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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 9, 1997
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ACR Group, Inc.
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(Exact name of registrant as specified in its charter)
Texas 0-12490 74-2008473
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State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
3200 Wilcrest, Suite 440, Houston, Texas 77042-6019
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (713) 780-8532
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N/A
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On September 9, 1997, ACR Group, Inc. ("the Company") through its
wholly-owned subsidiary, Contractors Heating & Supply, Inc., a Texas
corporation ("CHS"), acquired certain of the assets, and assumed certain of the
liabilities, of Contractors Heating and Supply Company, a Colorado corporation
(the "Seller"). The Seller's business was the wholesale distribution of
heating, ventilation, air conditioning and refrigeration ("HVACR") products.
CHS acquired substantially all of the Seller's assets that were used in its
operations, except for certain real estate occupied by the Seller's branch
locations (the "Facilities"). CHS assumed substantially all of the Seller's
liabilities, except for mortgage indebtedness relating to the Facilities. CHS
will lease the Facilities from the Seller for three years, with an option to
extend such lease for an additional three years and an option to purchase the
Facilities for $3,000,000 at any time during the initial three-year lease term.
CHS paid to the Seller $4,626,315 cash at closing, and issued a
promissory note ("Note") to the Seller for $1,200,000. In addition, CHS
assumed $1,200,000 of indebtedness of the Seller to certain of its
shareholders, which was paid in full at closing by CHS.
All of the cash paid to the Seller at closing came from available
funds under the Company's revolving line of credit with NationsBank of Texas,
N.A., which was increased from $8 million to $18 million in August 1997.
The Note bears interest at 8 1/2% per annum. The Note is to be repaid
in three annual principal installments of $400,000 each, plus accrued interest,
beginning September 1, 1998, and is secured by a first lien on certain
machinery and equipment purchased by CHS from the Seller that is used to
fabricate sheet metal products. The Note is subordinated to the Company's
senior secured indebtedness to NationsBank of Texas, N.A.
The acquired assets are all used in connection with its business of
fabricating sheet metal products and distributing such sheet metal and other
HVACR products purchased for resale. CHS intends to continue using the
acquired assets for such purpose.
CHS and Daryl G. Brady, President and a shareholder of the Seller,
entered into a Consulting Agreement for a period of one year. The Consulting
Agreement also restricts Mr. Brady from competing with CHS for a period of
three years following its expiration.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
At the present time, it is impracticable to provide either the
financial statements of the Seller or the pro forma financial information
relative to the acquisition as required by this Item 7. The Company will file
such financial statements and pro forma financial information by amendment to
this Form 8-K as soon as practicable, but not later than November 24, 1997.
<TABLE>
<CAPTION>
Exhibit.
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2.1 Asset Purchase Agreement by and among ACR Group, Inc., Contractors Heating & Supply, Inc. and
Contractors Heating and Supply Company.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
ACR GROUP, INC.
Dated: September 24, 1997 By: /s/ Anthony R. Maresca
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Anthony R. Maresca
Senior Vice President,
Secretary and Treasurer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
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2.1 Asset Purchase Agreement by and among ACR Group, Inc., Contractors Heating & Supply, Inc. and
Contractors Heating and Supply Company.
</TABLE>
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ASSET PURCHASE AGREEMENT
BY AND AMONG
ACR GROUP, INC.,
CONTRACTORS HEATING & SUPPLY, INC.
(A TEXAS CORPORATION)
AND
CONTRACTORS HEATING AND SUPPLY COMPANY
(A COLORADO CORPORATION)
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TABLE OF CONTENTS
<TABLE>
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PAGE
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I. TRANSFER OF ASSETS; ASSUMPTION OF CERTAIN
LIABILITIES; LEASED PREMISES
1.1 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Assumption of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Lease; Lease Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Consideration for Assets; Payment of Subchapter S Distribution Notes;
Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Disclaimer of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS
2.1 Organization, Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.10 Tax and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.11 Title to the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.12 Compensation and Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.14 Patents, Trademarks and Similar Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.16 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<TABLE>
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III. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER AND ACRG
3.1 Organization, Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 No Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
IV. OBLIGATIONS OF THE COMPANY PENDING CLOSING
4.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Corporate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Consents of Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.6 Approval of Governmental Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Covenant to Use Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Obligation to Supplement Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Armstrong Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
V. CONDITIONS PRECEDENT
5.1 General Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Conditions to Obligations of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Conditions to Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Covenant of Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
VI. INDEMNIFICATION
6.1 Indemnification by the Company and the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Indemnification by the Purchaser and ACRG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Limitation on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
VII. TERMINATION
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Notice of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Effect of Termination or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<TABLE>
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VIII. MISCELLANEOUS
8.1 Nature and Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.7 Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.12 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.13 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.15 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<TABLE>
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Exhibit A -- Assets
Exhibit B -- Assumed Liabilities
Exhibit B-1 -- Form of Subchapter S Promissory Note
Exhibit C -- Net Lease
Exhibit D -- Note
Exhibit E -- Security Agreement
Exhibit F -- Guaranty Agreement
Exhibit G -- Subordination Agreement and Assignment
Exhibit H -- Allocation of Purchase Price
Exhibit I -- Employment Agreement
Exhibit J -- Consulting Agreement
</TABLE>
<TABLE>
<S> <C>
Schedule 1.2 -- Shareholders to Receive Subchapter S Promissory Notes
Schedule 2.7 -- Undisclosed Liabilities
Schedule 2.8 -- Material Changes
Schedule 2.9 -- Agreements, Contracts, and Commitments
Schedule 2.11 -- Title to and Condition of Assets and Leased Premises
Schedule 2.13 -- Litigation
Schedule 4.5 -- Consents
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into
effective as of September 8, 1997 by and among ACR Group, Inc., a Texas
corporation ("ACRG"), and its wholly owned subsidiary, Contractors Heating &
Supply, Inc., a Texas corporation (the "Purchaser"), and Contractors Heating
and Supply Company, a Colorado corporation (the "Company"). Daryl G. Brady,
and Thomas W. Gamel (collectively, the "Shareholders") execute this Agreement
solely with respect to Article II and Article VI hereof.
ARTICLE I
TRANSFER OF ASSETS
1.1 TRANSFER OF ASSETS. Subject to the terms and conditions of
this Agreement, the Company will sell, convey, transfer, assign and deliver to
the Purchaser on the Closing Date (as that term is hereafter defined) all of
the assets and other tangible and intangible personal property of the Company,
including but not limited to those described on Exhibit A hereto (the
"Assets"), excluding, however, those items (including without limitation land
and improvements of the Company comprising the Property, as hereafter defined)
specifically excluded by reference on Exhibit A hereto (the "Excluded Assets"),
free and clear of all security interests, liens, claims and encumbrances, and
the Purchaser shall purchase, accept and acquire the Assets from the Company.
1.2 ASSUMPTION OF CERTAIN LIABILITIES. Subject to the terms and
conditions of this Agreement, the Purchaser shall assume on the Closing Date
those certain liabilities (and none other) of the Company listed on Exhibit B
hereto, which include all of the liabilities of the Company incurred in the
ordinary course of the Company's business, and including without limitation
certain indebtedness of the Company to the shareholders of the Company on
Schedule 1.2 hereto evidenced by those certain promissory notes ("Subchapter S
Distribution Notes") in the form attached hereto as Exhibit B-1 (the
liabilities set forth on Exhibit B and Schedule 1.2 being collectively
referred to hereinafter as the "Assumed Liabilities"). The Subchapter S
Distribution Notes shall be non-interest bearing and shall be in an aggregate
original principal amount equal to the net income of the Company for the year
ended December 31, 1996 (as shown on the Company's 1996 tax return on Form 1120
S, a copy of which has been furnished to the Purchaser), less the aggregate
amount of distributions by the Company to the Shareholders in respect of the
net income of the Company for such year during the period from January 1, 1997
through the Closing Date.
1.3 LEASE; LEASE ASSIGNMENT. On the Closing Date the Company and
the Purchaser shall enter into that certain Net Lease ("Lease"), substantially
in the form attached hereto and incorporated herein as Exhibit C, pursuant to
which the Company shall grant to the Purchaser a leasehold interest in the real
property and improvements therein described (the "Property"). The Company
will assign all of its leasehold interest in that real property located at 5396
County
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Road 154, Units 3, 4, 5 and 6, Glenwood Springs Colorado (the "Leased
Property") held by the Company under that certain Lease dated December 1995
(the "Glenwood Property Lease") by and between the Company, as Tenant, and Rudd
Limited Liability Company ("Rudd"), as Owner, which assignment is subject to
certain consent provisions in favor of Rudd. On or before the Closing Date,
the consent of Rudd shall have been obtained to the assignment of the Glenwood
Property Lease to the Purchaser. The Property and the Leased Property are
sometimes hereinafter collectively referred to as the "Leased Premises".
1.4 CONSIDERATION FOR THE ASSETS; PAYMENT OF SUBCHAPTER S
DISTRIBUTION NOTES; ALLOCATION OF PURCHASE PRICE. Subject to the terms and
conditions of this Agreement, and as full consideration for the Assets and the
covenants, representations, warranties and indemnities made in connection
herewith by the Company, the Purchaser shall pay to the Company a purchase
price (the "Purchase Price") equal to $6,000,000, less the sum of (a) $173,685,
being the value of life insurance policies held by the Company covering the
lives of certain of its officers, directors and shareholders, as reflected in
the Company's financial statements as of August 25, 1997; and (b) an amount
equal to: (i) the amount paid by the Company during the period commencing
January 1, 1997 and ending on the Closing Date for costs relating to that
certain building addition to the Company's Denver branch operation, less (ii)
any such costs reimbursed to the Company by the Shareholders prior to the
Closing Date, less (iii) the principal amount of any indebtedness incurred by
the Company in connection with such construction costs which indebtedness is
not an Assumed Liability.
The Purchase Price shall be paid at the Closing as follows:
(a) At Closing, the amount of the Purchase Price, less $1,200,000,
less the Earnest Money, as hereafter defined shall be paid by
certified check or wire transfer to the Company.
(b) At Closing, the Purchaser shall issue to the Company a
promissory note in the original principal amount of $1,200,000
(the "Note") such Note to be substantially in the form
attached hereto and incorporated herein as Exhibit D.
(i) The Note shall be secured by a first lien on the
production machinery being purchased hereunder by
the Purchaser from the Company, such security
interest to be granted by the Purchaser to the
Company by a security agreement ("Security
Agreement") substantially in the form attached hereto
and incorporated herein as Exhibit E.
(ii) The payment of the Note shall be guaranteed by ACRG,
such guaranty to be evidenced by a guaranty agreement
("Guaranty Agreement") substantially in the form
attached hereto and incorporated herein as Exhibit F.
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(iii) Payments in respect of the Note shall be subordinated
as to payment to indebtedness of ACRG (and the
Purchaser, as a guarantor of such indebtedness) to
its secured lender, NationsBank of Texas, N.A.
("Senior Lender") as evidenced by a subordination
agreement ("Subordination Agreement") to be
substantially in the form attached hereto and
incorporated herein as Exhibit G.
(iv) A breach or default under the Note shall be deemed to
be a breach or default under the Lease and a breach
or default under the Lease shall be a default under
the Note, as set forth more particularly in the
provisions of the Note and the Lease.
The Subchapter S Distribution Notes shall be paid in full by the
Purchaser at Closing.
The Purchase Price shall be and hereby is allocated among the
respective Assets in the manner set forth on Exhibit H attached hereto. The
parties hereto shall take no position with respect to such allocation which is
inconsistent therewith.
1.5 DISCLAIMER OF LIABILITIES. With the exception of the Assumed
Liabilities specifically set forth in Exhibit B, the Purchaser shall not assume
or be responsible for any claims against or liabilities or obligations
whatsoever of the Company, and the Company will at all times indemnify and
hold the Purchaser harmless from and against any claim therefor or liability
arising therefrom. The Purchaser shall have no liability for any income,
franchise or other tax or charge, if any, which may become payable by the
Company or the Shareholders in connection with the Company's sale of the Assets
pursuant to this Agreement or any other income taxes or charges arising out of
the operation of the Company's business at any time prior to the Closing Date,
and all such taxes shall be duly and timely paid by the Company.
Notwithstanding any other provisions to the contrary in this Agreement, the
Purchaser and ACRG shall take all action necessary so that the Company, the
Shareholders, and the directors and officers of the Company shall be released,
to the extent practicable, from all personal guaranties executed by any of them
as to liabilities, contractual commitments or indebtedness of the Company which
are assumed by the Purchaser hereunder.
1.6 INSTRUMENTS OF TRANSFER. The Company will deliver to the
Purchaser at the Closing (in addition to the other documents provided for in
this Agreement) such bills of sale, endorsements, assignments and other good
and sufficient instruments of conveyance, transfer and assignment, in customary
form and substance, as shall be effective to vest in the Purchaser good and
marketable title to the Assets and to lease the Leased Premises to the
Purchaser.
1.7 FURTHER ASSURANCES. From time to time after the Closing, at
the Purchaser's request but without further consideration, the Company will
execute and deliver such other instruments of conveyance and transfer and take
such other action as the Purchaser reasonably may require more effectively to
vest title to the Assets in the Purchaser and to assign the Glenwood Property
Lease to the Purchaser.
3
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1.8 EARNEST MONEY. The Purchaser has previously paid the Company
an earnest money deposit of $125,000. Upon execution of this Agreement, the
Purchaser shall pay to the Company $125,000 as additional earnest money
(together, the "Earnest Money") which will be applied, at Closing, in partial
payment of the Purchase Price. The parties agree that the Earnest Money shall
be non-refundable unless the failure to close the contemplated transaction is
due to the failure of a condition precedent to the Purchaser's obligation to
close the transaction contemplated herein.
1.9 CLOSING. The closing of the transaction provided for herein
(the "Closing") shall take place at a date, time and location specified by the
Purchaser, but not later than September 9, 1997. The date of the Closing is
referred to in this Agreement as the "Closing Date". If the Closing does not
occur on or before September 9, 1997 without a breach of any representation,
warranty, covenant, or condition precedent by any party hereto, then this
Agreement shall terminate without liability of either party to the other and
the Earnest Money shall be immediately paid to the Company.
1.10 SALES AND USE TAX. Purchaser shall be responsible for the
timely payment of all sales, use and other transfer taxes resulting from the
sale of the Assets to the Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders each, jointly and severally,
represent and warrant to the Purchaser as follows:
2.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado and has all requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as now being conducted. The Company is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned or leased and operated by it or the nature of the business conducted by
it make such qualification or licensing necessary.
2.2 AUTHORITY. The Company has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by the Company's board of directors and the
Shareholders, and no corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the consummation of the execution and
delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company, and this
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Agreement constitutes the legal, valid and binding agreement of the Company and
the Shareholders enforceable in accordance with its terms.
2.3 CONSENTS AND APPROVALS; NO VIOLATION. No filing or
registration with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation of the transactions
contemplated by this Agreement. Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor the
compliance by the Company with any of the provisions hereof will, as of the
Closing Date, (a) conflict with or result in any breach of any provision of the
Articles of Incorporation or Bylaws of the Company, (b) subject to the
Purchaser or the Company, whichever may be applicable in the circumstances
(with the cooperation of the other, if necessary) obtaining any required
consents, result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, contract, agreement, commitment, bond, mortgage,
indenture, license, lease, pledge agreement or other instrument or obligation
to which the Company is a party or by which the Company or any of its
properties or assets may be bound, (c) give rise to any lien, charge or other
encumbrance on any of the Assets or the Leased Premises, or (d) violate any
law, regulation, judgment, order, writ, injunction or decree applicable to the
Company or any of the Assets.
2.4 FINANCIAL STATEMENTS. The Company and the Shareholders have
previously furnished to ACRG and the Purchaser the balance sheets of the
Company as of December 25, 1995, December 25, 1996 and August 25, 1997 (the
"Current Balance Sheet Date") (collectively, the "Balance Sheets" and, as to
the Balance Sheet dated August 25, 1997, the "Current Balance Sheet"), and
combined income statements ("Income Statements") for the two (2) years ended
December 25, 1995 and December 25, 1996 and the eight (8) month period ended
August 25, 1997 (the Balance Sheets and the Income Statements are collectively
referred to herein as the "Financial Statements"). The Balance Sheets fairly
present in all material respects the financial position of the Company as of
the date thereof and the Income Statements fairly present the results of
operations of the Company for the periods set forth therein. The Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied by the Company during the periods involved,
subject, in the case of interim statements, to customary year end adjustments.
2.5 RECEIVABLES. The accounts receivable of the Company shown on
the Current Balance Sheet arose from sales of inventory by the Company in the
ordinary course of business and constitute valid and binding obligations of the
respective account obligors; provided, however, neither the Company nor the
Shareholders makes any representation or warranty regarding the collectibility
of the accounts receivable.
2.6 INVENTORIES. The inventories of the Company shown on the
Current Balance Sheet consist of items of a quantity and a quality usable or
salable in the normal course of the business of the Company and the values at
which such inventories are carried reflect the normal inventory valuation
policy of the Company stating the inventories at the lower of cost or market
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on a first-in-first-out basis; provided that neither the Seller nor the
Shareholders makes any representation or warranty regarding the timing of sale
or sale price of any of the inventory and the Purchaser acknowledges the
adequacy of the inventory reserve of the Company.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent of (a) items reflected in the books and records of the Company made
available to the Purchaser (which shall not be inconsistent with the Financial
Statements in any material respect), (b) liabilities incurred in the ordinary
course of the Company's business, including period operating expenses
(consistent with the Company's usual accounting practices), or (c) liabilities
set forth on Schedule 2.7 attached hereto, as of the Current Balance Sheet
Date, the Company did not have any liabilities or obligations of any nature
(whether absolute, accrued, contingent or otherwise), including, without
limitation, any liabilities resulting from failure to comply with any law
applicable to the Company or any tax liabilities due or to become due and
whether incurred in respect or measured by the income or sales of the Company
for any period prior to the close of business on the Current Balance Sheet
Date, or arising out of any transaction entered into, or any state of facts
existing, prior thereto.
2.8 ABSENCE OF CHANGES. Except as set forth on Schedule 2.8,
since the Current Balance Sheet Date, there has not been (a) any change in the
financial condition, business, prospects, operations, properties, assets or
liabilities (whether direct, indirect, accrued, absolute, contingent or
otherwise) of the Company other than changes in the ordinary course of
business, none of which have been materially adverse; (b) any damage,
destruction or loss, whether covered by insurance or not, materially and
adversely affecting the properties and business of the Company; (c) any sale,
assignment, lease, transfer, license, abandonment or other disposition by the
Company of any interest in its properties, excluding inventory sold in the
ordinary course of business, and specifically including but not limited to any
machinery, equipment or other operating property, any patent, trademark,
service mark, trade name, brand name, copyright (or pending application for any
patent, trademark, service mark or copyright), invention, process, know-how,
formula, pattern, design, trade secret or interest thereunder or other
intangible asset; or (d) any dispute or any other occurrence, event or
condition of any character known to the Company, which reasonably could be
anticipated to give rise to a legal or administrative action or to a material
adverse effect upon the condition (financial or otherwise), business,
prospects, operations, properties, assets or liabilities (whether direct,
indirect, accrued, absolute, contingent or otherwise) of the Company (whether
or not covered by insurance).
2.9 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.9, (a) the Company is not a party to and is not bound by any
material written or oral contract, agreement or commitment or instrument which
relates to any of the Assets or, only if such is an Assumed Liability, any loan
or credit agreement, security agreement, guaranty, indenture,mortgage, pledge,
conditional sale or title retention agreement, equipment obligation, lease
purchase agreement or other instrument evidencing indebtedness not entered into
in the ordinary course of business; (b) to the best of the Company's knowledge,
each such contract and commitment constitutes the legal and binding agreement
of the parties thereto, enforceable in accordance with its terms; (c) to the
best of the Company's knowledge, the Company has not
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<PAGE> 11
breached any material provision of, and is not in default in any material
respect under the terms of, any such contract, agreement or commitment, and no
event has occurred which, after notice or lapse of time or both, would
constitute such a material default under the terms of any such contract,
agreement or commitment; (d) to the best of the Company's knowledge, no other
party to any such material contract, agreement or commitment to which the
Company is a party or by which the Company is bound is in default thereunder or
in breach of any term or provision thereof; and (e) to the best of the
Company's knowledge, there exist no conditions or events which, after notice or
lapse of time or both, would constitute a default by any party to any such
contract, agreement or commitment.
2.10 TAX AND OTHER MATTERS. All federal, state, county and local
tax returns, tax reports and unemployment insurance contribution reports
required to be filed by the Company prior to the date hereof are true, correct
and complete in all material respects and have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports
are required to be filed. All federal, state, county and local income and
other taxes and unemployment insurance contributions, including interest and
penalties thereon, shown on the filed returns as due from the Company have been
fully paid or adequately provided for by the Company. No federal income tax
return of the Company is being audited by the Internal Revenue Service ("IRS").
There are no pending questions raised in writing by the IRS or other taxing
authority relating to, nor claims asserted in writing by the IRS or other
taxing authority for, taxes or assessments of the Company nor are there any
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return of the Company for any period.
2.11 TITLE TO THE ASSETS. Except as described in Schedule 2.11,
the Company has good and marketable title to the Assets and none of the Assets
is subject to any lien, mortgage, pledge, security interest, lease, option,
call, charge, joint ownership, or other encumbrance or right of way, building,
use or zoning restriction, exception, variance, reservation, limitation or
burden of any nature whatsoever except for liens for taxes, assessments or
governmental charges or levies which are not delinquent.
2.12 COMPENSATION AND BENEFIT PLANS. To the extent requested by
the Purchaser, the Company has disclosed to ACRG and the Purchaser the names
and current compensation of all officers and employees of the Company (whether
employed directly by the Company or by a third party providing employee leasing
services to the Company), together with a statement of the full amount paid to
each such person, and in which capacity, during the twelve (12) months ended
December 31, 1996 and the basis thereof, including salaries, bonuses or
commissions, if any. The Company has also disclosed the identity of the
recipients, and the amounts, of any bonuses or other extraordinary or
discretionary compensation paid by the Company during calendar years 1996 and
1997. The Company has delivered to ACRG and the Purchaser true, correct and
complete copies of the health, dental and life insurance plans, bonus, pension,
profit- sharing and retirement plans and all other benefits plans, payments or
arrangements for employees of the Company (the "Benefit Plans") and will
provide ACRG and the Purchaser with such additional information regarding the
Benefit Plans that ACRG or the
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Purchaser may reasonable request.
2.13 LITIGATION. Except as described in Schedule 2.13 attached
hereto, (a) there are no legal, administrative, arbitration, investigatory or
other proceedings, and no other controversies, pending or, to the knowledge of
the Company, threatened, against the Company or as to which the Company is or
might become a party, or challenging the validity or propriety of the
transactions contemplated by this Agreement, (b) to the knowledge of the
Company, there is no basis or ground for any suit, action, claim,
investigation, inquiry or legal, administrative, arbitration, investigatory or
other proceeding against the Company, and (c) to the knowledge of the Company,
there is no outstanding order, writ, injunction or decree of any court,
administrative agency, governmental body or arbitration tribunal against or
affecting the transaction contemplated by this Agreement, the Company or any of
the properties, assets, liabilities, business or prospects of the Company.
2.14 PATENTS, TRADEMARKS AND SIMILAR RIGHTS. The Company does not
have any patents, trademarks, trade names, service marks, copyrights or
licenses registered in the name of the Company, or for which applications for
registration are pending, under appeal, denied or contemplated. The Company
has not received any notice that the conduct by the Company of its business
infringes upon or violates the patents, trademarks, trade names, service marks,
trade secrets, copyrights, licenses or rights of any other person, firm or
corporation, and the Company has not received any notice of any claim of any
such infringement or violation.
2.15 ENVIRONMENTAL MATTERS. To its knowledge, the Company has
complied and continues to comply with all Environmental Laws applicable to the
operation of its property and business. The Company has not received any
summons, complaint, order, or other similar notice, and the Company does not
have any knowledge, that the Company or any of its property or operations is
not in compliance (or that any prior owner or occupant of the premises upon
which the Company has conducted or now conducts its business is not in
compliance) with, or that any governmental authority is investigating its
compliance with, any Environmental Laws. As used in this Section, the term
"Environmental Laws" shall mean all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety, hazardous substances, and environmental
matters applicable to the Company's business and facilities (whether or not
owned by it). Such laws and regulations include without limitation the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as
amended ("RCRA"); the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"); the Toxic
Substances Control Act, 15 U.S.C. Section 2602 et seq., as amended; the Clean
Water Act, 33 U.S.C. Section 466 et seq., as amended; the Clean Air Act, 42
U.S.C. Section 7401 et seq., as amended; state and federal superlien and
environmental cleanup programs; and U.S. Department of Transportation
regulations.
2.16 NO MISLEADING STATEMENTS. To the knowledge of the Company,
neither this Agreement nor any schedule, list or other document referred to
herein and delivered by the Company pursuant hereto contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements herein or therein, in light of the
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<PAGE> 13
circumstances under which they were made, not misleading. To the knowledge of
the Company, all information previously provided, or to be provided, to the
Purchaser and all schedules contemplated hereby are, or shall be, as
applicable, true, accurate and complete in all material respects.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND ACRG
The Purchaser and ACRG represent and warrant to the Company as
follows:
3.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. Each of the
Purchaser and ACRG is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas.
3.2 AUTHORITY. Each of the Purchaser and ACRG has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by the respective boards of directors of the
Purchaser and ACRG and no other corporate proceedings on the part of the
Purchaser or ACRG are necessary to authorize this Agreement or the consummation
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Purchaser and ACRG and constitutes the
valid and binding agreement of the Purchaser and ACRG.
3.3 NO MISLEADING STATEMENTS. The representations and warranties
of the Purchaser made in this Agreement do not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements herein, in light of the circumstances under which they were made,
not misleading.
3.4 CONSENTS AND APPROVALS; NO VIOLATION. No filing or
registration with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation of the transactions
contemplated by this Agreement. Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor the
compliance by the Purchaser or ACRG with any of the provisions hereof will, as
of the Closing Date, (a) conflict with or result in any beach of any provision
of the Articles of Incorporation of Bylaws of the Purchaser or ACRG, (b) result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, contract, agreement, commitment, bond, mortgage, indenture,
license, lease, pledge agreement or other instrument or obligation to which the
Purchaser or ACRG is a party or by which the Purchaser or ACRG or any of their
properties or assets may be bound, or (c) violate any law,
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regulation, judgment, order, writ, injunction or decree applicable to the
Purchaser or ACRG.
3.5 NO RELIANCE. Except for the representations and warranties
set forth in Article II of this Agreement, the Purchaser and ACRG are not
relying upon any representations or warranties of any kind from the Company or
the Shareholders and acknowledge that the Company and the Shareholders are not
making any representations or warranties regarding the prospects of the
business that will be conducted by the Purchaser following its purchase of the
Assets as contemplated hereby.
ARTICLE IV
OBLIGATIONS OF THE COMPANY PENDING CLOSING
During the period commencing on the date of this Agreement through the
Closing Date, the Company hereby covenants and agrees as follows:
4.1 CONDUCT OF BUSINESS. The Company shall conduct the operations
of its business diligently and in the usual and ordinary course of business and
shall (without making any commitment on behalf of, or which would be binding
on, the Purchaser) use its best efforts to preserve its business organization
intact and its good relationships with its employees, customers, and suppliers
and others having business relationships with it. Effective as of May 14, 1997
and through the Closing Date, the Company shall not pay any compensation or
bonus (except those paid in the ordinary course of business) or pay any
dividends, advances, loans or other distributions to any of the Shareholders,
other than (a) $216,995 in payment of the Shareholders' federal and state
income tax liability on the Company's Subchapter S earnings from January 1,
1997 through May 25, 1997, (b) the sum of $368,983, which is the net income of
the Company for the period from May 26, 1997 through August 25, 1997, and (c)
the amount described in Section 4.9.
4.2 ACCESS AND INFORMATION. The Company shall afford the
Purchaser and its counsel, accountants and other representatives, full access,
during normal business hours, to all of the properties, books, contracts,
commitments and records of the Company and shall furnish the Purchaser with all
such information concerning the affairs of the Company as the Purchaser may
reasonably request, including without limitation such copies and/or extracts of
pertinent records and data as the Purchaser may reasonably request.
4.3 CORPORATE MATTERS. The Company will maintain its corporate
existence and good standing in the State of Colorado and in each jurisdiction in
which it owns or leases property or conducts business.
4.4 CONDITION OF ASSETS. The Company will maintain and keep in
good order, subject to ordinary wear and tear, the Assets and the Leased
Premises.
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4.5 CONSENTS OF OTHERS. The Company shall obtain the consents of
all necessary persons needed to be obtained by it (or assist the Purchaser in
obtaining such consents as need to be obtained by the Purchaser) to the
assignment and transfer of each of the Assets to the Purchaser, which consents
are set forth on Schedule 4.5 and which the Purchaser acknowledges are
acceptable.
4.6 APPROVAL OF GOVERNMENTAL AGENCIES. The Company shall either
complete, execute and verify or, if requested by the Purchaser, shall cooperate
in completing, executing and verifying such documents as may be required by any
federal, state, county or local governmental agency, and shall cooperate with
the Purchaser in furnishing information, testimony and other assistance before
any such agencies, in anticipation or as a result of the transactions
contemplated by this Agreement.
4.7 COVENANT TO USE BEST EFFORTS. The Company shall use its best
efforts prior to the Closing to satisfy or cause to be satisfied all of the
conditions precedent to its obligations under this Agreement, including without
limitation, to the extent that its action or inaction can control or influence
the satisfaction of same, all requirements of any federal, state or local
regulatory agency.
4.8 OBLIGATION TO SUPPLEMENT INFORMATION. The Company shall, from
time to time through the Closing Date, supplement the schedules, lists and
other documents referred to herein and delivered by the Company pursuant hereto
to reflect material changes in the subject matter thereof occurring through the
Closing Date.
4.9 ARMSTRONG LITIGATION. Notwithstanding the foregoing, prior to
the Closing Date the Company shall be permitted (a) to pay legal fees incurred
in connection with the pending Armstrong litigation (or the distribution of
cash to Shareholders prior to the Closing Date in the amount of any unpaid
portion of the accrual by the Company therefor at December 31, 1996), (b) to
pay any amounts due to Armstrong Air Conditioning, Inc. ("Armstrong") and (c)
to return inventory to Armstrong.
ARTICLE V
CONDITIONS PRECEDENT
5.1 GENERAL CONDITIONS. The obligations of all the parties hereto
to consummate the transactions contemplated by this Agreement shall be subject
to the condition that no injunction or restraining order, issued by a court of
competent jurisdiction, which prohibits the consummation of the transactions
contemplated by this Agreement shall be in effect.
5.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations
of ACRG and the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the additional following conditions (unless
waived by ACRG and the Purchaser in the manner
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provided for herein):
(a) No Errors. There shall be no errors, misstatements or
omissions in the representations and warranties made in
Article II by the Company and the Shareholders which alone, or
in the aggregate, have or could have a material adverse effect
on the Company.
(b) Affirmation of Representations and Warranties. The
representations and warranties of the Company and the
Shareholders contained in this Agreement shall be true,
correct and complete as of the Closing Date with the same
effect as though made at such time, and the schedules, lists
and other documents referred to herein and delivered by the
Company pursuant hereto, as supplemented pursuant to this
Agreement, shall be true, accurate and complete in all
material respects with respect to the subject matter thereof
as of the Closing Date.
(c) Compliance with Agreement. The Company and the Shareholders
shall have performed in all material respects all obligations
and complied with all covenants and conditions required by
this Agreement to be performed or complied with by it or them
on or prior to the Closing Date.
(d) Authorization. All corporate action necessary to authorize
the execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the
transactions contemplated by this Agreement shall have been
duly and validly taken and the Company shall have full right
and power to transfer and deliver the Assets upon the terms
provided in this Agreement. The Company shall have delivered
to the Purchaser a certificate dated as of the Closing Date to
that effect, signed by the Company.
(e) Opinion of Counsel to the Company. The Purchaser shall have
received the opinion of counsel to the Company, dated as of
the Closing Date, in form and substance acceptable to counsel
to ACRG and the Purchaser, subject to customary qualifications
and limitations, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Colorado and has all requisite corporate power and
authority to own or lease and operate its properties and to
carry on its business as now being conducted. The Company is
duly qualified, licensed and in good standing to do business
in each jurisdiction where the property owned or leased and
operated by it or the nature of business conducted by it makes
such qualification necessary.
(ii) The Company has full corporate power and
authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby.
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The execution and delivery of this Agreement and consummation
of the transactions contemplated hereby have been duly and
validly authorized and approved by the board of directors and
Shareholders of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this
Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by the Company and the Shareholders, and this
Agreement constitutes the legal, valid and binding agreement
of the Company and the Shareholders, enforceable against the
Company and the Shareholders in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization,
receivership, moratorium, liquidation, conservatorship and
other similar laws, now or hereafter in effect, and by general
principles of equity.
(iii) No filing or registration with, and no permit,
authorization, consent or approval of, any public body or
authority, which has not been made or obtained, is necessary
for the consummation by the Company of the transactions
contemplated by this Agreement. Neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby nor compliance by the Company
with any of the provisions hereof will (A) conflict with or
result in any breach of any provision of the Articles of
Incorporation or Bylaws of the Company, (B) to such counsel's
knowledge, without any investigation or review, result in a
violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under
any of the terms, conditions, or provisions of any contract,
agreement, commitment, note, bond, mortgage, indenture,
license, pledge agreement or other instrument or obligation to
which the Company is a party or by which the Company or any of
its properties or assets may be bound, (C) give rise to any
lien, charge or other encumbrance on any of the Assets, or (D)
to such counsel's knowledge, violate any law, regulation,
judgment, writ, order, injunction or decree applicable to the
Company or any of the Assets.
(iv) To such counsel's knowledge, except as
described on Schedule 2.13 to the Agreement, there are no
legal, administrative, arbitration, investigatory or other
proceedings, and no other controversies which might have a
material adverse effect on the condition (financial or
otherwise) or operations of the Company, pending or
threatened, against the Company or as to which the Company is
a party, or challenging the validity or propriety of the
transactions contemplated by this Agreement.
(v) The Lease has been duly and validly executed by
the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, receivership, moratorium,
liquidation,
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conservatorship and other similar laws, now or hereafter in
effect, and by general principles of equity.
(f) Delivery of the Assets. The Company shall have executed and
delivered to the Purchaser proper instruments for the transfer
of the Assets in customary form and substance.
(g) Change of Name. Contemporaneously with the Closing, the
Company shall change its name to a name which has no
similarity to its present name.
(h) No Material Adverse Change. There shall have been no material
adverse change in the financial condition, business,
prospects, operations, properties, assets or liabilities
(whether direct, indirect, accrued, absolute, contingent or
otherwise) of the Company since January 1, 1997 compared to
the same period of the prior year; provided, however, that no
material adverse change to the Company shall be deemed to have
occurred as a result of the termination of the Company as a
distributor of Armstrong products.
(i) Lien Releases. The Company shall have obtained and shall
deliver to Purchaser at Closing all necessary releases of
liens on the Assets (other than liens relating to Assumed
Liabilities).
(j) Employment Agreement. Brad Brady shall have entered into an
Employment Agreement with the Purchaser in the form attached
hereto and incorporated herein as Exhibit I.
(k) Consulting Agreement. Daryl Brady shall have entered into a
Consulting Agreement with the Purchaser in the form attached
hereto and incorporated herein as Exhibit J.
(l) Lease; Lease Assignment. The Company and the Purchaser shall
have executed and delivered the Lease. The Glenwood Property
Lease shall have been assigned to the Purchaser.
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
the Company to consummate the transactions contemplated by this Agreement shall
be subject to the following additional conditions (unless waived by the Company
in the manner provided for herein):
(a) No Errors. There shall be no errors, misstatements or
omissions in the representations and warranties made in
Article III by the Purchaser and ACRG which alone, or in the
aggregate, have a materially adverse effect on the ability of
the Purchaser and ACRG to consummate the transactions
contemplated by this Agreement.
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(b) Affirmation of Representations and Warranties. The
representations and warranties of the Purchaser and ACRG
contained in this Agreement shall be true, correct and
complete in all material respects as of the Closing Date with
the same effect as though made at such time.
(c) Compliance with Agreement. The Purchaser and ACRG shall have
performed in all material respects all obligations and
complied with all covenants and conditions required by this
Agreement to be performed or complied with by them on or prior
to the Closing Date.
(d) Authorization. All corporate action necessary to authorize
the execution, delivery and performance of this Agreement by
the Purchaser and ACRG and the consummation by the Purchaser
and ACRG of the transactions contemplated hereby shall have
been duly and validly taken. All consents, approvals and
waivers from third parties and Federal, state, county and
local government agencies and authorities, required to be
obtained to consummate the transactions contemplated by this
Agreement, shall have been obtained. The Purchaser and ACRG
shall have delivered to the Company a copy, certified by the
respective Secretaries of the Purchaser and ACRG, of the
corporate resolutions adopted by the respective boards of
directors of the Purchaser and ACRG in respect of the
transactions contemplated by this Agreement.
(e) Delivery of the Purchase Price. The Purchaser shall deliver
to the Company the Purchase Price in accordance with the terms
of this Agreement.
(f) Opinion of Counsel to the Purchaser and ACRG. The Company
shall have received the opinion of counsel to the Purchaser
and ACRG, dated as of the Closing Date, in form and substance
acceptable to counsel to the Company, subject to customary
qualifications and limitations, to the effect that:
(i) The Purchaser and ACRG are each a corporation
duly organized, validly existing and in good standing under
the laws of the State of Texas and each has all requisite
corporate power and authority to own or lease and operate its
properties and to carry on its business as now being
conducted. The Purchaser and ACRG are each duly qualified,
licensed and in good standing to do business in each
jurisdiction where the property owned or leased and operated
by it or the nature of the business conducted by it makes such
qualification necessary.
(ii) The Purchaser and ACRG each have full corporate
power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby have been duly and
validly authorized and approved by the boards of directors of
the
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Purchaser and ACRG and no other corporate proceedings on the
part of the Purchaser or ACRG are necessary to authorize this
Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by the Purchaser and ACRG, and this Agreement
constitutes the legal, valid and binding agreement of the
Purchaser and ACRG, enforceable against the Purchaser and ACRG
in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, receivership,
moratorium, liquidation, conservatorship and other similar
laws, now or hereafter in effect, and by general principles of
equity.
(iii) No filing or registration with, and no permit,
authorization, consent or approval of, any public body or
authority, which has not been made or obtained, is necessary
for the consummation by the Purchaser and ACRG of the
transactions contemplated by this Agreement. Neither the
execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby nor compliance by the
Purchaser and ACRG with any of the provisions hereof will (A)
conflict with or result in any breach of any provision of the
Articles of Incorporation or Bylaws of the Purchaser or ACRG,
(B) to such counsel's knowledge, without any investigation or
review, result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a
default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms,
conditions, or provisions of any contract, agreement,
commitment, note, bond, mortgage, indenture, license, pledge
agreement or other instrument or obligation to which the
Purchaser or ACRG is a party or by which the Purchaser or ACRG
or any of their properties or assets may be bound, or (C) to
such counsel's knowledge, violate any law, regulation,
judgment, writ, order, injunction or decree applicable to the
Purchaser or ACRG.
(iv) To such counsel's knowledge, there are no
legal, administrative,arbitration, investigatory or other
proceedings, and no other controversies which might have a
material adverse effect on the condition (financial or
otherwise) or operations of the Purchaser or ACRG, pending or
threatened, against the Purchaser or ACRG or as to which the
Purchaser or ACRG is a party, or challenging the validity or
propriety of the transactions contemplated by this Agreement.
(v) The Lease has been duly and validly executed by
the Purchaser (and guaranteed by ACRG) and constitutes the
legal, valid and binding agreement of the Purchaser (and ACRG)
enforceable against the Purchaser (and ACRG) in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, receivership, moratorium, liquidation,
conservatorship and other similar laws, now or hereafter in
effect, and by general principles of equity.
16
<PAGE> 21
5.4 COVENANT OF GOOD FAITH. The Company and the Purchaser agree
to use reasonable diligence and to exert their best, good faith efforts to
satisfy the conditions precedent set forth in this Article V.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. The
Company and the Shareholders shall, jointly and severally, indemnify and hold
the Purchaser and ACRG harmless from and against and in respect of all Damages,
as hereinafter defined. "Damages", as used in this Section 6.1, shall include
without limitation any claim, action, demand, loss, cost, expense, liability,
whether joint or several, penalty, and other damage, including without
limitation attorneys' fees and other costs and expenses reasonably incurred in
investigating, and attempting to avoid, or in opposing the imposition thereof,
resulting to the Purchaser or ACRG, directly or indirectly, from (a) any
inaccurate representation or warranty by or on behalf of the Company or the
Shareholders in or pursuant to the provisions of this Agreement, (b) the breach
or default in the performance by the Company or the Shareholders of any of the
obligations to be performed by or on behalf of the Company or the Shareholders,
as applicable hereunder (unless such breach or default in performance occurred
on or before the Closing Date and this Agreement was terminated because of such
breach or default in performance, in which case the Purchaser and ACRG shall be
deemed to have waived any right under this Section 6.1 to indemnification for
Damages caused by such breach or default in performance), (c) from any
liability of the Company or the Shareholders which has not been assumed by the
Purchaser hereunder, or (d) any breach or default in the performance of any
obligation to be performed by or on behalf of the Company or the Shareholders
before the Closing Date, which results in a claim being asserted against the
Purchaser or ACRG. The Company and the Shareholders shall, in addition,
reimburse the Purchaser and ACRG on demand for any payment made by the
Purchaser or ACRG at any time after the Closing based upon the final judgment
of any court of competent jurisdiction or pursuant to a bona fide compromise or
settlement of any such claim, demand, or action, in respect of any Damages to
which the foregoing indemnity relates. If any third party shall assert any
such claim against the Purchaser or ACRG which, if successful, might result in
a breach or default by the Company or the Shareholders, then the Purchaser or
ACRG shall give prompt written notice thereof to the Company and the
Shareholders and the Company and the Shareholders shall be entitled to elect,
within ten (10) days after the giving of such notice, to participate in the
defense thereof and to be represented, at the sole expense of the Company and
the Shareholders, by counsel selected by the Company and the Shareholders. The
Purchaser and/or ACRG shall not compromise or settle any such claim without
giving the Company and the Shareholders ten (10) days written notice thereof if
the effect of any such compromise or settlement would require indemnification
by the Company and the Shareholders for all or any part of the amount of such
compromise or settlement, and receipt of the express written consent of the
Company and the Shareholders to such compromise or settlement, which consent
shall not be unreasonably delayed or withheld.
17
<PAGE> 22
6.2 INDEMNIFICATION BY THE PURCHASER AND ACRG. The Purchaser and
ACRG shall indemnify and hold the Company and the Shareholders harmless against
and in respect of all Damages, as hereinafter defined. "Damages", as used in
this Section 6.2, shall include without limitation any claim, action, demand,
loss, cost, expense, liability, whether joint or several, penalty, and other
damage, including, without limitation, attorneys' fees and other costs and
expenses reasonably incurred in investigating, and attempting to avoid, or in
opposing the imposition thereof, resulting to the Company or the Shareholders
from (a) any inaccurate representation by or on behalf of the Purchaser or ACRG
in or pursuant to the provisions of this Agreement, (b) the breach or default
in the performance by the Purchaser or ACRG of any of the obligations to be
performed by or on behalf of the Purchaser or ACRG hereunder (unless such
breach or default in the performance occurred on or before the Closing Date and
this Agreement was terminated because of such breach or default in the
performance, in which case the Company and the Shareholders shall be deemed to
have waived any rights under this Section 6.2 to indemnification for Damages
caused by such breach or default in the performance) or (c) any breach or
default by the Purchaser or ACRG in the performance of any obligation to be
performed by the Purchaser or ACRG after the Closing Date, which results in a
claim being asserted against the Company or the Shareholders. The Purchaser
shall, in addition, reimburse the Company and the Shareholders on demand for
any payment made by the Company and the Shareholders at any time after the
Closing Date, based upon the final judgment of any court of competent
jurisdiction or pursuant to a bona fide compromise or settlement of any such
claim, demand, or action, in respect of any Damages to which the foregoing
indemnity relates. If any third party shall assert any such claim against the
Company and the Shareholders, if successful, might result in a breach or
default by the Purchaser or ACRG, then the Company and the Shareholders shall
give prompt written notice thereof to the Purchaser and ACRG, and the Purchaser
shall be entitled to elect, within ten (10) days after the giving of such
notice, to participate in the defense thereof and to be represented, at the
sole expense of the Purchaser and ACRG, by counsel to be selected by the
Purchaser and ACRG. Neither the Company nor the Shareholders shall compromise
or settle any such claim without giving the Purchaser and ACRG ten (10) days
written notice thereof if the effect of any such compromise or settlement would
require indemnification by the Purchaser and ACRG for all or any part of the
amount of such compromise or settlement and receipt of the express written
consent of the Purchaser and ACRG to such compromise or settlement, which
consent shall not be unreasonably delayed or withheld.
6.3 LIMITATION ON INDEMNIFICATION. The provisions of Sections 6.1
and 6.2 shall terminate and expire two (2) years after the Closing Date, and no
claim shall be made under either Section 6.1 or Section 6.2 (except with
respect to the Purchaser's failure to pay or perform an Assumed Liability)
until the aggregate Damages from all claims to date thereunder shall exceed
$25,000.
18
<PAGE> 23
ARTICLE VII
TERMINATION
7.1 TERMINATION. Subject to the provisions of Section 7.3 hereof,
this Agreement may be terminated at any time prior to the Closing upon the
following terms and conditions and in no other manner:
(a) Mutual Consent. By mutual consent of the Purchaser, ACRG and
the Company.
(b) By the Company. By the Company if any of the conditions
specified in Sections 5.1 and 5.3 of this Agreement have not
been satisfied and shall not have been waived by the Company.
(c) By the Purchaser. By the Purchaser if any of the conditions
specified in Sections 5.1 and 5.2 of this Agreement have not
been satisfied and shall not have been waived by the
Purchaser.
7.2 NOTICE OF TERMINATION. In the event that any party hereto
exercises its right to terminate this Agreement in accordance with the
provisions of Section 7.1 hereinabove, such election shall be effective only
when notice of such election is given to each of the other parties hereto, in
writing, in accordance with the provisions of Section 8.4 hereof.
7.3 EFFECT OF TERMINATION OR WAIVER. In the event that this
Agreement shall be terminated pursuant to the provisions of Section 7.1 hereof,
this Agreement shall become null and void and shall have no further effect, and
all further obligations of the parties hereto under this Agreement shall
terminate without further liability of any party to another, except as
otherwise provided in this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
statements of fact contained in any memorandum, certificate, instrument,
schedule, or other document delivered by or on behalf of the Company, on the
one hand, or the Purchaser or ACRG, on the other hand, for the information of,
or reliance by, the other party to this Agreement pursuant hereto, shall be
deemed to be representations and warranties by the party delivering same. All
representations, warranties and covenants, including covenants of
indemnification, made by the parties and contained in this Agreement shall
survive the Closing for a period of two (2) years and all inspections,
examinations, or audits on behalf of the parties.
19
<PAGE> 24
8.2 AMENDMENT AND MODIFICATION. Except as provided otherwise in
this Agreement, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
8.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of the Purchaser
or ACRG on the one hand, or the Company, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by the
Company or the Purchaser, respectively, only by a written instrument signed by
the party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this Section 8.3.
8.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the other party at
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) if to the Company, or if to a Shareholder to
such Shareholder, at:
Mr. Daryl Brady
700 Broadway, Suite 800
Denver, Colorado 80203
(b) if to the Purchaser, to:
Contractors Heating & Supply, Inc.
3200 Wilcrest, Suite 440
Houston, Texas 77042
Attention: Mr. Alex Trevino, Jr.
with a copy to:
Mr. Robert D. Remy
820 Gessner, Suite 1360
Houston, Texas 77024
20
<PAGE> 25
8.5 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties;
provided, however, that the Purchaser may, without the prior written consent of
the Company, assign its rights, interests and obligations hereunder to a
corporation controlling or under common control with the Purchaser, but the
Purchaser shall not be relieved from liability hereunder. This Agreement is
not intended to and shall not confer upon any person other than the parties any
rights or remedies hereunder.
8.6 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Colorado (regardless of the laws that might otherwise govern
under applicable Colorado principles of conflicts of law) as to all matters,
including but not limited to matters of validity, construction, effect,
performance and remedies.
8.7 JURISDICTION AND VENUE. Any process against the Purchaser or
ACRG or the Company or the Shareholders in, or in connection with, any suit,
action or proceeding arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement may be served personally or by
certified mail at the address set forth in Section 8.4 with the same effect as
though served on it or him personally.
8.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.9 INTERPRETATION. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
8.10 ENTIRE AGREEMENT. This Agreement, including the exhibits
hereto and the documents, instruments and schedules referred to herein,
embodies the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants, or undertakings, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
8.11 EXPENSES. Except as otherwise provided in this Agreement, the
Purchaser shall pay all expenses incurred by the Purchaser in connection with
entering into and carrying out its obligations pursuant to this Agreement,
including all its attorneys' fees, and the Company shall pay all expenses
incurred by the Company in connection with entering into and carrying out its
obligations pursuant to this Agreement, including all its attorneys' fees.
8.12 ATTORNEYS' FEES. In the event any party hereto institutes a
lawsuit against any other party hereto for a claim arising out of or to
specifically enforce this Agreement, the losing
21
<PAGE> 26
party shall pay the reasonable attorneys' fees incurred by the prevailing party
in connection with such lawsuit.
8.13 BROKER'S OR FINDER'S FEES. Each party hereto shall be
responsible for the payment of, and shall indemnify the other parties hereto in
respect of, any broker's or finder's fee or similar commission for any person
or entity representing or claiming to represent such party in connection with
the transactions contemplated by this Agreement.
8.14 EMPLOYEES. Effective as of the Closing, the Company will
terminate and the Purchaser will hire all of the Company's employees; provided,
however, that nothing contained herein shall be deemed to create an agreement
with such employees regarding their employment by the Purchaser or limit the
Purchaser's rights to terminate or modify the terms of employment of any such
employee in its sole discretion. In connection therewith, the Purchaser will
continue all of the Company's benefit plans (except the Company's 401(k) plan)
and will assume all of the accrued vacation obligations. Effective as of the
Closing, the Company will terminate its 401(k) plan and the employees will be
eligible to participate in the Purchaser's 401(k) plan. The Company and the
Purchaser will cooperate to permit the employees to roll over their benefits
from the Company's 401(k) plan to the Purchaser's 401(k) plan. Notwithstanding
the foregoing, nothing contained herein shall limit the rights of the Purchaser
to terminate, modify or replace such benefit plans in its sole discretion.
8.15 NO THIRD PARTY BENEFICIARIES. This Agreement is for the
benefit of the parties hereto only and no other party shall be entitled to rely
hereon or claim any benefit as a third party beneficiary.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
ACR GROUP, INC., a Texas corporation
By: /s/
---------------------------------------
Alex Trevino, Jr., President
CONTRACTORS HEATING & SUPPLY,
INC., a Texas corporation
By: /s/
---------------------------------------
Alex Trevino, Jr., President
22
<PAGE> 27
CONTRACTORS HEATING AND SUPPLY
COMPANY, a Colorado corporation
By: /s/
---------------------------------------
Daryl Brady, President
Each of the Shareholders executes this Agreement in his or her
individual capacity to evidence his agreement to be bound by Article II and
Article VI of this Agreement.
/s/
--------------------------------------------
Daryl G. Brady
/s/
--------------------------------------------
Thomas W. Gamel
23
<PAGE> 28
EXHIBIT A
ASSETS
All tangible and intangible assets of the Company used in the normal
course of operating the business of the wholesale distribution of HVACR
products and the manufacture of sheet metal products (the "Assets"). The
Assets to be transferred and delivered shall include those owned by the
Company, whether or not reflected in the Company's balance sheet as of the
Current Balance Sheet Date with only changes therein as shall have occurred in
the usual and ordinary course of business between the Current Balance Sheet
Date and the Closing Date. Without limitation of the foregoing, the Assets
shall include, if any, all machinery, equipment, furniture, fixtures, supplies,
software, goodwill, inventory, materials, cash (as of the Current Balance Sheet
Date and received thereafter), accounts and notes receivable, contract rights
(to the extent such contracts are assumable) and copies of such contracts,
purchase orders, securities, trading accounts, licenses and applications
therefor, franchises, claims, deposits, prepaid items, all rights and interest
in, to and under any patents, patent applications, trademarks, trademark
registrations and applications therefor, copyrights, copyright registrations
and applications therefor, trade name and other trade rights, trade secrets,
ideas and other know-how, shop rights, permits and other rights and privileges,
copies of all books of account and records, all sales data, customer lists and
data, supplier lists and data, copies of personnel files, copies of documents
related to employee benefits plans, records relating to the fixed assets of the
Company, engineering drawings, cost reports for pricing and inventory
valuation, booking reports, backlog reports, customer history records,
production history and inventory history records, processes, designs, sketches,
drawings, manufacturing methods, distribution methods, materials handling and
shipment methods, catalogs, brochures, sales materials and copies of all
documents relating to environmental and safety requirements. The Assets shall
exclude the corporate minute books and records of the Company, land, buildings,
improvement and fixtures, and life insurance policies covering the lives of
officers or shareholders of the Company.
<PAGE> 29
EXHIBIT B
ASSUMED LIABILITIES
All liabilities of the Company reflected on the Current Balance Sheet,
except the long term note payable in the principal amount of $1,010,000, and
including the following:
1. All liabilities incurred by the Company in the ordinary course
of its business since the Current Balance Sheet Date;
2. All liabilities of the Company incurred in the ordinary course
of business and reflected in its books and records (whether or
not reflected on the Current Balance Sheet), including payroll
expenses, bonuses, commissions payable, vacation expense and
similar items;
3. All operating expenses incurred in the ordinary course of
business, whether or not accrued (excluding professional fees
incurred by the Company or the Shareholders in connection with
this transaction);
4. All pending verbal or written purchase orders, sales orders
and work in process obligations incurred in the ordinary
course of business; and
5. All liabilities under all assumed contracts.
Assumed liabilities will not include any litigation or similar claims,
whether disclosed or undisclosed, or liabilities not incurred in the ordinary
course of business.
<PAGE> 30
EXHIBIT B-1
[FORM OF SUBCHAPTER S PROMISSORY NOTE]
<PAGE> 31
PROMISSORY NOTE
(SUBCHAPTER S DISTRIBUTION)
$_________________ Denver, Colorado
DUE DATE: September _____, 1997 As of December 31, 1996
Contractors Heating and Supply Company, a Colorado corporation
(hereinafter called "Maker"), promises to pay to the order of
________________________________ (hereinafter called "Payee"), at 70 Santa Fe
Drive, Denver, Colorado 80223, or at such address or addresses as Payee or
other holder hereof may from time to time designate in writing, in coin or
currency of the United States of America, that at the time of payment is legal
tender for the payment of public and private debts, the principal sum of
__________________________________________________________________________
DOLLARS ($________________), without interest.
If default is made in the payment of this note and the same is placed
in the hands of an attorney for collection, or suit is filed hereon, or
proceedings are had in bankruptcy, probate, receivership, reorganization or
other legal or judicial proceedings for the collection hereof, Maker agrees and
shall also pay to the then holder hereof, a reasonable amount as attorneys'
fees.
This note may be prepaid at any time, in whole or in part, without
notice, penalty or premium. This Note shall not be pledged or otherwise
assigned as collateral by Payee without the prior written consent of Maker.
The Maker and all endorsers, guarantors and signers hereof, and each
of them, (i) expressly waive presentment for payment, notice of nonpayment,
protest, notice of protest, bringing of suit and diligence in taking action to
collect amounts owing hereunder and in the handling of securities at any time
existing in connection herewith, and (ii) agree that this note, or any payment
hereunder, may be extended from time to time without affecting such liability.
This note shall be construed under and governed by the laws of the
State of Colorado.
CONTRACTORS HEATING AND SUPPLY
COMPANY, a Colorado corporation
By:
------------------------------------
Title:
---------------------------------
<PAGE> 32
EXHIBIT C
[NET LEASE]
<PAGE> 33
NET LEASE
This Net Lease ("Lease") is made effective as of the 1st day
of September, 1997, between GAMBRAY, INC., a Colorado corporation ("Landlord"),
whose address is 700 Broadway, Suite 800, Denver, Colorado 80203 and
CONTRACTORS HEATING & SUPPLY, INC., a Texas corporation ("Tenant"), whose
address is 3200 Wilcrest Drive, Suite 440, Houston, Texas 77042.
I. GENERAL
1.1 Consideration. This Lease is being executed in
connection with the closing of the sale of substantially all of Landlord's
assets to Tenant pursuant to the terms of an Asset Purchase Agreement dated as
of September 8, 1997 (the "Purchase Agreement") among Landlord, Tenant and ACR
Group, Inc. ("Guarantor"). Landlord and Tenant enter into this Lease in
consideration of the closing under the Purchase Agreement and in consideration
of the payment by Tenant of the rents herein reserved and the keeping,
observance and performance by Tenant of the covenants and agreements of Tenant
herein contained.
1.2 Exhibits to Lease. The Exhibits listed below shall
be attached to this Lease and be deemed incorporated in this Lease by this
reference. In the event of any inconsistency between such Exhibits and the
terms and provisions of this Lease, the terms and provisions of the Exhibits
shall control. The Exhibits to this Lease are:
Exhibit A - Demised Premises, Lease Term, Basic Rent, Monthly
Rent, etc.
II. DEMISE AND TERM
2.1 Demise. Subject to the provisions, covenants and
agreements herein contained, Landlord hereby leases and demises to Tenant, and
Tenant hereby leases from Landlord, the Demised Premises as hereinafter
defined, for the Lease Term as hereinafter defined, subject to existing
covenants, conditions, restrictions, easements and encumbrances affecting the
same.
2.2 Demised Premises. The "Demised Premises" shall mean
the real property legally described on Exhibit A, including all improvements
located thereon. The address of the Demised Premises is the address set forth
in Exhibit A.
2.3 Lease Term. "Lease Term" shall mean the period
commencing at noon on the commencement date specified in Exhibit A and expiring
at noon on the expiration date specified in Exhibit A.
2.4 Covenant of Quiet Enjoyment. Landlord covenants and
agrees that, provided Tenant is not in default and keeps, observes and performs
the covenants and agreements of Tenant contained in this Lease, Tenant shall
have quiet and peaceable possession of the Demised Premises and such possession
shall not be disturbed or interfered with by Landlord or by any person claiming
by, through or under Landlord.
2.5 Condition of Demised Premises. Tenant covenants and
agrees that, upon taking possession of the Demised Premises, Tenant shall be
deemed to have accepted the Demised Premises "as is" and Tenant shall be deemed
to have waived any warranty of condition or habitability, suitability for
<PAGE> 34
occupancy, use or habitation, fitness for a particular purpose or
merchantability, express or implied relating to the Demised Premises.
III. RENT AND OTHER AMOUNTS PAYABLE
3.1 Basic Rent. Tenant covenants and agrees to pay to
Landlord, without offset, deduction or abatement, basic rent for the full Lease
Term in the amount specified as basic rent in Exhibit A ("Basic Rent").
3.2 Monthly Rent. Basic Rent shall be payable monthly
in advance, without notice, in equal installments in the amount of monthly rent
specified in Exhibit A ("Monthly Rent") commencing on the commencement date of
the Lease Term and continuing on the first day of each month thereafter for the
balance of the Lease Term.
3.3 Place of Payments. Basic Rent and all other sums
payable by Tenant to Landlord under this Lease shall be paid to Landlord at the
place for payments specified in Exhibit A, or such other place as Landlord may,
from time to time, designate in writing.
3.4 Lease a Net Lease and Rent Absolute. It is the
intent of the parties that the Basic Rent provided in this Lease shall be a net
payment to Landlord; that the Lease shall continue for the full Lease Term
notwithstanding any occurrence preventing or restricting use and occupancy of
the Demised Premises, including any damage or destruction affecting the Demised
Premises, and any action by governmental authority relating to or affecting the
Demised Premises, except as otherwise specifically provided in this Lease; that
the Basic Rent shall be absolutely payable without offset, reduction or
abatement for any cause except as otherwise specifically provided in this
Lease; that Landlord shall not bear any costs or expenses relating to the
Demised Premises or provide any services or do any act in connection with the
Demised Premises except as otherwise specifically provided in this Lease; and
that Tenant shall pay, in addition to Basic Rent, Additional Rent to cover
costs and expenses relating to the Demised Premises, as hereinafter provided.
3.5 Additional Rent. Tenant covenants and agrees to
pay, as Additional Rent, all costs and expenses relating to the Demised
Premises and to pay all other amounts payable by Tenant under the terms of this
Lease ("Additional Rent"). Costs and expenses payable by Tenant as Additional
Rent shall include (a) taxes and assessments; (b) insurance costs; (c) utility
charges; (d) operating expenses; (e) maintenance and repair expenses, and (f)
other costs and expenses relating to the Demised Premises as hereinafter
provided in this Lease.
3.6 Monthly Deposits for Taxes. Tenant covenants and
agrees to pay to Landlord, monthly in advance, without notice, on each day that
payment of Monthly Rent is due, amounts, as hereinafter specified, for payment
of taxes and assessments payable with respect to the Demised Premises
("Monthly Deposits") and, if the Monthly Deposits are insufficient to pay the
actual taxes and assessments, to pay to Landlord, within 10 days after demand
by Landlord, such amounts as are necessary to provide Landlord with sufficient
funds to pay the same. The Monthly Deposits shall each be equal to 1/12 of the
amounts, as reasonably estimated by Landlord, of the annual taxes and
assessments payable with respect to the Demised Premises. To the extent the
Monthly Deposits exceed the actual taxes and assessments, the excess amount
shall, at Landlord's option, except as may be otherwise provided by law, either
be paid to Tenant or credited against future Monthly Deposits or against Basic
Rent, Additional Rent or other amounts payable by Tenant under this Lease. The
amounts of taxes and assessments payable by Tenant for the years in which the
Lease Term commences and
-2-
<PAGE> 35
expires shall be subject to the provisions hereinafter contained in this Lease
for proration of such amounts in such years. Prior to the dates on which
payment is due for taxes and assessments, Landlord shall make payment of such
taxes and assessments, to the extent of funds from Monthly Deposits available
therefor and, upon request by Tenant, shall furnish Tenant with a copy of any
receipt for such payments. Except for Landlord's obligation to make payments
out of funds available from Monthly Deposits, the making of Monthly Deposits by
Tenant shall not limit or alter Tenant's obligation to pay taxes and
assessments as elsewhere provided in this Lease.
3.7 General Provisions as to Monthly Deposits. Landlord
shall be free to commingle the Monthly Deposits with Landlord's own funds and
Landlord shall not be obligated to pay interest to Tenant on account of the
Monthly Deposits. In the event of a transfer by Landlord of Landlord's
interest in the Demised Premises, Landlord may deliver the Monthly Deposits to
the transferee of Landlord's interest and Landlord shall thereupon be
discharged from any further liability to Tenant with respect to such Monthly
Deposits. In the event of a transfer by Tenant of Tenant's interest in the
Demised Premises, Landlord shall be entitled to return the Monthly Deposits to
Tenant's successor in interest and Landlord shall thereupon be discharged from
any further liability with respect to the Monthly Deposits.
IV. TAXES AND ASSESSMENTS
4.1 Covenant to Pay Taxes and Assessments. Tenant
covenants and agrees to pay, as Additional Rent, Taxes and Assessments, as
hereinafter defined, which accrue during or are attributable to the Lease Term.
"Taxes and Assessments" shall mean all taxes, assessments or other impositions,
general or special, ordinary or extraordinary, of every kind or nature, which
may be levied, assessed or imposed upon or with respect to the Demised Premises
or any part thereof, or upon any building, improvements or personal property at
any time situated thereon.
4.2 Proration at Commencement and Expiration of Term.
Taxes and Assessments shall be prorated between Landlord and Tenant for the
year in which the Lease Term commences and for the year in which the Lease Term
expires as of, respectively, the date of commencement of the Lease Term and the
date of expiration of the Lease Term, except as hereinafter provided.
Additionally, for the year in which the Lease Term expires, Tenant shall be
liable without proration for the full amount of Taxes and Assessments relating
to any improvements, fixtures, equipment or personal property which Tenant is
required to remove or in fact removes as of the expiration of the Lease Term.
Proration of Taxes and Assessments shall be made on the basis of actual Taxes
and Assessments. Taxes and Assessments for the years in which the Lease Term
commences and expires shall be paid and deposited with the Landlord through
Monthly Deposits as hereinabove provided, but, in the event actual Taxes and
Assessments for either year are greater or less than as estimated for purposes
of Monthly Deposits, appropriate adjustment and payment shall be made between
the parties, at the time the actual Taxes and Assessments are known, as may be
necessary to accomplish proration, as herein provided.
4.3 Special Assessments. In the event any Taxes or
Assessments are payable in installments over a period of years, Tenant shall be
responsible only for installments for periods during the Lease Term with
proration, as above provided, of any installment payable prior or after
expiration of the Lease Term.
4.4 New or Additional Taxes. Tenant's obligation to pay
Taxes and Assessments shall include any Taxes and Assessments of a nature not
presently in effect but which may hereafter be levied, assessed or imposed upon
Landlord or upon the Demised Premises if such tax shall be based upon or arise
out of the ownership, use or operation of or the rents received from the
Demised Premises, other
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than income taxes of Landlord. For the purposes of computing Tenant's
liability for such new type of tax or assessment, the Demised Premises shall be
deemed the only property of Landlord.
4.5 Right to Contest Taxes. Both Landlord and Tenant
shall have the right to contest any Taxes and Assessments; provided that no
protest of Taxes and Assessments shall reduce the amount of the Monthly
Deposits required to be paid by Tenant hereunder unless and until such protest
is successful. Landlord shall pay to or credit Tenant with any abatement,
reduction or recovery of any Taxes and Assessments attributable to the Lease
Term less all costs and expenses incurred by Landlord, including attorneys'
fees, in connection with such abatement, reduction or recovery.
V. INSURANCE
5.1 Casualty Insurance. Tenant covenants and agrees to
obtain and keep in full force and effect during the Lease Term, Casualty
Insurance as hereinafter defined. "Casualty Insurance" shall mean fire and
extended coverage insurance with respect to the Demised Premises, on a
replacement cost basis, and with coverage, by endorsement or otherwise, for all
risks, vandalism and malicious mischief, sprinkler leakage, boilers, and with a
deductible in an amount for each occurrence as Landlord, in its sole
discretion, may determine from time to time. Casualty Insurance shall name
Landlord as an insured party and shall, at Landlord's option, name any
mortgagee or holder of a deed of trust as an insured party as its interest may
appear. Tenant covenants and agrees to pay the cost of Casualty Insurance
directly to the insuror. Tenant shall be responsible for obtaining, at
Tenant's option, cost and expense, insurance coverage for property of Tenant
and for business interruption of Tenant.
5.2 Liability Insurance. Tenant covenants and agrees to
obtain and keep in full force and effect during the Lease Term, and to pay the
premiums and costs of, Liability Insurance as hereinafter defined. "Liability
Insurance" shall mean comprehensive general liability insurance covering public
liability with respect to the ownership, use and operation of the Demised
Premises, with limits of not less than $5,000,000 combined single limit of
liability, with endorsements for assumed contractual liability with respect to
the liabilities assumed by Tenant under Section 7.24 of this Lease, and with no
deductible, retention or self-insurance provision contained therein, unless
otherwise approved in writing by Landlord. Tenant covenants and agrees to pay
cost of Liability Insurance directly to the insuror.
5.3 General Provisions Respecting Insurance. Except as
otherwise approved in writing by Landlord, all insurance required to be
obtained by Tenant hereunder shall be on forms and with insurers selected or
approved by Landlord, which approval shall not be unreasonably withheld; shall
name Landlord and the holder of any first mortgage or deed of trust encumbering
the Property as insured parties (or as additional insured parties in the case
of liability insurance), as their interests may appear; shall contain a waiver
of rights of subrogation as among Tenant, Landlord and the holder of any such
first mortgage or deed of trust; and shall provide, by certificate of insurance
or otherwise, that the insurance coverage shall not be cancelled or altered
except upon 30 days' prior written notice to Landlord and the holder of any
such first mortgage or deed of trust. Certificates of insurance obtained by
Tenant shall be delivered to Landlord who may deposit the same with the holder
of any such first mortgage or deed of trust.
5.4 Cooperation in the Event of Loss. Landlord and
Tenant shall cooperate with each other in the collection of any insurance
proceeds which may be payable in the event of any loss, including the execution
and delivery of any proof of loss or other actions required to effect recovery.
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VI. UTILITY, OPERATING, MAINTENANCE AND REPAIR EXPENSES
6.1 Utility Charges. Tenant covenants and agrees to pay
all charges for water, sewage disposal, gas, electricity, light, heat, power,
telephone or other utility services used, rendered or supplied to or for the
Demised Premises and to contract for the same in Tenant's own name.
6.2 Operating Expenses. Tenant covenants and agrees to
pay all costs and expenses of operations on or relating to the Demised
Premises, including costs and expenses for utilities, trash and garbage
disposal, janitorial and cleaning services, gardening and landscaping services,
security services, removal of snow and ice from parking areas, sidewalks and
driveways serving the Demised Premises, painting, replacement of damaged or
broken glass and other breakable materials in or serving the Demised Premises
and replacement of lights and light fixtures in or serving the Demised Premises
and to contract for the same in Tenant's own name.
6.3 Maintenance and Repair Expenses. Landlord
represents to Tenant that, as of the commencement of the Lease Term, to the
best of Landlord's knowledge, the Demised Premises are in good condition,
normal wear and tear excepted. suitable for Tenant's intended use thereof.
Tenant covenants and agrees to maintain, repair, replace and keep the Demised
Premises and all improvements (including, without limitation, all buildings and
the roofs, exterior walls and structural elements thereof, all parking areas
and all landscaped areas), fixtures and personal property thereon in good, safe
and sanitary condition, order and repair and in accordance with all applicable
laws, ordinances, orders, rules and regulations of governmental authorities
having jurisdiction; to pay all costs and expenses in connection therewith; and
to contract for the same in Tenant's own name. All maintenance and repairs by
Tenant shall be done promptly, in a good and workmanlike fashion, and without
diminishing the original quality of the Demised Premises. Notwithstanding the
foregoing, Tenant's obligations with respect to the maintenance and repair of
the Demised Premises shall extend no further than the obligation to surrender
possession of the Demised Premises to Landlord upon the expiration or other
termination of this Lease in the same condition as when Tenant first occupied
the Demised Premises, ordinary wear and tear excepted.
VII. OTHER COVENANTS OF TENANT
7.1 Limitation on Use by Tenant. Tenant covenants and
agrees to use the Demised Premises only for the use or uses set forth as
Permitted Uses by Tenant on Exhibit A and for no other purposes, except with
the prior written consent of Landlord.
7.2 Compliance with Laws. Tenant covenants and agrees
that nothing shall be done or kept on the Demised Premises in violation of any
law, ordinance, order, rule or regulation of any governmental authority having
jurisdiction and that the Demised Premises shall be used, kept and maintained
in compliance with any such law, ordinance, order, rule or regulation.
7.3 Compliance with Insurance Requirements. Tenant
covenants and agrees that nothing shall be done or kept on the Demised Premises
which might impair or increase the cost of insurance maintained with respect to
the Demised Premises or the Property, which might increase the insured risks or
which might result in cancellation of any such insurance.
7.4 No Waste or Impairment of Value. Tenant covenants
and agrees that nothing shall be done or kept on the Demised Premises which
might impair the value of the Demised Premises or which would constitute waste.
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7.5 No Hazardous Use. Tenant covenants and agrees that
nothing shall be done or kept on the Demised Premises and that no improvements,
changes, alterations, additions, maintenance or repairs shall be made to the
Demised Premises which might be unsafe or hazardous to any person or property.
7.6 No Structural or Electrical Overloading. Tenant
covenants and agrees that nothing shall be done or kept on the Demised Premises
and that no improvements, changes, alterations, additions, maintenance or
repairs shall be made to the Demised Premises which might impair the structural
soundness of the buildings thereon, which might result in an overload of
electrical lines serving the Demised Premises or which might interfere with
electric or electronic equipment in the Demised Premises or on any adjacent or
nearby property. In the event of violations hereof, Tenant covenants and
agrees to immediately remedy the violation at Tenant's expense and in
compliance with all requirements of governmental authorities and insurance
underwriters.
7.7 No Nuisance, Noxious or Offensive Activity. Tenant
covenants and agrees that no noxious or offensive activity shall be carried on
upon the Demised Premises nor shall anything be done or kept on the Demised
Premises which may be or become a public or private nuisance or which may
cause embarrassment, disturbance, or annoyance to others on adjacent or nearby
property.
7.8 No Annoying Lights, Sounds or Odors. Tenant
covenants and agrees that no light shall be emitted from the Demised Premises
which is unreasonably bright or causes unreasonable glare; no sound shall be
emitted from the Demised Premises which is unreasonably loud or annoying; and
no odor shall be emitted from the Demised Premises which is or might be noxious
or offensive to others on adjacent or nearby property.
7.9 No Unsightliness. Tenant covenants and agrees that
no unsightliness shall be permitted on the Demised Premises which is visible
from any adjacent or nearby property. Without limiting the generality of the
foregoing, all unsightly conditions, equipment, objects and conditions shall be
kept enclosed within the improvements on the Demised Premises; no refuse,
scrap, debris, garbage, trash, bulk materials or waste shall be kept, stored or
allowed to accumulate on the Demised Premises except as may be enclosed within
the improvements on the Demised Premises; all pipes, wires, poles, antennas and
other facilities for utilities or the transmission or reception of audio or
visual signals or electricity shall be kept and maintained underground or
enclosed or appropriately screened from view; and no temporary structure shall
be placed or permitted on the Demised Premises without the prior written
consent of Landlord.
7.10 No Animals. Tenant covenants and agrees that no
animals shall be permitted or kept on the Demised Premises.
7.11 Restriction on Signs and Exterior Lighting. Tenant
covenants and agrees that no signs or advertising devices of any nature shall
be erected or maintained by Tenant on the Demised Premises and no exterior
lighting shall be permitted on the Demised Premises that are not in compliance
with applicable laws, ordinances rules and regulations.
7.12 No Violation of Covenants. Tenant covenants and
agrees not to commit, suffer or permit any violation of any covenant, condition
or restriction affecting the Demised Premises.
7.13 Restriction on Changes and Alterations. Tenant
covenants and agrees not to improve, change, alter, add to, remove or demolish
any improvements on the Demised Premises, ("Changes"), without the prior
written consent of Landlord, which consent shall not be unreasonably
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withheld, and unless Tenant complies with all reasonable conditions which may
be imposed by Landlord in connection with such consent; and unless Tenant pays
to Landlord the reasonable costs and expenses of Landlord for architectural,
engineering or other consultants which may be reasonably incurred by Landlord
in determining whether to approve any such Changes. If such consent is given,
no such Changes shall be permitted unless Tenant shall have procured and paid
for all necessary permits and authorizations from any governmental authorities
having jurisdiction; unless such Changes will not reduce the value of the
Property, and will not affect or impair existing insurance on the Property; and
unless Tenant, at Tenant's sole cost and expense, shall maintain or cause to be
maintained workmen's compensation insurance covering all persons employed in
connection with the work and obtains liability insurance covering any loss or
damage to persons or property arising in connection with any such Changes and
such other insurance or bonds as Landlord may reasonably require. Tenant
covenants and agrees that any such Changes approved by Landlord shall be
completed with due diligence and in a good and workmanlike fashion and in
compliance with all conditions imposed by Landlord and all applicable permits,
authorizations, laws, ordinances, orders, rules and regulations of governmental
authorities having jurisdiction and that the costs and expenses with respect to
such Changes shall be paid promptly when due and that the Changes shall be
accomplished free of liens of mechanics and materialmen. Tenant covenants and
agrees that all such Changes shall become the property of the Landlord at the
expiration of the Lease Term or, if Landlord so requests, Tenant shall, at or
prior to expiration of the Lease Term and at its sole cost and expense, remove
such Changes and restore the Demised Premises to their condition prior to such
Changes.
7.14 No Mechanic's Liens. Tenant covenants and agrees
not to permit or suffer, and to cause to be removed and released, any
mechanic's, materialmen's or other lien on account of supplies, machinery,
tools, equipment, labor or material furnished or used in connection with the
construction, alteration, improvement, addition to or repair of the Demised
Premises by, through or under Tenant. Tenant shall have the right to contest,
in good faith and with reasonable diligence, the validity of any such lien or
claimed lien, provided that Tenant shall give to Landlord such security as may
be reasonably requested by Landlord to insure the payment of any amounts
claimed, including interests and costs, and to prevent any sale, foreclosure or
forfeiture of any interest in the Demised Premises on account of any such lien,
and provided that, on final determination of the lien or claim for lien, Tenant
shall immediately pay any judgment rendered, with interests and costs, and will
cause the lien to be released and any judgment satisfied.
7.15 No Other Encumbrances. Tenant covenants and agrees
not to obtain any financing secured by Tenant's interest in the Demised
Premises and not to encumber the Demised Premises or Landlord or Tenant's
interest therein, without the prior written consent of Landlord, and to keep
the Demised Premises free from all liens and encumbrances except liens and
encumbrances existing upon the date of commencement of the Lease Term or liens
and encumbrances created by Landlord.
7.16 Subordination to Landlord Mortgages. Tenant
covenants and agrees that, at Landlord's option, this Lease and Tenant's
interest in the Demised Premises shall be junior and subordinate to any
mortgage or deed of trust now or hereafter encumbering the Demised Premises
provided that, as to any mortgage or deed of trust given hereafter, the
mortgagee or beneficiary under such mortgage or deed of trust agrees in
writing, or adequate provision is made in the mortgage or deed of trust, that,
in the event of foreclosure of any such mortgage or deed of trust, Tenant shall
not be disturbed in its possession of the Demised Premises provided only that
Tenant shall attorn to the party acquiring title to the Demised Premises as the
result of such foreclosure. No act or further agreement by Tenant shall be
necessary to establish the subordination of this Lease to any such mortgage or
deed of trust but Tenant covenants and agrees, upon request of Landlord, to
execute such documents as may be necessary or appropriate to confirm and
establish this Lease as subordinate to any such mortgage or
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deed of trust in accordance with the foregoing provisions. Alternatively,
Tenant covenants and agrees that, at Landlord's option, Tenant shall execute
documents as may be necessary to establish this Lease and Tenant's interest in
the Demised Premises as superior to any such mortgage or deed of trust. If
Tenant fails to execute any documents required to be executed by Tenant under
the provisions hereof, Tenant hereby makes, constitutes and irrevocably
appoints Landlord as Tenant's attorney in fact and in Tenant's name, place and
stead to execute any such documents.
7.17 No Assignment or Subletting. Tenant covenants and
agrees not to make or permit a Transfer by Tenant, as hereinafter defined,
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. A Transfer by Tenant shall include an assignment of
this Lease, a sublease of all or any part of the Demised Premises or any
assignment, sublease, transfer, mortgage, pledge or encumbrance of all or any
part of Tenant's interest under this Lease or in the Demised Premises, by
operation of law or otherwise, or the use or occupancy of all or any part of
the Demised Premises by anyone other than Tenant. Any such Transfer by Tenant
without Landlord's written consent shall be void and shall constitute a default
under this Lease. In the event Landlord consents to any Transfer by Tenant,
Landlord shall be entitled to receive fifty percent (50%) of all consideration
to be paid by the assignee, sublessee or transferee for the use and enjoyment
of Tenant's rights under this Lease in excess of the amounts payable by Tenant
hereunder (whether such consideration is paid in a lump-sum, by multiple
payments, or as additional rent or rent premiums, or otherwise), and Tenant
shall not be relieved of its obligations under this Lease and Tenant shall
remain liable, jointly and severally and as a principal, and not as a guarantor
or surety, under this Lease, to the same extent as though no Transfer by Tenant
had been made, unless specifically provided to the contrary in Landlord's prior
written consent. The acceptance of rent by Landlord from any person other than
Tenant shall not be deemed to be a waiver by Landlord of the provisions of this
Section or of any other provision of this Lease and any consent by Landlord to
Transfer by Tenant shall not be deemed a consent to any subsequent Transfer by
Tenant. In the event Landlord consents to a Transfer by Tenant, any right
which may at the time have been granted to Tenant to extend the Lease Term
shall automatically terminate and be of no further force or effect unless
otherwise agreed to by Landlord in writing. Tenant covenants and agrees to pay
to Landlord, within 10 days after demand by Landlord, the reasonable costs and
expenses of Landlord in connection with any request by Tenant for consent to a
Transfer by Tenant, including reasonable attorneys' fees, whether or not
consent of Landlord is given to the Transfer by Tenant.
7.18 Annual Financial Statements. Tenant covenants and
agrees to furnish to Landlord annually, within 90 days after the end of each
fiscal year of Tenant, copies of financial statements of Tenant audited, if
requested by Landlord, by a certified public accountant, and agrees that
Landlord may deliver any such financial statements to any existing or
prospective mortgagee or purchaser of the Demised Premises. The financial
statements shall include a balance sheet as of the end of, and a statement of
profit and loss for, the preceding fiscal year of Tenant and, if regularly
prepared by Tenant, a statement of sources and use of funds for the preceding
fiscal year of Tenant.
7.19 Payment of Income and Other Taxes. Tenant covenants
and agrees to pay promptly when due all personal property taxes on personal
property of Tenant on the Demised Premises and all federal, state and local
income taxes, sales taxes, use taxes, Social Security taxes, unemployment taxes
and taxes withheld from wages or salaries paid to Tenant's employees, the
nonpayment of which might give rise to a lien on the Demised Premises or
Tenant's interest therein, and to furnish, if requested by Landlord, evidence
of such payments.
7.20 Estoppel Certificates. Tenant covenants and agrees
to execute, acknowledge and deliver to Landlord, upon Landlord's written
request, a written statement certifying that this Lease is unmodified (or, if
modified, stating the modifications) and in full force and effect; stating the
dates to
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which Basic Rent has been paid; stating the amount of Monthly Deposits held by
Landlord for the then tax year; and stating whether or not Landlord is in
default under this Lease (and, if so, specifying the nature of the default).
Tenant agrees that such statement may be delivered to and relied upon by any
existing or prospective mortgagee or purchaser of the Demised Premises. Tenant
agrees that a failure to deliver such a statement within 10 days after written
request from Landlord shall be conclusive upon Tenant that this Lease is in
full force and effect without modification except as may be represented by
Landlord; that there are no uncured defaults by Landlord under this Lease; and
that any representation by Landlord with respect to Basic Rent and Monthly
Deposits are true.
7.21 Landlord Right to Inspect and Show Premises and to
Install "For Sale" Signs. Tenant covenants and agrees that Landlord and the
authorized representatives of Landlord shall have the right to enter the
Demised Premises at any reasonable time during ordinary business hours for the
purposes of inspecting, repairing or maintaining the same or performing any
obligations of Tenant which Tenant has failed to perform hereunder or for the
purposes of showing the Demised Premises to any existing or prospective
mortgagee, purchaser or lessee of the Demised Premises. Tenant covenants and
agrees that Landlord may at any time and from time to time place on the Demised
Premises a sign advertising the Demised Premises for sale or for lease
(provided that a for lease sign may be placed on the premises only during the
last 120 days of the Term or following a default by Tenant).
7.22 Landlord Title to Fixtures, Improvements and
Equipment. Tenant covenants and agrees that all fixtures and improvements on
the Demised Premises and including all plumbing, heating, lighting, electrical
and air conditioning fixtures and equipment, whether or not attached to or
affixed to the Demised Premises, and whether now or hereafter located upon the
Demised Premises, shall be and remain the property of the Landlord upon
expiration of the Lease Term.
7.23 Removal of Tenant's Equipment. Tenant covenants and
agrees to remove, at or prior to the expiration of the Lease Term, all of
Tenant's Equipment, as hereinafter defined. "Tenant's Equipment" shall mean
all equipment, apparatus, machinery, signs, furniture, furnishings and personal
property used in the operation of the business of Tenant (as distinguished from
the use and operation of the Demised Premises). If such removal shall injure
or damage the Demised Premises Tenant covenants and agrees, at its sole cost
and expense, at or prior to the expiration of the Lease Term, to repair such
injury and damage in good and workmanlike fashion and to place the Demised
Premises in the same condition as the Demised Premises would have been if such
Tenant's Equipment had not been installed. If Tenant fails to remove any
Tenant's Equipment by the expiration of the Lease Term, Landlord may, at its
option, keep and retain any such Tenant's Equipment or dispose of the same and
retain any proceeds therefrom, and Landlord shall be entitled to recover from
Tenant any costs or expenses of Landlord in removing the same and in restoring
the Demised Premises in excess of the actual proceeds, if any, received by
Landlord from disposition thereof.
7.24 Tenant Indemnification of Landlord. Tenant
covenants and agrees to protect, indemnify and save Landlord harmless from and
against all liability, obligations, claims, damages, penalties, causes of
action, costs and expenses, including attorneys' fees, imposed upon, incurred
by or asserted against Landlord by reason of (a) any accident, injury to or
death of any person or loss of or damage to any property occurring on or about
the Demised Premises; (b) any act or omission of Tenant or Tenant's officers,
employees, agents, guests or invitees or of anyone claiming by, through or
under Tenant; (c) any use which may be made of, or condition existing upon, the
Demised Premises; (d) any improvements, fixtures or equipment upon the Demised
Premises; (e) any failure on the part of Tenant to perform or comply with any
of the provisions, covenants or agreements of Tenant contained in this Lease;
(f) any violation of any law, ordinance, order, rule or regulation of
governmental authorities having jurisdiction by Tenant or Tenant's officers,
employees, agents, guests or invitees or by anyone
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claiming by, through or under Tenant; and (g) any repairs, maintenance or
Changes to the Demised Premises by, through or under Tenant. Tenant further
covenants and agrees that, in case any action, suit or proceeding is brought
against Landlord by reason of any of the foregoing, Tenant will, at Tenant's
sole cost and expense, defend Landlord in any such action, suit or proceeding.
7.25 Waiver by Tenant. Tenant waives and releases any
claims Tenant may have against Landlord or Landlord's officers, agents or
employees for loss, damage or injury to person or property sustained by Tenant
or Tenant's officers, agents, employees, guests, invitees or anyone claiming
by, through or under Tenant resulting from any cause whatsoever other than
gross negligence or willful misconduct.
7.26 Release upon Transfer by Landlord. In the event of
a transfer by Landlord of the Demised Premises or of Landlord's interest as
Landlord under this Lease, Landlord's successor or assign shall take subject to
and be bound by this Lease and, in such event, Tenant covenants and agrees that
Landlord shall be released from all obligations of Landlord under this Lease,
except obligations which arose and matured prior to such transfer by Landlord;
that Tenant shall thereafter look solely to Landlord's successor or assign for
satisfaction of the obligations of Landlord under this Lease; and that, upon
demand by Landlord or Landlord's successor or assign, Tenant shall attorn to
such successor or assign.
VIII. DAMAGE OR DESTRUCTION
8.1 Tenant's Notice of Damage. For the purposes of this
Article VIII and Article IX each location listed on Exhibit A (a "Location")
constituting a portion of the Demised Premises will be treated separately and
the portion of Basic Rent allocable to each Location shall be as set forth on
Exhibit A. If any portion of a Location shall be damaged or destroyed by fire
or other casualty, Tenant shall give prompt written notice thereof to Landlord
("Tenant's Notice of Damage").
8.2 Options to Terminate if Damage Substantial. Upon
receipt of Tenant's Notice of Damage, Landlord shall promptly proceed to
determine the nature and extent of the damage or destruction and to estimate
the time necessary to repair or restore the Location. As soon as reasonably
possible, Landlord shall give written notice to Tenant stating Landlord's
estimate of the time necessary to repair or restore the Location ("Landlord's
Notice of Repair Time"). If Landlord reasonably estimates that repair or
restoration of the Location cannot be completed within 180 days from the time
of Tenant's Notice of Damage, Landlord and Tenant shall each have the option to
terminate this Lease with respect to that Location. In the event, however,
that the damage or destruction was caused by the act or omission of Tenant or
Tenant's officers, employees, agents, guests or invitees or of anyone claiming
by, through or under Tenant, Landlord shall have the option to terminate this
Lease with respect to the Location if Landlord reasonably estimates that the
repair or restoration cannot reasonably be completed within the time period
specified above, but Tenant shall not have the option to terminate this Lease
with respect to the Location. Any option granted hereunder shall be exercised
by written notice to the other party given within 10 days after Landlord's
Notice of Repair Time. In the event either Landlord or Tenant exercises its
option to terminate this Lease with respect to a Location, the Lease Term with
respect to that Location shall expire 10 days after the notice by either
Landlord or Tenant exercising such party's option to terminate this Lease with
respect to that Location. In the event of termination of this Lease with
respect to a Location under the provisions hereof, Landlord shall refund to
Tenant such amounts of Basic Rent and Additional Rent theretofore paid by
Tenant with respect to that Location as may be applicable to the period
subsequent to the time of Tenant's Notice of Damage less the reasonable value
of any use or occupation of the Location by Tenant subsequent to the time of
Tenant's Notice of Damage.
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8.3 Obligations to Repair and Restore. In the event
repair and restoration of Location can be completed within the period specified
in Section 8.2, in Landlord's reasonable estimation or this Lease is not
terminated with respect to the Location as provided therein, this Lease shall
continue in full force and effect and Landlord with respect to the Location,
subject to receipt of adequate insurance proceeds therefor and the payment by
Tenant of any uninsured costs as specified in Section 8.4, shall proceed
forthwith to cause the Location to be repaired and restored with reasonable
diligence and there shall be abatement of Basic Rent with respect to the
Location to the extent Landlord receives the proceeds of rental loss insurance
maintained pursuant to Section 5.1 proportionate to the extent of the space and
period of time that Tenant is unable to use and enjoy the Location. Landlord
may, at its option, require Tenant to arrange for and handle the repair and
restoration of the Location, in which case Landlord shall furnish Tenant with
funds for such repair and restoration at the time or times such funds are
needed, to the extent of any proceeds from insurance to cover the costs of
repair or restoration.
8.4 Application of Insurance Proceeds. The proceeds of
any Casualty Insurance maintained on a Location, other than casualty insurance
maintained by Tenant on fixtures and personal property of Tenant, shall be paid
to and become the property of Landlord, subject to any obligation of Landlord
to cause the Location to be repaired and restored. If the proceeds of
insurance are not sufficient to repair or restore the Location, Tenant shall
pay when due the uninsured costs of repair or restoration.
IX. CONDEMNATION
9.1 Taking -- Substantial Taking -- Insubstantial
Taking. A "Taking" shall mean the taking of all or any portion of a Location
as a result of the exercise of the power of eminent domain or condemnation for
public or quasi-public use or the sale of all or part of the Demised Premises
under the threat of condemnation. A "Substantial Taking" shall mean a Taking
of so much of the Location that the Location cannot thereafter be reasonably
used by Tenant for carrying on, at substantially the same level or scope, the
business theretofore conducted by Tenant on the Location. An "Insubstantial
Taking" shall mean a Taking such that the Location can thereafter continue to
be used by Tenant for carrying on, at substantially the same level or scope,
the business theretofore conducted by Tenant on the Location.
9.2 Termination on Substantial Taking. If there is a
Substantial Taking with respect to a Location, the Lease Term with respect to
the Location shall expire on the date of vesting of title pursuant to such
Taking. In the event of termination of this Lease with respect to the Location
under the provisions hereof, Landlord shall refund to Tenant such amounts of
Basic Rent and Additional Rent theretofore paid by Tenant as may be applicable
to the Location for the period subsequent to the time of termination of this
Lease with respect thereto.
9.3 Restoration on Insubstantial Taking. In the event
of an Insubstantial Taking, this Lease with respect to the Location shall
continue in full force and effect, and there shall be an abatement of Basic
Rent proportionate to the extent of the space so taken. Landlord may, at its
option, require Tenant to arrange for and handle any restoration of the
Location, in which case Landlord shall furnish Tenant with funds for such
restoration at the time or times such funds are needed, to the extent of the
proceeds of any awards or consideration received as a result of the Taking to
cover the costs of restoration.
9.4 Right to Award. The total award, compensation,
damages or consideration received or receivable as a result of a Taking
("Award") shall be paid to and be the property of Landlord, whether the Award
shall be made as compensation for diminution of the value of the leasehold or
the fee of the Location or otherwise and Tenant hereby assigns to Landlord, all
of Tenant's right, title and
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<PAGE> 44
interest in and to any such Award. Tenant covenants and agrees to execute,
immediately upon demand by Landlord, such documents as may be necessary to
facilitate collection by Landlord of any such Award. Without limiting the
foregoing, Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be recoverable by
Tenant on account of any and all damage to Tenant's business by reason of the
Taking or for or on account of any of Tenant's moving expenses, to the extent
that such compensation does not reduce the Award to which Landlord is entitled.
X. DEFAULTS BY TENANT
10.1 Defaults Generally. Each of the following shall
constitute a "Default by Tenant" under this Lease:
10.2 Failure to Pay Rent or Other Amounts. A Default by
Tenant shall exist if Tenant fails to pay when due, Basic Rent, Additional
Rent, Monthly Deposits, or any other amounts payable by Tenant under the terms
of this Lease, and such failure shall continue for 5 days after written notice
from Landlord to Tenant of such failure, provided however, that Tenant shall
not be entitled to more than two notices of such failure during any lease year
and if, after two such notices are given in any lease year, Tenant fails,
during such lease year, to pay any such amounts when due, such failure shall
constitute a Default by Tenant without further notice by Landlord.
10.3 Violation of Lease Terms. A Default by Tenant shall
exist if Tenant breaches or fails to comply with any agreement, term, covenant
or condition in this Lease applicable to Tenant (other than as specified in
Section 10.2), and such breach or failure to comply continues for a period of
20 days after notice thereof by Landlord to Tenant, or, if such breach or
failure to comply cannot be reasonably cured within such 20-day period, if
Tenant shall not in good faith commence to cure such breach or failure to
comply within such 20-day period or shall not diligently proceed therewith to
completion.
10.4 Nonoccupancy of Demised Premises. A Default by
Tenant shall exist if Tenant shall fail to occupy and use the Demised Premises
within 15 days after commencement of the Lease Term or shall leave the Demised
Premises unoccupied for 15 consecutive days or shall vacate and abandon the
Demised Premises.
10.5 Transfer of Interest Without Consent. A Default by
Tenant shall exist if Tenant's interest under this Lease or in the Demised
Premises shall be transferred to or pass to or devolve upon any other party
without Landlord's prior written consent.
10.6 Execution and Attachment against Tenant. A Default
by Tenant shall exist if Tenant's interest under this Lease or in the Demised
Premises shall be taken upon execution or by other process of law directed
against Tenant, or shall be subject to any attachment at the instance of any
creditor or claimant against Tenant and said attachment shall not be discharged
or disposed of within 15 days after the levy thereof.
10.7 Bankruptcy or Related Proceedings. A Default by
Tenant shall exist if Tenant shall file a petition in bankruptcy or insolvency
or for reorganization or arrangement under the bankruptcy laws of the United
States or under any similar act of any state, or shall voluntarily take
advantage of any such law or act by answer or otherwise, or shall be dissolved
or shall make an assignment for the benefit of creditors or if involuntary
proceedings under any such bankruptcy or insolvency law or for the
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<PAGE> 45
dissolution of Tenant shall be instituted against Tenant or a receiver or
trustee shall be appointed for the Demised Premises or for all or substantially
all of the property of Tenant, and such proceedings shall not be dismissed or
such receivership or trusteeship vacated within 60 days after such institution
or appointment.
10.8 Default Related to Purchase Agreement. A Default by
Tenant shall exist if Tenant is in default under the promissory note or
security agreement executed and delivered by Tenant to Landlord in connection
with the closing under the Purchase Agreement which is not cured within a cure
period specified therein.
XI. LANDLORD'S REMEDIES
11.1 Remedies Generally. Upon the occurrence of any
Default by Tenant, Landlord shall have the right, at Landlord's election, then
or at any time thereafter, to exercise any one or more of the following
remedies:
11.2 Cure by Landlord. In the event of a Default by
Tenant, Landlord may, at Landlord's option, but without obligation to do so,
and without releasing Tenant from any obligations under this Lease, make any
payment or take any action as Landlord may deem necessary or desirable to cure
any such Default by Tenant in such manner and to such extent as Landlord may
deem necessary or desirable. Landlord may do so without demand on, or written
notice to, Tenant and without giving Tenant an opportunity to cure such Default
by Tenant. Tenant covenants and agrees to pay to Landlord, within 10 days
after demand, all advances, costs and expenses of Landlord in connection with
the making of any such payment or the taking of any such action, including
reasonable attorney's fees, together with interest as hereinafter provided,
from the date of payment of any such advances, costs and expenses by Landlord.
Action taken by Landlord may include commencing, appearing in, defending or
otherwise participating in any action or proceeding and paying, purchasing,
contesting or compromising any claim, right, encumbrance, charge or lien with
respect to the Demised Premises which Landlord, in its discretion, may deem
necessary or desirable to protect its interest in the Demised Premises and
under this Lease.
11.3 Termination of Lease and Damages. In the event of a
Default by Tenant, Landlord may terminate this Lease, effective at such time as
may be specified by written notice to Tenant, and demand (and, if such demand
is refused, recover) possession of the Demised Premises from Tenant. Tenant
shall remain liable to Landlord for damages in an amount equal to the Basic
Rent, Additional Rent and other sums which would have been owing by Tenant
hereunder for the balance of the term, had this Lease not been terminated, less
the net proceeds, if any, of any reletting of the Demised Premises by Landlord
subsequent to such termination, after deducting all Landlord's reasonable
expenses in connection with such recovery of possession or reletting. Landlord
shall be entitled to collect and receive such damages from Tenant on the days
on which the Basic Rent, Additional Rent and other amounts would have been
payable if this Lease had not been terminated. Alternatively, at the option of
Landlord, Landlord shall be entitled to recover forthwith from Tenant, as
damages for loss of the bargain and not as a penalty, an aggregate sum which,
at the time of such termination of this Lease, represents the excess, if any,
of (a) the aggregate of the Basic Rent, Additional Rent and all other sums
payable by Tenant hereunder that would have accrued for the balance of the
Lease Term, over (b) the aggregate rental value of the Demised Premises for the
balance of the Lease Term, both discounted to present worth at the rate of 8%
per annum.
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<PAGE> 46
11.4 Repossession and Reletting. In the event of Default
by Tenant, Landlord may reenter and take possession of the Demised Premises or
any part thereof, without demand or notice, and repossess the same and expel
Tenant and any party claiming by, under or through Tenant, and remove the
effects of both using such force for such purposes as may be necessary, without
being liable for prosecution on account thereof or being deemed guilty of any
manner of trespass, and without prejudice to any remedies for arrears of rent
or right to bring any proceeding for breach of covenants or conditions. No
such reentry or taking possession of the Demised Premises by Landlord shall be
construed as an election by Landlord to terminate this Lease unless a written
notice of such intention is given to Tenant. No notice from Landlord hereunder
or under a forcible entry and detainer statute or similar law shall constitute
an election by Landlord to terminate this Lease unless such notice specifically
so states. Landlord reserves the right, following any reentry or reletting, to
exercise its right to terminate this Lease by giving Tenant such written
notice, in which event the Lease will terminate as specified in said notice.
After recovering possession of the Demised Premises, Landlord may, from time to
time, but shall not be obligated to, relet the Demised Premises, or any part
thereof, for the account of Tenant, for such term or terms and on such
conditions and upon such other terms as Landlord, in its uncontrolled
discretion, may determine. Landlord may make such repairs, alterations or
improvements as Landlord may consider appropriate to accomplish such reletting,
and Tenant shall reimburse Landlord upon demand for all costs and expenses,
including attorneys' fees, which Landlord may incur in connection with such
reletting. Landlord may collect and receive the rents for such reletting but
Landlord shall in no way be responsible or liable for any failure to relet the
Demised Premises, or any part thereof, or for any failure to collect any rent
due upon such reletting. Notwithstanding Landlord's recovery of possession of
the Demised Premises, Tenant shall continue to pay on the dates herein
specified, the Basic Rent, Additional Rent and other amounts which would be
payable hereunder if such repossession had not occurred. Upon the expiration
or earlier termination of this Lease, Landlord shall refund to Tenant any
amount, without interest, by which the amounts paid by Tenant, when added to
the net amount, if any, recovered by Landlord through any reletting of the
Demised Premises, exceeds the amounts payable by Tenant under this Lease. If,
in connection with any reletting, the new lease term extends beyond the
existing term, or the premises covered thereby include other premises not part
of the Demised Premises, a fair apportionment of the rent received from such
reletting and the expenses incurred in connection therewith will be made in
determining the net amount recovered from such reletting.
11.5 Suits by Landlord. Actions or suits for the
recovery of amounts and damages payable under this Lease may be brought by
Landlord from time to time, at Landlord's election, and Landlord shall not be
required to await the date upon which the Lease Term would have expired to
bring any such action or suit.
11.6 Recovery of Landlord Enforcement Costs. All costs
and expenses incurred by Landlord in connection with collecting any amounts and
damages owing by Tenant pursuant to the provisions of this Lease not paid by
Tenant when due or to enforce any provision of this Lease following a default
by Tenant, including reasonable attorneys' fees, whether or not any action is
commenced by Landlord, shall be paid by Tenant to Landlord upon demand.
11.7 Late Payment Penalty. Tenant covenants and agrees
to pay to Landlord a late payment penalty in the amount of 10% per month of any
installment of Monthly Rent or Monthly Deposits that Tenant fails to pay when
due; provided that no such late payment penalty shall be due in the event
payment of such installment of Monthly Rent or Monthly Deposits is made by
Tenant within 5 days after written notice from Landlord to Tenant of Tenant's
failure to pay such amount when due.
11.8 Interest on Advances. Tenant covenants and agrees
to pay to Landlord interest on demand at the rate of 2% above the "Prime Rate,"
as hereinafter defined, on the amount of any
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<PAGE> 47
payment made by Landlord required to have been made by Tenant under this Lease
and on the amount of any costs and expenses, including reasonable attorneys'
fees, paid by Landlord in connection with the taking of any action to cure any
Default by Tenant, from the date of making any such payment or the advancement
of such costs and expenses by Landlord. "Prime Rate" shall mean the rate
announced by Colorado National Bank of Denver, a national banking association
(the "Bank"), or other bank as hereinafter provided, at the time of making any
such payment or the advancement of such costs and expenses by Landlord, as its
prime rate, but not in excess of the maximum amount of finance charge
permissible under applicable law. In the event that the Bank discontinues the
use of a Prime Rate, the Prime Rate being announced by any other national
banking association located in Denver, Colorado, as selected by Landlord in its
sole discretion, shall be used for computing the interest rate under this
Section.
11.9 Landlord's Bankruptcy Remedies. Nothing contained
in this Lease shall limit or prejudice the right of Landlord to prove and
obtain as liquidated damages in any bankruptcy, insolvency, receivership,
reorganization or dissolution proceeding, an amount equal to the maximum
allowable by any statute or rule of law governing such proceeding in effect at
the time when such damages are to be proved, whether or not such amount be
greater, equal or less than the amounts recoverable, either as damages or
rent, under this Lease.
11.10 Remedies Cumulative. Exercise of any of the
remedies of Landlord under this Lease shall not prevent the concurrent or
subsequent exercise of any other remedy provided for in this Lease or otherwise
available to Landlord at law or in equity.
XII. SURRENDER AND HOLDING OVER
12.1 Surrender upon Lease Expiration. Upon the
expiration or earlier termination of this Lease, or on the date specified in
any demand for possession by Landlord after any Default by Tenant, Tenant
covenants and agrees to surrender possession of the Demised Premises to
Landlord, in the same condition as when Tenant first occupied the Demised
Premises, ordinary wear and tear excepted.
12.2 Holding Over. If Tenant shall hold over after the
expiration of the Lease Term, without written agreement providing otherwise,
Tenant shall be deemed to be a tenant from month to month, at a monthly rental,
payable in advance, equal to 150% of the Monthly Rental for the last month of
the Lease Term, and Tenant shall be bound by all of the other terms, covenants
and agreements of this Lease. Nothing contained herein shall be construed to
give Tenant the right to hold over at any time, and Landlord may exercise any
and all remedies at law or in equity to recover possession of the Demised
Premises, as well as any damages incurred by Landlord, due to Tenant's failure
to vacate the Demised Premises and deliver possession to Landlord as herein
provided.
XIII. MISCELLANEOUS
13.1 Guarantor. Tenant's obligations under this Lease
are guaranteed by ACR Group, Inc. under the terms of a separate Guaranty as of
even date herewith.
13.2 No Implied Waiver. No failure by Landlord to insist
upon the strict performance of any term, covenant or agreement contained in
this Lease, no failure by Landlord to exercise any right or remedy under this
Lease, and no acceptance of full or partial payment during the continuance of
any
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<PAGE> 48
Default by Tenant, shall constitute a waiver of any such term, covenant or
agreement, or a waiver of any such right or remedy, or a waiver of any such
Default by Tenant.
13.3 Survival of Provisions. Notwithstanding any
termination of this Lease, the same shall continue in force and effect as to
any provisions hereof which require observance or performance by Landlord or
Tenant subsequent to termination.
13.4 Covenants Independent. This Lease shall be
construed as if the covenants herein between Landlord and Tenant are
independent, and not dependent, and Tenant shall not be entitled to any offset
against Landlord if Landlord fails to perform its obligations under this Lease.
13.5 Covenants as Conditions. Each provision of this
Lease performable by Tenant shall be deemed both a covenant and a condition.
13.6 Tenant's Remedies. Tenant may bring a separate
action against Landlord for any claim Tenant may have against Landlord under
this Lease, provided Tenant shall first give written notice thereof to Landlord
and shall afford Landlord a reasonable opportunity to cure any such default.
In addition, Tenant shall send notice of such default by certified or
registered mail, postage prepaid, to the holder of any mortgage or deed of
trust covering the Demised Premises or any portion thereof of whose address
Tenant has been notified in writing, and shall afford such holder a reasonable
opportunity to cure any default on Landlord's behalf. In no event will
Landlord be responsible for any damages incurred by Tenant, including, but not
limited to, loss of profits or interruption of business as a result of any
default by Landlord hereunder.
13.7 Binding Effect. Without limiting the provisions of
Section 7.17, this Lease shall extend to and be binding upon the heirs,
executors, legal representatives, successors and assigns of the respective
parties hereto.
13.8 Short Form Lease. This Lease shall not be recorded,
but the parties agree, at the request of either of them, to execute a short
form lease for recording, containing the names of the parties, a description of
the Demised Premises and the Lease Term.
13.9 Notices and Demands. All notices, demands or
billings under this Lease shall be in writing, and shall be deemed properly
given and received when actually given and received or 3 business days after
mailing, if sent by registered or certified United States mail, postage
prepaid, addressed to the party to receive the notice at the address set forth
for such party in the first paragraph of this Lease or at such other address as
either party may notify the other of in writing.
13.10 Time of the Essence. Time is of the essence under
this Lease, and all provisions herein relating thereto shall be strictly
construed.
13.11 Captions for Convenience. The headings and captions
hereof are for convenience only and shall not be considered in interpreting the
provisions hereof.
13.12 Severability. If any provision of this Lease shall
be held invalid or unenforceable, the remainder of this Lease shall not be
affected thereby, and there shall be deemed substituted for the affected
provision a valid and enforceable provision as similar as possible to the
affected provision.
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<PAGE> 49
13.13 Governing Law. This Lease shall be interpreted and
enforced according to the laws of the State of Colorado.
13.14 Entire Agreement. This Lease and any exhibits
referred to herein, constitute the final and complete expression of the
parties' agreements with respect to the Demised Premises and Tenant's occupancy
thereof. Each party agrees that it has not relied upon or regarded as binding
any prior agreements, negotiations, representations, or understandings, whether
oral or written, except as expressly set forth herein.
13.15 No Oral Amendment or Modifications. No amendment or
modification of this Lease, and no approvals, consents or waivers by Landlord
under this Lease, shall be valid or binding unless in writing and executed by
the party to be bound.
13.16 Real Estate Brokers. Each party hereto represents
and warrants to the other that it has not incurred any liability for the
payment of any fee or commission to any broker or other agent in connection
with the negotiation and execution of this Lease and each party agrees to
indemnify and hold the other party harmless from any damages which may be
incurred by the other party as a result of a breach by the indemnifying party
of the foregoing warranty.
13.17 Relationship of Landlord and Tenant. Nothing
contained herein shall be deemed or construed as creating the relationship of
principal and agent or of partnership, or of joint venture by the parties
hereto, it being understood and agreed that no provision contained in this
Lease nor any acts of the parties hereto shall be deemed to create any
relationship other than the relationship of Landlord and Tenant.
13.18 Limitation on Personal Liability of Landlord.
Notwithstanding anything to the contrary contained in this Lease, it is
understood and agreed that there shall be no personal liability on the part of
the Landlord or any of its beneficiaries, successors or assigns, with respect
to any of the terms, covenants and conditions of this Lease, and Tenant shall
look solely to the equity of Landlord in the Demised Premises in the event of
any default or liability of Landlord under this Lease, such exculpation of
liability to be absolute and without any exception whatsoever.
13.19 Authority of Tenant. Each individual executing this
Lease on behalf of Tenant represents and warrants that he is duly authorized to
deliver this Lease on behalf of Tenant and that this Lease is binding upon
Tenant in accordance with its terms.
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<PAGE> 50
IN WITNESS WHEREOF the parties hereto have caused this Lease
to be executed the day and year first above written.
TENANT: LANDLORD:
CONTRACTORS HEATING & SUPPLY, GAMBRAY, INC., a Colorado corporation
INC., a Texas corporation
By: By:
----------------------------- ----------------------------------
Title: President
--------------------------
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this ___
day of _____________, 1997, by __________________________________, as
_______________________________ of Contractors Heating & Supply, Inc., a Texas
corporation.
Witness my hand and official seal.
My commission expires:
----------------------------------------
------------------------------------
Notary Public
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this ___
day of _____________, 1997, by _________________________________, as President
of Gambray, Inc., a Colorado corporation.
Witness my hand and official seal.
My commission expires:
----------------------------------------
------------------------------------
Notary Public
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<PAGE> 51
EXHIBIT A
Demised Premises - Address (each of the following being a "Location"):
70 Santa Fe Drive, Denver, Colorado 80223
3501 Princeton N.E., Albuquerque, New Mexico 87107
3120 N. El Paso, Colorado Springs, Colorado 80907
3130 N. El Paso, Colorado Springs, Colorado 80907
Lease Term:
Commencement Date: September 1, 1997
Expiration Date: August 31, 2000
Basic Rent:
$23,000.00 per month allocated for purposes of Articles VIII and
IX as follows:
<TABLE>
<CAPTION>
Location Rent
-------- ----
<S> <C>
Denver $10,000
Albuquerque $ 5,000
3120 N. El Paso $ 4,200
3130 N. El Paso $ 3,800
</TABLE>
Renewal Rights:
Provided that Tenant is not in default under the Lease, Tenant
shall have the option to renew this Lease as of the end of the
Lease Term for one (1) additional three (3) year term ("Renewal
Term") by giving written notice to Landlord no later than 180
days prior to the expiration of the Lease Term. Following this
notice, references to "Lease Term" shall include the Renewal
Term. Rent during the Renewal Term shall be increased on the
first day of the Renewal Term to $25,070 per month and the rent
allocations for the Locations shall be adjusted accordingly.
Option to Purchase:
Provided that Tenant is not in default under the Lease, Tenant
shall have the option to purchase the Demised Premises at any
time during the Lease Term (but not the Renewal Term) by giving
written notice to Landlord. The purchase price shall be
$3,000,000 payable by wire transfer to an account designated by
Landlord. At the closing, Tenant shall pay the purchase price in
cash and Landlord shall convey the Demised Premises to Tenant by
special warranty deed, free and clear of all liens and
encumbrances (except taxes and assessments not yet due and
payable) and subject to all easements, covenants, restrictions
and other matters of record. Tenant shall be responsible for all
closing costs, including any premiums for title insurance and
recording fees. This purchase option shall terminate on the
earlier of (1) Tenant's default under the Lease, or (b) the
expiration of the Lease Term.
Exhibit A - Page 1
<PAGE> 52
Place for Payments:
700 Broadway, Suite 800
Denver, Colorado 80203
Permitted Uses by Tenant:
Office and warehouse use in connection with Tenant's heating and
air conditioning supply business.
Exhibit A - Page 2
<PAGE> 53
EXHIBIT D
[NOTE]
<PAGE> 54
PROMISSORY NOTE
$1,200,000.00 Denver, Colorado
September ____, 1997
effective as of
September 1, 1997
FOR VALUE RECEIVED, Contractors Heating & Supply, Inc., a Texas
corporation (herein called "Maker"), promises to pay to the order of Gambray,
Inc. (formerly known as Contractors Heating and Supply Company), a Colorado
corporation (together with any subsequent holder of this note, "Payee"), at 700
Broadway, Suite 800, Denver, Colorado 80203, or at such place as the holder of
this note may hereafter designate in writing, in immediately available funds
and in lawful money of the United States of America, the principal sum of One
Million Two Hundred Thousand and No/100 Dollars ($1,200,000.00), together with
interest on the unpaid principal balance of this note from time to time
outstanding until maturity at the Stated Rate; provided, that for the full term
of this note the interest rate produced by the aggregate of all sums paid or
agreed to be paid to the holder of this note for the use, forbearance or
detention of the debt evidenced hereby shall not exceed the Ceiling Rate.
"Stated Rate" means, on any day, a rate per annum equal to the Prime
Rate for that day plus one-half percent (0.5%), provided, that if on any day
the Stated Rate shall exceed the Ceiling Rate for that day, then the Stated
Rate shall be fixed at the Ceiling Rate on that day and on each day thereafter
until the total amount of interest accrued at the Stated Rate on the unpaid
balance of this note equals the total amount of interest which would have
accrued if there were no Ceiling Rate. However, neither the maturity of this
note nor Maker's privilege (if any) to prepay it shall be affected by this
paragraph.
"Prime Rate" means, on any day, the prime rate for that day as
announced from time to time by NationsBank of Texas, N.A. Without notice to
Maker or any other person or entity, the Prime Rate shall automatically
fluctuate upward or downward as and in the amount by which said prime rate
fluctuates, with each change to be effective as of the date of each change in
said prime rate.
"Ceiling Rate" means, on any day, the maximum nonusurious rate of
interest permitted for that day by applicable Colorado law permits the higher
interest rate, stated as a rate per annum.
Interest shall be computed for the actual number of days elapsed in a
year consisting of 365 or 366 days, as the case may be.
INITIALLED FOR
IDENTIFICATION: ____
<PAGE> 55
If, for any reason whatever, the interest paid or received on this
note during its full term produces a rate which exceeds the Ceiling Rate, the
holder of this note shall refund to the payor or, at the holder's option,
credit against the principal of this note such portion of said interest as
shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of
this note for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of this
note, so that the interest rate is uniform throughout the full term of this
note.
The principal of this note, together with accrued and unpaid interest
on the unpaid balance of this note, shall be due and payable in three (3) equal
annual principal installments of Four Hundred Thousand Dollars ($400,000.00)
each, together with all accrued and unpaid interest on each installment date.
The first installment shall be due and payable on August 31, 1998, and a like
installment shall be due and payable on the same day of each succeeding year
thereafter until this note shall have been fully paid and satisfied; provided,
that on August 31, 2000, the final maturity of this note, all principal and
accrued interest then unpaid shall be due and payable. All payments shall be
applied first to costs of collection, then to accrued interest, with the
balance to principal.
Maker may at any time pay the full amount or any part of this note
without payment of any premium or fee. All prepayments shall be applied first
to costs of collection, then to accrued interest, with the balance to
principal. Maker shall prepay this Note in full upon (a) the sale of all or
substantially all of its assets, other than to ACR Group, Inc., a Texas
corporation ("Parent") or a wholly-owned subsidiary of Parent, or (b) a sale of
all of the capital stock of Maker or any other transaction pursuant to which
Parent ceases to be the sole shareholder of Maker.
Maker shall be in default under this note ("Default") upon: (a)
Maker's failure to pay any principal or accrued interest owing on this note
when due (such default not having been cured after ten (10) days written notice
thereof);
(b) the occurrence of any default under that certain Lease Agreement
of even date herewith made between Maker and Payee ("Lease") which is not cured
within any cure period specified in the Lease; or
(c) the occurrence of any default under the Security Agreement
(defined below) which is not cured within any cure period specified in the
Security Agreement.
Upon a Default, the whole principal sum of this note plus accrued
interest and all obligations of Maker to Payee, direct or indirect, absolute or
contingent, now existing or hereafter arising, shall, at the option of Payee,
become immediately due and payable without further notice or demand, and Payee
shall have and may exercise any or all of the rights and remedies provided
herein and under applicable laws. Following a Default by Maker, overdue
INITIALLED FOR
IDENTIFICATION: ____
2
<PAGE> 56
principal, accrued and unpaid interest and (to the extent permitted under
applicable law) overdue interest, whether caused by acceleration of maturity or
otherwise, shall bear interest at a rate equal to five (5) percentage points
above the Stated Rate, until paid, and shall be payable monthly or, at the
option of the Payee hereof, on demand.
All notices which are permitted or required under this note shall be
in writing and shall be deemed delivered, sent and received when delivered
personally, or if sent by mail, five (5) business days after being mailed by
registered or certified mail, postage prepaid, or, if by reputable overnight
courier, one (1) business day after deposit therewith, addressed as follows, or
to such other person or address as may be designated by written notice to the
other party.
If to Payee: Gambray, Inc.
700 Broadway, Suite 800
Denver, Colorado 80203
Attn: Daryl G. Brady
If to Maker: Contractors Heating & Supply, Inc.
3200 Wilcrest, Suite 440
Houston, Texas 77042
Attn: President
If any provision of this note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions of this note shall not be impaired thereby, nor shall
the validity, legality or enforceability of any such defective provision be in
any way affected or impaired in any other jurisdiction.
This note is secured by that certain Security Agreement (the "Security
Agreement") of even date herewith made between Maker and Payee. This note is
the note referenced in the Security Agreement. Reference is hereby made to the
Security Agreement for all purposes. Payee is entitled to the benefits of and
security provided for in the Security Agreement.
This note is subject to the terms of that certain Subordination
Agreement and Assignment in favor of NationsBank of Texas, N.A., relating to
the indebtedness evidenced by this note, to which reference is hereby made.
If Payee retains an attorney in connection with any Default or to
collect, enforce or defend this note or any papers intended to secure or
guarantee it in any lawsuit or in any probate, reorganization, bankruptcy or
other proceeding, or if Maker sues any Payee in connection with this note or
any such papers and does not prevail, then Maker agrees to pay to Payee, in
addition to principal and interest, all reasonable costs and expenses incurred
by Payee in trying to collect this note or in any such suit or proceeding,
including reasonable attorneys' fees.
INITIALLED FOR
IDENTIFICATION: ____
3
<PAGE> 57
Maker and any and all co-makers, endorsers, guarantors an sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting
and the filing of suit for the purpose of fixing liability and consent that the
time of payment hereof may be extended and re-extended from time to time
without notice to any of them. Each such person agrees that his, her or its
liability on or with respect to this note shall not be affected by any release
of or change in any guaranty or security at any time existing or by any failure
to perfect or maintain perfection of any lien against or security interest in
any such security or the partial or complete unenforceability of any guaranty
or other surety obligation, in each case in whole or in part, with or without
notice and before or after maturity.
This note shall be governed by and construed in accordance with the
laws of the State of Colorado from time to time in effect.
MAKER:
CONTRACTORS HEATING & SUPPLY, INC.,
a Texas corporation
By:
------------------------------------
Alex Trevino, Jr.
President
4
<PAGE> 58
EXHIBIT E
[SECURITY AGREEMENT]
<PAGE> 59
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made September ____,
1997, effective as of September 1, 1997, by and between Contractors Heating &
Supply, Inc., a Texas corporation (the "Debtor"), and Gambray, Inc. (formerly
known as Contractors Heating and Supply Company), a Colorado corporation (the
"Secured Party"). Debtor and Secured Party agree as follows:
Section 1. Indebtedness. The security interest granted pursuant
to Section 2 hereof secures the prompt and unconditional payment of the
indebtedness evidenced by that certain promissory note executed by Debtor
payable to Secured Party dated of even date herewith in the original principal
amount of $1,200,000.00 together with all renewals, extensions, rearrangements
or substitutions thereof, if any, whether evidenced by any note or other
instrument or agreement, modifications, and replacements thereof (in whole or
in part) (the "Note"). The indebtedness evidenced by the Note shall be
referred to herein as the "Secured Indebtedness".
Section 2. Grant of Security Interest; Collateral. In order to
secure the prompt and unconditional payment of the Secured Indebtedness and the
performance of the obligations, covenants, agreements and undertakings herein
described, Debtor hereby grants to Secured Party a security interest in and
mortgages, assigns, transfers, delivers, pledges, sets over and confirms to
Secured Party all of Debtor's remedies, powers, privileges, rights, titles and
interests (including all power of Debtor, if any, to pass greater title than it
has itself) of every kind and character now owned or hereafter acquired,
created or arising in and to the following:
The machinery and equipment described on Exhibit A attached hereto,
along with all accessions, appurtenances and additions to and
substitutes for any of the foregoing and all products and proceeds of
any of the foregoing, together with all renewals and replacements of
any of the foregoing
All of the properties and interest described above are herein
collectively called the "Collateral". The inclusion of proceeds does not
authorize Debtor to sell, dispose of or otherwise use the Collateral in any
manner not authorized herein.
Section 3. Payment of Secured Indebtedness.
3.1 Direct Obligations. Debtor shall pay to Secured Party any sum
or sums due or which may become due to Secured Party and which is secured
hereby.
3.2 Expenses. Debtor shall pay to Secured Party on demand all
expenses and expenditures, including reasonable attorneys' fees and other legal
expenses incurred or paid by any Lender or Secured Party in exercising or
protecting the interests, rights and remedies of Secured Party under this
Agreement.
Section 4. Events of Default. Debtor shall be in default under
this Agreement upon the happening of any of the following events or conditions
("Event of Default"):
<PAGE> 60
(a) any part of the Secured Indebtedness is not paid when due,
whether by lapse of time or acceleration or otherwise, unless
Secured Party declares the default fully cured to Secured
Party's satisfaction within ten (10) calendar days after such
due date.
(b) The Debtor or any obligor under this Note fails to perform,
observe or comply with, or defaults under, any of the material
terms, covenants, conditions or provisions contained in the
Note or this Agreement, as the same may be amended,
supplemented, restated or replaced from time to time.
(c) any Obligor: (i) commences a voluntary case in bankruptcy or a
voluntary petition seeking reorganization or to effect a plan
or other arrangement with creditors; (ii) makes an assignment
for the benefit of creditors; (iii) applies for or consents to
the appointment of any receiver or trustee for any such party
or for any substantial portion of its property; or (iv) makes
an assignment to an agent authorized to liquidate any
substantial part of its assets.
(d) in respect of any Obligor: (i) an involuntary case shall be
commenced with any court or other authority seeking
liquidation, reorganization or a creditor's arrangement of any
such party, and such action shall not have been dismissed
within sixty (60) days after its filing; or (ii) an order of
any court or other authority shall be entered appointing any
receiver or trustee for any such party or for any substantial
portion of its property.
(e) a default under the Lease of even date herewith between
Secured Party and Debtor which is not cured within any cure
period specified therein.
Section 5. Secured Party's Rights and Remedies in Event of
Default.
(a) Upon the occurrence of an Event of Default, and at any time
thereafter, Secured Party may declare the Secured Indebtedness
immediately due and payable and shall have the rights and
remedies of a secured party under the Colorado Commercial
Code, as amended, and under other applicable laws of each
state having jurisdiction over the Collateral or any part
thereof, including without limitation thereto, the right to
sell, lease or otherwise dispose of any or all of the
Collateral and the right to take possession of the Collateral,
and for that purpose Secured Party may enter upon any premises
on which the Collateral or any part thereof may be situated
and remove the Collateral or books and records evidencing
same, or may require Debtor to assemble the Collateral and
make it available to Secured Party at a place to be designated
by Secured Party which is reasonably convenient to both
parties. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on
a recognized market, Secured Party will send Debtor reasonable
notice of the time and place of any public sale thereof or of
the time after which any private sale or other disposition
thereof is to be made. The requirement of sending reasonable
notice shall be met if such notice is mailed, postage prepaid,
to Debtor at the address designated in this Agreement at least
ten (10) days before the time of the
2
<PAGE> 61
sale of disposition. Expenses of retaking, holding, preparing
for sale, selling or the like shall include Secured Party's
reasonable attorneys' fees and legal expenses, plus interest
thereon at the maximum non-usurious rate permitted by
applicable law with respect to Debtor. Debtor shall remain
liable for any deficiency.
Any amounts held, realized or received by Secured Party from any sale
or other disposition of the Collateral or any part thereof, and all amounts
received by Secured Party pursuant to collection of accounts shall be applied
by Secured Party in the following order to:
(1) All costs, expenses and liabilities of Secured Party
(including attorneys' fees and expenses) incurred in
connection with the exercise of Secured Party's
rights under this Agreement or protecting its
interest in the Collateral; and then
(2) the payment of all Secured Indebtedness.
(b) Secured Party may remedy any default and may waive any default
without waiving the default remedied or without waiving any
other prior or subsequent default.
(c) The remedies of Secured Party hereunder are cumulative, and
the exercise of any one or more of the remedies provided for
herein shall not be construed as a waiver of any of the other
remedies of Secured Party.
(d) NOTHING IN THIS AGREEMENT IS INTENDED TO PREVENT DEBTOR OR
SECURED PARTY FROM RESORTING TO JUDICIAL PROCESS AT EITHER
PARTY'S OPTION.
(e) Debtor agrees that, in performing any act under this
Agreement, time shall be of the essence and that Secured
Party's acceptance of a partial or delinquent payment or
payments, or the failure of Secured Party to exercise any
right or remedy shall not be a waiver of any obligation of
Debtor hereunder or any right of Secured Party or constitute a
waiver of any other similar default subsequent occurring.
Section 6. Representations and Warranties.
6.1 Capacity. The execution, delivery and performance of this
Agreement are within Debtor's powers, have been duly authorized by all
necessary and appropriate action, and are not in contravention of any law or
the terms of Debtor's Articles of Organization or any amendment thereto, or of
any indenture, agreement, undertaking or other document to which Debtor is a
party or by which Debtor or any of Debtor's property is bound or affected.
6.2 Title to Collateral. Debtor is the owner of the Collateral,
free of all security interests, mortgages, liens and other encumbrances except
for the security interest granted to Secured Party under this Agreement, and
Debtor has the unconditional authority to grant the security interest to
Secured Party pursuant to this Agreement. Debtor shall maintain the
3
<PAGE> 62
Collateral free and clear of all liens, security interests and encumbrances and
shall pay all taxes when due.
6.3 Validity of the Agreement. This Agreement constitutes the
legal, valid and binding obligation of Debtor enforceable in accordance with
the terms hereof, except as enforceability may be limited by applicable
bankruptcy and insolvency laws and laws affecting creditors' rights generally.
Section 7. Additional Agreements.
7.1 Further Actions by Debtor. Debtor shall, on request by
Secured Party, execute, acknowledge, deliver and record or file such further
instruments and to do such further acts as may be necessary, desirable or
proper to carry out more effectively the purposes of this Agreement, including
specifically filing of UCC-1 financing statements and any renewals, extensions,
rearrangements or substitutions thereof or of the Note.
7.2 Location of Collateral. Debtor shall not remove the
Collateral from its present location without the prior written approval of
Secured Party.
7.3 Insurance. Debtor shall maintain insurance on the Collateral
in responsible companies in such amounts and against such risks as is usually
carried by owners of similar businesses and properties in the same general
areas in which Debtor operates. Upon the request of Secured Party, Debtor
shall furnish Secured Party a schedule setting forth in reasonable detail the
insurance coverage maintained by Debtor on the Collateral. All such insurance
policies shall contain endorsements showing Secured Party as a loss payee, as
its interests may appear.
7.4 Other Security Interests/Subordination. The Debtor will not,
without the prior written consent of the Secured Party: (a) grant any security
interest or any other interest in any of the Collateral, or (b) subordinate or
permit the subordination of the security interest granted to the Secured Party
herein to the interest of any other person or entity in or to any of the
Collateral. Any attempt to do any of the foregoing without the prior written
consent of the Secured Party shall be void and ineffective as against the
Secured Party and shall constitute a default under the terms of this Agreement.
7.5 Other Understandings. Debtor shall:
(a) at the Debtor's sole cost and expense, appear in and defend
any action or proceeding arising under, growing out of, or in
any manner connected with the Collateral or the Secured
Indebtedness, and pay all costs and expenses of the Secured
Party, including attorneys' fees in a reasonable sum, in any
such action or proceeding in which the Secured Party may
appear;
(b) do all acts that may be necessary to maintain, preserve and
protect the Collateral;
(c) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement, or any
applicable statute, regulation or ordinance or any policy of
insurance covering the Collateral;
4
<PAGE> 63
(d) pay promptly when due all taxes, assessments, charges,
encumbrances, and liens now or hereafter imposed upon or
affecting any Collateral;
(e) give Secured Party prompt notice of any change in either the
name or the place of business of the Debtor;
(f) keep separate, accurate, and complete records of the
Collateral and provide the Secured Party with such records and
such other reports and information relating to the Collateral
as the Secured Party may reasonably request from time to time;
and
(g) deliver promptly to the Secured Party copies of all material
notices or communications received by the Debtor concerning
the Collateral.
7.6 Maintenance of Collateral. Debtor shall maintain the
Collateral in good condition and repair and shall not sell or dispose of any of
the Collateral unless such Collateral is replaced by comparable equipment owned
by Debtor which is subject to a first priority security interest in favor of
Secured Party.
7.7 Secured Party May Perform. If Debtor fails to perform any
agreement contained herein, Secured Party may perform, or cause performance of,
such agreement, and the expenses of Secured Party incurred in connection
therewith shall be payable by the Debtor to Secured Party on demand. Secured
Party shall not be obligated to perform or discharge, nor does it hereby
undertake to perform or discharge, any obligation, duty or liability relating
to the Collateral or by reason of this Agreement and Debtor shall perform and
discharge all of its obligations, duties and liabilities with respect to any
Collateral. Debtor hereby agrees to indemnify Secured Party against and hold
it harmless from any and all liability, loss or damage which it may or might
incur by reason of this Agreement, and against and from any and all claims and
demands whatsoever which may be asserted against it by reason of any alleged
obligation or undertaking on its part to perform or discharge any of the terms,
covenants or agreements with respect to any Collateral (except any liability
arising as the result of the Secured Party's willful misconduct). Should
Secured Party incur any such liability, loss or damage relating to the
Collateral or by reason of this Agreement, or in the defense against any such
claims or demands, the amount thereof, including costs, expenses and reasonable
attorneys' fees, together with interest at the default rate set forth in the
Note shall be included in the Secured Indebtedness secured hereby, and Debtor
shall reimburse Secured Party therefor immediately upon demand, and upon the
failure of Debtor to do so, Secured Party may deem the Debtor in default of
this Agreement and exercise all remedies granted hereby.
7.8 Successors and Assigns. Subject to Section 7.6 and the terms
of the Note, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and the successors, representatives, receivers, trustees and
assigns of those parties.
7.9 Section Headings. The section headings appearing in this
Agreement have been inserted for convenience only and shall be given no
substantive meaning or significance whatever in construing the terms and
provisions of this Agreement.
5
<PAGE> 64
7.10 Defined Terms. Terms used in this Agreement which are defined
in the Colorado Commercial Code, as amended, are used with the meanings as
therein defined.
7.11 Applicable Law; Place of Payment. The law governing this
Agreement shall be that of the State of Colorado in force at the date of this
Agreement, and all payments and obligations shall be made and performed in the
City and County of Denver, Colorado, unless otherwise agreed.
7.12 Waiver. Debtor hereby expressly waives any right to require
Secured Party to proceed against any person or to exhaust any security or to
pursue any remedy in Secured Party's power.
7.13 Cumulative Rights. The rights, powers and remedies of Secured
Party under this Agreement shall be in addition to all rights, powers and
remedies given to Secured Party by virtue of any statute or rule of law or the
terms and conditions of the Secured Indebtedness, all of which rights, powers
and remedies shall be cumulative and may be exercised successively or
concurrently without impairing Secured Party's security interest in the
Collateral.
7.14 Waiver. Any forbearance, failure or delay by Secured Party in
exercising any right, power or remedy shall not preclude the further exercise
thereof, and every right, power or remedy of Secured Party shall continue in
full force and effect until such right, power or remedy is specifically waived
in a writing executed by Secured Party.
7.15 Severability. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable, such provision shall be fully severable,
and the remaining provisions of this Agreement shall be in full force and
effect.
7.16 Notices. All notices under this Agreement shall be given as
provided in the Note.
DATED September ____, 1997.
DEBTOR: CONTRACTORS HEATING & SUPPLY, INC.,
- ------ a Texas corporation
By:
---------------------------------------
Alex Trevino, Jr., President
SECURED PARTY: GAMBRAY, INC. (formerly known as
- ------------- Contractors Heating and Supply Company),
a Colorado corporation
By:
---------------------------------------
Daryl G. Brady, President
6
<PAGE> 65
EXHIBIT A
The machinery and equipment listed on Exhibit A-1 along with all
accessions, appurtenances and additions to or substitutes for any of the
foregoing and all products and proceeds of any of the foregoing (including
insurance proceeds), together with all renewals and replacements of any of the
foregoing.
Exhibit A - Page 1
<PAGE> 66
MANUFACTURING EQUIPMENT - 3130 N EL PASO, COLORADO SPRINGS, CO
<TABLE>
<CAPTION>
DESCRIPTION MODEL SERIAL NUMBER
- --------------------------------------------------------- ----- -------------
<S> <C> <C>
AMERICAN 10,000# DE COILER 1000 1942
IOWA PRECISION ECONO SHEAR 60"x16 GA CAP ESLR 6016 S69016
IOWA PRECISION HYDRAULIC LIFT TABLE 60" WIDE 10,000# 179008
IOWA PRECISION SHEET STACKER 60" WIDE lt10ms10 LT9008
REMCO 10 HP AIR COMPRESSOR
NOR 10' AUTO PIPE LINE ROUND & OVAL 3"-14" DIA 26 GA NOR151009
STEEL 10' ROLLING TABLE 48" WIDE
SEGNODE AUTO BENDER MST 1238109
PIPE NESTING TROUGH 10' LONG
W5 SMITH 5HP COMPRESSOR 3 PHASE
DOUBLE END DUCT AIR NOTCHER 96" CAP
FOREST VALLEY DOUBLE HEAD PANEL DUCT MACHINE WITH TOOLING
STEEL ROLLING TABLE 8' LONG 48" WIDE
STEEL STATIONARY TABLE 48" WIDE
ROTO DIE HYDRAULIC 10' BRAKE WITH DIES 80284
STEEL STRAPPING TOOLS WITH STAND
ARROW 30" HAND BRAKE
TENNSMITH 36" HAND ROLL 17548
IOWA PRECISION AUTO 6", 7", 8" ELBOW FORMER W/TOOLING 79412
IOWA PRECISION AUTO BLANKING LINE W/TOOLING 99402
CHICAGO 912 RIVETER W/TOOLING 912SS716
GERRARD AUTO BENDER
48" x 48" STEEL ROLLING WORK TABLE
MAPLEWOOD DOUBLE HEAD BEADING MACHINE 3045CA
IOWA PRECISION COLATCH COLLAR MACHINE W/TOOLING
NOR GANG PUNCH 30" CAP
NOR POWER ROLLER 30' W/CRIMP NORTCR017
LOCKFORMER 24" BANDSAW 24S
SMA ROUND TO OVAL FORMING MACHINE W/TOOLING
MAY RING & CIRCLE SHEAR POWERED 48" CAP 1034
CHICAGO 912 RIVETER W/TOOLING 912S
CHICAGO 912 RIVETER W/TOOLING 912S
8' WORK BENCH W/SHELVES
ELECTRIC HAND SHEAR - PORTABLE
PORTABLE AIR HAMMER W/TOOLS
ELBOW JIGAR 4" THRU 20" DIAMETER 4 PC
NOR DOUBLE HEAD BEADING MACHINE NORH010
NOR SINGLE HEAD BEADING MACHINE NOR513H003
CHICAGO 912 REVETER W/TOOLING 9125
8' WORK BENCH W/SHELVES
LOCKFORMER 24" BAND SAW 24S
BANTOM 48" AIR BRACK W/DIES 4120GF0
CHICAGO 912 REVETER W/TOOLING 912S
CHICAGO 912 REVETER W/TOOLING 912S
IOWA PRECISION COLATCH COLLAR MACHINE W/TOOLING
NOR 30" POWERED GANG PUNCH NOR PCP002
NOR 30" POWERED ROLL W/CRIMP NOR TCR013
LOCKFORMER START COLLAR MACHINE 00694
TENNSMITH 48" BOX AND PAN BREAK
SPOTWELDER
LOCKFORMER SLOCK & DRIVE COMB 8900 13722
NATIONAL 48" AIR SHEER W/GAUGE
LOCKFORMER SINGLE STAGE SLITTER
GARY 48" GANG SLITTER W/SLITTER
CURTIS 7.5 HP COMPRESSOR 220V 3 PHASE
WIRE STORAGE BASKETS WITH WHEELS QTY OF 11
5150A HYSTER FORKLIFT 15000# CAP 5150A
GALBOLETH STEEL DUMPSTERS & SCRAP CONTAINERS
</TABLE>
P1
<PAGE> 67
MANUFACTURING EQUIPMENT - 3130 N EL PASO, COLORADO SPRINGS, CO
<TABLE>
<CAPTION>
DESCRIPTION MODEL SERIAL NUMBER
- ------------------------------------------ ----- -------------
<S> <C> <C>
GALBOLETH STEEL DUMPSTERS & SCRAP CONTAINERS
RICOH FT3213 COPIER WITH STAND
SHARP UX105 FAX W/STAND
EPSON EQUITY PC
NEC PINWRITER PC1200 PRINTER
OFFICE DESK
OFFICE DESK
FILE CABINET
FILE CABINET
WOOD PC COMPUTER CABINET
OFFICE DESK CHAIR
OFFICE DESK CHAIR
IBM COMPUTER TERMINAL W/PRINTER
DYNAMIC AUTO BANDER BM70 13412585
HYSTER 530A FORKLIFT 300# CAP A10D5989L
DELTA DRILL PRESS 17900 W9704
LOCKFORMER PITTSBURGH MACHINE S28463
BANTON 48" AIR BRAKE 4120GFO B9662
CHICAGO 912 RIVETER W/TOOLING 912S 912SS1720
LOCKFORMER 24" BANDSAW 24S 5180
IOWA PRECISIN COLATCH COLLAR MACHINE W/TOOLING
</TABLE>
<PAGE> 68
PATTERNS
PATTERNS ON HAND
CHS MANUFACTURING
3130 N EL PASO, COLORADO SPRINGS, CO
<TABLE>
<S> <C> <C> <C> <C>
S420E A540E6 S666E4 866Y 107TR
S520E A640E6 S644E4 876Y 108TR
S620E A642E6 S662E4 877Y 109TR
2552E A644E6 S668E4 886Y 126TR
S524E A742E6 S664E4 888Y 127TR
S622E A744E6 S742E4 976Y 128TR
S624E A764E6 S862E4 977Y 129TR
S540E T420E A760E4PG 986Y 1210TR
S640E T520E A862E4PG 987Y 148TR
S642E T884E S760EPG 1077Y 1410TR
S644E T522E S862EPG 1086Y 1412TR
S742E T524E S540EPG 1088Y 1610TR
S744E T620E S640EPG 1096Y 1612TR
S844E T622E S660EPG 1097Y 1812TR
S660E T540E S762EPG 101010Y 1614TR
S662E T542E S864EPG 1288Y 1814TR
S664E T640E A640E4PG 1297Y 1816TR
S668E T644E A660E4PG 12106Y 1098Y
S762E T744E A762E4PG 12107Y 1099Y
S764E T660E A864E4PG 12108Y 7DVWS
S864E T662E T540E4PG 121010Y 8DVWS
S884E T664E T640E4PG 121212Y 988Y
S888E 5764E T660E4PG 14127Y
S101010E T864E T864E4PG 141210Y
S141414E A305S 401X 161414Y
S121212E A306S 501X 141010Y
A420E A305E 601X 333T
A520E A306E 601E 444T
A522E S305E 701X 555T
A524E T305E 801X 666T
A620E A307S A560CB 777T
A622E T306E A660CB 888T
A624E S305S S560CB 999T
A540E S306S S660CB 101010T
A542E S307S 433EZ 121212T
A640E T305S 443EZ 141414T
A642E T306S 533EZ 161616T
A644E S306E 543EZ 181818T
A742E A744E6T 544EZ 43TR
A744E A640E6T 553EZ 53TR
A844E A644E6T 643EZ 54TR
A660E A640E6T 644EZ 63TR
A662E A668E6T 653EZ 64TR
A762E S522E4 654EZ 65TR
A764E S624E4 663EZ 74TR
A884E S640E4 763EZ 75TR
A660E6 S660E4 764EZ 76TR
T660E6 S744E4 864EZ 84TR
A664E6 S762E4 874EZ 85TR
A862E6 S884E4 644Y 86TR
A864E6 S764E4 666Y 87TR
A662E6 S888E4 755Y 95TR
A662E6 S844E4 655Y 96TR
A762E6 S864E4 744Y 97TR
A732E4 S540E4 765Y 98TR
T864E6 S642E4 766Y 106TR
</TABLE>
<PAGE> 69
EXHIBIT F
[GUARANTY AGREEMENT]
<PAGE> 70
GUARANTY AGREEMENT
THIS GUARANTY (this "Guaranty") is executed and delivered September
____, 1997, effective as of September 1, 1997, by ACR GROUP, INC., a Texas
corporation (Guarantor"), in favor of GAMBRAY, INC. (formerly CONTRACTORS
HEATING AND SUPPLY COMPANY) a Colorado corporation ("CHS").
RECITALS
A. Guarantor is the sole shareholder of Contractors Heating &
Supply, Inc., a Texas corporation ("Purchaser") formed for the sole purpose of
purchasing substantially all of the assets and assuming substantially all of
the liabilities of CHS under the terms of an Asset Purchase Agreement dated as
of September 8, 1997 (the "Purchase Agreement"). Capitalized terms not defined
herein shall have the meanings set forth in the Purchase Agreement.
B. As an inducement to CHS entering into the Purchase Agreement,
Guarantor has agreed to guarantee the payment and performance by Purchaser of
Purchaser's obligations under the Note, Lease and the leases listed on Exhibit
A hereto (the "Assigned Leases").
AGREEMENT
NOW THEREFORE, in consideration of CHS entering into the Purchase
Agreement and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Guarantor hereby agrees as follows:
1. Guarantor hereby agrees to and does guarantee the full, prompt
and punctual payment of any and all amounts due to CHS and the performance of
all other obligations of Purchaser to CHS under the Note, Lease and Assigned
Leases (the "Guaranteed Obligations") as and when the same become due, whether
at maturity, by acceleration or otherwise. Guarantor agrees that this is a
guaranty of payment and not of collection. This Guaranty is irrevocable and
absolute and if for any reason any amount due CHS under the Note or Lease shall
not be paid when due or Purchaser fails to pay or perform any of the other
Guaranteed Obligations, Guarantor shall pay or perform promptly such Guaranteed
Obligations without further notice or demand to Purchaser or Guarantor.
2. The obligations of Guarantor hereunder are independent of the
obligations of Purchaser and any other guarantor or other person who may become
liable with respect to the Guaranteed Obligations. Guarantor is jointly and
severally liable with Purchaser and any other guarantor for the full and timely
payment and performance of all of the Guaranteed Obligations. Guarantor
expressly agrees that a separate action or actions may be brought and
prosecuted against Guarantor, whether or not any action is brought against
Purchaser, any other guarantor, or any other person for any Guaranteed
Obligations and whether or not Purchaser, any other guarantor, or any other
person is joined in any action against Guarantor. Guarantor further agrees
that CHS shall have no obligation to proceed against any security for the
Obligations prior to enforcing this Guaranty against Guarantor, and that CHS
may pursue or omit to pursue any and all rights and remedies CHS has against
any person or with respect to any security in any order or simultaneously or in
any other manner.
<PAGE> 71
3. Failure by Guarantor to pay or perform any of the Guaranteed
Obligations when due shall constitute a default under this Guaranty. Upon a
default by Guarantor under this Guaranty, CHS shall have all remedies available
at law or in equity. In the event CHS commences any action to enforce its
rights under this Guaranty following a default by Guarantor, CHS shall be
entitled to recover from Guarantor all of CHS's costs and expenses in
connection therewith, including reasonable attorneys' fees and other costs.
4. Guarantor's agreements and obligations under this Guaranty
shall in no way be released, diminished, reduced, impaired or otherwise
affected by extension of time for payment of or any other alteration of the
Guaranteed Obligations, by waiver of any right against Purchaser, by settlement
or compromise of any or all of the Guaranteed Obligations, or by occurrence of
any other event or circumstances which might otherwise constitute a defense
available to, or discharge of, Guarantor.
5. Any sums of money CHS receives from or for the account of
Purchaser (other than regular installment payments or regular rent payments
under the Lease when Purchaser is not in default under any of the Guaranteed
Obligations) may be applied by CHS to reduce any of the Guaranteed Obligations
or any other liability of Purchaser to CHS, as Purchaser in Purchaser's
discretion deems appropriate.
6. This Guaranty shall be governed by the laws of the State of
Colorado (without regard to any conflict- of-law provisions thereof).
7. This Guaranty shall not be changed orally but shall be changed
only by agreement in writing signed by Guarantor and CHS. Any consent with
respect to this Guaranty shall be effective only in the specific instance and
for the specific purpose of which given. No course of dealing between the
parties, no usage of trade and no parol or extrinsic evidence of any nature
shall be used to supplement or modify any of the terms or provisions of this
Guaranty.
8. If any provision of this Guaranty is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this Guaranty shall not be
affected thereby, and this Guaranty shall be liberally construed so as to carry
out the intent of the parties hereto.
9. Guarantor agrees that if any amounts paid to CHS by Purchaser
or any other party liable for payment and satisfaction of the Guaranteed
Obligations (other than Guarantor) are recovered from CHS in any bankruptcy
proceeding, Guarantor shall reimburse CHS immediately on demand for all amounts
so recovered from CHS, together with interest thereon at the default rate under
the Note from the date such amounts are so recovered until repaid in full to
CHS, and for this purpose this Guaranty shall survive payment of the Note or
satisfaction of all obligations under the Lease or Assigned Leases. Without
limiting the foregoing, Guarantor shall pay all costs and expenses incurred by
CHS in connection with any bankruptcy proceeding of Purchaser or any other
party liable for payment and satisfaction of the Guaranteed Obligations,
including attorneys' fees and expenses.
2
<PAGE> 72
10. This Guaranty, together with any papers now or in the future
governing, evidencing, securing or otherwise relating to payment of all or any
part of the Guaranteed Obligations, or any amendments, restatements, renewals,
extensions, rearrangements, increases, expansions, or replacements of them,
embodies the entire agreement and understanding between Guarantor and CHS with
respect to its agreements, consents and understandings relating to such subject
matter. Guarantor acknowledges and agrees that there are no oral agreements
between Guarantor and CHS which have not been incorporated in this Guaranty.
11. This Guaranty shall inure to the benefit of CHS and its
successors and assigns.
ACR GROUP, INC.
By:
-----------------------------
Alex Trevino, Jr.
President
3
<PAGE> 73
EXHIBIT A
1. Lease dated December, 1995 by and between Contractors Heating
and Supply Company, as Tenant, and Rudd Limited Liability Company, as Owner.
2. GMC Truck Lease dated October 11, 1996 with Transwest Trucks,
Inc. assigned to Valley National Financial Services Company.
Exhibit A - Page 1
<PAGE> 74
EXHIBIT G
[SUBORDINATION AGREEMENT AND ASSIGNMENT]
<PAGE> 75
Subordination Agreement and Assignment
THIS AGREEMENT made this ____ day of __________, 1997, from ACR Group,
Inc. and Contractors Heating and Supply, Inc., a Texas corporation (hereinafter
called "Debtor") and Gambray, Inc., formerly known as Contractors Heating and
Supply, Inc., a Colorado corporation (hereinafter called "Creditor"), in favor
of NationsBank of Texas, N.A. (hereinafter called the "Bank");
WHEREAS, Debtor is indebted to the Bank and/or it is contemplated that
Debtor may from time to time in the future become indebted to the Bank for
other and additional sums; and where the term "Indebtedness of Debtor to the
Bank" is used herein, it shall mean all debts and liabilities of Debtor to the
Bank, whether such debts or liabilities may now exist or are hereafter incurred
or arise, and whether the obligation or liability of Debtor thereon be direct,
contingent, primary, secondary, joint, several, joint and several, or otherwise,
and irrespective of the manner in which, or the person or persons in whose
favor such debts or liabilities may at their inception have been, or may
hereafter be created, or the manner in which they may have been or may
hereafter be acquired by the Bank; and
WHEREAS, Debtor is likewise indebted to Creditor in the amount of
$1,200,000.00 as of this date consisting of: a promissory note as of even date
herewith (the "Note") and whereas it is contemplated that Debtor may from time
to time become indebted in other or additional amounts to Creditor and all such
debts and liabilities of Debtor to Creditor other than lease liabilities shall
be affected by this Agreement, whether such debts or liabilities now exist or
are hereafter incurred or arise, and whether the obligation of Debtor thereon
be direct, contingent, primary, secondary, joint, several, joint and several,
or otherwise, and irrespective of whether such debts or liabilities be
evidenced by note, contract, open account, or otherwise, and irrespective of
the person or persons in whose favor such debts or liabilities may at their
inception have been or may hereafter be created, or the manner in which they
have been or may hereafter be acquired by Creditor;
NOW, THEREFORE, to induce the Bank to extend financial accommodation
and credit to Debtor and in consideration of loans which may be simultaneously
or hereafter made by the Bank to Debtor, Debtor and Creditor hereby agree as
follows:
1. Subordination. Subject to the terms of the Addendum, until all
indebtedness of Debtor to the Bank now existing or hereafter incurred, whether
or not represented by negotiable instruments or other writings,and whether or
not originally contracted with the Bank, has been fully paid and satisfied with
interest, liquidated damages, penalties and attorneys' fees (to the extent
Debtor is liable to Bank therefor), Creditor shall not demand or receive from
Debtor any part of the indebtedness now owing by Debtor to Creditor, or that
may hereinafter be due and payable to Creditor by Debtor, or any security
therefor, and Debtor shall not make payment thereof or give security therefor
to Creditor except in conformity with this Agreement; provided, however, that
until the Bank gives written notice to Creditor to the contrary, Creditor may
receive from Debtor and retain (i) current interest as it accrues and becomes
payable on the principal of the debt due to Creditor, and (ii) regularly
scheduled payments of principal. Creditor waives all notice of the acceptance of
this Agreement by the Bank, or of the creation, renewal, extension or accrual
of any obligations of Debtor to the Bank, or of reliance of the Bank upon this
Agreement.
2. Assignment. If at any time while this Agreement is in effect,
any bankruptcy proceedings are filed by or against Debtor or, or a receiver is
appointed for Debtor or any of its property, or an assignment for creditors is
made by Debtor, or Debtor is involved in any insolvency proceedings of any
nature, the Bank shall have the right to file a claim on behalf of Creditor in
all such proceedings, and to collect and receive all payments that may be
declared or become payable on such claim of Creditor in any such proceedings,
and the Bank is hereby irrevocably appointed attorney for Creditor with full
power to act in the name of Creditor for such purpose in all such proceedings.
3. Creditor's Receipts. If prior to the satisfaction of all
indebtedness of Debtor to the Bank, Creditor receives any payment or
security not permitted by this Agreement for or on account of the claims and
demands of Creditor against Debtor, Creditor shall forthwith deliver such
payment or security to the Bank, in precisely the form received, except for
Creditor's endorsement when necessary, for application on account of such
indebtedness of Debtor to the Bank. In such manner as the Bank may elect, and
until so delivered such payment or security shall be held in trust by Creditor
as the property of the Bank. In the event of the failure of Creditor to endorse
any instrument for the payment of money so received by Creditor, the Bank is
irrevocably appointed attorney for Creditor with full power to make such
endorsement and with full power of substitution.
<PAGE> 76
4. Modifications. The Bank may, in its discretion at any time and
from time to time, without further consent of or notice to Creditor, and with
or without valuable consideration, release any person primarily or secondarily
liable upon the indebtedness of Debtor to the Bank or may permit substitutions
or withdrawals of any security or collateral at any time securing the payment
of said indebtedness, or release any such security or collateral, or renew or
extend or accept partial payments upon said indebtedness, or alter, in such
manner as the Bank shall deem proper, the terms of any instrument evidencing or
securing said indebtedness, or any part thereof, without in any manner
impairing its rights hereunder. It shall not be necessary for the Bank, in
order to enforce its rights hereunder, to institute suit or exhaust its
remedies against any person obligated to pay said indebtedness. In the event
that Creditor is an individual, all rights and privileges accorded the Bank in
this Section may be exercised after as well as before the death of
Creditor.
5. Representations and Covenants. Creditor and Debtor represent that
there is no defense, offset, or counterclaim to the amount now due to Creditor
from Debtor, and that such amount is not represented by any notes or other
negotiable instruments, or if represented by notes or other negotiable
instruments, that they will be endorsed with proper notice of this Agreement. At
no time hereinafter will any part of any amount due to Creditor from Debtor be
represented by any notes or other negotiable instruments or other writings,
except to the extent now so represented, or except such notes, other negotiable
instruments, or other writings as the Bank shall request Debtor to execute for
the purpose of evidencing such indebtedness or any part thereof. Creditor shall
not, without the prior written consent of the Bank, transfer or dispose of any
claims or demands of Creditor against Debtor. Notwithstanding any such
disposition, if made without the consent of the Bank, any claim so transferred
or disposed of shall continue to be subject to the terms of this Agreement in
all respects.
6. Books. Debtor will render to the Bank upon demand and from time
to time a statement of the account of Creditor with Debtor, and will give the
Bank access from time to time to the books of Debtor in order that the Bank may
make a full examination of the state of accounts due to Creditor by Debtor.
7. Default. In the event of a breach by either Creditor or Debtor
of any of the terms of this Agreement uncured after ten days notice, all
indebtedness of Debtor to the Bank shall, at the option of the Bank to be
exercised in its discretion, without demand upon either Creditor or Debtor,
become immediately due and payable.
8. Waiver. No waiver shall be deemed to have been made by the Bank
of any of its rights hereunder unless such waiver is in writing, signed by the
Bank, and then only with respect to the specific instance involved, and shall
in no way impair or offset the rights of the Bank, or the obligations of Debtor
and Creditor, in any other respect or at any other time. The rights of the Bank
hereunder are cumulative of all other rights of the Bank under any other
agreement or by law.
9. Successors. The terms "Debtor" and "Creditor" as used in this
Agreement shall include the individuals, associations, partnerships, or
corporations named herein, and any successor individuals, associations,
partnerships, or corporations to which all or substantially all of the business
or assets of Debtor or Creditor shall be transferred; and in the case of a
partnership any new partnership which shall be created by reason of the
admission of any new partner or partners, or the dissolution of the existing
partnership by the death, resignation, or other withdrawal of a partner, and in
the case of a corporation, any other corporation into or with which Debtor or
Creditor shall be merged, consolidated, reorganized or absorbed.
10. Other Documents. Debtor and Creditor each agree to execute such
further instruments, documents and agreements as may be, in the opinion of the
Bank, from time to time, reasonably necessary or appropriate to fully carry out
the intent and purpose of this Agreement.
11. Benefit. This Agreement shall be binding upon each of Debtor
and Creditor, and their respective heirs, legal representatives, successors and
assigns, and shall inure to the benefit of the Bank, and its successors and
assigns.
12. Situs. This Agreement has been executed and delivered in the
State of Texas, shall be performable in Dallas, Dallas County, Texas, and shall
be governed by and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF Creditor and Debtor have executed this Agreement as
of the date referenced above.
CREDITOR:
------------------------------------
By:
---------------------------------
Title:
------------------------------
Debtor: Debtor:
ACR GROUP, INC. Contractors, Heating & Supply, Inc.
------------------------------------
By: By:
------------------------------------ ---------------------------------
Title: Alex Trevino, Jr., President Title: Alex Trevino, Jr., President
--------------------------------- ------------------------------
<PAGE> 77
ADDENDUM TO SUBORDINATION AGREEMENT AND ASSIGNMENT
This ADDENDUM TO SUBORDINATION AGREEMENT AND ASSIGNMENT (this
"Addendum") dated as of September ___, 1997 is executed by and among ACR Group,
Inc. ("Debtor"), Contractors Heating & Supply, Inc. ("Creditor") and
NationsBank of Texas, N.A. ("Bank").
WHEREAS, Debtor, Creditor and Bank have executed that certain
Subordination Agreement and Assignment of even date herewith (as amended,
modified, or supplemented from time to time, the "Subordination Agreement"),
pursuant to which Creditor has agreed to subordinate certain indebtedness of
Debtor to Creditor pursuant to the terms and conditions set forth therein;
WHEREAS, Debtor, Creditor and Bank desire for the provisions of this
Addendum to be a part of the Subordination Agreement for all purposes;
NOW THEREFORE, the parties hereto agree as follows:
1. Notwithstanding anything contained in the Subordination
Agreement to the contrary, Creditor may, following a default under the Note or
the Security Agreement between Debtor and Creditors relating thereto and, after
thirty (30) days prior written notice to Bank, (i) exercise its rights and
remedies in respect of all collateral securing the indebtedness owing by Debtor
to Creditor described on Exhibit A attached hereto, including retention of the
collateral or the payments or proceeds therefrom, and (ii) exercise its rights
against Debtor under any lease of real or personal property between Debtor, as
lessee, and Creditor, as lessor.
2. Except for the provisions regarding notice in paragraph 1 of
this Addendum, the Subordination Agreement shall not be applicable to the Net
Lease between Debtor and Creditor as of even date herewith.
3. The assignment under paragraph 2 of the Subordination Agreement
shall be effective only until the indebtedness of Debtor to the Bank is fully
paid and satisfied and shall not affect Creditor's rights under paragraph 1 of
this Addendum or entitle the Bank to collect or receive any payments or
proceeds from Creditor's exercise of its rights or remedies in the collateral
described on Exhibit A attached hereto.
4. The provisions of this Addendum are hereby incorporated by
reference and made a part of the Subordination Agreement.
THIS ADDENDUM, THE SUBORDINATION AGREEMENT AND ANY OTHER WRITTEN
DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE
ARE NOT UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[Balance of this page intentionally left blank.]
<PAGE> 78
EXECUTED as of the date referenced above.
DEBTOR: DEBTOR:
ACR GROUP, INC. Contractors Heating & Supply, Inc.
By: By:
---------------------------------- ----------------------------------
Name: Alex Trevino, Jr. Name: Alex Trevino, Jr.
Title: President Title: President
CREDITOR
-------------------------------------
By:
----------------------------------
Name:
Title:
AGREED AND ACCEPTED:
BANK:
NATIONSBANK OF TEXAS, N.A.
By:
----------------------------------------
Name:
Title:
-2-
<PAGE> 79
EXHIBIT H
[ALLOCATION OF PURCHASE PRICE]
<PAGE> 80
EXHIBIT H
PURCHASE PRICE ALLOCATION
<TABLE>
<S> <C>
Leasehold Improvements (Glenwood) $ 20,000
Machinery, Equipment, Vehicles, Office
Equipment and Computer Equipment 645,465
Other Tangible Assets Net Book Value
Intangible Assets Balance of Price
</TABLE>
See attached Acquisition Balance Sheet for Net Book Value of Tangible Assets.
<PAGE> 81
CONTRACTORS HEATING & SUPPLY, INC.
ACQUISITION BALANCE SHEET
<TABLE>
<CAPTION>
Post-
8/25/97 GAAP Seller Final Acquisition closing
ASSETS per books adjust. retained 8/25/97 entries 8/26/97
------ --------- -------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and investments 1,448,462 783,911 664,551 664,551
A/R - trade 1,826,907 1,826,907 1,826,907
Less allowance for uncoll. A/R (65,000) (65,000) (65,000)
Other receivables 10,213 10,213 10,213
Inventory 2,238,543 (58,000) 2,180,543 2,180,543
Prepaid expenses 4,436 4,436 4,436
Officer life insurance 173,685 173,685 0 0
--------- ------- --------- --------- --------- ---------
Total current assets 5,637,246 (58,000) 957,596 4,621,650 0 4,621,650
--------- ------- --------- --------- --------- ---------
Land 217,636 217,636 0 0
Buildings 2,761,844 2,717,913 43,931 (23,931) 20,000
Accumulated depreciation (850,223) (825,817) (24,406) 24,406 -
Machinery and equipment 770,149 770,149 (352,984) 417,165
Accumulated depreciation (630,667) (630,667) 630,667 0
Office equipment/furniture 75,906 75,906 (55,906) 20,000
Accumulated depreciation (67,779) (67,779) 67,779 0
Autos and trucks 335,882 335,882 (155,082) 180,800
Accumulated depreciation (218,028) (218,028) 218,028 0
Computer equipment 99,034 99,034 (71,534) 27,500
Accumulated depreciation (92,665) (92,665) 92,665 0
Fixed assets - other 171,774 171,774 (171,774) 0
--------- ------- --------- --------- --------- ---------
Total fixed assets 2,572,863 0 2,109,732 463,131 202,334 665,465
--------- ------- --------- --------- --------- ---------
Goodwill 100,000 100,000 0 2,426,693 2,426,693
--------- ------- --------- --------- --------- ---------
TOTAL ASSETS 8,310,109 (58,000) 3,167,328 5,084,781 2,629,027 7,713,808
========= ======= ========= ========= ========= =========
</TABLE>
<PAGE> 82
CONTRACTORS HEATING & SUPPLY, INC.
ACQUISITION BALANCE SHEET
<TABLE>
<CAPTION>
Post-
8/25/97 GAAP Seller Final Acquisition closing
LIABILITIES AND S/H EQUITY per books adjust. retained 8/25/97 entries 8/26/97
- -------------------------- --------- ------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accounts payable - trade 1,446,646 1,446,646 1,446,646
Accrued expense - trade 95 95 95
Accrued bonuses 86,779 86,779 86,779
Accrued commissions 7,111 7,111 7,111
Accrued vacation 14,443 14,443 14,443
Accrued customer trips 140,541 140,541 140,541
Accrued insurance 3,202 3,202 3,202
Accrued customer rebate 3,806 3,806 3,806
Deposit - ACRG purchase 125,000 125,000 0 0
Deposit - Armstrong litigation 73,219 73,219 0 0
Accrued personal property taxes 6,459 6,459 6,459
Accrued real estate taxes 18,699 18,699 18,699
Accrued sales taxes 41,983 41,983 41,983
Accrued payroll taxes 1,106 1,106 1,106
Accrued workers compensation 16,623 16,623 16,623
Current maturities - Gambray note 0 0 400,000 400,000
St. James Capital - broker fee 0 0 0
--------- ------ --------- --------- --------- ---------
Total current liabilities 1,964,158 21,554 198,219 1,787,493 400,000 2,187,493
--------- ------ --------- --------- --------- ---------
Long-term debt 1,157,102 1,157,102 0 0
Note - Gambray 0 800,000 800,000
Note - NationsBank 0 4,501,315 4,501,315
ACRG acquisition costs 0 100,000 100,000
ACRG purchase deposit 0 125,000 125,000
--------- ------ --------- --------- --------- ---------
Total liabilities 3,121,260 21,554 1,355,321 1,787,493 5,926,315 7,713,808
--------- ------ --------- --------- --------- ---------
Shareholders' equity
Common stock 793,845 793,845 (793,845) 0
Retained earnings 4,395,004 (79,554) 1,812,007 2,503,443 (2,503,443) 0
Ret earnings - goodwill 0 0
--------- ------ --------- --------- --------- ---------
Total shareholders' equity 5,188,849 (79,554) 1,812,007 3,297,288 (3,297,288) 0
--------- ------ --------- --------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 8,310,109 (58,000) 3,167,328 5,084,781 2,629,027 7,713,808
========= ======= ========= ========= ========= =========
</TABLE>
<PAGE> 83
EXHIBIT I
[EMPLOYMENT AGREEMENT]
<PAGE> 84
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is
entered into by and between Contractors Heating & Supply, Inc., a Texas
corporation having its principal place of business at 70 Santa Fe Drive,
Denver, Colorado 80223 (the "Company"), and Brad Brady ("Employee"), who
resides at 7113 S. Owens St., Littleton, Colorado 80127. Employee acknowledges
and agrees that the Company has required that Employee enter into this
Agreement and agree to the terms and provisions hereof, including in particular
Articles III and IV hereof, as a condition to the Company's employment of
Employee.
ARTICLE I
Employee agrees to be employed by the Company, and the Company agrees
to employ Employee, as President of the Company for the purpose of performance
by and on behalf of the Company of such services commensurate with that
position as may be requested from time to time by the board of directors of the
Company. At all times while employed by the Company, Employee shall perform
his employment duties, and on a full-time basis, serve and promote the business
interests of the Company, in good faith, with fidelity and loyalty, with his
full, best and dedicated efforts, in compliance with all material rules,
policies, practices, directives and procedures of the Company which are
communicated to Employee and are consistent with those applicable to other
executives of the Consolidated Group (as defined below).
ARTICLE II
The initial term of this Agreement shall begin on the date hereof and
terminate on February 28, 2002, provided that a party seeking to terminate this
Agreement shall have given the other party not less than sixty (60) days'
notice of such termination. Absent such notice of termination, at the end of
the initial term of this Agreement, this Agreement shall be automatically
renewed for additional one-year terms each successive year until such year as
one party gives notice of termination to the other party not less than sixty
(60) days prior to expiration of that one-year term.
During Employee's employment hereunder, the Company shall pay to
Employee the compensation and benefits set forth on Exhibit A, attached hereto
and incorporated herein for all purposes. Except as expressly set forth
herein, Employee is not entitled to severance compensation benefits upon the
termination of his employment with the Company (whether voluntary or
involuntary).
<PAGE> 85
The employment, compensation and benefit arrangements hereunder shall
be terminated upon the occurrence of the first to occur of any of the following
events:
(1) The expiration of the term of this Agreement; or
(2) Employee's death, or such physical or mental
disability or incapacity of Employee which, in the reasonable opinion
of the Company, causes Employee to be unable to effectively perform
his duties hereunder for a continuous period of one hundred eighty
(180) days, in either of which events all unaccrued compensation and
benefits payable pursuant to the terms hereof shall cease; or
(3) Written notice of dismissal with Cause (as
hereinafter defined) by the Company, given to Employee at any time and
effective as stated in such notice, in which event all unaccrued
compensation and benefits payable pursuant to the terms hereof shall
cease upon such dismissal; or
(4) Upon mutual agreement of the parties hereto in
writing.
Termination for "Cause" is defined as termination for any of the
following reasons:
(a) If Employee has performed any of his duties under
this Agreement in a grossly negligent manner, breached any material
provision of this Agreement and such breach is not cured within thirty
(30) days after written notice from the Company specifying the breach,
or violated any statutory or common law duty of loyalty to the
Company;
(b) If Employee has engaged in malfeasance, theft from
the Company, embezzlement or is convicted of a felony;
(c) If Employee has engaged in dishonesty, fraud or
willful disloyalty with respect to the assets or business of the
Company or matters affecting the employment relationship;
(d) If the Company shall fail to attain at least seventy
percent (70%) of the aggregate Forecast Income (as defined in Exhibit
A) for any period of two consecutive fiscal years during the term of
this Agreement and such failure is not due to the lack of adequate
debt or equity financing necessary to achieve the Forecast Income.
2
<PAGE> 86
On any voluntary termination of this Agreement by Employee, or
pursuant to the preceding paragraphs 2, 3 and 4 hereinabove, other than as of
the end of the Company's fiscal year, Employee shall not be entitled to any
bonus for such partial fiscal year. In addition, the Company is excused from
performing its compensation obligations to Employee for so long as, and to the
extent that, Employee is receiving disability benefits under a disability
insurance policy maintained by the Company. Upon a voluntary termination of
this Agreement by Employee or a termination of Employee's employment for Cause
by the Company, all future compensation to which Employee would otherwise be
entitled and all future benefits for which Employee would otherwise be eligible
shall cease and terminate as of the date of termination (except as may
otherwise be required by law).
In the event that the employment of Employee hereunder is terminated
by the Company other than for Cause, Employee shall be entitled to receive
payments of Base Salary (as provided in Exhibit A hereto) only, payable on a
periodic basis consistent with the payroll practices of the Company through the
remainder of the term of this Agreement (it being understood and agreed that
such termination of employment shall also constitute notice of termination to
Employee, as hereinabove provided, to be effective at the end of the term of
employment then in effect). The Company shall be entitled to reduce the amount
of compensation to be paid to Employee pursuant to the provisions of the
preceding sentence by an amount equal to the Base Salary paid to Employee
pursuant to any subsequent employment which may be entered into by Employee.
Employee's rights pursuant to the provisions of the second preceding sentence
shall be Employee's sole and exclusive rights against the Company or its
affiliates, and the Company's and its affiliates' sole and exclusive liability
to Employee under this Agreement, in contract, tort, or otherwise, for any
termination of Employee's employment hereunder other than for Cause.
ARTICLE III
Employee recognizes and agrees that the business of the Company and
its business interests require a confidential relationship between it and its
employees and the fullest practical protection and confidential treatment of
its trade secrets, trade practices, prospects, transactions, customers and
other knowledge of the business or financial affairs of the Company that will
be or have been conceived, developed or learned by Employee during Employee's
course of employment with the Company. Accordingly, Employee agrees that
during Employee's term of employment with the Company and during the applicable
period of the noncompetition provision described in Article IV hereof, Employee
will:
(1) Keep secret and confidential all such information,
trade secrets, trade practices, prospects, transactions, customer
lists, and business practices of the Company (written or unwritten),
and Employee shall not divulge, disclose or reveal for any reason or
in any manner to any person who is not an officer, director or
employee of either the Company, ACR Group, Inc., or any other direct
or indirect subsidiary of ACR Group, Inc. (collectively the
"Consolidated Group") any of the foregoing information, including
3
<PAGE> 87
the following: (a) information identifying or tending to identify any
of the customers, suppliers or employees of the Company or any member
of the Consolidated Group; (b) information concerning the intellectual
property of the Company or any other member of the Consolidated Group,
including all patents, trademarks, trade names, service marks and
copyrighted materials; and all ideas, designs, methods, concepts,
advertising and promotional materials, and computer programs, software
and source codes, whether or not protected under any law; and (c)
information pertaining to the plans, products, services, processes,
prospects, procedures, techniques, and financial statements, forecasts
and projections of the Company or any other member of the Consolidated
Group; but excluding information that (i) has been disclosed by the
Company or any other member of the Consolidated Group to the public or
as may have been required by law, or by a court of competent
jurisdiction, or to respond to a valid inquiry by a governmental
authority, or (ii) has been received by Employee from a third party
without breaching an obligation owed to the Company, or (iii) has been
disclosed to a third party by the Company without similar restriction;
and
(2) Not use or aid others in using, directly or
indirectly, the same in competition with the Company, unless required
by a valid order of a court or other governmental authority of
competent jurisdiction; and
(3) Other than on behalf of the Company's interests,
Employee shall not (a) offer, induce, solicit, influence, or attempt
to influence any employee of the Company or any other member of the
Consolidated Group to terminate his or her employment for the purpose
of working for a competitor of the Company or any other member of the
Consolidated Group; (b) influence or attempt to influence any agent,
customer or supplier who has a business relationship with the Company
or any other member of the Consolidated Group to cease or adversely
alter that business relationship; or (c) contact, solicit or do
business with any person who is, or has been at any time during the
two years preceding the effective date of Employee's termination of
employment with the Company, a customer of the Company or any other
member of the Consolidated Group, for the purpose of diverting,
soliciting or accepting any business in competition with the Company
or any other member of the Consolidated Group.
In addition, after ceasing for any reason to be employed by the
Company, Employee shall not retain or remove, without the Company's advance
written consent, any list, data, book, record, manual, drawing, document,
schedule, source code, specification, computer tape, program, diskette or
software, or other written or recorded information pertaining to the business
and financial affairs of the Company or any other member of the Consolidated
Group, except for items that are strictly personal (such as tax forms, payroll
slips, and Employee's copy of this Agreement).
4
<PAGE> 88
Employee further agrees that all inventions, ideas, plans, prospects
or processes or other results of the efforts of Employee's employment by the
Company which are conceived, invented or developed, in whole or in part, by or
with the assistance of Employee during Employee's employment with the Company,
shall be the sole and exclusive property of the Company, and Employee shall,
upon request from the Company at any time, execute such confirmatory
assignments of the same or similar documents in favor of the Company.
ARTICLE IV
In consideration of the compensation payable to Employee hereunder,
during the term of this Agreement and for a period of one (1) year after
termination of this Agreement by either Employee or the Company, the Employee
will not, within a one hundred (100) mile radius of either Denver, Colorado or
Albuquerque, New Mexico, directly or indirectly, engage in any business, or
become affiliated as an agent, advisor, partner, officer, director, employee,
proprietor, consultant, stockholder or independent contractor of any business
that competes with any business in which the Company has engaged at any time
during Employee's employment hereunder or engages in at the time of Employee's
employment with the Company. The provisions of the preceding sentence shall
not be applicable if Employee's employment hereunder is terminated by the
Company without Cause. This restriction applies to any passive investment in
securities of any corporation or other business organization, unless the
Employee's equity ownership is less than 1%. Employee further agrees that
during his term of employment hereunder, he will devote full business time and
best efforts to the business and affairs of the Company.
Employee makes the preceding covenants in consideration for, and as a
necessary condition of, his employment by the Company. Employee's obligations
to the Company under this section are independent of any obligation of the
Company or any other member of the Consolidated Group to Employee (including
any obligation under this Agreement or any other agreement between Employee and
the Company or any obligation that otherwise derives arises from any aspect of
the employment relationship) and are not subject to any set-off, defense,
deduction or counterclaim based on any claim that Employee may have against the
Company or any other member of the Consolidated Group. The restrictive
covenants of Employee set forth in this section will survive the termination of
this Agreement for the periods specified above and are assignable by the
Company to any assignee or successor in interest to its business.
Employee expressly acknowledges that the Company conducts business
throughout the areas within a one hundred (100) mile radius of both Denver,
Colorado and Albuquerque, New Mexico, and he stipulates that the time and area
restrictions of the foregoing obligations do not unduly oppress the Employee's
future employment opportunities. In addition, Employee acknowledges that the
restrictions set forth in Articles III and IV are reasonable limitations
necessary to protect the legitimate business interests of the Company and the
Consolidated Group in guarding the trade secrets, preserving the goodwill of
its customers and business, preventing solicitation of its existing customers,
obtaining the benefit of unique employee training and
5
<PAGE> 89
education, and preventing unauthorized use of its proprietary or confidential
business lists, records and information.
The duration of every obligation set forth above will be extended by
any period of time during which Employee is in breach of the obligation. To
the extent that the duration, geographical area, or scope of activity of any of
the preceding restrictions would cause them to be unenforceable in a particular
jurisdiction, the restrictions automatically will be reformed for purposes of
enforcement in that jurisdiction to a duration, geographical area, or scope of
activity that is valid and enforceable in that jurisdiction. Reformation of a
restriction to validate its enforcement in any particular jurisdiction,
however, will not affect the enforcement of the restriction as stated in any
other jurisdiction in which it is enforceable as stated. Also, the invalidity
of a restriction in a particular jurisdiction will not affect the validity or
enforcement of the restriction in another jurisdiction where it is otherwise
valid.
ARTICLE V
If Employee becomes indebted to the Company for any reason during the
term of his employment, the Company may (but is not obligated to) setoff and
collect any amount due the Company from Employee out of any compensation or
expense reimbursement that it owes to Employee.
Employee stipulates that a breach by him of any of the restrictive
covenants set forth in Articles III and IV of this Agreement will diminish the
value of the Company and the Consolidated Group and will cause irreparable and
continuing injury to the Company and the Consolidated Group for which an
adequate legal remedy will not exist. Accordingly, Employee stipulates that if
he breaches any restrictive covenant set forth in Article III or IV of this
Agreement, the Company will not be obligated to pay to Employee any remaining
compensation specified in this Agreement and, without limiting or excluding any
other available remedy, the Company and every other member of the Consolidated
Group which is affected by the breach will be entitled to the following
remedies: (a) the entry by a court having jurisdiction of an order granting
specific performance or temporary injunctive relief, upon the posting of a bond
of $1,500 and the filing with the court of an appropriate pleading and
affidavit specifying each obligation breached by Employee and adequate proof
(as determined by the court) that Employee has breached the covenant, but
without proof of actual monetary damage; (b) if a court having jurisdiction
determines for any reason that the Company or other member of the Consolidated
Group is not entitled to an injunction or specific performance, the recovery
from Employee of all consequential damages attributable to his breach of the
restrictive covenant and all profit, remuneration, or other consideration that
Employee gains from breaching the restrictive covenant; and (c) reimbursement
from Employee of all costs incurred by the Company and every other member of
the Consolidated Group in enforcing the restrictive covenant or otherwise
defending or prosecuting any legal proceeding arising out of the restrictive
covenant, if the Company or other member of the Consolidated Group is the
prevailing party. The Company may exercise any of the foregoing remedies
concurrently, independently, or successively.
6
<PAGE> 90
In the event any provisions hereof shall be modified or held
ineffective by any Court in any respect, such adjudication shall not invalidate
or render ineffective the balance of the provisions hereof, and the provisions
hereof shall be enforced to the maximum extent allowed by law. This Agreement
shall be governed by the laws of the State of Colorado and shall be enforceable
in the City and County of Denver, Colorado. The Company may assign this
Agreement (including the restrictive covenants set forth in Articles III and
IV) to anyone who succeeds to the Company's business pursuant to a merger of
purchase of all or substantially all of the Company's assets. The members of
the Consolidated Group are third-party beneficiaries of Employee's obligations
under Articles III and IV, and those obligations are enforceable by them to the
same extent as if they were parties to this Agreement.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and personal
representatives. The parties hereto have read the terms and conditions of this
Agreement before signing the same, and hereby agree that no statement,
agreement or understanding, whether oral or written, not contained herein will
be recognized or enforced. This Agreement may not be amended except by a
written agreement executed by the Company and Employee which makes specific
reference to this Agreement.
Any notice required or desired to be given under this Agreement shall
be in writing and shall be deemed given only if and when (i) personally
delivered, or (ii) sent by certified mail, addressed in each case as follows:
If to the Company: Contractors Heating & Supply, Inc.
----------------- c/o ACR Group, Inc.
3200 Wilcrest, Suite 440
Houston, Texas 77042
Attention: Alex Trevino, Jr.
If to the Employee: Brad Brady
------------------ 7113 S. Owens St.
Littleton, Colorado 80127
The Employee may change the address for notice set forth above by
giving notice in writing, stating the new address, to the Company. The Company
may change the address for notice set forth above by giving similar notice to
the Employee.
In the event that either party commences any legal action to enforce
its rights under this Agreement, the prevailing party in such action shall be
entitled to recover all of its costs and expenses in connection therewith,
including reasonable attorneys' fees.
7
<PAGE> 91
EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, THAT
HE HAS BEEN GIVEN SUFFICIENT OPPORTUNITY TO CONSULT A LAWYER OF HIS OWN
CHOOSING AND TO ASK QUESTIONS AND RECEIVE SATISFACTORY ANSWERS REGARDING THIS
AGREEMENT, THAT HE UNDERSTANDS HIS RIGHTS AND OBLIGATIONS UNDER IT, AND THAT HE
HAS SIGNED IT OF HIS OWN FREE WILL AND VOLITION.
IN WITNESS WHEREOF, the undersigned have set their hands effective
as of the ______________ day of September, 1997.
CONTRACTORS HEATING & SUPPLY,
INC. ("Company")
By:
-------------------------------
Alex Trevino, Jr., President
----------------------------------
Brad Brady ("Employee")
8
<PAGE> 92
EXHIBIT A
1. As used in this Exhibit A, the following terms shall have the
following meanings:
"Net Income" shall mean net income of the Company for a fiscal year
determined in accordance with generally accepted accounting
principles, plus (i) amortization of intangible costs, (ii) amounts
----
charged by ACR Group, Inc. (parent of the Company) ("ACRG") to the
Company for interest and management fees, and (iii) state and federal
income taxes. In addition, in determining Net Income, all accounts
receivable that are unpaid more than one hundred and twenty (120) days
after the invoice date will be reserved as uncollectible, unless,
pursuant to a written agreement or court order, the debtor on such
account receivable is paying the Company a stated amount on a regular
basis and such debtor is in compliance with the terms of such
agreement or order.
"Forecast Income" shall mean the Net Income of the Company forecast
for a fiscal year as approved by the Company's Board of Directors.
"Excess Income" shall mean the excess of Net Income over Forecast
Income for a full fiscal year.
2. The Company shall pay to Employee a salary ("Base Salary") of at
least $100,000.00 per annum payable in accordance with the Company's
regular payroll practices. The Board of Directors of the Company may
increase, but not decrease, Base Salary from time to time.
3. The Company shall pay to Employee for each fiscal year during the
term of this Agreement a bonus ("Bonus") equal to twenty percent (20%)
of Excess Income. Bonus payments shall be paid to Employee on or
before the later of (i) ninety (90) days after the end of the
applicable fiscal year of the Company, or (ii) fifteen (15) days after
completion of each annual independent audit of ACR Group, Inc.
4. The Company shall provide to Employee a vehicle for use in connection
with the business of the Company. The Company shall provide all
insurance coverage and repairs and maintenance for such vehicle and
shall reimburse Employee for all operating costs of the vehicle.
Employee acknowledges that the Company may report all or a portion of
the cost of the use of, insurance for and operating costs of, the
vehicle as taxable income to Employee in accordance with applicable
regulations of the Internal Revenue Service.
5. The Company shall pay the cost of Employee's membership dues in a
country club designated by Employee.
(continued)
<PAGE> 93
EXHIBIT A (CONTINUED)
6. The Company shall reimburse Employee for all authorized expenses
incurred or paid by Employee in connection with the performance of
Employee's services under this Agreement upon presentation of expense
statements or vouchers and such other supporting information as the
Company may from time to time require or request.
7. Employee shall be included in the group of employees of ACRG and its
subsidiaries which is recommended by ACRG management to the Stock
Option Committee to receive options to purchase ACRG common stock
pursuant to the 1996 Stock Option Plan of ACR Group, Inc.
8. The Company shall provide to Employee all other benefits which are
generally available to other employees of the Company, which may
include medical and dental insurance, disability insurance, life
insurance, and 401(k) contributions. In the event that the Company,
at some future time, has no group medical insurance coverage, the
Company will reimburse Employee for the cost of insurance coverage for
Employee comparable to the insurance coverage now maintained by the
Company.
<PAGE> 94
EXHIBIT J
[CONSULTING AGREEMENT]
<PAGE> 95
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into effective
as of the ____ day of September, 1997, by and among ACR GROUP, INC., a Texas
corporation ("ACRG"), CONTRACTORS HEATING & SUPPLY, INC., a Texas corporation
and wholly-owned subsidiary of ACRG (the "Company"), and DARYL G. BRADY
("Brady").
W I T N E S S E T H:
WHEREAS, ACRG, the Company and Contractors Heating and Supply Company
are parties to that certain Asset Purchase Agreement dated effective as of
September 8, 1997 (the "Purchase Agreement");
WHEREAS, ACRG, the Company and Brady each desire, subject to the
terms, conditions, and provisions hereof, that the Company retain Brady as a
consultant and independent contractor, in connection with the operation of the
Company's business.
NOW, THEREFORE, in consideration of the premises and in consideration
of the Sale and of the mutual covenants and agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, ACRG, the Company and Brady do hereby covenant and agree
as follows:
SECTION I
ENGAGEMENT PROVISIONS
The Company hereby engages and retains Brady as a consultant and
independent contractor to the Company for a period of one (1) year from the
date of this Agreement. In such capacity, Brady shall make available to the
Company his services on a consulting basis, in Denver and Colorado Springs,
Colorado, (i) on a full-time basis (up to 40 hours per week unless otherwise
agreed by the Company and Brady), at the request of the Company, during the
ninety (90) day period from the date of this Agreement; and (ii) on a part-time
basis (up to 20 hours per week unless otherwise agreed by the Company and
Brady) as requested by the Company, for the period thereafter to the one (1)
year anniversary date of this Agreement. Brady hereby accepts and agrees to
such engagement, subject to the general supervision and pursuant to the orders,
advice and direction of proper officers of the Company.
<PAGE> 96
SECTION II
BEST EFFORTS
Brady covenants and agrees that he will faithfully, industriously, and
to the best of his ability, experience, and talents, perform all of the duties
that may be required of and from him pursuant to the express terms hereof.
SECTION III
COMPENSATION
A. For Brady's services hereunder, the Company shall pay Brady
$8,333.33 per month (prorated for partial months) payable on the effective date
of this Agreement and on the first day of each month thereafter during the term
of this Agreement.
B. Additionally, the Company shall reimburse Brady for all
reasonably necessary expenses, if any, incurred by Brady while performing
services pursuant to the terms and provisions hereof. Major expenses such as
travel must be authorized in advance by the Company. Payments shall be made
within ten (10) days of receipt by the Company of vouchers and receipts to
support the expenses.
SECTION IV
CONFIDENTIALITY
Brady recognizes and agrees that the business of the Company and its
business interests require a confidential relationship between it and its
consultants and the fullest practical protection and confidential treatment of
its trade secrets, proprietary trade practices, and other proprietary
information regarding the business or financial affairs of the Company.
Accordingly, Brady agrees that during the term of this Agreement and at all
times thereafter he will:
(1) Keep secret and confidential all such confidential
information, trade secrets, proprietary trade practices, customer
lists and proprietary business practices of the Company (written or
unwritten), and Brady shall not divulge, disclose or reveal for any
reason or in any manner to any person who is not an officer, director
or employee of either the Company, ACRG, or any other direct or
indirect subsidiary of ACRG (collectively the "Consolidated Group")
any of the foregoing information, including, without limitation, the
following: (a) confidential information identifying or tending to
identify any of the customers, suppliers or employees of the Company
or any member
2
<PAGE> 97
of the Consolidated Group; (b) confidential information concerning the
intellectual property of the Company or any other member of the
Consolidated Group, including all patents, trademarks, trade names,
service marks and copyrighted materials; and all ideas, designs,
methods, concepts, advertising and promotional materials, and computer
programs, software and source codes, whether or not protected under
any law; and (c) confidential and proprietary information pertaining
to the plans, products, services, processes, prospects, procedures,
techniques, and financial statements, forecasts and projections of the
Company or any other member of the Consolidated Group; but excluding
information (i) that has been disclosed by the Company or any other
member of the Consolidated Group to the public or as may have been
required by law or by a court of competent jurisdiction or in
connection with a legal proceeding, or to respond to a valid inquiry
by a governmental authority, (ii) that has been received by Brady from
a third party without breaching an obligation owed to the Company or
(iii) that is known in the trade or industry or that has been
disclosed to a third party by the Company without similar restriction;
and
(2) Not use or aid others in using, directly or
indirectly, the same in competition with the Company in violation of
Section V hereof, unless required by a valid order of a court or other
governmental authority of competent jurisdiction; and
(3) Other than on behalf of the Company's interests,
Brady shall not (a) offer, induce, solicit, influence, or attempt to
influence any employee of the Company or any other member of the
Consolidated Group to terminate his or her employment for the purpose
of working for a competitor of the Company or any other member of the
Consolidated Group; (b) influence or attempt to influence any agent,
customer or supplier who has a business relationship with the Company
or any other member of the Consolidated Group to cease or adversely
alter that business relationship; or (c) contact, solicit or do
business with any person who is, or has been at any time during the
two years preceding the termination of this Agreement, a customer of
the Company or any other member of the Consolidated Group, for the
purpose of diverting, soliciting or accepting any business in
competition with the Company or any other member of the Consolidated
Group.
In addition, upon termination of this Agreement for any reason, Brady
shall not retain or remove, without the Company's advance written consent, any
list, data, book, record, manual, drawing, document, schedule, source code,
specification, computer tape, program, diskette or software, or other written
or recorded information pertaining to the business and financial affairs of the
Company or any other member of the Consolidated Group, except for items
retained by him on behalf of Contractors Heating and Supply Company, a Colorado
corporation, or in connection with the Purchase Agreement and items that are
strictly personal (such as tax forms or compensation records, and Brady's copy
of this Agreement). Notwithstanding any contrary provision in this Agreement,
Brady shall be permitted access to such books and records of the Company as may
be necessary for him to prepare his personal income tax returns.
3
<PAGE> 98
SECTION V
NONCOMPETITION
In consideration of the compensation payable to Brady hereunder,
during the term of this Agreement and for a period of three (3) years after
termination of this Agreement by either Brady or the Company, Brady will not,
within a one hundred (100) mile radius of either the City Hall of Denver,
Colorado, or the City Hall of Albuquerque, New Mexico, directly or indirectly,
engage in the business of the wholesale distribution of HVACR products or the
manufacture of sheet metal products as such activities were conducted by the
Company prior to and during the term of this Agreement (the "Business"), or
become affiliated as an agent, advisor, partner, officer, director, employee,
proprietor, consultant, stockholder or independent contractor with any person
or entity directly or indirectly engaged in the Business. The provisions of
the preceding sentence shall not be applicable if Brady's services hereunder
are terminated by the Company without Cause or following a default by the
Company or ACR Group, Inc., a Texas corporation, under the Note, the Security
Agreement or the Lease executed in connection with the Purchase Agreement (as
such terms are defined therein) that is not cured within any cure period
specified therein. For the purposes hereof, "Cause" shall mean: (i)
performance of duties under this Agreement in a grossly negligent manner, or
the breach of any material provisions of this Agreement; (ii) malfeasance,
theft from the Company, embezzlement or conviction of a felony; or (iii)
dishonesty or fraud with respect to the assets or business of the Company.
This restriction applies to any passive investment in securities of any
corporation or other business organization, unless equity ownership is less
than 1%.
Brady makes the preceding covenants in consideration for, and as a
necessary condition of, his engagement by the Company. Brady's obligations to
the Company under this section are independent of any obligation of the Company
or any other member of the Consolidated Group to Brady (including any
obligation under this Agreement or any other agreement between Brady and the
Company or any obligation that otherwise arises from any aspect of the
consulting relationship) and are not subject to any set-off, defense, deduction
or counterclaim based on any claim that Brady may have against the Company or
any other member of the Consolidated Group. The restrictive covenants of Brady
set forth in this section will survive the termination of this Agreement for
the periods specified above and are assignable by the Company to any assignee
or successor in interest to its business.
Brady expressly acknowledges that the Company conducts business
throughout the areas within a one hundred (100) mile radius of the City Hall of
Denver, Colorado, and the City Hall of Albuquerque, New Mexico, and he
stipulates that the time and area restrictions of the foregoing obligations do
not unduly oppress his future employment or consulting opportunities. In
addition, Brady acknowledges that the restrictions set forth in Sections IV and
V are reasonable limitations necessary to protect the legitimate business
interests of the Company and the Consolidated Group in guarding the trade
secrets, preserving the goodwill of its customers
4
<PAGE> 99
and business, preventing solicitation of its existing customers, obtaining the
benefit of unique employee training and education, and preventing unauthorized
use if its proprietary or confidential business lists, records and information.
The duration of every obligation set forth above will be extended by
any period of time during which Brady is in breach of the obligation. To the
extent that the duration, geographical area, or scope of activity of any of the
preceding restrictions would cause them to be unenforceable in a particular
jurisdiction, the restrictions automatically will be reformed for purposes of
enforcement in that jurisdiction to a duration, geographical area, or scope of
activity that is valid and enforceable in that jurisdiction. Reformation of a
restriction to validate its enforcement in any particular jurisdiction,
however, will not affect the enforcement of the restriction as stated in any
other jurisdiction in which it is enforceable as stated. Also, the invalidity
of a restriction in a particular jurisdiction will not affect the validity or
enforcement of the restriction in another jurisdiction where it is otherwise
valid.
SECTION VI
REMEDIES FOR BREACH
Brady stipulates that a breach by him of any of the restrictive
covenants set forth in Sections IV and V of this Agreement will diminish the
value of the Company and the Consolidated Group and will cause irreparable and
continuing injury to the Company and the Consolidated Group for which an
adequate legal remedy will not exist. Accordingly, Brady stipulates that if he
breaches any restrictive covenant set forth in Section IV or V of this
Agreement, the Company will not be obligated to pay to Brady any remaining
compensation specified in this Agreement and, without limiting or excluding any
other available remedy, the Company and every other member of the Consolidated
Group which is affected by the breach will be entitled to the following
remedies: (a) the entry by a court having jurisdiction of an order granting
specific performance or temporary injunctive relief, upon the posting of a bond
of $1,500 and the filing with the court of an appropriate pleading and
affidavit specifying each obligation breached by Brady and adequate proof (as
determined by the court) that Brady has breached the covenants, but without
proof of actual monetary damage; (b) if a court having jurisdiction determines
for any reason that the Company or other member of the Consolidated Group is
not entitled to an injunction or specific performance, the recovery from Brady
of all consequential damages attributable to his breach of the restrictive
covenant and all profit, remuneration, or other consideration that Brady gains
from breaching the restrictive covenant; and (c) reimbursement from Brady of
all costs incurred by the Company and every other member of the Consolidated
Group in enforcing the restrictive covenant or otherwise defending or
prosecuting any legal proceeding arising out of the restrictive covenant if the
Company is the prevailing party. The Company may exercise any of the foregoing
remedies concurrently, independently, or successively.
5
<PAGE> 100
In the event any provisions hereof shall be modified or held
ineffective by any Court in any respect, such adjudication shall not invalidate
or render ineffective the balance of the provisions hereof, and the provisions
hereof shall be enforced to the maximum extent allowed by law. This Agreement
shall be governed by the laws of the State of Colorado and shall be enforceable
in Denver, Colorado. The Company may assign this Agreement (including the
restrictive covenants set forth in Sections IV and V) to anyone who succeeds to
the Company's business pursuant to a merger or purchase of all or substantially
all of the Company's assets. The members of the Consolidated Group are
third-party beneficiaries of Brady's obligations under Sections IV and V, and
those obligations are enforceable by them to the same extent as if they were
parties to this Agreement.
SECTION VII
TERMINATION
The consulting arrangement hereunder shall be terminated upon the
occurrence of the first to occur of any of the following events: (1) the
expiration of the term of this Agreement; or (2) Brady's death; or (3) upon
mutual agreement of parties hereto in writing.
SECTION VIII
MISCELLANEOUS
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and personal
representatives. The parties hereto have read the terms and conditions of this
Agreement before signing the same, and hereby agree that no statement,
agreement or understanding, whether oral or written, not contained herein will
be recognized or enforced. This Agreement may not be amended except by a
written agreement executed by ACRG, the Company and Brady which makes specific
reference to this Agreement.
Any notice required or desired to be given under this Agreement shall
be in writing and shall be deemed given only if and when (i) personally
delivered, or (ii) sent by certified mail, addressed in each case as follows:
If to the Company: Contractors Heating & Supply, Inc.
----------------- c/o ACR Group, Inc.
3200 Wilcrest, Suite 440
Houston, Texas 77042
Attention: Alex Trevino, Jr.
6
<PAGE> 101
If to Brady: Daryl G. Brady
----------- 700 Broadway, Suite 800
Denver, Colorado 80203
Any notice so mailed shall be deemed to be received two (2) business
days after the day when so mailed, and any notice personally delivered shall be
deemed to be received when receipted on behalf of the receiving party by an
authorized officer of such receiving party, or actually received by the
receiving party, as the case may be.
Brady may change the address for notice set forth above by giving
notice in writing, stating the new address, to the Company. The Company may
change the address for notice set forth above by giving similar notice to
Brady.
This Agreement may be executed and delivered in any number of
counterparts, and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute one and the same
instrument.
In the event either party commences any legal action to enforce its
rights under this Agreement, the prevailing party in such action shall be
entitled to recover all of its costs and expenses in connection therewith,
including reasonable attorneys' fees.
BRADY ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, THAT HE
HAS BEEN GIVEN SUFFICIENT OPPORTUNITY TO CONSULT A LAWYER OF HIS OWN CHOOSING
AND TO ASK QUESTIONS AND RECEIVE SATISFACTORY ANSWERS REGARDING THIS AGREEMENT,
THAT HE UNDERSTANDS HIS RIGHTS AND OBLIGATIONS UNDER IT, AND THAT HE HAS SIGNED
IT OF HIS OWN FREE WILL AND VOLITION.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year mentioned above.
ACR GROUP, INC.
By:
-----------------------------
Alex Trevino, Jr., President
7
<PAGE> 102
CONTRACTORS HEATING & SUPPLY,
INC., a Texas corporation
By:
-----------------------------
Alex Trevino, Jr., President
-----------------------------
DARYL BRADY
8
<PAGE> 103
SCHEDULE 1.2
SHAREHOLDERS RECEIVING SUBCHAPTER S NOTES
<TABLE>
<CAPTION>
Name of Shareholder Amount of Note
- ------------------- --------------
<S> <C>
Daryl G. Brady $600,000.00
David Gamel 150,000.00
Lisa Scott 150,000.00
Laura Gamel 150,000.00
Leslie Gamel 150,000.00
</TABLE>
Schedule 1.2 - Page 1
<PAGE> 104
SCHEDULE 2.7
UNDISCLOSED LIABILITIES
Accrued Vacations and Commissions as of August 25, 1997, as set forth
on the attached Acquisition Balance Sheet.
<PAGE> 105
CONTRACTORS HEATING & SUPPLY, INC.
ACQUISITION BALANCE SHEET
<TABLE>
<CAPTION> Post-
8/25/97 GAAP Seller Final Acquisition closing
ASSETS per books adjust retained 8/25/97 entries 8/26/97
- ---------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and investments 1,448,462 783,911 664,551 664,551
A/R - trade 1,826,907 1,826,907 1,826,907
Less allowance for uncoll. A/R (65,000) (65,000) (65,000)
Other receivables 10,213 10,213 10,213
Inventory 2,238,543 (58,000) 2,180,543 2,180,543
Prepaid expenses 4,436 4,436 4,436
Officer Life Insurance 173,685 173,685 0 0
--------- --------- --------- --------- --------- ---------
5,637,246 (58,000) 957,596 4,621,650 0 4,621,650
--------- --------- --------- --------- --------- ---------
Land 217,636 217,636 0 0
Buildings 2,761,844 2,761,844 43,931 (23,931) 20,000
Accumulated depreciation (850,223) (825,817) (24,406) 24,406 0
Machinery and equipment 770,149 770,149 (352,984) 417,165
Accumulated depreciation (630,667) (630,667) 630,667 0
Office equipment/furniture 75,906 75,906 (55,906) 20,000
Accumulated depreciation (67,779) (67,779) 67,779 0
Autos and trucks 335,882 335,882 (155,082) 180,800
Accumulated depreciation (218,028) (218,028) 218,028 0
Computer equipment 99,034 99,034 (71,534) 27,500
Accumulated depreciation (92,665) (92,665) 92,665 0
Fixed assets - other 171,774 171,774 171,774 0
--------- --------- --------- --------- --------- ---------
Total fixed assets 2,572,863 0 2,109,732 463,131 203,334 665,465
--------- --------- --------- --------- --------- ---------
Goodwill 100,000 100,000 0 2,426,693 2,426,693
--------- --------- --------- --------- --------- ---------
8,310,109 (58,000) 3,167,328 5,084,781 2,629,027 7,173,808
========= ========= ========= ========== ========= =========
</TABLE>
<PAGE> 106
CONTRACTORS HEATING & SUPPLY, INC.
ACQUISITION BALANCE SHEET
<TABLE>
<CAPTION>
Post-
8/25/97 GAAP Seller Final Acquisition closing
LIABILITIES AND S/H EQUITY per books adjust. retained 8/25/97 entries 8/26/97
- -------------------------- --------- ------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accounts payable - trade 1,446,646 1,446,646 1,446,646
Accrued expense - trade 95 95 95
Accrued bonuses 86,779 86,779 86,779
Accrued commissions 7,111 7,111 7,111
Accrued vacation 14,443 14,443 14,443
Accrued customer trips 140,541 140,541 140,541
Accrued insurance 3,202 3,202 3,202
Accrued customer rebate 3,806 3,806 3,806
Deposit - ACRG purchase 125,000 125,000 0 0
Deposit - Armstrong litigation 73,219 73,219 0 0
Accrued personal property taxes 6,459 6,459 6,459
Accrued real estate taxes 18,699 18,699 18,699
Accrued sales taxes 41,983 41,983 41,983
Accrued payroll taxes 1,106 1,106 1,106
Accrued workers compensation 16,623 16,623 16,623
Current maturities - Gambray note 0 0 400,000 400,000
St. James Capital - broker fee 0 0 0
--------- ------ --------- --------- --------- ---------
Total current liabilities 1,964,158 21,554 198,219 1,787,493 400,000 2,187,493
--------- ------ --------- --------- --------- ---------
Long-term debt 1,157,102 1,157,102 0 0
Note - Gambray 0 800,000 800,000
Note - NationsBank 0 4,501,315 4,501,315
ACRG acquisition costs 0 100,000 100,000
ACRG purchase deposit 0 125,000 125,000
--------- ------ --------- --------- --------- ---------
Total liabilities 3,121,260 21,554 1,355,321 1,787,493 5,926,315 7,713,808
--------- ------ --------- --------- --------- ---------
Shareholders' equity
Common stock 793,845 793,845 (793,845) 0
Retained earnings 4,395,004 (79,554) 1,812,007 2,503,443 (2,503,443) 0
Ret earnings - goodwill 0 0
--------- ------ --------- --------- --------- ---------
Total shareholders' equity 5,188,849 (79,554) 1,812,007 3,297,288 (3,297,288) 0
--------- ------ --------- --------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 8,310,109 (58,000) 3,167,328 5,084,781 2,629,027 7,713,808
========= ======= ========= ========= ========= =========
</TABLE>
<PAGE> 107
SCHEDULE 2.8
MATERIAL CHANGES
NONE.
Schedule 2.8 - Page 1
<PAGE> 108
SCHEDULE 2.9
CHS CONTRACTS AND COMMITMENTS
1. Contracts with vendors:
Fraser-Johnson
Ducane
Shoemaker
UPA Buying Group
2. Contracts and commitments with customers:
Denver Housing Authority
Customer Incentive Trip Program
Customer Quotations
3. Lease agreements:
Building - Glenwood Springs
GMC Pickup Truck
4. Service agreements:
The company has various service agreements for services that are part
of the operation of the business. The term of the agreements vary
from those that are annual to those that are month-to-month. The
following services have agreements:
Security and fire protection
Telephone system maintenance (warranty)
Long distance carrier
Cellular phone service
Computer equipment service and maintenance
Uniform service and floor mats
Cleaning Service
Office equipment service and maintenance
Postage machine service and maintenance
Telephone message on hold - Denver
Trash Removal
Bottled water - Denver
In addition, the Company has sales orders and purchase orders entered into in
the ordinary course of business.
Schedule 2.9 Page 1
<PAGE> 109
SCHEDULE 2.11
TITLE
NONE.
<PAGE> 110
SCHEDULE 2.13
LITIGATION
1. Customary collection actions
2. Armstrong litigation being retained by the Company
<PAGE> 111
SCHEDULE 4.5
CONSENTS
See attached.
Schedule 4.5 - Page 1
<PAGE> 112
[FRASER-JOHNSTON LETTERHEAD]
August 6, 1997
Mr. Brad Brady, V.P. Sales
Contractors Heating & Supply Co.
70 Santa Fe Drive
Denver, CO 80223
Dear Brad:
Subject: Pending Sale
Contractors Heating & Supply Co.
In the event of a sale of your company to the ACR Group, UPG would have a high
degree of interest in continuance of the Fraser-Johnston brand. However, in
accordance with our Sales Agreement, Section 7 A-4, any change in the effective
ownership or control of the distributor would terminate our Sales Agreement.
Therefore, in order to continue with the Fraser-Johnston brand, UPG would need
the same financial and sales commitment that Contractors has brought to the
party.
Sincerely,
/s/ JERRY VENDITTI
- ---------------------------
Jerry Venditti, Manager
Distribution Development
/p
C: Dave Fegley
Gary Keuper
Dick Scott
Sue Berger
<PAGE> 113
[DUCANE COMPANY LETTERHEAD] [LOGO]
August 6, 1997
Brad Brady
Contractors Heating and Supply Co., Inc.
70 Santa Fe Drive
Denver, CO 80223
Fax 303-893-0732
Dear Brad,
If ACR Group purchases Contractors, the Ducane line of equipment will still be
available to Contractors assuming sales continue to increase in your market.
Very truly yours,
The Ducane Company, Inc.
/s/ IRA T. ZOLIN
- -------------------------
Ira T. Zolin
Treasurer
cc: John Ducate, Jr.
Johnny Johnston
<PAGE> 114
[RUDD LIMITED LIABILITY COMPANY LETTERHEAD]
June 20, 1997
Mr. Daryl G. Brady
CONTRACTORS HEATING & SUPPLY CO.
70 Santa Fe Drive
Denver, CO 80223
RE: Evergreen Commercial Center - Lot 3
Dear Daryl:
Per our telephone conversation this morning, please be advised that you are
authorized to assign the lease which you hold on Units 3-6, 5396 County Road
154, Glenwood Springs, Colorado. As soon as your pending merger is finalized,
please contact me with the necessary information, and I will draft an
assignment document for your review and signature.
Thank you for calling to discuss the assignment situation, and I wish you good
fortune with your new business venture.
Kindest Regards,
/s/ ROLAND PARKER
- -----------------
Roland Parker
Property Manager
