SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 2-93668-FW
UNIVIEW TECHNOLOGIES CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10911 Petal Street, 75238
Dallas, Texas (Zip Code)
(Address of principal executive offices)
(214) 503-8880
(Registrant's telephone number, including area code)
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
At March 31, 1998, there were 60,767,406 shares of Registrant's
common stock outstanding.
<PAGE>
GENERAL INDEX
Page
Number
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 13
EXHIBIT INDEX 14
<PAGE>
UNIVIEW TECHNOLOGIES CORPORATION
and Subsidiaries
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION
The interim financial statements and summarized notes included
herein were prepared, without audit, pursuant to rules and regulations of
the Securities and Exchange Commission. Because certain information and
notes normally included in financial statements prepared in accordance
with generally accepted accounting principles were condensed or omitted
pursuant to such rules and regulations, it is suggested that these
financial statements be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, included in the Company's
Annual Report on Form 10-K for the preceding fiscal year. These interim
financial statements and notes hereto reflect all adjustments which are,
in the opinion of management, necessary for a fair statement of results
for the interim periods presented. Such financial results, however,
should not be construed as necessarily indicative of future earnings.
UNIVIEW TECHNOLOGIES CORPORATION
(Formerly CURTIS MATHES HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS
March 31 June 30
1998 1997
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 118,281 $ 800,346
Marketable securities 282,142
Accounts receivable
Trade 9,531 -
Due from related parties 9,691 20,000
Note receivable, net of allowance
of $65,000 99,038 35,237
Inventory 265,908 79,701
Prepaid expenses 1,371,326 1,918,998
----------- -----------
Total current assets 1,873,775 3,136,424
----------- -----------
PROPERTY AND EQUIPMENT, net 3,050,679 2,319,012
----------- -----------
OTHER ASSETS
Investment in joint venture 366,500 354,000
Notes receivable, less current portion 272,040 291,521
Software development 6,436,533 4,149,748
Licenses 730,213 1,100,117
Trademark, net of accumulated
amortization of $1,002,822 and
$822,693, respectively 3,909,884 4,093,061
Other 30,870 30,870
----------- -----------
Total other assets 11,746,040 10,019,317
----------- -----------
TOTAL ASSETS $16,670,494 $15,474,753
=========== ===========
<PAGE>
UNIVIEW TECHNOLOGIES CORPORATION
(Formerly CURTIS MATHES HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS (Unaudited)- Continued
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 June 30
1998 1997
----------- -----------
CURRENT LIABILITIES
Trade accounts payable $ 2,249,815 $ 355,894
Accrued and other current liabilities 958,290 1,197,194
License fees payable - 660,000
Current maturities of long-term debt,
including $529,007 due to related
parties in 1998 2,529,007 301,810
Current maturities of obligations
under capital leases 54,275 38,296
----------- -----------
Total current liabilities 5,791,387 2,553,194
----------- -----------
LONG TERM DEBT, less current maturities 158,347 171,469
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 5,932 14,262
WARRANTY PROVISION 343,400 435,193
----------- -----------
Total liabilities 6,299,066 3,174,118
----------- -----------
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 H, 3 and 55 shares in 1996
(liquidation preference of $75,000 in 1997) 3 3
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
Series N, 92 shares issued through March 1998
(liquidation preference of $2,300,000) 92 -
Common stock, $.01 par value; 80,000,000 shares
authorized and 60,767,406 and 36,709,186
issued and outstanding at March 31, 1998
and June 30, 1997, respectively 607,674 367,092
Additional paid-in-capital 36,018,982 30,317,592
Accumulated deficit, since July 1, 1993
quasi reorganization in which an
accumulated deficit of $4,140,595
was eliminated (26,395,323) (18,525,336)
----------- -----------
Total Stockholders' Equity 10,371,428 12,300,635
----------- -----------
TOTAL LIABILITIES AND EQUITY $16,670,494 $15,474,753
=========== ===========
<PAGE>
<TABLE>
UNIVIEW TECHNOLOGIES CORPORATION
(Formerly CURTIS MATHES HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ---------------------------
March 31 March 31 March 31 March 31
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 58,019 $ - $ 189,393 $ 2,503,583
----------- ----------- ----------- -----------
Total Revenue 58,019 - 189,393 2,503,583
COST OF SALES 61,795 - 184,209 2,335,739
----------- ----------- ----------- -----------
Gross Profit (3,776) - 5,184 167,844
OPERATING EXPENSES 3,675,576 2,549,520 8,183,771 6,087,673
----------- ----------- ----------- -----------
Operating Loss (3,679,352) (2,549,520) (8,178,587) (5,919,829)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and other income, net 113,996 (73,108) 453,721 115,759
Interest expense (113,578) - (146,187) -
----------- ----------- ----------- -----------
Total Other Income
(Expense) 418 (73,108) 307,534 115,759
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (3,678,934) (2,622,628) (7,871,053) (5,804,070)
Income tax benefit - - - 463,035
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM (3,678,934) (2,622,628) (7,871,053) (5,341,035)
----------- ----------- ----------- -----------
EXTRAORDINARY ITEM
Gain on extinguishment of debt,
net of income taxes of
$463,035 - - - 789,426
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(3,678,934) $(2,622,628) $(7,871,053) $(4,551,609)
=========== =========== =========== ===========
Gain (Loss) from continuing
operations per share $ (0.07) $ (0.08) $ (0.17) $ (0.16)
=========== =========== =========== ===========
Gain from extraordinary item
per share $ - $ - $ - $ 0.02
=========== =========== =========== ===========
Gain (Loss) attributable to
common shareholders $ (0.07) $ (0.08) $ (0.17) $ (0.13)
=========== =========== =========== ===========
Weighted average common shares
outstanding 52,992,143 33,943,831 45,413,098 33,943,831
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
UNIVIEW TECHNOLOGIES CORPORATION
(Formerly CURTIS MATHES HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ---------------------------
March 31 March 31 March 31 March 31
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,678,934) $(2,622,628) $(7,871,053) $(4,551,609)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation and amortization 768,650 370,955 1,081,688 549,869
Income tax benefit - - - (463,035)
Gain on extinguishment of debt - - - (789,426)
Provision for bad debts 84,710 - 84,710 -
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable 47,303 (1,332,688) (63,023) 3,063,945
Inventory 321,671 211,470 (186,207) 400,887
Prepaid expense and other 37,072 110,453 547,672 (529,455)
Restricted cash - - - -
Other assets 25,233 - 369,904 (29,910)
Accounts payable, accrued liabilities
and other current liabilities 1,216,435 761,287 3,456,258 1,012,730
Other liabilities 102,319 - (91,793) -
----------- ----------- ----------- -----------
Cash provided (used) by operating activities (1,075,541) (2,501,151) (2,671,844) (1,336,004)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (46,624) (1,164,862) (1,217,560) (1,953,205)
Investments - other (12,500) - (12,500) -
Software development 36,947 (1,889,770) (2,653,752) (2,521,345)
Proceeds from sale of marketable securities 8,144 - 282,142 -
Issuance of note receivable (350,894) - (350,894) -
----------- ----------- ----------- -----------
Cash used for Investing activities (364,927) (3,054,632) (3,952,564) (4,474,550)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes receivable 229,865 8,606 243,795 (132,763)
Proceeds from long-term debt - - - -
Principal payments on long-term debt (8,894) (348,467) (21,452) (638,770)
Issuances of preferred and
common stock for cash 327,914 3,591,000 5,720,000 5,527,795
Redemption of preferred stock for cash - - - (1,170,305)
----------- ----------- ----------- -----------
Cash provided by financing activities 548,885 3,251,139 5,942,343 3,585,957
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (891,583) (2,304,644) (682,065) (2,224,597)
CASH AND CASH EQUIVALENTS, BEGINNING 1,009,864 4,230,528 800,346 4,150,481
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 118,281 $ 1,925,884 $ 118,281 $ 1,925,884
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report may contain "Forward Looking Statements," which are
Company expectations, plans, and projections which may or may not
materialize, and which are subject to various risks and uncertainties.
When used in this report, the words "plans," "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-
looking statements. For a discussion of risk factors associated with
some of these expectations, please refer to the section entitled "Risk
Factors" contained in the Company's most recent S-3 Registration
Statement, as well as the Company's other SEC filings, which contain
additional discussion about those factors which could cause actual
results or events to differ from management's expectations. These
forward-looking statements speak only as of the date of this report. The
Company expressly disclaims any obligation or undertaking to release
publicly any updates or change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any
such statement may be based, except as may be otherwise required by the
securities laws.
Overview
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of
operations for the fiscal quarter ended March 31, 1998. It should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto appearing in the Company's Annual Report on Form 10-K for fiscal
year ended June 30, 1997.
The information presented in this discussion can also better be
understood in the context of the overall plan of the Company. Before
1996, the Company was engaged primarily in the manufacturing and
marketing of home entertainment consumer electronics products, such as
televisions, VCR's, and audio equipment. In early 1996, the Company
began the development of a "convergence" technology, which the Company
called "uniView," designed to enhance the capabilities of television.
The initial plan was to design a set-top-box only, which would enable the
television viewer, through the television, to access interactive
television listings, make and receive telephone calls through a built-in
speakerphone, and access the Internet using the television as the
display. A product of this type had at that time never before been
produced and initial response was overwhelming.
As the Company continued to develop and refine the uniView
technology and as it concluded market studies, it became apparent that
the technology was not yet complete. Specifically, management determined
that existing Internet service providers were not capable of supporting
the uniView device as it existed and definitely would not support the new
features under development by the Company. Management elected to expand
the development of the uniView technology to include its own "back
office" support, to add its own connectivity system, and to write all of
the other necessary software to completely integrate all of this new
technology.
<PAGE>
The final result of this aggressive plan of development is that the
Company has become the first to provide a complete ("end-to-end")
solution for this product category. Before now, a company wishing to
enter the convergence market with a complete system had to either develop
a version of the technology itself, or license hardware technology from
one company, Internet connectivity from another company, and on-line
content from another. Now, for the first time, hardware, software,
Internet connectivity, and on-line content are available in one package
that can be licensed by companies that may wish to enter the convergence
market in general, or that may wish to enter a niche market, such as home
healthcare, education, banking, hotel, home office, and consumer
electronics, among others.
The Company plans to continue the development, refinement, and
expansion of the uniView technology. Joint development agreements
recently signed with Lucent Technologies and with Motorola are expected
to greatly enhance the Company's resources and capabilities in this
regard.
Management has also begun implementation of a business plan to
license to other companies one or more of the components of its uniView
end-to-end solution. To this end, negotiations are under way with other
companies to license the uniView technology, which would allow these
companies to produce a uniView set-top-box, either utilizing the Curtis
Mathes name under a separate license, or using their own brand to market
the product. The plan would include connectivity to the uniView
Xpressway, which is expected to produce revenues from monthly subscriber
fees as well as the initial license fees, royalties, and participation in
electronic commerce. Other discussions are under way to license the
uniView Xpressway back office design to other companies for use with
their own devices, which is expected to provide a revenue stream for the
Company from initial license fees, royalties, and maintenance fees.
(Although management is optimistic about these ongoing discussions, there
can be no assurance that any of these negotiations will conclude in a
definitive agreement, or that the Company will ultimately be able to
license its technology to other companies. Please see the notice
concerning "Forward Looking Statements" at the beginning of this report,
which refers the reader to a more comprehensive discussion of the risks
the Company faces in implementing its business plan.)
Management believes that the Company is poised to begin reaping the
benefits of its hard work and substantial financial investment in the
uniView technology over the recent past and that applications of the
uniView technology are limited only by the imagination. A partial
listing of potential revenue streams for the Company from licensing and
utilization of the uniView technology, which are currently in progress or
under consideration by management, would include the following:
1. Licensing the uniView set-top-box (STB) design to other companies to
manufacture and market a product.
2. Licensing the Curtis Mathes (CM) name to other companies to market a
product.
3. Licensing the uniView STB technology to other companies and
manufacture the product on an OEM basis for them, either under the CM or
another name.
4. Providing connectivity for other companies to the uniView Xpressway
and sharing revenues.
5. Licensing the uniView Xpressway back office design and software to
other companies to market services.
<PAGE>
6. Providing back office management to other companies on the uniView
Xpressway system.
7. Providing customer service to other companies using the uniView
state-of-the-art system.
8. Promoting products (such as books) through the uniView system and
STB's of other companies.
9. Processing credit card purchases for a fee through the uniView STB
and the uniView Xpressway.
10. Providing other types of services for other companies on the uniView
system.
11. Designing and implementing specific software packages for consulting
fees.
12. Designing and implementing variations of the uniView technology for
specific applications.
The transition from sales of consumer electronics products,
including set-top-boxes, to developing, implementing and licensing
technology to other companies has been both difficult and exciting.
Management believes that this redirection has provided the Company with
the potential to generate substantially more revenue over time than it
could have expected to generate by selling televisions or other consumer
electronics products. Management is confident of this new direction,
which it believes represents the future of this Company.
Results of Operations
Revenues. The Company reports revenues of $58,000 in the third
fiscal quarter, compared to no revenues for the same quarter last year.
Low revenues are a result of the Company's continued development of the
uniView technology end-to-end solution, and may continue as the Company
transitions from a consumer electronics company to a high-tech
electronics engineering design and marketing company. The Company
further reports revenues of $189,000 for the nine months ended March 31,
1998, compared to $2,504,000 for the same period last year.
Gross Profit. Gross Profit equals net sales less cost of goods sold
(both labor and material), non-direct, fixed manufacturing costs (such as
salaries, leasing costs, and depreciation charges related to production
operations), and non-direct, variable manufacturing costs (such as
supplies and employee benefits). In the third fiscal quarter, the
Company reports a negative gross profit of $3,700 as a result of returns.
The Company further reports Gross Profit of $5,200 for the nine months
ended March 31, 1998, compared to $168,000 for the same period last year.
Operating Expenses. The Company reported $3,675,000 in operating
expenses for the third fiscal quarter of the current year as compared to
$2,549,000 for the same period last year. Further, the Company reports
Operating Expenses of $8,184,000 for the nine months ended March 31, 1998
compared to $6,088,000 for the same period last year. This increase can
be attributed to reserves established for obsolescence of inventory,
amortization of software development costs, conference and meetings
costs, and the Company's continued efforts to hire and retain talented
engineering personnel while reducing outside consultants with similar
competencies. The Company anticipates that operating expenses will
remain fairly consistent and may increase as the Company continues
through the introductory phase and into the next phase of refinement of
the technology.
<PAGE>
Liquidity and Capital Resources
Cash Flows From Operations. Cash flows from operations for the
quarters ended March 31, 1998 and 1997 were ($1,075,000) and
($2,501,000), respectively. Major components of cash flows from
operations for the current quarter included: $768,000 for depreciation
and amortization; and the effects of a ($3,679,000) loss from operations,
and the net effect of the changes in assets and liabilities.
Cash Flows From Investing Activities. During the third quarter of
fiscal 1998, the Company purchased for cash, approximately $47,000 of
property, plant, and equipment as compared to approximately $1,165,000
for the same period last year. The Company also recorded a note
receivable for $350,000, in the third quarter of fiscal 1998. Capital
expenditures are expected to continue as the Company seeks to meet the
demanding technological requirements to maintain the preeminence of the
uniView and uniView Xpressway product lines.
Cash Flows from Financing Activities. The Company generated net
cash from financing activities of $549,000 during the quarter ended March
31, 1998 from the issuance of preferred and common stock and collection
of payments on a note receivable, as compared to $3,251,000 during the
same quarter last year.
The Company continues to rely on available credit arrangements and
continued sales of its common and preferred stock to supplement its
ongoing financial needs. The Company has recently revised its business
model and has moved away from manufacturing and marketing consumer
electronics products into developing and licensing to third parties its
state-of-the-art Internet-television convergence technologies. It has
become evident that to fully realize, or to achieve earlier than
otherwise possible, the expected financial returns on its current
business model, it will be necessary for the Company to join with one or
more major financial business partners which have the means to fund the
Company's operations during this introductory phase. Until the Company
becomes self-supporting or links with a substantial financial business
partner, additional equity or debt financing will be required.
Management continually evaluates opportunities with various investors to
raise additional capital, without which, the Company's operations, growth
and profitability would be restricted. Management has in the past been
able to raise necessary financing to fund ongoing operations, however,
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. A lack of sufficient financial resources to
fund operations until the Company's business plan begins to produce the
expected returns could have a material adverse effect on the Company's
business, operating results and financial condition.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 2, 1994, a class action suit was filed against wholly
owned subsidiary Curtis Mathes Corporation ("CM") alleging various
violations of the Minnesota consumer protection laws arising out of
certain rent-to-own transactions between certain former Curtis Mathes
dealers located in Minnesota and their customers. The action was tried
before a jury beginning on January 8, 1998 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. On January 14, 1998, the jury returned a verdict in favor of CM,
that CM had no liability to any of the class action claimants.
Management expects no appeal to be filed by any of the claimants.
ITEM 5. OTHER INFORMATION
On April 24, 1998 the Company implemented a 1-for-10 reverse split
of its outstanding shares of common stock, which was previously approved
at a special meeting of the Company's shareholders on January 29, 1998.
This action brings the Company into compliance with the recent changes in
the continued listing requirements for the Nasdaq SmallCap Market which
require a minimum $1 bid price on common stock.
As a result of the reverse split, each 10 pre-split shares of common
stock were converted into one post-split share, with fractional shares
being rounded up to the nearest whole share of post-split common stock.
Shareholders will be notified by American Stock Transfer & Trust Company,
the Company's stock transfer agent, regarding the process for receiving
new share certificates.
The terms of exercise for all outstanding warrants and options to
purchase common stock were also modified by an amendment to the Company's
Articles of Incorporation, effective on the same date, such that the
exercise price was increased tenfold and the number of shares issuable
upon exercise was reduced proportionately, so that the dollar amount
payable to the Company upon exercise remains the same.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Reference is made to the Exhibit Index beginning on page 14 of
this Form 10-Q 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 March 31, 1998 the Company has
filed no Current Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
uniView Technologies Corporation
(Formerly Curtis Mathes Holding Corporation)
(Registrant)
By: /s/ F. Shelton Richardson, Jr.
F. Shelton Richardson, Jr.
Vice President - Chief Financial Officer
(Principal Financial and Duly Authorized
Officer)
Date: May 15, 1998
UNIVIEW TECHNOLOGIES CORPORATION
and Subsidiaries
EXHIBIT INDEX
Exhibit Number Description of Exhibits Sequential Page Number
3(i) Articles of Incorporation of the Company, as amended (f
iled as Exhibit "4.1" to the Company's Registration
Statement on Form S-3 filed with the Commission on May 13,
1998 and incorporated herein by reference. N/A
3(ii) Bylaws of the Company, as amended (filed as Exhibit "3(
ii)" to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 1997 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 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
4.4 Form of warrant issued in connection with Series K Pref
erred 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
4.5 Series M Preferred Stock terms and conditions, as amended
(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
<PAGE>
4.6 Series N Preferred Stock terms and conditions, as amended
(filed as Exhibit "4.7" to the Company's Registration
Statement on Form S-3 filed with the Commission on May 13,
1998 and incorporated herein by reference.) N/A
10.1* Promissory Note dated December 23, 1997 from the Company
to Geneva Reinsurance Company Ltd. in the original
principal sum of $2,000,000. 16
27* Financial Data Schedule. 18
99.1* Form of indemnity agreement between the Company and its
officers and directors. 19
99.2 Form of Securities Subscription Agreement for Series M and
Series N Preferred Stock (filed as Exhibit "99.2" to the
Company's Registration Statement on Form S-3 filed with
the Commission on November 25, 1997 and incorporated
herein by reference.) N/A
_______________
* Filed herewith.
<PAGE>
PROMISSORY NOTE
Date: December 23, 1997
Maker: Curtis Mathes Holding Corporation
Maker's Mailing Address (including county): 10911 Petal Street,
Dallas, Dallas County, Texas 75238
Payee: Geneva Reinsurance Company Ltd.
Place for Payment (including county): P.O. Box 1561
Zephyr House, Mary Street,
Grand Cayman, British West Indies
Principal Amount: Two Million and No/100 Dollars ($2,000,000)
Annual Interest Rate on Unpaid Principal from Date of Funding: Eighteen
Percent (18%)
Terms of Payment (principal and interest): Interest shall be due and
payable quarterly as it accrues, on March 31, 1998, June 30, 1998,
September 30, 1998, and December 31, 1998; the Principal of this
note shall be due and payable on or before December 31, 1998.
Maker promises to pay to the order of Payee at the place for payment
and according to the terms of payment the principal amount plus interest
at the rates stated above. All unpaid amounts shall be due by the final
scheduled payment date.
If Maker defaults in the payment of this note or in the performance
of any obligation in any instrument securing or collateral to it, and the
default continues after Payee gives Maker notice of the default and the
time within which it must be cured, as may be required by law or by
written agreement, then Payee may declare the unpaid principal balance
and earned interest on this note immediately due. Maker and each surety,
endorser, and guarantor waive all demands for payment, presentations for
payment, notices of intention to accelerate maturity, protests, and
notices of protest.
If this note or any instrument securing or collateral to it is given
to an attorney for collection or enforcement, or if suit is brought for
collection or enforcement, or if it is collected or enforced through
probate, bankruptcy, or other judicial proceeding, then Maker shall pay
Payee all costs of collection and enforcement, including reasonable
attorney's fees and court costs, in addition to other amounts due.
Interest on the debt evidenced by this note shall not exceed the
maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charged, or received under law; any interest in excess of that
maximum amount shall be credited on the principal of the debt or, if that
has been paid, refunded. On any acceleration or required or permitted
prepayment, any such excess shall be cancelled automatically as of the
acceleration or prepayment or, if already paid, credited on the principal
of the debt or, if the principal of the debt has been paid, refunded.
This provision overrides other provisions in this and all other
instruments concerning the debt.
Each Maker is responsible for all obligations represented by this
note. When the context requires, singular nouns and pronouns include the
plural.
Curtis Mathes Holding Corporation
By:___/s/ Pat Custer________________
Patrick A. Custer, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT March 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR FISCAL QUARTER ENDED March 31, 1998.
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 9-MOS
<CASH> 118,281
<SECURITIES> 0
<RECEIVABLES> 118,260
<ALLOWANCES> 0
<INVENTORY> 265,908
<CURRENT-ASSETS> 1,873,775
<PP&E> 4,645,367
<DEPRECIATION> 1,594,688
<TOTAL-ASSETS> 16,670,494
<CURRENT-LIABILITIES> 5,791,387
<BONDS> 0
0
140,095
<COMMON> 607,674
<OTHER-SE> 9,623,659
<TOTAL-LIABILITY-AND-EQUITY> 16,670,494
<SALES> 58,019
<TOTAL-REVENUES> 58,019
<CGS> 61,795
<TOTAL-COSTS> 61,795
<OTHER-EXPENSES> 3,675,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,578
<INCOME-PRETAX> (3,678,934)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,678,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,678,934)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is entered into as of this 1st day of
January, 1998, by and between Curtis Mathes Holding Corporation, a Texas
corporation (the "Company"), and ________________ ("Indemnitee").
RECITALS
A. The Company is aware that because of the increased exposure to
litigation costs, talented and experienced persons are increasingly
reluctant to serve or continue serving as directors and officers of
corporations unless they are protected by comprehensive liability
insurance and indemnification.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or
conflicting, and therefore fail to provide such directors and officers
with adequate guidance regarding the proper course of action.
C. The Board of Directors of the Company (the "Board") has concluded
that, to retain and attract talented and experienced individuals to serve
as officers and directors of the Company and its subsidiaries and to
encourage such individuals to take the business risks necessary for the
success of the Company and its subsidiaries, the Company should
contractually indemnify its officers and directors, and the officers and
directors of its subsidiaries, in connection with their services to the
Company and its subsidiaries, and has further concluded that the failure
to provide such contractual indemnification could be detrimental to the
Company, its subsidiaries and stockholders.
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) Agent. "Agent" with respect to the Company means any person who is
or was a director, officer, employee or other agent of the Company or a
Subsidiary of the Company; or is or was serving at the request of, for
the convenience of, or to represent the interests of, the Company or a
Subsidiary of the Company as a director, officer, employee or agent or
another entity or enterprise; or was a director, officer, employee or
agent of a predecessor corporation of the Company or a Subsidiary of the
Company, or was a director, officer, employee or agent of another entity
or enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. "Expenses" means all direct and indirect costs of any
type or nature whatsoever (including, without limitation, all attorneys'
fees, costs of investigation and related disbursements) incurred by the
Indemnitee in connection with the investigation, settlement, defense or
appeal of a claim or Proceeding covered hereby or establishing or
enforcing a right to indemnification under this Agreement.
(c) Proceeding. "Proceeding" means any threatened, pending or completed
claim, suit or action, whether civil, criminal, administrative,
investigative or otherwise.
<PAGE>
(d) Subsidiary. "Subsidiary" means any corporation or other entity of
which more than 10% of the outstanding voting securities or interests is
owned directly or indirectly by the Company, and one or more other
Subsidiaries, taken as a whole.
2. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees with Indemnitee that,
subject to Section 2(b), the Company shall obtain and maintain in full
force and effect directors' and officers' liability insurance ("D&O
Insurance") in reasonable amounts as the Board of Directors shall
determine from established and reputable insurers. In all policies of
D&O Insurance, Indemnitee shall be named as an insured.
(b) Notwithstanding the foregoing, the Company shall have no obligation
to obtain or maintain D&O Insurance if the Company determines in good
faith that the premium costs for such insurance are disproportionate to
the amount of coverage provided after giving effect to exclusions.
3. Mandatory Indemnification. The Company shall defend, indemnify and
hold harmless Indemnitee:
(a) Third Party Actions. If Indemnitee is a person who was or is a
party or is threatened to be made a party to any Proceeding (other than
an action by or in the right of the Company) by reason of the fact that
Indemnitee is or was or is claimed to be an Agent of the Company, or by
reason of anything done or not done by Indemnitee in any such capacity,
against any and all Expenses and liabilities of any type whatsoever
(including, but not limited to, legal fees, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) incurred by
such person in connection with the investigation, defense, settlement or
appeal of such Proceeding, so long as the Indemnitee acted in good faith
and in a manner the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and with respect to any
criminal action or Proceeding, had no reasonable cause to believe such
person's conduct was unlawful.
(b) Actions by or in the Right of the Company. If Indemnitee is a
person who was or is a party or is threatened to be made a party to any
Proceeding by or in the right of the Company by reason of the fact that
he is or was an Agent of the Company, or by reason of anything done or
not done by him in any such capacity, against any and all Expenses and
liabilities or any type whatsoever (including, but not limited to, legal
fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) incurred by such person in connection with the
investigation, defense, settlement or appeal of such Proceeding, so long
as the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company; except that no indemnification under this subsection shall be
made, and Indemnitee shall repay all amounts previously advanced by the
Company, in respect of any claim, issue or matter for which such person
is judged in a final, non-appealable decision to be liable to the Company
by a court of competent jurisdiction, unless and only to the extent that
the court in which such Proceeding was brought or a district court of the
State of Texas shall determine that Indemnitee is fairly and reasonably
entitled to indemnity.
<PAGE>
(c) Actions Where Indemnitee is Deceased. If Indemnitee is a person who
was or is a party or is threatened to be made a party to any Proceeding
by reason of the fact that he is or was an Agent of the Company, or by
reason of anything done or not done by him in any such capacity, and
prior to, during the pendency of, or after completion of, such
Proceeding, the Indemnitee shall die, then the Company shall defend,
indemnify and hold harmless the estate, heirs and legatees of the
Indemnitee against any and all Expenses and liabilities incurred by or
for such persons or entities in connection with the investigation,
defense, settlement or appeal of such Proceeding on the same basis as
provided for the Indemnitee in Sections 3(a) and 3(b) above.
The Expenses and liabilities covered hereby shall be net of any payments
by D&O Insurance carriers or others.
4. Partial Indemnification. If Indemnitee is found under Section 3, 7
or 10 hereof not to be entitled to indemnification for all of the
Expenses and liabilities relating to a Proceeding, the Company shall
indemnify the Indemnitee for any portion of such Expenses not
specifically precluded by the operation of such Section 3, 7 or 10.
5. Mandatory Advancement of Expenses. Until a determination to the
contrary under Section 7 hereof is made, and unless the provisions of
Section 10 apply, the Company shall advance all Expenses incurred by
Indemnitee in connection with the investigation, defense, settlement or
appeal of any Proceeding to which Indemnitee is a party or is threatened
to be made a party covered by the indemnification in Section 3 hereof.
If required by law, as a condition to such advances, Indemnitee shall, at
the request of the Company, undertake in a reasonable manner to repay
such amounts advanced if it shall ultimately be determined by a final
order of a court that Indemnitee is not entitled to be indemnified by the
Company by the terms hereof or under applicable law. Subject to Section
6 hereof, the advances to be made hereunder shall be paid by the Company
to Indemnitee within 20 days following delivery of a written request by
Indemnitee to the Company, which request shall be accompanied by
vouchers, invoices and similar evidence documenting the amounts
requested.
6. Indemnification Procedures.
(a) Promptly after receipt by Indemnitee of notice to him of the
commencement or threat of any Proceeding or claim covered hereby,
Indemnitee shall notify the Company of the commencement or threat
thereof, provided that any failure to so notify shall not relieve the
Company of any of its obligations hereunder, except to the extent that
such failure or delay increases the liability of the Company hereunder.
(b) If, at the time of the receipt of a notice pursuant to Section 6(a)
above, the Company has D&O Insurance in effect, the Company shall give
prompt notice of the Proceeding or claim to its insurers in accordance
with the procedures set forth in the applicable policies. The Company
shall thereafter take all necessary or desirable action to cause such
insurers to pay all amounts payable as a result of such Proceeding or
claim in accordance with the terms of such policies, and the Indemnitee
shall not take any action (by waiver, settlement of otherwise) which
would adversely affect the ability of the Company to obtain payment from
its insurers.
<PAGE>
(c) If the Company shall be obligated to pay the Expenses of the
Indemnitee, the Company may (and shall if requested by Indemnitee in
writing) assume the defense of the Proceeding to which the Expenses
relate, in which event the Company shall deliver a notice of assumption
to Indemnitee. Any counsel employed by the Company in connection with
the defense of such Proceeding shall be subject to approval by
Indemnitee, such approval not to be unreasonably withheld or delayed.
The Company will not be liable to Indemnitee under this Agreement for any
fees or expenses of counsel incurred by Indemnitee after delivery of such
notice of assumption with respect to such Proceeding; provided, however,
that if Indemnitee shall have provided the Company with an opinion of
counsel stating that there is a strong argument that a conflict of
interest exists between the Company and Indemnitee in the conduct of any
such defense, the fees and Expenses of Indemnitee's counsel shall be at
the expense of the Company. Notwithstanding the fact that the Company
assumes the defense of a Proceeding pursuant to the preceding sentence,
Indemnitee shall have the right to employ his own counsel in any such
Proceeding at Indemnitee's expense.
7. Determination of Right to Indemnification.
(a) To the extent Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding, claim, issue or matter covered
hereby, Indemnitee need not repay any of the Expenses advanced in
connection with the investigation, defense or appeal of such Proceeding.
(b) If Section 7(a) is inapplicable, the Company shall remain obligated
to indemnify Indemnitee, and Indemnitee need not repay Expenses
previously advanced, unless the Company, by motion before a court of
competent jurisdiction, obtains an order for preliminary or permanent
relief suspending or denying the obligation to advance or indemnify for
Expenses.
(c) Notwithstanding a determination by the Board or a court that
Indemnitee is not entitled to indemnification with respect to a specific
Proceeding, Indemnitee shall have the right to apply to a district court
of the State of Texas for the purpose of enforcing Indemnitee's right to
indemnification pursuant to this Agreement.
(d) Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify Indemnitee against all Expenses
incurred by Indemnitee in connection with any Proceeding under Section
7(b) or 7(c) and against all Expenses incurred by Indemnitee in
connection with any other Proceeding between the Company and Indemnitee
involving the interpretation or enforcement of the rights of Indemnitee
under this Agreement unless a court of competent jurisdiction finds that
the material claims and/or defenses of Indemnitee in any such Proceeding
were frivolous or made in bad faith.
8. Certificate of Incorporation and By-Laws. The Company agrees
that the Company's Certificate of Incorporation and By-laws in effect on
the date hereof shall not be amended to reduce, limit, hinder or delay
(i) the rights of Indemnitee granted hereby, or (ii) the ability of the
Company to indemnify Indemnitee as required hereby.
<PAGE>
9. Witness Expenses. The Company agrees to compensate Indemnitee
for the reasonable value of his time spent, and to reimburse Indemnitee
for all Expenses (including attorneys' fees and travel costs) incurred by
him, in connection with being a witness, or if Indemnitee is threatened
to be made a witness, with respect to any Proceeding, by reason of his
serving or having served as an Agent of the Company.
10. Exceptions. Notwithstanding any other provision hereunder to
the contrary, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnity or advance
Expenses to Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense (other than
Proceedings brought to establish or enforce a right to indemnification
under this Agreement or the provisions of the Company's Certificate of
Incorporation or By-laws unless a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in
such Proceeding were not made in good faith or were frivolous).
(b) Unauthorized Settlements. To indemnify Indemnitee under
this Agreement for any amounts paid in settlement of a Proceeding covered
hereby without the prior written consent of the Company to such
settlement.
11. Non-exclusivity. This Agreement is not the exclusive
arrangement between the Company and Indemnitee regarding the subject
matter hereof and shall not diminish or affect any other rights which
Indemnitee may have under any provision of law, the Company's Certificate
of Incorporation or By-laws, under other agreements, or otherwise.
12. Continuation After Term. Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as a director or Agent of
the Company and the benefits hereof shall inure to the benefit of the
heirs, executors and administrators of Indemnitee.
13. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, provisions of the
Agreement shall not in any way be affected or impaired thereby, and to
the fullest extent possible, the provisions of this Agreement shall be
construed or altered by the court so as to remain enforceable and to
provide Indemnitee with as many of the benefits contemplated hereby as
are permitted under law.
14. Counterparts, Modification and Waiver. This Agreement may be
signed in counterparts. This Agreement constitutes a separate agreement
between the Company and Indemnitee and may be supplemented or amended as
to Indemnitee only by a written instrument signed by the Company and
Indemnitee, with such amendment binding only the Company and Indemnitee.
All waivers must be in a written document signed by the party to be
charged. No waiver of any of the provisions of this Agreement shall be
implied by the conduct of the parties. A waiver of any right hereunder
shall not constitute a waiver of any other right hereunder.
15. Notices. All notices, demands, consents, requests, approvals
and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been properly given if hand delivered
(effective upon receipt or when refused), or if sent by a courier freight
prepaid (effective upon receipt or when refused), in the case of the
<PAGE>
Company, at the addresses listed below, and in the case of Indemnitee, at
Indemnitee's address of record at the office of the Company, or to such
other addresses as the parties may notify each other in writing.
To Company: Curtis Mathes Holding Corporation
10911 Petal Street
Dallas, Texas 75238
Attention: President
To Indemnitee: At the Indemnitee's residence address and facsimile
number on the records of the Company from time to time.
16. Evidence of Coverage. Upon request by Indemnitee, the Company shall
provide evidence of the liability insurance coverage required by this
Agreement. The Company shall promptly notify Indemnitee of any change in
the Company's D&O Insurance coverage.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have entered into this
Indemnification Agreement effective as of the date first above written.
CURTIS MATHES HOLDING CORPORATION
By:______________________________________
Patrick A. Custer, President
INDEMNITEE:
_________________________________________
