SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
Commission file number 2-93668-FW
CURTIS MATHES HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State of incorporation) (I.R.S. Employer
Identification No.)
10911 Petal Street, Dallas, Texas 75238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 503-8880
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark, if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
On August 29, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Registrant (37,536,564 shares) was
approximately $22,146,573 based upon the average of the closing bid and
closing asked price per share of $0.59.
On August 29, 1997, there were 40,612,279 shares of Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Exhibits listed on Exhibit index.
<PAGE>
GENERAL INDEX
Page
Number
ITEM l. BUSINESS 3
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 10
ITEM 6. SELECTED FINANCIAL DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
(F-1 through F-35) 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 17
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17
ITEM 11. EXECUTIVE COMPENSATION 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 27
SIGNATURES 28
EXHIBIT INDEX 69
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CURTIS MATHES HOLDING CORPORATION
PART I
ITEM l. BUSINESS
(a) General Development of Business
Curtis Mathes Holding Corporation and subsidiaries (the "Company")
is engaged in the development, marketing and distribution of consumer
electronics products and online services relating specifically to
Internet access through the television medium.
The Company was incorporated in Texas on July 13, 1984 as Donny
Osmond Entertainment Corporation and operated in several facets of the
entertainment industry until 1988. The Company filed an S-18
registration statement in November 1984 and completed the registered
offering in January 1985.
In November 1993, the Company acquired Curtis Mathes Corporation
(CMC), maker of consumer electronics products relating specifically to
the home entertainment industry. On November 8, 1993 the Company's stock
was first listed on the NASDAQ SmallCap Market (symbol CRTM) and in May
1994, the Company changed its name to Curtis Mathes Holding Corporation.
A subsidiary closely related to CMC in the past has been Warranty
Repair Corporation (WRC) which provided warranty support for all products
sold by CMC. CMC continues to honor all of its warranty obligations and
now utilizes the expertise of an outside warranty servicing company to
control warranty costs while providing highly professional services to
its customers. The warranty servicing company monitors all outstanding
warranties on CMC products, provides technical assistance to CMC's
authorized service centers, and serves all of the warranty related needs
of CMC's customers.
During fiscal 1997, another subsidiary, Curtis Mathes Marketing
Corporation (CMMC), developed and continues to refine a proprietary
technology called uniViewT which allows a family, through their
television set, to "surf" the Internet, send and receive e-mail, talk on
the telephone, program their VCR, and search for movies or programs
featuring specific subjects, actors, or ratings. uniView is currently
available in the stores and has generated great enthusiasm among its
purchasers. CMMC also holds a patent on the 125" projection television
technology known as RealViewTM. This technology is best suited for
sports arenas, stadiums, shopping malls, airports, and other large
commercial applications.
A subsidiary closely related to CMMC, Curtis Mathes Xpressway
Corporation (CMX), provides Internet access and online content for
uniView customers and other subscribers to the Curtis Mathes XpresswayT
Online Service.
FFL Corporation (FFL), a subsidiary which in the past engaged in
real estate transactions, remains dormant at this time. Systematic
Electronics Corp., formerly known as Advanced PC Products, Inc. and a
current subsidiary of FFL, also remains dormant at this time.
<PAGE>
(b) Financial Information About Industry Segments
Please refer to Note 16 on page F-35 of the Notes to Consolidated
Financial Statements in this Form 10-K for information concerning
Industry Segments.
(c) Narrative Description of Business
Major Markets and Products
Curtis Mathes Corporation (CMC)
CMC does not have a product line at this time. This subsidiary
historically produced both direct view and projection televisions.
Warranty Repair Corporation (WRC)
WRC has, in the past, provided warranty and repair service for CMC
consumer electronics products. Warranty support for CMC products is
currently being provided under contract by an outside servicer. WRC is
currently inactive and it offers no other services or products to any
other outside party.
Curtis Mathes Marketing Corporation (CMMC)
The Company's newest proprietary television technology, called
"uniView," is designed to meet the high interest and expected demand of
the consumer for easy and affordable access to the Internet through the
television medium. All Curtis Mathes televisions and set-top units
equipped with the unique uniView system seamlessly integrate Internet
access, fax and online information services with the traditional TV
viewing experience using broadcast quality translucent graphics. All
uniView units additionally have built-in e-mail, conference phone, on-
screen caller ID, automated VCR control and various interactive
television capabilities. Other unique features include the capability of
automatically monitoring the TV listings databases and blocking any
programming that parents might find inappropriate based on their own
specifications of show, rating or specific content.
The uniView units are further designed to accept optional input
peripherals, such as a wireless keyboard, which will be offered by the
Company as an accessory to the basic system. The uniView system is fully
operational with its standard infrared-style remote control; the infrared
wireless keyboard allows greater flexibility in "surfing" the Internet or
sending e-mail by providing a full keyboard and mouse touchpad, while the
RF Wireless Keyboard provides a high level of data integrity through its
radio frequency wireless technology, which allows operation of the system
from up to 50 feet away.
CMMC also offers for licensing its patent rights on the 10-foot
diagonal projection television system known as RealView, in the
commercial market. While competitors of this technology rely upon either
thousands of miniature CRTs or banks of monitors to provide a picture,
RealView provides for high resolution and flexible transmittal of video
and graphics from any source onto a 75" x 100" seamless projection screen
through the use of a single light valve projector. This results in an
electrical power consumption rate that is considerably lower than
comparably-sized display systems.
<PAGE>
Curtis Mathes Xpressway Corporation (CMX)
CMX, a new subsidiary of the Company this fiscal year was
established to primarily support the Company's uniView products. CMX
provides specialized Internet-access and online services for TV based
systems, such as the Company's uniView product line. The service
retrieves Internet pages and graphics, translates them into TV-based
formatting, and provides them to consumers for viewing on their
television sets. CMX further provides Internet access to personal
computer (PC) users as well as non-uniView set top boxes.
Competition
Curtis Mathes Marketing Corporation (CMMC)
CMMC's uniView proprietary television technology is among the first
products of its type to enter the marketplace. Competitors which have
announced a television product which allows access to the Internet
include Zenith, Sony, Phillips, and other less well known companies. The
primary methods of competition with these companies are expected to be
price, features, and product performance. While the product announced by
all of CMMC's competitors is limited to providing Internet access,
uniView contains many additional features, some of which are described
above.
CMMC's RealView 10-foot diagonal projection television technology is
in the same product category as the Jumbotron and DiamondVision color
video display systems manufactured by its competitors. The primary
methods of competition on products utilizing this technology are expected
to be price and product performance. As described in the products
section above, the RealView technology is believed to be technically
superior to its competition, creating an advantage for licensees of this
technology with a significantly lower sales price.
Curtis Mathes Xpressway Corporation (CMX)
The online services industry where CMX operates is intensely and
increasingly competitive and includes a large number of Internet service
providers. Competition has enhanced the consumer demand for the most
technologically advanced services, at the lowest possible price. The
primary methods of competition with other Internet service providers are
expected to be features and product performance. It is not possible to
determine the ultimate acceptance of the Curtis Mathes Xpressway Online
Service; however, the Company has positioned this subsidiary to service
uniView and non-uniView set top box users as well as PC users to appeal
to the widest range of consumers.
Research and Development
The Company views its ability to offer new, improved, and innovative
television technology and products as an important component in its plan
for future growth. The Company intends to take advantage of licensing
opportunities, as well as pursue internal and external development of new
products as may be necessary to meet consumer demand. Management
believes that adequate funds are available to cover anticipated product
development and licensing opportunities during the coming year, which are
necessary for the Company to maintain an edge in the marketplace.
<PAGE>
Manufacturing
Curtis Mathes Marketing Corporation (CMMC)
CMMC will utilize various manufacturers located in America and
abroad to produce the uniView line of products according to its
specifications. This subsidiary will not be involved in any other
manufacturing activities.
Environmental
The Company believes that it is presently in substantial compliance
with all existing applicable environmental laws and does not anticipate
that such compliance will have a material effect on its future capital
expenditures, earnings or competitive position. CMMC currently utilizes
other equipment manufacturers to assemble its product according to its
specifications for high quality and its operations therefore have no
environmental impact. As CMX will not be involved in manufacturing, its
operations will likewise have no environmental impact.
Prior Obligations Affecting Current Operations
CMC's Plan of Reorganization (the "Plan") was confirmed as of
October 1, 1992 and the obligations of the Plan were assumed by the
Company upon acquisition of CMC. The Company could continue to be
affected by the reorganization until September 30, 1998, when the Plan
will terminate. Until termination, or otherwise settled, 1/2% of gross
sales of CMC, if any, must be paid monthly to a "Liquidating Trustee,"
which has been designated by the Bankruptcy Court to administer such
payments on behalf of unsecured creditors in the order of priority.
In addition to this obligation to the Trustee, CMC remains obligated
to service past outstanding product warranties. Reserves have been set
aside to cover these estimated product warranty costs and an additional
amount is accrued monthly to cover the estimated costs associated with
ongoing warranty support for current products sold. Many of the
warranties on products sold in the past are expiring and due to lower
product sales in the past few years, CMC's warranty obligations are
slowly diminishing. (See Item 3 beginning on page 9 of this Form 10-K;
and Note 9 on page F-24, and Note 14 on page F-34 of the Notes to
Consolidated Financial Statements for further warranty information.)
Warranty
At June 30, 1997 financial reserves were approximately $544,000 for
CMC warranty claims anticipated during the remainder of the warranty
obligation period. CMC continues to meet its warranty obligations
through an outside warranty servicing company which specializes in
warranty service and repair for consumer electronics. By contracting
these services to an outside servicer, CMC is able to more efficiently
provide consistent high quality warranty support, and the Company is able
to eliminate the direct overhead associated with the warranty support
function.
<PAGE>
Marketing and Distribution
Curtis Mathes Marketing Corporation (CMMC)
CMMC markets its uniView line of products and accessories through
national and regional retail chains and outlets, giving consideration to
any retail outlet or store chain which can be expected to contribute on
favorable terms to overall product sales. CMMC has not yet sold any
products outside of the United States; however, the Company anticipates
opportunities to expand its geographical sales area.
CMMC makes available its RealView technology to manufacturers
interested in marketing their products to sports arenas, stadiums,
shopping malls, airports and other large-scale commercial applications.
Trademarks
Curtis Mathes Corporation (CMC)
The Company owns or holds rights to all trademarks that it considers
to be necessary in the conduct of its business, including the "Curtis
Mathes" name and logo, which is due for renewal in April, 2005.
CMC entered into a license agreement as of June 1, 1994 under which
Animated Systems and Presentations, Inc. has the nonexclusive right to
use the Curtis Mathes Trademark and Logo in connection with an LED sign
system marketed in the United States and Mexico, in return for a royalty
of 4% on the licensee's gross revenue, payable to CMC during the term of
the agreement. Management chose to enter into the agreement in connection
with a product (LED sign systems) outside of the Company's own product
lines as a means of increasing revenue. The current term of the license
expires on June 30, 2001.
CMC also granted a license to CMMC as of April 17, 1996 to use the
Curtis Mathes Trademark and Logo in connection with its marketing of
uniView, in return for a royalty of 1.5% on the licensee's gross sales
receipts, payable to CMC during the term of the agreement. Management
chose to enter into the agreement in connection with products (units
containing the uniView proprietary television technology) outside of
CMC's traditional product line as a means of increasing revenue. The
current term of the license expires on April 17, 2011.
Curtis Mathes Marketing Corporation (CMMC)
The Company has filed an "Intent to Use" with the U.S. Patent and
Trademark Office in connection with the trademark "uniView," which it
plans to utilize in marketing the uniView product line.
The Company has also filed an "Intent to Use" with the U.S. Patent
and Trademark Office in connection with the trademark "RealView," which
it plans to utilize in marketing its patented commercial large screen
television technology.
The Company has also filed an "Intent to Use" with the U.S. Patent
and Trademark Office in connection with the new "Curtis Mathes design and
logo" which it plans to utilize in marketing the uniView and future
product lines.
<PAGE>
Curtis Mathes Xpressway Corporation (CMX)
The Company has filed an "Intent to Use" with the U.S. Patent and
Trademark Office in connection with the "CM and design" and the trademark
"Curtis Mathes Xpressway & Design" which it plans to utilize in marketing
the Curtis Mathes Xpressway Online Service.
Seasonality
Curtis Mathes Marketing Corporation (CMMC)
CMMC expects the uniView product line to be subject to seasonality
highlighted by an end of calendar year consumer buying season and an end
of product year clearance season.
Curtis Mathes Xpressway Corporation (CMX)
CMX revenue streams should not be subject to the same seasonality
concerns of CMMC. Due to the nature of the online Internet service
provided by CMX, there is no known seasonal time period where revenue
would be greater than another.
Customers
All revenues for 1997 were a result of slow-moving inventory
exchanged for television advertising on a major cable network.
Historically, no customer has accounted for 10% or more of the sales for
the Company in a given year. The Company does not expect that sales to
any one customer will be 10% or more in the future.
Employees
As of June 30, 1997, the Company, including all subsidiaries,
employed 31 persons. The Company believes that its employee relations
are good.
ITEM 2. PROPERTIES
As of June 30, 1997 the Company, including all subsidiaries,
continued to operate from the following locations:
Location Purpose/Use Owned/Leased Square Footage
Dallas, TX Corporate Headquarters Leased 74,882
This location is equipped with material-handling equipment with the
capability of receiving, storing and distributing large quantities of
consumer electronics products, parts and other product support material.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely a party to ordinary litigation incidental
to its business, as well as to other litigation of a nonmaterial nature,
the outcome of which management does not expect, individually or in the
aggregate, to have a material adverse effect on the financial condition
or results of operations of the Company in excess of the amount accrued
at June 30, 1997.
<PAGE>
The Company's subsidiary, CMC, received notification on May 5, 1995
that it had been named as a Potentially Responsible Party by the Texas
Natural Resource Conservation Commission (TNRCC) under the Texas Solid
Waste Disposal Act pertaining to a real estate site owned by this
subsidiary for a short period of time during the early 1980s. The
Company responded to the TNRCC to the effect that any liability that may
have arisen out of CMC's former ownership of the site was discharged upon
confirmation of CMC's Chapter 11 Plan of Reorganization on October 1,
1992. No further proceedings have occurred since the initial
notification by TNRCC. Management intends to vigorously contest any
environmental liability and believes that the outcome of this matter will
have no material adverse financial effect upon the Company.
On November 2, 1994, a class action suit was filed against CMC
alleging various violations of the Minnesota consumer protection laws
arising out of certain rent-to-own transactions between certain former
CMC dealers located in Minnesota and their customers. Damages were
unspecified and management believes that CMC has no liability. However,
as with any litigation of this type and magnitude, defense costs and the
timing and degree of potential liability are uncertain and there can be
no assurance that these proceedings will not have an adverse impact on
the Company in the future. The action is currently pending and set for
trial during the Fall of 1997 in the United States District Court for the
District of Minnesota, Fourth Division, under Cause No. Cv. 4-95-682,
styled Charlene Powell v. Curtis Mathes Corporation; 99 cent Video, Inc.,
d/b/a Curtis Mathes; CDM Enterprises, Inc., d/b/a Curtis Mathes Home
Entertainment Center; and John Doe, corporations d/b/a Curtis Mathes.
CMC is currently operating under a Chapter 11 Plan of Reorganization
(the "Plan"), which could remain in effect until September 30, 1998,
unless earlier settled. In connection with its acquisition of CMC, the
Company agreed to comply in all respects with the Plan. Under the Plan,
CMC received a discharge of all pre-petition debts, except for those
specifically allowed under the Plan. CMC is further required by the Plan
to maintain certain cash reserves to cover its outstanding product
warranties, to make certain cash contributions proportional to its income
toward the payment of certain classes of allowed claims, and is
restricted in certain areas that relate to corporate structure and to
financial activities outside the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this 10-K Report, through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock, $.01 par value (the "Common Stock") is
traded on the NASDAQ SmallCap Market under ticker symbol "CRTM." The
quarterly high and low bid information for the Company's Common Stock for
each quarter in the last two fiscal years are presented below. Such
<PAGE>
market quotations reflect interdealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual
transactions.
Quarter Ending Date High Bid Low Bid
Fiscal 1997
June 30, 1997 $ 1.81 $ 0.88
March 31, 1997 $ 2.00 $ 1.00
December 31, 1996 $ 1.88 $ 0.63
September 30, 1996 $ 2.53 $ 1.31
Fiscal 1996
June 30, 1996 $ 4.13 $ 0.31
March 31, 1996 $ 0.56 $ 0.19
December 31, 1995 $ 0.97 $ 0.31
September 30, 1995 $ 1.13 $ 0.50
As of August 29, 1997 there were approximately 11,300 record
shareholders and 40,612,279 common shares outstanding. The Company has
never paid cash dividends on common shares, and does not anticipate doing
so in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
All financial data for the years referenced below were derived from
the Consolidated Financial Statements of the Company for those years and
the comparability of the information is affected by acquisitions,
dispositions, and other transactions which are described in the footnotes
which accompany those Consolidated Financial Statements, and which should
be read in conjunction with this five-year financial summary. Other
factors which may affect the comparability of the information for the
more recent fiscal years are discussed further in Item 7 below.
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995 1994 1993
Consolidated Statement
of Operations Data
- ----------------------
<S> <C> <C> <C> <C> <C>
Net Sales or Operating
Revenues(1) $ 2,503,512 $ 7,656,836 $ 21,267,244 $ 14,730,847 $ -
Net Income (Loss) (7,509,040) (5,887,313) (4,236,585) (309,444) 109,211
Income (Loss)
per Common Share(2) (023)(3) (0.35)(4) (0.44)(5) (0.05)(6) 0.01(7)
Income (Loss) from
Continuing Operations(1) (8,298,466) (5,887,313) (4,409,585) (1,009,042) (107,621)
Income (Loss) from
Continuing Operations
per Common Share(1),(2) (0.25)(3) (0.35)(4) (0.46)(5) (0.14)(6) (0.03)(7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995 1994 1993
Consolidated Balance Sheet Data
- -------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 15,474,753 $ 15,210,406 $ 14,088,400 $ 18,260,221 $ 3,884,348
Long Term Debt 961,030 1,450,435 3,282,706 2,204,611 453,145
Shareholders' Equity 12,300,635 11,723,532 2,920,780 4,217,485 1,511,814
</TABLE>
(1) 1994 adjusted based upon the disposition of SMI subsequent to fiscal
year end.
(2) Computed based upon the weighted average number of common shares
outstanding during each fiscal year.
(3) For the year ended June 30, 1997, for purposes of computation of
earnings per share, net loss was increased for dividends in arrears
of $27,223 ($0.00 per common share) and the computation was based
upon 32,537,971 weighted average shares outstanding.
(4) For the year ended June 30, 1996, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $26,081 ($0.002 per common share) and the
computation was based upon 17,432,013 weighted average shares
outstanding.
(5) For the year ended June 30, 1995, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $78,188 ($0.01 per common share) and the
computation was based upon 9,416,503 weighted average shares
outstanding.
(6) For the year ended June 30, 1994, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $121,329 ($0.01 per common share) and the
computation was based upon 8,168,625 weighted average shares
outstanding.
(7) For the year ended June 30, 1993, for purposes of computation of
earnings per share, net income was reduced for preferred stock
dividends in arrears of $36,500 ($0.01 per common share) and the
computation was based upon 7,140,000 weighted average shares
outstanding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of
operations and should be read in conjunction with the Consolidated
Financial Statements and related notes appearing elsewhere herein.
<PAGE>
Results of Operations
Revenues
Sales for 1997 decreased to $2.50 million which represents a decline
of $5.15 million from 1996. The decrease occurred as the Company
redirected its primary focus to the development of the uniView product
line. Unforeseen delays of uniView's introduction contributed to
diminished sales for the year. All sales for the year ended June 30,
1997 are a result of finished goods inventory exchanged for advertising
from a major cable television network.
Sales for 1996 decreased to $7.66 million, a decrease of $13.61
million from 1995. Sales declined for CMC in direct proportion to the
decrease of available financing sources for CMC dealers. Prices were
reduced on certain product lines to stimulate sales. In some cases,
prices were lowered to the original cost of the products to encourage
sale of dated inventory and to reduce inventory carrying costs that had
already significantly impacted related margins.
Gross Margin
Gross margin, as a percentage of sales for 1997, was a negative 4%,
compared to 10.3% in 1996. During the current year, dated inventory was
sold at below original cost while costs of running nationwide points of
presence for the CMX online service resulted in additional negative
costs.
Gross margin as a percentage of sales, was 10.3% in 1996, down from
17.9% in 1995. The primary reason for this decline in margin is the
inventory reduction sale of product near or at cost, in connection with
the Deutsche Financial Services Corporation ("DFS") settlement agreement,
whereby the Company elected to eliminate certain inventory carrying
costs, in accordance with its redefined strategic focus, by selling
certain products at lower margins.
Operating Expenses
Operating expenses for 1997 increased by $2,500,000 from 1996.
Significant components of this increase are $1,981,000 for advertising
and $517,000 for research and development. Where appropriate, the
Company has elected to capitalize certain expenses relating to the
uniView product line and CMX online service.
Total operating expenses for 1996 decreased by $801,000 from 1995.
The significant decrease was a direct result of management's
consolidation of all operations into the Dallas facility. Major
components of the decrease are a savings of approximately $600,000 for
payroll and related payroll expenses, and $50,000 for rent expenses,
which decreased as lease obligations were fulfilled for the Athens
location. Warranty costs decreased as a more efficient means of
servicing warranty obligations were implemented through an outside
servicer. Reorganization costs decreased in direct correlation with CMC
sales, as required under the CMC Plan of Reorganization.
<PAGE>
The Company anticipates that in 1998, selling, general, and
administrative expenses will increase as it introduces the new uniView
product line to the marketplace. Accordingly, related expenses,
including personnel and marketing costs are expected to rise in direct
proportion to the introduction of this new product line.
Interest Expense
Interest expense declined from $583,000 during fiscal 1996 to
$86,000 during fiscal 1997. This decline resulted from the continued
decline in average borrowings outstanding. The Company generated
interest income in fiscal years 1997 and 1996 from invested cash
balances.
Interest expense for fiscal 1996 decreased by $991,000 from 1995,
which was primarily attributable to the settlement of the Company's line
of credit and related notes payable to DFS. Lower average inventory
levels during fiscal 1996 resulted in significant inventory carrying cost
savings, including interest expense.
Liquidity and Capital Resources
Cash Flows From Operations
Cash used by operations for the fiscal years ended June 30, 1997 and
1996 were ($7,270,000) and ($1,920,000), respectively. Major components
of cash flows from operations for 1997 included: $1,825,000 for
increases in prepaid expenses related to parts inventory components for
uniView production; $789,000 for recognition of gain on extinguishment of
debt (net of income taxes of $463,000); the increase in accounts payable,
accrued liabilities, and other payables of $1,439,000; $691,000 for
depreciation and amortization; and the effects of a ($7,509,000) loss
from operations.
Cash used by operations for the fiscal years ended June 30, 1996 and
1995 were ($1,920,000) and ($5,858,000), respectively. Significant
components of cash flows from operations for 1996 included: $990,000 for
decreases in accounts receivable; $2,329,000 for decreases in inventory;
$536,000 for increase of provision for bad debts; $363,000 for decreases
of current liabilities; and $645,000 for depreciation and amortization;
coupled with the effects of a ($5,887,000) loss from operations.
Cash Flows From Investing Activities
During fiscal 1997, the Company purchased, for cash, approximately
$2,100,000 of property, plant and equipment as compared to approximately
$136,000 during fiscal 1996 and $300,000 during fiscal 1995. The Company
also paid $3,650,000 in cash in 1997 for development of software
pertaining to the uniView/Xpressway product lines. Further, $1,114,000
was paid in cash for licensing of technologies pertaining to software for
the uniView/Xpressway product lines. The level of future capital
expenditures is expected to exceed 1997 capital expenditures as the
Company seeks to meet the demanding technological requirements of the
uniView/Xpressway lines.
<PAGE>
Cash Flows from Financing Activities
The Company generated net cash from financing activities of
$11,767,000 during the fiscal year ended June 30, 1997. Significant
components included $8,296,000 received from issuances of preferred and
common stock; $1,000,000 received from advances under the Company's
borrowing arrangement that was later converted to common stock;
$1,173,000 paid in cash for preferred stock redeemed; $643,000 for
payments on long term debt; and the receipt of $4,352,000 cash for common
stock issued in the prior year.
The Company produced net cash from financing activities of
$6,119,000 during the fiscal year ended June 30, 1996. Significant
components include $10,271,000 generated from issuances of preferred and
common stock; $2,572,000 net payments on its line of credit; and
$1,235,000 payments of long term debt.
Other Matters
During 1996, the Company settled its debt obligation to DFS. As
discussed in the 1996 Form 10-K, the Company did recognize a $789,000
deferred gain (net of income taxes of $463,000) as a result of the
settlement of a note owed to DFS. This item is disclosed as an
extraordinary item on the financial statements for the year ended June
30, 1997.
The Company continues to be a party to financial instruments with
certain off-balance sheet risk. These risks have been limited to
repurchase obligations for CMC dealers related to inventory financed
under CMC's dealer floor-plan agreement with DFS. This off-balance sheet
risk at June 30, 1997 was estimated to be $410,000 as compared to
$1,550,000 at June 30, 1996. As dealers refinance their DFS obligations,
or pay down their debt, CMC's exposure decreases.
During the fiscal years ended June 30, 1997, 1996, and 1995 the
Company did not achieve a positive cash flow from operations.
Accordingly, the Company relies on available borrowing arrangements and
continued sale of its common and preferred stock to fund operations until
a positive cash flow from operations can be achieved. If the Company is
unable to achieve a positive cash flow from operations, additional
financing or placements will be required. Management continually
evaluates opportunities with various investors to raise additional
capital, without which, the Company's growth and profitability could be
restricted. Although management believes that sufficient financing
resources are available, there can be no assurance that such resources
will continue to be available to the Company or that they will be
available upon terms favorable to the Company.
Factors That May Affect Future Results
The Company participates in a highly volatile industry which is
characterized by rapidly changing customer demand patterns and fierce
industry-wide competition for market share, resulting in aggressive
pricing strategies. In anticipation of continued growth and expansion of
its market share, the Company has shifted its focus to the CMMC uniView
product line. The Company's product strategy focuses in part on
marketing products with distinctive features which meet and exceed
evolving industry performance standards, which meet and exceed customer
quality expectations, and which are affordable for a wide variety of
<PAGE>
purchasers. Because of the pace of technological advances, the Company
must introduce on a timely basis new products that offer customers the
latest competitive and innovative technologies while managing the
production and marketing cycles of its existing products. For the
Company to attain and maintain its anticipated market share for its
products, it will be necessary to accurately forecast customer
requirements; maintain short design cycles while meeting and exceeding
evolving industry performance standards; efficiently manage its product
transitions, inventory levels and manufacturing processes; and distribute
its products quickly and efficiently in response to customer demand. A
breakdown in any one of the foregoing areas could have an adverse effect
upon the anticipated operating results of the Company.
Outlook: Issues and Uncertainties
The Company does not provide forecasts of future financial
performance. While management is optimistic about long-term prospects,
the following issues and uncertainties, among others, should be
considered in evaluating its growth outlook.
Customer Acceptance
While the Company has performed extensive usability and beta testing
of new products, user acceptance and corporate penetration rates
ultimately dictate the success of development and marketing efforts.
Rapid Technological Changes
The consumer electronics and Internet access industry is undergoing
rapid changes, including evolving industry standards, frequent new
product introductions and changes in consumer requirements and
preferences. The introduction of new technologies and products can
render the Company's existing and announced products obsolete or
unmarketable. The development cycle for products utilizing new
technology may be significantly longer than the Company's current
development cycle for products on existing and proposed technology and
may require the Company to invest resources in products that may not
become profitable. There can be no assurance that the expected demand
for the Company's products will materialize or continue or that the mix
of the Company's future product offerings will keep pace with
technological changes or satisfy evolving consumer preferences or that
the Company will be successful in developing and marketing future
products. Failure to develop and introduce new products and product
enhancements in a timely fashion could have a material adverse effect on
the Company's business, operating results and financial condition.
Long-term Research and Development Investment Cycle
Software requires an investment in product development which often
involves a long payback cycle. The Company plans to continue significant
investments in software research and development and related product
opportunities. Accordingly, management expects total spending for
research and development in 1998 to increase over spending in 1997.
<PAGE>
Sales and Marketing and Support Investments
The Company plans for 1998 include significant investments of
capital into sales, marketing and support groups. Management believes
that these investments will position product within the market place in
the most favorable light.
Limited Protection of Intellectual Property and Proprietary Rights: Risk
of Litigation
The Company regards its television Internet access technology
containing software related components as proprietary and relies
primarily on a combination of trademark, copyright and trade secret laws,
employee and third-party nondisclosure agreements, and other methods to
protect these proprietary rights. As the number of television Internet
access products in the industry increases and the functionality of these
products overlap, infringement claims may also increase. There can be no
assurance that third parties will not assert infringement claims against
the Company in the future with respect to current or future products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and related Financial Statement
Schedules are included at pages F-1 through F-40 in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the Company's two most recent fiscal years, no independent
accountant engaged as the principal accountant to audit the Company's
financial statements has resigned or was dismissed.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors
The following sets forth, with respect to each member of the
Company's Board of Directors as of June 30, 1997, his name, age, period
served as director, present position, if any, with the Company and other
business experience. All directors serve one-year terms between annual
meetings of shareholders.
Patrick A. Custer, 48, is the Chairman of the Board, President and
Chief Executive Officer of the Company. Mr. Custer served as a director
of the Company from 1984 to 1985, and from 1987 until the present. He
served as President and Chief Executive Officer of the Company from 1984
to 1985 and from September, 1992 until the present. From 1986 until
1990, Mr. Custer was an international business consultant for Park
Central Funding (Guernsey), Ltd. From 1978 until 1982, Mr. Custer was a
general securities principal and worked for a major brokerage firm as a
corporate finance specialist and was owner of his own brokerage firm. He
was responsible for structuring and funding IPO's, real estate, energy
companies, and numerous high-tech start-up companies. Mr. Custer is a
graduate of Texas Tech University in Finance and Management, with
additional studies in Electrical Engineering and master studies in
Finance.
<PAGE>
Edward M. Warren, 56, has been a director of the Company since
September, 1992. Since 1980, he has been the Registered Principal and
Branch Manager for a major securities firm in Albany New York. He is
also a Financial Consultant, having presented numerous financial seminars
over the years throughout eastern New York and western New England. He
is a co-founder of the Coronado Group, which provides professional
services to the financial community, such as the analysis of economic
and market conditions, review of financial products, exchange of
marketing ideas, and continuing evaluation and recommendation of asset
allocation models. Mr. Warren received his undergraduate degree from
Williams College and holds a Master of Arts degree from Harvard
University.
Billy J. Robinson, 49, has been a director of the Company since
March, 1994. He has also served as Vice President/ General Counsel of
the Company since October, 1993, and as Secretary of the Company since
June, 1994. Mr. Robinson has over eighteen years legal experience,
representing banks and other financial institutions, with a concentration
in commercial transactions and real estate. Mr. Robinson is admitted to
practice before the United States Supreme Court, the United States
District Court for the Northern District of Texas and the District of New
Mexico, and is licensed to practice before all state courts in Texas and
New Mexico. Mr. Robinson is a certified Mediator in the State of Texas
and is the author of the 1994-95 Real Estate Law Correspondence Course
for the Texas Tech University Paralegal Certification Program.
Bernard S. Appel, 65, has been a director of the Company since
February, 1995. He has enjoyed a career of 34 years with Radio Shack,
holding every key merchandising and marketing position, culminating with
his promotion to president in 1984. In 1992 he was promoted to Chairman
of Radio Shack and Senior Vice President of Tandy Corporation. Since
August, 1993, Mr. Appel has operated the private consulting firm of Appel
Associates, focusing upon consumer electronics product development,
marketing and distribution. He is a director of IRG Technologies, Inc.,
a company with a class of securities registered pursuant to section 12 of
the Exchange Act of 1934.
Executive Officers
The following sets forth, with respect to each executive officer of
the Company not heretofore named, as of June 30, 1997, his name, age,
present position and offices held with the Company, period of service in
such capacity, and other business experience.
F. Shelton Richardson, Jr., 38, has been Vice President/ Chief
Financial Officer of the Company since February, 1995. He has been
strategically involved in the restructuring of the Company from a
commodity manufacturer of consumer electronics products to a
technologically advanced mainstream developer of Internet access
products. In addition, Mr. Richardson has been instrumental in the
design, development and implementation of Curtis Mathes Xpressway, the
Company's largest potential revenue source. From February, 1990 to
February, 1995 he was Chief Financial Officer of Captivision, Inc., a
consulting firm specializing in electronics and telecommunications
ventures. From January, 1987 to February, 1990 he was the Controller for
the law firm of Ryan & Smith. Mr. Richardson holds a Bachelor of Science
degree in Accounting and Taxation from the University of Houston and a
Master of Business Administration from Houston Baptist University.
<PAGE>
Thomas W. (Bill) Park, 61, has been Vice President/ Chief Operating
Officer of subsidiary Curtis Mathes Corporation (CMC) since October 3,
1994; has been Vice President/ Chief Operating Officer of subsidiary
Curtis Mathes Marketing Corporation (CMMC) since July 1, 1995; and has
been Vice President/ Chief Operating Officer of subsidiary Curtis Mathes
Xpressway Corporation (CMX) since January 10, 1997. Mr. Park is
responsible for the initial development of product and all phases through
the manufacturing process for the new uniView line of products. The
securing of strategic technological partners is also an important area of
his responsibility. He enjoyed a career of 29 years with CMC, before
leaving in August, 1993 for a position as Vice President of Benelec
Corporation, an international trading company dealing in electronics,
medical supplies, and other products. From August, 1993 until his return
to the company in 1994, Mr. Park continued to make his knowledge and
experience available to CMC as a consultant. During his career with CMC,
he served in various positions with the company, beginning as an Office
Manager/ Cost Accountant in 1964 and culminating as Executive Vice
President in 1985, in which capacity he served until 1993. Mr. Park has
traveled extensively and maintains valuable business contacts in Europe
and Asia. He holds a Bachelor of Business Administration degree in
Finance from the University of Texas.
Thomas P. O'Mara, 37, joined the Company in August, 1996, and in
April, 1997 was promoted to Vice President/ Sales and Marketing of
subsidiaries Curtis Mathes Marketing Corporation (CMMC) and Curtis Mathes
Xpressway Corporation (CMX), bringing with him more than 14 years of
experience in the consumer electronics industry. Mr. O'Mara is
responsible for management of the Company's domestic and international
sales force. He also oversees all marketing and advertising strategy for
all of the Company's products, including uniView and the Curtis Mathes
Xpressway. In addition, Mr. O'Mara has applied his broad technology
expertise in the actual development, design and execution of uniView and
the Curtis Mathes Xpressway. He also supervises corporate marketing and
communications, channel partner programs, and strategic alliance
programs. Prior to joining the Company, O'Mara was a regional sales
manager for the car electronics division of Pioneer Electronics. During
his 13-year tenure with Pioneer, he was directly involved in sales and
marketing aspects for the majority of all of Pioneer's consumer
electronics products. Mr. O'Mara received a bachelor of business
administration degree in accounting from LaSalle University
(Philadelphia, Pa.).
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the 1934 Act ("Section 16(a)"), requires the
Company's directors, executive officers and persons who beneficially own
more than 10% of a registered class of the Company's equity securities
("10% Owners") to file reports of beneficial ownership of the Company's
securities and changes in such beneficial ownership with the Securities
and Exchange Commission ("Commission"). Directors, executive officers
and 10% Owners are also required by rules promulgated by the Commission
to furnish the Company with copies of all forms they file pursuant to
Section 16(a).
Based solely upon a review of the copies of the forms filed pursuant
to Section 16(a) furnished to the Company, or written representations
that no year-end Form 5 filings were required for transactions occurring
during fiscal year ended June 30, 1997, the Company believes that during
<PAGE>
the fiscal year ended June 30, 1997, all Section 16(a) filing
requirements applicable to its directors, executive officers and 10%
Owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid over the last
three completed fiscal years to the Company's Chief Executive Officer and
any other executive officer of the Company who received compensation of
$100,000 or more during the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Other
Name and Year Other Restricted Securities LTIP Compen-
Principal Ended Annual Stock Underlying Payouts sation
Position Jun. 30 Salary($) Bonus($) Compensation($) Award(s)($) Options/SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patrick A. Custer 1997 151,310 11,200 12,000 -0- 400,000 -0- -0-
Chairman of the 1996 102,692 -0- 12,000 59,750 -0- -0- -0-
Board and CEO 1995 121,458 -0- 12,308 -0- -0- -0- -0-
Billy J. Robinson 1997 110,481 11,200 27,500 43,625 150,000 -0- -0-
Vice President, 1996 72,981 -0- 27,500 79,475 -0- -0- -0-
General Counsel 1995 83,937 -0- 32,776 43,625 -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
The following table shows all individual grants of stock options to
the named executive officers during the fiscal year ended June 30, 1997.
Grant Date
Individual Grants Value
------------------------------------------------------- ----------
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/
Underlying SARs
Name and Options/ Granted to Exercise Market Grant
Principal SARs Employees or Base Price on Date
Position Granted in Fiscal Price the Date Expiration Present
(#)(1)(2) Year(2) ($/Sh) of Grant Date Value(3)
<S> <C> <C> <C> <C> <C> <C>
Patrick A. Custer
Chairman of the
Board and CEO 400,000 40% $0.94 $1.34 April 6, 2002 $231,960
Billy J. Robinson
Vice President
and General
Counsel 150,000 15% $0.94 $1.34 April 6, 2002 $ 92,420
</TABLE>
<PAGE>
(1) Options have a five-year life, vest in increments over two and one-
half years and are priced at seventy (70%) percent of the average
trading price of the Common Stock, as reported by NASDAQ, for the
five (5) trading days immediately preceding the date of grant.
(2) The Company has not made any grants of SARs.
(3) The options were valued as of April 7, 1997 using the SFAS 123 -
Black Scholes Option Pricing Model, assuming expected volatility of
60%, a 6% risk-free rate of return, 0% dividend yield, and time of
exercise of 4.75 years. (Please refer to Note 11 on page F-30 of
the Notes to Consolidated Financial Statements in this Form 10-K for
further information concerning pricing of options.)
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table shows aggregate exercises of options (or tandem
stock appreciation rights) and freestanding stock appreciation rights
during the fiscal year ended June 30, 1997 by each of the named executive
officers.
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#)(2) FY-End ($)(2)(3)
Name and Shares Value
Principal Acquired Realized Exercisable (E)/ Exercisable/
Position on Exercise ($)(1) Unexercisable (U) Unexercisable
- -------- ----------- ------ ----------------- -------------
Patrick A. Custer
Chairman of the 50,000 7,000 50,000 (E) --
Board and CEO 300,000 (U) --
Billy J. Robinson
Vice President
and General 37,500 (E) --
Counsel -- -- 112,500 (U) --
(1) Amount shown is based upon the average of the closing bid and
closing asked price per share of the Company's Common Stock on the
Nasdaq SmallCap Market on the date of exercise, June 13, 1997, which
was $1.08.
(2) The Company has not made any grants of SARs.
(3) On June 30, 1997 the options were not considered "in-the-money," as
the fair market value of the underlying securities on that date
($0.89) did not exceed the exercise price of the options.
<PAGE>
Compensation of Directors
None of the inside directors are paid compensation as such, except
for services performed in another capacity, such as an executive officer
of the Company. The outside directors of the Company are paid $500 per
meeting, plus their expenses for attending Board of Director meetings.
The Company additionally granted each of the two outside directors stock
options to purchase 75,000 shares of Common Stock of the Company. The
options have a five-year life, vest in increments over two years and are
priced at seventy (70%) percent of the average trading price of the
Common Stock, as reported by NASDAQ, for the five (5) trading days
immediately preceding the date of grant. The exercise price of the
options is $0.94 per share and the market price of the Common Stock on
the date of grant, April 7, 1997, was $1.34 per share.
Employment Contracts and Termination and Change-in-Control Arrangements
In April 1997 the Company entered into employment agreements with
named executive officers Messrs. Custer and Robinson for approximately a
three-year term with the Company. The terms of both employment agreements
include an agreed annual salary, employee benefits, nonstatutory stock
options, portions of which vest at certain times depending on the
employee's continued tenure with the Company, and provisions concerning
termination of employment upon sale or change in control of the Company.
Compensation Committee Interlocks and Insider Participation
Mr. Custer, Mr. Robinson, and Mr. Richardson participated in
advising the Company's Board of Directors concerning certain aspects of
executive officer compensation during the last completed fiscal year.
Mr. Custer is Chairman of the Board, President and Chief Executive
Officer of the Company; Mr. Robinson is Vice President, Secretary,
General Counsel, and a Director; and Mr. Richardson is Vice President,
Chief Financial Officer.
Board of Directors Report on Executive Compensation
Executive Compensation
The Company has structured its executive compensation program within
the financial framework of the Company with a goal of attracting and
retaining high-quality executive talent. The executive compensation
program consists generally of base salary and employee benefits. The
Company reviews its compensation programs periodically and compares its
pay practices with other similar companies and with companies staffed
with similarly-skilled executives. During the first fiscal quarter of
each year, the Company reviews salary increases for the current year and,
considering the Company's financial performance and each executive
officer's perceived contribution to that performance, salaries are set
accordingly.
Chief Executive Officer
For the year ended June 30, 1997, Mr. Custer received $174,510 and
nonstatutory employee stock options, the vested portion of which was
valued at $47,119, for his services as President and Chief Executive
Officer of the Company. The factors the Company considered in setting
his compensation include Mr. Custer's leadership in restructuring the
<PAGE>
Company, his contribution to the strategic focus and financial
positioning of the Company, and included a consideration of his
responsibilities, experience, and skills.
Patrick A. Custer (Chairman) Edward M. Warren
Bernard S. Appel Billy J. Robinson
F. Shelton Richardson, Jr.
The foregoing report is not incorporated by reference in any prior
or future filings of the Company under the Securities Act of 1933, as
amended (the "1933 Act"), or under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), unless the Company specifically incorporates
the report by reference and the report shall not otherwise be deemed
filed under such Acts.
Performance Graph
The following graph compares total stockholder returns of the
Company since December 31, 1992 to two indices: a Composite Market Index
which includes the NASDAQ Market (the "Broad Market") and the companies
classified under S.I.C. code 3651 for consumer electronics (Household
Audio and Video Equipment) (the "Industry Index"). The total return for
the Company's stock and for each index assumes the reinvestment of
dividends, although dividends have never been declared on the Company's
stock. The Broad Market tracks the aggregate price performance of equity
securities of all companies traded on the various exchanges, including
the NASDAQ Market. The Industry Index tracks the aggregate price
performance of equity securities of companies traded on the various
exchanges, including the NASDAQ Market, which are grouped under S.I.C.
code 3651 for consumer electronics (Household Audio and Video Equipment.)
The graph should be viewed in the context of the disposition of
Southwest Memory, Inc. by the Company during fiscal year ended June 30,
1995, the reduction in the commodity business operations of the Curtis
Mathes Corporation subsidiary during fiscal year ended June 30, 1996, and
the introduction during fiscal year ended June 30, 1997 of the Company's
technologically advanced Internet access products, the Curtis Mathes
uniViewT and the Curtis Mathes XpresswayT Internet Service Provider and
Online Service. Accordingly, the indications of the graph may not
necessarily indicate future performance of the Company.
1/1/93 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
Curtis 100.00 200.00 576.00 138.00 276.00 182.00
Mathes
SIC Code 100.00 120.64 179.75 148.15 182.14 213.06
NASDAQ 100.00 111.94 122.75 143.96 181.22 218.30
Market
For a meaningful comparison of the Company's stock performance with that
of similar companies, December 31, 1992 was chosen as the beginning date
for the comparison. Characterization of the primary business activity of
the Company as consumer electronics began with the acquisition of
Southwest Memory, Inc. in December, 1992. Before then, the Company was
essentially dormant and comparison of the performance of its stock before
that date would have limited application.
<PAGE>
The foregoing graph is not incorporated in any prior or future
filings of the Company under the 1933 Act or the 1934 Act, unless the
Company specifically incorporates the graph by reference, and the graph
shall not otherwise be deemed filed under such Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 29,
1997 with respect to the beneficial ownership of Common Stock by (i)
persons known to the Company to be the beneficial owners of more than 5%
of the outstanding shares of Common Stock, (ii) all directors of the
Company, (iii) each of the executive officers named in the Summary
Compensation Table (appearing in Item 11) and (iv) all directors and
executive officers of the Company and significant subsidiaries as a
group.
The number of shares of Common Stock beneficially owned by each
individual set forth below is determined under the rules of the
Commission and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which an individual has sole or
shared voting power or investment power and any shares which an
individual presently, or within 60 days of September 28, 1996 (the date
on which this Form 10-K is due at the Commission, the "Due Date"), has
the right to acquire through the exercise of any stock option or other
right. Unless otherwise indicated, each individual has sole voting and
investment power (or shares such powers with his spouse) with respect to
the shares of Common Stock set forth in the following table. The
information is based upon corporate records, information furnished by
each shareholder, or information contained in filings made with the
Securities and Exchange Commission.
Number of Shares
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
5% Beneficial Owners
Patrick A. Custer 2,498,615(1) 6.13%
P. O. Box 802808
Dallas, Texas 75380-2808
D. Ronald Allen 2,010,165(2) 4.75%
10911 Petal Street, Suite 105
Dallas, TX 75238
Custer Company, Inc. 2,026,515(3) 4.98%
P.O. Box 802808
Dallas, TX 75380-2808
Geninvest, S.A. 3,627,333(4) 8.20%
c/o Lewis D. Rowe, Director
P.O. Box 1561
Zephyr House, Mary Street,
Grand Cayman, British West Indies
<PAGE>
Directors
Patrick A. Custer 2,498,615(1) 6.13%
Edward M. Warren 227,500(5) 0.56%
Billy J. Robinson 102,500(6) 0.25%
Bernard S. Appel 75,000(7) 0.18%
Executive Officers
Patrick A. Custer 2,498,615(1) 6.13%
Billy J. Robinson 102,500(6) 0.25%
All Directors and Executive
Officers as a Group 3,075,715(8) 7.50%
(1) Includes 175,000 shares owned outright by Mr. Custer; 50,000 shares
issuable to Mr. Custer upon exercise of vested nonstatutory Employee
Stock Options; 1,906,515 shares held of record by Custer Company,
Inc., a family trust, over which Mr. Custer exercises voting
control; 120,000 shares issuable to Custer Company, Inc. upon
exercise of warrants; 237,500 shares owned by his wife; 9,400 shares
held by his wife for the benefit of his minor daughter; and 100
shares each owned by his two sons.
(2) Includes 120,000 shares owned by Winterstone Management Company,
which is controlled by Mr. Allen; 149,365 shares owned outright, and
805,600 shares issuable upon exercise of warrants held by Associates
Funding Group, Inc., which is controlled by Mr. Allen; and 935,200
shares issuable upon exercise of warrants held by QAG, Inc., which
is controlled by Mr. Allen.
(3) Includes 120,000 shares issuable upon exercise of warrants.
(4) Issuable upon exercise of warrants.
(5) Includes 202,500 shares owned outright, and 25,000 shares issuable
to Mr. Warren upon exercise of stock options.
(6) Includes 65,000 shares owned outright, and 37,500 shares issuable to
Mr. Robinson upon exercise of vested nonstatutory Employee Stock
Options. Shares are held in escrow to be earned over four year term
of employment, but over which Mr. Robinson has voting rights.
(7) Includes 50,000 shares owned outright, and 25,000 shares issuable to
Mr. Appel upon exercise of stock options.
(8) Includes 2,903,615 shares beneficially owned by all directors. Also
includes 15,000 shares owned outright, and 57,500 shares issuable to
Mr. Richardson upon exercise of vested nonstatutory Employee Stock
Options. Also includes 10,000 shares owned outright, and 51,100
shares issuable to Mr. Park upon exercise of vested nonstatutory
Employee Stock Options. Also includes 1,000 shares owned outright,
and 37,500 shares issuable to Mr. O'Mara upon exercise of vested
nonstatutory Employee Stock Options.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year ended June 30, 1997, the Company engaged in the
transactions described below with various entities affiliated with the
Company. Management believes these transactions contain substantially
competitive terms as those available from unaffiliated sources.
Transactions with Related Parties
D. Ronald Allen/Associates Funding Group, Inc.
D. Ronald Allen, CPA, a consultant for the Company and currently a
4.75% beneficial owner of the Company, became affiliated in late 1992
when he assisted the Company in acquiring Southwest Memory, Inc. ("SMI").
Mr. Allen is President of Winterstone Management Company, which is a
family owned corporation and record holder of 120,000 shares of the
Company's Common Stock. Mr. Allen also owns Associates Funding Group,
Inc. ("AFG"), which is record holder of 149,365 common shares and 805,600
common shares issuable upon exercise of warrants of the Company. Mr.
Allen is also President of QAG, Inc. ("QAG"), which holds 935,200 common
shares issuable upon exercise of warrants of the Company. Mr. Allen has
from time to time assisted the Company in structuring transactions
between the Company and entities with which he is associated as principal
or agent, which transactions are described as follows:
(a) In July 1996 the Company redeemed for cash from AFG 117,305
shares of Series G Preferred Stock of the Company for face value of
$1,173,050, plus accrued dividends on outstanding Series G Preferred
Stock of $27,446
(b) In January 1997 the Company and a limited partnership, CMLP
Group, Ltd., of which AFG is the General Partner, entered into a Joint
Venture Agreement relating to the acquisition and development of certain
real estate as the future site of the Company's corporate offices. The
initial capital of the joint venture consisted of $276,285.27 contributed
by CMLP Group, Ltd. and $354,000 contributed by the Company. No further
action has been taken in furtherance of this project. The Company
expects to pursue completion of this project according to the future
needs and financial resources of the Company. In addition to AFG, other
members of CMLP Group, Ltd. include Custer Company, Inc., Billy J.
Robinson, F. Shelton Richardson, Jr., Neal J. Katz, Thomas W. (Bill)
Park, and Thomas P. O'Mara.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) Financial Statements
Reference is made to page F-1 of this Form 10-K for an index of
all financial statements filed as part of this report.
(2) Financial Statement Schedules
Reference is made to page F-1 of this Form 10-K for an index of
all financial statement schedules filed as part of this report.
All other schedules are omitted because they are not applicable
or not required, or because the required information is
included in the financial statements or notes thereto.
<PAGE>
(3) Exhibits
Reference is made to the Exhibit Index beginning on page 69 of
this Form 10-K for a list of all exhibits filed with and
incorporated by reference in this report.
(b) Reports on Form 8-K
During the three months ended June 30, 1997 the Company filed
four Current Reports on Form 8-K, one dated April 23, 1997, one
dated May 1, 1997, one dated May 14, 1997, and one dated June
23, 1997, all reporting Sales of Equity Securities Pursuant to
the exemption from registration afforded by Regulation S.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. With the exception of historical information, the
matters discussed or incorporated by reference in this Annual Report on
Form 10-K are forward-looking statements that involve risks and
uncertainties including, but not limited to, economic conditions, product
demand and industry capacity, competitive products and pricing,
manufacturing efficiencies, new product development, ability to enforce
intellectual property rights, and other risks indicated in filings with
the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CURTIS MATHES HOLDING CORPORATION
By: /s/ PAT CUSTER
Patrick A. Custer
President and Chief Executive Officer
September 4, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Principal Executive Officer
/s/ PAT CUSTER Chairman of the Board, September 4, 1997
Patrick A. Custer President, Chief Executive
Officer and Director
Principal Financial and Accounting Officer
/s/ F. SHELTON RICHARDSON, JR. Vice President, September 4, 1997
F. Shelton Richardson, Jr. Chief Financial Officer
Additional Directors
/s/ BILLY J. ROBINSON Vice President, Secretary, September 4, 1997
Billy J. Robinson General Counsel and Director
/s/ EDWARD M. WARREN Director September 4, 1997
Edward M. Warren
/s/ BERNARD S. APPEL Director September 4, 1997
Bernard S. Appel
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CURTIS MATHES HOLDING CORPORATION
AND SUBSIDIARIES
JUNE 30, 1997 AND 1996
CURTIS MATHES HOLDING CORPORATION
AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Report of Independent Certified Public Accountants F-3
Financial Statements
Consolidated Balance Sheets for years ended
June 30, 1997 and 1996 F-4
Consolidated Statements of Operations for years ended
June 30, 1997, 1996 and 1995 F-7
Consolidated Statement of Changes in Stockholders' Equity
for years ended June 30, 1997, 1996 and 1995 F-8
Consolidated Statements of Cash Flows for years ended
June 30, 1997, 1996 and 1995 F-12
Notes to Consolidated Financial Statements F-15
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-40
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the
financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Curtis Mathes Holding Corporation
We have audited the consolidated balance sheets of Curtis Mathes
Holding Corporation and Subsidiaries as of June 30, 1997 and 1996, and
the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three
year period ended June 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Curtis Mathes Holding Corporation and Subsidiaries as of June 30,
1997 and 1996, and the results of their operations and their cash
flows for each of the years in the three year period ended June 30,
1997, in conformity with generally accepted accounting principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
August 6, 1997
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
ASSETS
1997 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 800,346 $ 4,150,481
Marketable securities 282,142 -
Subscriptions receivable - 4,351,500
Accounts receivable
Trade - 8,445
Due from related parties 20,000 40,000
Note receivable, net of allowance
of $375,000 in 1997 35,237 354,807
Inventory 79,701 646,929
Current portion of restricted cash - 47,423
Prepaid expenses 1,918,998 93,916
------------ ------------
Total current assets 3,136,424 9,693,501
------------ ------------
PROPERTY AND EQUIPMENT, net 2,319,012 656,102
------------ ------------
OTHER ASSETS
Investment in joint venture 354,000 -
Notes receivable, less current portion 291,521 -
Software development 4,149,748 491,667
Licenses 1,100,117 -
Trademark, net of accumulated
amortization of $822,693
and $577,389 4,093,061 4,338,366
Other 30,870 30,770
------------ ------------
Total other assets 10,019,317 4,860,803
------------ ------------
TOTAL ASSETS $ 15,474,753 $ 15,210,406
-Continued-
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
June 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
------------ ------------
CURRENT LIABILITIES
Trade accounts payable $ 355,894 $ 134,522
Accrued and other current liabilities 1,197,194 649,456
License fees payable 660,000 -
Current maturities of long-term debt,
including $34,000 due to related
parties in 1997 301,810 807,847
Current maturities of obligations
under capital leases 38,296 109,487
Deferred gain - 1,252,461
------------ ------------
Total current liabilities 2,553,194 2,953,773
------------ ------------
LONG TERM DEBT, less current maturities 171,469 186,310
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 14,262 88,876
WARRANTY PROVISION 435,193 257,915
------------ ------------
Total liabilities 3,174,118 3,486,874
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2,8,9,11,
13,14,15,17 and 19)
STOCKHOLDERS' EQUITY
Preferred stock, cumulative, $1.00 par value;
1,000,000 shares authorized:
Series A, 140,000 shares (liquidation
preference of $140,000) $ 140,000 $ 140,000
Series G, 117,305 shares in 1996 - 117,305
Series H, 3 and 55 shares in 1996
(liquidation preference of $75,000 in 1997) 3 55
Series I, 5,385 shares in 1996 - 5,385
Series K, 9 shares in 1997 (liquidation
preference of $1,035,000) 9 -
Series L, 1,275 shares in 1997 (liquidation
preference of $1,275,000) 1,275 -
Common stock, $.01 par value; 80,000,000 and
40,000,000 shares authorized and 36,709,186
and 24,311,188 issued and outstanding at
June 30, 1997 and 1996, respectively 367,092 243,112
Additional paid-in-capital 30,317,592 22,193,525
Accumulated deficit, since July 1, 1993 quasi
reorganization in which an accumulated
deficit of $4,140,595 was eliminated (18,525,336) (10,975,850)
------------- -------------
Total Stockholders' Equity 12,300,635 11,723,532
------------- -------------
TOTAL LIABILITIES AND EQUITY $ 15,474,753 $ 15,210,406
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
REVENUES:
Net sales $ 2,503,512 $ 7,656,836 $ 21,267,244
Royalty income - - 300,000
------------- ------------- -------------
Total Revenue 2,503,512 7,656,836 21,567,244
COST OF SALES 2,612,402 6,867,560 17,712,200
------------- ------------- -------------
Gross Profit (108,890) 789,276 3,855,044
OPERATING EXPENSES 8,801,723 6,400,523 7,201,209
------------- ------------- -------------
Operating Loss (8,910,613) (5,611,247) (3,346,165)
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest and other income, net 235,404 307,367 128,663
Interest expense (86,292) (583,433) (1,574,540)
------------- ------------- -------------
Total Other Income (Expense) 149,112 (276,066) (1,445,877)
------------- ------------- -------------
MINORITY INTEREST SHARE OF
LOSS OF SUBSIDIARY - - 382,457
------------- ------------- -------------
LOSS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM (8,761,501) (5,887,313) (4,409,585)
Income tax benefit 463,035 - -
------------- ------------- -------------
LOSS FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM (8,298,466) (5,887,313) (4,409,585)
DISCONTINUED
OPERATIONS
Income from operations
of discontinued electronics
components segment - - 74,590
Gain on sale of discontinued
segment - - 98,460
------------- ------------- -------------
Loss before extraordinary item (8,298,466) (5,887,313) (4,236,535)
EXTRAORDINARY ITEM
Gain on extinguishment of
debt, net of income taxes
of $463,035 789,426 - -
------------- ------------- -------------
-Continued-
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
NET LOSS $ (7,509,040) $ (5,887,313) $ (4,236,535)
============= ============= =============
Loss from continuing
operations attributable
to common shareholders
(Note 1) $ (8,325,689) $ (6,187,353) $ (4,331,397)
============= ============= =============
Loss attributable to common
shareholders (Note 1) $ (7,536,263) $ (6,187,353) $ (4,158,347)
============= ============= =============
Loss from continuing
operations per share
attributable to common
shareholders $ (0.25) $ (0.35) $ (0.46)
============= ============= =============
Gain from extraordinary item
per share $ 0.02 $ - $ -
============= ============= =============
Loss per share attributable to
common shareholders $ (0.23) $ (0.35) $ (0.44)
============= ============= =============
Weighted average common shares
outstanding 32,307,591 17,432,013 9,416,503
============= ============= =============
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
---------- ---------- -------- ------------ ------------ ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES - June 30, 1994 8,412,000 $ 84,120 142,914 $ 142,914 $ 6,539,895 $ (2,240,000) $ (309,444)
Issuances of common stock
for cash 1,400,000 14,000 - - 1,750,500 - -
Issuances of common stock for
reduction of advances to a
shareholder and officer 120,000 1,200 - - 58,800 - -
Other issuances of common stock 22,800 228 - - - - -
Conversion of Series B preferred
stock to Series F preferred stock - - - - - - -
Net redemption of Series F
preferred stock in connection
with settlement of liabilities - - (1,056) (1,056) (699,098) - -
Issuance of Series F preferred
stock for dividends - - 183 183 182,564 - -
</TABLE>
-Continued-
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -Continued-
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
---------- ---------- -------- ------------ ------------ ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Redemption of Series F preferred
stock in satisfaction of notes
receivable and interest from
Advanced PC Products, Inc.("APC") - $ - (252) $ (252) $ - $ - $ -
Issuance of Series F preferred
stock in satisfaction of
notes payable - - 1,049 1,049 1,048,415 - -
Redemption of Series F preferred
stock in satisfaction of notes
receivable from AFG - - (125) (125) - - -
Redemption of Series F preferred
stock in connection with
employee settlement - - (25) (25) (24,975) - -
Redemption of Series F preferred
stock for investment in APC - - (2,240) (2,240) (2,237,760) 2,240,000 -
Redemption of Series F preferred
stock for cash - - (98) (98) (97,902) - -
Conversion of Series F preferred
stock to series G preferred stock - - 35,350 35,350 (35,350) - -
Issuance of Series G preferred
stock for cash to AFG - - 96,563 96,563 578,437 - -
Issuance of Series G preferred stock
for repurchase of 20% interest in
Curtis Mathes Corporation - - 97,500 97,500 170,625 - -
Dividends paid in cash - - - - - - (236,703)
Net loss for the year - - - - - - (4,236,535)
---------- ---------- -------- ------------ ------------ ------------ --------------
BALANCES - June 30, 1995 9,954,800 99,548 369,763 369,763 7,234,151 - (4,782,682)
Issuance of Series H preferred
stock for cash - - 55 55 1,287,445 - -
Issuance of Series I preferred
stock for cash - - 550 550 494,450 - -
Subscriptions for Series I preferred
stock - - 4,835 4,835 4,346,665 - -
Conversion of Series G preferred
stock to common 136,900 1,369 (112,458) (112,458) (405,875) - -
Conversion of debentures and
demand notes 1,050,000 10,500 - - 789,500 - -
Issuance of common stock for fees
and services 222,000 2,220 - - 149,280 - -
Issuance of common stock for
employee compensation 83,000 830 - - - - -
Issuance of common stock for cash
and payment of note payable
of $145,280 10,317,088 103,171 - - 5,845,279 - -
Exercise of warrants 1,887,000 18,870 - - 2,452,630 - -
</TABLE>
-Continued-
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -Continued-
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
---------- ---------- -------- ------------ ------------ ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
fees on above common stock
issuances for cash 660,400 $ 6,604 - $ - $ - $ - $ -
Dividends paid in cash - - - - - - (305,855)
Net loss for the year - - - - - - (5,887,313)
---------- ---------- -------- ------------ ------------ ------------ --------------
BALANCES - June 30, 1996 24,311,188 243,112 262,745 262,745 22,193,525 - (10,975,850)
Redemption of Series G
preferred for cash - - (117,305) (117,305) (1,055,745) - -
Conversion of Series H
preferred for common stock 879,068 8,791 (52) (52) (8,739) - -
Issuance of Series I
preferred stock for cash - - 800 800 728,200 - -
Conversion of Series I
preferred to common stock 5,200,136 52,001 (6,185) (6,185) (45,816) - -
Issuance of Series J
preferred stock for cash - - 1,625 1,625 1,460,875 - -
Conversion of Series J
preferred for common stock 1,481,140 14,811 (1,625) (1,625) (13,186) - -
Issuance of common stock
for cash 3,220,000 32,200 - - 3,568,426 - -
Issuance of Series K
preferred for cash - - 11 11 983,876 - -
Issuance of Series L
preferred stock for cash - - 1,500 1,500 1,423,500 - -
Conversion of Series K
preferred for common stock 135,501 1,355 (2) (2) (1,353) - -
Issuance of common stock for
warrants exercised 100,000 1,000 - - 81,000 - -
Conversion of Series L
preferred for common stock 303,797 3,038 (225) (225) 2,813 - -
Conversion of Line of Credit
note payable for common stock 1,078,356 10,784 - - 1,000,216 - -
Dividends paid in cash - - - - - - (40,446)
Net loss for the year - - - - - - (7,509,040)
---------- ---------- -------- ------------ ------------ ------------ --------------
BALANCES - June 30, 1997 36,709,186 $ 367,092 141,287 $ 141,287 $ 30,317,592 $ - $ (18,525,336)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,509,040) $ (5,887,313) $ (4,236,535)
Adjustments to reconcile net loss
to cash provided (used) by operating activities:
(Gain) loss on sales of assets 1,200 305 44,185
Gain on sale of discontinued segment - - (98,460)
Depreciation and amortization 690,504 645,128 477,014
Income tax benefit (463,035) - -
Gain on extinguishment of debt (789,426) - -
Provision for bad debts 375,000 536,080 (59,512)
Provision for obsolete inventory 255,115 (282,457) 9,962
Minority interest share of loss in subsidiary - - (382,457)
Issuance of shares as employee compensation
and/or financing fees - 830 -
Commissions paid through issuance of common stock - - 228
Interest income earned through redemption of
preferred stock - - (2,500)
Employee settlement through redemption of
preferred stock - - (25,000)
Common stock issued for consulting fees - 30,000 -
Write off of note receivable - 25,000 -
Write off of investment - 250,000 -
Changes in assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable 28,445 990,231 (563,429)
Inventory 312,113 2,329,882 (921,877)
Prepaid expense and other (1,825,081) (460,144) 153,648
Restricted cash 47,423 233,209 65,263
Other assets (100) 32,720 164,048
Accounts payable, accrued liabilities
and other current liabilities 1,429,110 (193,699) (537,515)
Other liabilities 177,278 (169,613) 54,183
------------- ------------- -------------
Cash provided (used) by operating activities (7,270,494) (1,919,841) (5,858,754)
------------- ------------- -------------
</TABLE>
-Continued-
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment $ (2,100,359) $ (136,558) $ (299,328)
Investment in joint venture (354,000) - -
Software development (3,649,748) - -
Licenses (1,113,867) - -
Investment in marketable securities (282,142) - -
Repurchase of 20% interest in CM - - (151,000)
Reorganization payments to trustee and DFS - - (361,267)
Cash balance in company acquired (disposed) - (5,342) (11,992)
Collections on notes receivable 28,049 1,193 625,217
Issuance of note receivable (375,000) - -
------------- ------------- -------------
Cash used for investing activities (7,847,067) (140,707) (198,370)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks issued in excess of cash balances - (32,852) 32,852
Receipts under borrowing arrangements 1,000,000 - -
Change in borrowings under line of credit agreements - (2,572,024) 3,437,866
Proceeds from long-term debt 122,062 - -
Principal payments on long-term debt (642,940) (1,235,147) (196,605)
Principal payments on capital lease obligations (145,805) (6,207) (116,844)
Issuances of preferred and common stock for cash 8,296,105 10,271,421 2,439,500
Redemption of preferred stock for cash (1,173,050) - (98,000)
Receipt of cash for common stock issued in
prior year 4,351,500 - -
Dividends paid (40,446) (305,855) (53,956)
------------- ------------- -------------
Cash provided by financing activities 11,767,426 6,119,336 5,444,813
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,350,135) 4,058,788 (612,311)
CASH AND CASH EQUIVALENTS, BEGINNING 4,150,481 91,693 704,004
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 800,346 $ 4,150,481 $ 91,693
============= ============= =============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 64,231 $ 508,898 $ 1,787,846
============= ============= =============
</TABLE>
-Continued-
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for settlement of cash received
under borrowing arrangements, including $78,356 in
accrued interest. $ 1,078,356 $ - $ -
============= ============= =============
Conversion of debentures and demand notes into
common stock $ - $ 800,000 $ -
============= ============= =============
Issuance of common stock for fees and services $ - $ 151,500 $ -
============= ============= =============
Issuance of common stock for note payable $ - $ 145,280 $ -
============= ============= =============
Sale of inventory parts for note receivable $ - $ 350,000 $ -
============= ============= =============
Issuance of common stock for subscriptions and receivable $ - $ 4,350,500 $ -
============= ============= =============
Issuance of common stock for commission $ - $ 6,604 $ 228
============= ============= =============
Purchases of property and equipment for notes payable $ - $ 59,337 $ 511,047
============= ============= =============
Issuance of common stock in satisfaction of amounts
due to shareholder $ - $ - $ 60,000
============= ============= =============
Redemption of preferred stock in connection with
employee settlement $ - $ - $ 25,000
============= ============= =============
Issuance of preferred stock in satisfaction
of notes receivable and interest $ - $ - $ 1,049,464
============= ============= =============
Redemption of preferred stock in satisfaction
of notes receivable and interest $ - $ - $ 3,673,500
============= ============= =============
Conversion of debentures to demand notes payable $ - $ - $ 615,000
============= ============= =============
Line of credit converted to long-term debt $ - $ - $ 1,024,750
============= ============= =============
Issuance of preferred stock for dividends $ - $ - $ 182,747
============= ============= =============
Sale of SMI for notes payable $ - $ - $ 1,570,000
============= ============= =============
Preferred stock ($268,125) and notes payable ($150,000)
portion of consideration for repurchase of 20% of CM $ - $ - $ 418,425
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
Curtis Mathes Holding Corporation was formed on July 13, 1984, to
operate in the entertainment industry. The Company discontinued
this line of business in 1988, acquired rent-to-own operations
which were subsequently discontinued, and was deemed to have
reentered the development stage effective July 1, 1990.
The Company was no longer considered to be in the development
stage following the acquisition of operating subsidiaries FFL,
Inc. (FFL) and Southwest Memory, Inc. (SMI) in December 1992. In
November 1993, the Company acquired 100% of the common stock of
Curtis Mathes Corporation ("CM") (20% was subsequently sold). In
June 1995, the Company reacquired the outstanding 20% to regain
100% ownership of Curtis Mathes. In December, 1994, the Company
sold SMI (see Note 3).
During 1996, the Company operated principally as a wholesale
distributor in the consumer electronics industry through its 100%
owned subsidiary CM. The Company also owns 100% of FFL, which
was involved in real estate and financing transactions in prior
years but which is now inactive. The Company has other
subsidiaries which have been relatively inactive. Towards the
latter half of fiscal 1996, the Company redirected its focus
toward a new product called uniView which allows the user,
through the use of their TV remote control, to "surf the
Internet", receive E-Mail, or to search for movies or programs
featuring specific subjects, stars or ratings.
During 1997, the Company created a new subsidiary, Curtis Mathes
Xpressway Corporation (Xpressway). Xpressway was created to
construct, own, and operate the Company's new Internet service
provider (ISP) which will be the Internet "on ramp" for uniView
users.
The accompanying financial statements include the accounts of
Curtis Mathes Holding Corporation and its subsidiaries. These
entities are collectively referred to herein as "the Company".
All material intercompany accounts and transactions are
eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid debt instruments having
an original maturity of three months or less when purchased to be
cash equivalents for purposes of the statement of cash flows.
Marketable Securities
Marketable securities are classified as available-for-sale and
stated at fair market value. The historical cost of these
securities approximates their fair market value at June 30, 1997.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Prepaid Expenses
Prepaid expenses include approximately $1,350,000 advanced to an
entity to fund the production of uniView inventory.
Inventory
Inventories are stated at the lower of average cost or market.
Property and Equipment
Property and equipment are stated at cost and are depreciated
using the straight-line method over estimated useful lives of
three to seven years. Maintenance and repairs are expensed as
incurred. Replacements and betterments are capitalized.
Software Development Costs
Software development costs have been capitalized in accordance
with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed" ("SFAS 86"). Under SFAS 86, capitalization
of software development costs begins upon the establishment of
technological feasibility and ends when a product is available
for general release to customers. Software development costs
will be amortized after the product is placed in service over a
period ranging from three to five years.
Trademark
Trademark represents the value considered to arise from the
Curtis Mathes Corporation name and reputation and consists of the
excess of the purchase price paid over the estimated fair market
value of identifiable net assets acquired in connection with the
acquisition of Curtis Mathes Corporation. The excess purchase
price includes amounts paid to Deutsche Financial Services
("DFS"), (previously ITT Commercial Finance Corporation) and
unsecured creditors in accordance with the Curtis Mathes
Corporation reorganization (see Note 14). The trademark value is
amortized on a straight-line basis over 20 years. Amortization
of the trademark for the years ended June 30, 1997, 1996 and 1995
amounted to $244,238, $244,264 and $206,284, respectively.
On an on-going basis, management reviews recoverability, the
valuation and amortization of the trademark. As a part of this
review, the Company considers the undiscounted projected future
net earnings in evaluating the value of the trademark. If the
undiscounted future net earnings is less than the stated value,
the trademark would be written down to its fair value.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Research and Development Costs
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amounts
charged to expense in 1997, 1996 and 1995 were $516,931 and
$11,480 and $0, respectively.
Advertising Costs
Advertising costs are charged to operations when the advertising
first takes place. Advertising costs charged to expense in 1997,
1996, and 1995 totaled $1,981,172, $142,891 and $249,151,
respectively.
License Fees
The cost of initial license fees and other operating rights
acquired are being amortized on the straight line method over
their remaining contractual lives of five years. Amortization
expense charged to operations in 1997 totaled $7,750.
Income Taxes
The Company utilizes the asset and liability method of accounting
for income taxes. The Company records deferred tax assets and
liabilities for the expected future tax consequences of events
that have been included in the financial statements and income
tax returns. Deferred tax assets and liabilities are determined
based on the differences between the financial statement and
income tax bases of assets and liabilities using currently
enacted tax rates.
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, CM is a party to financial
instruments with off-balance sheet risk to meet the financing
needs of the CM dealers. These financial instruments principally
include obligations to repurchase defaulted dealer receivables
and inventory financed under CM's dealer floorplan agreement with
DFS.
CM's exposure to credit loss in the event of nonperformance by CM
dealers with respect to the repurchase obligations is represented
by the contractual amount of the instruments as discussed in Note
13. CM uses the same credit policies in evaluating its
guarantees as it does for financial instruments reflected in the
Company's financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Net Loss Per Common Share
Net loss per share of common stock is computed based on the
weighted average number of common shares outstanding during each
respective year. Net loss for purposes of the computation of
loss per share is increased for preferred stock dividends of
$27,223, $300,040 and $78,188 ($.00, $0.02 and $0.01 per common
share) for the years ended June 30, 1997, 1996, and 1995,
respectively. Fully diluted loss per share for the years ended
June 30, 1997, 1996 and 1995 is the same as primary loss per
share since the assumed conversion of convertible securities
would be anti-dilutive.
Quasi Reorganization
Effective July 1, 1993, the stockholders and directors of the
Company approved a plan of quasi reorganization. Pursuant to the
plan, all assets and liabilities as of that date were adjusted to
estimated fair value (such adjustments were nominal) and an
accumulated deficit of $4,140,595 was removed from the balance
sheet with a corresponding charge to additional paid-in capital.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") became effective in
fiscal 1997. This statement requires the fair value of stock
options and other stock-based compensation issued to employees to
either be included as compensation expense in the income
statement or the pro forma effect on net income and earnings per
share of such compensation expense to be disclosed in the
footnotes to the Company's financial statements. The Company has
adopted SFAS 123 on a disclosure basis only. (See Note 11).
Accounting Standards Not Yet Adopted
In February, 1997, Statement of Financial Accounting Standards
No. 128, "Earnings per Share" was issued. This statement
standardizes the earnings per share calculation with
International Accounting Standards and is effective for years
ending after December 15, 1997. Implementation of this statement
is not expected to materially impact the Company's earnings per
share calculations.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Fair Market Value of Financial Instruments
The carrying amount for cash and cash equivalents, notes
receivable, and long term debt is not materially different than
fair market value because of the short maturity of the
instruments and/or their respective interest rate amounts.
Reclassifications
Certain prior year amounts have been reclassified in order to
conform to current year presentation.
2. ABILITY TO CONTINUE AS A GOING CONCERN
As reflected in the accompanying consolidated financial
statements, the Company incurred losses from continuing
operations of $8,298,466, $5,887,313 and $4,409,585 during the
years ended June 30, 1997, 1996 and 1995, respectively. During
1997, 1996 and 1995, the Company also used substantial cash in
operations. During the second half of fiscal 1996, the Company
redirected its focus toward a new product, uniView. Since the
Company's change of focus in late fiscal 1996, substantially all
resources have been committed to the development and refining of
the new uniView product. The Company's ability to continue as a
going concern will be based on its ability to obtain the
operating funds necessary to fund this new direction until cash
flows generated by operations are sufficient to meet the cash
flow needs of the Company.
The Company introduced its product to the market in August, 1997
and, based on early shipments of product, believes that it has
begun to achieve product acceptance.
Management projections rely heavily on additional financing in
fiscal 1998. Management's plans with respect to the required
financing include significant draw downs on the Company's
existing borrowing arrangement (See Note 8), cash from the
exercise of stock warrants, and cash from additional issuances of
common stock. Management believes that the product will be
successful and that the necessary financing to fund its
operations will be obtained.
3. ACQUISITIONS AND DISPOSITIONS
CM
The Company reacquired the outstanding 20% interest in CM in
June, 1995 for a total of $568,125 consisting of 97,500 shares of
Series G preferred stock, a $150,000 promissory note, and
$151,000 cash. The consideration has been capitalized to
trademark and will be amortized on a straight line basis over 20
years. The 97,500 Series G preferred shares were valued at the
number of common shares assuming conversion at average common
share prices at the closing date.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS AND DISPOSITIONS - Continued
SMI
Effective December 31, 1994, the Company sold back to its former
owner, Ilya Drapkin, 100% of the issued and outstanding capital
stock of SMI, its electronic components division, pursuant to a
Memorandum of Stock Sale Agreement. The consideration received
consisted of two promissory notes totaling $1,570,000. One
promissory note for $500,000 (bearing interest at 7.5%) was
collected in cash during fiscal 1995. During 1997, the remaining
balance of the second promissory note became uncollectable and
was charged against a previously established allowance.
4. RESTRICTED CASH
In accordance with CM's plan of reorganization (see Note 14), a
post-petition warranty bank account was established and funded
for the purpose of securing payment of warranty claims on units
sold by CM during the period from January 28, 1992 to September
30, 1992. The post-petition warranty account was used for no
other purpose than paying valid warranty claims on units sold
during the period CM was in bankruptcy. During 1996, based on
the availability of funds versus expected future payments, the
Company obtained permission from the disbursing agent to use
funds for payment of warranty claims arising out of other periods
in addition to those specified in the plan of reorganization.
Surplus funds remaining in the post-petition warranty account on
February 1, 1997, vested with the reorganized Curtis Mathes
Corporation.
5. NOTES RECEIVABLE
Notes receivable at June 30, 1997 and 1996 consist of the following:
1997 1996
------------ ------------
Note receivable from Inman's Corporation,
non-interest earning, with bi-monthly
installments of $8,250, secured by parts
inventory and proceeds from sale of parts
inventory. $ 323,911 $ 350,000
Note receivable from employee, earning interest
at 9.5%, secured by automobile. 2,847 4,807
Note receivable from ViewCall America, Inc.,
non-interest bearing, secured by borrower's
notes receivable 375,000 -
Less reserve for bad debts (375,000) -
------------ ------------
326,758 354,807
Less current portion (35,237) (354,807)
------------ ------------
Long-term portion $ 291,521 $ -
============ ============
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVENTORY
Inventory at June 30, 1997 and 1996 consists of the following:
1997 1996
------------ ------------
Consumer electronic products $ 334,816 $ 646,929
Less reserve for excess and obsolete inventory (255,115) -
------------ ------------
$ 79,701 $ 646,929
============ ============
Also see Note 8.
7. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 and 1996
consist of the following:
1997 1996
------------ ------------
Equipment $ 3,137,944 $ 1,198,566
Vehicles 22,589 7,500
Furniture and fixtures 131,483 49,690
Leasehold improvements 100,490 71,692
Computer software 35,301 -
------------ ------------
3,427,807 1,327,448
Less accumulated depreciation and amortization (1,108,795) (671,346)
------------ ------------
Net property and equipment $ 2,319,012 $ 656,102
============ ============
Equipment under capital leases included above at June 30, 1997
and 1996 amounted to $407,332 and $323,761, respectively, and the
related accumulated amortization amounted to $349,660 and
$272,401, respectively.
Depreciation expense for the years ending June 30, 1997, 1996 and
1995 totaled $437,448, $391,331 and $275,488, respectively.
8. BORROWING ARRANGEMENTS AND DEBT
Long-term debt at June 30, 1997 and 1996 consists
of the following:
1997 1996
------------ ------------
Note payable to an individual with imputed
interest of 10%, payable in monthly
installments of $1,458, unsecured. $ 48,959 $ 66,455
Note payable to a financial institution with
interest at 10.9%, payable in monthly installments
of $2,677, collateralized by equipment. 561 32,686
Note payable to AIG Designs, Inc. with interest
at 10%, payable in monthly installments of
approximately $15,000, unsecured. - 227,319
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. BORROWING ARRANGEMENTS AND DEBT - Continued
Long-term debt at June 30, 1997 and 1996 - Continued
1997 1996
------------ ------------
Note payable to DFS with interest at prime
(8.25% at June 30, 1996), payable in monthly
principal installments of $33,000 plus interest,
collateralized by a note receivable due from SMI
and inventory. $ - 300,000
Note payable to a financial institution with interest
at 6%, payable in eight quarterly installments of
principal of $58,778, plus interest, collateralized
by certain inventory. 389,759 367,697
Note payable to Custer Company, Inc. 34,000 -
------------ ------------
473,279 994,157
Less current portion (301,810) (807,847)
------------ ------------
Long-term portion $ 171,469 $ 186,310
============ ============
The following is a schedule of maturities of long-term
debt at June 30, 1997:
1998 $ 301,810
1999 142,108
2000 17,496
2001 11,865
---------
$ 473,279
=========
At June 30, 1995, the Company had debentures with an outstanding
balance of $555,000. During 1996, all of the debentures were
converted into the Company's common stock.
The Company has a revolving borrowing arrangement with an
investor which provides for borrowings up to $10,000,000
outstanding at any given time. Amounts outstanding bear interest
at prime plus 1.5%, are unsecured, and to the extent not
converted to common stock, are due within one year of the draw
down. The Company and the investor generally agree on the terms
of conversion at the time of draw down. Amounts available under
the borrowing "facility" are increased by the amount converted
into common stock to a maximum of $10,000,000.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ALLOWANCE FOR WARRANTY CLAIMS
Warranty costs, where applicable, are recorded by CM upon the
sale of the electronic products based on estimates of failure
rates and costs to repair defective units. A simple average of
the failure rates and repair costs is applied to the total number
of units that are under warranty to establish the allowance for
warranty claims.
All electronic products sold up to the date of settlement with
DFS (March, 1996) included a four year parts and labor warranty.
Pursuant to CM's plan of reorganization, CM agreed to continue to
extend a parts only warranty for the time period of the original
warranties on units sold prior to CM's bankruptcy filing on
January 27, 1992.
The reorganized CM was required under the plan of reorganization
to fully fund the cost of warranty claims for units sold during
the period CM was in bankruptcy. In addition, CM's plan of
reorganization provided that the reorganized CM fund in a
segregated bank account an amount equal to 1.25% of gross
electronic sales to pay warranty claims subsequent to the
reorganization confirmation date (October 1, 1992). The
remaining liability at June 30, 1996 represents the remaining
four months of coverage until expiration of the warranties in
October, 1996.
For the years ended June 30, 1997, 1996 and 1995, the Company
provided for warranty allowance at a rate of approximately 5%,
2.5% and 2.5% of sales, respectively. Management believes that
the reserve is adequate to cover potential warranty claims.
Other current liabilities in the accompanying balance sheets
include an allowance for warranty claims of $108,798 and $96,479
at June 30, 1997 and 1996, respectively and other long-term
liabilities include an allowance for warranty claims of $435,193
and $257,915 at June 30, 1997 and 1996, respectively.
During fiscal 1996, the Company sold all of its remaining parts
inventory on hand to a third party and outsourced repairs and
parts servicing for all warranty obligations. The Company pays
fees for the service and repair of warrantied units.
10. RELATED PARTY TRANSACTIONS
In 1994, the Company advanced $80,000 to an employee in
connection with an employment agreement. The amount accrues to
the individual at $20,000 per year and is being amortized over
the same period. In connection with this employment agreement,
the Company also issued 50,000 shares to this individual valued
at $174,500 which is also being amortized over the same period.
At June 30, 1994, an individual, Ilya Drapkin, a shareholder of
the Company, owed the Company $121,389 for advances made by the
Company. This amount was settled during the year ended June 30,
1995.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RELATED PARTY TRANSACTIONS - Continued
During the year ended June 30, 1994, the Company sold technology
in connection with billboard signs to Animated Systems &
Presentations, Inc., a company affiliated with Phillip Scheldt, a
shareholder and prior officer of the Company for $25,000 in cash
and a note receivable of $225,000 which was collected subsequent
to June 30, 1994. In connection with the sale, the Company
received royalty payments which amounted to $300,000 during the
year ended June 30, 1995.
During 1995, the Company issued 120,000 shares to Custer Company,
a company controlled by Pat Custer, a shareholder and president
of the Company, in satisfaction of advances amounting to $60,000.
During 1995, 96,563 shares of Series G were issued to Associates
Funding Group ("AFG"), a related party, for cash proceeds of
$675,000.
During 1996, the Company wrote off a $25,000 note receivable from
BC & Q, a related entity.
In May, 1996, AFG converted 97,500 shares of Series G preferred
stock with an original basis of $568,125 to 390,000 shares of
common stock. The Company issued 136,900 of these shares and
canceled 253,100 shares in satisfaction of the remaining balance
of a note receivable and accrued interest due from SMI. The
preferred shares were previously held as collateral on the note
receivable from SMI.
In connection with the purchase and sale of a company in previous
years, at June 30, 1994, the Company ended up holding both an
investment of preferred stock issued by that entity (a related
company) and issued outstanding preferred shares of the Company
being held by that entity. The $2,240,000 Series B preferred
stock of the Company held by the entity was considered a "de
facto" redemption against the preferred stock investment of
$2,240,000 held in the entity, and, accordingly, at June 30,
1994, the investment in that entity has been reflected as a
reduction of stockholders' equity. During 1995 the $2,240,000
Series B preferred stock was redeemed against the $2,240,000
investment in the entity.
See Note 3 regarding sale of SMI.
See Note 18 regarding investment in joint venture.
See Note 20 regarding extraordinary item.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 1,000,000 authorized shares of $1.00 par value
cumulative preferred stock. The Company's articles of
incorporation allows the board of directors to determine the
number of shares and determine the relative rights and
preferences of any series of preferred stock to be issued.
At June 30, 1997, the Company has issued and outstanding 140,000
Series A preferred shares, 3 Series H preferred shares, 9 Series
K preferred shares and 1,275 Series L preferred shares. Series A
preferred shares are non-convertible, redeemable and carry
dividends of 6%. Series H preferred shares are convertible,
redeemable and carry dividends of 5%. Series K preferred shares
are convertible, redeemable, and carry dividends of 10%. Series
L preferred shares are convertible and carry no dividends.
Subsequent to June 30, 1997, the Company issued $1,500,000 in
Series M preferred stock. These shares are convertible,
redeemable and carry dividends of 3%.
Dividends of $40,446 and $305,855 on preferred stock were paid
during the year ended June 30, 1997 and 1996. Dividends of
$236,703 were paid during the year ended June 30, 1995, of which,
$182,747 were paid through the issuance of additional preferred
stock. Cumulative dividends in arrears as of June 30, 1997, 1996
and 1995 amounted to $12,858, $26,081 and $31,896, respectively.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY - Continued
Common Stock
Common stock warrants issued and outstanding as of June 30, 1997
are as follows:
Shares Exercise Price Issuance Date Term
---------- -------------- ------------- -------
155,000 3.940 March 1994 5 years
30,000 3.125 April 1994 5 years
40,000 3.125 May 1994 5 years
30,000 3.125 June 1994 5 years
57,000 3.000 July 1994 3 years
20,000 2.250 February 1995 5 years
105,000 1.250 April 1995 5 years
1,240,800 2.500 May 1995 4 years
13,600 2.650 May 1995 5 years
720,000 1.500 June 1995 3 years
790,000 1.500 July 1995 3 years
74,000 1.000 August 1995 4 years
1,250,000 1.500 August 1995 3 years
700,000 1.500 September 1995 3 years
1,778,000 1.500 October 1995 3 years
296,000 1.500 November 1995 3 years
100,000 1.500 December 1995 3 years
1,053,333 1.500 March 1996 3 years
400,000 1.500 April 1996 3 years
50,000 1.500 May 1996 2 years
55,000 3.000 May 1996 3 years
22,500 3.280 May 1996 5 years
40,000 4.500 May 1996 3 years
230,000 1.50 October 1996 3 years
1,165,101 1.75 October 1996 1 year
52,500 3.28 March 1997 4 years
200,000 0.94 April 1997 5 years
11,666 1.188 May 1997 1 year
43,332 1.219 May 1997 1 year
9,999 1.25 May 1997 1 year
50,000 0.94 June 1997 5 years
----------
10,782,831
During the year ended June 30, 1997 and 1996, 100,000 and
1,887,000 warrants were exercised, respectively, for total cash
proceeds of $82,000 and $2,471,500, respectively. No warrants
were exercised during 1995.
Compensatory Stock Options
The Company has periodically granted stock options for employment
and outside services received during the years reported. These
options are treated as fixed, compensatory awards. During 1997,
the Company granted 1,000,000 options to key employees which vest
over four years. All other compensatory options vested
immediately upon their grant date.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY - Continued
Compensatory Stock Options - Continued
The Company applies APB Opinion 25 in accounting for it's stock
based compensation awards. During 1997, 1996 and 1995, options
issued with exercise prices less than market value on the grant
date were immaterial and, accordingly, no compensation expense
has been recognized in these years. Had compensation cost been
determined on the basis of fair value pursuant to FASB Statement
No. 123, net loss and net loss per share for 1997 and 1996 would
have been increased as follows:
1997 1996
------------- -------------
Net loss:
As reported $ (7,509,040) $ (5,887,313)
Pro forma (7,682,011) (5,996,393)
Loss per share:
As reported (0.23) (0.35)
Pro forma (0.24) (0.36)
Changes in the Company's compensatory options with exercise
prices above, equal to, and below market price at the grant date
are as follows:
Above Equal To Below
---------------- ---------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise Total
Options Price Options Price Options Price Options
------- ------- ------- ------- --------- ------ ---------
Outstanding at
June 30,
1995 90,600 $ 2.78 - $ - - $ - 90,600
Granted in
1996 282,250 2.00 7,000 .75 32,000 .61 321,250
Exercised in
1996 (170,500) .97 (7,000) .75 (14,000) .75 (191,500)
Forfeited/Expired
in 1996 - - - - - - -
------- ------- ------- ------- --------- ------ ---------
Outstanding at
June 30,
1996 202,350 3.22 - - 18,000 .50 220,350
Granted in
1997 - - - - 1,053,500 .94 1,053,500
Exercised in 1997 - - - - (71,500) .83 (71,500)
Forfeited/Expired
in 1997 - - - - - - -
------- ------- ------- ------- --------- ------ ---------
Outstanding at
June 30, 1997 202,350 $ 3.22 - $ - 1,000,000 $ .94 1,202,350
======= ======= ======= ======= ========= ====== =========
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY - Continued
Compensatory Stock Options - Continued
A summary of the weighted average grant date fair values of
options with exercise prices above, equal to, and below market
price at the date of grant are as follows:
Above Equal To Below
----- -------- -----
1996 .24 .13 1.29
1997 0 0 .61
The following table summarizes information about compensatory
stock options outstanding at June 30, 1997:
Options Outstanding Options Exercisable
- --------------------------------------------------- -------------------------
Weighted Avg.
Range of Remaining Weighted Avg. Weighted Avg.
Exercise Number Contractual Exercise Number Exercisable
Prices Outstanding Life Price Exercisable Price
- ---------- ----------- ------------ ------------- ----------- ------------
$.94-$4.50 1,202,350 4.27 years $1.32 452,350 $1.96
The fair value of each option granted is estimated on the grant
date using the Black-Scholes option pricing model. The model
requires the input of subjective assumptions. The following
assumptions were made in estimating the fair value of all
compensatory stock options:
1997 1996
---- ----
Dividend yield 0% 0%
Risk-free interest rate 6% 6%
Expected volatility 60% 60%
Expected life 4.75 years 1.47 years
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES
A reconciliation of income tax expense (benefit) computed by
applying the U.S. federal tax rates to loss from continuing
operations before income taxes and extraordinary items and
recorded income tax expense (benefit) is as follows:
1997 1996 1995
------------- ------------- -------------
Tax expense (benefit)
at statutory rate $ (3,239,127) $ (2,177,000) $ (1,707,000)
Meals and entertainment 5,998 - -
Amortization of goodwill 90,689 - -
Difference on sale of SMI - - 310,000
Change in estimate for
prior years 1,213,485 - -
Valuation allowance 1,465,920 2,177,000 1,397,000
------------- ------------- -------------
$ (463,035) $ - $ -
============= ============= =============
The components of the Company's deferred income taxes at June 30,
1997 and 1996 are as follows:
1997 1996
------------- -------------
Current:
Inventory reserve $ 94,316 $ (36,000)
Note receivable reserve 138,638 227,000
Warranty reserve 169,618 -
Valuation allowance (402,572) (191,000)
------------- -------------
- -
------------- -------------
Noncurrent:
Goodwill - (310,000)
Depreciation (73,747) (53,000)
Warranty reserve 160,891 95,000
Software development costs (1,534,162) -
Net operating loss carryforward 7,831,025 5,565,000
Valuation allowance (6,384,007) (5,297,000)
------------- -------------
- -
------------- -------------
Total $ - $ -
============= =============
At June 30, 1997, the Company has net operating loss
carryforwards for Federal income tax purposes of approximately
$21,000,000 which may be used to offset future taxable income,
subject to the provisions of Internal Revenue Code Section 382,
and will expire in various amounts in the years 2000 through 2012
if not utilized. The total change in the valuation allowance for
the years ended June 30, 1997, 1996 and 1995 amounted to
$1,465,920, $2,194,000 and $2,451,000, respectively.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES
During 1996 and 1995, CM transferred receivables from qualified
dealers to DFS under a repurchase agreement. The agreement
requires CM, in the event of default by the dealer, to repurchase
property that is collateral (inventory consisting of consumer
electronic products) for the financing provided to the Curtis
Mathes dealer. CM is contingently liable to DFS for the portion
of the receivable that is defaulted through non payment or non
recovery of the collateral. The maximum contingent liability at
June 30, 1997 was approximately $410,000. In conjunction with the
settlement agreement with DFS, all dealer financing programs were
canceled effective August 1, 1996.
The Company is a defendant in a class action lawsuit. The suit
asks for damages of approximately $1,000,000. Management believes
that the suit is without merit and intends to vigorously defend
its position, but is unable to determine the outcome or the
related financial exposure if any.
In the normal course of business, the Company is involved in
various product liability and other lawsuits. The Company has
accrued $350,000 in connection with these items which is
management's estimate of the ultimate aggregate settlement
amount.
The Company leases equipment under capital leases and office and
purchase facilities under long-term noncancelable operating
leases. The leases carry no renewal options. During 1995, the
Company entered into a lease which consolidated certain
purchasing and office facilities.
The following is a schedule of future minimum lease payments at
June 30, 1997:
Operating Capital
leases leases
--------- ----------
1998 $ 444,178 $ 50,749
1999 318,290 22,913
2000 158,026 -
2001 - -
--------- ----------
$ 920,494 73,662
=========
Less amount representing interest (21,104)
Present value of net minimum lease ----------
payments including current
maturities of $38,296 $ 52,558
==========
Rental and lease expense under operating leases for the years
ended June 30, 1997, 1996 and 1995 was approximately $476,000,
$459,000 and $410,000, respectively.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CURTIS MATHES CORPORATION REORGANIZATION
On October 1, 1992, the Bankruptcy Court for the Eastern District
of Texas confirmed CM's plan of reorganization ("Plan"), subject
to certain positive and negative covenants. The Plan provided
for the following key provisions which affect the ongoing
operations of the reorganized CM.
Warranty Costs
The reorganized CM assumed the warranties for the original
warranty periods for units that were sold prior to CM filing for
bankruptcy (pre-petition). The warranty assumed covers parts
with a cost in excess of $15 for the remaining term of the
warranty period.
Treatment of DFS Allowed Unsecured Claim
The DFS allowed unsecured claim was identified as "class twelve"
in the Plan and could not exceed $2,600,000. Beginning on the
effective date of the Plan, CM was required to contribute up to
$400,000 as needed to fund anticipated losses on certain specific
home entertainment units financed by DFS. Additionally, in
February 1993, CM began remitting to DFS on a monthly basis an
amount equal to 1% of the Company's gross sales for the preceding
month. CM paid DFS approximately $71,260 and $216,000 for the
years ended June 30, 1996 and 1995, respectively, and
approximately $136,000 for the eight month period ended June 30,
1994. All remaining amounts due under this claim were settled
pursuant to the March, 1996 agreement described in Note 20.
Treatment of Allowed Claims of Unsecured Creditors
The allowed claims of unsecured creditors are identified as
"class fourteen" in the Plan. Beginning in November 1992, CM was
required to deposit on a monthly basis with the trustee for the
creditors' committee an amount equal to 1/2% of CM's electronic
sales for the preceding month. As of June 30, 1997, CM was
current in making the remittances, which amounted to
approximately $12,500, $36,000 and $108,000 for the years ended
June 30, 1997, 1996 and 1995, respectively. This payment will be
made by CM to the trustee for a period of 72 months from the
effective date of the Plan.
15. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company's customers are located throughout the United States.
No single customer accounted for 10% or more of the Company's net
sales in 1996 or 1995. During 1997, the Company discontinued the
sale of its traditional products. All 1997 sales were to one
customer in exchange for advertising services.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK - Continued
Financial instruments subject to credit risk consist primarily of
cash, marketable securities and notes receivable. Cash is at
risk to the extent that it exceeds Federal Deposit Insurance
Corporation insured amounts (approximately $646,956 at June 30,
1997). To minimize risk, the Company places its cash and
marketable securities with high credit quality financial
institutions. The significant portion of notes receivable is
secured by the parts inventory included in the sale.
16. BUSINESS SEGMENT INFORMATION
During 1997, 1996 and 1995 the Company was engaged primarily in
the distribution of consumer electronic products. The following
tables set forth certain information with respect to the years
ended June 30:
1997 1996 1995
------------- ------------- -------------
Net revenues:
Consumer electronics $ 2,503,512 $ 7,656,836 $ 21,267,244
Corporate - - 300,000
------------- ------------- -------------
Consolidated $ 2,503,512 $ 7,656,836 $ 21,567,244
============= ============= =============
Operating loss:
Consumer electronics $ (6,229,880) $ (3,478,435) $ (2,281,536)
Real estate and other - - (4,010)
Corporate (1,982,294) (1,825,445) (931,956)
------------- ------------- -------------
Total operating Loss (8,212,174) (5,303,880) (3,217,502)
Less interest expense (86,292) (583,433) (1,574,540)
Add minority interest loss of subsidiary - - 382,457
------------- ------------- -------------
Loss from continuing operations $ (8,298,466) $ (5,887,313) $ (4,409,585)
============= ============= =============
Identifiable assets:
Consumer electronics $ 13,620,173 $ 6,356,795 $ 12,334,861
Real estate and other - 29,487 55,713
Corporate 1,854,580 8,824,124 1,697,826
------------- ------------- -------------
$ 15,474,753 $ 15,210,406 $ 14,088,400
============= ============= =============
Depreciation and amortization:
Consumer electronics $ 501,310 $ 436,122 $ 317,483
Real estate and other - 1,226 756
Corporate 189,194 207,780 158,775
------------- ------------- -------------
$ 690,504 $ 645,128 $ 477,014
============= ============= =============
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. BUSINESS SEGMENT INFORMATION - Continued
1997 1996 1995
------------- ------------- -------------
Capital expenditures:
Consumer electronics $ 1,689,685 $ 194,667 $ 742,432
Corporate 410,674 1,228 67,943
Less capital expenditures
paid for other than by cash (28,882) (59,337) (511,047)
------------- ------------- -------------
$ 2,071,477 $ 136,558 $ 299,328
============= ============= =============
Operating loss for segment reporting purposes consists of
revenues and other income, less all expenses except interest
expense.
17. RETIREMENT PLAN
Prior to bankruptcy filing in 1992, the Company had a defined
benefit plan which covered substantially all full-time employees.
The Company believed that all liability for funding of the Plan
had been discharged in bankruptcy. However, it was determined in
1996 that funding of the plan for prior years service has not
been relieved. Therefore, the Company accrued the amount of the
unfunded plan liability as measured January 1, 1995, resulting in
recognition of approximately $171,000 in pension cost for the
year ended June 30, 1996.
The following table sets forth the funded status of the Company's
defined pension plan:
Actuarial present value of benefit obligations:
1997 1996
------------- -------------
Accumulated benefit obligation $ 708,186 $ 685,152
------------- -------------
Projected benefit obligation 708,186 685,152
Plan assets at fair value 618,503 518,514
------------- -------------
Excess projected benefit obligation $ 89,683 $ 166,638
Increase due to an assumption change - 883
------------- -------------
Net Pension Liability $ 89,683 $ 167,521
============= =============
Net pension cost includes the following components:
Funding deficiency accumulated in prior years $ - $ 141,348
Funding deficiency for 1994 - 32,827
Net amortization and deferrals - (6,654)
Interest on unfunded liability 21,227 -
Actuarial loss (3,360) -
------------- -------------
Net pension cost $ 17,867 $ 167,521
============= =============
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. RETIREMENT PLAN - Continued
The weighted average assumed discount rate used in determining
the actuarial present value of the projected benefit obligation
for both 1997 and 1996 was 7.75%. The weighted average assumed
rate of return on pension plan assets for both 1997 and 1996 was
7.75%.
18. INVESTMENT IN JOINT VENTURE
During 1997, the Company entered into a joint venture agreement
with CMLP Group, Ltd. (CMLP), a related party. The joint venture
entity, Westgrove Joint Venture (Westgrove), was organized for
the purposes of purchasing and managing a particular tract of
land. CMLP, a limited partnership, is jointly owned by the
Company's officers, members of management, and other related
parties. Associates Funding Group, Inc., a related party, is
CMLP's general partner. Management and control of Westgrove is
maintained by CMLP.
The carrying amount of the investment represents the Company's
initial contribution. The agreement entitles the Company to a 56
percent ownership and earnings allocation. The investment is
accounted for under the equity method of accounting.
19. LICENSING FEES AND ROYALTIES
During 1997 and 1996, the Company entered into numerous licensing
agreements with third parties. These agreements provide for the
licensed use by the Company of certain proprietary technologies,
and vary in their terms and conditions. Each agreement required
an initial payment which has been capitalized and included in
licensing fees at year end. Pursuant to these agreements, the
Company also committed to future royalties and minimum periodic
payments.
Future minimum payments for the years ended June 30 due under
these licensing agreements are as follows:
1998 $ 450,000
1999 1,000,000
2000 1,800,000
2001 1,050,000
2002 750,000
-----------
$ 5,050,000
===========
During fiscal 1996, the Company entered into a licensing
agreement to obtain certain technology for an original period of
five years. In June, 1996, the Company paid an advance royalty of
$500,000 (included in software development costs in the
accompanying balance sheet). Under the terms of the agreement,
royalties of 3% of all sales of the product are to be remitted to
the licensor. However, the technology was not utilized to the
extent originally anticipated, and management does not believe
that any future royalties are payable under this agreement.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. LICENSING FEES AND ROYALTIES - Continued
During fiscal 1997, the Company entered into an agreement for the
licensed use of certain technology. Under the terms of the
agreement, the Company is obligated to pay future royalties based
on uniView units shipped as follows:
First 100,000 units $4.00 per unit
Next 250,000 units $3.50 per unit
Next 650,000 units $3.00 per unit
Next 1,000,000 units $2.75 per unit
Above 2,000,000 units $2.50 per unit
During fiscal 1997, the Company entered into an agreement for the
licensed use of a computer software operating system. Under the
terms of the agreement, the Company is obligated to pay future
royalties based on manufactured uniView units as follows:
First 40,000 units no royalty
Next 60,000 units 10.00 (British pounds) per unit
Next 100,000 units 8.00 (British pounds) per unit
Next 200,000 units 6.00 (British pounds) per unit
Next 400,000 units 5.00 (British pounds) per unit
Next 800,000 units 4.00 (British pounds) per unit
At June 30, 1997, the exchange rate for the British Pound was
$1.6309.
20. EXTRAORDINARY ITEM
The extraordinary item of $789,426, net of income tax of
$463,035, represents a gain on forgiveness of debt by DFS.
Effective March 9, 1996, the Company and DFS entered into an
agreement to settle amounts due from CM to DFS. Under the
agreement, all but $500,000 and future repurchase liabilities was
forgiven subject to payment in full of the remaining $500,000 on
or before April 8, 1997. At June 30, 1996, the Company owed DFS
$300,000 of this amount. During 1997, the Company paid DFS
$200,000 in cash. The remaining $100,000 was paid by the Custer
Company, Inc., a related party who assumed the receivable from
DFS.
<PAGE>
SCHEDULE II
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1997, 1996, and 1995
Balance at Charged to Charged to
beginning costs and to other Balance at
Description of year expenses accounts Deductions end of year
- ----------- ---------- ---------- ---------- ---------- -----------
Year ended June 30, 1995
Allowance for
doubtful accounts $ (99,480) $ 340,947 $ - $ 318,502 $ (77,034)
Inventory obsolescence
reserve (305,927) 250,208 - 173,955 (229,675)
Note receivable reserve - - - - -
Year ended June 30, 1996
Allowance for
doubtful accounts (77,034) - 77,034 - -
Inventory obsolescence
reserve (229,675) 118,672 111,003 - -
Note receivable reserve - 613,114 - - (613,114)
Year ended June 30, 1997
Inventory Obsolescence
reserve - (255,115) - - (255,115)
Note receivable reserve (613,114) - (375,000) 613,114 (375,000)
*Note: deductions represent uncollectible accounts or inventories
written off.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibits Page
2.1 Memorandum of Sale and Purchase Agreement (CMC) for the acquisition of
Curtis Mathes Corporation (filed as Exhibit "A" to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1993 and
incorporated herein by reference.) N/A
2.2 Memorandum of Sale and Purchase Agreement (WRC) for the acquisition of
certain assets of Whitaker Repair Company, Inc. (filed as Exhibit "B" to
the Company's quarterly report on Form 10-Q for the quarter ended December
31, 1993 and incorporated herein by reference.) N/A
3(i) Articles of Incorporation of the Company, as amended (filed as Exhibit
"4.1" to the Company's Registration Statement on Form S-3 originally filed
with the Commission on June 20, 1996 and incorporated herein by reference.)
N/A
3(ii) Bylaws of the Company, as amended (filed as Exhibit "3(ii)" to the
Company's annual report on Form 10-K for the fiscal year ended June 30,
1994 and incorporated herein by reference.) N/A
4.1 Form of Common Stock Certificate of the Company (filed as Exhibit "4.2" to
the Company's annual report on Form 10-K for the fiscal year ended June 30,
1994 and incorporated herein by reference.) N/A
4.2 Series A Preferred Stock terms and conditions (filed as Exhibit "4.3" to
the Company's annual report on Form 10-K for the fiscal year ended June 30,
1994 and incorporated herein by reference.) N/A
4.3 Series G Preferred Stock terms and conditions (filed as Exhibit "4.7" to
the Company's annual report on Form 10-K for the fiscal year ended June 30,
1995 and incorporated herein by reference.) N/A
4.4 Series H Preferred Stock terms and conditions (filed as Exhibit "4.4" to
the Company's Registration Statement on Form S-3 originally filed with the
Commission on June 20, 1996 and incorporated herein by reference.) N/A
4.5 Series I Preferred Stock terms and conditions (filed as Exhibit "4.5" to
the Company's Registration Statement on Form S-3 originally filed with the
Commission on June 20, 1996 and incorporated herein by reference.) N/A
4.6 Series J Preferred Stock terms and conditions (filed as Exhibit "4.2" to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996 and incorporated herein by reference.) N/A
4.7 Form of warrant issued in connection with Series J Preferred Stock (filed
as Exhibit "4.5" to the Company's Current Report on Form 8-K dated April
23, 1997 and incorporated herein by reference.) N/A
4.8 Series K Preferred Stock terms and conditions (filed as Exhibit "4.4" to
the Company's Current Report on Form 8-K dated May 16, 1997 and
incorporated herein by reference.) N/A
<PAGE>
4.9 Form of subscription agreement for Series K Preferred Stock (filed as
Exhibit "4.5" to the Company's Current Report on Form 8-K dated May 16,
1997 and incorporated herein by reference.) N/A
4.10 Form of warrant issued in connection with Series K Preferred Stock (filed
as Exhibit "4.4" to the Company's Current Report on Form 8-K dated May 23,
1997 and incorporated herein by reference.) N/A
4.11 Series L Preferred Stock terms and conditions (filed as Exhibit "4.5" to
the Company's Current Report on Form 8-K dated May 23, 1997 and
incorporated herein by reference.) N/A
4.12 Form of subscription agreement for Series L Preferred Stock (filed as
Exhibit "4.6" to the Company's Current Report on Form 8-K dated May 23,
1997 and incorporated herein by reference.) N/A
4.13 Series M Preferred Stock terms and conditions, as amended on July 11, 1997
(filed as Exhibit "4.7" to the Company's Registration Statement on Form S-3
filed with the Commission on August 18, 1997 and incorporated herein by
reference.) N/A
4.14 Form of Securities Subscription Agreement for Series M Preferred Stock
(filed as Exhibit "4.12" to the Company's Current Report on Form 8-K dated
June 23, 1997 and incorporated herein by reference.) N/A
4.15 Form of subscription agreement for Convertible Revolving Credit Note
(filed as Exhibit "4.7" to the Company's Current Report on Form 8-K dated
May 23, 1997 and incorporated herein by reference.) N/A
4.16 Form of Convertible Revolving Credit Note (filed as Exhibit "4.8" to the
Company's Current Report on Form 8-K dated May 23, 1997 and incorporated
herein by reference.) N/A
4.17 Form of subscription agreement for warrants executed in connection with a
Revolving Credit Agreement pertaining to a $10 million line of credit
(filed as Exhibit "4.7" to the Company's Current Report on Form 8-K dated
March 14, 1997 and incorporated herein by reference.) N/A
4.18 Form of warrant issued in connection with a Revolving Credit Agreement
pertaining to a $10 million line of credit (filed as Exhibit "4.6" to the
Company's Current Report on Form 8-K dated March 14, 1997 and incorporated
herein by reference.) N/A
10.1 Floorplan Purchase Agreement dated as of October 27, 1992 between Curtis
Mathes Corporation and Deutsche Financial Services Corporation (f/k/a ITT
Commercial Finance Corp.) (filed as Exhibit "10.13" to the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1995 and
incorporated herein by reference.) N/A
10.2 Amendment to Floorplan Purchase Agreement dated as of April 30, 1993
between Curtis Mathes Corporation and Deutsche Financial Services
Corporation (f/k/a ITT Commercial Finance Corp.) (filed as Exhibit "10.14"
to the Company's annual report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.) N/A
<PAGE>
10.3 Financing Program Agreement dated as of October 27, 1992 between Curtis
Mathes Corporation and Deutsche Financial Services Corporation (f/k/a ITT
Commercial Finance Corp.) (filed as Exhibit "10.15" to the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1995 and
incorporated herein by reference.) N/A
10.4 Amendment to Financing Program Agreement dated as of November 6, 1992
between Curtis Mathes Corporation and Deutsche Financial Services
Corporation (f/k/a ITT Commercial Finance Corp.) (filed as Exhibit "10.16"
to the Company's annual report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.) N/A
10.5 Amendment to Financing Program Agreement dated as of April 15, 1993 between
Curtis Mathes Corporation and Deutsche Financial Services Corporation
(f/k/a ITT Commercial Finance Corp.) (filed as Exhibit "10.17" to the
Company's annual report on Form 10-K for the fiscal year ended June 30,
1995 and incorporated herein by reference.) N/A
10.6 Amendment to Financing Program Agreement dated as of September 8, 1993
between Curtis Mathes Corporation and Deutsche Financial Services
Corporation (f/k/a ITT Commercial Finance Corp.) (filed as Exhibit "10.18"
to the Company's annual report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.) N/A
10.7 Trademark License Agreement dated June 1, 1994 between Curtis Mathes
Corporation, as Licensor, and Animated Systems and Presentations, Inc., as
Licensee, relating to CM trademark license for LED sign systems (filed as
Exhibit "10.25" to the Company's annual report, as amended, on Form 10-K/A
for the fiscal year ended June 30, 1995 and incorporated herein by
reference.) N/A
10.8 Asset Purchase Agreement between Curtis Mathes Marketing Corporation and
Hughes Training, Inc. dated as of October 25, 1994, relating to the
purchase of the RealView technology (filed as Exhibit "10.20" to the
Company's annual report on Form 10-K for the fiscal year ended June 30,
1995 and incorporated herein by reference.) N/A
10.9* Lease Agreement by and between Terry N. Worrell, Sharon C. Worrell, and
Kay Y. Moran, Trustee, as Landlord, and Curtis Mathes Corporation, as
Tenant, dated October 27, 1994 pertaining to the property utilized as the
Corporate headquarters. 76
10.10 First Amended Partial Assignment of Rights Under Sublicense Agreement
dated February 28, 1995 between Animated Systems and Presentations, Inc.
and Curtis Mathes Marketing Corporation, relating to LED sign technology
(filed as Exhibit "10.26" to the Company's annual report, as amended, on
Form 10-K/A for the fiscal year ended June 30, 1995 and incorporated
herein by reference.) N/A
10.11 Trademark License Agreement dated February 28, 1995 between Curtis Mathes
Corporation, as Licensor, and Curtis Mathes Marketing Corporation, as
Licensee, relating to CM trademark license for RealView products and LED
sign systems (filed as Exhibit "10.27" to the Company's annual report, as
amended, on Form 10-K/A for the fiscal year ended June 30, 1995 and
incorporated herein by reference.) N/A
<PAGE>
10.12 Settlement and Release Agreement dated as of March 9, 1996 between the
Company and Deutsche Financial Services Corporation, f/k/a ITT Commercial
Finance Corp. (filed as Exhibit "10.1" to the Company's quarterly report
on Form 10-Q for the quarter ended March 31, 1996 and incorporated herein
by reference.) N/A
10.13 Contract for Sale of Goods dated March 15, 1996 between Curtis Mathes
Corporation and R.S. Haas and Silverman Retail Consultants, Inc. for the
sale of CM inventory in connection with DFS Settlement and Release
Agreement (filed as Exhibit "10.22" to the Company's annual report on Form
10-K for the fiscal year ended June 30, 1996 and incorporated herein by
reference.) N/A
10.14 Amended Trademark License Agreement dated as of April 17, 1996 between
Curtis Mathes Corporation, as Licensor, and Curtis Mathes Marketing
Corporation, as Licensee, relating to Curtis Mathes trademark license for
uniView product category (filed as Exhibit "10.1" to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1997 and
incorporated herein by reference.) N/A
10.15 Letter of Intent dated April 29, 1996 between Curtis Mathes Corporation,
Warranty Repair Corporation, and Inman's Corporation relating to CM
warranty service (filed as Exhibit "10.23" to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1996 and incorporated
herein by reference.) N/A
10.16 Warranty Service Agreement dated May 10, 1996 between Curtis Mathes
Corporation, Warranty Repair Corporation, and Inman's Corporation relating
to CM warranty service (filed as Exhibit "10.24" to the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by reference.) N/A
10.17 Memorandum of Asset Purchase Agreement dated June 19, 1996 between
Warranty Repair Corporation and Inman's Corporation relating to sale of
WRC's parts inventory (filed as Exhibit "10.25" to the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by reference.) N/A
10.18 Promissory Note from Inman's Corporation to Warranty Repair Corporation
dated June 19, 1996 relating to sale of WRC parts inventory (filed as
Exhibit "10.26" to the Company's annual report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by reference.) N/A
10.19 Security Agreement dated June 19, 1996 between Inman's Corporation and
Warranty Repair Corporation relating to sale of WRC parts inventory (filed
as Exhibit "10.27" to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1996 and incorporated herein by reference.) N/A
10.20 Revolving Credit Agreement dated as of October 1, 1996 pertaining to a $10
million line of credit (filed as Exhibit "10" to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended December 31, 1996 and
incorporated herein by reference.) N/A
10.21 Manufacturing and Consulting Services Agreement dated as of December 6,
1996 between Curtis Mathes Marketing Corporation and McDonald Technologies
International, Inc., relating to the manufacture of Curtis Mathes uniView
set-top units (filed as Exhibit "10.3" to the Company's quarterly report
on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein
by reference.) N/A
<PAGE>
10.22 Trademark License Agreement dated as of January 10, 1997 between Curtis
Mathes Corporation, as Licensor, and Curtis Mathes Xpressway Corporation,
as Licensee, relating to Curtis Mathes trademark license for Internet
access and online services (filed as Exhibit "10.2" to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1997 and
incorporated herein by reference.) N/A
10.23* Joint Venture Agreement dated as of January 20, 1997 between Curtis
Mathes Marketing Corporation and CMLP Group, Ltd. pertaining to a tract
of land located in the Beltwood North-Trinity Addition to the City of
Carrollton, Dallas County, Texas. 103
10.24 RiscOS Licence and Development Agreement dated as of February 20, 1997
between Curtis Mathes Marketing Corporation and Acorn Computers Limited,
relating to the license and development of the Curtis Mathes uniViewT
technology (filed as Exhibit "10.4" to the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference.) N/A
10.25 Technology License and Distribution Agreement dated as of March 28, 1997
between Curtis Mathes Marketing Corporation and Sun Microsystems, Inc.,
relating to a license of the Java technology (filed as Exhibit "10.5" to
the Company's quarterly report on Form 10-Q for the quarter ended March
31, 1997 and incorporated herein by reference.) N/A
10.26** Employment Contract with Mr. Custer dated as of
April 7, 1997. 106
10.27** Employment Contract with Mr. Robinson dated as of
April 7, 1997. 114
10.28** Stock Option Agreement with Mr. Appel dated as of
April 7, 1997. 122
10.29** Stock Option Agreement with Mr. Warren dated as
of April 7, 1997. 126
21* Subsidiaries of the Company. 130
27* Financial Data Schedule (for EDGAR filing purposes only.) 134
_______________
* Filed herewith.
** Management contract or compensation plan or arrangement required
to be filed as a exhibit pursuant to Item 14 (c).
<PAGE>
LEASE
ARTICLE I
DEFINITIONS AND CERTAIN BASIC PROVISIONS
1.1 The following lists sets out certain defined terms and certain
financial and other information pertaining
to this lease:
(a) "Landlord": Terry N. Worrell, Sharon C. Worrell, and Kay Y.
Moran as trustee of the Kay Y. Moran Family Trust UA Dated
February 23, 1990
(b) Landlord's address: 5500 Preston Road, Suite #390,
Dallas, Texas 75205
(c) "Tenant": Curtis Mathes Corporation
(d) Tenant's address: 2855 Marquis Drive, Suite 110, Garland, Texas
75042 (prior Commencement Date) and 10911 Petal Street, Dallas, Texas
75238 (after the Commencement Date)
(e) "'Tenant's trade name": Curtis Mathes
(f) Tenant's Guarantor (if applicable, attach Guaranty as an
exhibit: None
(g) "Agent": Jackson & Cooksey
(h) "Cooperating Agent": N/A
(i) "Property": Landlord's property located in the City of
Dallas, Dallas County, Texas, which property is described or shown on
Exhibit "A" attached to this lease ("Property"). With regard to Exhibit
"A", the parties agree that the exhibit is attached solely for the
purpose of locating the Property and the Demised Premises within the
Property and that no representation, warranty, or covenant is to be
implied by any other information shown on the exhibit (i.e., any
information as to building, etc. is subject to change at any time).
(j) "Demised Premises": an Office/Warehouse building ("Building")
containing approximately 74 8.82 square feet in area (measured by
calculating lengths and widths to the exterior of outside wells and to
the center of interior walls), being known as 10911 Petal Street,
Dallas, Texas 75238 and the Property being described or shown on Exhibit
" B" attached to this lease.
(k) "Commencement Date": the earlier of (i) the date upon which Tenant
occupies any portion of the Demised Premises, or (ii) whichever of the
following alternatives may be appropriate (place an 'X' or other mark
designating a choice in the appropriate box):
____ days after the Demised Premises are deemed "ready for
occupancy' (as defined in Exhibit "D" attached to this lease), it being
Landlord's estimate that the premises will be "ready for occupancy"
within 30) days after the date of execution of the lease.
_X_ December 1, 1994
Notwithstanding anything contained herein to the contrary, Landlord
agrees that Tenant shall have the right to use and occupy the warehouse
portion of the Demised Premises (in compliance with the terms of this
lease other than the payment of rent) after Landlord has completed the
work required of Landlord in connection with the warehouse portion (i.e.,
that being the raising of the lights); provided however that (A) the
Commencement Date shall have been deemed to have occurred on the date
specified above and (B) Landlord shall continue to perform those specific
other items of Landlord's Work which have not yet been accomplished with
the goal that such items be accomplished as soon as possible.
(1) Lease Term: Commencing on the Commencement Date and
continuing for five 5 years and No (0) months after the Commencement
Date; provided that if the Commencement Date is a date other than the
first day of a calendar month, the lease term shall be extended for said
number of years and months in addition to the remainder of the calendar
month in which the Commencement Date occurs.
<PAGE>
(m) Minimum guaranteed rental: $* per month at the
commencement of the lease term (subject to Paragraph E of Article IV of
Exhibit "D" attached hereto.
Months 1 - 2 $00.00
Months 3 - 12 $17,160.50
Months 13 - 36 $21,840.58
Months 37 - 48 $23,400.67
Months 49 - 60 $24,960.67
(n) Percentage rental rate: N/A
(o) Common area maintenance charge: None.
(p) Prepaid rental: $21,177.34 being an estimate of the minimum
guaranteed rental, and Tenant's obligations for taxes, other real estate
charges and insurance, and (if applicable) merchants' association dues or
promotional fund for the month(s) of the lease term, such prepaid rental
being due and payable upon execution of this lease. Note: If Tenant
desires credit for prepaid rental upon execution of this lease, Tenant
should list the check number N/A drawee bank N/A date of check N/A 19__,
and amount N/A.
(q) Security deposit: $30,000.00, such security deposit
being due and payable upon execution of this lease. Note: If Tenant
desires credit for security deposit upon execution of this lease, Tenant
should list the check number N/A drawee bank N/A, date of check N/A
_________ 19__, and amount N/A.
(r) Permitted use: Office and Warehouse
1.2 The following chart is provided as an estimate of Tenant's
initial monthly payment broken down into its components. This chart,
however, does not supersede the specific provisions contained elsewhere
in this lease:
Initial Minimum Guaranteed Rental $17,160.50
(Sections 1 - 1 (m) and 4.1)
Initial Common Area Maintenance Charge
(Sections 1.1 a) and 7.4) $-0-
Initial Escrow Payment for Taxes and Other Real Estate Charges
(Article VI) $3,683.51
Initial Escrow Payment for Insurance
(Article VI) $333.33
Initial Payment for Merchant's Association Dues or
Promotional Fund (Article VIII) $ N/A
Total Initial Monthly Payment $21,177.34
ARTICLE II
GRANTING CLAUSE
2.1 Landlord leases the Demised Premises to Tenant upon the terms and
conditions set forth in this lease.
ARTICLE III
DELIVERY OF PREMISES
3.1 Except to the extent modified by Landlord's express
assumption of construction obligations, if any, in an exhibit attached to
this Lease, the Demised Premises is being leased "AS IS", with Tenant
accepting all defects, if any; and Landlord makes no warranty of any
kind, express or implied, with respect to the Demised Premises (without
limitation, Landlord makes no warranty as to the habitability, fitness or
suitability of the Demised Premises for a particular purpose nor as to
the absence of any toxic or otherwise hazardous substances). This
section 3.1 is subject to any contrary requirements under applicable law;
however, in this regard Tenant acknowledges that it has been given the
opportunity to inspect the Demised Premises and to have qualified experts
inspect the Demised Premises prior to the execution of this lease.
3.2 If this lease is executed before the Demised Premises become
vacant, or if any present tenant or occupant of the Demised Premises
<PAGE>
holds over and Landlord cannot acquire possession of the Demised Premises
prior to the Commencement Date of this lease, as above defined, Landlord
shall not be deemed to be in default under this lease; and in such event
Tenant agrees to accept possession of the Demised Premises at such time
as Landlord is able to tender the same. If Landlord utilizes the
provisions of this Section, Landlord will waive the payment of rent and
other charges covering any period prior to tender of possession of the
Demised Premises to Tenant.
ARTICLE IV
RENT
4.1 Intentionally deleted.
4.2 Rental shall accrue from the Commencement Date and shall be
payable to Landlord, at Landlord, s address.
4.3 Tenant shall pay to Landlord minimum guaranteed rental in
monthly installments in the amount specified in Section 1.1 (m) of this
lease. The first such monthly installment shall be due and payable on or
before the Commencement Date, and subsequent installments shall be due
and payable on or before the first day of each succeeding calendar month
during the lease term; provided that if the Commencement Date is a date
other than the first day of a calendar month, there shall be due and
payable on or before such date as minimum guaranteed rental f or the
balance of such calendar month a sum equal to that proportion of the rent
specified f or the first full calendar month as herein provided, which
the number of days from the Commencement Date to the end of the calendar
month during which the Commencement Date shall fall bears to the total
number of days in such month.
4.4 Intentionally deleted
4.5 Intentionally deleted
4.6 Intentionally deleted
4.7 It is understood that the minimum guaranteed rental is payable
on or before the first day of each calendar month (in accordance with
Section 4.2 above), without offset or deduction of any nature. In the
event any rental is not received within 10 days after its due date for
any reason whatsoever, or if any rental payment is by check which is
returned for insufficient funds, then in addition to the past due amount
Tenant shall pay to Landlord one of the following (the choice to be at
the sole option of Landlord unless one of the choices is improper under
applicable law, in which event the other alternative will automatically
be deemed to have been selected): (a) a late charge in an amount equal to
ten percent (1 0%) of the rental then due, in order to compensate
Landlord for its administrative and other overhead expenses; or (b)
interest on the rental then due at the maximum contractual rate which
could legally be charged in the event of a loan of such rental to Tenant
(but in no event to exceed 1 1/2% per month), such interest to accrue
continuously on any unpaid balance due to Landlord by Tenant during the
period commencing with the rental due date and terminating with the date
on which Tenant makes full payment of all amounts owing to Landlord at
the time of said payment. Any such late charge or interest payment shall
be payable as additional rental under this lease, and shall be payable
immediately on demand.
4.8 If Tenant fails in two consecutive Months to make rental
payments within ten days after due, Landlord, in order to reduce its
administrative costs, may require, by giving written notice to Tenant
(and in addition to any late charge or interest accruing pursuant to
Section 4.7 above, as well as any other rights and remedies accruing
pursuant to Article XXII or Article XXIII below, or any other provision
of this lease or at law), that minimum guaranteed rentals are to be paid
quarterly in advance instead of monthly and that all future rental
payments are to be made on or before the due date by cash, cashier's
<PAGE>
check, or money order and that the delivery of Tenant's personal or
corporate check will no longer constitute a payment of rental as provided
in this lease. Any acceptance of a monthly rental payment or of a
personal or corporate check thereafter by Landlord shall not be construed
as a subsequent waiver of said rights.
ARTICLE V
Intentionally deleted
ARTICLE VI
TENANT'S RESPONSIBILITY FOR TAXES, OTHER
REAL ESTATE CHARGES AND INSURANCE EXPENSES
6.1 Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by tenant in the Demised Premises. If
any such taxes are levied against Landlord or Landlord's property and if
Landlord elects to pay the same or if the assessed value of Landlord's
property is increased by inclusion of personal property and trade
fixtures placed by Tenant in the Demised Premises and Landlord elects to
pay the taxes based on such increase, Tenant shall pay to Landlord upon
demand that part of such taxes for which Tenant is primarily liable
hereunder.
6.2 Tenant shall also be liable for 'Tenant's proportionate share'
(as defined below) of all "real estate charges' (as defined below) and
'insurance expenses' (as defined below) related to the Property or
Landlord's ownership of the Property. Tenant's obligations under this
Section 6.2 shall be prorated during any partial year (i.e., the first
year and the last year of the lease term). 'Tenant's proportionate
share' shall be a fraction the numerator of which is the total floor area
(all of which is deemed "leasable") in the Demised Premises and the
denominator of which is the total leasable floor area of all buildings in
the Property at the time when the respective charge was incurred,
excluding, however, areas for which any such real estate charges or
insurance expenses, or both, are paid by a party or parties other than
Landlord. Landlord and Tenant acknowledge that Tenant is leasing all
leasable floor area in the Property. 'Real estate charges" shall include
ad valorem taxes, general and special assessments, parking surcharges,
any tax or excise on rents, any tax or charge for governmental services
(such as street maintenance or fire protection) and any tax or charge
which replaces any of such above-described .real estate charges';
provided, however, that 'real estate charges" shall not be deemed to
include any franchise, estate, inheritance or general income tax.
"Insurance expenses' shall include all premiums and other expenses
incurred by Landlord for liability insurance and fire and extended
coverage property insurance (plus whatever endorsements or special
coverages which Landlord, in Landlord's sole discretion, may consider
appropriate).
6.3 Landlord and Tenant shall attempt to obtain separate
assessments for Tenant's obligations pursuant to Section 6.1 and, with
respect to Section 6.2, for such of the "real estate charges" as are
readily susceptible or separate assessment. To the extent of a separate
assessment, Tenant agrees to pay such assessment before it becomes
delinquent and to keep the Demised Premises free from any lien or
attachment; moreover, as to all periods of time during the lease term,
this covenant of Tenant shall survive the termination of the lease. With
regard to the calendar year during which the lease term expires, Landlord
at its option either may bill Tenant when the charges become payable or
may charge the Tenant an estimate of Tenant's pro rata share of whichever
charges have been being paid directly by Tenant (based upon information
available for the current year plus, if current year information is not
adequate in itself, information relating to the immediately preceding
year).
<PAGE>
6.4 At such time as Landlord has reason to believe that at some
time within the immediately succeeding twelve (12) month period Tenant
will owe Landlord any amounts pursuant to one or more of the preceding
sections of this Article VI, Landlord may direct that Tenant prepay
monthly a pro rata portion of the prospective future payment (i.e., the
prospective future payment divided by the number of months before the
prospective future payment will be due). Tenant agrees that any such
prepayment directed by Landlord shall be due and payable monthly on the
same day that minimum guaranteed rental is due.
6.5 In the event that any payment due from Tenant to Landlord is
not received within 1 0 days after its due date f or any reason
whatsoever, or if any such payment is by check which is returned f or
insufficient funds, then in addition to the amount then due Tenant shall
pay to Landlord interest on the amount then due at the maximum
contractual rate which could legally be charged in the event of a loan of
such amount to Tenant (but in no event to exceed 1 1/2% per month), such
interest to accrue continuously on any unpaid balance until paid.
ARTICLE VII
REPAIRS
7.1 Except for the repairs Landlord is specifically obligated to
make under Article 10.1 Tenant shall make all repairs and
necessary replacements to the Property and the Demised Premises and the
improvements, systems and equipment thereon which are necessary or
desirable to keep the Property and the Demised Premises and the
improvements thereon in good order and repair and in a safe, dry and
tenantable condition. Tenant shall keep the Property and the Demised
Premises in a clean and sanitary condition and free from insects, vermin
and escaping odors, and in accordance with directions, rules and
regulations of the officials of the governmental agencies at the sole
cost and expense of Tenant, and Tenant shall comply with all requirements
of law, by statute, ordinance or otherwise, affecting the Property and
the Demised Premises and all appurtenances thereto. Tenant shall use, at
Tenant's cost, a rodent, pest and vermin exterminator at such intervals
as Landlord may require and the identity of whom Landlord shall approve
from time to time. If Tenant refuses or neglects to commence and to
complete repairs promptly and adequately, Landlord may, but shall not be
required to, make and complete said repairs and Tenant shall pay the cost
thereof to Landlord as additional rent upon demand. Tenant shall inform
Landlord promptly by written notice of any accident, fire or damage
occurring an or to the Demised Premises of which Tenant has knowledge.
ARTICLE VIII
Intentionally deleted
ARTICLE IX
USE AND CARE OF DEMISED PREMISES
9.1 Tenant shall commence business operations in the Demised
Promises on or immediately after the commencement. Date and shall
operate its business in an efficient, high class and reputable manner so
as to produce the maximum amount of sales from the Demised Premises.
Tenant shall not at any time leave the Demised Premises vacant, but shall
in good faith continuously throughout the term of this lease conduct and
carry on in the entire Demised Premises the type of business for which
the Demised Premises is leased.
9.2 The Demised Premises may be used only for the purpose or
purposes specified in Section 1.1 (r) above, and only under the trade
name specified in Section 1 - 1 (a) above (or, if Section 1. 1 (e) is
not filed in, any trade name approved in advance by Landlord), and for
no other purpose and under no other trade name, it being understood and
acknowledged that Landlord has entered into this lease in large part
<PAGE>
because it believes that such use and trade name will benefit the
Property as a whole.
9.3 Tenant shall not, without Landlord's prior written consent,
keep anything within the premises or use the premises for any purpose
which creates a risk of toxic or otherwise hazardous substances or which
increases the insurance premium cost or invalidates any insurance policy
carried on the Demised Premises or other parts of the Property. All
property kept, stored or maintained within the premises by Tenant shall
be at Tenant's sole risk.
9.4 Tenant shall not conduct within the Demised Premises any fire,
auction, bankruptcy, "going-out-of-business," "lost-our-lease" or
similar sale.
9.5 Tenant shall not permit any objectionable noises or odors to
emanate from the premises; nor place or permit any radio, television,
loudspeaker or amplifier on the roof or outside the Demised Premises or
where the same can be seen or heard from outside the building; nor place
any antenna, equipment, awning or other projection on the exterior of
the Demised Premises or where the same can be seen or heard from outside
the building; nor place any antenna, equipment, awning or other
projection on the exterior of the Demised Premises; nor take any other
action which would constitute a nuisance or would disturb or endanger
other tenants of the Property or unreasonably interfere with their use
of their respective premises; nor permit any unlawful or immoral
practice to be carried on or committed on the Demised Premises; nor do
anything which would tend to injure the reputation of the Property.
9.6 Tenant shall take good care of the Demised Premises and
keep the same free from waste at all time Tenant shall not overload the
floors in the Demised Premises, nor deface or injure the Demised
Premises. Tenant shall keep the Demised Premises and sidewalks, service-
ways and loading areas adjacent to the premises neat, clean and free from
dirt, rubbish, ice or snow at all times. Tenant shall store all trash
and garbage within the premises, or in a trash dumpster or similar
container approved by Landlord as to type, location and screening; and
Tenant shall arrange for the regular pick-up of such trash and garbage at
tenant's expense (unless Landlord finds it necessary to furnish such a
service, in which event Tenant shall be charged an equitable portion of
the total of charges to all tenants using the service). Receiving and
delivery of goods and merchandise and removal of garbage and trash shall
be made only in the manner and areas prescribed by Landlord. Tenant
shall not operate an incinerator or burn trash or garbage within the
Property.
9.7 Tenant shall include the address and identity of its business
activities in the Demised Premises in all advertisements made by Tenant
in which the address and identity of any similar local business activity
of Tenant is mentioned.
9.8 Tenant shall procure at its sole expense any permits and
licenses required for the transaction of business in the Demised Premises
and otherwise comply with all applicable laws, ordinances and
governmental regulations. In addition, if the nature of Tenant's business
makes it advisable for Tenant to take any extra precautions (for example,in
the case of a business which is affected by so-called 'dram shop' laws,
Tenant's compliance with all "dram shop' educational programs and
procedures), Tenant shall take all such extra precautions. At Landlord's
request, Tenant shall deliver to Landlord copies of all such permits and
licenses and proof of Tenant's compliance with all such laws, ordinances,
governmental regulations and extra precautions.
<PAGE>
ARTICLE X
MAINTENANCE AND REPAIR OF DEMISED PREMISES
10.1 Landlord shall keep the foundation, the exterior walls (except
plate glass; windows, doors and other exterior openings; window and door
frames, molding, closure devices, locks and hardware; special store
fronts; lighting, heating, air conditioning, plumbing and other
electrical, mechanical and electromotive installation, equipment and
fixtures; signs, placards, decorations or other advertising media of any
type; and interior painting or other treatment of exterior walls) and
roof (subject to the second sentence in Section 7.4 above) of the Demised
premises in good repair. Landlord, however, shall not be required to
make any repairs occasioned by the act or negligence of Tenant, its
agents, employees, subtenants, licensees and concessionaires (including,
but not limited to, roof leaks resulting from Tenant's installation of
air conditioning equipment or any other roof penetration or placement);
and the provisions of the previous sentence are expressly recognized to
be subject to the provisions of Article XVII and Article XVIII of this
lease. In the event that the Demised Premises should become in need of
repairs required to be made by Landlord hereunder Tenant shall give
immediate written notice thereof to Landlord and Landlord shall have a
reasonable time after receipt by Landlord of such written notice in which
to make such repairs.
10.2 Tenant shall keep the Demised Premises in good, clean and
habitable condition and shall at its sole cost and expense keep the
Demised Premises free of insects, rodents, vermin and other pests and
make all needed repairs and replacements, including replacement of
cracked or broken glass, except for repairs and replacements required to
be made by Landlord under the provisions of Section 10.1, Article XVII
and Article XVIII Without limiting the coverage of the previous
sentence, it is understood that Tenant's responsibilities therein
include the repair and replacement of all lighting, heating, air
conditioning, plumbing and other electrical, mechanical and
electromotive installation, equipment and fixtures and also include all
utility repairs in ducts, conduits, pipes and wiring, and any sewer
stoppage located in, under and above the Demised Premises, regardless of
when or how the defect or other cause for repair or replacement occurred
or became apparent. If any repairs required to be made by Tenant
hereunder are not made within ten days after written notice delivered to
Tenant by Landlord ' Landlord may at its option make such repairs
without liability to Tenant for any loss or damage which may result to
its stock or business by reason of such repairs; and Tenant shall pay to
Landlord upon demand, as additional rental hereunder, the cost of such
repairs plus interest at the maximum contractual rate which could
legally be charged in the event of a loan of such payment to Tenant (but
in no event to exceed 1 1/2% per month), such interest to accrue
continuously from the date of payment by Landlord until repayment by
Tenant. At the expiration of this lease, Tenant shall surrender the
Demised Premises in good condition, excepting reasonable wear and tear
and losses required to be restored by Landlord in Section 10.1, Article
XVII and Article XVIII of this lease.
ARTICLE XI
ALTERATIONS
1 1.1 Tenant shall not make any alterations, additions or
improvements to the Demised Premises without the prior written consent
of Landlord, except for the installation of unattached, movable trade
fixtures which may be installed without drilling cutting or otherwise
defacing the Demised Premises. Without limiting the generality of the
immediately preceding sentence, any installation or replacement of
Tenant's heating or air conditioning equipment must be effected strictly
<PAGE>
in accordance with Landlord's instructions. All alterations, additions
improvements and fixtures (including, without limitation, all floor
coverings and all heating and air conditioning equipment but excluding
Tenant's unattached, readily movable furniture and office equipment)
which may be made or installed by either party upon the Demised Premises
shall remain upon and be surrendered with the Demised Premises and
become the property of Landlord at the termination of this lease, unless
Landlord requests their removal, in which event Tenant shall remove the
same and restore the Demised Premises to its original condition at
Tenant's expense.
11.2 All construction work done by Tenant within the Demised
Premises shall be performed in a good and workmanlike manner, lien-free
and in compliance with all governmental requirements, and in such manner
as to cause a minimum of interference with other construction in
progress and with the transaction of business in the Property. Tenant
agrees to indemnify Landlord and hold Landlord harmless against any
loss, liability or damage resulting from such work, and Tenant shall, if
requested by Landlord, furnish a bond or other security satisfactory to
Landlord against any such loss, liability or damage.
11.3 In the event Tenant uses a general contractor to perform
construction work within the Demised Premises, Tenant shall prior to the
commencement of such work, require said general contractor to execute
and deliver to Landlord a waiver and release of any and all claims
against Landlord and liens against the Property to which such contractor
might at any time be entitled and to execute and record a Bond to Pay
Claims (the 'Bond') in accordance with Chapter 53, Subchapter 1 of the
Texas Property Code, as such may be amended, superseded or replaced from
time to time and shall deliver a copy of the recorded Bond to Landlord.
The delivery of the waiver and release of lien and the Bond within the
time period set forth above shall be a condition precedent to Tenant's
ability to enter on and begin its construction work at the Demised
Premises and, if applicable, to any reimbursement from Landlord for its
construction work.
11.4 In the event that Landlord elects to remodel all or any portion
of the Property, Tenant will cooperate with such remodeling, including
Tenant's tolerating temporary inconveniences (and even the temporary
removal of Tenant's signs in order to facilitate such remodeling, as it
may relate to the exterior of the Demised Premises).
ARTICLE XI
LANDLORD'S RIGHT OF ACCESS
12.1 Landlord shall have the right to enter upon the Demised
Premises at any time during normal business hours and upon appointment
(except for an emergency where entry may be made at any time and without
appointment) for the purpose of inspecting the same, or of making
repairs to the Demised Premises, or of making repairs, alterations or
additions to adjacent premises, or of showing the Demised Premises to
prospective purchasers, tenants or lenders.
12.2 Tenant will permit Landlord to place and maintain "For Rent" or
"For Lease" signs on the Demised Premises during the last 180 days of
the lease term, it being understood that such signs shall in no way
affect Tenant's obligations pursuant to Section 9.4, Section 13.1 or any
other provision of this lease.
12.3 Use of the roof above the Demised Premises is reserved to
Landlord; however, Landlord agrees that it will not use the roof above
the Demised Premises for signage or other advertising displays.
<PAGE>
ARTICLE XIII
SIGNS; STORE FRONTS
13.1 Tenant shall not, without Landlord ' s prior written consent
(a) make any changes to the exterior of the building or (b) install any
exterior lighting, decorations, paintings, awnings, canopies or the like.
All signs, lettering, placards, decorations and advertising media
(including, without limitation, the sign required by Section 13.2 below)
shall be subject to Landlord's approval, not to be unreasonably withheld
or delayed and shall be subject to Landlord's requirements as to
construction, method of attachment, size, shape, height, lighting, color
and general appearance. All signs shall be kept in good condition and in
proper operating order at all times. Notwithstanding any provision to
the contrary, Landlord shall not be able to exercise any control over the
use of Curtis Mathes' trademark.
13.2 Subject to the restrictions of Section 13.1 above, Tenant
agrees to install and maintain a first-class sign on the Demised
Premises during the term of this lease.
ARTICLE XIV
UTILITIES
14.1 Landlord agrees to cause to be provided to the Property the
necessary mains, conduits and other facilities necessary to supply water,
gas (if deemed appropriate by Landlord), electricity, telephone service
and sewerage service to the building in which the Demised Premises are
located.
14.2 Tenant shall promptly pay all charges for electricity, water,
gas, telephone service, sewerage service and other utilities furnished to
the Demised Promises. Landlord may, if it so elects, furnish one or more
utility services to Tenant, and in such event Tenant shall purchase the
use of such services as are tendered by Landlord, and shall pay on demand
as additional rental the rates established therefor by Landlord which
shall not exceed the rates which would be charged for the same services
if furnished directly by the local public utility companies. Landlord
may at any time discontinue furnishing any such service without
obligation to Tenant other than to connect the Demised Premises to the
public utility, if any, furnishing such service.
14.3 Landlord shall not be liable for any interruption whatsoever in
utility services not furnished by Landlord, nor for interruptions in
utility services furnished by Landlord which are due to fire, accident,
strike, acts of God or other causes beyond the control of Landlord or
which are necessary or useful in connection with making any alterations,
repairs or improvements.
ARTICLE XV
INSURANCE COVERAGES
15.1 Landlord shall procure and maintain throughout the term of this
lease a policy or policies of insurance, at its sole cost and expense
(but subject to Article VI above), causing the Property to be insured
under standard fire and extended coverage insurance and liability
insurance (plus whatever endorsements or special coverages Landlord, in
its sole discretion, may consider appropriate), to the extent necessary
to comply with Landlord's obligations pursuant to other provisions of
this lease.
15.2 Tenant shall procure and maintain throughout the term of this
lease a policy or policies of insurance at its sole cost and expense,
causing Tenant's fixtures and contents to be insured under standard fire
and extended coverage insurance and, with regard to liability insurance,
insuring both Landlord and Tenant against all claims, demands or actions
arising out of or in connection with Tenant's use or occupancy of the
Demised Premises, or by the condition of the Demised Premises. The
limits of Tenant's liability policy or policies shall be in an amount not
<PAGE>
less than $1,000,000 per occurrence (and no offset for occurrences on
property other than the Demised Premises), and shall be written by
insurance companies satisfactory to Landlord. Tenant shall obtain a
written obligation on the part of each insurance company to notify
Landlord at least twenty days prior to cancellation of such insurance.
Such policies or duly executed certificates of insurance shall be
promptly delivered to Landlord and renewals thereof as required shall be
delivered to Landlord at least thirty days prior to the expiration of the
respective policy terms. If Tenant should fail to comply with the
foregoing requirement relating to insurance, Landlord may obtain such
insurance and Tenant shall pay to Landlord on demand as additional rental
hereunder the premium cost thereof plus interest at the maximum
contractual rate (but in no event to exceed I 1/2% per month) from the
date of payment by Landlord until repaid by Tenant.
ARTICLE XVI
WAIVER OF LIABILITY; MUTUAL WAIVER OF SUBROGATION
16.1 Landlord and Landlord's agents and employees shall not be
liable to Tenant, nor to Tenant's employees, agents or visitors, nor to
any other person whomsoever, for any injury to person or damage to
property caused by the Demised Premises or other portions of the Property
becoming out of repair or by defect or failure of any structural element
of the Demised Premises or of any equipment pipes or wiring, or broken
glass, or by the backing up of drains, or by gas, water, steam,
electricity or oil leaking, escaping or flowing into the Demised Premises
(except where due to Landlord's willful failure to make repairs required
to be made hereunder, after the expiration of a reasonable time after
written notice to Landlord of the need for such repairs), nor shall
Landlord be liable to Tenant, nor to Tenant's employees, agents or
visitors, nor to any other person whomsoever, for any loss or damage that
may be occasioned by or through the acts or omissions of other tenants of
the Property or of any other persons whomsoever, excepting only duly
authorized employees and agents of Landlord. Landlord shall not be held
responsible in any way on account of any construction, repair or
reconstruction (including widening) of any private or public roadways,
walkways or utility lines.
16.2 Landlord shall not be liable to Tenant or to Tenant's
employees, agents, or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the Demised
Premises or the Property caused by the negligence or misconduct of
Tenant, its employees, subtenants, licensees or concessionaires, or of
any other person entering the Shopping center under express or implied
invitation of Tenant (with the exception of customers in the Property),
or arising out of the use of the Demised Premises by Tenant and the
conduct of its business therein, or arising out of any breach or default
by Tenant in the performance of its obligations under this lease; and
Tenant hereby agrees to indemnify Landlord and hold Landlord harmless
from any loss, expense or claims arising out of such damage or injury.
16.3 Landlord and Tenant each hereby release the other from any
and all liability or responsibility to the other, or to any other party
claiming through or under them by way of subrogation or otherwise, for
any loss or damage to property caused by a casualty which is insurable
under standard fire and extended coverage insurance; provided, however,
that this mutual waiver shall be applicable only with respect to a loss
or damage occurring during the time when property insurance policies,
which are readily available in the marketplace, contain a clause or
permit an endorsement to the effect that any such release shall not
adversely affect or impair the policy or the right of the insured party
to receive proceeds under the policy; provided, further, that this
release shall not be applicable to the portion of any damage which is not
<PAGE>
reimbursed by the damaged party's insurer because of the "deductible' in
the damaged party's insurance coverage. The release specified in this
Section 16.3 is cumulative with any releases or exculpations which may be
contained in other provisions of this lease.
ARTICLE XVII
DAMAGES BY CASUALTY
17.1 Tenant shall give immediate written notice to the Landlord of
any damage caused to the Demised Premises by fire or other casualty.
17.2 In the event that the Demised Premises shall be damaged or
destroyed by fire or other casualty insurable under standard fire and
extended coverage insurance and Landlord does not elect to terminate this
lease as hereinafter provided, Landlord shall proceed with reasonable
diligence and at its sole cost and expense to rebuild and repair the
Demised Premises. In the event (a) the building in which the Demised
Premises are located is destroyed or substantially damaged by a casualty
not covered by Landlord's insurance or (b) such building is destroyed or
rendered untenantable to an extent in excess of fifty percent of the
first floor area by a casualty covered by Landlord's insurance, or (c)
the holder of a mortgage, deed of trust or other lien on such building at
the time of the casualty elects, pursuant to such mortgage, deed of trust
or other lien, to require the use of all or part of Landlord's insurance
proceeds in satisfaction of all or part of the indebtedness secured by
the mortgage, deed of trust or other lien, then Landlord may elect either
to terminate this lease or to proceed to rebuild and repair the Demised
Premises; Landlord shall give written notice to Tenant of such election
within sixty days after the occurrence of such casualty and, if it elects
to rebuild and repair, shall proceed to do so with reasonable diligence
and at its sole cost and expense.
17.3 Landlord's obligation to rebuild and repair under this Article
XVII shall in any event be limited to restoring one of the following (as
may be applicable): (a) if this lease does not include an attached
exhibit describing Landlord's initial construction responsibility
('Landlord's Work'), restoring the Demised Premises to substantially the
condition in which the same existed prior to such casualty, exclusive of
any alterations, additions, improvements, fixtures and equipment
installed by Tenant; or (b) restoring Landlord's Work, as described in
the applicable exhibit attached to this lease (if such an exhibit is
attached), to substantially the same condition in which the same existed
prior to the casualty. Tenant agrees that promptly after completion of
such work by Landlord, Tenant will proceed with reasonable diligence and
at Tenant's sole cost and expense to restore, repair and replace all
alterations, additions, improvements, fixtures, signs and equipment
installed by Tenant, or, if an exhibit describing Tenant's Work is
attached hereto, all items of Tenant's Work as described in such exhibit,
as the case may be.
17.4 Tenant agrees that during any period of reconstruction or
repair of the Demised Premises, it will continue the operation of its
business within the Demised Premises to the extent practicable. During
the period from the occurrence of the casualty until Landlord's repairs
are completed, the minimum guaranteed rental shall be reduced to such
extent as may be fair and reasonable under the circumstances; however,
there shall be no abatement of other charges provided for herein.
ARTICLE XVIII
EMINENT DOMAIN
18.1 If more than thirty percent (30%) of the floor area of the
Demised Premises should be taken for any public or quasi-public use under
any governmental law, ordinance or regulation or by right of eminent
domain or by private purchase in lieu thereof, this lease shall terminate
and the rent shall be abated during the unexpired portion of this lease,
<PAGE>
effective on the date physical possession is taken by the condemning
authority.
18.2 If less than thirty percent (30%) of the floor area of the
Demised Premises should be taken as aforesaid, this lease shall not
terminate; however, the minimum guaranteed rental but not percentage
rental) payable hereunder during the unexpired portion of this lease
shall be reduced in proportion to the area taken effective on the date
physical possession is taken by the condemning authority. Following such
partial taking, Landlord shall make all necessary repairs or alterations
to the remaining premises or, if an exhibit describing Landlord's Work is
attached to this lease, all necessary repairs within the scope of
Landlord's Work as described in such exhibit, as the case may be,
required to make the remaining portions of the Demised Premises an
architectural whole.
18.3 If any part of the Property should be taken as aforesaid, this
lease shall not terminate, nor shall the rent payable hereunder be
reduced, except that either Landlord or Tenant may terminate this lease
if the area of the Property remaining following such taking plus any
additional parking area provided by Landlord in reasonable proximity to
the Property shall be less than seventy percent of the area of the
Property immediately prior to the taking. Any election to terminate this
lease in accordance with this provision shall be evidenced by written
notice of termination delivered to the other party within thirty days
after date physical possession is taken by condemning authority.
18.4 All compensation awarded for any taking (or the proceeds of
private sale in lieu thereof) of the Demised Premises or Property shall
be the property of Landlord, and Tenant hereby assigns its interest in
any such award to Landlord; provided, however, Landlord shall have no
interest in any award made to Tenant for Tenant's moving and relocation
expenses or for the loss of Tenant's fixtures and other tangible personal
property if a separate award for such items is made to Tenant as long as
such separate, award does not reduce the amount of the award that would
otherwise be awarded to Landlord.
ARTICLE XIX
ASSIGNMENT AND SUBLETTING
19.1 Tenant shall not assign or in any manner transfer this lease or
any estate or interest therein, or sublet the Demised Premises or any
part thereof, or grant any license, concession or other right of
occupancy of any portion of the Demised Premises without the prior
written consent of Landlord. Landlord agrees that it will not withhold
consent in a wholly unreasonable and arbitrary manner (as further
explained in Section 28.4 of this lease); however, in determining
whether or not to grant its consent, Landlord shall be entitled to take
into consideration factors such as the reputation and net worth of the
proposed transferee, and the then current market conditions (including
market rentals). In addition, Landlord shall also be entitled to charge
Tenant a reasonable fee for processing Tenant's request. Consent by
Landlord to one or more assignments or sublettings shall not operate as
a waiver of Landlord's rights as to any subsequent assignments and
sublettings.
19.2 If Tenant is a corporation, partnership or other entity and if
at any time during the term of this lease the person or persons who own
a majority of either the outstanding voting rights or the outstanding
ownership interests of Tenant at the time of the execution of this lease
cease to own a majority of such voting rights or ownership interests
(except as a result of transfers by devise or descent), the loss of a
majority of such voting rights or ownership interests shall be deemed an
assignment of this lease by Tenant and, therefore, subject in all
respects to the provisions of Section 1 9.1 above. The previous
<PAGE>
sentence shall not apply, however, if at the time of the execution of
this lease, Tenant is a corporation and the outstanding voting shares of
capital stock of Tenant are listed on a recognized security exchange or
over-the-counter market.
19.3 Any assignee or sublessee of an interest in and to this lease
shall be deemed, by acceptance of such assignment or sublease or by
taking actual or constructive possession of the Demised Premises, to
have assumed all of the obligations set forth in or arising under this
lease. Such assumption shall be effective as of the earlier of the date
of such assignment or sublease or the date on which the assignee or
sublessee obtains possession of the Demised Premises.
19.4 Notwithstanding any assignment or subletting, Tenant and any
guarantor of Tenant's obligations under this lease shall at all times
remain fully responsible and liable for the payment of the rent herein
specified and for compliance with all of its other obligations under this
lease (even if future assignments and sublettings occur subsequent to the
assignment or subletting by Tenant, and regardless of whether or not
Tenant's approval has been obtained for such future assignments and
sublettings). Moreover, in the event that the rental due and payable by
a sublessee (or a combination of the rental payable under such sublease
plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this lease, or if with respect to a
permitted assignment, permitted license or other transfer by Tenant
permitted by Landlord, the consideration payable to Tenant by the
assignee, licensee or other transferee exceeds the rental payable under
this lease, then Tenant shall be bound and obligated to pay Landlord all
such excess rental and other excess consideration within ten (10) days
following receipt thereof by Tenant from such sublessee, assignee,
licensee or other transferee, as the case may be. Finally, in the event
of an assignment or subletting, it is understood and agreed that ail
rentals paid to Tenant by an assignee or sublessee shall be received by
Tenant in trust for Landlord, to be forwarded immediately to Landlord
without offset or reduction of any kind; and upon election by Landlord
such rentals shall be paid directly to Landlord as specified in Section
4.2 of this lease (to be applied as a credit and offset to Tenant's
rental obligation).
19.5 Tenant shall not mortgage, pledge or otherwise encumber its
interest in this lease or in the Demised Premises.
19.6 In the event of the transfer and assignment by Landlord of its
interest in this lease and in the building containing the Demised
Premises to a person expressly assuming Landlord's obligations under this
lease, Landlord shall thereby be released from any further obligations
hereunder, and Tenant agrees to look solely to such successor in interest
of the Landlord for performance of such obligations. Any security given
by Tenant to secure performance of Tenant's obligations hereunder may be
assigned and transferred by Landlord to such successor in interest and
Landlord shall thereby be discharged of any further obligation relating
thereto.
ARTICLE XX
SUBORDINATION; ATTORNMENT; ESTOPPELS
20.1 Tenant accepts this lease subject and subordinate to any
mortgage, deed of trust or other lien presently existing or hereafter
placed upon the Property or any portion of the Property which includes
the Demised Premises, and to any renewals and extensions thereof.
Tenant agrees that any mortgagee shall have the right at any time to
subordinate its mortgage, deed of trust or other lien to this lease;
provided, however, notwithstanding that this lease may be (or made to
be) superior to a mortgage, deed of trust or other lien, the mortgagee
shall not be liable for prepaid rentals, security deposits and claims
<PAGE>
accruing during Landlord's ownership; further provided that the
provisions of a mortgage, deed of trust or other lien relative to the
rights of the mortgagee with respect to proceeds arising from an eminent
domain taking (including a voluntary conveyance by Landlord) and
provisions relative to proceeds arising from insurance payable by reason
of damage to or destruction of the Demised Premises shall be prior and
superior to any contrary provisions contained in this instrument with
respect to the payment or usage thereof. Landlord is hereby irrevocably
vested with full power and authority to subordinate this lease to any
mortgage, deed of trust or other lien hereafter placed upon the Demised
Premises or the Property as a whole, and Tenant agrees upon demand to
execute such further instruments subordinating this lease as Landlord
may request; provided, however, that upon Tenant's written request and
notice to Landlord, Landlord shall use good faith efforts to obtain from
any such mortgagee a written agreement that after a foreclosure (or a
deed in lieu of foreclosure) in the rights of Tenant shall remain in
full force and effect during the term of this lease so long as Tenant
shall continue to recognize and perform all of the covenants and
conditions of this lease.
20.2 At any time when the holder of an outstanding mortgage,
deed of trust or other lien covering Landlord's interest in the Demised
Premises has given Tenant written notice of its interest in this lease,
Tenant may not exercise any remedies for default by Landlord hereunder
unless and until the holder of the indebtedness secured by such
mortgage, deed of trust or other lien shall have received written
notice of such default and a reasonable time (not less than 30 days)
shall thereafter have elapsed without the default having been cured.
20.3 Tenant agrees that it will from time to time upon request
by Landlord execute and deliver to Landlord a written statement
addressed to Landlord (or to a party designated by Landlord), which
statement shall identify Tenant and this lease, shall certify that this
lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as so
modified), shall confirm that Landlord is not in default as to any
obligations of Landlord under this lease (or if Landlord is in default,
specifying any default), shall confirm Tenant's agreements contained
above in this Article XX, and shall contain such other information or
confirmations as Landlord may reasonably require. Landlord is hereby
irrevocably appointed and authorized as the agent and attorney-in-fact
of Tenant to execute and deliver any such written statement on Tenant's
behalf if Tenant fails to do so within seven (7) days after the
delivery of a written request from Landlord to Tenant.
ARTICLE XXI
DIRECTION OF TENANT'S ENERGIES
Intentionally Deleted
ARTICLE XXII
DEFAULT BY TENANT AND REMEDIES
22.1 The following events shall be deemed to be events of default by
Tenant under this lease:
(a) Tenant shall fail to pay any installment or rental or any
other obligation under this lease involving the payment of money and
such failure shall continue for a period of ten (10) days after
written notice thereof to Tenant; provided, however, that for each
calendar year during which Landlord has already given Tenant one
written notice of the failure to pay an installment of rental, no
further notice shall be required (i.e., the event of default will
automatically occur on the tenth day after the date upon which the
rental was due).
<PAGE>
(b) Tenant shall fail to comply with any provision of
this lease, other than as described in subsection (a) above, and either
shall not cure such failure within fifteen (15) days after written notice
thereof to Tenant, or shall cure that particular failure but shall again
fail to comply with the same provision of the lease within three months
after Landlord's written notice.
(c) Tenant or any guarantor of Tenant's obligations under this
lease shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
(d) Tenant or any guarantor of Tenant's obligations under this
lease shall file a petition under any section or chapter of the
federal Bankruptcy Code, as amended, or under any similar law or
statute of the United States or any state thereof; or Tenant or any
guarantor of Tenant's obligations under this lease shall be adjudged
bankrupt or insolvent in proceedings filed against Tenant or any
guarantor of Tenant's obligations under this lease thereunder.
(e) A receiver or Trustee shall be appointed for the Demised Premises
or for all or substantially all of the assets of Tenant or any guarantor
of Tenant's obligation under this lease.
(f)Tenant shall desert or vacate or shall commence to desert or
vacate the Demised Premises or any substantial portion of
the Demised Premises or at any time prior to the last month
of the lease term shall remove or attempt to remove,
without the prior written consent of Landlord, all or a
substantial amount of Tenant's goods, wares, equipment,
fixtures, furniture, or other personal property.
(g) Tenant shall do or permit to be done anything which
creates a lien upon the Demised Premises or upon all or any part of
the Property.
22.2 Upon the occurrence of any such events of default, Landlord
shall have the option to pursue any one or more of the following
remedies:
(a) Without any further notice or demand whatsoever, Tenant
shall be obligated to reimburse Landlord for the damages suffered by
Landlord as a result of the event of default, plus interest on such
amount at the maximum contractual rate which could legally be charged
in the event of a loan of such amount to Tenant (but in no event to
exceed 1-1/2% per month); and Landlord may pursue a monetary recovery
from Tenant. In this regard, and without limiting the generality of
the immediately preceding sentence, it is agreed that if Tenant fails
to occupy the Demised Premises as required in this lease or, having
occupied same for business, subsequently deserts or vacates the
Demised Premises or otherwise ceases to conduct business in the
Demised Premises as required in this lease, then Landlord at its
option may seek monetary recovery for the loss of Tenant's
anticipated contribution to commerce within the Property; moreover,
Landlord and Tenant further agree that inasmuch as the exact amount
of damages would be difficult to determine, liquidated damages will
be due monthly in an amount equal to twenty-five percent of the
monthly guaranteed rental payable for the month if Tenant fails to
open for business as required in this lease or, having opened for
business, subsequently deserts or vacates the Demised Premises or
otherwise ceases to conduct business in the Demised Premises as
required by this lease (including, but not limited to, failing to
comply with the requirements of Section 9.1 of this lease).
(b) Without any further notice or demand whatsoever,
Landlord may take any one or more of the actions permissible at law
to insure performance by Tenant of Tenant's covenants and
obligations under this lease. In this regard, and without limiting
<PAGE>
the generality of the immediately preceding sentence, it is agreed
that if Tenant fails to open for business as required in this lease
or, having opened for business, deserts or vacates the Demised
Premises, Landlord may enter upon and take possession of such
premises in order to protect them from deterioration and continue to
demand from Tenant the monthly rentals and other charges provided in
this lease, without any obligation to relet with the provision that
Landlord shall use good faith efforts; however, if Landlord does,
elect to relet the Demised Premises, such action by Landlord shall
not be deemed as an acceptance of Tenant's surrender of the Demised
Premises unless Landlord expressly notifies Tenant of such
acceptance in writing pursuant to this subsection (b), Tenant hereby
acknowledging that Landlord shall otherwise be reletting as Tenant's
agent and Tenant furthermore hereby agreeing to pay to Landlord on
demand any deficiency that may arise between the monthly rentals and
other charges provided in this lease and that actually collected by
Landlord. It is further agreed in this regard that in the event of
any default described in subsection (b) of Section 22.1 of this
lease, Landlord shall have the right to enter upon the Demised
Premises by force if necessary without being liable for prosecution
or any claim for damages therefore, and do whatever Tenant is
obligated to do under the terms of this lease; and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may
incur in thus effecting compliance with Tenant's obligations under
this lease, and Tenant further agrees that Landlord shall not be
liable for any damages resulting to the Tenant from such action.
Finally it is agreed that in the event of any default described in
subsection (g) of Section 22.1 of this lease, Landlord may pay or
bond around such lien whether or not contested by Tenant; and in
such event Tenant agrees to reimburse Landlord on demand for all
costs and expenses incurred in connection with any such action, with
Tenant further agreeing that Landlord shall in no event be liable
for any damages or claims resulting from such action.
(c) Landlord may terminate this lease by written notice to
Tenant, in which event Tenant shall immediately surrender the
Demised Premises to Landlord, and if Tenant fails to do so, Landlord
may, without prejudice to any other remedy which Landlord may have
for possession or arrearages in rent (including any late charge or
interest which may have accrued pursuant to Section 4.7 of this
lease), enter upon and take possession of the Demised Premises and
expel or remove Tenant and any other person who may be occupying
said premises or any part thereof, by force if necessary, without
being liable for prosecution or any claim for damages therefor. In
addition, Tenant agrees to pay to Landlord on demand the amount of
all loss and damage which Landlord may suffer by reason of any
termination effected pursuant to this subsection (cl, said loss and
damage to be determined by either of the following alternative
measures of damages:
(i) Until Landlord is able, through reasonable efforts,
the nature of which efforts shall be at the sole discretion of
Landlord, to relet the Demised premises under terms satisfactory
to Landlord, in its sole discretion, Tenant shall pay to Landlord
on or before the first day of each calendar month, the monthly
rentals and other charges provided in this lease. If and after
the Demised Premises have been relet by Landlord, Tenant shall
pay to Landlord on the 20th day of each calendar month the
difference between the monthly rentals and other charges provided
in this lease for such calendar month and that actually collected
by Landlord for such month. If it is necessary for Landlord to
<PAGE>
bring suit in order to collect any deficiency, Landlord shall
have a right to allow such deficiencies to accumulate and to
bring an action on several or all of the accrued deficiencies at
one time. Any such suit shall not prejudice in any way the right
of Landlord to bring a similar action for any subsequent
deficiency or deficiencies. Any amount collected by Landlord
from subsequent tenants for any calendar month in excess of the
monthly rentals and other charges provided in this lease, shall
be credited to Tenant in reduction of Tenant's liability for any
calendar month for which the amount collected by Landlord will be
less than the monthly rentals and other charges provided in this
lease; but Tenant shall have no right to such excess other than
the above-described credit.
(ii) When Landlord desires, Landlord may demand a final
settlement. Upon demand for a final settlement, Landlord shall
have a right to, and Tenant hereby agrees to pay, the difference
between the total of all monthly rentals and other charges
provided in this lease for the remainder of the term and the
reasonable rental value of the Demised Premises for such period,
such difference to be discounted to present value at a rate equal
to the rate of interest which is allowed by law in the State of
Texas when the parties to a contract have not agreed on any
particular rate of interest (or, in the absence of such law, at
the rate of six percent per annum).
If Landlord elects to exercise the remedy prescribed in subsection
22.2(b) above, this election shall in no way prejudice Landlord's right
at any time thereafter to cancel said election in favor of the remedy
prescribed in subsection 22.2(c) above, provided that at the time of such
cancellation Tenant is still in default. Similarly, if Landlord elects
to compute damages in the manner prescribed by subsection 22.2(c)(i)
above, this election shall in no way prejudice Landlord's right at any
time thereafter to demand a final settlement in accordance with
subsection 22.2(c)(ii) above. Pursuit of any of the above remedies shall
not preclude pursuit of any other remedies prescribed in other sections
of this lease and any other remedies provided by law. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an
event of default shall not be deemed or construed to constitute a waiver
of such default.
22.3 It is expressly agreed that in determining 'the monthly rentals
and other charges provided in this lease,' as that term is used
throughout subsections 22.2(c)(i) and 22.2(c)(ii) above, there shall be
added to the minimum guaranteed rental (as specified in Sections 1.1 (m)
and 4.1 of this lease) a sum equal to the charges for maintenance of the
Property (as specified in Sections 1. 1 (o) and 7.4 of this lease), and
the payments for taxes, charges and insurance (as specified in Article VI
of this lease).
22.4 It is further agreed that, in addition to payments required
pursuant to subsections 22-2(b) and 22.2(c) above, Tenant shall
compensate Landlord for all expenses incurred by Landlord in repossession
(including, among other expenses, any increase in insurance premiums
caused by the vacancy of the Demised Premises), all expenses incurred by
Landlord in reletting (including, among other expenses, repairs,
remodeling, replacements, advertisements and brokerage fees), all
concessions granted to a new tenant upon reletting (including, among
other concessions, renewal options) all losses incurred by Landlord as a
direct or indirect result of Tenant's default (including, among other
losses, any adverse reaction by Landlord's mortgagee or by other tenants
or potential tenants of the Property) and a reasonable allowance for
Landlord's administrative efforts, salaries and overhead attributable
<PAGE>
directly or indirectly to Tenant's default and Landlord's pursuing the
rights and remedies provided herein and under applicable law.
22.5 Landlord may restrain or enjoin any breach of threatened breach
of any covenant, duty or obligation of Tenant herein contained. The
remedies of Landlord hereunder shall be deemed cumulative and not
exclusive of each other.
22.6 If on account of any breach or default by Tenant in its
obligations hereunder, Landlord shall employ an attorney to present,
enforce or defend any of Landlord's rights or remedies hereunder, Tenant
agrees to pay any reasonable attorney's fees incurred by Landlord in such
connection.
22.7 In the event that any one or more provisions of this Article
XXII authorizes Landlord to enter the Demised Premises, Landlord is
entitled and is hereby authorized, without any notice to Tenant, to enter
upon the Demised Premises by use of a duplicate key, a master key, a
locksmith's entry procedures or any other means not involving personal
confrontation, and to alter or change the door locks on all entry doors
of the Demised Premises, thereby permanently excluding Tenant. In such
event Landlord, if required by statute, shall place a written notice on
the Demised Premises explaining Landlord's action; moreover, it a reason
for Landlord's action is the failure of Tenant to pay any one or more
rentals when due pursuant to this lease, Landlord shall not be required
to provide the new key (if any) to Tenant until and unless all rental
defaults of Tenant have been fully cured.
22.8 Tenant acknowledges its obligation to deposit with Landlord the
sum stated in Section 1. I (q) above, to be held by Landlord without
interest as security for the performance by Tenant of Tenant's covenants
and obligations under this lease. Tenant agrees that such deposit may be
co-mingled with Landlord's other funds and is not an advance payment of
rental or a measure of Landlord's damages in case of default by Tenant.
Upon the occurrence of any event of default by Tenant, Landlord may, from
time to time, without prejudice to any other remedy provided herein or
provided by law, use such fund to the extent necessary to make good any
arrears of rentals and any other damage, injury, expense or liability
caused to Landlord by such event of default, and Tenant shall pay to
Landlord on demand the amount so applied in order to restore the security
deposit to its original amount. If Tenant is not then in default, and
Tenant shall pay to Landlord on demand the amount so applied in order to
restore the security deposit to its original amount. If Tenant is not
then in default hereunder, any remaining balance of such deposit shall be
returned by Landlord to Tenant upon termination of this lease (subject to
the provisions of Section 19.5 above).
22.9 In the event of any default described in subsection (d) of
Section 22.1 of this lease, any assumption and assignment must conform
with the requirements of the Bankruptcy Code which provides, in part,
that the Landlord must be provided with adequate assurances (i) of the
source of rent and other consideration due under this lease, (ill that
the financial condition and operating performance of any proposed
assignee and its guarantors, if any, shall be similar to the financial
condition and operating performance of Tenant and its guarantors, if
any, as of the date of execution of this lease; (ill) that any
percentage rent due under this lease will not decline substantially;
(iv) that any assumption or assignment is subject to all of the
provisions of this lease (including, but not limited to, restrictions as
to use) and will not breach any such provision contained in any other
lease, financing agreement or other agreement relating to the Property;
and (v) that any assumption or assignment will not disrupt any tenant
mix or balance in the Property.
<PAGE>
(a) In order to provide Landlord with the assurances
contemplated by the Bankruptcy Code, Tenant must fulfill the following
obligations, in addition to any other reasonable obligations that
Landlord may require, before any assumption of this lease is effective:
(i) all defaults under subsection (a) of Section 22.1 of this lease must
be cured within ten (1 0) days after the date of assumption; (ill all
other defaults under Section 22.1 of this lease other than under
subsection (d) of Section 22.1 must be cured within fifteen (151 days
after the date of assumption; (ill) all actual monetary losses incurred
by Landlord (including, but not limited to, reasonable attorneys fees)
must be paid to Landlord within ten (1 0) days after the date of
assumption; and (iv) Landlord must receive within ten (10) days after the
date of assumption a security deposit in the amount of six (6) months
minimum guaranteed rent (using the minimum guaranteed rent in effect for
the first full month immediately following the assumption) and an advance
prepayment of minimum guaranteed rent in the amount of three (3) months
minimum guaranteed rent (using the minimum guaranteed rent in effect for
the first full month immediately following the assumption), both sums to
be held by Landlord in accordance with Section 22.8 above and deemed to
be rent under this lease for the purposes of the Bankruptcy Code as
amended from time to time in effect.
(b) In the event this lease is assumed in accordance with the
requirements of the Bankruptcy Code and this lease, and is subsequently
assigned, then, in addition to any other reasonable obligations that
Landlord may require and in order to provide Landlord with the assurances
contemplated by the Bankruptcy Code, Landlord shall be provided with (i)
a financial statement of the proposed assignee prepared in accordance
with generally accepted accounting principles consistently applied,
though on a cash basis, which reveals a net worth in an amount
sufficient, in Landlord's reasonable judgment, to assure the future
performance by the proposed assignee of Tenant's obligations under this
lease; or (ii) a written guaranty by one or more guarantors with
financial ability sufficient to assure the future performance of Tenant's
obligations under this lease, such guaranty to be in form and content
satisfactory to Landlord and to cover the performance of ail of Tenant's
obligations under this lease.
ARTICLE XXIII
LANDLORD'S CONTRACTUAL SECURITY INTEREST
23.1 In addition to the statutory Landlord's lien, Landlord shall
have at all times a valid security interest to secure payment of all
rentals and other sums of money becoming due hereunder from Tenant, and
to secure payment of any damages or loss which Landlord may suffer by
reason of the breach by Tenant of any covenant, agreement or condition
contained herein, upon all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant presently, or which
may hereafter be, situated on the Demised Premises, and all proceeds
therefrom, and such property shall not be removed without the consent of
Landlord until all arrearages in rent as well as any and all other sums
of money then due to Landlord or to become due to Landlord hereunder
shall first have been paid and discharged and all the covenants,
agreements and conditions hereof have been fully complied with and
performed by Tenant. Upon the occurrence of an event of default by
Tenant, Landlord may, in addition to any other remedies provided
herein, enter upon the Demised Premises and take possession of any and
all goods, wares, equipment, fixtures furniture, improvements and other
personal property of Tenant situated on the Demised Premises, without
liability for trespass or conversion, and sell the same at public or
private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any public sale
<PAGE>
or of the time after which any private sale is to be made, at which sale
the Landlord or its assigns may purchase unless otherwise prohibited by
law. Unless otherwise provided by law, and without intending to exclude
any other manner of giving Tenant reasonable notice, the requirement of
reasonable notice shall be met if such notice is given in the manner
prescribed in this lease at least five days before the time of sale. Any
sale made pursuant to the provisions of this paragraph shall be deemed to
have been a public sale conducted in a commercially reasonable manner if
held in the above-described Demises Premises or where the property is
located after the time, place and method of sale and general description
of the types of property to be sold have been advertised in a daily
newspaper published in the county in which the property is located, for
five consecutive days before the date of the sale. The proceeds from any
such disposition, less any and all expenses connected with the taking of
possession, holding and selling of the property (including reasonable
attorney's fees and legal expenses), shall be applied as a credit against
the indebtedness secured by the security interest granted in this
paragraph. Any surplus shall be paid to Tenant or as otherwise required
by law; the Tenant shall pay any deficiencies forthwith. Tenant hereby
agrees that a carbon, photographic or other reproduction of this lease
shall be sufficient to constitute a financing statement. Tenant
nevertheless agrees that upon request by Landlord, Tenant agrees that it
will execute and deliver to Landlord a financing statement in form
sufficient to perfect the security interest of Landlord in the
aforementioned property and proceeds thereof under the provision of the
Uniform Commercial Code (or corresponding state statute or statutes) in
force in the state in which the property is located, as well as any other
state the laws of which Landlord may at any time consider to be
applicable; moreover, Landlord is hereby irrevocably vested with a power
of attorney from Tenant to execute any and all such financing statements
on behalf of Tenant.
23.2 Notwithstanding Section 23.1, Landlord agrees that it will
subordinate its security interest and Landlord's lion to the security
interest of Tenant's supplier or institutional financial source;
provided that the subordination must be limited to a specified
transaction and specified items of the fixtures, equipment or inventory
involved in the transaction. Upon execution of this lease, Landlord
shall execute the Subordination Agreement attached hereto as Exhibit E.
ARTICLE XXIV
HOLDING OVER
24.1 In the event Tenant remains in possession of the Demised
Premises after the expiration of this lease and without the execution of
a new lease, it shall be deemed to be occupying said premises as a
tenant from month to month at a rental equal to the rental (including
any percentage rental) herein provided plus fifty percent of such amount
otherwise subject to all the conditions, provisions and obligations of
this lease insofar as the same are applicable to a month-to-month
tenancy.
ARTICLE XXV
NOTICES
25.1 Wherever any notice is required or permitted hereunder, such
notice shall be in writing. Any notice or document required or
permitted to be delivered hereunder shall be deemed to be delivered when
actually received by the designated addressee or, if earlier and
regardless of whether actually received or not, when deposited in the
United States mail, postage prepaid, certified mail, return receipt
requested, addressed to the parties hereto at the respective addresses
set out in Section 1. 1 above (or at Landlord's option, to Tenant at the
<PAGE>
Demised Premises), or at such other addresses as they have theretofore
specified by written notice.
25.2 If and when included within the term 'Landlord' as used in this
instrument there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such
notice specifying some individual at some specific address for the
receipt of notices and payments to the Landlord; if and when included
within the term 'Tenant' as used in this instrument there are more than
one person, firm or corporation, all shall jointly arrange among
themselves for their joint execution of such a notice specifying some
individual at some specific address for the receipt of notices and
payment to Tenant. Ail parties included within the terms "Landlord" and
'Tenant,' respectively, shall be bound by notices and payments given in
accordance with the provisions of this Article to the same effect as if
each had received such notice or payment. In addition Tenant agrees
that notices to Tenant may be given by Landlord's attorney, property
manager or other agent.
ARTICLE XXVI
COMMISSIONS; ADVICE FROM AGENT
26.1 Landlord shall pay to Jackson & Cooksey - (*Agent), a
commission as set out in a separate letter agreement dated August24,
1994, it being agreed that such agent's right to such a commission
irrevocably vests upon the execution of this lease, notwithstanding
subsequent default by Landlord or Tenant or any amendment, modification
or termination of this lease. Landlord shall pay agent one-half of such
commission upon full execution of the lease and one-half upon the
commencement date of the lease.
26.2 Intentionally deleted.
26.3 Intentionally deleted.
26.4 Intentionally deleted.
26.5 Tenant hereby acknowledges that at the time of the execution of
this lease, Agent advised Tenant by this writing that Tenant should have
an abstract covering the real estate upon which the Property and the
Demised Premises are located examined by an attorney of Tenant's own
selection or, at Tenant's option, that Tenant should obtain a leasehold
owner's policy of title insurance.
26.6 Tenant also acknowledges that Agent has advised Tenant
that because Agent has no expertise with respect to toxic or otherwise
hazardous substances, Tenant should, prior to executing this lease, have
qualified experts conduct proper inspections of the Demised Premises in
order to determine whether or not toxic or otherwise hazardous substances
exist in, under or around the Demised Premises.
ARTICLE XVII
REGULATIONS
27.1 Landlord and Tenant acknowledge that there are in effect
federal, state, county and municipal laws, orders, rules, directives and
regulations (collectively referred to hereinafter as the 'Regulations')
and that additional Regulations may hereafter be enacted or go into
effect, relating to or affecting the Demised Premises or the Property,
and concerning the impact on the environment of construction, land use,
maintenance and operation of structures, toxic or otherwise hazardous
substances, and conduct of business. Subject to the express rights
granted to Tenant under the terms of this lease, Tenant will not cause,
or permit to be caused, any act or practice by negligence, omission or
otherwise, that would adversely affect the environment, or do anything or
permit anything to be done that would violate any of said laws,
regulations or guidelines. Moreover, Tenant shall have no claim against
Landlord by reason of any changes Landlord may make in the Property or
<PAGE>
the Demised Premises pursuant to said Regulations or any changes imposed
upon Tenant, Tenant's customers or other invitees pursuant to same.
27.2 If, by reason of any Regulations, the payment to, or collection
by, Landlord of any rental or other charge (collectively referred to
hereinafter as "Lease Payments') payable by Tenant to Landlord pursuant
to the provisions of this lease is in excess of the amount (the 'Maximum
Charge') permitted thereof by the Regulations, then Tenant, during the
period (the 'Freeze Period') when the Regulations shall be in force and
effect shall not be required to pay, nor shall Landlord be permitted to
collect, any sum in excess of the Maximum Charge. Upon the earlier (i)
the expiration of the Freeze Period, or (ii) the issuance of a final
order or judgment of a court of competent jurisdiction declaring the
Regulations to be invalid or not applicable to the provisions of this
lease, Tenant, to the extent not then proscribed by law, and commencing
with the first day of the month immediately following, shall pay to
Landlord as additional rental, in equal monthly installments during the
balance of the term of this lease, a sum equal to the cumulative
difference between the Maximum Charges and the Lease Payments during the
Freeze Period. If any provisions of this section, or the application
thereof, shall to any extent be declared to be invalid and unenforceable,
the same shall not be deemed to affect any of the other provisions of
this section or of this lease, all of which shall be deemed valid and
enforceable to the fullest extent permitted by law.
ARTICLE XVIII
MISCELLANEOUS
28.1 Nothing in this lease shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the
parties hereto, it being understood and agreed that neither the method of
computation of rent, nor any other provision contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship
between the parties hereto other than the relationship of Landlord and
tenant.
28.2 Tenant shall not for any reason withhold or reduce Tenant's
required payments of rentals and other charges provided in this lease, it
being agreed that the obligations of Landlord under this lease are
independent of Tenant's obligations except as may be otherwise expressly
provided. The immediately preceding sentence shall not be deemed to deny
Tenant the ability of pursuing all rights granted it under this lease or
at law; however, at the direction of Landlord, Tenant's claims in this
regard shall be litigated in proceedings different from any litigation
involving rental claims or other claims by Landlord against Tenant (i.e.,
each party may proceed to a separate judgment without consideration,
counterclaim or offset as to the claims asserted by the other party).
28.3 The liability of Landlord to Tenant for any default by Landlord
under the terms of this lease shall be limited to the proceeds of sale on
execution of the interest of Landlord in the Demised Premises; and
Landlord shall not be personally liable for any deficiency, except that
Landlord shall, subject to the provisions of Section 19.5 hereof, remain
personally liable to account to Tenant for any security deposit under
this lease. This clause shall not be deemed to limit or deny any
remedies which Tenant may have in the event of default by Landlord
hereunder which do not involve the personal liability of Landlord.
28.4 In all circumstances under this lease where the prior consent
of one party (the 'consenting party'), whether it be Landlord or Tenant,
is required before the other party (the 'requesting party) is authorized
to take any particular type of action, such consent shall not be withheld
in a wholly unreasonable and arbitrary manner; however, the requesting
party agrees that its exclusive remedy if it believes that consent has
<PAGE>
been withheld improperly (including, but not limited to, consent required
from Landlord pursuant to Section 9.2 or Section 19.1) shall be to
institute litigation either for a declaratory judgment or for a mandatory
injunction requiring that such consent be given (with the requesting
party hereby waiving any claim for damages, attorneys fees or any other
remedy unless the consenting party refuses to comply with a court order
or judgment requiring it to grant its consent).
28.5 One or more waivers of any covenant, term or condition of this
lease by either party shall not be construed as a waiver of a subsequent
breach of the same covenant, term or condition. The consent or approval
by either party to or of any act by the other party requiring such
consent or approval shall not be deemed to waive or render unnecessary
consent to or approval of any subsequent similar act.
28,6 Whenever a period of time is herein prescribed for action to be
taken by Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation of any such period of time
any delays due to strikes, riots, acts of God, shortages of labor or
materials, war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the reasonable
control of Landlord.
28.7 Tenant agrees that it will from time to time upon request by
Landlord execute and deliver to Landlord a statement in recordable form
certifying that this lease is unmodified and in full force and effect (or
if there have been modifications, that the same is in full force and
effect as so modified). In addition, Tenant, upon Landlord's request,
shall furnish to Landlord or to any third party or parties designated by
Landlord an estoppel/acceptance certificate in the form attached hereto
as Exhibit 'F', Any other such recordation of this lease by Tenant, other
than at the written request of Landlord, shall constitute an event of
default under this lease.
28.8 * Intentionally Deleted
28.9 Notwithstanding anything contained herein to the contrary,
Tenant agrees that Landlord shall have no personal liability with respect
to any of the provisions of this lease and Tenant shall look solely to
the estate and property of Landlord in the land and buildings comprising
the Property of which the leased premises form a part for the
satisfaction of Tenant's remedies, including without limitation, the
collection of any judgment or the enforcement of any other judicial
process requiring the payment or expenditure of money by Landlord in the
event of any default or breach by Landlord with respect to any of the
terms and provisions of this lease to be observed and/or performed by
Landlord, subject, however, to the prior rights of any holder of any
Mortgage covering all or part of the Property, and no other assets of
Landlord or any principal of Landlord shall be subject to levy, execution
or other judicial process f or the satisfaction of Tenant's claim. This
Section shall inure to the benefit of Landlord's successors and assigns
and their respective principals.
28.10 If any provision of this lease should be held to be invalid or
unenforceable, the validity and enforceability of the remaining
provisions of this lease shall not be affected thereby.
28.11 If this lease is in fact a sublease, Tenant accepts this lease
subject to all of the terms and conditions of the underlying lease under
which Landlord holds the Property as lessee. Tenant covenants that it
will do no act or thing which would constitute a violation by Landlord
of his obligation under such underlying lease; provided, however, that
Tenant's agreement in this regard is premised on Landlord's assurances
to the effect that the terms of this lease do not violate such
underlying lease.
<PAGE>
28.12 The laws of the State of Texas shall govern the interpretation,
validity, performance and enforcement of this lease. Venue for any
action under this lease shall be the county in which rentals are due
pursuant to Section 4.2 and Section 1.1 of this lease.
28.13 The captions used herein are for convenience only and do not
limit or amplify the provisions hereof.
28.14 Whenever herein the singular number is used, the same shall
include the plural, and words of any
gender shall include each other gender.
28.15 The terms, provisions and covenants contained in this lease
shall apply to, inure to the benefit of and be binding upon the parties
hereto and their respective heirs, successors in interest and legal
representatives except as otherwise herein expressly provided.
28.16 This lease contains the entire agreement between the parties,
and no rights are created in favor of either party other than as
specified or expressly contemplated in this lease. No brochure,
rendering information or correspondence shall be deemed to be part of
this agreement; unless specifically incorporated herein by reference.
In addition, no agreement shall be effective to change, modify or
terminate this lease in whole or in part unless such is in writing and
duly signed by the party against whom enforcement of such change,
modification or termination is sought.
28.17 LANDLORD AND TENANT HEREBY ACKNOWLEDGE THAT THEY ARE NOT RELYING
UPON ANY BROCHURE, RENDERING, INFORMATION, REPRESENTATION OR PROMISE OF
THE OTHER, OR OF THE AGENT OR COOPERATING AGENT, EXCEPT AS MAY BE
EXPRESSLY SET FORTH [PLACE AN -X- OR OTHER MARK DESIGNATING A CHOICE IN
THE APPROPRAITE BOX]:
x IN THIS LEASE
IN ________ AS WELL AS IN THIS LEASE.
NOTE: IF NO 'X' (OR OTHER MARK DESIGNATING A CHOICE) IS PLACED IN
EITHER BOX IN THIS SECTION 28.17, THEN THE FIRST BOX WILL BE DEEMED TO
HAVE BEEN MARKED.
28.18 STRIKE IF NOT APPLICABLE:
28.19 If Tenant shall breach this lease subsequent to the execution
hereof, but prior to the Commencement Date, Landlord, in addition to all
other rights and remedies herein provided, may retain prepaid rental and
security deposit as partial compensation for Landlord's damages and
expenses due to such breach.
28.20 Intentionally Deleted
28.21 Tenant warrants that it has had no dealing with any broker or
agent in connection with the negotiation
or execution of this Lease other Agent. In the event any agent or
broker other than Agent shall make a claim for a commission, or fee
based upon any alleged agreement with Tenant, Tenant shall be
responsible for payment thereof and hereby indemnities and holds
Landlord harmless from such claim for commission or fees.
28.22 NOTWITHSTANDING ANY PROVISION CONTAINED HEREIN TO THE CONTRARY,
TENANT HEREBY ACCEPTS THE DEMISED PREMISES IN AN 'AS IS" CONDITION AND
ACKNOWLEDGES AND AGREES THAT (I) NO REPRESENTATIONS OR WARRANTIES,
EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION THEREOF OR THE
HABITABILITY OR SUITABILITY OF THE SAME FOR TENANT'S BUSINESS OPERATIONS
OR ANY OTHER PURPOSE, OR OTHERWISE, HAVE BEEN MADE TO TENANT BY LANDLORD
OR ANYONE FOR OR ON BEHALF OF LANDLORD, AND ANY WARRANTY OF
HABITABILITY, SUITABILITY OR FIT ACTING THE DEMISED PREMISES FOR A
PARTICULAR USE OR PURPOSE, EITHER EXPRESS OR IMPLIED, IF ANY, ARE HEREBY
DISCLAIMED BY LANDLORD AND IRREVOCABLY WAIVED BY TENANT, AND (if)
LANDLORD SHALL BE UNDER NO OBLIGATION TO MAKEANY ALTERATIONS OR
IMPROVEMENTS TO THE DEMISED PREMISES OTHER THAN AS REFERENCED IN EXHIBIT
"D".
<PAGE>
28.23 This lease consists of twenty-eight articles and Exhibits "A"
through "F" With the exception of Article VII, in the event any provision
of an exhibit or other attached page shall be inconsistent with a
provision in the body of the lease, the provision as set forth in the
exhibit shall be deemed to control.
28.24 This offer to lease shall expire and be of no further force and
effect if not fully executed by 5:00 p.m. October 28, 1994.
EXECUTED as of the latest date accompanying a signature by Landlord or
Tenant below.
LANDLORD:
ATTEST or WITNESS /s/ Terry N. Worrell
/s/ Sharon C. Worrell
/s/ Kay Y. Moran as Trustee of the Kay Y. Moran
Family Trust UA Dated February 23, 1990
Date of Signature October 27, 1994
Taxpayer Identification No.
TENANT: Curtis Mathes Corporation
By: /s/ Neal J. Katz
Title: Vice President
Date of Signature October 2, 1994
Taxpayer Identification
AGENT: Jackson & Cooksey
By
Address 12750 Merit Drive, Suite 1310, Dallas, TX 75251
LIST OF EXHIBITS
Exhibit "A" Site Plan
Exhibit "B" Legal Description
Exhibit "C" Guaranty
Exhibit "D" Construction Exhibit
Exhibit "E" Subordination Agreement
Exhibit "F" Estoppel
EXHIBIT "B"
LEGAL DESCRIPTION
BEING a tract of land situated in the A.G. Collins Surveys, Abstract No.
329, and being part of Lot 5, Block A/8042 of Santa Fe Jupiter Road
Industrial District Addition IV, an addition to the City of Dallas as
recorded in Volume 82096, Page 2072, Deed Records, Dallas, County,
Texas, and being more particularly described as follows:
BEGINNING at an iron rod set for corner situated in the East line of
Petal Street (a 60 foot right-of-way) and being South 00 29' 00" East, a
distance of 174.90 feet from the most Southerly point on a 10' X 10'
corner clip at the intersection of the South line of Grader Street (a 60
foot right-of-way), and the East line of said Petal Street;
THENCE North 89 31' 00" East, departing said Petal Street a distance of
453.40 feet to an iron rod set for corner situated in the West line of
Lead Track "B" (a 34 foot right-of-way);
THENCE along the West line of said Lead Track "B" the following:
South 00 29' 00' East, a distance of 248.85 feet to an iron rod found
for corner and
being the beginning of a curve to the right;
Along said curve having a central angle of 31 10' 44", a radius of
461.34 feet, and an arc length of 251.05 feet to an iron rod found for
corner situated in the Northeast line of said Petal Street;
THENCE along the Northeast line of said Petal Street the following:
North 51 36' 29" West, a distance of 367.65 feet to an iron rod set for
corner and being the beginning of a curve to the right;
Along said curve having a central angle of 51 07' 29", a radius of
270.00 feet, and an arc length of 240.91 feet to an iron rod set for
corner;
<PAGE>
North 00 29' 00" West, a distance of 46.74 feet to the POINT OF
BEGINNING and containing 3.5201 acres or 153,335 square feet of land,
more or less.
<PAGE>
JOINT VENTURE AGREEMENT
Curtis Mathes Marketing Corporation and CMLP Group, Ltd., referred
to in this Agreement as the "Joint Venturers," agree as follows:
1. Purpose of Joint Venture. The parties voluntarily associate
themselves together as joint venturers for the sole purpose of acquiring,
owning, holding for investment, operating as a business, constructing
improvements on, developing, subdividing, maintaining, operating, selling
or leasing certain real property described as being situated on Westgrove
Drive in Carrollton, Dallas County, Texas, more particularly described as
a tract of land containing 3.214 acres, known as Lot 2, Block A of the
Beltwood North-Trinity Addition, an Addition to the City of Carrollton,
Dallas County, Texas (the "JV Property.")
2. Name of Joint Venture. The name of the Joint Venture shall be
"Westgrove Joint Venture" (the "Joint Venture.")
3. Term of Joint Venture. This Joint Venture shall commence on
January 20, 1997, and shall continue until the completion of all the
purposes for which the joint venture was formed, as set forth in
Paragraph 1 of this Agreement, unless it is terminated before that date
by mutual agreement of the Joint Venturers or as otherwise provided in
this Agreement.
4. Place of Business. The principal place of business of the Joint
Venture shall be at 10911 Petal Street, Dallas, Dallas County, Texas, and
any other place or places that may be mutually agreed on by the Joint
Venturers.
5. Initial Capital. The initial capital of this Joint Venture
shall be the sum of $630,285.27, of which CMLP Group, Ltd. shall
contribute $276,285.27 and Curtis Mathes Marketing Corporation shall
contribute $354,000.
6. Withdrawal of Capital. Neither Joint Venturer may withdraw any
portion of the capital of the Joint Venture without the express written
consent of the other Joint Venturer.
7. Profits and Losses. Any net profits or losses that may accrue
to the Joint Venture shall be distributed to or borne by the Joint
Venturers in the following proportions: CMLP Group, Ltd., 43.835%; and
Curtis Mathes Marketing Corporation, 56.165%. The term "net profits" as
used in this Agreement shall mean the net profits of the Joint Venture as
determined by generally accepted accounting principles.
8. Joint Venture Books. At all times during the duration of the
Joint Venture, the Joint Venturers shall keep accurate books of the Joint
Venture's accounts, including all of its income, expenditures, assets,
and liabilities. These books shall be kept on a cash basis and shall be
open to examination by either Joint Venturer at any time.
9. Election Out of Subchapter K. The Joint Venture shall elect not
to be subject to Subchapter K of the Intenal Revenue Code.
10. Management and Authority. CMLP Group, Ltd. ("Manager") shall
have the right of management of the Joint Venture and shall have
authority to bind the Joint Venture in making contracts and incurring
obligations in the name and on the credit of the Joint Venture. However,
no obligation may be incurred in the name or on the credit of the Joint
Venture exceeding $500.00 without the express written consent of both
Joint Venturers. Any obligation incurred in violation of this provision
shall be charged to and collected from the individual Joint Venturer
incurring the obligation.
11. Limits of Joint Venture. The relationship between the Joint
Venturers shall be limited to the performance of the business of the
Joint Venture in accordance with the terms of this Agreement. Nothing in
this Agreement shall be construed to create a general partnership between
the Joint Venturers, or to authorize either Joint Venturer to act as a
general agent for the other except as expressly provided in this
<PAGE>
Agreement. Nothing in this Agreement shall confer on either Joint
Venturer any propriety interest in, or subject either Joint Venturer to
any liability for, the business assets, profits, losses or obligations of
the other, except to the extent provided in this Agreement.
12. Withdrawal of Joint Venturer. Any Joint Venturer may withdraw
from the Joint Venture by giving the other Joint Venturer thirty (30)
days written notice of its intention to do so. In that event, the Joint
Venturers will proceed to divide the Joint Venture liabilities and
assets, including any property owned by the Joint Venture. However, it
is expressly provided that no Joint Venturer shall be released from
indivisible liabilities incurred prior to withdrawal from the Joint
Venture. The Joint Venture will terminate after its affairs are wound
up, its assets are divided and liquidated, its debts are paid, and any
surplus is divided equally among the Joint Venturers.
13. Right of First Refusal to Purchase Interest. If any Joint
Venturer desires to sell its Joint Venture interest, it shall give the
other Joint Venturer the right of first refusal to purchase its Joint
Venture interest. In the event the other Joint Venturer refuses the
purchase such Joint Venture interest, the Joint Venturer desiring to sell
its interest may sell it to a third party, providing that the terms and
conditions of sale to such third party are not more favorable than the
terms and conditions of purchase that were offered to the other Joint
Venturer.
14. Ownership and Title to Joint Venture Property. The JV Property
and all improvements which may be placed or located thereon shall be
owned by the Joint Venture, such ownership being subject to the other
terms and provisions of this Agreement. However, the Manager may hold
record title to all assets in its name on behalf of the Joint Venture.
Each Joint Venturer hereby expressly waives the right, if any, to require
partition of the JV Property, or any part thereof.
15. Miscellaneous. This Agreement shall be binding on both Joint
Venturers and their assigns. This Agreement contains the sole agreement
of the Joint Venturers relating to the Joint Venture and correctly sets
forth the rights, duties, and obligations of each to the other. Any
prior agreements, promises, negotiations, or representations not
expressly set forth in this Agreement are of no force and effect.
Executed as of January 20, 1997.
CMLP GROUP, LTD.
By:____/s/ D. Ronald Allen_______________________________
D. Ronald Allen, President,
Associates Funding Group, Inc., General Partner
CURTIS MATHES MARKETING CORPORATION
By:_____/s/ Bill Park________________________________________
Bill Park, Vice President - Chief Operating Officer
<PAGE>
EMPLOYMENT CONTRACT
By this Agreement, Curtis Mathes Holding Corporation (the
"Employer"), located at 10911 Petal Street, Dallas, Texas 75238, employs
Patrick A. Custer (the "Employee"), of P.O. Box 802808, Dallas, TX 75380,
who accepts employment on the following terms and conditions:
ARTICLE 1: TERM OF EMPLOYMENT
1.01. Term. The term of this Agreement shall begin on April
7, 1997, and shall terminate on December 31, 1999. Unless the Employer
or the Employee gives written notice to the other of their intent not to
renew this Agreement on or before ninety (90) days before the end of the
then current term of this Agreement, this Agreement shall be deemed to be
automatically renewed for additional periods of three (3) years. During
the term of each such renewal, all of the terms and conditions of this
Agreement shall remain in full force and effect.
ARTICLE 2: DUTIES OF EMPLOYEE
2.01. Duties. The Employee shall serve as the Employer's
Chairman and Chief Executive Officer and shall perform all duties
commonly discharged by a person in such position and such other duties of
a similar nature as may be required from time to time by the Employer.
If the Employee is elected or appointed a director or an officer of the
Employer, the Employee shall serve in such capacity or capacities without
further compensation. Nothing shall be construed, however, to require
the Employee's election or appointment as a director or an officer.
2.02. Satisfactory Performance of Duties. The employment of
the Employee shall continue only as long as the services rendered by the
Employee are satisfactory to the Employer, regardless of any other
provision contained in this Agreement. The Employer shall be the sole
judge as to whether the services of the Employee are satisfactory.
ARTICLE 3: EMPLOYEE'S OBLIGATIONS OTHER THAN TO PERFORM SERVICES
3.01. Company Policy. The Employee agrees to perform his
duties under this Agreement in accordance with Employer's company policy
as such policy may be implemented or modified from time to time during
the term of this Agreement. Violation of any material provision of any
company policy shall constitute good cause for termination of the
services of the Employee under this Agreement.
3.02. Noncompetition By Employee. During the term of this
Agreement, the Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any business that is in competition in
any manner whatever with the business of the Employer. Violation of the
terms contained in this Paragraph shall constitute good cause for
termination of the services of the Employee under this Agreement.
3.03. Indemnification. The Employee shall indemnify and hold
harmless the Employer from all liability from loss, damage, or injury to
persons or property resulting from the negligence or misconduct of the
Employee committed in the scope of the Employee's employment.
ARTICLE 4: COMPENSATION
4.01. Basic Compensation. As base compensation for all services
rendered under this Agreement, the Employer shall pay to the Employee a
salary of $170,000 per year, payable in equal biweekly installments
during the period of employment, which shall be subject to withholding
and other applicable taxes. The amount paid is to be prorated for any
partial employment period. Each fiscal year thereafter, beginning July
1, 1998, at the sole discretion of Employer's Board of Directors,
Employee may receive a reasonable increase in his base salary
commensurate with Employee's performance and Employer's performance.
<PAGE>
ARTICLE 5: EMPLOYEE BENEFITS AND BONUSES
5.01. Payment of Medical and Dental Insurance Premiums. The
Employer agrees to pay all of the Employee's insurance premiums
(including dependent coverage, if elected by Employee) and one-half of
the deductible for each individual covered under any hospital, surgical,
medical, and dental benefit plan adopted by the Employer.
5.02. Automobile. The Employer recognizes the Employee's need
for an automobile for business purposes. It shall therefore provide the
Employee with a monthly automobile allowance of $1,000 during the term of
this Agreement, in addition to the compensation set forth hereinabove.
The Employee agrees to furnish a properly registered automobile for all
of the Employee's transportation needs required for the performance of
the Employee's duties under this Agreement and to pay all expenses,
including all related maintenance, repairs, insurance, and other costs.
At all times during the term of this Agreement, the Employee shall keep
in full force and effect at the Employee's sole expense automobile
insurance on each such automobile owned by the Employee that is used at
any time to carry out any of the duties of employment. Each such policy
must be issued by an insurance company and with such minimum limits
acceptable to the Employer. Violation by Employee of the terms contained
in this Paragraph shall constitute good cause for termination of the
services of the Employee under this Agreement.
5.03. Death Benefit. If the Employee dies during the term of
this Agreement, the Employer shall pay to the Employee's estate the
compensation that would otherwise be payable to the Employee up to the
end of the month in which his death occurs. In addition, within thirty
(30) days of the Employee's death, the Employer shall pay an amount
equivalent to four (4) months of Employee's base salary to the Employee's
surviving spouse, or, if his spouse is not then living, to the Employee's
surviving children in equal shares, or, if there are no surviving
children, to the Employee's estate.
5.04. Nonstatutory Stock Option. Grant of Option. By
this Paragraph, the Employer agrees that it will cause to be granted to
the Employee an option (the "Option") to purchase 400,000 shares of
common stock of CRTM (or successor) ("Common Shares") at a purchase price
of seventy (70%) percent of the average trading price of the Common
Stock, as reported by NASDAQ, for the five (5) trading days immediately
preceding the date the Option is granted. Twenty-five (25%) percent of
the Option shall vest immediately upon the date of issuance to the
Employee and the remaining seventy-five (75%) percent of the Option shall
vest at the rate of twenty-five (25%) on each of the following dates
thereafter, during the term of employment under this Agreement: December
31, 1997; December 31, 1998; and December 31, 1999. Any vested portion
of the Option may be exercised in whole or in part at any time during the
term of employment under this Agreement. However, in the event the
employment term is terminated by the Employer for reasons other than for
cause, the Employee shall retain the right to exercise any unused vested
portion of the Option until the expiration date of the then current term
of this Agreement. It is agreed that the Employee shall not have any of
the rights of, nor be treated as, a shareholder with respect to the
shares subject to this Option until the Employee has exercised the
Option, delivery of the stock certificates for such shares has been made
to the Employee, and the Employee has become the shareholder of record of
such shares. Any vested portion of the Option shall not be transferable
otherwise than by will or the laws of descent and distribution, and any
vested portion of the Option may be exercised, during the lifetime of the
Employee, only by him. More particularly (but without limiting the
generality of the foregoing), any vested portion of the Option may not be
assigned, transferred (except as provided above), pledged, or
<PAGE>
hypothecated in any way, shall not be assignable by operation of law, and
shall not be subject to execution, attachment, or similar process. Any
attempted assignment, transfer, pledge, hypothecation, or other
disposition of any vested portion of the Option contrary to the
provisions hereof, and the levy of any execution, attachment, or similar
process upon the Option, shall be null and void and without effect. Such
vested portion of the Option may be exercised by Employee only while he
is in the continuous employ of the Corporation or of a subsidiary of the
Corporation as provided hereinabove, or within three months after the
date he ceases to be so employed, except that in the event of his death
while so employed or within three months after the date he ceases to be
so employed, then such vested portion of the Option may be exercised by
his executors, administrators, or other legal representatives, heirs,
legatees, next of kin, or distributees within three months, but not later
than three months, after the date of the legal qualification of the
executors or administrators of his estate, provided diligent efforts are
made and such qualification is obtained within a reasonable time after
his death. Notwithstanding anything in this Agreement to the contrary,
any vested portion of the Option herein granted to Employee shall in no
event be exercisable after the expiration of five (5) years from the date
of this Agreement. In the event of any termination of this Agreement
that is either (a) for cause or (b) voluntary on the part of the Employee
and without the consent of his employing corporation or corporations, any
unvested portion of the Option shall immediately terminate. If, at any
time prior to the fifth anniversary of the date of this Agreement, CRTM
proposes to register any of its securities under the Securities Act
(other than by a registration on Form S-8, S-4 or any successor similar
forms or any other form not available for registering the Common Shares
underlying the Option for sale to the public), whether for sale for its
own account or other security holders, the Employer will, each such time,
at least 60 days prior to filing the registration statement, give written
notice to the Employee of CRTM's intention to do so. Upon the written
request of the Employee made within 45 days after the receipt of any such
notice (which request shall specify the underlying Common Shares intended
to be disposed of by the Employee), the Employer will use reasonable
efforts to cause to be filed a registration statement for the
registration under the Securities Act of all underlying Common Shares
which CRTM has been so requested to register by the Employee.
Method of exercising vested portion of the Option. Such Option
may be exercised, in whole at any time or in part from time to time, by
giving to the Employer and CRTM notice in writing to that effect. Within
30 days after the receipt by it of notice of exercise of such Option, the
Employer and CRTM shall cause certificates for the number of shares with
respect to which such Option is exercised to be issued in the name of
Employee or his executors, administrators, or other legal
representatives, heirs, legatees, next of kin, or distributees, or to be
properly endorsed or accompanied by separate stock powers duly executed,
and to be delivered to Employee or his executors, administrators, or
other legal representatives, heirs, legatees, next of kin, or
distributees. Payment of the purchase price for the shares with respect
to which such Option is exercised shall be made to CRTM upon the delivery
of such stock, together with revenue stamps or checks in an amount
sufficient to pay any stock transfer taxes required on such delivery.
The Employer shall give the person or persons entitled to the same at
least five (5) days' notice of the time and place for delivery and for
the payment of such purchase price.
Changes in capital structure If all or any portion of the Option
shall be exercised subsequent to any share dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of
<PAGE>
shares, separation, reorganization, or liquidation occurring after the
date hereof, as a result of which shares of any class shall be issued in
respect of outstanding Common Shares or Common Shares shall be changed
into the same or a different number of shares of the same or another
class or classes, the person or persons so exercising the Option shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which, if Common Shares (as authorized at the
date hereof) had been purchased at the date hereof for the same aggregate
price (on the basis of the price per share set forth above) and had not
been disposed of, such person or persons would be holding, at the time of
such exercise, as a result of such purchase and all such share dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations, or liquidations;
provided, however, that no fractional share shall be issued upon any such
exercise, and the aggregate price paid shall be appropriately reduced on
account of any fractional share not issued.
Representation as to investment intent. The exercise of such Option
and the delivery of the shares subject to it will be contingent upon CRTM
being furnished by Employee, his legal representatives, or other persons
entitled to exercise such Option a statement in writing that at the time
of such exercise it is his or their intention to acquire the shares being
purchased solely for investment purposes and not with a view to
distribution.
Nonstatutory Stock Option. The Option granted in this Paragraph
is intended not to qualify as an incentive stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986 and shall be
so construed.
5.05. Other Benefits. During the term of this Agreement
the Employee shall be entitled to participate in the Employer's 401(k)
Plan, any hospital, surgical, medical, disability, and dental benefit
plan adopted by the Employer, and shall be entitled to an annual vacation
leave, paid holidays, paid sick leave, and other benefits in accordance
with Employer's company policy. The Employee may be entitled to receive,
in the sole discretion of the Employer's Board of Directors, such other
benefits or bonuses as may from time to time be declared by the Board.
ARTICLE 6: REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
6.01. Business Expenses. The Employee is authorized to incur
reasonable business expenses in performing his duties of employment and
for promoting the Employer's business, including expenses for
entertainment, travel, and similar items. The Employer will reimburse
the Employee for all such expenses upon the Employee's periodic
presentation of an itemized account of such expenditures and supporting
documentation.
ARTICLE 7: PROPERTY RIGHTS OF PARTIES
7.01. Trade Secrets. During the term of employment, the
Employee will have access to and become familiar with various trade
secrets, consisting of formulas, devices, secret inventions, processes,
and compilations of information, records, and specifications, owned by
the Employer and regularly used in the operation of the business of the
Employer. The Employee shall not disclose any such trade secrets,
directly or indirectly, nor use them in any way, either during the term
of this Agreement or at any time thereafter, except as required in the
course of his employment. All files, records, documents, drawings,
specifications, equipment, and similar items relating to the business of
the Employer, whether or not prepared by the Employee, shall remain the
exclusive property of the Employer and shall not be removed from the
premises of the Employer under any circumstances without the prior
written consent of the Employer. The Employee agrees that any violation
by the Employee of any of the terms of this Paragraph will result in
<PAGE>
irreparable harm to the Employer and that the Employer shall be entitled
to an immediate Temporary Restraining Order and injunction against the
Employee to prevent any such violations by the Employee.
7.02. Return of Employer's Property. Except as otherwise
provided in this Agreement, on the termination of employment or whenever
requested by the Employer, the Employee shall immediately deliver to the
Employer in good condition, ordinary wear and tear excepted, all property
in the Employee's possession or under the Employee's control belonging to
the Employer.
ARTICLE 8: OBLIGATIONS OF EMPLOYER
8.01. Indemnification of Losses of Employee. Except for losses
arising from the Employee's negligence or misconduct, the Employer shall
indemnify the Employee for all losses sustained by the Employee as a
direct result of the discharge of his duties required by this Agreement.
8.02. Working Conditions. The Employer will provide the Employee
with a private office, secretarial and stenographic services, and any
other facilities and services as are suitable to the Employee's position
or required for the performance of his duties.
ARTICLE 9: TERMINATION
9.01. Termination by Either Party Without Cause. This
Agreement may be terminated by either party without cause by giving
thirty (30) days' written notice of termination to the other party. Such
termination shall not prejudice any remedy that the terminating party may
have at law or in equity. Such termination "without cause" shall include
(a) resignation of the Employee at the Employer's request at a time when
no cause for termination exists, and (b) termination by the Employee as a
result of a reduction in compensation or benefits (which is not a part of
a prorata reduction in executive compensation or benefits for the
Employer's senior executives) or as a result of a significant reduction
in the Employee's responsibilities, and such termination occurs within
sixty (60) days after such reduction. Upon any other voluntary
termination by the Employee, all unvested stock options and all other
benefits, including severance pay, which might otherwise accrue to the
Employee upon termination of this Agreement shall immediately terminate
and be of no further force or effect.
9.02. Severance Pay. On termination of employment by Employer
without cause, and in addition to other compensation that may be due to
the Employee as a result of such termination, the Employer shall make a
cash severance payment to the Employee in an amount equal to three (3)
month's base salary (less all amounts required to be withheld and
deducted.) The Employee shall receive additional severance pay under
this Paragraph based on the Employee's length of service and computed at
the rate of one month's pay for every year of service, which length of
service shall in no event extend beyond October 1, 1992.
9.03. Termination by Employer for Cause. The Employer may at its
option immediately terminate this Agreement "for cause," which shall
include resignation by the Employee at the Employer's request at a time
when cause for termination exists, without prejudice to any other remedy
to which the Employer may be entitled either at law, in equity, or under
this Agreement, by giving written notice of termination to the Employee,
if the Employee: (a) Willfully breaches or habitually neglects the
duties that the Employee is required to perform under the terms of this
Agreement; (b) Willfully violates reasonable and substantial rules
governing employee performance; (c) Refuses to obey reasonable orders in
a manner that amounts to insubordination; (d) Commits clearly dishonest
acts toward the Employer; (e) Engages in acts of disruption or violence
such as unprovoked fighting; (f) Engages in conduct which is materially
injurious to the Employer; or (g) Commits a felony or other offense
involving moral turpitude. Upon such termination, all unvested stock
<PAGE>
options and all other benefits, including severance pay, which might
otherwise accrue to the Employee upon termination of this Agreement shall
immediately terminate and be of no further force or effect.
9.04. Termination Upon Sale or Change in Control of CRTM. For
purposes of this section, "change in control" means the acquisition by a
person or group, as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, of beneficial ownership of twenty percent (20%) or
more of CRTM's common stock (other than as a result of an issuance of
securities initiated by CRTM in the ordinary course of business), or as a
result of, or in connection with any cash tender or exchange offer,
merger, or other business combination, sale of assets, or contested
election, or any combination of the foregoing transactions, and the
persons who were directors of CRTM before such transactions shall cease
to constitute a majority of the Board of Directors of CRTM or any
successor to CRTM. Upon termination of this Agreement by Employer upon
the sale or change in control of CRTM, the Employer shall cause to be
granted, paid and delivered to Employee, in addition to other amounts
that may be due the Employee under this agreement, all of the following:
(a) cash compensation equal to Employee's annual base salary,
payable in biweekly installments over the twelve-month period
immediately following such termination, beginning on the Employee's
next regularly scheduled payday following the date of termination;
(b) cash compensation equal to Employee's annual car allowance
provided under this Agreement, payable in monthly installments over
the twelve-month period immediately following such termination,
beginning on the first of the month immediately following the date
of termination;
(c) a bill of sale to, and a transfer of the licenses for all
software residing upon, a laptop or a home desktop computer,
including all peripheral equipment used in connection therewith,
belonging to the Employer or CRTM which is in the possession of the
Employee which is then being used by the Employee in the course and
scope of his employment; in connection with such transfer, the
Employee shall certify to the Employer that all trade secrets and
other confidential or sensitive information of the Employer have
been removed from the hard drive and memory of such equipment;
(d) continued maintenance by Employer, for the benefit of the
Employee as if still employed, all employee benefits including group
medical and dental, health and accident, disability, and group life
insurance plans for the twelve-month period immediately following
such termination; provided, however, the Company's obligation to
continue participation in these plans ends on the last day of the
month in which the Employee becomes eligible to participate in such
benefits at any new place of employment. However, the Employer will
continue to provide benefit continuation to the extent required by
federal law;
(e) an assignment of any key man life insurance policy
covering Employee which was in effect at the change in control, with
the premium fully paid by the Employer for the twelve (12) month
period immediately following the date of termination of this
Agreement; and
(f) any unvested portion of any Option held by the Employee
shall immediately vest and, in addition to any other such Option
which may be held by the Employee, a further option (the "Option")
to purchase 400,000 shares of common stock of CRTM (or successor) at
a purchase price of seventy (70%) percent of the average trading
price of the Common Stock, as reported by NASDAQ, for the five (5)
trading days immediately preceding the date the Option is granted.
The Option granted hereunder shall vest immediately upon issuance to
<PAGE>
the Employee and may be exercised in whole or in part by the
Employee at any time during a period of five (5) years following the
date of termination under this Agreement. The Employee shall not
have any of the rights of, nor be treated as, a shareholder with
respect to the shares subject to this Option until the Employee has
exercised the Option, delivery of the stock certificates for such
shares has been made to the Employee, and the Employee has become
the shareholder of record of such shares. The Option shall not be
transferable otherwise than by will or the laws of descent and
distribution, and the Option may be exercised, during the lifetime
of the Employee, only by him. More particularly (but without
limiting the generality of the foregoing), the Option may not be
assigned, transferred (except as provided above), pledged, or
hypothecated in any way, shall not be assignable by operation of
law, and shall not be subject to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge, hypothecation,
or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment, or similar
process upon the Option, shall be null and void and without effect.
Within 30 days after such termination the Employer will cause to be
filed a Registration Statement with the SEC for registration of the
Common Stock underlying all Options held by the Employee, and will
use its best efforts to have such Registration Statement declared
effective at the earliest possible date. The method of exercising
this Option, adjustment in the number of shares of Common Stock
underlying such Option upon a change in capital structure of CRTM
after the date of termination of this Agreement, and the Employee's
representation as to investment intent, shall be as described in
paragraph 5.04 above. The Option granted in this Paragraph is also
intended not to qualify as an incentive stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986 and
shall be so construed; and
(g) an additional amount necessary to put Employee in the same
after-tax position as if no excise taxes imposed by Section 4999 of
the Internal Revenue Code ("Section 4999") had been imposed on any
payments which are contingent on a change in control and which equal
or exceed three times Employee's average taxable compensation for
the prior five years or his period of employment.
9.05. Effect of Termination on Compensation. In the event of
the termination of this Agreement prior to the completion of the term of
employment specified in Article 1, the Employee shall be entitled to the
compensation earned by the Employee prior to the effective date of
termination as provided for in this Agreement, computed pro rata up to
and including that date. Except as otherwise provided in this Agreement,
the Employee shall be entitled to no further compensation after the date
of termination.
9.06. Monies owed to Employer. To the extent that the Employee
owes the Employer any monies at the time of termination of employment, or
to the extent that taxes are due on any of Employer's benefits, the
Employee authorizes the Employer to withhold such amounts from his final
paycheck or severance payment(s), or from reimbursements or any other
monies due to the Employee.
ARTICLE 10: GENERAL PROVISIONS
10.01. Notices. All notices or other communications required
under this Agreement may be effected either by personal delivery in
writing or by certified mail, return receipt requested. Notice shall be
deemed to have been given when delivered or mailed to the parties at
their respective addresses as set forth above or when mailed to the last
address provided in writing to the other party by the addressee.
<PAGE>
10.02. Entirety of Agreement. Except for the Employee
Invention, Copyright and Secrecy Agreement heretofore executed by the
Employee, this Agreement constitutes the entire understanding between the
parties concerning the subject matter hereof. No agreements,
representations, or warranties other than those specifically set forth in
this Agreement shall be binding on any of the parties unless set forth in
writing and signed by both parties. This Agreement supersedes all other
prior agreements, either oral or in writing, between the parties with
respect to the employment of the Employee by the Employer and contains
all of the covenants and agreements between the parties with respect to
such employment in any manner. Each party to this Agreement acknowledges
that no inducements or promises, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, that are not embodied in
this Agreement.
10.03. Modification. This Agreement shall not be amended,
modified, or altered in any manner except in a writing signed by both
parties.
10.04. Failure to Enforce Not Waiver. Any failure or
delay on the part of either the Employer or the Employee to exercise any
remedy or right under this Agreement shall not operate as a waiver. The
failure of either party to require performance of any of the terms,
covenants, or provisions of this Agreement by the other party shall not
constitute a waiver of any of the rights under the Agreement. No
forbearance by either party to exercise any rights or privileges under
this Agreement shall be construed as a waiver, but all rights and
privileges shall continue in effect as if no forbearance had occurred.
No covenant or condition of this Agreement may be waived except by the
written consent of the waiving party. Any such written waiver of any
term of this Agreement shall be effective only in the specific instance
and for the specific purpose given.
10.05. Law Governing Agreement. This agreement shall be governed
exclusively by and construed in accordance with the laws of the State of
Texas.
10.06. Partial Invalidity. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall remain in full force and
effect, as if this Agreement had been executed without any such invalid
provisions having been included.
10.07. Assignment. The Employer and the Employee acknowledge
that the services to be rendered by the Employee under this Agreement are
unique and personal. Therefore, neither party may assign any rights or
delegate any duties under this Agreement, without the other party's prior
written consent. If either the Employer or the Employee obtains a
consent to an assignment of rights or delegation of duties, rights or
duties under this Agreement shall inure only to the benefit of the
assignee or delagee named in the written instrument, and such consent
shall not be deemed as a general consent to assignment or delegation.
Executed at Dallas, Texas, as of April 7, 1997.
EMPLOYER: Curtis Mathes Holding Corporation
By:__/s/ Billy J. Robinson___________
Billy J. Robinson, Vice President
EMPLOYEE: ___/s/ Pat Custer_________________
<PAGE>
EMPLOYMENT CONTRACT
By this Agreement, Curtis Mathes Holding Corporation (the
"Employer"), located at 10911 Petal Street, Dallas, Texas 75238, employs
Billy J. Robinson (the "Employee"), of 1104 Bay Shore St., Allen, Texas
75002, who accepts employment on the following terms and conditions:
ARTICLE 1: TERM OF EMPLOYMENT
1.01. Term. The term of this Agreement shall begin on April
7, 1997, and shall terminate on December 31, 1999. Unless the Employer
or the Employee gives written notice to the other of their intent not to
renew this Agreement on or before ninety (90) days before the end of the
then current term of this Agreement, this Agreement shall be deemed to be
automatically renewed for additional periods of three (3) years. During
the term of each such renewal, all of the terms and conditions of this
Agreement shall remain in full force and effect.
ARTICLE 2: DUTIES OF EMPLOYEE
2.01. Duties. The Employee shall serve as the Employer's
General Counsel and shall perform all duties commonly discharged by a
person in such position and such other duties of a similar nature as may
be required from time to time by the Employer. If the Employee is
elected or appointed a director or an officer of the Employer, the
Employee shall serve in such capacity or capacities without further
compensation. Nothing shall be construed, however, to require the
Employee's election or appointment as a director or an officer.
2.02. Satisfactory Performance of Duties. The employment of
the Employee shall continue only as long as the services rendered by the
Employee are satisfactory to the Employer, regardless of any other
provision contained in this Agreement. The Employer shall be the sole
judge as to whether the services of the Employee are satisfactory.
ARTICLE 3: EMPLOYEE'S OBLIGATIONS OTHER THAN TO PERFORM SERVICES
3.01. Company Policy. The Employee agrees to perform his
duties under this Agreement in accordance with Employer's company policy
as such policy may be implemented or modified from time to time during
the term of this Agreement. Violation of any material provision of any
company policy shall constitute good cause for termination of the
services of the Employee under this Agreement.
3.02. Noncompetition By Employee. During the term of this
Agreement, the Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any business that is in competition in
any manner whatever with the business of the Employer. Violation of the
terms contained in this Paragraph shall constitute good cause for
termination of the services of the Employee under this Agreement.
3.03. Indemnification. The Employee shall indemnify and hold
harmless the Employer from all liability from loss, damage, or injury to
persons or property resulting from the negligence or misconduct of the
Employee committed in the scope of the Employee's employment.
ARTICLE 4: COMPENSATION
4.01. Basic Compensation. As base compensation for all services
rendered under this Agreement, the Employer shall pay to the Employee a
salary of $125,000 per year, payable in equal biweekly installments
during the period of employment, which shall be subject to withholding
and other applicable taxes. The amount paid is to be prorated for any
partial employment period. Each fiscal year thereafter, beginning July
1, 1998, at the sole discretion of Employer's Board of Directors,
Employee may receive a reasonable increase in his base salary
commensurate with Employee's performance and Employer's performance.
<PAGE>
ARTICLE 5: EMPLOYEE BENEFITS AND BONUSES
5.01. Payment of Medical and Dental Insurance Premiums. The
Employer agrees to pay all of the Employee's insurance premiums
(including dependent coverage, if elected by Employee) and one-half of
the deductible for each individual covered under any hospital, surgical,
medical, and dental benefit plan adopted by the Employer.
5.02. Automobile. The Employer recognizes the Employee's need
for an automobile for business purposes. It shall therefore provide the
Employee with a monthly automobile allowance of $625 during the term of
this Agreement, in addition to the compensation set forth hereinabove.
The Employee agrees to furnish a properly registered automobile for all
of the Employee's transportation needs required for the performance of
the Employee's duties under this Agreement and to pay all expenses,
including all related maintenance, repairs, insurance, and other costs.
At all times during the term of this Agreement, the Employee shall keep
in full force and effect at the Employee's sole expense automobile
insurance on each such automobile owned by the Employee that is used at
any time to carry out any of the duties of employment. Each such policy
must be issued by an insurance company and with such minimum limits
acceptable to the Employer. Violation by Employee of the terms contained
in this Paragraph shall constitute good cause for termination of the
services of the Employee under this Agreement.
5.03. Death Benefit. If the Employee dies during the term of
this Agreement, the Employer shall pay to the Employee's estate the
compensation that would otherwise be payable to the Employee up to the
end of the month in which his death occurs. In addition, within thirty
(30) days of the Employee's death, the Employer shall pay an amount
equivalent to four (4) months of Employee's base salary to the Employee's
surviving spouse, or, if his spouse is not then living, to the Employee's
surviving children in equal shares, or, if there are no surviving
children, to the Employee's estate.
5.04. Nonstatutory Stock Option. Grant of Option. By
this Paragraph, the Employer agrees that it will cause to be granted to
the Employee an option (the "Option") to purchase 150,000 shares of
common stock of CRTM (or successor) ("Common Shares") at a purchase price
of seventy (70%) percent of the average trading price of the Common
Stock, as reported by NASDAQ, for the five (5) trading days immediately
preceding the date the Option is granted. Twenty-five (25%) percent of
the Option shall vest immediately upon the date of issuance to the
Employee and the remaining seventy-five (75%) percent of the Option shall
vest at the rate of twenty-five (25%) on each of the following dates
thereafter, during the term of employment under this Agreement: December
31, 1997; December 31, 1998; and December 31, 1999. Any vested portion
of the Option may be exercised in whole or in part at any time during the
term of employment under this Agreement. However, in the event the
employment term is terminated by the Employer for reasons other than for
cause, the Employee shall retain the right to exercise any unused vested
portion of the Option until the expiration date of the then current term
of this Agreement. It is agreed that the Employee shall not have any of
the rights of, nor be treated as, a shareholder with respect to the
shares subject to this Option until the Employee has exercised the
Option, delivery of the stock certificates for such shares has been made
to the Employee, and the Employee has become the shareholder of record of
such shares. Any vested portion of the Option shall not be transferable
otherwise than by will or the laws of descent and distribution, and any
vested portion of the Option may be exercised, during the lifetime of the
Employee, only by him. More particularly (but without limiting the
generality of the foregoing), any vested portion of the Option may not be
assigned, transferred (except as provided above), pledged, or
<PAGE>
hypothecated in any way, shall not be assignable by operation of law, and
shall not be subject to execution, attachment, or similar process. Any
attempted assignment, transfer, pledge, hypothecation, or other
disposition of any vested portion of the Option contrary to the
provisions hereof, and the levy of any execution, attachment, or similar
process upon the Option, shall be null and void and without effect. Such
vested portion of the Option may be exercised by Employee only while he
is in the continuous employ of the Corporation or of a subsidiary of the
Corporation as provided hereinabove, or within three months after the
date he ceases to be so employed, except that in the event of his death
while so employed or within three months after the date he ceases to be
so employed, then such vested portion of the Option may be exercised by
his executors, administrators, or other legal representatives, heirs,
legatees, next of kin, or distributees within three months, but not later
than three months, after the date of the legal qualification of the
executors or administrators of his estate, provided diligent efforts are
made and such qualification is obtained within a reasonable time after
his death. Notwithstanding anything in this Agreement to the contrary,
any vested portion of the Option herein granted to Employee shall in no
event be exercisable after the expiration of five (5) years from the date
of this Agreement. In the event of any termination of this Agreement
that is either (a) for cause or (b) voluntary on the part of the Employee
and without the consent of his employing corporation or corporations, any
unvested portion of the Option shall immediately terminate. If, at any
time prior to the fifth anniversary of the date of this Agreement, CRTM
proposes to register any of its securities under the Securities Act
(other than by a registration on Form S-8, S-4 or any successor similar
forms or any other form not available for registering the Common Shares
underlying the Option for sale to the public), whether for sale for its
own account or other security holders, the Employer will, each such time,
at least 60 days prior to filing the registration statement, give written
notice to the Employee of CRTM's intention to do so. Upon the written
request of the Employee made within 45 days after the receipt of any such
notice (which request shall specify the underlying Common Shares intended
to be disposed of by the Employee), the Employer will use reasonable
efforts to cause to be filed a registration statement for the
registration under the Securities Act of all underlying Common Shares
which CRTM has been so requested to register by the Employee.
Method of exercising vested portion of the Option. Such Option
may be exercised, in whole at any time or in part from time to time, by
giving to the Employer and CRTM notice in writing to that effect. Within
30 days after the receipt by it of notice of exercise of such Option, the
Employer and CRTM shall cause certificates for the number of shares with
respect to which such Option is exercised to be issued in the name of
Employee or his executors, administrators, or other legal
representatives, heirs, legatees, next of kin, or distributees, or to be
properly endorsed or accompanied by separate stock powers duly executed,
and to be delivered to Employee or his executors, administrators, or
other legal representatives, heirs, legatees, next of kin, or
distributees. Payment of the purchase price for the shares with respect
to which such Option is exercised shall be made to CRTM upon the delivery
of such stock, together with revenue stamps or checks in an amount
sufficient to pay any stock transfer taxes required on such delivery.
The Employer shall give the person or persons entitled to the same at
least five (5) days' notice of the time and place for delivery and for
the payment of such purchase price.
Changes in capital structure If all or any portion of the Option
shall be exercised subsequent to any share dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of
<PAGE>
shares, separation, reorganization, or liquidation occurring after the
date hereof, as a result of which shares of any class shall be issued in
respect of outstanding Common Shares or Common Shares shall be changed
into the same or a different number of shares of the same or another
class or classes, the person or persons so exercising the Option shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which, if Common Shares (as authorized at the
date hereof) had been purchased at the date hereof for the same aggregate
price (on the basis of the price per share set forth above) and had not
been disposed of, such person or persons would be holding, at the time of
such exercise, as a result of such purchase and all such share dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations, or liquidations;
provided, however, that no fractional share shall be issued upon any such
exercise, and the aggregate price paid shall be appropriately reduced on
account of any fractional share not issued.
Representation as to investment intent. The exercise of such Option
and the delivery of the shares subject to it will be contingent upon CRTM
being furnished by Employee, his legal representatives, or other persons
entitled to exercise such Option a statement in writing that at the time
of such exercise it is his or their intention to acquire the shares being
purchased solely for investment purposes and not with a view to
distribution.
Nonstatutory Stock Option. The Option granted in this Paragraph
is intended not to qualify as an incentive stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986 and shall be
so construed.
5.05. Other Benefits. During the term of this Agreement
the Employee shall be entitled to participate in the Employer's 401(k)
Plan, any hospital, surgical, medical, disability, and dental benefit
plan adopted by the Employer, and shall be entitled to an annual vacation
leave, paid holidays, paid sick leave, and other benefits in accordance
with Employer's company policy. The Employee may be entitled to receive,
in the sole discretion of the Employer's Board of Directors, such other
benefits or bonuses as may from time to time be declared by such Board.
ARTICLE 6: REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
6.01. Business Expenses. The Employee is authorized to incur
reasonable business expenses in performing his duties of employment and
for promoting the Employer's business, including expenses for
entertainment, travel, and similar items. The Employer will reimburse
the Employee for all such expenses upon the Employee's periodic
presentation of an itemized account of such expenditures and supporting
documentation.
ARTICLE 7: PROPERTY RIGHTS OF PARTIES
7.01. Trade Secrets. During the term of employment, the
Employee will have access to and become familiar with various trade
secrets, consisting of formulas, devices, secret inventions, processes,
and compilations of information, records, and specifications, owned by
the Employer and regularly used in the operation of the business of the
Employer. The Employee shall not disclose any such trade secrets,
directly or indirectly, nor use them in any way, either during the term
of this Agreement or at any time thereafter, except as required in the
course of his employment. All files, records, documents, drawings,
specifications, equipment, and similar items relating to the business of
the Employer, whether or not prepared by the Employee, shall remain the
exclusive property of the Employer and shall not be removed from the
premises of the Employer under any circumstances without the prior
written consent of the Employer. The Employee agrees that any violation
by the Employee of any of the terms of this Paragraph will result in
<PAGE>
irreparable harm to the Employer and that the Employer shall be entitled
to an immediate Temporary Restraining Order and injunction against the
Employee to prevent any such violations by the Employee.
7.02. Return of Employer's Property. Except as otherwise
provided in this Agreement, on the termination of employment or whenever
requested by the Employer, the Employee shall immediately deliver to the
Employer in good condition, ordinary wear and tear excepted, all property
in the Employee's possession or under the Employee's control belonging to
the Employer.
ARTICLE 8: OBLIGATIONS OF EMPLOYER
8.01. Indemnification of Losses of Employee. Except for losses
arising from the Employee's negligence or misconduct, the Employer shall
indemnify the Employee for all losses sustained by the Employee as a
direct result of the discharge of his duties required by this Agreement.
8.02. Working Conditions. The Employer will provide the Employee
with a private office, secretarial and stenographic services, and any
other facilities and services as are suitable to the Employee's position
or required for the performance of his duties.
ARTICLE 9: TERMINATION
9.01. Termination by Either Party Without Cause. This
Agreement may be terminated by either party without cause by giving
thirty (30) days' written notice of termination to the other party. Such
termination shall not prejudice any remedy that the terminating party may
have at law or in equity. Such termination "without cause" shall include
(a) resignation of the Employee at the Employer's request at a time when
no cause for termination exists, and (b) termination by the Employee as a
result of a reduction in compensation or benefits (which is not a part of
a prorata reduction in executive compensation or benefits for the
Employer's senior executives) or as a result of a significant reduction
in the Employee's responsibilities, and such termination occurs within
sixty (60) days after such reduction. Upon any other voluntary
termination by the Employee, all unvested stock options and all other
benefits, including severance pay, which might otherwise accrue to the
Employee upon termination of this Agreement shall immediately terminate
and be of no further force or effect.
9.02. Severance Pay. On termination of employment by Employer
without cause, and in addition to other compensation that may be due to
the Employee as a result of such termination, the Employer shall make a
cash severance payment to the Employee in an amount equal to three (3)
month's base salary (less all amounts required to be withheld and
deducted.) The Employee shall receive additional severance pay under
this Paragraph based on the Employee's length of service and computed at
the rate of one month's pay for every year of service, which length of
service shall in no event extend beyond October 1, 1992.
9.03. Termination by Employer for Cause. The Employer may at its
option immediately terminate this Agreement "for cause," which shall
include resignation by the Employee at the Employer's request at a time
when cause for termination exists, without prejudice to any other remedy
to which the Employer may be entitled either at law, in equity, or under
this Agreement, by giving written notice of termination to the Employee,
if the Employee: (a) Willfully breaches or habitually neglects the
duties that the Employee is required to perform under the terms of this
Agreement; (b) Willfully violates reasonable and substantial rules
governing employee performance; (c) Refuses to obey reasonable orders in
a manner that amounts to insubordination; (d) Commits clearly dishonest
acts toward the Employer; (e) Engages in acts of disruption or violence
such as unprovoked fighting; (f) Engages in conduct which is materially
injurious to the Employer; or (g) Commits a felony or other offense
involving moral turpitude. Upon such termination, all unvested stock
<PAGE>
options and all other benefits, including severance pay, which might
otherwise accrue to the Employee upon termination of this Agreement shall
immediately terminate and be of no further force or effect.
9.04. Termination Upon Sale or Change in Control of CRTM. For
purposes of this section, "change in control" means the acquisition by a
person or group, as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, of beneficial ownership of twenty percent (20%) or
more of CRTM's common stock (other than as a result of an issuance of
securities initiated by CRTM in the ordinary course of business), or as a
result of, or in connection with any cash tender or exchange offer,
merger, or other business combination, sale of assets, or contested
election, or any combination of the foregoing transactions, and the
persons who were directors of CRTM before such transactions shall cease
to constitute a majority of the Board of Directors of CRTM or any
successor to CRTM. Upon termination of this Agreement by Employer upon
the sale or change in control of CRTM, the Employer shall cause to be
granted, paid and delivered to Employee, in addition to other amounts
that may be due the Employee under this agreement, all of the following:
(a) cash compensation equal to Employee's annual base salary,
payable in biweekly installments over the twelve-month period
immediately following such termination, beginning on the Employee's
next regularly scheduled payday following the date of termination;
(b) cash compensation equal to Employee's annual car allowance
provided under this Agreement, payable in monthly installments over
the twelve-month period immediately following such termination,
beginning on the first of the month immediately following the date
of termination;
(c) a bill of sale to, and a transfer of the licenses for all
software residing upon, a laptop or a home desktop computer,
including all peripheral equipment used in connection therewith,
belonging to the Employer or CRTM which is in the possession of the
Employee which is then being used by the Employee in the course and
scope of his employment; in connection with such transfer, the
Employee shall certify to the Employer that all trade secrets and
other confidential or sensitive information of the Employer have
been removed from the hard drive and memory of such equipment;
(d) continued maintenance by Employer, for the benefit of the
Employee as if still employed, all employee benefits including group
medical and dental, health and accident, disability, and group life
insurance plans for the twelve-month period immediately following
such termination; provided, however, the Company's obligation to
continue participation in these plans ends on the last day of the
month in which the Employee becomes eligible to participate in such
benefits at any new place of employment. However, the Employer will
continue to provide benefit continuation to the extent required by
federal law;
(e) an assignment of any key man life insurance policy
covering Employee which was in effect at the change in control, with
the premium fully paid by the Employer for the twelve (12) month
period immediately following the date of termination of this
Agreement; and
(f) any unvested portion of any Option held by the Employee
shall immediately vest and, in addition to any other such Option
which may be held by the Employee, a further option (the "Option")
to purchase 150,000 shares of common stock of CRTM (or successor) at
a purchase price of seventy (70%) percent of the average trading
price of the Common Stock, as reported by NASDAQ, for the five (5)
trading days immediately preceding the date the Option is granted.
The Option granted hereunder shall vest immediately upon issuance to
<PAGE>
the Employee and may be exercised in whole or in part by the
Employee at any time during a period of five (5) years following the
date of termination under this Agreement. The Employee shall not
have any of the rights of, nor be treated as, a shareholder with
respect to the shares subject to this Option until the Employee has
exercised the Option, delivery of the stock certificates for such
shares has been made to the Employee, and the Employee has become
the shareholder of record of such shares. The Option shall not be
transferable otherwise than by will or the laws of descent and
distribution, and the Option may be exercised, during the lifetime
of the Employee, only by him. More particularly (but without
limiting the generality of the foregoing), the Option may not be
assigned, transferred (except as provided above), pledged, or
hypothecated in any way, shall not be assignable by operation of
law, and shall not be subject to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge, hypothecation,
or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment, or similar
process upon the Option, shall be null and void and without effect.
Within 30 days after such termination the Employer will cause to be
filed a Registration Statement with the SEC for registration of the
Common Stock underlying all Options held by the Employee, and will
use its best efforts to have such Registration Statement declared
effective at the earliest possible date. The method of exercising
this Option, adjustment in the number of shares of Common Stock
underlying such Option upon a change in capital structure of CRTM
after the date of termination of this Agreement, and the Employee's
representation as to investment intent, shall be as described in
paragraph 5.04 above. The Option granted in this Paragraph is also
intended not to qualify as an incentive stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986 and
shall be so construed;
(g) accrual to Employee of the balance of any unaccrued
portion of the stock bonus granted to Employee upon his initial
employment by Employer, and forgiveness of the balance of any
unforgiven portion of Employee's obligation to repay the salary
advance made to Employee upon his initial employment by Employer;
and
(h) an additional amount necessary to put Employee in the same
after-tax position as if no excise taxes imposed by Section 4999 of
the Internal Revenue Code ("Section 4999") had been imposed on any
payments which are contingent on a change in control and which equal
or exceed three times Employee's average taxable compensation for
the prior five years or his period of employment.
9.05. Effect of Termination on Compensation. In the event of
the termination of this Agreement prior to the completion of the term of
employment specified in Article 1, the Employee shall be entitled to the
compensation earned by the Employee prior to the effective date of
termination as provided for in this Agreement, computed pro rata up to
and including that date. Except as otherwise provided in this Agreement,
the Employee shall be entitled to no further compensation after the date
of termination.
9.06. Monies owed to Employer. To the extent that the Employee
owes the Employer any monies at the time of termination of employment, or
to the extent that taxes are due on any of Employer's benefits, the
Employee authorizes the Employer to withhold such amounts from his final
paycheck or severance payment(s), or from reimbursements or any other
monies due to the Employee.
<PAGE>
ARTICLE 10: GENERAL PROVISIONS
10.01. Notices. All notices or other communications required
under this Agreement may be effected either by personal delivery in
writing or by certified mail, return receipt requested. Notice shall be
deemed to have been given when delivered or mailed to the parties at
their respective addresses as set forth above or when mailed to the last
address provided in writing to the other party by the addressee.
10.02. Entirety of Agreement. Except for the Employee
Invention, Copyright and Secrecy Agreement heretofore executed by the
Employee; and except for the provisions of Employee's previous employment
arrangement with Employer whereby 25% of the stock bonus granted to
Employee upon his initial employment by Employer would accrue to Employee
for each year that he remained employed by Employer; and except for the
provisions of Employee's previous employment arrangement with Employer
whereby 25% of the Employee's obligation to repay the salary advance made
to Employee upon his initial employment would be forgiven for each year
that he remained employed by Employer, this Agreement constitutes the
entire understanding between the parties concerning the subject matter
hereof. No agreements, representations, or warranties other than those
specifically set forth in this Agreement shall be binding on any of the
parties unless set forth in writing and signed by both parties. This
Agreement supersedes all other prior agreements, either oral or in
writing, between the parties with respect to the employment of the
Employee by the Employer and contains all of the covenants and agreements
between the parties with respect to such employment in any manner. Each
party to this Agreement acknowledges that no inducements or promises,
oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, that are not embodied in this Agreement.
10.03. Modification. This Agreement shall not be amended,
modified, or altered in any manner except in a writing signed by both
parties.
10.04. Failure to Enforce Not Waiver. Any failure or
delay on the part of either the Employer or the Employee to exercise any
remedy or right under this Agreement shall not operate as a waiver. The
failure of either party to require performance of any of the terms,
covenants, or provisions of this Agreement by the other party shall not
constitute a waiver of any of the rights under the Agreement. No
forbearance by either party to exercise any rights or privileges under
this Agreement shall be construed as a waiver, but all rights and
privileges shall continue in effect as if no forbearance had occurred.
No covenant or condition of this Agreement may be waived except by the
written consent of the waiving party. Any such written waiver of any
term of this Agreement shall be effective only in the specific instance
and for the specific purpose given.
10.05. Law Governing Agreement. This agreement shall be governed
exclusively by and construed in accordance with the laws of the State of
Texas.
10.06. Partial Invalidity. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall remain in full force and
effect, as if this Agreement had been executed without any such invalid
provisions having been included.
10.07. Assignment. The Employer and the Employee acknowledge
that the services to be rendered by the Employee under this Agreement are
unique and personal. Therefore, neither party may assign any rights or
delegate any duties under this Agreement, without the other party's prior
written consent. If either the Employer or the Employee obtains a
consent to an assignment of rights or delegation of duties, rights or
duties under this Agreement shall inure only to the benefit of the
<PAGE>
assignee or delagee named in the written instrument, and such consent
shall not be deemed as a general consent to assignment or delegation.
Executed at Dallas, Texas, as of April 7, 1997.
EMPLOYER: Curtis Mathes Holding Corporation
By:___/s/ Patrick A. Custer_____________
Patrick A. Custer, President
EMPLOYEE: ___/s/ Billy J. Robinson________________
<PAGE>
DIRECTORS' STOCK OPTION AGREEMENT
By this Agreement, Curtis Mathes Holding Corporation (the
"Company"), located at 10911 Petal Street, Dallas, Texas 75238, grants to
Bernard S. Appel (the "Director"), of 301 Commerce Street, Ft. Worth,
Texas 76102 certain options to purchase the Company's common stock (the
"Common Stock") according to the following terms and conditions:
ARTICLE 1: TERM OF AGREEMENT
1.01. Term. The term of this Agreement shall begin on April
7, 1997, and shall terminate on June 30, 1999, subject to the discretion
of the Company's shareholders.
ARTICLE 2: DUTIES OF DIRECTOR
2.01. Duties. The Director shall serve on the Company's Board
of Directors, at the discretion of the Company's shareholders, and shall
perform all duties commonly discharged by a person in such position. If
the Director is appointed as a consultant to the Company, the Director
shall serve in such capacity or capacities as may be agreed. Nothing
shall be construed, however, to require the Director's appointment as a
consultant to the Company.
ARTICLE 3: DIRECTOR BENEFITS
3.01. Nonstatutory Stock Option. Grant of Option. By
this Paragraph, the Company agrees that it will cause to be granted to
the Director an option (the "Option") to purchase 75,000 shares of common
stock of CRTM (or successor) ("Common Shares") at a purchase price of
seventy (70%) percent of the average trading price of the Common Stock,
as reported by NASDAQ, for the five (5) trading days immediately
preceding the date the Option is granted. One-third (1/3) of the Option
shall vest immediately upon the date hereof and the remaining two-thirds
(2/3) of the Option shall vest at the rate of one-third (1/3) on each of
the following dates hereafter, during the term of service under this
Agreement, and provided that Director is then currently serving as a
director of the Company on such dates: June 30, 1998; and June 30, 1999.
Any vested portion of the Option may be exercised in whole or in part at
any time up to and including April 6, 2002. It is agreed that the
Director shall not have any of the rights of, nor be treated as, a
shareholder with respect to the shares subject to this Option until the
Director has exercised the Option, delivery of the stock certificates for
such shares has been made to the Director, and the Director has become
the shareholder of record of such shares. Any vested portion of the
Option shall not be transferable otherwise than by will or the laws of
descent and distribution, and any vested portion of the Option may be
exercised, during the lifetime of the Director, only by him. More
particularly (but without limiting the generality of the foregoing), any
vested portion of the Option may not be assigned, transferred (except as
provided above), pledged, or hypothecated in any way, shall not be
assignable by operation of law, and shall not be subject to execution,
attachment, or similar process. Any attempted assignment, transfer,
pledge, hypothecation, or other disposition of any vested portion of the
Option contrary to the provisions hereof, and the levy of any execution,
attachment, or similar process upon the Option, shall be null and void
and without effect. Such vested portion of the Option may be exercised
by Director or by his executors, administrators, or other legal
representatives, heirs, legatees, next of kin, or distributees within
three months, but not later than three months, after the date of the
legal qualification of the executors or administrators of his estate,
provided diligent efforts are made and such qualification is obtained
within a reasonable time after his death. Notwithstanding anything in
this Agreement to the contrary, any vested portion of the Option herein
granted to Director shall in no event be exercisable after the expiration
of five (5) years from the date of this Agreement. If, at any time prior
<PAGE>
to the fifth anniversary of the date of this Agreement, the Company
proposes to register any of its securities under the Securities Act
(other than by a registration on Form S-8, S-4 or any successor similar
forms or any other form not available for registering the Common Shares
underlying the Option for sale to the public), whether for sale for its
own account or other security holders, the Company will, each such time,
at least 60 days prior to filing the registration statement, give written
notice to the Director of the Company's intention to do so. Upon the
written request of the Director made within 45 days after the receipt of
any such notice (which request shall specify the underlying Common Shares
intended to be disposed of by the Director), the Company will use
reasonable efforts to cause to be filed a registration statement for the
registration under the Securities Act of all underlying Common Shares
which the Company has been so requested to register by the Director.
Vesting of Option upon Change in Control. "Change in control"
means the acquisition by a person or group, as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, of beneficial ownership
of twenty percent (20%) or more of the Company's common stock (other than
as a result of an issuance of securities initiated by the Company in the
ordinary course of business), or as a result of, or in connection with
any cash tender or exchange offer, merger, or other business combination,
sale of assets, or contested election, or any combination of the
foregoing transactions, and the persons who were directors of the Company
before such transactions shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company. Upon
a change in control of the Company, any unvested portion of any Option
held by the Director shall immediately vest. If the Company should
thereafter undertake to file a registration statement with the SEC for
registration of any of its Common Stock, the Company shall include in
such registration statement the Common Stock underlying all Options held
by the Director, and will use its best efforts to have such registration
statement declared effective at the earliest possible date.
Method of exercising vested portion of the Option. Such Option
may be exercised, in whole at any time or in part from time to time, by
giving to the Company notice in writing to that effect. Within 30 days
after the receipt by it of notice of exercise of such Option, the Company
shall cause certificates for the number of shares with respect to which
such Option is exercised to be issued in the name of Director or his
executors, administrators, or other legal representatives, heirs,
legatees, next of kin, or distributees, or to be properly endorsed or
accompanied by separate stock powers duly executed, and to be delivered
to Director or his executors, administrators, or other legal
representatives, heirs, legatees, next of kin, or distributees. Payment
of the purchase price for the shares with respect to which such Option is
exercised shall be made to the Company upon the delivery of such stock,
together with revenue stamps or checks in an amount sufficient to pay any
stock transfer taxes required on such delivery. The Company shall give
the person or persons entitled to the same at least five (5) days' notice
of the time and place for delivery and for the payment of such purchase
price.
Changes in capital structure If all or any portion of the Option
shall be exercised subsequent to any share dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of
shares, separation, reorganization, or liquidation occurring after the
date hereof, as a result of which shares of any class shall be issued in
respect of outstanding Common Shares or Common Shares shall be changed
into the same or a different number of shares of the same or another
class or classes, the person or persons so exercising the Option shall
receive, for the aggregate price paid upon such exercise, the aggregate
<PAGE>
number and class of shares which, if Common Shares (as authorized at the
date hereof) had been purchased at the date hereof for the same aggregate
price (on the basis of the price per share set forth above) and had not
been disposed of, such person or persons would be holding, at the time of
such exercise, as a result of such purchase and all such share dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations, or liquidations;
provided, however, that no fractional share shall be issued upon any such
exercise, and the aggregate price paid shall be appropriately reduced on
account of any fractional share not issued.
Representation as to investment intent. The exercise of such Option
and the delivery of the shares subject to it will be contingent upon the
Company being furnished by Director, his legal representatives, or other
persons entitled to exercise such Option a statement in writing that at
the time of such exercise it is his or their intention to acquire the
shares being purchased solely for investment purposes and not with a view
to distribution.
Nonstatutory Stock Option. The Option granted in this Paragraph
is intended not to qualify as an incentive stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986 and shall be
so construed.
ARTICLE 4: GENERAL PROVISIONS
4.01. Notices. All notices or other communications required
under this Agreement may be effected either by personal delivery in
writing or by certified mail, return receipt requested. Notice shall be
deemed to have been given when delivered or mailed to the parties at
their respective addresses as set forth above or when mailed to the last
address provided in writing to the other party by the addressee.
4.02. Entirety of Agreement. This Agreement constitutes
the entire understanding between the parties concerning the subject
matter hereof. No agreements, representations, or warranties other than
those specifically set forth in this Agreement shall be binding on any of
the parties unless set forth in writing and signed by both parties. This
Agreement supersedes all other prior agreements, either oral or in
writing, between the parties with respect to the subject matter hereof
and contains all of the covenants and agreements between the parties with
respect to such subject matter. Each party to this Agreement
acknowledges that no inducements or promises, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, that are
not embodied in this Agreement.
4.03. Modification. This Agreement shall not be amended,
modified, or altered in any manner except in a writing signed by both
parties.
4.04. Failure to Enforce Not Waiver. Any failure or
delay on the part of either the Company or the Director to exercise any
remedy or right under this Agreement shall not operate as a waiver. The
failure of either party to require performance of any of the terms,
covenants, or provisions of this Agreement by the other party shall not
constitute a waiver of any of the rights under the Agreement. No
forbearance by either party to exercise any rights or privileges under
this Agreement shall be construed as a waiver, but all rights and
privileges shall continue in effect as if no forbearance had occurred.
No covenant or condition of this Agreement may be waived except by the
written consent of the waiving party. Any such written waiver of any
term of this Agreement shall be effective only in the specific instance
and for the specific purpose given.
4.05. Law Governing Agreement. This agreement shall be governed
exclusively by and construed in accordance with the laws of the State of
Texas.
<PAGE>
4.06. Partial Invalidity. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall remain in full force and
effect, as if this Agreement had been executed without any such invalid
provisions having been included.
Executed at Dallas, Texas, as of April 7, 1997.
COMPANY: Curtis Mathes Holding Corporation
By:____/s/___Patrick A. Custer________
Patrick A. Custer, President
DIRECTOR: ____/s/__Bernard S. Appel____________
<PAGE>
DIRECTORS' STOCK OPTION AGREEMENT
By this Agreement, Curtis Mathes Holding Corporation (the
"Company"), located at 10911 Petal Street, Dallas, Texas 75238, grants to
Edward M. Warren (the "Director"), of 71 Lake Road, Ballston Lake, New
York 12019, certain options to purchase the Company's common stock (the
"Common Stock") according to the following terms and conditions:
ARTICLE 1: TERM OF AGREEMENT
1.01. Term. The term of this Agreement shall begin on April
7, 1997, and shall terminate on June 30, 1999, subject to the discretion
of the Company's shareholders.
ARTICLE 2: DUTIES OF DIRECTOR
2.01. Duties. The Director shall serve on the Company's Board
of Directors, at the discretion of the Company's shareholders, and shall
perform all duties commonly discharged by a person in such position. If
the Director is appointed as a consultant to the Company, the Director
shall serve in such capacity or capacities as may be agreed. Nothing
shall be construed, however, to require the Director's appointment as a
consultant to the Company.
ARTICLE 3: DIRECTOR BENEFITS
3.01. Nonstatutory Stock Option. Grant of Option. By
this Paragraph, the Company agrees that it will cause to be granted to
the Director an option (the "Option") to purchase 75,000 shares of common
stock of CRTM (or successor) ("Common Shares") at a purchase price of
seventy (70%) percent of the average trading price of the Common Stock,
as reported by NASDAQ, for the five (5) trading days immediately
preceding the date the Option is granted. One-third (1/3) of the Option
shall vest immediately upon the date hereof and the remaining two-thirds
(2/3) of the Option shall vest at the rate of one-third (1/3) on each of
the following dates hereafter, during the term of service under this
Agreement, and provided that Director is then currently serving as a
director of the Company on such dates: June 30, 1998; and June 30, 1999.
Any vested portion of the Option may be exercised in whole or in part at
any time up to and including April 6, 2002. It is agreed that the
Director shall not have any of the rights of, nor be treated as, a
shareholder with respect to the shares subject to this Option until the
Director has exercised the Option, delivery of the stock certificates for
such shares has been made to the Director, and the Director has become
the shareholder of record of such shares. Any vested portion of the
Option shall not be transferable otherwise than by will or the laws of
descent and distribution, and any vested portion of the Option may be
exercised, during the lifetime of the Director, only by him. More
particularly (but without limiting the generality of the foregoing), any
vested portion of the Option may not be assigned, transferred (except as
provided above), pledged, or hypothecated in any way, shall not be
assignable by operation of law, and shall not be subject to execution,
attachment, or similar process. Any attempted assignment, transfer,
pledge, hypothecation, or other disposition of any vested portion of the
Option contrary to the provisions hereof, and the levy of any execution,
attachment, or similar process upon the Option, shall be null and void
and without effect. Such vested portion of the Option may be exercised
by Director or by his executors, administrators, or other legal
representatives, heirs, legatees, next of kin, or distributees within
three months, but not later than three months, after the date of the
legal qualification of the executors or administrators of his estate,
provided diligent efforts are made and such qualification is obtained
within a reasonable time after his death. Notwithstanding anything in
this Agreement to the contrary, any vested portion of the Option herein
granted to Director shall in no event be exercisable after the expiration
of five (5) years from the date of this Agreement. If, at any time prior
<PAGE>
to the fifth anniversary of the date of this Agreement, the Company
proposes to register any of its securities under the Securities Act
(other than by a registration on Form S-8, S-4 or any successor similar
forms or any other form not available for registering the Common Shares
underlying the Option for sale to the public), whether for sale for its
own account or other security holders, the Company will, each such time,
at least 60 days prior to filing the registration statement, give written
notice to the Director of the Company's intention to do so. Upon the
written request of the Director made within 45 days after the receipt of
any such notice (which request shall specify the underlying Common Shares
intended to be disposed of by the Director), the Company will use
reasonable efforts to cause to be filed a registration statement for the
registration under the Securities Act of all underlying Common Shares
which the Company has been so requested to register by the Director.
Vesting of Option upon Change in Control. "Change in control"
means the acquisition by a person or group, as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, of beneficial ownership
of twenty percent (20%) or more of the Company's common stock (other than
as a result of an issuance of securities initiated by the Company in the
ordinary course of business), or as a result of, or in connection with
any cash tender or exchange offer, merger, or other business combination,
sale of assets, or contested election, or any combination of the
foregoing transactions, and the persons who were directors of the Company
before such transactions shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company. Upon
a change in control of the Company, any unvested portion of any Option
held by the Director shall immediately vest. If the Company should
thereafter undertake to file a registration statement with the SEC for
registration of any of its Common Stock, the Company shall include in
such registration statement the Common Stock underlying all Options held
by the Director, and will use its best efforts to have such registration
statement declared effective at the earliest possible date.
Method of exercising vested portion of the Option. Such Option
may be exercised, in whole at any time or in part from time to time, by
giving to the Company notice in writing to that effect. Within 30 days
after the receipt by it of notice of exercise of such Option, the Company
shall cause certificates for the number of shares with respect to which
such Option is exercised to be issued in the name of Director or his
executors, administrators, or other legal representatives, heirs,
legatees, next of kin, or distributees, or to be properly endorsed or
accompanied by separate stock powers duly executed, and to be delivered
to Director or his executors, administrators, or other legal
representatives, heirs, legatees, next of kin, or distributees. Payment
of the purchase price for the shares with respect to which such Option is
exercised shall be made to the Company upon the delivery of such stock,
together with revenue stamps or checks in an amount sufficient to pay any
stock transfer taxes required on such delivery. The Company shall give
the person or persons entitled to the same at least five (5) days' notice
of the time and place for delivery and for the payment of such purchase
price.
Changes in capital structure If all or any portion of the Option
shall be exercised subsequent to any share dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of
shares, separation, reorganization, or liquidation occurring after the
date hereof, as a result of which shares of any class shall be issued in
respect of outstanding Common Shares or Common Shares shall be changed
into the same or a different number of shares of the same or another
class or classes, the person or persons so exercising the Option shall
receive, for the aggregate price paid upon such exercise, the aggregate
<PAGE>
number and class of shares which, if Common Shares (as authorized at the
date hereof) had been purchased at the date hereof for the same aggregate
price (on the basis of the price per share set forth above) and had not
been disposed of, such person or persons would be holding, at the time of
such exercise, as a result of such purchase and all such share dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations, or liquidations;
provided, however, that no fractional share shall be issued upon any such
exercise, and the aggregate price paid shall be appropriately reduced on
account of any fractional share not issued.
Representation as to investment intent. The exercise of such Option
and the delivery of the shares subject to it will be contingent upon the
Company being furnished by Director, his legal representatives, or other
persons entitled to exercise such Option a statement in writing that at
the time of such exercise it is his or their intention to acquire the
shares being purchased solely for investment purposes and not with a view
to distribution.
Nonstatutory Stock Option. The Option granted in this Paragraph
is intended not to qualify as an incentive stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986 and shall be
so construed.
ARTICLE 4: GENERAL PROVISIONS
4.01. Notices. All notices or other communications required
under this Agreement may be effected either by personal delivery in
writing or by certified mail, return receipt requested. Notice shall be
deemed to have been given when delivered or mailed to the parties at
their respective addresses as set forth above or when mailed to the last
address provided in writing to the other party by the addressee.
4.02. Entirety of Agreement. This Agreement constitutes
the entire understanding between the parties concerning the subject
matter hereof. No agreements, representations, or warranties other than
those specifically set forth in this Agreement shall be binding on any of
the parties unless set forth in writing and signed by both parties. This
Agreement supersedes all other prior agreements, either oral or in
writing, between the parties with respect to the subject matter hereof
and contains all of the covenants and agreements between the parties with
respect to such subject matter. Each party to this Agreement
acknowledges that no inducements or promises, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, that are
not embodied in this Agreement.
4.03. Modification. This Agreement shall not be amended,
modified, or altered in any manner except in a writing signed by both
parties.
4.04. Failure to Enforce Not Waiver. Any failure or
delay on the part of either the Company or the Director to exercise any
remedy or right under this Agreement shall not operate as a waiver. The
failure of either party to require performance of any of the terms,
covenants, or provisions of this Agreement by the other party shall not
constitute a waiver of any of the rights under the Agreement. No
forbearance by either party to exercise any rights or privileges under
this Agreement shall be construed as a waiver, but all rights and
privileges shall continue in effect as if no forbearance had occurred.
No covenant or condition of this Agreement may be waived except by the
written consent of the waiving party. Any such written waiver of any
term of this Agreement shall be effective only in the specific instance
and for the specific purpose given.
4.05. Law Governing Agreement. This agreement shall be governed
exclusively by and construed in accordance with the laws of the State of
Texas.
<PAGE>
4.06. Partial Invalidity. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall remain in full force and
effect, as if this Agreement had been executed without any such invalid
provisions having been included.
Executed at Dallas, Texas, as of April 7, 1997.
COMPANY: Curtis Mathes Holding Corporation
By:____/s/__Pat Custer____________
Patrick A. Custer, President
DIRECTOR: ____/s/____Edward M. Warren__________
<PAGE>
CURTIS MATHES HOLDING CORPORATION
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
Curtis Mathes Corporation Delaware
Curtis Mathes Marketing Corporation Texas
Curtis Mathes Xpressway Corporation Texas
Warranty Repair Corporation Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 800,346
<SECURITIES> 282,142
<RECEIVABLES> 55,237
<ALLOWANCES> 0
<INVENTORY> 79,701
<CURRENT-ASSETS> 3,136,424
<PP&E> 2,319,012
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,474,753
<CURRENT-LIABILITIES> 2,553,194
<BONDS> 0
<COMMON> 367,092
0
141,287
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,474,753
<SALES> 2,503,512
<TOTAL-REVENUES> 2,503,512
<CGS> 2,612,402
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,801,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,292
<INCOME-PRETAX> (8,761,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,298,466)
<DISCONTINUED> 0
<EXTRAORDINARY> 789,426
<CHANGES> 0
<NET-INCOME> (7,509,040)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.23)
</TABLE>
