SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-7190
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IMPERIAL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 65-0854631
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest 21st Street, Pompano Beach, Florida 33069-1417
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
---------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
8% Subordinated Debentures
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant held
by non-affiliates computed by reference to the average bid and asked price of
the registrant's Common Stock ($.01 par value) on March 15, 2000 is: $4,637,256
Number of shares of Imperial Industries, Inc. Common Stock ($.01 par
value) outstanding on March 15, 2000: 8,505,434
<PAGE>
PART I
Item 1. Business
--------
Imperial Industries, Inc., is a Delaware corporation which
through its predecessor corporation has been in existence since 1968.
The Company's executive offices are located at 1259 Northwest 21st
Street, Pompano Beach, Florida 33069 and the telephone number at such
offices is (954) 917-4114.
Merger
------
On October 12, 1998, the Board of Directors approved a plan
merging Imperial Industries, Inc. into Imperial Merger Corp., a newly-
formed, wholly-owned subsidiary of the Company, (the "Merger"). The
Merger was approved at a special meeting of the Company's Stockholders
on December 17, 1998, with the Merger becoming effective December 31,
1998. On the effective date of the Merger, Imperial Merger Corp.
changed its name to Imperial Industries, Inc. (hereinafter referred to
as (the "Company").
Upon consummation of the Merger, each share of common stock
outstanding prior to the Merger was automatically converted to one
share of common stock of the Company. Each share of preferred stock
outstanding prior to the Merger was converted, at the holder's option,
into either (a) $4.75 in cash and ten shares of the Company's common
stock, or (b) $2.25 in cash, an 8% subordinated debenture, face value
$8.00, and five shares of the Company's common stock. Holders
representing 81,100 preferred shares have elected dissenters' rights,
which, if perfected under Delaware law, would require the Company to
pay to the holders the fair value of their stock in cash to be
determined by the Delaware Chancery Court. Pursuant to Delaware law,
the dissenting shareholders petitioned the Delaware Chancery Court to
determine the fair value of their shares at the effective date of the
Merger, exclusive of any element of value attributable to the Merger.
In accordance with the Merger, the Company issued $984,960 of
8% Subordinated Debentures, 1,574,610 shares of common stock and paid
$732,550 in cash to the former preferred shareholders who did not elect
dissenters' rights. The Company does not know the amount which would be
payable to dissenting holders who ultimately perfect their dissenters
rights. Those dissenting stockholders who fail to perfect their
dissenters' rights under Delaware law would ultimately receive the
consideration in option (b) above. For a more complete description of
the Merger, see Note (1) of Notes to Consolidated Financial statements.
General
-------
The Company, through its subsidiaries, is engaged in the
manufacture and distribution of building materials to building
materials dealers and others located primarily in Florida and Georgia,
and to a lesser extent, other states in the Southeastern part of the
United States as well as foreign countries. In addition, the Company
presently has nine distribution outlets through which it markets
certain of its manufactured products directly to end users. The
Company's products are used in the construction industry by developers,
builders, contractors, and sub-contractors.
2
<PAGE>
Item 1. Business (continued)
--------
General (continued)
-------
The Company's business is directly related to the level of
activity in the new and renovation construction market in Florida and
Georgia, and to a lesser extent other states in the Southeastern part
of the United States. The Company's products are used by developers,
general contractors and subcontractors in the construction or
renovation of residential, multi-family and commercial buildings and
swimming pools. In Florida and Georgia, 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 part of the United
States.
The Company's manufacturing operations are conducted by its
wholly owned subsidiaries, Premix-Marbletite Manufacturing Co.
("Premix") and Acrocrete, Inc. ("Acrocrete"). Effective January 1,
2000, the Company's distribution operations are conducted through its
other wholly owned subsidiary, Just-Rite Supply, Inc. ("Just- Rite).
The manufacturing operations primarily produce stucco, roof tile mortar
and plaster products. The distribution operations distribute products
manufactured by the Company's manufacturing subsidiaries and other
related 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 roof. 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 color-
impregnating materials.
Premix accounted for approximately 39%, 42% and 49% of the
Company's consolidated annual revenues in the fiscal years ended
December 31, 1999, 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 the State of Florida and
certain foreign countries. In 1999, the Company exercised its option to
renew the agreement for the first of two additional five
3
<PAGE>
Item 1. Business (continued)
--------
Premix (continued)
------
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.
Acrocrete
---------
Acrocrete, organized in 1988, 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, 1999, 1998 and 1997,
Acrocrete's sales accounted for approximately 61%, 58% and 51%,
respectively, of the Company's consolidated annual revenues. Prior to
January 1, 2000, Acrocrete operated the Company's distribution
operations.
Just-Rite
---------
In January 2000, the Company established Just-Rite Supply, a
wholly owned subsidiary to own and operate its five wholesale
distribution outlets formerly operated by Acrocrete. The Company's
Board of Directors determined to establish the Company's distribution
operations as a separate business unit to maximize business
efficiencies. In addition, effective January 1, 2000 and March 1, 2000,
Just-Rite acquired four building material distribution outlets to
diversify its product offering to the construction market to include
gypsum, roofing, masonry, insulation products, as well as installation
services beyond those supported by the Company's manufacturing
operation. Management believes the acquired distribution outlets will
position the Company to gain a greater
4
<PAGE>
Item 1. Business (continued)
--------
Just-Rite (continued)
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market share for its manufactured products through more direct sales to
the end-user and to expand operations by distributing a wider range of
building materials to the construction industry that are complementary
to its existing product lines.
Acquisition Opportunities
-------------------------
The Company believes the gypsum, masonry and stucco products
distribution industries are fragmented and have the potential for
consolidation in response to the competitive disadvantages faced by
smaller distributors. Management believes that these industries are
characterized by a significant number of relatively small privately-
owned, local, relationship-based companies that emphasize service,
delivery and reliability as well as competitive pricing and breadth of
product line to their customers. The competitive environment for these
distributors, in combination with the desire for owners of certain of
these distributors to gain liquidity, provides an opportunity for
expansion through acquisition. The Company believes that opportunities
exist for a company which has the ability to source and distribute
products effectively to serve the building materials industry and to
effect cost savings through economics of scale which can be applied to
companies that may be acquired in these industries. In February 2000,
the Company entered into a non-binding letter of intent to acquire a
building materials distributor in Tallahassee, Florida.
The Company intends to continue to seek prospective
acquisition candidates in businesses that complement or are otherwise
related to that of the Company. Although the primary focus of the
Company's expansion and acquisition program will be on seeking suitable
acquisition candidates who are engaged in the wholesale distribution of
building materials, the Company will consider the purchase of
manufacturers of products which may be distributed through its
wholesale distribution business. Although the Company believes there
may be a number of suitable acquisition candidates, there can be no
assurance that the Company will be able to consummate the acquisition
of any companies. Other than as stated above, the Company does not have
any binding understanding, agreement or commitment regarding any
potential acquisition.
Suppliers
---------
Premix's raw materials and products are purchased from
approximately 23 suppliers. While five suppliers account for
approximately 56% 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 19
suppliers, of which five account for approximately 69% 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.
5
<PAGE>
Item 1. Business (continued)
---------
Suppliers (continued)
---------
The Company's Just-Rite distribution outlets sell products of
many suppliers, none of which account for in excess of 5% of the
Company's purchases.
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 to include certain complementary products
manufactured by other companies. 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.
While the Company's sales historically have been typically to
distributors, the Company focuses marketing efforts on the
contractor/subcontractor end user to create a brand preference for the
Company's products. No one distributor has accounted for 10% or more of
total sales during the past three years. The Company believes the loss
of any one 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. Although the Company markets its
products to distributors through Company salesmen, located in the
Southeastern United States who promote both Premix and Acrocrete
products, direct sales to end users now account for over 42% of total
revenues in 1999.
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 were 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. The
Company closed the Savannah facility at March 31, 1997.
In February 1998, the Company acquired a facility in Tampa,
Florida that was engaged primarily in the distribution of landscape
stone products. The Company is utilizing this distribution facility in
an attempt to gain market share for the sale of its products on the
West Coast of Florida. The Company subsequently opened a fourth
distribution facility in the third quarter of 1998 in Dallas, Georgia,
and a fifth in Gadsden Alabama in April 1999. In January 2000, the
Company acquired three additional outlets, one in Foley, Alabama, one
in Pensacola, Florida and one in Destin, Florida. In March 2000, the
Company acquired an additional distribution outlet in Panama City
Beach, Florida. The Company presently is evaluating the feasibility of
6
<PAGE>
Item 1. Business (continued)
--------
Marketing and Sales (continued)
-------------------
of opening other warehouse distribution facilities in conjunction with
its acquisition program.
Each facility contains between approximately 6,400 to 15,000
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 products. The Company
sells Acrocrete and complementary products of other manufacturers at
such distribution facilities.
Seasonality
-----------
The sale of the Company'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. The Company's distribution outlets
encounter significant competition from local independent distributors
as well as regional and national distributors who sell similar
products. 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 prices 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 have not been material in past years, and
expenditures for 2000 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.
Employees
---------
The Company and its subsidiaries had 86 full time employees as
of December 31, 1999. The Company considers its employee relations to
be
7
<PAGE>
Item 1. Business (continued)
--------
Employees
---------
satisfactory. The Company's employees are not subject to any collective
bargaining agreement.
Item 2. Properties
-----------
The Company and its subsidiaries maintain a total of 13
facilities in Florida, Georgia and Alabama. The location and size of
the Company's facilities and the nature of the operations in which such
facilities are used, are as follows:
Approximate Owned/
Location Sq. Footage Leased Company Products
-------- ----------- ------ ----------------
Pompano Beach, Fl. 19,600 Leased Premix (Manufacturing)
Winter Springs, Fl. 26,000 Owned Premix (Manufacturing)
Kennesaw, Ga. 20,400 Leased Acrocrete (Manufacturing)
Tampa, Fl. 8,470 Owned Just-Rite (Distribution)
Jacksonville, Fl. 11,400 Leased Just-Rite (Distribution)
Norcross, Ga. 12,200 Leased Just-Rite (Distribution)
Dallas, Ga. 6,400 Leased Just-Rite (Distribution)
Gadsden, Al. 10,000 Leased Just-Rite (Distribution)
Pensacola, Fl. 15,250 Owned Just-Rite (Distribution)
Ft. Walton Beach, Fl 8,000 Leased Just-Rite (Distribution)
Destin, Fl. 7,680 Leased Just-Rite (Distribution)
Foley, Al. 9,000 Leased Just-Rite (Distribution)
Panama City Beach, Fl. 9,540 Leased Just-Rite (Distribution)
The Just-Rite distribution outlets typically consist of a
warehouse building and supply yard for the inventory and sale of
products directly to the end user.
Except for the Destin, Florida and Panama City Beach, Florida
locations, all leased properties are leased from unaffiliated third
parties. The Destin, Florida facility is leased from an entity in which
the former owner of A&R Supply, Inc. owns a minority interest. The
former owner sold his business interest to the Company in January 2000
and is currently a Vice President and general manager of Just- Rite.
The Panama City Beach, Florida facility is leased from the former owner
of Panhandle Drywall Supply, Inc., who sold his business interest to
Just-Rite in March 2000 and is currently an employee of the Company.
Management believes that the Company's facilities and
equipment are well-maintained, in good operating condition and
sufficient for its present operating needs.
Item 3. Legal Proceedings
-----------------
As of March 28, 2000, Acrocrete and other parties have been
named in 36 pending lawsuits in various Southeastern states, by
homeowners, contractors and subcontractors, or their insurance
companies, claiming moisture intrusion damages on single family
residences. The Company's insurance carriers have accepted coverage for
35 of these claims and
8
<PAGE>
Item 3. Legal Proceedings (continued)
-----------------
are providing a defense under a reservation of rights. The Company
expects its insurance carriers to accept coverage for the other one
recently filed lawsuit. Acrocrete is vigorously defending all of these
cases and believes it has meritorious defenses, counter-claims and
claims against third parties. Acrocrete is unable to determine the
exact extent of its exposure or outcome of this litigation.
The allegations of defects in synthetic stucco wall systems
are not restricted to Acrocrete products but rather are an
industry-wide issue. There has never been any defect proven against the
Company. The alleged failure of these products to perform has generally
been linked to improper application and the failure of adjacent
building materials such as windows, roof flashing, decking and the lack
of caulking.
In response to the alleged defects and in compliance with
modified building codes adopted in North Carolina, Acrocrete, together
with many other manufacturers of synthetic stucco wall systems, has
developed modified wall systems that allow the drainage of incidental
moisture that may enter the wall system. Most manufacturers continue to
produce the traditional (i.e., face-sealed) stucco systems and in
commercial construction, estimated to account for more than 50% of
product sales, the traditional system is still the product of choice.
The alleged defects have generally occurred in the residential
construction market. To the Company's knowledge, in the commercial
market, where methods of construction and quality control are monitored
more closely than in the residential market, the alleged drainage
problem has been limited.
On June 15, 1999, Premix was served with a complaint captioned
Mirage Condominium Association, Inc. v. Premix Marbletite Manufacturing
Co., et al., in Miami-Dade County Florida. The lawsuit raises a number
of allegations against 12 separate defendants involving alleged
construction defects. Plaintiff has alleged only one count against
Premix, which claims that certain materials, purportedly provided by
Premix to the Developer/Contractor and used to anchor balcony railings
to the structure were defective. The Company's insurance carriers have
been placed on notice of this suit and the Company is awaiting their
response regarding coverage, but fully expects that the insurance
carriers will accept coverage and the defense. In the interim, the
insurance carrier has retained defense counsel on the behalf of Premix.
Premix intends to vigorously defend this claim and believes it has
meritorious defenses. Premix is unable to determine the exact extent of
its exposure or the outcome of this litigation.
Premix and Acrocrete are engaged in other legal actions and
claims arising in the ordinary course of its business, none of which is
believed to be material to the Company.
On April 23, 1999, certain Dissenting Shareholders owning
shares of the Company's preferred stock filed a petition for appraisal
in the Delaware Chancery Court to determine the fair value of the
shares at December 31, 1998, the effective date of the Company's
Merger. (See Note 1 of Notes to Consolidated Financial Statements).
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
9
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
-----------------------------------------------------
Stockholder Matters
-------------------
The Company's Common Stock is traded in the over-the-counter
market. The following table sets forth the high and low bid quotations
of the Common 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.
Fiscal, 1998 High Low
------------ ---- ---
First Quarter $.40 $.25
Second Quarter .58 .36
Third Quarter .44 .29
Fourth Quarter .40 .28
Fiscal, 1999 High Low
------------ ---- ---
First Quarter $.41 $.28
Second Quarter .44 .31
Third Quarter .63 .44
Fourth Quarter .72 .45
The Company has not paid any cash dividends on its Common
Stock since 1980.
On March 15, 2000, the Common Stock was held by 1,978
stockholders of record.
As of March 15, 2000, the closing bid and asked prices of the
Common Stock was $.78 and $.80, respectively.
10
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following is a summary of selected financial data (in
thousands except as to per share amounts) for the five years ended
December 31, 1999:
<TABLE>
<CAPTION>
Statements of Operations Data Year Ended December 31,
- - ----------------------------- -----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 22,604 $ 18,739 $ 15,774 $ 13,742 $ 11,615
-------- -------- -------- -------- --------
Cost of sales 15,198 12,823 10,867 9,881 8,239
-------- -------- -------- -------- --------
Selling, general and administrative
expenses 5,932 4,645 3,740 3,313 2,979
-------- -------- -------- -------- --------
Interest expense (475) (272) (329) (317) (282)
-------- -------- -------- -------- --------
Merger costs -- (456) -- -- --
-------- -------- -------- -------- --------
Miscellaneous income, net 34 1,218 54 43 7
-------- -------- -------- -------- --------
Income before income taxes 1,033 1,761 892 274 122
-------- -------- -------- -------- --------
Income tax benefit, net 187 296 753 -- --
-------- -------- -------- -------- --------
Net income 1,220 2,057 1,645 274 122
-------- -------- -------- -------- --------
Less: dividends on redeemable
preferred stock -- (248) (330) (330) (330)
-------- -------- -------- -------- --------
Less: net charge for elimination
of preferred stock -- (975) -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable to
common stockholders $ 1,220 $ 834 $ 1,315 $ (56) $ (208)
-------- -------- -------- -------- --------
Net income (loss) per share
applicable to common stockholders
Basic $ .15 $ .13 $ .22 $ (.01) $ (.04)
-------- -------- -------- -------- --------
Diluted $ .15 $ .12 $ .21 $ (.01) $ (.04)
-------- -------- -------- -------- --------
Number of shares used in computation
of income (loss) per share: Basic 8,199 6,566 6,009 5,471 5,382
-------- -------- -------- -------- --------
Diluted 8,390 6,715 6,267 5,471 5,382
-------- -------- -------- -------- --------
Balance Sheets Data
- - -------------------
As of December 31,
------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital $ 3,447 $ 2,439 $ 1,995 $ 872 $ 733
-------- -------- -------- -------- --------
Total assets $ 8,768 $ 7,561 $ 5,128 $ 4,116 $ 3,747
-------- -------- -------- -------- --------
Long-term debt,
less current maturities $ 1,328 $ 1,316 $ 819 $ 895 $ 1,000
-------- -------- -------- -------- --------
Obligation for appraisal rights $ 877 $ 877 $ - $ - $ -
-------- -------- -------- -------- --------
Redeemable preferred stock $ - $ - $ 3,001 $ 3,001 $ 3,001
-------- -------- -------- -------- --------
Preferred dividends in arrears(1) $ - $ - $ 4,044 $ 3,714 $ 3,384
-------- -------- -------- -------- --------
Common stock and other
stockholders' equity (deficit) $ 3,514 $ 2,281 $ (4,441) $ (5,879) $ (5,846)
-------- -------- -------- -------- --------
Current ratio 2.1 to 1 1.8 to 1 2.2 to 1 1.4 to 1 1.3 to 1
-------- -------- -------- -------- --------
</TABLE>
11
<PAGE>
(1) No cash dividends were paid on the cumulative redeemable preferred
stock since 1985. The preferred stock and all accumulated accrued
unpaid dividends were eliminated at December 31, 1998, upon the
effective date of the Merger.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
General
--------
The Company's business is related primarily to the level of
construction activity in the Southeastern United States, particularly
the states of 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.
This Form 10-K contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations and
business of Imperial Industries, Inc., and its subsidiaries, including
statements made under Management's Discussion and Analysis of Financial
Condition and Results of Operations. These forward looking statements
involve certain risks and uncertainties. No assurance can be given that
any of such matters will be realized. Factors that may cause actual
results to differ materially from those contemplated by such forward
looking statements include, among others, the following: the
competitive pressure in the industry; general economic and business
conditions; the ability to implement and the effectiveness of business
strategy and development plans; quality of management; business
abilities and judgement of personnel; and availability of qualified
personnel; labor and employee benefit costs.
Results of Operations
---------------------
Year Ended December 31, 1999 Compared to 1998
---------------------------------------------
Net sales in 1999 increased $3,865,000, or approximately 21%
compared to 1998. 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. The sales of Acrocrete products
derived from the Company's new distribution outlets in Tampa, Florida,
(acquired February 1, 1998), Dallas, Georgia, (opened July 1, 1998),
and Gadsden, Alabama, (opened April 1, 1999) accounted for $4,145,000
of sales in 1999, compared to $2,137,000 of sales in 1998.
Effective January 1, 2000 and March 1, 2000, the Company
acquired two building materials distributors that derived net sales of
approximately $5,795,000 and $2,276,000, respectively, in 1999. As a
result of these acquisitions, net sales in 2000 are expected to
increase significantly over 1999 levels.
Gross profit as a percentage of net sales for 1999 was
approximately 33%, compared to 32% in 1998. The increase in gross
profit margins was principally due to a price increase for certain
products instituted in the third quarter of 1999.
Selling, general and administrative expenses as a percentage
of net sales for 1999 was approximately 26%, compared to 25% in 1998.
Selling, general and administrative expenses increased $1,287,000, or
approximately 28%, in 1999 compared to 1998. The increase in expenses
was primarily due to additional sales expenses associated with
servicing the increased volume of business, including a new senior
marketing and sales manager, and operating costs related to the
Company's new distribution facilities.
Interest expense increased from $272,000 in 1998 to $475,000
in 1999. The increase in interest expense was due to the amount of
$290,000 associated with the issuance of
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------------------
Year Ended December 31, 1999 Compared to 1998 (continued)
---------------------------------------------------------
Subordinated Debentures and obligations incurred in connection
with the Company's merger at December 31, 1998. Miscellaneous income
for 1998 includes a gain of $1,066,000 derived from the sale of its
former manufacturing facility in Miami, Florida and $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. Miscellaneous expenses includes
approximately $456,000 in fees and expenses associated with the Merger
and elimination of the preferred stock in 1998.
In 1999, the Company recognized a $574,000 tax benefit as a
result of the release of a portion of the valuation allowance on the
Company's deferred tax assets. For the fiscal year ended December 31,
1999, the Company recognized a net income tax benefit of $213,000
representing income before taxes at the statutory rate of 35% less the
tax benefit described above. Based on the Company's net operating loss
carryforwards, the Company is not expected to pay such federal income
taxes for 1999.
As a result of the above factors, the Company derived net
income applicable to common stockholders of $1,220,000 or $.15 per
share for 1999, compared to net income of $834,000 or $.13 per share in
1998. Net income applicable to common stockholders includes a charge of
$248,000 in 1998 for unpaid cumulative dividends on preferred stock,
which was retired in 1998. In addition, in connection with the Merger,
1998 net income applicable to common stockholders was reduced by
$975,000.
Year Ended December 31, 1998 Compared to 1997
---------------------------------------------
Net sales in 1998 increased $2,965,000, or approximately 19%
compared to 1997. 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. Sales derived from the Company's
new distribution outlet in Tampa, Florida, acquired effective February
1, 1998, accounted for approximately $1,790,000 of the increase in
sales.
Gross profit as a percentage of net sales for 1998 was
approximately 32%, compared to 31% in 1997. The increase in gross
profit margins was principally due to savings realized from raw
material purchases and modifications made to the Company's
manufacturing process to gain greater production efficiency.
Selling, general and administrative expenses as a percentage
of net sales for 1998, was approximately 25%, compared to 24% in 1997.
Selling, general and administrative expenses increased $905,000, or
approximately 24%, in 1998 compared to 1997. The increase in expenses
was primarily due to additional sales and delivery expenses associated
with servicing the increased volume of business and costs related to
the Company's new distribution outlet
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
--------------------------
Year Ended December 31, 1998 Compared to 1997 (continued)
----------------------------------------------
in Tampa, Florida, which was acquired in February 1998. In addition,
the Company estimates it incurred approximately $122,000 in costs in
connection with relocating four of its facilities to new locations in
1998.
Miscellaneous income for 1998 includes, a gain of $1,066,000
derived from the sale of it former manufacturing facility in Miami,
Florida and $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. Miscellaneous
expenses includes approximately $456,000 in fees and expenses
associated with the Merger and elimination of the preferred stock in
1998.
In 1998, the Company recognized a $927,000 tax benefit as a
result of the releasing of a portion of the valuation allowance on the
Company's deferred tax assets. For the fiscal year ended December 31,
1998, the Company recognized a net income tax benefit of $320,000
representing income before taxes at the statutory rate of 35% less the
tax benefit described above. Based on the Company's net operating loss
carryforwards, the Company did not pay such taxes on its federal income
tax for 1998.
As a result of the above factors and after giving effect to
the Merger and preferred stock dividends accrued, but not paid in 1998
and 1997, the Company derived net income applicable to common
stockholders of $834,000 or $.13 per share for 1998, compared to net
income of $1,315,000or $.22 per share in 1997. Net income applicable to
common stockholders includes charges of $248,000 in 1998 and $330,000
in 1997 for unpaid cumulative dividends on preferred stock which was
retired in 1998. In addition, in connection with the Merger, net income
applicable to common stockholders has been reduced by $975,000.
Liquidity and Capital Resources
-------------------------------
At December 31, 1999, the Company had working capital of
approximately $3,447,000 compared to working capital of $2,439,000 at
December 31, 1998. As of December 31, 1999, the Company had cash and
cash equivalents of $1,119,000.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a $4,500,000 line of
credit with a commercial lender scheduled to expire on June 19, 2001.
Premix, Acrocrete and Just-Rite borrow on the line of credit, based
upon and collateralized by, their 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 December 31, 1999, $1,526,000 had been
borrowed against the line of credit. Based on eligible receivables and
inventory, the Company had, under its line
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
--------------------------
Liquidity and Capital Resources (continued)
--------------------------------
of credit, total available borrowing of approximately $2,670,000 at
December 31, 1999.
Trade accounts receivable represent amounts due from sub-
contractors, contractors and building materials dealers located
principally in Florida and Georgia who have purchased products on an
unsecured open account basis and through Company owned warehouse
distribution outlets. As of December 31, 1999 the Company owned and
operated five warehouse distribution outlets. Accounts receivable, net
of allowance, at December 31, 1999 was $2,677,000 compared to
$2,535,000 at December 31, 1998. The increase in receivables of
$142,000, or approximately 6% was primarily related to higher sales
levels prevalent in 1999 compared to 1998.
The Company's shareholders approved a plan of merger with a
wholly owned subsidiary becoming effective December 31, 1998. The Plan
satisfied the Company's redeemable preferred stock dividend arrearage
and mandatory sinking fund requirements which aggregated $7,293,000 at
December 31, 1998.
As a result of the consummation of the merger, the Company
issued an aggregate of $984,960 face amount, 8% subordinated
debentures, 1,574,610 shares of common stock and agreed to pay $732,550
in cash to the former preferred shareholders. At December 31, 1999, the
Company had paid $684,375 of such cash amount. Amounts payable to such
shareholders at December 31, 1999 results from their non-compliance
with the conditions for payments. Holders representing 81,100 preferred
shares have elected dissenters' rights, which, under Delaware law,
would require cash payments equal to the fair value of their stock, as
of the date of the merger, to be determined in accordance with Section
262 of the Delaware General Corporation Law. The Company is unable to
determine the fair value of the preferred stock owned by such
dissenting shareholders, but recorded a liability for each share based
on the fair value of $2.25 in cash, an $8.00 subordinated debenture and
five shares of the Company's common stock, since that is the
consideration the dissenting holders would receive if they did not
perfect their dissenters' rights under the law. Dissenting stockholders
filed a petition for appraisal rights in the Delaware Chancery Court on
April 23, 1999. Expenses associated with the merger aggregated
approximately $456,000 and were expensed in 1998.
Effective January 1, 2000, the Company acquired certain assets
and assumed certain liabilities of three building materials
distributors held under common ownership in a single transaction
accounted for as a purchase acquisition. The total consideration,
exclusive of the issuance of Common Stock, was $1,420,000 consisting of
$798,000 in cash, unsecured promissory notes of $150,000 due 90 days
from closing and $100,000 due one year from closing. The Company also
assumed $372,000 of the acquired companies' secured debt and issued
225,000 shares of the Company's unregistered common stock valued at
$.64 per share.
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
-------------------------------
Effective March 1, 2000, the Company acquired certain assets
of another unrelated building materials distributor accounted for as a
purchase. The total consideration was $344,000, which includes 50,000
shares of the Company's unregistered common stock valued at $42,000, or
$.84 per share. The Company paid cash of $219,000 and issued an
unsecured promissory note of $125,000 payable over two years from
closing.
The consummation of these acquisitions and working capital
required to fund operations required utilization of approximately
$1,000,000 under its line of credit.
In February 2000, the Company entered into a non-binding
letter of intent to acquire certain of the assets of a wholesale
building material distribution facility located in Tallahassee,
Florida. The closing, subject to normal contingencies, is anticipated
to be effective April, 2000. The Company expects to utilize
approximately $400,000 under its line of credit, issue notes in the
approximate amount of $150,000, assume secured debt of approximately
$100,000 and issue 130,000 shares of common stock to consummate the
proposed acquisition and fund operations.
The Company presently is evaluating the feasibility of opening
or acquiring other warehouse distribution facilities. In addition, the
Company expects to incur capital expenditures during the next twelve
months to upgrade certain Company facilities and maintain its equipment
to support operations. Management does not expect the cash investment
for the expenditures to upgrade facilities and maintain equipment to be
material. Capital needs associated with opening or acquiring any
additional facilities cannot be estimated at this time.
The Company believes its cash on hand, utilization of unused
borrowings under its line of credit, and the maintenance of its
borrowing arrangement with its commercial lender will provide
sufficient cash to supplement cash shortfalls, if any, from operations
and provide adequate liquidity for the next twelve months to satisfy
the obligations arising from the merger and support the cash
requirements of its capital expenditure programs.
The ability of the Company to maintain and improve its long
term liquidity is dependent upon the Company's ability to successfully
(i) maintain profitable operations; (ii) pay or otherwise satisfy
obligations arising from the merger; and (iii) resolve current
litigation on terms favorable to the Company.
16
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
--------------------------------
Year 2000 Issues
----------------
Management completed 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. Based on such
assessment, the Company developed and completed a year 2000 compliance
plan, under which all key information systems were tested, and
non-compliant software replaced. All of the Company's systems are now
2000 compliant. In addition, the Company has not experienced any
material difficulties regarding compatibility of customers' and
suppliers' systems which interface with the Company's systems or could
otherwise impact the Company's operations.
The internal staff costs, replacement of systems and
consulting expenses to prepare the systems for the year 2000 were not
material to the Company's operating results, liquidity or financial
position.
Item 8. Financial Statement and Supplementary Data
------------------------------------------
See Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K for the Index to Financial Statements contained
herein.
17
<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 under Item 14(a)(1) on page 46 present fairly, in all material
respects, the financial position of Imperial Industries, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedules
listed in the accompanying index under Item 14(a)(2) on page 46 present fairly
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. 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
auditing standards generally accepted in the United States, 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 28, 2000
18
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,119,000 $ 1,097,000
Trade accounts receivable (less
allowance for doubtful accounts of
$254,000 and $200,000 at December 31,
1999 and 1998, respectively) 2,677,000 2,535,000
Inventories 2,023,000 1,374,000
Deferred taxes 634,000 505,000
Other current assets 43,000 15,000
------------ ------------
Total current assets 6,496,000 5,526,000
------------ ------------
Property, plant and equipment, at cost 2,653,000 2,517,000
Less accumulated depreciation (1,164,000) (1,182,000)
------------ ------------
Net property, plant and equipment 1,489,000 1,335,000
------------ ------------
Deferred taxes 699,000 615,000
------------ ------------
Other assets 84,000 85,000
------------ ------------
$ 8,768,000 $ 7,561,000
------------ ------------
LiabilitiesandStockholders'Equity
Current liabilities:
Notes payable $ 1,526,000 $ 780,000
Current portion of long-term debt 164,000 123,000
Accounts payable 902,000 1,300,000
Payable to stockholders 48,000 733,000
Accrued expenses and other liabilities 409,000 151,000
------------ ------------
Total current liabilities 3,049,000 3,087,000
------------ ------------
Long-term debt, less current maturities 1,328,000 1,316,000
------------ ------------
Obligation for appraisal rights 877,000 877,000
------------ ------------
Commitments and contingencies -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value at December 31,
1999 and 1998; 20,000,000 shares authorized;
8,230,434 and 8,182,571 issued at
December 31, 1999 and 1998, respectively 82,000 82,000
Additional paid-in-capital 13,414,000 13,507,000
Accumulated deficit (9,982,000) (11,202,000)
------------ ------------
3,514,000 2,387,000
Less cost of shares in treasury (none and
47,863 shares at December 31, 1999 and
1998, respectively -- (106,000)
------------ ------------
Total stockholder's equity 3,514,000 2,281,000
------------ ------------
$ 8,768,000 $ 7,561,000
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $ 22,604,000 $ 18,739,000 $ 15,774,000
Cost of sales 15,198,000 12,823,000 10,867,000
------------ ------------ ------------
Gross profit 7,406,000 5,916,000 4,907,000
Selling, general and
administrative expenses 5,932,000 4,645,000 3,740,000
------------ ------------ ------------
Operating income 1,474,000 1,271,000 1,167,000
------------ ------------ ------------
Other income (expense):
Interest expense (475,000) (272,000) (329,000)
Merger costs -- (456,000) --
Miscellaneous income 34,000 1,218,000 54,000
------------ ------------ ------------
(441,000) 490,000 (275,000)
------------ ------------ ------------
Income before income taxes 1,033,000 1,761,000 892,000
------------ ------------ ------------
Income tax benefit (expense):
Current (26,000) (24,000) (47,000)
Deferred 213,000 320,000 800,000
------------ ------------ ------------
187,000 296,000 753,000
------------ ------------ ------------
Net income 1,220,000 2,057,000 1,645,000
Less: Net charge for elimination
of preferred stock -- (975,000) --
Less: Dividends on redeemable
preferred stock -- (248,000) (330,000)
------------ ------------ ------------
Net income applicable to
common stockholders $ 1,220,000 $ 834,000 $ 1,315,000
------------ ------------ ------------
Basic earnings per
common share $ .15 $ .13 $ .22
------------ ------------ ------------
Diluted earnings per
common share $ .15 $ .12 $ .21
------------ ------------ ------------
</TABLE>
20
<PAGE>
See accompanying notes to consolidated financial statements.
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Common Stock and
Other Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Common Stock paid-in Accumulated Treasury
Shares Amount capital deficit stock Total
------ ------ ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,562,561 $ 571,000 $ 7,229,000 $(13,351,000) $(328,000) $ (5,879,000)
Issuance of common stock 921,500 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 6,484,061 663,000 7,260,000 (12,036.000) (328,000) (4,441,000)
Issuance of common stock 124,000 2,000 (187,000) 222,000 37,000
Accrued dividends in arrears
on preferred stock (248,000) (248,000)
Recapitalization of par value of
common stock from $.10 to
$.01 per share (599,000) 599,000
Issuance of common stock in
preferred stock conversion 1,574,510 16,000 5,835,000 (975,000) 4,876,000
Net income 2,057,000 2,057,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1998 8,182,571 82,000 13,507,000 (11,202,000) (106,000) 2,281,000
Issuance of common stock 47,863 (93,000) 106,000 13,000
Net income 1,220,000 1,220,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1999 8,230,434 $ 82,000 $ 13,414,000 $ (9,982,000) $ -- $ 3,514,000
--------- ------------ ------------ ------------ --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,220,000 $ 2,057,000 $ 1,645,000
Adjustments to reconcile net income
to net cash provided by:
Depreciation 225,000 178,000 149,000
Amortization 21,000 31,000 19,000
Debt issue discount 59,000
Provision for doubtful accounts 177,000 154,000 126,000
Deferred taxes, net (213,000) (320,000) (800,000)
Loss (gain) on disposal of fixed assets 5,000 (1,078,000) 1,000
Compensation expense - issuance of stock 13,000 68,000 41,000
(Increase) decrease in:
Accounts receivable (319,000) (1,155,000) (152,000)
Inventories (649,000) (170,000) 68,000
Prepaid expenses and other assets (47,000) 1,000 (38,000)
(Decrease) increase in:
Accounts payable (398,000) 720,000 (80,000)
Accrued expenses and other liabilities 257,000 (66,000) 77,000
----------- ----------- -----------
Net cash provided by
operating activities 351,000 420,000 1,056,000
----------- ----------- -----------
Cash flows from investing activities
Proceeds received from sale of property
and equipment 31,000 1,278,000 9,000
Purchases of property, plant
and equipment (415,000) (839,000) (263,000)
----------- ----------- -----------
Net cash (used in) provided by investing
activities (384,000) 439,000 (254,000)
----------- ----------- -----------
Cash flows from financing activities
Increase (decrease) in notes payable
banks - net 746,000 2,000 (646,000)
Proceeds from issuance of long-term debt 459,000 324,000 60,000
Repayment of long-term debt (465,000) (642,000) (167,000)
Payable to stockholders (685,000) - -
Proceeds received from the exercise
of stock options -- 2,000 48,000
----------- ----------- -----------
Net cash provided by (used in)
financing activities 55,000 (314,000) (705,000)
Net increase in cash and cash
equivalents 22,000 545,000 97,000
Cash and cash equivalents,
beginning of year 1,097,000 552,000 455,000
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,119,000 $ 1,097,000 $ 552,000
----------- ----------- -----------
Supplemental disclosure
of cash flow information:
Cash paid during the year for interest $ 283,000 $ 276,000 $ 329,000
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Merger
-------
On December 17, 1998, the Company's stockholders approved a
Plan merging Imperial Industries, Inc. into Imperial Merger Corp., a
newly- formed, wholly-owned subsidiary of the Company, (the "Merger"),
with the Merger becoming effective December 31, 1998,, (the "Effective
Date"). On the Effective Date, Imperial Merger Corp. changed its name
to Imperial Industries, Inc., (the "Company").
At the Effective Date, each share of the Company's $.10 par
value common stock outstanding before the Merger was converted into one
share of $.01 par value common stock resulting in the recapitalization
of $599,000 from common stock to additional paid-in-capital. Also at
the Effective Date, 300,121 outstanding shares of preferred stock, with
a carrying value of $3,001,000 were retired and $4,292,000 of accrued
dividends on such shares, were eliminated as described in the following
paragraphs.
Holders of 219,021 shares of the preferred stock (the
"Exchanging Shareholders"), with a carrying value of $2,190,000,
elected to convert their shares into either (a) $4.75 in cash and ten
shares of the Company's common stock, or (b) $2.25 in cash, an 8%
three-year $8.00 subordinated debenture and five shares of the
Company's common stock. In connection with the Exchanging Shareholders'
election, the Company was required to pay cash of $733,000 which was
presented as payable to stockholders in the accompanying consolidated
balance sheet at December 31, 1998. At December 31, 1999 cash payable
to stockholders was reduced to $48,000 from $733,000 at December 31,
1998, as a result of satisfying the cash requirements due to Exchanging
Shareholders who had submitted their preferred stock to the Company for
the merger consideration. The Company was also required to issue
$985,000 face value of 8% subordinated debentures with a fair value of
$808,000, and 1,574,610 shares of $.01 par common stock with a fair
value of $630,000 based on the market price of $.40 per share of the
Company's common stock at the Effective Date. The total fair value of
the cash, debentures and common stock to be exchanged with the
Exchanging Shareholders was $2,171,000. Had the Exchanging Shareholders
elected to convert their shares under the provisions of the preferred
stock's governing instrument, they would have received 251,655 shares
of common stock with a fair value of $101,000. The excess of the total
fair value of cash, debentures and common stock to be exchanged with
the Exchanging Shareholders, over the fair value which the Exchanging
Shareholders would have received under the preferred stock's original
conversion provisions represented a conversion charge of $2,070,000 to
accumulated deficit and a reduction in net income applicable to common
stockholders in the accompanying consolidated statement of operations
for the year ended December 31, 1998. In addition, conversion of the
219,021 preferred shares resulted in a credit to additional paid-in
capital of $5,835,000, for the year ended December 31, 1998.
23
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(1) Merger (continued)
------
Holders of 81,100 shares of preferred stock (the "Dissenting
Shareholders"), with a carrying value of $811,000, elected to exercise
their appraisal rights with respect to the stock. Pursuant to Delaware
law, the Dissenting Shareholders petitioned the Delaware Chancery Court
on April 23, 1999 to determine the fair value of their shares at the
Effective Date, exclusive of any element of value attributable to the
Merger. In the event that a Dissenting Shareholder did not perfect his
appraisal rights, each share would be entitled to receive $2.25 in
cash, an $8.00 subordinated debenture and five shares of common stock
described under option (b) in the preceding paragraph. Based on these
facts, and a valuation prepared by an independent financial advisor in
connection with the Merger, the Company recorded $877,000 in the
accompanying consolidated balance sheets at December 31, 1998 and 1999,
as an estimate for the obligation for appraisal rights. The Chancery
Court may determine fair value is less than, equal to, or greater than
an aggregate of $877,000. Based on advice of counsel that there will be
no final judicial determination requiring the Company to make payment
to Dissenting Shareholders' in the year ended December 31, 2000, the
obligation is classified as long-term debt. In addition, elimination of
the 81,100 preferred shares and accrued dividends of $1,161,000 on such
shares resulted in a redemption credit to accumulated deficit of
$1,095,000 for the year ended December 31, 1998 representing the excess
of the carrying value of the Dissenting Shareholders' preferred stock
and accrued dividends over the obligation for appraisal rights.
In the calculation of earnings per share for the year ended
December 31, 1998, $975,000 has been deducted from net income
representing the conversion charge of $2,070,000, less the redemption
credit of $1,095,000.
In connection with the Merger, all outstanding stock purchase
warrants also converted into warrants with identical terms exerciseable
for shares of the Company's common stock.
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacturing and sale of exterior and interior finishing wall coatings
and mortar products for the construction industry. Sales of the
Company's products are made to customers primarily in Florida and the
Southeastern United States through distributors and company-owned
distribution facilities.
(a) Basis of presentation
---------------------
The Consolidated financial statements contain the accounts of
the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
24
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
(b) 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, 1999, accounts aggregating $146,000, or
approximately 5% of total gross trade accounts receivable were deemed
to be ineligible for borrowing purposes under the Company's borrowing
agreement with its commercial lender. See Note (5). The allowance for
doubtful accounts at December 31, 1999 of $254,000 is considered
sufficient to absorb any losses which may arise from uncollectible
accounts receivable.
The Company places its cash with commercial banks. At December
31, 1999, 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.
(c) 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.
(d) 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. Differences between the proceeds received on the sale of
property, plant and equipment and the carrying value of the assets on
the date of sale is credited or charged to net income.
(e) Intangible Assets
-----------------
Licenses, trademarks and deferred financing costs are
amortized on straight-line basis over the estimated useful lives of the
licenses and trademarks, or over the term of the related financing.
(f) Income taxes
------------
The Company has adopted the liability method for determining
its income taxes. Under this method, the Company records deferred taxes
based on temporary taxable and deductible differences between the tax
bases of the Company's assets and liabilities and their financial
reporting bases.
25
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
(f) Income taxes (continued)
------------
Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which
temporary differences are expected to be realized or settled; valuation
allowances are provided against assets that are not likely to be
realized.
(g) Earnings per share of common stock
-----------------------------------
Basic earnings 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 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. The Company has retroactively restated earnings per
common share, to give effect to the Merger. (See Note (11) - Earnings
Per Common Share).
(h) 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, 1999
and 1998 are short term time deposits of $275,000 and $267,000,
respectively.
(i) Revenue recognition policy
--------------------------
Revenue from sales transactions is recorded upon shipment and
delivery of inventory to the customer, net of discounts and allowances.
(j) Stock based compensation
------------------------
The Company measures compensation expense related to the grant
of stock options and stock-based awards to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," under which compensation
expense, if any, is generally based on the difference between the
exercise price of an option, or the amount paid for an award, and the
market price or fair value of the underlying common stock at the date
of the award. The Company adopted the disclosure requirement provisions
of Statement of Financial Accounting Standards (SFAS") No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"). Had the fair
value based accounting provisions of SFAS No. 123 been adopted, the
effect on the Company's net income and earnings per share information
would not have been significant.
26
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
(k) Accounting estimates
--------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(l) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments
principally notes payable, debentures and obligation for appraisal
rights, approximates fair value based on discounted cash flows as well
as other valuation techniques.
(m) Segment Reporting
------------------
The Company has adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. For the years ended
December 31, 1999 and 1998, the Company has determined that it operates
in a single operating segment.
(n) New Accounting Pronouncements
-----------------------------
SFAS No. 133, Accounting for Derivatives and Hedging
Activities, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 (January 1, 2001 for the Company) and
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company
does not use derivative instruments and therefore anticipates that the
adoption of SFAS No. 133 in 2001 will not have a material effect on the
consolidated financial statements.
(3) Inventories
-----------
At December 31, 1999 and 1998, inventories consist of:
1999 1998
---- ----
Raw materials $ 525,000 $ 345,000
Finished goods 1,276,000 810,000
Packaging materials 222,000 219,000
------- -------
$2,023,000 $1,374,000
---------- ----------
27
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Property, Plant and Equipment
-----------------------------
A summary of the cost of property, plant and equipment at December
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Estimated
useful life
1999 1998 (years)
---- ---- -------
<S> <C> <C> <C>
Land $ 151,000 $ 151,000 - - -
Buildings and
improvements 585,000 560,000 10 - 40
Machinery and equipment 1,272,000 1,141,000 3 - 10
Vehicles 446,000 487,000 2 - 8
Furniture and Fixtures 199,000 178,000 3 - 12
------- ------- - --
$2,653,000 $2,517,000
---------- ----------
</TABLE>
The net book value of property, plant and equipment pledged as
collateral under notes payable and various long-term debt agreements
aggregated $621,000 and $543,000 at December 31, 1999 and 1998,
respectively. See "Note 7."
(5) Notes Payable
-------------
At December 31, 1999 and 1998, notes payable represent amounts
outstanding under a $4,500,000 line of credit from a commercial lender
to two of the Company's subsidiaries. Aggregate lines of credit were
increased from $3,000,000 to $4,500,000 on October 1, 1999. The line of
credit is collateralized by the subsidiaries' accounts receivable and
inventory, bears interest at prime rate plus 1% (9 1/2% at December 31,
1999) expires June 19, 2001, and is subject to annual renewal. The
weighted average effective interest rate on the line of credit was
14.09%, 17.49%, and 17.04% during the years ended December 31, 1999,
1998 and 1997, respectively.
At December 31, 1999, the line of credit limit available for
borrowing aggregated $2,670,000, of which $1,526,000 had been borrowed.
The average month-end amounts outstanding during 1999 and 1998 were
$1,312,000, and $957,000, respectively. The maximum amounts outstanding
at any month-end during 1999 and 1998 were $2,017,000 and $1,253,000,
respectively.
(6) Accrued Expenses and Other Liabilities
--------------------------------------
Accrued expenses and other liabilities at December 31, 1999 and 1998
are summarized as follows:
1999 1998
---- ----
Employee compensation related items $ 94,000 $ 42,000
Taxes, other than income taxes 55,000 41,000
Interest 137,000 4,000
Other 123,000 64,000
------- ------
$409,000 $151,000
-------- --------
28
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Long-term Debt
--------------
Long-term debt of the Company is as follows:
1999 1998
---- ----
Adjustable rate mortgage note payable,
interest at 12% at December 31, 1998,
principal and interest payable monthly in
the amount of approximately $3,600, with a
balloon payment of approximately $292,000
due September 1, 2000. This note was paid - 304,000
in October 1999.
Mortgage note payable, interest at 7 1/2% per
annum, principal and interest payable monthly
through January 2002. 116,000 170,000
Subordinated Debentures due December 31, 2001,
stated interest at 8% payable annually
commencing July 1, 1999, principal payable
in the amount of $984,960 at maturity. 867,000 808,000
Mortgage note payable, interest at 8 3/4%,
principal and interest payable monthly in
the amount of approximately $3,760, with a
balloon payment of approximately $187,000
due October 4, 2004. 297,000 -
Equipment notes payable, interest at various
rates ranging from 8.75% to 15.39%, per annum,
principal and interest payable monthly
expiring at various dates through
January 2004. 212,000 157,000
------- -------
1,492,000 1,439,000
--------- ---------
Less current maturities (164,000) (123,000)
-------- --------
$1,328,000 $1,316,000
---------- ----------
As of December 31, 1999, long-term debt matures as follows:
Year ended
December 31, Amount
------------ ------
2001 $1,019,000
2002 68,000
2003 33,000
2004 208,000
---- -------
$1,328,000
----------
29
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Long-term debt (continued)
--------------
In connection with the Merger, the Company issued 8% Subordinated
Debentures with a face amount value of $985,000 effective December 31,
1998. Each Debenture was discounted to a value of $6.56 ($8.00 face value)
using an effective interest rate of 16%. The aggregate carrying value of
the Debentures at December 31, 1999 is $867,000. The Debentures are
general, unsecured obligations of the Company, subordinated in right of
payment to all indebtedness to institutional and other lenders of the
Company. The Debentures are subject to redemption, in whole or in part, at
the option of the Company, at any time at a redemption price of 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
redemption date.
(8) Income Taxes
------------
At December 31, 1999 and 1998, deferred tax assets of $1,333,000 and
$1,120,000, respectively, consist of the tax effects of net operating loss
carryforwards of $2,966,000 and $3,320,000, respectively, less a valuation
allowance of $1,633,000 and $2,207,000, respectively. Net operating losses
of $5,713,000 expire through 2000, and the remaining balance of $2,761,000
expires in varying amounts through 2009.
During 1999 the Company recognized $574,000 of deferred tax benefit as
a result of releasing a portion of the valuation allowance previously
established due to the uncertainty of realizing net operating losses.
Remaining deferred tax assets are fully reserved at December 31, 1999, and
relate, primarily, to the net operating loss carryforwards expiring in 2000
which the Company projects it will be unable to utilize. 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, 1999 and
1998 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 years ended December 31, 1999 and 1998.
A reconciliation of the Federal statutory rate to the effective tax
rate is as follows:
Year Ended December 31,
1999 1998 1997
---- ---- ----
U.S. statutory rate 35% 35% 35%
Valuation allowance (56%) (53%) (124%)
Other 3% 1% 5%
----- ----- -----
Effective rate (18%) (17%) (84%)
----- ----- -----
30
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) CapitalStock
------------
(a) Common Stock
------------
At December 31, 1999, the Company had outstanding 8,230,434 shares of
common stock (8,182,571 shares in 1998) with a $.01 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,
if any. 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.
In 1999 and 1998, the Company issued 47,863 and 100,000, respectively,
treasury shares to directors and an officer as compensation for services
rendered. The Company recorded compensation expense in 1999 and 1998 of
$13,000 and $20,000, respectively, representing fair value of the shares
when issued.
In 1997, the Company issued 242,000 restricted shares of common stock
to two officers which were subject to vesting over a three year period.
During 1998 the Company recorded compensation expense of $46,000
representing the fair value of the stock upon the release of the
restrictions and accelerated vesting of all the shares.
In 1997, the Company issued 202,000 shares of common stock to
directors and employees as compensation for services rendered. The Company
recorded compensation expense of $41,000 representing the fair value of
the shares when issued.
(b) Preferred Stock
The authorized preferred stock of the Company consists of 5,000,000
shares, $.01 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, 1999 and 1998, there were no shares of preferred stock outstanding.
Redeemable Preferred Stock-$1.10 Cumulative Convertible Series
--------------------------------------------------------------
Until December 31, 1998, the Company had issued and outstanding
300,121 shares of $1.10 cumulative convertible redeemable preferred stock.
The holders of preferred stock were entitled to one vote per share on all
matters without regard to class, except that the holders of preferred stock
were 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 was entitled to cumulative quarterly dividends
31
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Capital Stock (continued)
--------------
(b) Preferred Stock (continued)
Redeemable Preferred Stock-$1.10 Cumulative Convertible Series
--------------------------------------------------------------
(continued)
at the rate of $1.10 per annum and was convertible into 1.149 shares of
common stock. The liquidation preference of the preferred stock was $10.00
per share, plus accrued but unpaid dividends. The preferred stock was
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 had omitted dividends on its preferred stock since the
fourth quarter of 1985 aggregating $4,044,000 through December 31, 1997.
The omission of preferred stock dividends was a reduction of net income
applicable to Common Stockholders and was recorded as a non-current
liability in the accompanying consolidated balance sheets.
The preferred stock was 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 was 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 was
not met, it is added to the requirements for the next year.
The Company was 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 was in
default in the payment of any dividends on the preferred stock or if the
sinking fund requirements are in arrears.
Effective December 31, 1998, all outstanding shares of the preferred
stock were retired and all accumulated accrued dividends were eliminated
as a result of the Merger. (See Note (1) - Merger).
(c) Warrants
---------
At December 31, 1999 and 1998, the Company had warrants outstanding
to purchase 350,000 and 200,000, respectively, of the Company's common
stock. The 200,000 warrants outstanding at December 31, 1998 were issued
to two directors in 1988 in connection with obtaining a loan which has
since been repaid. The warrants entitle the holder to purchase one share
at $.10 per
32
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Capital Stock (continued)
-------------
(c) Warrants (continued)
---------
share until June 29, 2000. The Company issued 150,000 warrants in January
1999 to its investment banker for financial advisory services in connection
with the Merger (the "Investment Banker Warrants") which entitle the holder
to purchase one share at $.38 per share until December 31, 2003. The
Company estimated the fair value of the Invenstment Banker Warrants at
$22,000 based on a Black-Scholes pricing model and the following
assumptions: volatility of 45%, risk-free rate of 4.6%, expected life of
four years and a dividend rate of 0%.
(d) Stock Options
-------------
In December 1999, the Board of Directors adopted the Director's Stock
Option Plan and the 1999 Employee Stock Option Plan (collectively, the
"1999 Plans"). The 1999 Plans provide for options to be granted at
generally no less than the fair market value of the Company's stock at the
grant date. Options granted under the 1999 Plans have a term of up to 10
years and are exercisable six months from the grant date. The 1999 Plans
are administered by the Compensation and Stock Option Committee. A total
of 600,000 and 200,000 shares are reserved for issuance under the Employee
and Director Plans, respectively. Adoption of the 1999 Plans is subject to
stockholder approval.
On December 16, 1999, the Company granted 215,000 options under the
1999 Plans at an exercise price that will be equal to the fair value of
the common stock on the date the Company's stockholders approve the 1999
Plans. Each option has a term of five years from the date of grant and
vesting will be determined at the time of stockholder approval. All
options granted are outstanding at December 31, 1999.
(10) Miscellaneous income
--------------------
A summary of miscellaneous income (expense) for the years ended
December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
---- ---- ----
Interest income $ 12,000 $ 13,000 $10,000
(Loss) gain on disposal of property,
plant and equipment 5,000) 1,078,000 (1,000)
Other, net 27,000 127,000 45,000
------ ------- ------
$ 34,000 $1,218,000 $54,000
------- ---------- -------
On October 2, 1998, the Company sold its Miami, Florida
manufacturing facility for $1,406,000 and received net cash proceeds of
$801,000 after satisfaction of the mortgage and payment of commissions and
closing costs. A gain of $1,066,000 was recognized on this transaction.
33
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(11) Earnings Per Common Share
-------------------------
Below is a reconciliation between basic and diluted earnings per
common share under FAS 128 for the years ended December 31, 1999, 1998 and
1997 (in thousands except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ----------------------- -----------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $1,220 $2,057 $1,675
Less net charge
for elimination of
preferred stock (975)
Less dividends on
redeemable
preferred stock (248) (330)
------ ------
Basic earnings
per common share $1,220 8,199 $.15 $ 834 6,566 $.13 $1,315 6,009 $.22
------ ----- ---- ------ ----- ---- ------ ----- ----
Effect of dilutive
securities:
Warrants 191 149 167
------ ----- ---- ------ ----- ---- ------ ----- ----
Diluted earnings
per common share $1,220 8,390 $.15 $ 834 6,715 $.12 $ (56) 6,267 $.21
------ ----- ---- ------ ----- ---- ------ ----- ----
</TABLE>
(12) Related Party Transactions
--------------------------
The Company and its subsidiaries paid legal fees of approximately
$114,000, $86,000 and $37,000 in 1999, 1998 and 1997, respectively, to a
law firm with which the Company's Chairman of the Board was affiliated.
(13) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of March 28, 2000, the Company and other parties have been named
in 36 lawsuits pending in various Southeastern states, by homeowners,
contractors and subcontractors, or their insurance companies, claiming
moisture intrusion damages on single family residences. The allegations of
defects in synthetic stucco wall systems are not restricted to the
Company's products but rather are an industry-wide issue. There has never
been any defect proven against the Company. The alleged failure of these
products to perform has generally been linked to improper application and
the failure of adjacent building materials such as windows, roof flashing,
decking and the lack of caulking. In response to the alleged defects and
in compliance with modified building codes adopted in North Carolina, the
Company, together with many other manufacturers of synthetic stucco wall
systems, has developed modified wall systems that allow the drainage of
incidental moisture that may enter the wall system. Most manufacturers
continue to produce the traditional (i.e., face-sealed) stucco systems and
in commercial construction, estimated to account for more than 50% of
product sales, the traditional system is still the product of choice. The
alleged defects have
34
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(13) Commitments and Contingencies (continued)
-----------------------------
(a) Contingencies (continued)
-------------
generally occurred in the residential construction market. To the
Company's knowledge, in the commercial market, where methods of
construction and quality control are monitored more closely than in the
residential market, the alleged drainage problem has been limited. The
Company's insurance carriers have accepted coverage for 35 of these claims
and are providing a defense under a reservation of rights. The Company
expects its insurance carriers to accept coverage for the other one
recently filed lawsuit. The Company is vigorously defending all of these
cases and believes it has meritorious defenses, counter-claims and claims
against third parties. The Company is unable to determine the exact extent
of its exposure or outcome of this litigation.
On June 15, 1999, the Company was served with a complaint captioned
Mirage Condominium Association, Inc. v. Premix Marbletite Manufacturing
Co., et al., in Miami-Dade County Florida. The lawsuit raises a number of
allegations against twelve separate defendants involving alleged
construction defects. Plaintiff has alleged only one count against Premix,
which claims that certain materials, purportedly provided by Premix to the
Developer/ Contractor and used to anchor balcony railings to the structure
were defective. The Company's insurance carriers have been placed on
notice of this suit and the Company is awaiting their response regarding
coverage, but fully expects that the insurance carriers will accept
coverage and the defense. In the interim, the insurance carrier has
retained defense counsel on behalf of the Company.
The Company intends to vigorously defend this claim and believes it
has meritorious defenses. The Company is unable to determine the exact
extent of its exposure or the outcome of this litigation.
The Company is 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) Lease Commitments
-----------------
At December 31, 1999 certain property, plant and equipment were
leased by the Company under long-term leases. Certain of these leases
provided for escalation in rent upon the lease anniversary date. Future
minimum lease commitments as of December 31, 1999, for all noncancellable
leases are as follows:
December 31,
------------
2000 $315,000
2001 315,000
2002 312,000
2003 317,000
2004 323,000
Rental expenses incurred for operating leases were approximately
$331,000, $153,000 and $128,000, for the years ended December 31, 1999,
1998 and 1997, respectively.
35
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(13) Commitments and Contingencies (continued)
-----------------------------
(14) Subsequent Event
----------------
Effective January 1, 2000, the Company acquired certain assets and
assumed certain liabilities of three building materials distributors held
under common ownership in a single transaction accounted for as a purchase
acquisition. The total consideration was $1,420,000 which includes 225,000
shares of the Company's unregistered common stock valued at $144,000 or
$.64 per share. The Company paid $798,000 in cash, and issued unsecured
promissory notes of $150,000 due 90 days from closing and $100,000 due one
year from closing. The Company also assumed $372,000 of the acquired
companies' secured debt.
Effective March 1, 2000, the Company acquired certain assets of
another unrelated building materials distributor accounted for as a
purchase. The total consideration was $344,000 which includes 50,000 shares
of the Company's unregistered common stock valued at $42,000, or $.84 per
share. The Company paid cash of $219,000 and issued an unsecured promissory
note of $125,000 payable over two years from the date of closing.
****************************
36
<PAGE>
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The following table sets forth certain information with respect
to the directors and executive officers of the Company:
Name Age PositionWithCompany
---- --- -------------------
S. Daniel Ponce 51 Chairman of the Board - Class III
Lisa M. Brock 41 Director - Class III
Milton J. Wallace 64 Director - Class II
Morton L. Weinberger 70 Director - Class II
Fred H. Hansen 53 President, Premix and Acrocrete
Howard L. Ehler, Jr. 56 Principal Executive Officer/Executive
Vice President and Secretary
Betty J. Murchison 60 Principal Accounting Officer/
Assistant Vice President
Gary J. Hasbach 55 President, Just-Rite
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 (3) year
staggered terms. Class II directors were to serve until the 1999
annual meeting or until their successors are elected, and Class III
directors shall serve until the 2000 annual meeting or until their
successors are elected. The Company did not have an annual meeting
in 1999. Accordingly, Class II directors will serve until the next
annual meeting to be held by the Company. The Company has no Class I
directors. Mr. Wallace was appointed to fill a vacancy on the Board
on February 17, 1999.
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 twenty five years and is currently a stockholder in
the law firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon,
P.A. 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 5
years until December, 1994 when she retired. Mrs. Brock continues
to serve as a consultant to the Company.
37
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (continued)
--------------------------------------------------
Milton J. Wallace. Mr. Wallace has been a director of the Company
since February 1999. Mr. Wallace has been a practicing attorney
in Miami for over 30 years and is currently a shareholder in the
law firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon,
P.A. He was a co-founder and Chairman of the Board of Renex Corp,
a provider of dialysis services, from 1993 through February 2000
when Renex Corp. was acquired by National Nephrology Associates,
Inc. Mr. Wallace is Chairman of the Board of Med/Waste, Inc., a
provider of medical waste management services. He is a director
of several private companies.
Morton L. Weinberger, CPA. Mr. Weinberger has been a director of the
Company since 1988. Mr. Weinberger, a certified public
accountant, has been self-employed as a consultant to various
professional organizations for the past twelve years. He provides
consulting services for the Company. For the previous twenty-five
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., 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.
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.
Gary J. Hasbach. Mr. Hasbach became President of Just-Rite, on
February 3, 2000. Prior thereto, he had been Executive Vice
President of Sales and Marketing for Premix and Acrocrete since
January 1, 1999. Mr. Hasbach was formerly President of Premix and
Acrocrete from September 1990 to May 1996. From May 1996 to
December 1997, Mr. Hasbach served as Executive Vice President of
Marketing for Florida Tile Industries, Inc, a distributor of tile
and flooring products. In addition, Mr. Hasbach was a director of
the Company from 1993 to February 1997.
Betty J. Murchison. Ms. Murchison has been the Principal Accounting
Officer 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.
38
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (continued)
--------------------------------------------------
Board of Directors Meetings and Attendance
------------------------------------------
The Board of Directors met five (5) times in fiscal 1999. Each
director attended all of the Board of Directors meetings in 1999,
other than Leonard C. Ferri who attended no meetings. Mr. Ferri
resigned as a member of the Board of Directors in 1999.
Compensation and Stock Option Committee
---------------------------------------
Messrs. Ponce, 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 six (6)
times in fiscal 1999. 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 Securities and Exchange Commission in accordance
with Section 16(a) of the Securities Exchange Act of 1934, as
amended, 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 1998 no officer or director failed to
file any such report on a timely basis.
Item 11. Executive Compensation
----------------------
Summary Compensation Table
--------------------------
The following table summarizes the compensation paid or accrued
for each of the three fiscal years in the period ended December 31,
1999 for the Company's chief 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>
AnnualCompensation
------------------
Long-Term Compensation
----------------------
Securities
Other Underlying
Annual Restricted Options to
Name and Compen- Stock Purchase
Principal Position Year Salary Bonus(1) sation(2) Awards(3) Shares(4)
------------------ ---- ------ -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Howard L. Ehler Jr. 1999 $130,000 $ - $ 2,000 $ - 20,000
Principal Executive 1998 $120,000 35,000 -
Officer, Executive 1997 $100,000 40,000 18,750
Vice President and
Secretary
Fred H. Hansen 1999 $138,000 $ - $ - $ - 20,000
President, Premix 1998 150,000 75,000 - -
and Acrocrete 1997 118,000 85,000 - 41,667
Gary Hasbach
President, Just-
Rite 1999 $110,000 $ - $ - $ - 10,000
</TABLE>
39
<PAGE>
Item 11. Executive Compensation (continued)
----------------------
Summary Compensation Table (continued)
--------------------------
(1) Bonuses shown were earned in the year indicated even though
actually paid in a subsequent year. Bonuses for 1999 have not yet
been determined.
(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. Ehler's other Annual
Compensation in 1999 represents the market value at date of grant of
7,863 shares of common stock.
(3) 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. 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 scheduled 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
Common Stockholders and such shares may be voted. In 1998, the
Company released all restricted stock from the Restricted Stock Plan
and reissued the stock to the named executives.
(4) Stock options are granted under the terms and provisions of the
1999 Employee Stock Option Plan. For a description of the stock
options see "Executive Compensation-Options Granted in Year Ended
December 31, 1999".
Compensation Agreements
-----------------------
The Company is party to a one year renewable employment
agreement, (the "Employment Agreement") with Howard L. Ehler, Jr.
(the "Executive"). Mr. Ehler serves as Executive Vice President,
Principal Executive Officer and Chief Financial Officer of the
Company at a current base salary of $130,000. The Employment
Agreement provides for automatic renewal for additional one year
periods on July 1st of each year, unless the Company or Executive
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. 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 Compensation
Committee.
Prior to a Change in Control (as defined in the Employment
Agreements), 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
40
<PAGE>
Item 11. Executive Compensation (continued)
----------------------
Summary Compensation Table (continued)
--------------------------
the Employment Agreement, the Executive 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 (2) year period
following his termination.
In the event of a Change in Control, the Employment Agreement
is automatically extended to a three year period. Thereafter, the
Executive will be entitled to terminate his employment with the
Company for any reason at any time. In the event the Executive so
terminates employment, the Executive will be entitled to receive the
lesser of (i) a lump sum 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 the 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 30, 1997 pursuant to the terms of the
Company's Restricted Stock Plan.
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 of
the Company 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. Also, Mr. Hansen is
entitled, at his election, to the use of a Company auto, or car
allowance of $650 per month during his employment, as well as
certain other benefits, such as health and disability insurance.
Options Granted in Year Ended December 31, 1999
-----------------------------------------------
The following table sets forth certain summary information
concerning the number of stock options granted and the potential
realizable value of the stock options granted to the Company's Named
Executive Officers during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Number of Realizable Value
Securities % of Total at Assumed Rates
Underlying Options of Stock Price
Options Granted to Exercise Appreciation
Granted in Employees in Price Expiration for Option Term(3)
Name 1999(1) Fiscal Year ($/Share)(2) Date 5%($) 10%($)
---- ------- ----------- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Howard L. Ehler, Jr. 20,000 14.8% - 12/15/04 $3,600 $7,800
Principal Executive Officer,
Executive Vice President and
Secretary
</TABLE>
41
<PAGE>
Item 11. Executive Compensation (continued)
----------------------
Options Granted in Year Ended December 31, 1999 (continued)
-----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fred H. Hansen 20,000 14.8% - 12/15/04 $3,600 $7,800
President Premix and Acrocrete
Gary J. Hasbach
President Just-Rite 10,000 7.4% - 12/15/04 $1,800 $3,900
</TABLE>
(1) Options were granted pursuant to the terms and conditions of the
Company's 1999 Employee Stock Option Plan adopted December 15, 1999.
The options granted are not exercisable unless the Company obtains
stockholder approval prior to December 14, 2000. The options shall
become null and void if stockholder approval is not obtained by such
date.
(2) The exercise price will be equal to the fair market value of the
Company's common stock at the date the 1999 Employee Stock Option
Plan is approved by the Company's stockholders.
(3) The amounts disclosed in the columns which noted appreciation of
the Company's common stock price at the 5% and 10% rates dictated by
the Securities and Exchange Commission, are not intended to be a
forecast of the Company's common stock price and are not necessarily
indicative of the actual value which my be realized by the named
Executive Officers or the stockholders. These assumed rates of 5%
and 10% would result in the Company's common stock price increasing
from $.50 per share to approximately $.68 per share and $.89 per
share, respectively. The assumed $.50 per share floor is based upon
the fair market value of the common stock on the date of grant of
such options. However, the actual exercise price shall be equal to
the fair market value of the common stock on the date the 1999
Employee Stock Option Plan is approved by the Company's
stockholders. The fair market price of such common stock on such
date may be lesser than or greater than $.50 per share.
Aggregated Option Exercises in Year Ended December 31, 1999
-----------------------------------------------------------
The following table provides certain summary information
concerning the value of unexercised stock options held by the
Company's Named Executive Officers as of December 31, 1999.
Value of Unexercised
Number of Securities "In the Money"
Underlying Unexercised Options at Fiscal
Options at Fiscal Year End Year End ($) (1)
-------------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- -------------------------
Howard L Ehler, Jr. - 20,000 - -
Principal Executive
Officer, Executive
Vice President and
Secretary
Fred H. Hansen - 20,000 - -
President, Premix
and Acrocrete
42
<PAGE>
Item 11. Executive Compensation (continued)
----------------------
Aggregated Option Exercises in Year Ended December 31, 1999
-----------------------------------------------------------
(continued)
Gary J. Hasbach - 10,000 - -
President Just-Rite
No options were exercised by the Named Executive Officers
during the year ended December 31, 1999.
(1) The options are not exercisable until the Company gains
stockholder approval of the 1999 Employee Stock Option Plan. If the
Company fails to obtain stockholder approval prior to December 14,
2000, the options shall become null and void. The exercise price of
such options will be equal to the fair market value of the common
stock on the date of approval by the Company's stockholders of the
1999 Employee Stock Option Plan. As the options are not yet
exercisable and the exercise price is not fixed, the Company is
unable to determine the fair value of such options.
In December 1999, the Board of Directors adopted the Director's
Stock Option Plan and the 1999 Employee Stock Option Plan
(collectively, the "1999 Plans"). The 1999 Plans provide for options
to be granted at generally no less than the fair market value of the
Company's stock at the grant date. The 1999 Plans are administered
by the Company's Compensation and Stock Option Committee. Options
granted under the 1999 Plans have a term up to 10 years and are
exercisable six months from the grant date provided however, no
options under the Director's Plan will be exercisable until the
Company's stockholders approve the Director's Plan. A total of
600,000 and 200,000 shares are reserved for issuance under the
Employee and Director Plans. Adoption of the 1999 Plans is subject
to stockholder approval. As of December 31, 1999 there were
outstanding options to purchase 135,000 and 80,000 shares under the
Employee and Director Plans, respectively. The exercise price for
such options have not yet been fixed, but will be equal to the fair
value of the common stock on the date the Company's stockholders
approve the 1999 Plans.
Director Compensation
---------------------
During the year ended December 31, 1999, each director received
an annual retainer of $6,000, payable in quarterly installments.
Effective June 1, 1994 and January 1, 1995, the Company entered into
separate consulting agreements with Mr. Weinberger and Ms. Brock,
respectively, to provide various management consulting services to
the Company. Each Agreement initially provided for monthly fees of
$833 and may be terminated upon 60 days notice by either party.
During the year ended December 31, 1999 and thereafter, the Company
initiated an acquisition program. In connection with such
acquisition program, Mr. Weinberger was requested to expend
additional time in consulting with the Company's management on
acquisition possibilities, including performing due diligence,
administrative, accounting and other services. As a result of the
increased time and effort spent by Mr. Weinberger, Mr Weinberger's
consulting fee was increased to $2,833 per month.
43
<PAGE>
Item 11. Executive Compensation (continued)
----------------------
Director Compensation (continued)
---------------------
On September 1, 1999 each director, other than Mr. Wallace,
received 10,000 shares of the Company's common stock. The average of
the bid and asked market price on said date was $.57 per share.
Since September 1994, Mr. Ponce was provided the use of a Company
car at a current cost of approximately $786 per month.
On December 15, 1999, each director was granted stock options
to purchase 20,000 shares of the Company's common stock. The
exercise price of such options will be equal to the fair market
value at the date of grant, for a period of five years. The options
are not exercisable until the Company obtains stockholder approval
of the Director's Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
During the year ended December 31, 1999, the Compensation and
Stock Option Committee consisted of Messrs. Ponce, 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. There are no other relationships required
to be disclosed pursuant to applicable Securities and Exchange
Commission rules and regulations.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information as of March
23, 2000 with respect to the beneficial ownership of the Company's
common stock 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 such shares, and (iv) all executive officers and
directors as a group. (Except as otherwise provided herein, the
information below is supplied by the holder):
Shares (1) Percent
Beneficially Owned of Class (2)
------------------ ------------
Maureen P. Ferri 656,981 7.7%
120 Simmons Road
Statesboro, GA. 30458
Lisa M. Brock 306,506 (3) 3.6%
Howard L. Ehler, Jr. 276,108 3.2%
Fred H. Hansen 220,000 2.6%
Gary J. Hasbach 250,400 2.9%
S. Daniel Ponce 561,966 (4) 6.5%
Milton J. Wallace 100,000 1.2%
Morton L. Weinberger 209,210 2.5%
All directors and officers
as a group (8 persons) 1,930,308 (5) 22.2%
----------------
44
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(1) Except as set forth herein, all securities are directly owned
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 common stockholders is based upon
8,505,434 shares of common stock outstanding and such shares of
common stock 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) Includes 50,000 shares of common stock issuable upon exercise of
warrants.
(4) Includes 150,000 shares of common stock issuable upon exercise
of warrants.
(5) Includes 200,000 shares of common stock issuable upon the
exercise of warrants.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The law firm of Hanzman, Criden, Chaykin, Rolnick, P.A. in
which Mr. Ponce, the Company's Chairman of the Board, was formerly a
member, served as general counsel to the Company for which the firm
received $114,000 in 1999.
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form-8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements: Page
--------------------- ----
Imperial Industries, Inc. and Subsidiaries:
Report of Independent Certified Public Accountants 18
Consolidated Balance Sheets - December 31, 1999 and 1998 19
Consolidated Statements of Operations - Years Ended
December 31, 1999, 1998 and 1997. 20
Consolidated Statement of Changes of Common Stock and
Other Stockholders' Equity - Three Years Ended
December 31, 1999. 21
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997 22
Notes to Consolidated Financial Statements 23
2. Financial Statement Schedules:
------------------------------
II - Valuation and Qualifying Accounts and Reserves 47
3. Exhibits
--------
Incorporated by reference to the Exhibit Index at the
end of this Report. 48
(b) Reports on Form 8-K:
No Form 8-K Reports were filed during the last quarter of the
period covered by this Report.
46
<PAGE>
Schedule II
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Charged Charged
Balance to cost to other Balance at
beginning and accounts- Deductions- end of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $ 200,000 $ 177,000 $ -- $123,000(A) $ 254,000
---------- --------- ------ ----------- ----------
Valuation allowance for deferred taxes $2,207,000 $ -- $ -- $574,000(B) $1,633,000
---------- --------- ------ ----------- ----------
Year ended December 31, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $ 176,000 $ 154,000 $ -- $130,000(A) $ 200,000
---------- --------- ------ ----------- ----------
Valuation allowance for deferred taxes $3,134,000 $ -- $ -- $927,000(B) $2,207,000
---------- --------- ------ ----------- ----------
Year ended December 31, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $ 145,000 $ 126,000 $ -- $ 95,000(A) $ 176,000
---------- --------- ------ ----------- ----------
Valuation allowance for deferred taxes $3,934,000 $ -- $ -- $800,000(B) $3,134,000
---------- --------- ------ ----------- ----------
</TABLE>
(A) Uncollectible accounts written off, net of recoveries.
(B) Deferred tax benefit
47
<PAGE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk (*), are
filed herewith. The exhibits not so designated have been filed previously with
the Commission, and are incorporated herein by reference to the documents
indicated in parentheses following the descriptions of such exhibits.
Exhibit No. Description
- - ----------- -----------
2.1 Agreement and Plan of Merger, by and between Imperial Industries,
Inc. and Imperial Merger Corp. dated October 12, 1998 (Form S-4
Registration Statement, Exhibit 2).
2.2 Asset Purchase Agreement entered into as of December 31, 1999
between Just-Rite Supply, Inc., Imperial Industries, Inc., A&R
Supply, Inc., A&R Supply of Foley, Inc., A&R of Destin, Inc.,
Ronald A. Johnson, Rita E. Ward and Jaime E. Granat (Form 8-K
dated January 19, 2000, File No. 1-7190, Exhibit 2.1).
3.1 Certificate of Incorporation of the Company, (Form S-4
Registration Statement, Exhibit 3.1).
3.2 By-Laws of the Company, (Form S-4 Registration Statement, Exhibit
3.2).
4.1 Form of Common Stock Purchase Warrant issued to Auerbach, Pollak
& Richardson, Inc., (Form S-4 Registration Statement, Exhibit
4.1).
4.2 Form of 8% Subordinated Debenture, (Form S-4 Registration
Statement, Exhibit 4.2).
4.3 Warrant Agreements as of June 22, 1988 between the Company and
two of its directors, S. Daniel Ponce and Lisa M. Brock,
formerly Lisa M. Thompson. (Form 8-K dated June 29, 1988, File
No. 1-7190, Exhibit 10.3)
*10.1 Consolidating, Amended and Restated Financing Agreement by and
between Congress Financial Corporation and Premix-Marbletite
Manufacturing Co., Acrocrete, Inc. and Just-Rite Supply, Inc.
dated January 28, 2000.
10.2 Employment Agreement dated July 26, 1993 between Howard L. Ehler,
Jr. and the Company. (Form 8-K dated July 26, 1993)
10.3 Employment Agreement dated July 3, 1996 between Fred H. Hansen
and the Company, (Form S-4 Registration Statement, Exhibit
10.3).
10.4 Restricted Stock Plan, (Form S-4 Registration Statement, Exhibit
10.4).
10.5 License Agreement between Bermuda Roof Company and Premix
Marbletite Manufacturing Co., (Form S-4 Registration Statement,
Exhibit 10.5).
*11 Statement recomputation of earnings per share.
*21 Subsidiaries of the Company
*27 Financial Data Schedule
48
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMPERIAL INDUSTRIES, INC.
March 29, 2000 By: /s/ Howard L. Ehler,Jr.
---------------------------------------------
Howard L. Ehler, Jr., Executive Vice President/
Principal Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ S. Daniel Ponce Chairman of the Board of March 29, 2000
- - ---------------------------- Directors
S. Daniel Ponce
/s/ Lisa M. Brock Director March 29, 2000
- - ----------------------------
Lisa M. Brock
/s/ Milton J. Wallace Director March 29, 2000
- - ----------------------------
Milton J. Wallace
/s/ Morton L. Weinberger Director March 29, 2000
- - ----------------------------
Morton L. Weinberger
/s/ Howard L. Ehler, Jr. Executive Vice President, March 29, 2000
- - ---------------------------- Secretary, Principal
Howard L. Ehler, Jr. Executive Officer and
Chief Financial Officer
/s/ Betty J.Murchison Assistant Vice President March 29, 2000
- - ---------------------------- and Principal Accounting
Betty J. Murchison Officer
49
Consolidating, Amended and Restated Financing
Agreement and Security Agreement
by and among
CONGRESS FINANCIAL CORPORATION (FLORIDA)
as Lender
and
PREMIX-MARBLETITE MANUFACTURING CO.,
ACROCRETE, INC.,
and
JUST-RITE SUPPLY, INC.,
collectively as Borrower
Dated: January 28, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS.................................................................1
SECTION 2. CREDIT FACILITIES...........................................................7
2.1 Revolving Loans.............................................................7
2.2 Availability Reserves.......................................................8
SECTION 3. INTEREST....................................................................8
SECTION 4. CONDITIONS PRECEDENT........................................................9
4.1 Conditions Precedent to Initial Loans.......................................9
4.2 Conditions Precedent to All Loans..........................................10
SECTION 5. CONTINUATION AND GRANT OF SECURITY INTEREST................................11
SECTION 6. COLLECTION AND ADMINISTRATION..............................................12
6.1 Borrower's Loan Account....................................................12
6.2 Statements.................................................................12
6.3 Collection of Accounts.....................................................12
6.4 Payments...................................................................13
6.5 Authorization to Make Loans................................................14
6.6 Use of Proceeds............................................................14
SECTION 7. COLLATERAL REPORTING AND COVENANTS.........................................14
7.1 Collateral Reporting.......................................................14
7.2 Accounts Covenants.........................................................15
7.3 Inventory Covenants........................................................16
7.4 Power of Attorney..........................................................17
7.5 Right to Cure..............................................................17
7.6 Access to Premises.........................................................18
SECTION 8. REPRESENTATIONS AND WARRANTIES.............................................18
8.1 Corporate Existence, Power and Authority; Subsidiaries.....................18
8.2 Financial Statements; No Material Adverse Change...........................18
8.3 Chief Executive Office; Collateral Locations...............................19
8.4 Priority of Liens; Title to Properties.....................................19
8.5 Tax Returns................................................................19
8.6 Litigation.................................................................19
8.7 Compliance with Other Agreements and Applicable Laws.......................20
8.8 Bank Accounts..............................................................20
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.10 Capitalization.............................................................20
8.11 Accuracy and Completeness of Information...................................21
8.12 Survival of Warranties; Cumulative.........................................21
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.........................................21
9.1 Maintenance of Existence...................................................21
9.2 New Collateral Locations...................................................21
9.3 Compliance with Laws, Regulations, Etc.....................................21
9.4 Payment of Taxes and Claims................................................22
9.5 Insurance..................................................................22
9.6 Financial Statements and Other Information.................................22
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc....................24
9.8 Encumbrances...............................................................24
9.9 Transactions with Affiliates...............................................24
9.10 Costs and Expenses.........................................................24
9.11 Further Assurances.........................................................25
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.............................................25
10.1 Events of Default..........................................................25
10.2 Remedies...................................................................27
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNI......................................................28
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver......28
11.2 Waiver of Notices..........................................................29
11.3 Amendments and Waivers.....................................................30
11.4 Waiver of Counterclaims....................................................30
11.5 Indemnification............................................................30
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS...........................................30
12.1 Term.......................................................................30
12.2 Notices....................................................................31
12.3 Partial Invalidity.........................................................32
12.4 Successors.................................................................32
12.5 Entire Agreement...........................................................32
12.7 Joint and Several Liability................................................32
</TABLE>
(ii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Schedule 8.4 Existing Liens
Schedule 8.8 Bank Accounts
(i)
<PAGE>
CONSOLIDATING, AMENDED AND RESTATED FINANCING AGREEMENT
-------------------------------------------------------
AND SECURITY AGREEMENT
----------------------
This Consolidating, Amended and Restated Financing Agreement and
Security Agreement dated January 28, 2000, is entered into by and among Congress
Financial Corporation (Florida), a Florida corporation ("Lender") and
Premix-Marbletite Manufacturing Co. ("Premix"), Acrocrete, Inc. ("Acrocrete"),
and Just-Rite Supply, Inc. ("Just-Rite"), all Florida corporations (as
co-borrowers, sometimes collectively referred to herein as "Borrower").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, on June 20, 1988, Lender and Premix entered into that
certain Amended and Restated Accounts Financing Agreement [Security Agreement],
that certain Inventory Security Agreement Supplement thereto and that certain
Inventory Loans Agreement, each as amended, (collectively, the "Prior Premix
Agreement"), pursuant to which Prior Premix Agreement, Lender entered into
certain financing arrangements with Premix and Lender made certain loans to
Premix; and
WHEREAS, Lender and Acrocrete entered into that certain Accounts
Financing Agreement [Security Agreement] on November 21, 1988, and on February
22, 1991, entered into that certain Inventory Security Agreement Supplement
thereto and that certain Inventory Loans Agreement, each as amended
(collectively, the "Prior Acrocrete Agreement" and, together with the Prior
Premix Agreement, the "Prior Agreements"), pursuant to which Prior Acrocrete
Agreement, Lender entered into certain financing arrangements with Acrocrete and
Lender made certain loans to Acrocrete; and
WHEREAS, Borrower has requested that the Prior Agreements be
consolidated, amended and restated, and that their new affiliate Just-Rite, be
added as a co-borrower under such consolidated financing arrangements; and
WHEREAS, Lender is willing to so amend and establish such financial
arrangements with Borrower on the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
-----------
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Borrower and Lender pursuant to
the
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definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans which would otherwise be
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or prospects of Borrower or any Obligor or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
1.3 "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.
1.4 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.5 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
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(b) such Accounts are not more than ninety (90) days past due
under the original terms of sale and are not unpaid more than one hundred twenty
(120) days after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America, or, at
Lender's option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a Bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill
and hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Accounts or reduce
the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts (except any Accounts owed by
A&R of Mississippi, Inc.) is an officer,
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employee or agent of or affiliated with Borrower directly or indirectly by
virtue of family membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened
or pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor and its
affiliates do not constitute more than twenty (20%) percent of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts more than ninety (90) days past due under the original terms of sale or
unpaid more than one hundred twenty (120) days after the date of the original
invoice for them, which Accounts constitute more than fifty (50%) percent of the
total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.6 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and raw
materials for such finished goods which are acceptable to Lender based on the
criteria set forth below. In general, Eligible Inventory shall not include (a)
work-in-process; (b) components which are not part of finished goods; (c) spare
parts for equipment; (d) packaging and shipping materials; (e) supplies used or
consumed in Borrower's business; (f) Inventory at premises other than those
owned and controlled by Borrower, except if Lender shall have received an
agreement in writing from the person in possession of such Inventory and/or the
owner or operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests
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and claims by such person against the Inventory and permitting Lender access to,
and the right to remain on, the premises so as to exercise Lender's rights and
remedies and otherwise deal with the Collateral; (g) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (h) bill and hold goods; (i) unserviceable,
obsolete or slow moving Inventory; (j) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (k) returned,
damaged and/or defective Inventory; and (l) Inventory purchased or sold on
consignment. General criteria for Eligible Inventory may be established and
revised from time to time by Lender in good faith. Any Inventory which is not
Eligible Inventory shall nevertheless be part of the Collateral.
1.7 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.8 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.9 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
1.10 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.11 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.12 "Loans" shall mean the Revolving Loans.
1.13 "Maximum Credit" shall mean the amount of $4,500,000.
1.14 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less sales, excise or similar taxes included in the amount
thereof and returns, discounts, claims, credits and allowances of any nature at
any time issued, owing, granted, outstanding, available or claimed with respect
thereto.
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1.15 "Obligations" shall mean any and all Revolving Loans and all other
obligations, liabilities and indebtedness of every kind, nature and description
owing by Borrower to Lender and/or its affiliates, including principal,
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including the payment
of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.16 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.17 "Payment Account" shall have the meaning set forth in Section
6.3 hereof.
1.18 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.19 "Prime Rate" shall mean the rate announced by First Union National
Bank, or its successors, from time to time as its prime rate, whether or not
such announced rate is the best rate available at such Bank.
1.20 "Purchase Agreements" shall mean, individually and collectively,
the Asset Purchase Agreement, dated December 31, 1999, between Just-Rite,
Imperial Industries, Inc., Sellers, Ronald A. Johnson, Rita E. Ward and Jaime E.
Granat, and the Bill of Sale, dated January 1, 2000, from Acrocrete to
Just-Rite, together with bills of sale, quitclaim deeds, assignment and
assumption agreements and such other instruments of transfer as are referred to
therein and all side letters with respect thereto, and all agreements, documents
and instruments executed and/or delivered in connection therewith, as all of the
foregoing now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced; provided, that, the term "Purchase
Agreements" as used herein shall not include any of the "Financing Agreements"
as such term is defined herein.
1.21 "Purchased Assets" shall mean all of the assets and properties
acquired by Just-Rite from Sellers and Acrocrete pursuant to the Purchase
Agreements.
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1.22 "Rate Reduction Event" shall mean Lender's receipt of Imperial
Industries, Inc.'s audited and certified financial statements, showing net
income in excess of $600,000.
1.23 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.24 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.25 "Sellers" shall mean A & R Supply, Inc., a Florida corporation,
A & R of Foley, Inc., a Florida corporation, A & R of Destin, Inc., a Florida
corporation, and their respective successors and assigns.
1.26 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
---------------
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts, plus
(ii) the lesser of: (A) the sum of thirty-five (35%)
percent of the Value of Eligible Inventory, or (B) $1,000,000,
less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than ten (10) days prior notice to Borrower, (i) reduce the lending formula
with respect to Eligible Accounts to the extent that Lender determines in good
faith that: (A) the dilution with respect to the Accounts for any period (based
on the ratio of (1) the aggregate amount of reductions in Accounts other than
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as a result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce the lending
formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the liquidation value of the
Eligible Inventory, or any category thereof, has decreased, or (C) the nature
and quality of the Inventory has deteriorated. In determining whether to reduce
the lending formula(s), Lender may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the
Loans outstanding at any time shall not exceed the Maximum Credit. In the event
that the outstanding amount of any component of the Loans, or the aggregate
amount of the outstanding Loans, exceed the amounts available under the lending
formulas or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
2.2 Availability Reserves. All Revolving Loans otherwise available to
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
SECTION 3. INTEREST
--------
3.1 Borrower shall pay to Lender interest on the outstanding principal
amount of the non- contingent Obligations at the rate of one (1%) percent per
annum in excess of the Prime Rate, reducing to one-half (1/2%) percent per
annum in excess of the Prime Rate commencing on the first day of the first month
following the occurrence of the Rate Reduction Event, except that, at Lender's
option, without notice, Borrower shall pay to Lender interest at the rate of
three (3%) percent per annum in excess of the Prime Rate, reducing to two and
one-half (21/2%) percent per annum in excess of the Prime Rate commencing on
the first day of the first month following the occurrence of the Rate Reduction
Event: (i) on the non-contingent Obligations for (A) the period from and after
the date of termination or non-renewal hereof until such time as Lender has
received full and final payment of all such Obligations (notwithstanding entry
of any judgment against Borrower), and (B) the period from and after the date of
the occurrence of an Event of Default for so long as such Event of Default is
continuing as determined by Lender and (ii) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default).
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3.2 Interest shall be payable by Borrower to Lender monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced. The increase or decrease shall be based
on the Prime Rate in effect on the last day of the month in which any such
change occurs. All interest accruing hereunder on and after an Event of Default
or termination or non-renewal hereof shall be payable on demand. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in contravention of any such law
or regulation, such part or provision shall be deemed amended to conform
thereto.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans. Each of the following is a
condition precedent to Lender making the initial Loans hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, evidence that the Purchase Agreements have been duly
executed and delivered by and to the appropriate parties thereto and the
transactions contemplated under the terms of the Purchase Agreements have been
consummated prior to or contemporaneously with the execution of this Agreement;
(b) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower of their respective financing arrangements with
Borrower and the termination and release by it or them, as the case may be, of
any interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by it or each of them, including, but
not limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such existing lender or lenders, in form acceptable for recording in
the appropriate government office;
(c) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(d) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including
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records of requisite corporate action and proceedings which Lender may have
requested in connection therewith, such documents where requested by Lender or
its counsel to be certified by appropriate corporate officers or governmental
authorities;
(e) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(f) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower;
(g) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(h) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(i) Lender shall have received, in form and substance
satisfactory to Lender, the opinion letter of counsel(s) to Borrower with
respect to the Purchase Agreements, the Financing Agreements and the security
interests and liens of Lender with respect to the Collateral and such other
matters as Lender may request; and
(j) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans. Each of the following is an
additional condition precedent to Lender making Loans to Borrower, including the
initial Loans and any future Loans:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as
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though such representations and warranties had been made on and as of the date
of the making of each such Loan and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan and after giving effect thereto.
SECTION 5. CONTINUATION AND GRANT OF SECURITY INTEREST
-------------------------------------------
Pursuant to the Existing Agreements, Borrower granted or caused to be
granted to Lender security interests, liens, rights of set off and assignments
as security in, upon, against and of collateral described in the Existing
Agreements (the "Existing Collateral") in order to secure payment and
performance of all Obligations defined in the Existing Agreements (the "Existing
Obligations"). Borrower hereby restates, reaffirms and continues those grants of
the Existing Collateral pursuant to the remaining provisions of this Section,
and Lender shall retain its interests in the Existing Collateral, in order to
secure the payment and performance of all Obligations (which include the
Existing Obligations) in accordance with the respective terms and provisions of
this Agreement and the other Financing Agreements. To the extent the Collateral
described below in this Section includes assets and properties not included in
the Existing Collateral, Borrower intends to grant, and pursuant to the
remaining provisions of this Section grants, to Lender a continuing security
interest in and to those assets and properties.
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including duty refunds, trade secrets, processes, drawings, blueprints,
customer lists, choses in action and other claims and existing and future
leasehold interests in equipment, real estate and fixtures), chattel paper,
documents, instruments;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower relating to
Accounts or Inventory, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Accounts and other
Collateral, including (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents,
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contracts or instruments with respect to, or otherwise representing or
evidencing, Accounts or other Collateral, including returned, repossessed and
reclaimed goods, and (d) deposits by and property of account debtors or other
persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Records; and
5.6 all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including fees, charges, costs, expenses and interest. All entries in
the loan account(s) shall be made in accordance with Lender's customary
practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
----------------------
(a) On or after the occurrence of an Event of Default, at
Lender's request, Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository bank has no
lien upon, or right to setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise
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transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to such bank account of Lender as Lender
may from time to time designate for such purpose ("Payment Account"). Borrower
agrees that all payments made to such Blocked Accounts or other funds received
and collected by Lender, whether on the Accounts or as proceeds of Inventory or
other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the business day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
For the purposes of calculating interest on the Obligations, such payments or
other funds received will be applied (conditional upon final collec tion) to the
Obligations one (1) business day following the date of receipt of immediately
available funds by Lender in the Payment Account provided such payments or other
funds and notice thereof are received in accordance with Lender's usual and
customary practices as in effect from time to time and within sufficient time to
credit Borrower's loan account on such day, and if not, then on the next
business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations, whether or not then
due, in such order and manner as Lender determines. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
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Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrower shall be liable to pay to Lender, and
does hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
Loans based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person or, at the
discretion of Lender, if such Loans are necessary to satisfy any Obligations.
All requests for Loans hereunder shall specify the date on which the requested
advance is to be made (which day shall be a business day) and the amount of the
requested Loan. Requests received after 11:00 a.m. Miami, Florida time on any
day shall be deemed to have been made as of the opening of business on the
immediately following business day. All Loans under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder for costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made by Lender to
Borrower pursuant to the provisions hereof shall be used by Borrower only for
general operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof. None of the proceeds will
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts, sales made, credits issued and cash
received; (b) on a monthly basis or more frequently as Lender may request, (i)
perpetual inventory reports, (ii) inventory reports by category and (iii) agings
of accounts payable, (c) upon Lender's request, (i) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and Bank statements, (ii) copies of shipping and delivery
documents, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower; (d) agings of accounts
receivable on a monthly basis or more frequently as Lender may request; and (e)
such other reports as to the Collateral as Lender shall request from time to
time. If any of Borrower's records or reports of the
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Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Lender and to follow Lender's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 Accounts Covenants.
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(a) Borrower shall notify Lender promptly of: (i) any
material delay in Borrower's performance of any of its obligations to any
account debtor or the assertion of any claims pertaining to an amount exceeding
$10,000, offsets, defenses or counterclaims by any account debtor pertaining to
an amount exceeding $10,000, or any disputes with account debtors pertaining to
an amount exceeding $10,000, or any settlement, adjustment or compromise
thereof, (ii) all material adverse information relating to the financial
condition of any account debtor and (iii) any event or circumstance which, to
Borrower's knowledge would cause Lender to consider any then existing Accounts
as no longer constituting Eligible Accounts. No credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to any account
debtor without Lender's consent, except in the ordinary course of Borrower's
business in accordance with practices and policies previously disclosed in
writing to Lender. So long as no Event of Default exists or has occurred and is
continuing, Borrower shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At any time that an Event of
Default exists or has occurred and is continuing, Lender shall, at its option,
have the exclusive right to settle, adjust or compromise any claim, offset,
counterclaim or dispute with account debtors or grant any credits, discounts or
allowances.
(b) Without limiting the obligation of Borrower to deliver
any other information to Lender, Borrower shall promptly report to Lender any
return of Inventory by any one account debtor if the inventory so returned in
such case has a value in excess of $50,000. At any time that Inventory is
returned, reclaimed or repossessed, the Account (or portion thereof) which arose
from the sale of such returned, reclaimed or repossessed Inventory shall not be
deemed an Eligible Account. In the event any account debtor returns Inventory
when an Event of Default exists or has occurred and is continuing, Borrower
shall, upon Lender's request, (i) hold the returned Inventory in trust for
Lender, (ii) segregate all returned Inventory from all of its other property,
(iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account, to the best of our
knowledge: (i) the amounts shown on any invoice delivered to Lender or schedule
thereof delivered to Lender shall be true and complete, (ii) no payments shall
be made thereon except payments immediately delivered to Lender pursuant to the
terms of this Agreement, (iii) no credit, discount, allowance or extension or
agreement for any of the foregoing shall be granted to any account debtor except
as reported to Lender in accordance with this Agreement and except for credits,
discounts, allowances or extensions made or given in the ordinary course of
Borrower's business in accordance with practices and policies previously
disclosed to Lender, (iv) there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with respect thereto
pertaining to an amount
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exceeding $10,000, except as reported to Lender in accordance with the terms of
this Agreement, (v) none of the transactions giving rise thereto will violate
any applicable State or Federal laws or regulations, all documentation relating
thereto will be legally sufficient under such laws and regulations and all such
documentation will be legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full recourse to
Borrower, all chattel paper and instruments which Borrower now owns or may at
any time acquire immediately upon Borrower's receipt thereof, except as Lender
may otherwise agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than once in any twelve (12) month period, but at
any time or times as Lender may
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request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Inventory in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender,
addressed to Lender or upon which Lender is expressly permitted to rely; (e)
Borrower shall produce, use, store and maintain the Inventory with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) Borrower assumes all responsibility
and liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (g) Borrower shall not sell Inventory to any
customer on approval, or any other basis which entitles the customer to return
or may obligate Borrower to repurchase such Inventory; (h) Borrower shall keep
the Inventory in good and marketable condition; and (i) Borrower shall not,
without prior written notice to Lender, acquire or accept any Inventory on
consignment or approval.
7.4 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage of
time or both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things which are necessary,
in Lender's determination, to fulfill Borrower's obligations under this
Agreement and the other Financing Agreements and (b) at any time to (i) take
control in any manner of any item of payment or proceeds thereof, (ii) have
access to any lockbox or postal box into which Borrower's mail is deposited,
(iii) endorse Borrower's name upon any items of payment or proceeds thereof and
deposit the same in the Lender's account for application to the Obligations,
(iv) endorse Borrower's name upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to any Account or any goods
pertaining thereto or any other Collateral, (v) sign Borrower's name on any
verification of Accounts and notices thereof to account debtors and (vi) execute
in Borrower's name and file any UCC financing statements or amendments thereto.
Borrower hereby releases Lender and its officers, employees and designees from
any liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or wilful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.5 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in
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Lender's judgment, is necessary or appropriate to preserve, protect, insure or
maintain the Collateral and the rights of Lender with respect thereto. Lender
may add any amounts so expended to the Obligations and charge Borrower's account
therefor, such amounts to be repayable by Borrower on demand. Lender shall be
under no obligation to effect such cure, payment or bonding and shall not, by
doing so, be deemed to have assumed any obligation or liability of Borrower. Any
payment made or other action taken by Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
accordingly.
7.6 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans by Lender to
Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of
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operation of Borrower as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished by Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by Borrower to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets, business or prospects
of Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
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8.7 Compliance with Other Agreements and Applicable Laws. Borrower is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any Bank or
other financial institution are set forth on Schedule 8.8 hereto, subject to the
right of Borrower to establish new accounts upon prompt written notification to
Lender of any significant new accounts.
8.9 Acquisition of Purchased Assets.
-------------------------------
(a) The Purchase Agreements and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance with
their terms by the respective parties thereto in all respects, including the
fulfillment (not merely the waiver, except as may be disclosed to Lender and
consented to in writing by Lender) of all conditions precedent set forth therein
and giving effect to the terms of the Purchase Agreements and the assignments to
be executed and delivered by Sellers (or any of its affiliates or subsidiaries)
thereunder, Just-Rite acquired and has good and marketable title to the
Purchased Assets, free and clear of all claims, liens, pledges and encumbrances
of any kind, except as permitted hereunder.
(b) All actions and proceedings, required by the Purchase
Agreements, applicable law or regulation (including, but not limited to,
compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended) have been taken and the transactions required thereunder have been duly
and validly taken and consummated.
(c) No court of competent jurisdiction has issued any
injunction, restraining order or other order which prohibits consummation of the
transactions described in the Purchase Agreements and no governmental or other
action or proceeding has been threatened or commenced, seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
transactions described in the Purchase Agreements.
(d) Borrower has delivered, or caused to be delivered, to
Lender, true, correct and complete copies of the Purchase Agreements.
8.10 Capitalization. Borrower is solvent and will continue to be
solvent after the creation of the Obligations, the security interests of Lender
and the other transaction contemplated hereunder, is able to pay its debts as
they mature and has (and has reason to believe it will continue to have)
sufficient capital (and not unreasonably small capital) to carry on its business
and all businesses in which it is about to engage. The assets and properties of
Borrower at a fair valuation and at their present fair salable value are, and
will be, greater than the Indebtedness of Borrower, and including subordinated
and contingent liabilities computed at the amount which, to the best of
Borrower's
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knowledge, represents an amount which can reasonably be expected to become an
actual or matured liability.
8.11 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.12 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
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9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location
within the continental United States provided Borrower (a) gives Lender thirty
(30) days prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals and orders of any Federal, State or local
governmental authority applicable to it.
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9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form and amount, and
reasonably satisfactory as to insurer. Borrower shall furnish certificates,
policies or endorsements to Lender as Lender shall require as proof of such
insurance, and, if Borrower fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of Borrower. All policies
shall provide for at least thirty (30) days prior written notice to Lender of
any cancellation or reduction of coverage and that Lender may act as attorney
for Borrower in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
------------------------------------------
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP, Borrower and Imperial Industries, Inc. shall
furnish or cause to be furnished to Lender: (i) within forty-five (45) days
after the end of each fiscal quarter, quarterly unaudited consolidated financial
statements, and, if Borrower has any subsidiaries, unaudited consolidating
financial statements (including in each case Imperial Industries, Inc.'s
consolidated balance sheets, statements of income and loss, statements of cash
flow,
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and statements of shareholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of the operations of Borrower
and its subsidiaries as of the end of and through such fiscal month and (ii)
within ninety (90) days after the end of each fiscal year, audited consolidated
financial statements of Imperial Industries, Inc., and the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial position and
the results of the operations of Imperial Industries, Inc. and its subsidiaries
as of the end of and for such fiscal year, together with the unqualified opinion
of independent certified public accountants, which accountants shall be an
independent accounting firm selected by Imperial Industries, Inc. and reasonably
acceptable to Lender, that such financial statements have been prepared in
accordance with GAAP, and present fairly the results of operations and financial
condition of Imperial Industries, Inc. and its subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements of Borrower and any
reports or management letters prepared by such accountants or auditors on behalf
of Borrower and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
(e) Borrower shall deliver, or cause to be delivered, to
Lender, within ninety (90) days from the date hereof, an opening balance sheet
of Borrower after giving effect to the transactions contemplated by this
Agreement and the Purchase Agreements, in accordance with GAAP and presents
fairly the financial condition of Borrower as of such date.
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9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business and
(ii) the disposition of worn- out or obsolete Equipment or Equipment no longer
used in the business of Borrower so long as (A) if an Event of Default exists or
has occurred and is continuing, any proceeds are paid to Lender and (B) such
sales do not involve Equipment having an aggregate fair market value in excess
of $200,000 for all such Equipment disposed of in any fiscal year of Borrower),
or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve
or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of the Collateral, except: (a) liens
and security interests of Lender; (b) liens securing the payment of taxes,
either not yet overdue or the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books;
(c) non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of Borrower's business to the extent: (i)
such liens secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower, in each case prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books; and (d) the security interests and liens set forth on
Schedule 8.4 hereto.
9.9 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except reasonable compensation
to officers, employees and directors for services rendered to Borrower in the
ordinary course of business.
9.10 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) all insurance premiums,
appraisal fees and search fees;
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(c) costs and expenses of remitting loan proceeds, collecting checks and other
items of payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect thereto; (d)
charges, fees or expenses charged by any Bank or issuer in connection with
letter of credit accommodations; (e) costs and expenses of preserving and
protecting the Collateral; (f) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising out
of the transactions contemplated hereby and thereby (including preparations for
and consultations concerning any such matters); (g) all out-of-pocket expenses
and costs heretofore and from time to time hereafter incurred by Lender during
the course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $300 per person per day for
Lender's examiners in the field and office; and the fees and disbursements of
counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.11 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be reasonably
necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of Borrower representing that all conditions precedent to the
making of Loans contained herein are satisfied. In the event of such request by
Lender, Lender may, at its option, cease to make any further Loans until Lender
has received such certificate and, in addition, Lender has determined that such
conditions are satisfied. Where permitted by law, Borrower hereby authorizes
Lender to execute and file one or more UCC financing statements signed only by
Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
\ ------------------------------
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or
fails to perform any of the terms, covenants, conditions or provisions contained
in this Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
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(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $100,000 in any one case or in excess of
$100,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner
of an Obligor which is a partnership) dies or Borrower or any Obligor, which is
a partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined
or evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Lender, in any case in an amount in excess of $100,000 which default
continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto;
(j) any change in the controlling ownership of Borrower;
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(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business,
assets or prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
--------
(a) At any time an Event of Default exists or has occurred
and is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part
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of the Collateral at any such public sale, all of the foregoing being free from
any right or equity of redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by Borrower and/or (vii)
terminate this Agreement. If any of the Collateral is sold or leased by Lender
upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, five (5) days prior
notice by Lender to Borrower designating the time and place of any public sale
or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, Borrower waives the posting of any bond which might otherwise be
required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or reduce the lending formulas or amounts of Revolving Loans
available to Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
--------------------------------
AND CONSENTS; GOVERNING LAW
---------------------------
11.1 Governing Law; Choice of Forum; Service of Process;
--------------------------------------------------
Jury Trial Waiver.
-----------------
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Florida
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the State of Florida and the United States
District Court for the Southern District of Florida and waive any objection
based on venue or forum non conveniens with respect to any action instituted
therein arising under this Agreement or any of the other Financing Agreements or
in any way connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the
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courts described above (except that Lender shall have the right to bring any
action or proceeding against Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against Borrower or its
property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether
in tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on
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Borrower which Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any and
all losses, claims, damages, liabilities, costs or expenses imposed on, incurred
by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in this Section may be unenforceable because it violates any law or
public policy, Borrower shall pay the maximum portion which it is permitted to
pay under applicable law to Lender in satisfaction of indemnified matters under
this Section. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 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, 2001 (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 Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided,
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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, Miami,
Florida time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If Lender terminates this Agreement upon the occurrence of
an Event of Default or pursuant to Borrower's request, 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, a termination fee in an amount equal to
one-half percent (.5%) of the Maximum Credit. Such termination fee shall be
presumed to be the amount of damages sustained by Lender as a result of such
early termination and Borrower agrees that it is reasonable under the
circumstances currently existing. In addition, Lender shall be entitled to such
early termination fee upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h) hereof, even if Lender does not exercise its right
to terminate this Agreement, but elects, at its option, to provide financing to
Borrower or permit the use of cash collateral under the United States Bankruptcy
Code. The early termination fee provided for in this Section 12.1 shall be
deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
31
<PAGE>
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and
any other document referred to herein or therein shall be binding upon and inure
to the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans or any other interest
herein to another financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
12.6 Consolidation, Amendment and Restatement of Existing Agreements;
No Novation. Upon this Agreement becoming effective, the terms and provisions of
the Existing Agreements shall be and hereby are consolidated, amended,
superseded and restated in their entirety by the terms and provisions of this
Agreement. This Agreement shall not constitute a novation.
12.7 Joint and Several Liability. If Borrower consists of more than
one Person (each a "Co-Borrower"), references herein to "Borrower" shall be read
as "each Co-Borrower", "all Co-Borrowers", or "any or all Co-Borrowers",
jointly and severally, whichever reading maximizes Lender's rights and the
Co-Borrowers' obligations under this Agreement. All Co-Borrowers' Obligations
hereunder shall be joint and several.
32
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
- - ------ --------
CONGRESS FINANCIAL CORPORATION PREMIX-MARBLETITE
(FLORIDA) MANUFACTURING CO.
/s/ Gary Dixon /s/ Howard L. Ehler, Jr.
By: -------------------------- By: -----------------------------
Vice President Vice President
Title:------------------------ Title: --------------------------
Address:
- - -------
Chief Executive Office:
777 Brickell Avenue -----------------------
Suite 808
Miami, Florida 33131 1259 N.W. 21st Street
Pompano Beach, FL 33069
ACROCRETE, INC.
/s/ Howard L. Ehler, Jr.
By:-------------------------
Vice President
Title:-----------------------
Chief Executive Office:
-----------------------
1259 N.W. 21st Street
Pompano Beach, FL 33069
JUST-RITE SUPPLY
/s/ Howard L. Ehler, Jr.
By:---------------------------
Vice President
Title:------------------------
Chief Executive Office:
----------------------
1259 N.W. 21st Street
Pompano Beach, FL 33069
33
Exhibit 11
----------
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Statement Recomputation of Per Share Earnings
Calculation of (loss) income per share for the years ended December 31,
1999, 1998 and 1997 are as follows:
1999 1998 1997
Income before income taxes $1,033,000 $1,761,000 $ 892,000
Income tax benefit (expense):
Current (26,000) (24,000) (47,000)
Deferred - net 213,000 320,000 800,000
----------- ----------- -----------
187,000 296,000 753,000
----------- ----------- -----------
Net income 1,220,000 2,057,000 1,645,000
Less: net charge for elimination
of preferred stock - (975,000) -
Less: dividends on redeemable
preferred stock, $1.10 cumulative
convertible series - (248,000) (330,000)
----------- ----------- -----------
Net income (loss) applicable
to common stockholders $ 1,220,000 $ 834,000 $1,315,000
----------- ----------- -----------
Basic earnings (loss) per
common share $.15 $.13 $.22
---- ---- ----
Diluted earnings (loss) per
common share $.15 $.12 $.21
---- ---- ----
Exhibit 21
----------
IMPERIAL INDUSTRIES, INC.
Subsidiaries of the Registrant
December 31, 1999
Incorporated
under laws of
-------------
Acrocrete, Inc. Florida
Premix-Marbletite Manufacturing Co., Inc. Florida
Just-Rite Lumber Company, Inc. Florida
Triple I Leasing, Inc. Florida
Just-Rite Supply, Inc. Florida
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,119
<SECURITIES> 0
<RECEIVABLES> 2,931
<ALLOWANCES> (254)
<INVENTORY> 2,023
<CURRENT-ASSETS> 6,496
<PP&E> 2,653
<DEPRECIATION> (1,164)
<TOTAL-ASSETS> 8,768
<CURRENT-LIABILITIES> 3,049
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 3,432
<TOTAL-LIABILITY-AND-EQUITY> 8,768
<SALES> 22,604
<TOTAL-REVENUES> 22,638
<CGS> (15,198)
<TOTAL-COSTS> (15,198)
<OTHER-EXPENSES> (5,932)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (475)
<INCOME-PRETAX> 1,033
<INCOME-TAX> 187
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,220
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
