture
(commencing July 1, 1999) (an "Interest Payment Date") and on the Maturity
Date. Both principal hereof and interest thereon are payable at the Holder's
address above or such other address as the Holder shall
<PAGE>
designate from time to time by written notice to Continental Stock Transfer
and Trust Company (the "Transfer Agent"), the transfer agent for the
Debentures. The Company will pay or cause to be paid all sums becoming due
hereon for principal and interest by check sent to the Holder's above address
or to such other address as the Holder may designate for such purpose from
time to time by written notice to the Transfer Agent, without any requirement
for the presentation of this Debenture or making any notation thereon except
that the Holder hereof agrees that payment of the final amount due shall be
made only upon surrender of this Debenture to the Company for cancellation.
Prior to any sale or other disposition of this instrument, the Holder hereof
agrees to endorse hereon the amount of principal paid hereon and the last date
to which interest has been paid hereon and to notify the Company of the name
and address of the transferee.
1.2. Record Date. The Company will pay interest on this Debenture to
the Holder of this Debenture at the close of business on the June 15 next
preceding the interest payment date.
1.3 Nature of Debentures. The Debentures are general, unsecured
obligations of the Company. The Company is not limited in the amount of Debt
(as hereinafter defined), secured or unsecured, including Senior Debt (as
hereinafter defined), which it may incur.
ARTICLE 2
SUBORDINATION
2.1 Subordination to Senior Debt. The Company, for itself, its
successors and assigns, covenants and agrees, and the Payee and each
successive Holder by acceptance of this Debenture likewise covenants and
agrees, that the payment of the principal of and interest on this Debenture is
subordinated in right of payment to the payment of all existing and future
Senior Debt (as hereinafter defined) of the Company. "Senior Debt" means the
principal of (and premium, if any) and interest on (including interest
accruing after the filing of a petition initiating any proceeding pursuant to
any Bankruptcy Law (as defined in Section 7.1 below), but only to the extent
allowed or permitted to the holder of such Debt against the bankruptcy or
other insolvency estate of the Company in such proceeding) and fees, expenses,
reimbursement obligations, indemnity obligations and other amounts due on or
in connection with any Debt incurred, assumed or guaranteed by the Company,
whether outstanding on the date of the issuance of the Debentures or
thereafter incurred, assumed or guaranteed and all deferrals, renewals,
extensions and refundings
2
<PAGE>
of, or amendments, modifications or supplements to, any such Debt; provided,
however, that the following will not constitute Senior Debt: (a) any Debt if
the instrument creating the same or evidencing the same or pursuant to which
the same is outstanding expressly provides (i) that such Debt shall not be
senior in right of payment to the Debentures, or (ii) that such Debt shall be
subordinated to any other Debt of the Company, unless such instrument
expressly provides that such Debt shall be senior in right of payment to the
Debentures; (b) any Debt of the Company in respect of the Debentures; and (c)
any Debt representing the redemption price of any preferred stock.
2.2 Debt. "Debt" means with respect to any person at any date,
without duplication, (i) all obligations of such person for borrowed money,
(ii) all obligations of such person evidenced by bonds, debentures, notes or
other similar instruments, other than any account payable or other accrued
current liability or obligation incurred in the ordinary course of business in
connection with the obtaining of materials or services, (iii) all obligations
of the kinds set forth in (i) and (ii) above of others secured by a lien on
any asset of such person, whether or not such obligation is assumed by such
person, (iv) all obligations of such person with respect to letters of credit
(or local guaranties, as applicable) or bankers' acceptances issued for the
account of such person or with respect to interest rate protection agreements
or currency exchange or purchase agreements, (v) all obligations of such
person in respect to leases of such person as lessee which, in conformity with
generally accepted accounting principles, are required to be accounted for as
capitalized lease obligations on the balance sheet of such person, (vi) all
obligations of such person issued or assumed as the deferred purchase price of
property, all conditional sale obligations of such person and all obligations
of such person under any title retention agreement, and (vii) all obligations
of the kind set forth in (i), (ii), (iv), (v) or (vi) above of others for the
payment of which such person is responsible or liable as obligor or guarantor.
2.3 Default. The Company may not pay principal or interest on the
Debentures and may not acquire, redeem or retire any Debentures for cash or
property other than capital stock of the Company if (i) a default on Senior
Debt occurs and is continuing that permits holders of Senior Debt to
accelerate its maturity, and (ii) the default is the subject of judicial
proceedings or the Company receives notice of a default from a holder of the
Senior Debt. The Company may resume payments on the Debentures and may
acquire, redeem or retire them when (A) the default is cured or waived, or (B)
120 days have passed after the notice of
3
<PAGE>
default is given by the holder of the Senior Debt if the default
is not the subject of judicial proceedings.
2.4 Liquidation; Dissolution; Bankruptcy. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property (i) holders of Senior Debt shall be
entitled to receive payment in full in cash of the principal of and interest
to the date of payment on the Senior Debt before Holders shall be entitled to
receive any payment of principal of or interest on the Debentures and (ii)
until the Senior Debt is paid in full in cash, any distribution to which the
Holder would be entitled but for this Article 2 shall be made to holders of
Senior Debt as their interests may appear, except that Holders may receive
securities that are subordinated to Senior Debt to at least the same extent as
the Debentures.
2.5 Acceleration of Debentures. If payment of the Debentures is
accelerated because of an Event of Default as defined in Article 7 hereof, the
Company shall promptly notify holders of Senior Debt of the acceleration. The
Company may pay the Debentures when 120 days have passed after the
acceleration occurs if this Article 2 permits the payment at such time.
2.6 Subrogation. Subject to the payment in full of all Senior Debt
and until the Debentures are paid in full, Holders shall be subrogated to the
rights of the holders of the Senior Debt to receive distributions applicable
to Senior Debt. A distribution made under this Article 2 to holders of Senior
Debt which would otherwise have been made to Holders is not, as between the
Company and the Holders, a payment by the Company on this Debenture
2.7 Relative Rights. This Article 2 defines the relative rights of
the Holder, as a holder of a general, unsecured indebtedness of the Company,
and the holders of Senior Debt. Nothing in this Debenture shall: (i) impair,
as between the Company and the Holder, the obligation of the Company to pay
principal and interest on this Debenture in accordance with its terms; (ii)
affect the relative rights of the Holder, as a holder of a general, unsecured
indebtedness of the Company, and creditors of the Company other than the
holders of Senior Debt; or (iii) prevent any Holder from exercising its
available remedies upon an Event of Default, subject to the rights of holders
of Senior Debt to receive distributions otherwise payable to the Holders.
4
<PAGE>
2.8 Article 2 Subordination Not Designed to Prevent Events of
Default. The failure of the Company to make a payment on account of principal
and interest on this Debenture by reason of any provision of this Article 2
shall not be construed as preventing the occurrence of an Event of Default
under Article 7 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 The Company represents and warrants to the Holder that the
Company:
(a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted;
(c) is duly licensed or qualified and is in good standing as
a foreign corporation in each jurisdiction wherein the nature of the business
transacted by it or any of its subsidiaries or the nature of the property
owned or leased by it or any of its subsidiaries, makes such licensing or
qualification necessary, except for those jurisdictions in which the failure
so to qualify would not have a material adverse effect on the Company taken as
a whole;
(d) the Company has all requisite power and authority to
execute, deliver and perform its obligations under this Debenture. This
Debenture has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization or other laws
relating to or affecting the rights of creditors generally;
(e) except as otherwise described in the Registration
Statement, the Company is not, and will not be at the time of the original
issuance of this Debenture by the Company, in default under the terms of any
Senior Debt or other Debt and the Company is not aware, nor has it been
notified by the holder of any Senior Debt or other Debt, that grounds for
default exist with respect to any Senior Debt or other Debt;
5
<PAGE>
(f) the execution and delivery of the Debentures by the
Company and the consummation by the Company of the transactions contemplated
pursuant to the Registration Statement (a) are not in violation or breach of,
do not conflict with or constitute a default under any of the terms of the
charter documents or by-laws of the Company; (b) will not, to the actual
knowledge of the Company, result in a violation under any law, judgment,
decree, order, rule, regulation or other legal requirement or of any
governmental authority, court or arbitration tribunal whether federal, state,
municipal or local at law or in equity, and applicable to the Company; and (c)
will not violate or constitute a material breach of or constitute a material
default under any Senior Debt of the Company or any subsidiary or affiliate of
the Company, where such breach or default would have a materially adverse
effect on the operations or financial condition of the Company; and
(g) the Registration Statement does not, and will not at the
time of the original issuance of this Debenture by the Company, contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE 4
REDEMPTION
4.1 Optional. The Debentures may be redeemed by the Company in whole
or from time to time in part, at the option of the Company, at any time on or
after the date hereof at a redemption price equal to 100% of the principal
amount thereof, in each case together with accrued interest to the proposed
date of Redemption (the "Redemption Date").
4.2 Notice of Redemption. Notice of redemption (a "Notice of
Redemption") will be mailed by the transfer Agent at least 30 days but not
more than 60 days before the Redemption Date to each Holder of Debentures to
be redeemed at his registered address. Debentures in denominations larger than
$80 may be redeemed in part but only in whole multiples of $80. In the event
of a redemption of less than all of the Debentures, the Debentures will be
chosen for redemption by the Company, generally pro rata or by lot. The Notice
of Redemption shall identify the Debentures to be redeemed and shall state:
(i) the Redemption Date and redemption price; (ii) that Debentures called for
redemption must be surrendered to the Company or a designated paying agent
specified in the Notice of Redemption to collect the
6
<PAGE>
redemption price; and (iii) that, unless the Company defaults in making the
redemption payment, interest on the Debentures ceases to accrue on and after
the Redemption Date.
4.3 Effective Notice of Redemption. Once Notice of Redemption is
mailed, Debentures called for redemption become due and payable on the
Redemption Date at the redemption price.
4.4 Deposit of Redemption Price. On or before the Redemption Date,
the Company shall deposit in a bank account solely dedicated for this purpose,
or deposit with a designated paying agent, money sufficient to pay the
redemption price of and accrued interest on all Debentures to be redeemed on
the Redemption Date.
4.5 Debentures Redeemed in Part. Upon surrender of a Debenture that
is redeemed in part, the Company shall cause to be issued for the Holder at
the expense of the Company a new Debenture equal in principal amount to the
unredeemed portion of the Debenture surrendered.
ARTICLE V
COVENANTS
5.1 Payment of Debentures. The Company shall pay the principal of and
interest on this Debenture in the time, the manner and the form provided in
Article 1 hereof. The Company shall pay interest annually (including
post-petition interest in any proceeding under any bankruptcy law) on (i)
overdue principal, at the rate required by this Debenture and (ii) overdue
installments of interest (including interest contemplated by clause (i) and
without regard to any applicable grace period) at the same rate.
5.2 Reporting Requirements. The Company shall comply with its
reporting and filing obligations pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). It is hereby
agreed that posting reports filed pursuant to the Exchange Act on the
Commission's website on the world-wide web shall constitute making them
available to the Holder.
5.3 Stay, Extension and Usury Laws. The Company covenants that it
will not at any time insist upon, 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 hereinafter in force, which may affect the
covenants or the
7
<PAGE>
performance of this Debenture; and the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Holder but will suffer and permit the execution of every
such power as though no such law had been enacted.
5.4 Corporate Existence. Subject to Article 6 hereof, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the rights (charter and
statutory) and franchises of the Company; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Company
shall in good faith determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its subsidiaries
considered as a whole.
5.5 Maintenance of Properties. The Company will cause all property
material to the conduct of its business or the business of any subsidiary to
be maintained and kept in reasonably good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this section shall
prevent the Company from discontinuing the operation and maintenance of any
such properties, or disposing of any of them, if such discontinuance or
disposal is, in the reasonable judgment of the Company or any subsidiary
concerned, desirable in the conduct of its business or business of any
subsidiary.
5.6 Liquidation. The Company shall not adopt any plan of liquidation
which provides for, contemplates or the effectuation of which is preceded by
(A) the sale, lease, conveyance or other disposition of all or substantially
all of the assets of the Company or any subsidiary otherwise than
substantially as an entirety in accordance with Article 6 hereof and (B) the
distribution of all or substantially all the proceeds of such sale, lease,
conveyance or other disposition and the remaining assets of the Company to the
holders of common stock of the Company, unless the Company shall in connection
with the adoption of such plan make reasonable provision for, or agree that
prior to making any liquidating distributions it will make reasonable
provision for, the satisfaction of the Company's obligations under this
Debenture as to the payment of principal and interest.
8
<PAGE>
5.7 Liens. Neither the Company nor any subsidiary will mortgage,
pledge, grant or permit to exist any lien or other security interest in any of
its assets, of any kind, now owned or hereafter acquired, nor hypothecate or
grant a lien or security interest in its capital, net worth, equity accounts
or any capital stock, as the case may be, except for (i) any security
interests granted by the Company to any current or future holders of Senior
Debt and (ii) a lien or security interest created with respect to purchase
money obligations incurred by the Company or its subsidiaries in the ordinary
course of business and provided the indebtedness related to such security
interest does not exceed the purchase price of the subject asset(s).
5.8 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent (i) all taxes, assessments and governmental charges levied or
imposed upon the Company or any subsidiary upon the income, profits or
property of the Company or any subsidiary, and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien
upon the property of the Company or any subsidiary; provided, however, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim which amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
5.9 Transactions with Affiliates. The Company shall not, and shall
not permit any subsidiary to, directly or indirectly, pay any funds to or for
the account or benefit of, or enter into or permit to exist any transaction,
including, without limitation, the purchase, sale, lease or exchange of any
property or assets or securities or any loan transaction or the rendering of
any service, with any Affiliate unless such transaction is for fair value to
the Company or its subsidiary and on terms and conditions not less favorable
to the Company or such subsidiary than could be obtained on an arms-length
basis from unrelated third parties, as determined in each case by the Board of
Directors of the Company (as evidenced by resolutions duly adopted by the
Board); provided, however, that the provisions of this Section 5.9 shall not
apply to (a) transactions between the Company and its Subsidiaries, (b)
reasonable compensation for services in connection with employment or services
as a director, or (c) payments to Affiliates of the Company in respect of
contracts or transactions in existence on the date hereof which are described
or referred to in the Registration Statement pursuant to which this Debenture
was originally issued. For purposes of this Section 5.9 the terms "Affiliate",
"Control" and
9
<PAGE>
"subsidiary" shall have the meanings ascribed thereto in Rule 405 under the
Act.
ARTICLE 6
SUCCESSORS
6.1 When Company May Merge, Etc.. While any of the Debentures are
outstanding, the Company shall not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its assets
to, any person unless:
1. The person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such
sale, lease, conveyance or other disposition shall have been made, is (x) a
corporation organized and existing under the laws of the United States, any
state thereof or the District of Columbia or (y) a corporation or a comparable
legal entity organized under the laws of a foreign jurisdiction whose equity
securities are listed on a national securities exchange in the United States
or authorized for quotation on the National Market System of National
Association of Securities Dealers Automated Quotation System ("NASDAQ");
2. The corporation formed by or surviving
any such consolidation or merger (if other than the Company) or to which such
sale, lease, conveyance or other disposition shall have been made, assumes by
supplemental agreement, all the obligations of the Company under the
Debentures and this Debenture; and
3. Immediately after the transaction, no
Event of Default as defined in Article 7 hereof exists.
6.2 Successor Corporations Substituted. Upon any consolidation or
merger, or any sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with Section 6.1
hereof, the successor corporation formed by such consolidation or into or with
which the Company is merged or to which such sale, lease, conveyance or other
disposition is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Debenture with the same
effect as if such successor person had been named as the Company herein;
provided, however, that the predecessor Company in the case of a sale, lease,
conveyance or other disposition shall not be released from the obligation to
pay the principal of and interest on this Debenture.
10
<PAGE>
ARTICLE 7
EVENTS OF DEFAULT
7.1 A. An Event of Default occurs if: (i) the Company defaults in the
payment of interest on this Debenture when the same become due and payable and
such default continues for a period of 30 days, whether or not such payment is
prohibited by the provisions of Article 2 hereof; (ii) the Company defaults in
the payment of principal on this Debenture when the same becomes due and
payable upon maturity, upon redemption or otherwise; (iii) any representation
or warranty made or furnished by the Company in this Debenture shall be false,
incorrect or incomplete when made as to any material fact or facts; (iv) the
Company fails to comply with any of its other covenants or other agreements in
this Debenture and such failure continues for a period of 60 days following
written notice from the Holder; (v) the Company or any material subsidiary
pursuant to or within the meaning of any Bankruptcy Law (A) commences a
voluntary case, (B) consents to the entry of an order for relief against it in
an involuntary case, (C) consents to the appointment of a custodian of it for
all or substantially all of its property, or (D) makes a general assignment
for the benefit of its creditors; (vi) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that (A) is for relief
against the Company or a subsidiary in an involuntary case, (B) appoints a
custodian of the Company or a material subsidiary for all or substantially all
of its property, or (C) orders the liquidation of the Company or any material
subsidiary, and the order or decree remains unstayed and in effect for 60 days
of the entry thereof; (vii) a judgment in an amount exceeding $250,000 is
entered against the Company or any of its material subsidiaries and such
judgment is not satisfied or stayed within sixty (60) days; or (viii) the
holder of any Debt or other debt of the Company aggregating at least $250,000
shall seize, dispose of or apply in satisfaction of such Debt or debt, any
assets of the Company having a fair market value in excess of $250,000
individually or in the aggregate.
B. The term "Bankruptcy Law" means Title 11, U.S. Code or
any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
C. A Default under Section 7.1A is not an Event of Default
until the Holders of at least 33 1/3% in the principal amount of the
then-outstanding Debentures notify the Company of the Default and the Company
does not cure the Default within 30
11
<PAGE>
days after such Notice. The Notice must specify the Default and
demand that it be remedied.
7.2 Acceleration. If an Event of Default occurs and is continuing,
subject to the provisions of Section 7.1C hereof, the Holder may declare the
principal of and accrued interest on this Debenture to be due and payable by
written notice to the Company in the manner provided in Section 8.2 hereof.
Upon such declaration, the principal and interest on this Debenture shall be
due and payable immediately. The Holder may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Event of Default
or impair any right consequent thereto.
7.3 Other Remedies. If an Event of Default occurs and is continuing,
the Holder may pursue any available remedy to collect the payment of principal
of and interest on this Debenture or to enforce the performance of any
provision of this Debenture. A delay or omission by the Holder 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 in the Event of
Default. All remedies are cumulative to the extent permitted by law.
ARTICLE 8
MISCELLANEOUS
8.1 No Recourse. No recourse whatsoever, either directly or through
the Company or any trustee, receiver of assignee, shall be had in any event or
in any manner against any past, present or future stockholder, director or
officer of the Company for the payment of the redemption price, principal of
or interest on this Debenture or any of them or for any claim based thereon or
otherwise in respect this Debenture, this Debenture being a corporate
obligation only.
8.2 Notices. All communications provided hereunder shall be in
writing and delivered or mailed by registered or certified mail addressed as
follows:
If to Imperial Industries, Inc.
Imperial Industries, Inc.
3009 Northwest 75th Avenue
Miami, Florida 33122
12
<PAGE>
Attention: Secretary
If to the Transfer Agent
Continental Stock Transfer and Trust Company
2 Broadway
New York, New York 10004
if to the Holder
at the address shown for the Holder in the registration
books maintained by the Transfer Agent.
8.3 Mutilated, Lost, Stolen or Destroyed Debentures. In case this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall cause
to be issued and delivered in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of and substitution for the
Debenture, mutilated, lost, stolen or destroyed, a new Debenture of like tenor
and representing an equivalent right or interest, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction and an
indemnity, if requested, also satisfactory to it.
8.4 Maintenance of Office. The Company covenants and agrees that so
long as this Debenture shall be outstanding, it will maintain an office or
agency in Florida (or such other place as the Company may designate in writing
to the holder of this Debenture) where notices, presentations and demands to
or upon the Company in respect of this Debenture may be given or made.
8.5 Governing Law. This Debenture shall be construed in accordance
with and governed by the laws of the State of Delaware, without giving effect
to conflict of laws principles.
13
<PAGE>
IN WITNESS WHEREOF, Imperial Industries, Inc. has caused
this Debenture to be signed by its Executive Vice President and to be dated
the day and year first above written.
ATTEST [SEAL]
IMPERIAL INDUSTRIES, INC.
By:___________________________
Name: Howard L. Ehler, Jr.
Title: Executive Vice President
14
<PAGE>
ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Debenture and forwarded to the Transfer Agent, Continental Stock
Transfer and Trust Company, 2 Broadway, New York, New York 10004.)
FOR VALUE RECEIVED ____________________ here sells, assigns and transfers unto
[NAME OF TRANSFEREE] this Debenture, together with all right, title and
interest therein, and does hereby irrevocably constitute and
appoint_________________ Attorney, to transfer the within Debenture on the
books of the within-named Company, with full power of substitution.
Dated: ____________________
Signature: __________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Debenture.)
Address: ___________________________________
___________________________________
___________________________________
(Insert Social Security or Other Identifying
Number of Holder)___________________________
Signature
Guaranteed: ___________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
15
<PAGE>
Congress Financial Corporation (Florida)
777 Brickell Avenue Miami Florida 33131
P.O. Box 010550 Miami Florida 33101
305 371 6671 Fax 305 371 9456
January 12, 1998
Premix-Marbletite Manufacturing Co.
3009 NW 75th. Avenue
Miami, Florida 33122
RE: Amendment to Amended and Restated Accounts Financing
Agreement (Security Agreement) dated June 20, 1988
Gentlemen:
Reference is made to the Amended and Restated Accounts Financing Agreement
(Security Agreement) entered into between us dated June 20, 1988.
By mutual agreement, Section 3.1 and 9.1 of the Accounts Financing Agreement
(Security Agreement) are hereby amended to read as follows:
Effective January 1, 1998, substituting therefor the following:
Section 3.1 Interest shall be payable by us on the first day of each month
upon the closing daily balances in our loan account for each day during the
immediately preceding month, at a rate equal to two percent (2%) per annum in
excess of the prime commercial interest rate (presently 8-1/2% per annum) from
time to time publicly announced by CoreStates Bank, N.A., Philadelphia,
Pennsylvania, whether or not such announced rate is the best rate available at
such bank. The interest rate charged hereunder shall increase or decrease,
respectively, in said prime loan rate, effective on the first day of the month
after any change in said prime loan rate. Your interest charges shall be
calculated on the basis of a 360-day year and shall be included in each
monthly statement of our loan account. You shall have the right, at your
option, to charge all such interest charges to our loan account on the first
day of each month, and such interest charges shall be deemed to be paid by the
first amounts subsequently credited thereto.
Section 9.1 Term
----
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on June 19, 1999 (the
"Renewal Date"), and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof. Lender or Borrower may terminate this Agreement
and the other Financing Agreements effective on the Renewal Date or on the
anniversary of the
<PAGE>
Amendment
Page 2
Renewal Date in any year by giving to the other party at least sixty (60) days
prior written notice; provided, that, this Agreement and all other financing
Agreements must be terminated simultaneously. Upon the effective date of
termination or non-renewal of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or
as to which Lender has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted
by wire transfer in Federal funds to such bank account of Lender, as Lender
may, in its discretion, designate in writing to Borrower for such purpose.
Interest shall be due until and including the next business day, if the
amounts so paid by Borrower to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Eastern Standard time.
(b) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount of
$20,000.
Except as amended herein, all the terms and conditions of the
Security Agreements between us remain in full force and effect.
Congress Financial Corporation
(Florida)
By: /S/
------------------------------
Ramon Lebron
Title: Vice President
ACCEPTED ON THIS 28TH. DAY OF January, 1998
--------------------------------------
By: /S/
---------------------------
Howard L. Ehler, Jr.
Title: Vice President
<PAGE>
Congress Financial Corporation (Florida)
777 Brickell Avenue Miami Florida 33131
P.O. Box 010550 Miami Florida 33101
305 371 6671 Fax 305 371 9456
January 12, 1998
Acrocrete, Inc.
3009 NW 75th. Avenue
Miami, Florida 33122
RE: Amendment to Amended and Restated Accounts Financing
Agreement (Security Agreement) dated November 21, 1988
Gentlemen:
Reference is made to the Amended and Restated Accounts Financing Agreement
(Security Agreement) entered into between us dated November 21, 1988.
By mutual agreement, Section 3.1 and 9.1 of the Accounts Financing Agreement
(Security Agreement) are hereby amended to read as follows:
Effective January 1, 1998, substituting therefor the following:
Section 3.1 Interest shall be payable by us on the first day of each month
upon the closing daily balances in our loan account for each day during the
immediately preceding month, at a rate equal to two percent (2%) per annum in
excess of the prime commercial interest rate (presently 8-1/2% per annum) from
time to time publicly announced by CoreStates Bank, N.A., Philadelphia,
Pennsylvania, whether or not such announced rate is the best rate available at
such bank. The interest rate charged hereunder shall increase or decrease,
respectively, in said prime loan rate, effective on the first day of the month
after any change in said prime loan rate. Your interest charges shall be
calculated on the basis of a 360-day year and shall be included in each
monthly statement of our loan account. You shall have the right, at your
option, to charge all such interest charges to our loan account on the first
day of each month, and such interest charges shall be deemed to be paid by the
first amounts subsequently credited thereto.
Section 9.1 Term
----
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on June 19, 1999 (the
"Renewal Date"), and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof. Lender or Borrower may terminate this Agreement
and the other Financing Agreements effective on the Renewal Date or on the
anniversary of the
<PAGE>
Amendment
Page 2
Renewal Date in any year by giving to the other party at least sixty (60) days
prior written notice; provided, that, this Agreement and all other financing
Agreements must be terminated simultaneously. Upon the effective date of
termination or non-renewal of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or
as to which Lender has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted
by wire transfer in Federal funds to such bank account of Lender, as Lender
may, in its discretion, designate in writing to Borrower for such purpose.
Interest shall be due until and including the next business day, if the
amounts so paid by Borrower to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Eastern Standard time.
(b) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount of
$20,000.
Except as amended herein, all the terms and conditions of the
Security Agreements between us remain in full force and effect.
Congress Financial Corporation
(Florida)
By: /S/
------------------------------
Ramon Lebron
Title: Vice President
ACCEPTED ON THIS 28TH. DAY OF January, 1998
--------------------------------------
By: /S/
---------------------------
Howard L. Ehler, Jr.
Title: Vice President
<PAGE>
Congress Financial Corporation (Florida)
777 Brickell Avenue Miami Florida 33131
PO Box 010550 Miami Florida 33101
305 371 6671 Fax 305 371 9456
August 21, 1995
Mr. Howard Ehler
Imperial Industries, Inc.
3009 N.W. 75th. Avenue
Miami, Florida 33122-1439
Dear Howard:
Please be advised that effective on April 4, 1995 the aggregate line of credit
of Acrocrete, Inc. and Premix-Marbletite was increased to $2,000,000.00.
Sincerely,
/S/
- --------------------
Ramon Lebron
Vice President
RL/pc
<PAGE>
IMPERIAL INDUSTRIES, INC.
3009 N.W. 75TH. AVENUE, MIAMI, FLORIDA 33122 (305)477-7000
July 3, 1996
Mr. Fred M. Hansen
49 Raeview Drive
Stouffville, Ontario L4A7X4
Dear Fred:
Oh behalf of the members of the Board of Directors of Imperial
Industries, Inc., I am pleased to finalize our offer to you for the position
of President of Premix-Marbletite Manufacturing Co., and Acrocrete, Inc.
1. Base salary of $117,601 per year.
2. Annual bonus based on performance goals established by the
Board of Directors.
3. Allotment for moving expenses, travel and all incidental
costs of moving of $12,000.
4. Allotment costs of counsel to obtain an "H-1B" visa of $3,000.
5. Use of company auto or car allowance of $650 per month for a
vehicle for business.
6. Participation in Corporate Group Medical Plan.
7. Participation in Corporate 401(K) Retirement Plan
(Participation to commence in accordance with Plan
documents).
8. Eligible to receive 100,000 shares of Common Stock of
Imperial Industries, Inc., over a three year period based on
the combined operating performance of Premix and Acrocrete
attaining a 13% return on total assets in 1998, 1999 and the
year 2000.
9. As an inducement for your employment, during your employment
you will be granted 33,333 shares of Common Stock of
Imperial Industries, Inc. at the end of the 1996 and 1997
fiscal years, and 33,334 shares at the end of 1998.
<PAGE>
10. As an inducement for Company to enter into this Agreement,
you agree to execute the Non-Disclosure Agreement and the
Non-Compete Covenant Agreements attached to this letter.
Fred, we all look forward to working with you and assure you of our
cooperation in continuing to building our Company. Please indicate your
acceptance to this offer by executing the attached copy and returning it to
me.
Sincerely,
IMPERIAL INDUSTRIES, INC.
/S/
-------------------------
S. DANIEL PONCE
Chairman of the Board
AGREED AND ACCEPTED
/S/
- -------------------
Fred M. Hansen
<PAGE>
Premix-Marbletite Mfg. Co.
Acrocrete, Inc.
Acrocrete Service Depot
NON-DISCLOSURE AGREEMENT
Name Fred Hansen
________________________
Department President
__________________
Date August 12, 1996
_________________________
In consideration of my employment and/or continued employment with
either Premix- Marbletite Manufacturing Co., Acrocrete, Inc., and Acrocrete
Service Depot, (each of whom is hereinafter referred to as the "Company"), I
agree as follows.
During the course of my employment, I may learn or become aware of a
variety of information related to the "Company's" business that is secret or
confidential. This information is of great value and importance to the success
of the "Company's" business and which gives or is intended to give the
"Company" an advantage over its competitors who do not have the information.
In general terms, "confidential information" includes, for example,
confidential information relating to marketing plans, customer or distributor
lists and agreements, quotations and agreements, purchasing and pricing
methods and procedures, personnel information, financial data, and the like.
The protection of this confidential information is essential to the
"Company's" continued success and growth in the marketplace. For this reason,
each employee has a vital interest and responsibility to see that the
"Company's" confidential information is properly protected.
I understand it is my responsibility to treat such proprietary
information as confidential during and subsequent to my employment with the
"Company". I promise not to directly or indirectly use or disclose to any
other person or business entity the "Company's" secret or confidential
information without prior written consent by an officer of the "Company". I
further promise to take all reasonable precautions to protect against the
negligent or inadvertent disclosure of the "Company's" secret or confidential
information to any other person or business entity. If I do use or disclose
any secret or confidential information, I understand that my employment is
subject to termination. I recognize that I may not copy confidential documents
or recordings without authorization.
I also recognize that all documents and recordings which embody or
otherwise contain confidential information which I may produce or may be given
to me in connection with my employment are the property of the "Company" and
shall be my obligation to deliver the same to the "Company" upon request or
upon termination of my employment. I also understand that upon termination of
my employment with the "Company" does not relieve me from any of the
obligations of this Agreement.
Employee's Initials: /S/
-----------
FH
<PAGE>
I recognize and understand that the "Company" may not have any
adequate remedy at law for the breach or threatened breach of any one or more
of the promises set forth in this Agreement and I agree that in the event of
any such breach, the "Company" may terminate my employment without any
liability. I further agree that the "Company" may, in addition to the other
remedies which may be available to it, file a suit in equity to enjoin me from
violation and breach of this Agreement. In such event, I shall be liable to
pay all costs, including reasonable attorneys fees, which the "Company" may
incur in enforcing, to any extent, the provisions of this Agreement, whether
or not litigation is actually commenced and including litigation of any appeal
taken or defended by the "Company" in any action to enforce this Agreement.
In addition to the termination provisions contained in this
Agreement, it is understood and agreed that either I or the "Company" may
terminate the employment relationship at any time, for cause or not cause, and
such a termination will have no effect on the obligations and promises
contained in this Agreement.
It is understood that the provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of Florida
without giving effect to the principles of conflict of laws. It is further
understood that the provisions in this Agreement are severable and
independent. In the event any of the provisions or parts thereof shall be held
to be invalid or unenforceable, all other provisions shall remain in full
force and effect.
Should I have any questions as to whether something is secret or
confidential, I promise to seek prior written approval from an officer or the
"Company" prior to disclosure.
This Agreement contains the complete understanding of the parties and
any changes must be in writing and signed by the parties.
I have received a copy of this letter and accept the responsibilities
outlined above.
READ AND ACCEPTED BY: /S/
_________________________________________________________
Fred H. Hansen
DATE: August 12, 1996
__________________________________________________________________________
<PAGE>
PREMIX-MARBLETITE MANUFACTURING CO.
ACROCRETE, INC.
ACROCRETE SERVICE DEPOT
(Collectively the "Company")
NON-COMPETE COVENANT
Name: Fred M. Hansen (Employee)
-------------------------
As an inducement for employment, EMPLOYEE covenants and
agrees that during his employment and, for a period of one (1) year after he
ceases to be employed by the COMPANY, regardless of manner of cause of
termination, he will not be an employee, agent; director, stockholder or owner
(except of not more than 1% of the securities of any publicly traded entity),
partner, consultant, financial backer, creditor or be otherwise directly or
indirectly connected with or participate in the management, operation or
control any Business, firm, proprietorship, corporation, partnership,
association, entity or venture with in a radius of one hundred (100) miles
from the boundaries of all markets in which the COMPANY or any of its
subsidiaries are actively selling their product- (any area the Company has a
substantial presence) similar to the type of business conducted by the
COMPANY, existing at the termination of this Agreement.
EMPLOYEE covenants and agrees that during his employment and
for two (2) years after termination of his employment for any reason
whatsoever, he will not contact, call upon, solicit Business from, sell or
render competitive services or products to any customers of the COMPANY and
its subsidiaries and EMPLOYEE shall not directly or indirectly aid or assist
any other person, firm or cooperation to do any of the aforesaid acts.
As a further inducement for employment, EMPLOYEE covenants
and agrees that at all times during his employment and for two (2) years at
for any reason whatsoever, EMPLOYEE will not directly or indirectly, as
principal, agent, owner partner, stockholder, officer, director, employee,
independent contractor or consultant or in any individual or representative
capacity for himself or on behalf of any Business, firm corporation,
partnership association or proprietorship enter into any agreements with or
solicit, or directly or indirectly cause others to solicit, or directly or
indirectly cause others to solicit the employment of any officer, sales
person, agent or other employee of the COMPANY for the purpose of causing said
officer, sales person, agent or other EMPLOYEE to terminate employment with
the COMPANY.
READ AND ACCEPTED BY: /S/
------------------
Fred M. Hansen
DATE: August 12, 19967
------------------
<PAGE>
Imperial Industries, Inc.
Restricted Stock Plan
1. Purpose
This Plan (the "Plan") is intended to promote the interests of Imperial
Industries, Inc. (the "Company") and its stockholders by using the common
stock of Imperial Industries, Inc. as an incentive/reward program for key
executives of the Corporation and its subsidiaries. To Increase stock
ownership by the key executives and enhance the focus on the long term
financial performance of the Company and provide an incentive to create
long-term stockholder value.
2. Definitions
For purposes of this Plan, the following terms will have the definitions set
forth below:
(a) "Company." Imperial Industries, Inc., a Delaware corporation.
(b) "Board." The Company's Board of Directors.
(c) "Committee." The Compensation Committee as appointed from time to time by
the Board, consisting of not less than three members. No member of the
Committee shall be eligible for selection as a person to whom shares may be
allocated pursuant to this Plan at any time while he is serving on the
Committee.
(d) "Common Stock." This phrase shall mean the $.10 par value common stock of
the Company.
(e) "Date of Grant." This term shall mean July 31, 1997.
(f) "Disability." This phrase shall mean the condition of an executive who is
unable to engage in any substantial gainful activity by reason of any medical
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period
of not less than twelve (12) months.
(g) "Fair Market Value." This phrase shall mean the closing price of a Share
on the principal securities exchange on which such Shares are traded on the
day immediately preceding the date as of which the Fair Market Value is being
determined, or on the next preceding date on which such Shares are being
traded if no Shares were traded on such immediate preceding day. If the Shares
are not traded on a securities exchange, Fair Market Value shall be deemed to
be the average of the high bid and low asked prices of the Shares in the
over-the-counter market on the day immediately preceding the date as of the
Fair Market Value is being determined or on the next preceding date on which
such high bid and low asked prices are recorded. If the Shares are
1
<PAGE>
not publicly traded, or are subject to conditions or restrictions which may
have a significant effect upon the Fair Market Value of the Shares, Fair
Market Value shall be determined by the Committee or the Board, as the case
may be. In no case shall Fair Market Value be less than the par value of a
share of Common Stock of the Company.
(h) "Participant." A key executive of the Company or a Subsidiary to whom
shares are granted under this Plan, or such individual's designated
beneficiary, surviving spouse, estate, or legal representative. For this
purpose, however, any such beneficiary, spouse, estate, or legal
representative shall be considered as one person with the employee.
(i) "Performance Goal." This phrase shall mean an annual Return on Assets
percentage that is equal to or exceeds 13%.
(j) "Plan." The Imperial Industries, Inc. Restricted Stock Plan.
(k) "Restricted Period." This phrase shall have the meaning supplied by
Section 9(c), below.
(l) "Restricted Share." The shares of common stock of the Company reserved
pursuant to Section 4 hereof and any such shares issued to a Participant
pursuant to this Plan.
(m) "Return on Assets." This phrase shall mean the percentage derived from the
combined earnings before federal income tax of Premix and Acrocrete divided by
the average combined total assets of Premix and Acrocrete (Total Assets at
January 1 of any fiscal year plus those at December 31 divided by two.)
(n) "Share." This phrase shall mean one share of Common Stock, adjusted in
accordance with Section 4(a).
(o) "Subsidiary" or Subsidiaries." A corporation or corporations of which the
Company owns, directly or indirectly, shares having a majority of the ordinary
voting power of the election of directors.
3. Administration
The Plan shall be administered by the Compensation Committee (the "Committee")
of the Board of Directors of the Company. Subject to the provisions of the
Plan, the Committee shall have exclusive power to select the key executives to
be granted Restricted Stock to determine the number of Restricted Stock shares
to be granted to each key executive selected, and to determine the time or
times when Restricted Stock will be granted. The authority granted to the
Committee by the preceding sentence will be exercised based upon
recommendations received from the management of the Company. The Committee
shall have authority to interpret the Plan, to adopt and revise rules and
regulations relating to the Plan, to determine the conditions subject to which
any awards may be made or payable, and to make any other determinations which
it believes
2
<PAGE>
necessary or advisable for the administration of the Plan. Determinations by
the Committee shall be made by majority vote and shall be final and binding on
all parties with respect to all matters relative to the Plan.
4. Restricted Share Reserve
(a) Share Reserve. The Company will establish a Share Reserve to which will be
credited 241,667 Shares of the Common Stock of the Company, par value $.10 per
share. Should the shares of the Company's Common Stock, due to a stock split
or stock dividend or combination of Shares or any other change, or exchange
for other securities, by reclassification, reorganization, merger,
consolidation, recapitalization or otherwise, be increased or decreased or
changed into, or exchanged for, a different number or kind of shares of stock
or other securities of the Company or of another corporation, the number of
Shares then remaining in the Share Reserve shall be appropriately adjusted to
reflect such action. If any adjustments results in a fractional share, the
fraction shall be disregarded.
(b) Adjustments to Reserve. Upon the grant of Restricted Shares hereunder, the
Share Reserve will be reduced by the number of Restricted Shares so granted
and, upon the forfeiture thereof pursuant to Section 8(g) and (h) thereof, the
Share Reserve shall be increased by such number of Restricted Shares, and such
Restricted Shares may again be the subject of allocations hereunder.
(c) Distributions of Restricted Shares. Distributions of Restricted Shares, as
the Board shall in its sole discretion determine, may be made from authorized
but unissued shares or from treasury shares. All authorized and unissued
shares issued as Restricted Shares in accordance with the Plan shall be fully
paid and non-assessable shares and free from preemptive rights.
5. Eligibility and Granting of Restricted Stock
(a) Eligible Executives. The Committee will designate, from time to time, such
additional key executives of the Company or any of its Subsidiaries, or
parents or affiliated corporations (including officers and directors of the
Company), engaged in activities which further the Company's objectives, who
will be eligible to receive grants of Restricted Stock under the Plan of the
Company.
(b) Selection by the Committee. From the executives eligible to receive grants
of Restricted Stock pursuant to the Plan, the Committee may from time to time
select those executives to whom it recommends that the Board make grants. Such
recommendations shall include a recommendation as to the number of Restricted
Shares that should be allocated to each such individual. In selecting those
executives whom it wishes to recommend for grants and in determining the
number of Restricted Shares it wishes to recommend, the Committee shall
consider the position and responsibilities of the eligible executives, the
value of their services to the Company and its Subsidiaries and such other
factors as the Committee deems pertinent. As part of this original Plan, the
Committee makes the following awards to be administered in
3
<PAGE>
accordance with Section 8.
(i) Fred Hansen 166,667 shares
(ii) Howard Ehler, Jr. 75,000 shares
(c) Review by Board of Committee's Recommendations. As promptly as practicable
after the Committee recommends making allocations pursuant to (b), above, the
Board will review the Committee's recommendations and, in the Board's
discretion, grant to the executives the Board selects from those executives
recommended by the Committee a number of Restricted Shares not in excess of
the number recommended for each executive by the Committee. This date of such
action by the Board shall be the "Date of Grant," as that term is used in this
Plan.
(d) Participation in Stock Option Plans. A person who has received options to
purchase stock under any stock option plan of the Company or a Subsidiary may
exercise the same in accordance with their terms, and will not by reason
thereof be ineligible to receive Restricted Shares under this Plan.
(e) Limited on Number of Allocable Shares. The total number of Restricted
Shares which may be allocated pursuant to this Plan will not exceed the amount
available therefor in the Restricted Share Reserve.
6. Form of Grant of Restricted Stock
(a) Number Specified. Each grant shall specify the number of Restricted Shares
subject thereto, subject to the provisions of Section 4.
(b) Notice. When a grant is made, the Board shall advise the Participant and
the Company thereof by delivery of written notice in the form of Exhibit A
hereto annexed.
7. Time of Grant of Restricted Stock.
The Plan is designed to operate over 4 years commencing on January 1, 1997.
The Grant of Restricted Shares shall be made by the Committee to the
Participants on July 31, 1997. The Restricted Shares shall be granted to the
Participants subject to the provisions of this Plan. The Restricted Shares
granted to the Participants shall vest to the Participant subject to the terms
provided in Section 8.
8. Vesting of Restricted Stock
(a) A total of 66,667 shares of Restricted Shares shall be granted Fred
Hansen. The Restricted Stock granted to Fred Hansen shall vest yearly, in
fixed increments, according to the following schedule. The vested Shares shall
be released to Fred Hansen within 30 days of the end of the
4
<PAGE>
fiscal year.
Number of Shares of
Period Restricted Stock Vesting
------ ------------------------
Year Ended December 31, 1997 33,333
Year Ended December 31, 1998 33,334
(b) A total of 75,000 shares of Restricted Stock shall be granted Howard
Ehler, Jr. The Restricted Shares granted to a Howard Ehler, Jr. shall vest
yearly, in fixed increments, according to the following schedule, based on the
Company attaining its Performance Goals for the fiscal period. Upon satisfying
the Performance Goals for a particular fiscal period, the vested shares shall
be released to Howard Ehler, Jr. within 120 days after the end of the fiscal
year.
Number of Shares of
Fiscal Period Restricted Stock Vesting
- ------------- ------------------------
Year Ended December 31, 1997 25,000
Year Ended December 31, 1998 25,000
Year Ended December 31, 1999 25,000
(c) Notwithstanding the provisions of paragraph 8(b), in recognition of
economic factors having a cyclical influence on operations in any one fiscal
period, Howard Ehler, Jr., at December 31, 1999, shall vest any Restricted
Stock not previously vested according to Section 8(b) if the aggregate
cumulative "Return on Assets" during the period January 1, 1997 through
December 31, 1999 is in excess of 13%. If the aggregate cumulative "Return on
Assets" during the period January 1, 1997 through December 31, 1999 exceeds
13%, the vested Shares shall be released to Howard Ehler, Jr. within 120 days
after December 31, 1999.
(d) A total of 100,000 shares of Restricted Stock shall be granted Fred
Hansen. The Restricted Shares granted to Fred Hansen shall vest yearly, in
fixed increments, according to the following schedule, based on the Company
attaining its Performance Goal for the fiscal period. Upon satisfying the
Performance Goal for a particular fiscal period, the vested shares shall be
released to Fred Hansen within 120 days after the end of the fiscal year
period.
5
<PAGE>
Number of Shares of
Period Restricted Stock Vesting
------ ------------------------
Year Ended December 31, 1998 33,333
Year Ended December 31, 1999 33,333
Year Ended December 31, 2000 33,334
(e) Notwithstanding the provisions of paragraph 8(d), in recognition of
economic factors having a cyclical influence on operations in any one fiscal
period, Fred Hansen, at December 31, 2000, shall vest in any Restricted Shares
not previously vested according to Section 8(d), if the aggregate cumulative
"Return on Assets" during the period January 1, 1998 through December 31, 2000
is in excess of 13%. If the aggregate cumulative "Return on Assets" during the
period January, 1, 1998 through December 31, 2000 exceeds 13%, the vested
Shares shall be released to Fred Hansen within 120 days after December 31,
2000.
(f) Death or Disability
(i) Notwithstanding the provisions of Sections 8(a), (b) and
(d), upon the Participant's termination of employment with the
Company due to death or disability, the amount of Restricted Shares
granted to a Participant that are scheduled to vest, according with
the terms of Sections 8(a), (b) or (c), in the year of termination of
employment, including the dividends, distributions and income
thereon, will vest in the Participant, reduced by a fraction, the
numerator of which is equal to the number of days remaining in the
year of termination of employment, and the denominator of which is
equal to 365. For purposes of this Section, a Participant will be
considered disabled in accordance with the definition provided in
Section 2(f). This resulting total number of shares shall be further
reduced by any distribution of shares pursuant to Sections 8a, b and
d.
(ii) Notwithstanding the provisions of Section 8(c) and (e), upon a
Participant's termination of employment with the Company due to death
or disability, the amount of Restricted Shares granted to a
Participant that may vest in accordance with the terms of Sections
8(c) or (e), in the year of termination of employment, including the
dividends, distributions and income thereon, may vest in the
Participant according to the terms of Sections 8(c) or (e), reduced
by a fraction, the numerator of which is equal to the number of days
remaining in the year of termination of employment, and the
denominator of which is equal to 1095. For purposes of this Section,
a Participant will be considered disabled in accordance with the
definition provided in Section 2(f).
(g) Forfeiture of Restricted Stock - Termination of Employment.
Notwithstanding the provisions in Section 8(f), if the employment of a
Participant with the Company is terminated for any reason other than death or
disability, then each Participant's rights with respect to granted Restricted
6
<PAGE>
Shares, including the dividends, distributions and income thereon, which have
not vested on or prior to the date of the occurrence of such event will
terminate and be forfeited and neither the Participant nor his heirs, personal
representatives, successors or assigns shall have any future rights with
respect to any such Restricted Shares.
(h) Forfeiture of Restricted Shares - Failure to Meet Performance Goals. If a
Participant fails to satisfy the terms of Section 8(c) or (e) then each
Participant's rights with respect to granted Restricted Shares, including the
dividends, distributions and income thereon, which have not vested according
to the terms of Section 8(b), (c) (d) or (e) will terminate and be forfeited
and neither the Participant nor his heirs, personal representatives,
successors or assigns shall have any future rights with respect to any such
Restricted Shares.
9. Restrictions
(a) Transfer/Issuance.
(i) Restricted Shares will be promptly issued or transferred and a
certificate or certificates for such shares shall be issued in the
Participant's name. The Participant shall thereupon be a shareholder
of all the shares represented by the certificate or certificates. As
such, the Participant will have all the rights of a shareholder with
respect to such shares, including the right to vote them and to
receive all dividends and other distributions (subject to Section
9(b)) paid with respect to them, except that the shares shall be
subject to the restrictions in Section 9(d).
(ii) Stock certificates representing Restricted Shares will be
imprinted with a the following legend in addition to such other
legends as counsel to the Corporation may deem appropriate:
RESTRICTED SHARES
"The shares represented by this certificate may not be sold,
exchanged, transferred, pledged, hypothecated, or otherwise
disposed of except in accordance with the terms, conditions,
and restrictions of the Imperial Industries, Inc. Restricted
Stock Plan, a copy of which is on file and available for
inspection during normal business hours at the Company's
principal office."
(iii) In aid of such restrictions, the Participant shall, immediately
upon receipt of the certificate(s) therefor, deposit such
certificate(s) together with a stock power or other instrument of
transfer, appropriately endorsed in blank, with an escrow agent
designated by the Committee, under a deposit agreement containing
such terms and conditions as the Committee shall approve, the
expenses of such escrow to be borne by the Company.
7
<PAGE>
(b) Stock Splits, Dividends, etc. If, due to a stock split, stock dividend,
combination of shares, or any other change or exchange for other securities by
reclassification, reorganization, merger, consolidation, recapitalization or
otherwise, the Participant, as the owner of Restricted Shares subject to
restrictions hereunder, shall be entitled to new, additional, or different
shares of stock or securities, the certificate or certificates for, or other
evidences of, such new, additional, or different shares or securities,
together with a stock power or other instrument of transfer appropriately
endorsed, also shall be imprinted with a legend as provided in Section
9(a)(ii) and deposited by the Participant under the above-mentioned deposit
agreement. When the event(s) described in the preceding sentence occur, all
Plan provisions relating to restrictions and lapse of restrictions will apply
to such new, additional, or different shares or securities to the extent
applicable to the shares with respect to which they were distributed,
provided, however, that if the Participant shall receive rights, warrants or
fractional interests in respect of any of such Restricted Shares, such rights
or warrants may be held, exercised, sold or otherwise disposed of, and such
fractional interests may be settled, by the Participant free and clear of the
restrictions hereafter set forth.
(c) Restricted Period. The term "Restricted Period" with respect to Restricted
Shares (after which restrictions shall vest) means a period starting on the
Date of Grant of such shares to the Participant and ending on such dates that
the restrictions lapse, in accordance with the terms provided in Section 8.
(d) Restrictions on Restricted Shares. The restrictions to which Restricted
Shares shall be subject are:
(i) During the Restricted Period applicable to such shares and except
as otherwise specifically provided in the Plan, none of such shares
shall be sold, exchanged, transferred, pledged, hypothecated, or
otherwise disposed of.
(ii) During the Restricted Period applicable to such shares and
except as otherwise specifically provided in the Plan, the escrow
agent shall retain the voting rights of the Restricted Shares and
collect and hold any dividends any other distributions paid with
respect to the Restricted Shares. Any dividends held by the escrow
agent shall be immediately released to the Participant upon lapse of
the Restricted Period with respect to the Restricted Shares.
(e) Lapse of Restricted Period. The restriction set forth in Section 9(d)
hereof, with respect to the Restricted Shares to which such Restricted Period
was applicable, will lapse:
(i) as to such shares in accordance with the date(s) and number(s) of
shares as to which the Restricted Period expires, as described in the
provisions of Section 8, or
(ii) as to such shares in the event of the Participant's death or
Disability in accordance with Section 8(f).
8
<PAGE>
(f) Transfers Upon Death of Participant. Nothing in this Plan will preclude
the transfer of vested Restricted Shares, on the Participant's death, to the
Participant's legal representatives or estate, nor preclude such
representatives from transferring any of such shares to the person(s) entitled
thereto by will or the laws of descent and distribution, provided, however,
that any shares so transferred will remain subject to all restrictions and
obligations imposed on them by this Plan.
(g) Delivery of Written Notice. All notices in writing required pursuant to
this Section 9 will be sufficient only if actually delivered or if sent via
registered or certified mail, postage prepaid, to the Company, attention
Treasurer, and/or escrow agent at its principal office within the City of
Miami, Florida, and will be conclusively deemed given on the date of delivery,
if delivered or on the first business day following the date of such mailing,
if mailed.
10. Finality of Determination.
The Committee will administer this Plan and construe its provisions. Any
determination by the Committee (except insofar as it will make recommendations
only) in carrying out, administering, or construing this Plan will be final
and binding for all purposed and upon all interested persons and their heirs,
successors, and personal representatives.
11. Limitations
(a) No Right to Allocation. No person will at any time have any right to
receive an allocation of Restricted Shares hereunder and no person will have
authority to enter into an agreement for the making of an allocation or to
make any representation or warranty with respect thereto.
(b) Right of Participants. Participants of grants will have no rights in
respect thereof other than those set forth in the Plan. Except as provided in
this Plan, such rights may not be assigned or transferred except by will or by
the laws of descent and distribution. Before grant of Restricted Shares, no
such shares will be earmarked for the Participants' accounts nor will such
Participants have any rights as stockholders with respect to such shares.
(c) No Right to Continued Employment. Neither the Company's action in
establishing the Plan, nor any action taken by it or by the Board or the
Committee under the Plan, nor any provision of the Plan, will be construed as
giving to any person the right to be retained in the employ of the Company or
any Subsidiary.
(d) Limitation on Actions. Every right of action by or on behalf of the
Company or by any shareholder against any past, present, or future member of
the Board, the Committee, Participant, or any officer or employee of the
Company arising out of or in connection with this Plan shall, regardless of
the place where the action may be brought and regardless of the place of
residence of any such director, committee member, officer or employee, shall
cease and be barred by the expiration of three years from the later of:
9
<PAGE>
(i) the date of the act or omission in respect of which such right of
action arises or
(ii) the first date upon which there has been made generally
available to shareholders an annual report of the Company and a proxy
statement for the annual meeting of shareholders following the
issuance of such annual report, which annual report and proxy
statement alone or together set forth, for the related period, the
amount of the allocations.
In addition, any and all right of action by any Participant (past, present or
future) against the Company or any member of the Committee arising out of or
in connection with this Plan will, regardless of the place where action may be
brought and regardless of the place of residence of any Committee member,
shall cease and be barred by the expiration of three years from the date of
the act or omission in respect of which such right of action arises.
Further, any and all right of action by any Participant (past, present, or
future) against the Company or any member of the Committee arising out of or
in connection with this Plan will, regardless of place where action may be
brought and regardless of the place of residence of any Committee member,
shall be limited to arbitration. The Company will bear all costs of an
arbitration, except that the arbitrator shall have the power to apportion
among the parties other expenses such as pre-hearing discovery, travel costs,
and attorney's fees. The decision of the arbitrator shall be final and binding
on all parties, and judgement on the arbitrator's award may be entered in any
court of competent jurisdiction.
12. Amendment, Suspension or Termination of Plan.
The Board may amend, suspend or terminate the Plan in whole or in part at any
time; provided that such amendment will not affect adversely rights or
obligations with respect to allocations previously made; and provided further,
that no modification of the Plan by the Board without approval of the
stockholders will (i) increase the maximum number of Restricted Shares
reserved pursuant to Section 4, (ii) change the provisions of Section 4 with
respect to the total number of Restricted Shares that may be allocated under
the Plan; or (iii) render any member of the Committee eligible to receive an
allocation at any time while he is serving on the Committee.
13. Governing Law.
The Plan will be governed by the laws of the State of Florida.
14. Expenses of Administration.
All costs and expenses incurred in the operation and administration of this
Plan will be borne by the Company.
10
<PAGE>
15. Miscellaneous Provisions.
(a) Non-alienation. A Participant's rights, interests and benefits under the
Plan may not be assigned or transferred and shall not be subject in any manner
to attachment, lien, or other process to secure payment of the debts and
obligations of the Participant. In the case of a Participant's death, payment
of Restricted Stock due under this Plan shall be made to his designated
beneficiary, or in the absence of such designation, by will or the laws of
decent and distribution.
(b) No Contract of Employment. No Participant or other person shall have any
claim or right to be granted an award of Restricted Shares under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or Participant any right to be retained in the employ of the
Company.
(c) Taxes. The Participant or other person receiving such Restricted Stock
shall be required to pay to the Company the amount of any taxes which the
Company is required to withhold with respect to such Restricted Stock.
(d) IRC Section 83(b) Election. A Participant who elects to include in his
gross income in the year of transfer of Restricted Stock pursuant to Section
83(b) of the Internal Revenue Code shall furnish a copy of that election to
the Company in accordance with the regulations promulgated thereunder.
16. Written Agreements.
Each grant of Restricted Stock shall be evidenced by a written agreement,
executed by the Participant and the Company, which shall contain such
restrictions, terms and conditions as the Committee may require.
17. Severability.
If any provisions of this Plan is held legal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of this Plan,
but this instrument shall be construed and enforced as if the illegal and
invalid provisions had never been inserted in this Plan.
18. Effective Date of the Plan.
The Plan shall be effective as of July 15, 1997.
11
<PAGE>
19. IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan as of the date first written above.
IMPERIAL INDUSTRIES, INC.
BY: /S/
------------------------------
Morton L. Weinberger, Director
12
<PAGE>
<TABLE>
<CAPTION>
Statement of Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred Stock Dividends
Six Months
Historical Year ended December 31, Ended
- ---------- -------------------------------------------------------------- -------------
1997 1996 1995 1994 1993 June 30, 1998
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes $ 892,000 $ 274,000 $ 122,000 $ (15,000) $ (142,000) $ 697,000
Fixed charges 551,000 690,000 653,000 563,000 525,000 410,000
Less preferred stock dividends (179,000) (330,000) (330,000) (330,000) (330,000) (254,000)
---------- ---------- ---------- -------- ---------- ---------
1,264,000 634,000 445,000 218,000 53,000 853,000
---------- ---------- ---------- -------- ---------- ---------
Fixed charges and preferred stock dividends:
Interest expense 329,000 317,000 282,000 204,000 168,000 137,000
Portion of rent expense representative
of interest factor 43,000 43,000 41,000 29,000 27,000 19,000
Preferred stock dividends representing
pre-tax earnings required to cover
such dividends (1) 179,000 330,000 330,000 330,000 330,000 254,000
---------- ---------- ---------- -------- ---------- ---------
$ 551,000 $ 690,000 $ 653,000 $ 563,000 $ 525,000 $ 410,000
---------- ---------- ---------- -------- ---------- ---------
Ratio of earnings to combined fixed charges
and preferred stock dividends 2.3 0.9 0.7 0.4 0.1 2.1
---------- ---------- ---------- -------- ---------- ---------
Excess of fixed charges and preferred stock
dividends over earnings $ 56,000 $ 208,000 $ 345,000 $ 472,000
---------- ---------- -------- ----------
Pro forma
- ---------
Earnings:
Income before income taxes $ 657,000 $ 573,000
Fixed charges 565,000 259,000
---------- ---------
1,222,000 832,000
---------- ---------
Fixed charges:
Interest expense 493,000 225,000
Portion of rent expense representative
of interest factor 72,000 34,000
---------- ---------
$ 565,000 $ 259,000
---------- ---------
Ratio of earnings to fixed charges 2.2 3.2
---------- ---------
</TABLE>
(1) The tax rate used in computing pre-tax earnings required to cover preferred
stock dividends is (84%) for the year ended December 31, 1997, 0% for the
years ended December 31, 1996, 1995, 1994 and 1993, and 35% for the six
months ended June 30, 1998. The tax rate is based on the relationship of the
provision (benefit) for income taxes applicable to income from continuing
operations to the amount of income before income taxes.
<PAGE>
EXHIBIT 23.3
Consent of Independent Certified Public Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Imperial Industries, Inc. of our report
dated March 27, 1998 relating to the financial statements of Imperial
Industries, Inc., which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Miami, Florida
September 4, 1998
<PAGE>
PROXY CARD
IMPERIAL INDUSTRIES, INC.
[insert address]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints S. Daniel Ponce and Howard L. Ehler,
Jr., or either of them, with full power of substitution, as Proxies, to appear
and vote, as designated below, all the shares of Common Stock of Imperial
Industries, Inc. ("Imperial") held of record by the undersigned on October __,
1998, at the Special Meeting of Stockholders to be held on November __, 1998,
and any adjournments thereof.
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR THE PROPOSED MERGER.
[X] Please mark votes as in this example.
1. PROPOSED MERGER. To consider and vote upon the merger of Imperial
with and into Imperial Merger Corp. ("Merger Sub") pursuant to an Agreement
and Plan of Merger between Imperial and Merger Sub described in the
accompanying Proxy Statement/Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Other matters: In their discretion, the Proxies are authorized to
vote upon such other business as may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting
of Shareholders and Proxy Statement/Prospectus dated October __, 1998.
(over)
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
Dated: _____________________, 1998
____________________________________ Signature
____________________________________ Signature if held jointly
Please sign exactly as your name appears. Joint owners should each sign.
Trustees and others acting in a representative capacity should indicate the
capacity in which they sign.
<PAGE>
PROXY CARD
IMPERIAL INDUSTRIES, INC.
[insert address]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints S. Daniel Ponce and Howard L. Ehler,
Jr., or either of them, with full power of substitution, as Proxies, to appear
and vote, as designated below, all the shares of Preferred Stock, $1.10
Cumulative Convertible Series, of Imperial Industries, Inc. ("Imperial") held
of record by the undersigned on October __, 1998, at the Special Meeting of
Stockholders to be held on November __, 1998, and any adjournments thereof.
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR THE PROPOSED MERGER.
[X] Please mark votes as in this example.
1. PROPOSED MERGER. To consider and vote upon the merger of Imperial
with and into Imperial Merger Corp. ("Merger Sub") pursuant to an Agreement
and Plan of Merger between Imperial and Merger Sub described in the
accompanying Proxy Statement/Prospectus.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Other matters: In their discretion, the Proxies are authorized to
vote upon such other business as may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting
of Shareholders and Proxy Statement/Prospectus dated October __, 1998.
(over)
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
Dated: _____________________, 1998
____________________________________ Signature
____________________________________ Signature if held jointly
Please sign exactly as your name appears. Joint owners should each sign.
Trustees and others acting in a representative capacity should indicate the
capacity in which they sign.
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES OR GUARANTEES OF DELIVERY FOR
SHARES OF PREFERRED STOCK OF
IMPERIAL INDUSTRIES, INC.
PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS CONTAINED BELOW
IMPORTANT: THIS LETTER OF TRANSMITTAL, PROPERLY COMPLETED AND EXECUTED IN
ACCORDANCE WITH THE INSTRUCTIONS CONTAINED BELOW, TOGETHER WITH YOUR
CERTIFICATE(S) FORMERLY REPRESENTING SHARES OF PREFERRED STOCK OF IMPERIAL
INDUSTRIES, INC. OR A VALID GUARANTEE OF DELIVERY THEREOF, MUST BE RECEIVED BY
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY (THE 'EXCHANGE AGENT') PRIOR TO THE
CLOSE OF BUSINESS (5:00 P.M. NEW YORK CITY TIME) ON [INSERT], 1999.
The Exchange Agent:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail: By Hand: By Overnight Courier:
Reorganization Department Reorganization Department Reorganization Department
2 Broadway 2 Broadway 2 Broadway
New York, New York 10004 New York, New York 10004 New York, New York 10004
Facsimile (for eligible institutions only): (212) 509-5150
Confirm facsimile by telephone ONLY: (212) 509-4000
This Letter of Transmittal, Certificates and any other required documents
should be sent by each holder of Imperial Preferred Shares (as defined below) to
the Exchange Agent at one of the addresses set forth above. Delivery of this
Letter of Transmittal to an address other than as set forth above will not
constitute a valid delivery. If you have any questions regarding this Letter of
Transmittal, please call Morrow & Co., Inc., the Information Agent, toll free at
[(800) [insert].
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned, pursuant to the terms of an Agreement and Plan of Merger
dated as of August 6, 1998 (the 'Merger Agreement'), by and between Imperial
Industries, Inc. ('Imperial') and Imperial Merger Corp. ('Merger Sub') hereby
surrenders the stock certificates (the 'Certificates') identified in Column 1 of
Box A below representing the total number of shares of preferred stock, $1.10
cumulative convertible series, $1.00 par value, of Imperial (the 'Imperial
Preferred Shares'), set forth in Column 2 of Box A, all of which are surrendered
with the request that, as a result of the consummation of the merger (the
'Merger') of Imperial into Merger Sub as contemplated by the Merger Agreement,
(i) each Imperial Share listed in Column 3 of Box A be converted into $4.50 in
cash and eight shares of common stock, $.10 par value ('Sub Common'), of Merger
Sub ('Option A'), and (ii) each Imperial Share listed in Column 4 of Box A be
converted into $2.00 in cash, $8.00 principal amount of a three year 8%
subordinated debenture (each, a 'Debenture') of Merger Sub and three shares of
Sub Common ('Option B'). THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS RECEIVED THE
PROXY STATEMENT/PROSPECTUS DATED [INSERT], 1998. BY DELIVERY OF THIS LETTER OF
TRANSMITTAL TO THE EXCHANGE AGENT, THE UNDERSIGNED HEREBY FOREVER WAIVES ALL
DISSENTERS' RIGHTS UNDER APPLICABLE DELAWARE LAW AND WITHDRAWS ALL WRITTEN
OBJECTIONS TO THE MERGER AND/OR DEMANDS FOR APPRAISAL, IF ANY, WITH RESPECT TO
ANY SHARES OF IMPERIAL CAPITAL STOCK OWNED BY THE UNDERSIGNED.
Capitalized terms used but not defined herein shall have the meanings set
forth in the Proxy Statement/Prospectus.
NEITHER MERGER SUB NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS
TO WHETHER FORMER STOCKHOLDERS OF IMPERIAL SHOULD ELECT TO RECEIVE OPTION A OR
OPTION B. EACH FORMER IMPERIAL STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION
WITH RESPECT TO SUCH ELECTION.
The undersigned represents and warrants that the undersigned has full power
and authority to surrender the Certificate(s), free and clear of any liens,
claims, charges or encumbrances whatsoever. The undersigned understands and
acknowledges that the method of delivery of the Certificate(s) and all other
required documents is at the option and risk of the undersigned and that the
risk of loss of such Certificate(s) shall pass only after the Exchange Agent has
actually received the Certificate(s). All questions as to the validity, form and
eligibility of any Election and surrender of Certificates hereunder shall be
determined by Merger Sub, and such
<PAGE>
determination shall be final and binding. The undersigned, upon request, shall
execute and deliver all additional documents deemed by the Exchange Agent or
Merger Sub to be necessary or desirable to complete the conversion, cancellation
and retirement of the Imperial Preferred Shares delivered herewith or covered by
a guarantee of delivery. No authority hereby conferred or agreed to be conferred
hereby shall be affected by, and all such authority shall survive, the death or
incapacity of the undersigned. All obligations of the undersigned hereunder
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned.
Unless otherwise indicated in the box entitled 'Special Issuance and
Payment Instructions,' please issue any check and register any certificate for
Sub Common and Debentures in the name of the registered holder(s) of the
Imperial Preferred Shares appearing below. Similarly, unless otherwise indicated
in the box entitled 'Special Delivery Instructions,' please mail any check and
any certificate for Sub Common and Debentures to the registered holder(s) of the
Imperial Preferred Shares at the addresses of the registered holder(s) appearing
below under the box entitled 'Election and Description of Shares Deposited.' In
the event that the box entitled 'Special Issuance and Payment Instructions' and
the box entitled 'Special Delivery Instructions' both are completed, please
issue any check and any certificate for Sub Common and Debentures in the name(s)
of, and mail such check and such certificate to, the person(s) so indicated.
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE ELECTION MADE ON THIS FORM
SHALL BE IRREVOCABLE.
2
<PAGE>
BOX A
ELECTION AND DESCRIPTION OF SHARES SURRENDERED
(1) (2) (3) (4)
CERTIFICATE
NAME AND ADDRESS OF HOLDER OF NUMBER(S)
RECORD AS SHOWN ON RECORDS OF DELIVERED
IMPERIAL INDUSTRIES, INC. HEREWITH NUMBER OF NUMBER OF NUMBER OF
(ATTACH SHARES SHARES SHARES
(PLEASE FILL IN, IF BLANK, SEPARATE REPRESENTED FOR WHICH FOR WHICH
EXACTLY AS NAME(S) APPEAR(S) SCHEDULE IF BY CERTIFICATE OPTION A OPTION B
ON CERTIFICATES) NECESSARY) IN COLUMN 1 IS ELECTED IS ELECTED
- ------------------------------ ----------- -------------- ---------- ----------
________________________________________________
________________________________________________
________________________________________________
________________________________________________
TOTALS:
________________________________________________
All Imperial Preferred Shares represented by certificates listed in column 1
must be surrendered. The total of the Imperial Preferred Shares listed in column
3 and column 4 must equal the number of Imperial Preferred Shares listed in
column 2. If the total of the Imperial Preferred Shares listed in column 3 and
column 4 is less than the number of Imperial Preferred Shares listed in column
2, the excess Imperial Preferred Shares will be exchanged for Option A, which is
the default merger consideration contemplated by the Merger Agreement.
BOX B
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS
To be completed ONLY if the check and/or the certificate(s) for the Sub
Common and Debentures are to be issued in the name of someone other than the
person(s) in whose name(s) the certificate(s) representing the Imperial
Preferred Shares listed on this Letter of Transmittal are registered. (Unless
otherwise indicated in Box C, the check and/or certificate(s) will be mailed to
the address indicated in this Box B.)
Issue and deliver check and/or certificate(s) for Sub Common and Debentures
to:
Name: __________________________________________________________________________
(PLEASE PRINT)
Address: _______________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
________________________________________________________________________________
(TAXPAYER IDENITIFICATION OR SOCIAL SECURITY NO)
SEE SUBSTITUTE FORM W-9)
BOX C
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the check and/or the certificate(s) for the Sub
Common and Debentures are to be mailed to an address other than that indicated
in Box A or Box B.
Mail check and/or certificates(s) for Sub Common and Debentures to:
Name: __________________________________________________________________________
(PLEASE PRINT)
Address: _______________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
________________________________________________________________________________
(TAXPAYER IDENITIFICATION OR SOCIAL SECURITY NO)
SEE SUBSTITUTE FORM W-9)
3
<PAGE>
BOX D
IMPORTANT
STOCKHOLDERS: SIGN HERE
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 BELOW)
____________________________________________________________________________
Signature(s) of Owner(s)
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by an agent, attorney, administrator,
executor, guardian, trustee, officer of a corporation or any other person acting
in a fiduciary or representative capacity, please set forth full title and see
Instruction F.5.)
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title): _________________________________________________________
(See Instruction F.5)
Address: _______________________________________________________________________
________________________________________________________________________________
(Zip Code)
Area Code and Telephone No.: ___________________________________________________
Taxpayer Identification or Social Security No.: ________________________________
(See Substitute Form W-9)
Dated: _____________________, 199__
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS F.3 AND F.4)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized Signature: __________________________________________________________
Name: __________________________________________________________________________
(Please Print)
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(Zip Code)
Area Code and Telephone Number: ________________________________________________
Dated: _____________________, 199__
4
<PAGE>
PAYER'S NAME: CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
PART I--PLEASE TIN:______________________
PROVIDE YOUR TIN Social Security Number
SUBSTITUTE IN THE BOX AT THE Identification Number
FORM W-9 RIGHT AND CERTIFY
BY SIGNING AND DATING BELOW.
Department of the Treasury PART II--For Payees exempt from backup
Internal Revenue Service withholding, see the enclosed 'Guidelines for
Certification of Taxpayer Identification Number
PAYER'S REQUEST FOR TAXPAYER on Substitute Form W-9' and complete as
IDENTIFICATION NUMBER instructed therein.
('TIN') AND CERTIFICATION
CERTIFICATION--Under penalties of perjury, I
certify that:
(1) The number shown on this form is my correct
TIN (or certify that: I am waiting for a
number to be issued to me); and
(2) I am not subject to backup withholding
because (a) I am exempt from backup
withholding, or (b) I have not been
notified by the Internal Revenue Service
('IRS') that I am subject to backup
withholding as a result of a failure to
report all interest or dividends, or (c)
the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out
item (2) above if you have been notified by the
IRS that you are subject to backup withholding
because of under reporting interest or
dividends on your tax return. However, if after
being notified by the IRS that you were subject
to backup withholding, you received another
notification from the IRS that you were no
longer subject to backup withholding, do not
cross out item (2). (Also see the instructions
in the enclosed 'Guidelines for Certification
of Taxpayer Identification Number on Substitute
Form W-9'.)
Part III--Awaiting TIN / /
SIGNATURE _________________________ DATE ______
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART III
OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to me, and
either (1) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Center or Social Security Administration Officer or (2) I intend
to mail or deliver an application in the near future. I understand that if I do
not provide a TIN by the time of payment, 31% of all payments pursuant to the
Merger made to me thereafter will be withheld until I provide a number.
_____________________________ ____________________
SIGNATURE DATE
5
<PAGE>
INSTRUCTIONS FOR COMPLETION OF LETTER OF TRANSMITTAL
This Letter of Transmittal should be properly filled in, dated, signed and
delivered to the Exchange Agent, together with the Certificates representing the
Imperial Preferred Shares currently held by you. Please read and follow
carefully the instructions regarding completion of this Letter of Transmittal
set forth below.
This Letter of Transmittal and the election you make herein are subject to
the terms and conditions set forth herein, in the Proxy Statement/Prospectus
which has already been mailed to you and in the Merger Agreement which is
attached as Annex A to the Proxy Statement/Prospectus. Copies of the Proxy
Statement/Prospectus may be requested from the Information Agent. The delivery
of this Letter of Transmittal to the Exchange Agent constitutes acknowledgment
of the receipt of the Proxy Statement/Prospectus.
EACH HOLDER OF IMPERIAL PREFERRED SHARES IS STRONGLY ENCOURAGED TO READ THE
PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS THE CONTENTS THEREOF
AND THIS LETTER OF TRANSMITTAL WITH HIS OR HER FINANCIAL AND TAX ADVISORS PRIOR
TO DECIDING UPON AN ELECTION.
A. ELECTIONS--This Letter of Transmittal provides, among other things, for
your election ('Election') as to the form of Merger Consideration to be received
by you as a result of the conversion of your Imperial Preferred Shares in the
Merger. At your direction, subject to the terms and conditions set forth in this
Letter of Transmittal, in the Proxy Statement/Prospectus and in the Merger
Agreement, each Imperial Share will be converted into either:
o $4.50 in cash and eight shares of Sub Common ('Option A') pursuant
to an 'OPTION A ELECTION'; or
o $2.00 in cash, three shares of Sub Common and $8.00 principal amount
of a Debenture ('Option B') pursuant to an 'OPTION B ELECTION.'
You must make an Option A Election or an Option B Election as to each
Imperial Share or combination of Imperial Preferred Shares that you hold. If no
election is made as to any Imperial Preferred Shares, you will receive Option A
for such Imperial Preferred Shares. AN ELECTION, ONCE MADE, IS IRREVOCABLE.
B. TIME IN WHICH TO MAKE AN ELECTION--The Merger became effective on
December 31, 1998 (the 'Effective Date'). In order for a former Imperial
preferred stockholder to be assured of receiving his or her desired form of
Merger Consideration, the Exchange Agent must receive a properly completed
Letter of Transmittal, accompanied by all stock certificates representing
Imperial Preferred Shares currently held by you NO LATER THAN 5:00 P.M., NEW
YORK CITY TIME, [INSERT], 1999 (the 'Election Date'), which date is 60 days
after the Effective Date.
IF THE EXCHANGE AGENT HAS NOT RECEIVED YOUR PROPERLY COMPLETED LETTER OF
TRANSMITTAL, ACCOMPANIED BY YOUR STOCK CERTIFICATES, BY THE ELECTION DATE, YOU
WILL RECEIVE THE DEFAULT MERGER CONSIDERATION (OPTION A) FOR YOUR IMPERIAL
PREFERRED SHARES UPON DELIVERY OF YOUR STOCK CERTIFICATES.
C. FAILURE TO MAKE AN EFFECTIVE ELECTION--If you fail to make an effective
Election, or if your Election is deemed by Merger Sub to be defective in any
way, you will receive the Default Merger Consideration (Option A) for your
Imperial Preferred Shares.
D. IMPERIAL PREFERRED SHARES AS TO WHICH AN ELECTION IS MADE--You may make
an Option A Election or an Option B Election with respect to all or any portion
of your Imperial Preferred Shares by listing the number of shares as to which
you wish to make a specific Election, in the appropriate column on the 'Election
and Description of Shares Surrendered' box above. However, any Imperial
Preferred Shares as to which you do not make an Election will be exchanged for
the Default Merger Consideration. If there is insufficient space to list all
your Certificates being submitted to the Exchange Agent or to respond to any
other request for information, please attach a separate sheet, or make a copy of
this Letter of Transmittal.
E. SPECIAL CONDITIONS
1. SHARES HELD BY NOMINEES, TRUSTEES OR OTHER REPRESENTATIVE HOLDERS OF
RECORD. Shares held by nominees, trustees or other representative holders of
record of Imperial Preferred Shares who hold such Imperial Preferred Shares as
nominees, trustees or in other representative or fiduciary capacities (each a
'Representative') may submit one or more Letters of Transmittal covering the
aggregate number of Imperial Preferred Shares held by such Representative for
the beneficial owners for whom the Representative is making an Election. Any
Representative who makes an Election may be required to provide the Exchange
Agent with such documents and/or additional certifications, if requested, in
order to satisfy
6
<PAGE>
the Exchange Agent that such Representative holds such Imperial Preferred Shares
for a particular beneficial owner of such shares.
F. GENERAL INSTRUCTIONS
1. EXECUTION AND DELIVERY. This Letter of Transmittal, or a photocopy of
it, should be properly completed, dated and signed, and should be delivered,
together with your Certificate(s) representing your Imperial Preferred Shares to
the Exchange Agent at the appropriate address set forth on the cover page to
this Letter of Transmittal.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATES FOR
IMPERIAL PREFERRED SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND
RISK OF THE STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED FOR SUCH DOCUMENTS TO REACH THE EXCHANGE AGENT. EXCEPT AS
OTHERWISE PROVIDED, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE EXCHANGE AGENT. No alternative, conditional or contingent elections will be
accepted.
2. SIGNATURES. The signature (or signatures, in the case of Certificate(s)
owned by two or more joint holders) on this Letter of Transmittal must
correspond exactly to the name(s) as written on the face of the Certificate(s)
sent to the Exchange Agent, unless the Imperial Preferred Shares have been
transferred by the holder(s) of record. If there has been any such transfer, the
signature(s) on this Letter of Transmittal should be signed in exactly the same
form as the name(s) of the last transferee(s) indicated on the accompanying
stock powers attached to or endorsed on the Certificate(s) (see General
Instruction F.4 below).
If Imperial Preferred Shares are registered in different names on several
Certificates, it will be necessary to complete, sign and submit a separate
Letter of Transmittal for each different registration of Certificates. For
example, if some Certificates are registered solely in your name, some are
registered solely in your spouse's name and some are registered jointly in the
name of you and your spouse, three separate Letters of Transmittal should be
submitted.
3. CHECKS AND/OR CERTIFICATES IN SAME NAME. If checks in payment of any
cash and/or any Sub Common or Debenture certificates are to be payable to the
order of and/or registered in exactly the same name as inscribed on the
surrendered Certificate(s) (representing Imperial Preferred Shares), you will
not be required to endorse the surrendered Certificates or make payment for
transfer taxes or have your signature guaranteed. For corrections in name or
changes in name not involving changes in ownership, see General Instruction
F.4(e) below.
4. CHECKS AND/OR CERTIFICATES IN DIFFERENT NAMES.
(IGNORE THIS INSTRUCTION F.4 IF THE FIRST SENTENCE OF INSTRUCTION F.3
APPLIES.)
If checks in payment of any cash and/or any Sub Common or Debenture
certificates are to be payable to the order and/or registered in a different
name from exactly the registered name inscribed on the surrendered
Certificate(s) (representing Imperial Preferred Shares) or delivered to a
different address, please follow these instructions:
(a) Registered Holders Completing Box B or Box C. If registered holder
of Certificate(s) signs the Letter of Transmittal, the registered holder
should complete Box B and/or Box C and have signature(s) guaranteed on this
Letter of Transmittal. No endorsements or signature guarantees on
Certificate(s) or stock powers are required in this case.
(b) If Letter of Transmittal is Signed by Person Other than Registered
Holder--Endorsement and Stock Transfer Guarantee. The Certificate(s)
surrendered must be properly endorsed or accompanied by appropriate stock
power(s) properly executed by the record holder of such Certificate(s) to
the person who is to receive the check or certificates representing Sub
Common or Debentures. The signature of the record holder on the
endorsement(s) or stock power(s) must correspond with the name that appears
on the face of the Certificate(s) in every particular and must be
guaranteed by an Eligible Institution (as defined below). If this General
Instruction F.4 applies, please check with your financial institution or
brokerage firm immediately to determine whether it is an Eligible
Institution or will need to help you locate an Eligible Institution.
NOTARIES PUBLIC CANNOT EXECUTE ACCEPTABLE GUARANTEES OF SIGNATURES.
An 'Eligible Institution' means:
(i) Banks (as that term is defined in Section 3(a) of the Federal
Deposit Insurance Act);
(ii) Brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, and government
securities brokers, (as those terms are defined under the Securities
Exchange Act of 1934);
7
<PAGE>
(iii) Credit unions (as that term is defined in Section 19(b)(1)(A)
of the Federal Reserve Act);
(iv) National securities exchanges, registered securities
associations, clearing agencies, as those terms are used under the
Securities Exchange Act of 1934); and
(v) Savings associations (as that term is defined in Section 3(b)
of the Federal Deposit Insurance Act).
(c) Transferee's Signature. If a certificate has previously been
properly transferred but the transfer was not recorded on the books of
Imperial prior to the Effective Date, this Letter of Transmittal must be
signed by the transferee or by his agent and should not be signed by the
transferor. The signature of such transferee or agent on this Letter of
Transmittal must be guaranteed by an Eligible Institution if the transferee
has completed Box B or C.
(d) Transfer Taxes. In the event that any transfer or other tax
becomes payable by reason of the issuance of a check in payment of the cash
component of the Merger Consideration and/or the issuance of any
certificates representing Sub Common or Debentures in any name other than
that of the record holder, the transferee or assignee must pay such tax to
the Exchange Agent or must establish to the satisfaction of the Exchange
Agent that such tax has been paid. You should consult your own tax advisor
as to any possible tax consequences resulting from the issuance of shares
or cash in a name different from that of the holder of record of the
surrendered Certificate.
(e) Correction of or Change in Name. For a correction in name which
does not involve a change in ownership, the surrendered Certificate(s)
should be appropriately endorsed; for example, 'John A. Doe, incorrectly
inscribed as John B. Doe,' with the signature guaranteed by an Eligible
Institution. For a change in name by marriage, etc., the surrendered
Certificate(s) should be appropriately endorsed; for example, 'Mary Doe,
now by marriage Mrs. Mary Jones,' with the signature guaranteed by an
Eligible Institution.
5. SUPPORTING EVIDENCE. In case any Letter of Transmittal, certificate,
endorsement or stock power is executed by an agent, attorney, administrator,
executor, guardian, trustee or any person in any other fiduciary or
representative capacity, or by an officer of a corporation on behalf of the
corporation, there must be submitted (with the Letter of Transmittal,
surrendered certificate(s), and/or stock powers) documentary evidence of
appointment and authority to act in such capacity (including court orders and
corporate resolutions when necessary), as well as evidence of the authority of
the person making such execution to assign, sell or transfer the certificate(s).
Such documentary evidence of authority must be in form satisfactory to the
Exchange Agent.
6. NOTICE OF DEFECTS; RESOLUTION OF DISPUTES.
NEITHER MERGER SUB NOR THE EXCHANGE AGENT WILL BE UNDER ANY OBLIGATION TO
NOTIFY YOU OR ANYONE ELSE THAT THE EXCHANGE AGENT HAS NOT RECEIVED A PROPERLY
COMPLETED LETTER OF TRANSMITTAL OR THAT THE LETTER OF TRANSMITTAL SUBMITTED BY
YOU IS DEFECTIVE IN ANY WAY.
All questions as to validity, form and eligibility of any surrender of
Imperial Preferred Shares hereby will be resolved by Merger Sub (which may
delegate power in whole or in part of the Exchange Agent) and its decision will
be final and binding on all parties concerned. Merger Sub will have the absolute
right in its sole discretion to reject any and all Letters of Transmittal and
surrenders of Certificates which are deemed by it to be not in proper form or to
waive any immaterial irregularities in any Letter of Transmittal or in the
surrender of any Certificate. Surrenders of Certificates will not be deemed to
have been made until all defects or irregularities that have not been waived
have been cured.
7. FEDERAL TAX WITHHOLDING/SUBSTITUTE FORM W-9. Under federal income tax
law, the Exchange Agent is required to file a report with the Internal Revenue
Service ('IRS') disclosing the cash payments being made to you as an exchanging
stockholder. Federal law also requires each stockholder to provide the Exchange
Agent with such stockholder's current Taxpayer Identification Number ('TIN') on
a Substitute Form W-9 set forth above. If such stockholder is an individual, the
TIN is his social security number. If the Exchange Agent is not provided with
the correct TIN, the stockholder or other payee may be subject to a $50 penalty
imposed by the IRS.
Certain stockholders (including, among others, tax-exempt organizations and
certain foreign persons) are not subject to these backup withholding and
reporting requirements. In order for a foreign person to qualify as an exempt
recipient, that stockholder must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-8, signed under penalties of perjury,
attesting to that person's exempt status. A Form W-8 can be obtained from the
Exchange Agent. See the enclosed 'Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9' for additional instructions.
8
<PAGE>
If backup withholding applies, Merger Sub would be required to withhold 31%
of any amount paid as a dividend on Sub Common. Merger Sub, in than case, would
also be required to withhold 31% of the interest paid each year to a Debenture
holder and an amount equal to 31% of the original issue discount includible in
the gross income of the holder of the Debenture for such year, but not in excess
of the amount of the cash payment on the Debenture in such year. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
If the Exchange Agent is not provided with a TIN by the time of payment the
Exchange Agent will withhold 31% on all such cash payments to be made to you
until a TIN is provided to the Exchange Agent. You must also complete the
Certificate of Awaiting Taxpayer Identification Number.
The stockholder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the record owner of
the Imperial Preferred Shares. If the Imperial Preferred Shares are registered
in more than one name or are not registered in the name of the actual owner,
consult the enclosed 'Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9,' for additional guidance on which number to
report.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Any checks representing cash
consideration and any certificates representing Sub Common or Debentures will be
mailed to the address of the holder of record as indicated in Box A or to the
person identified in Box B (if completed), unless instructions to the contrary
are given in Box C.
9. LOST STOCK CERTIFICATES. If you are unable to locate the Certificate(s)
representing your Imperial Preferred Shares, contact Imperial's Transfer Agent,
ChaseMellon Shareholder Services, L.L.C., at 1-[insert]. The Transfer Agent will
instruct you on the procedures to follow. In order to make an effective Election
with respect to the lost Certificate(s) and receive the Option A election or the
Option B Election, you will be required to complete certain additional
documentation and pay for an indemnity bond covering the lost Certificate(s).
The cost of the bond will be based on the value of the Imperial Preferred Shares
represented by the lost Certificates. All such actions must be completed prior
to 60 days following the Effective Date of the Merger so that you will have the
opportunity to select either Option A or B. Otherwise you will receive Option A.
10. MISCELLANEOUS. The Exchange Agent will begin mailing and delivering
checks and certificates for Sub Common and Debentures in exchange for
Certificates formerly representing Imperial Preferred Shares as soon as
practicable after they have been received by the Exchange Agent.
Requests for assistance may be directed to the Information Agent at the
address and telephone number as set forth on this Letter of Transmittal.
Additional copies of the Proxy Statement/Prospectus or this Letter of
Transmittal may be obtained from the Information Agent at the address set forth
below. IMPORTANT: THIS LETTER OF TRANSMITTAL, TOGETHER WITH CERTIFICATES, MUST
BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE ELECTION DATE.
The Information Agent is:
MORROW & CO., INC.
[insert address]
TOLL FREE (800) [insert]
9
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER--
Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to give
the Payer.
- ----------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ----------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds, the first
individual on the account(1)
3. Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
4. a. The usual revocable savings trust The grantor-trustee(1)
(grantor is also trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust under
State law
5. Sole proprietorship The owner(3)
6. Sole proprietorship account The owner(3)
- -------------------------------------------------------------------
GIVE THE
EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -------------------------------------------------------------------
7. A valid trust, estate, or pension The legal entity (Do not furnish the
trust identifying number of the personal
representative or trustee unless the
legal entity itself is not
designated in the account title.)(4)
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments.
- --------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a SSN, that person's number must be
furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
'doing business as' name. You may use either your social security number or
employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4,
Application for Employer Identification Number (for businesses and all other
entities), or Form W-7, Application for IRS Individual Taxpayer Identification
Number (for alien individuals required to file U.S. tax returns), at an office
of the Social Security Administration or the Internal Revenue Service.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
o An organization exempt from tax under Section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7), if the
account satisfies the requirements of Section 401(f)(2).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or any
political subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
Payees that may be exempt from backup withholding, including, among others:
o A corporation.
o A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
o A real estate investment trust.
o A common trust fund operated by a bank under Section 584(a).
o An entity registered at all times during the tax year under the Investment
Company Act of 1940.
o A foreign central bank of issue.
o A financial institution.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under Section 1441.
o Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident alien partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
o Payments described in Section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under Section 1451.
o Payments made by certain foreign organizations.
o Mortgage interest paid to you.
Exempt payees described above should complete a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE 'EXEMPT' ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N, and their regulations.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
