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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) for the fiscal year ended December 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) for the transition period from
______________ to ______________
Commission File No. 0-15227
THE DWYER GROUP, INC.
(Name of small business issuer in its charter)
Delaware 73-0941783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1010 N. University Parks Drive
Waco, Texas 76707
(Address and zip code of principal executive offices)
(254) 745-2400
(Issuer's telephone number including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock ($.10 par value)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $15,510,352
Aggregate market value of the voting stock held by nonaffiliates computed
by average bid and asked prices of such stock, as of March 18, 1998: $4,379,422
Aggregate number of shares of Common Stock outstanding as of the close of
business on March 18, 1998: 6,775,427
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
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PART I
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Item 1. DESCRIPTION OF BUSINESS..................................................................................... 1
General..................................................................................................... 1
Franchise Operations........................................................................................ 2
Marketing................................................................................................... 7
Competition................................................................................................. 7
Trade Names and Service Marks............................................................................... 8
Regulation.................................................................................................. 8
Employees................................................................................................... 9
Item 2. DESCRIPTION OF PROPERTY.....................................................................................10
Item 3. LEGAL PROCEEDINGS...........................................................................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................................10
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................................................10
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS........................................................................11
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................16
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE....................................................................................16
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT..................................................................16
Item 10. EXECUTIVE COMPENSATION......................................................................................19
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............................................21
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................................22
Item 13. EXHIBITS, AND REPORTS ON FORM 8-K...........................................................................24
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Dwyer Group, Inc. and its wholly owned subsidiaries (the "Company")
provide a diverse array of specialty services internationally through its
service-based franchising businesses. The Company currently owns seven such
businesses, which service an aggregate of approximately 1,400 franchises located
in the United States, and through their master licensees, in 17 foreign
countries. The Company has positioned itself as a consolidator of franchising
businesses in order to benefit from economies of scale achievable through the
pooling of resources. The Company believes that franchisees are attracted to the
Company's franchise opportunities because of the depth of the Company's support
services, a commitment to its mission and vision and the established reputation
of its management team.
The Company operates its businesses through the following wholly owned
subsidiaries:
o Rainbow International Carpet Dyeing and Cleaning Co.
("Rainbow") is a franchisor of carpet cleaning and dyeing, air
duct cleaning, and water and smoke restoration services, with
389 franchises in the United States, and, through master
franchise licensees, 138 franchise operations in 12 foreign
countries. For the year ended December 31, 1997, Rainbow
accounted for approximately 19.2% of the Company's
consolidated revenues.
o Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
plumbing repair and drain cleaning services under the service
mark "Mr. Rooter,"(R) with 188 franchise operations in the
United States and, through master licensees, 88 franchises in
seven foreign countries. For the year ended December 31, 1997,
Mr. Rooter accounted for approximately 27.4% of the Company's
consolidated revenues.
o General Business Services, Inc. ("GBS") is a franchisor of
small business management services with 334 franchises located
throughout the United States, one franchise in Canada, and
three franchises in Thailand through a master franchise
licensee. Such business management services include, among
others, business counseling, tax counseling, accounting
services and products, financial counseling and personnel
services. In addition, General Tax Services, Inc. ("GTS"), a
wholly-owned, non-franchising subsidiary of GBS located in
Maryland, provides tax return preparation and tax research
services to GBS and EKW franchisees. For the year ended
December 31, 1997, GBS accounted for approximately 17.5% of
the Company's consolidated revenues.
o Edwin K. Williams & Co. ("EKW") is a franchisor of information
systems and financial management services, specifically
designed to meet the special needs of small businesses. EKW
has a total of 156 franchises located throughout the United
States and one master licensee in Canada. Its financial
management services include, among others, accounting and
bookkeeping services and systems, financial management
analysis, payroll processing, and tax preparation and planning
services. For the year ended December 31, 1997, EKW accounted
for approximately 11.9% of the Company's consolidated
revenues.
o Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
franchisor of heating, ventilating and air conditioning
service businesses under the service mark Aire Serv(R) and has
45 United States franchises and one foreign master licensee.
For the year ended December 31, 1997, Aire Serv accounted for
approximately 2.3% of the Company's consolidated revenues.
o Mr. Electric Corp. ("Mr. Electric") is a franchisor of
electrical repair and service businesses under the service
mark "Mr. Electric"(R). Mr. Electric has 51 franchises in the
United States, and has granted three foreign master licenses.
For the year ended December 31, 1997, Mr. Electric accounted
for approximately 6.6% of the Company's consolidated revenues.
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o Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of
businesses relating to service and repair of appliances (both
residential and commercial). Mr. Appliance began franchising
in September 1996, and has 20 franchises in the United States.
For the year ended December 31, 1997, Mr. Appliance accounted
for approximately 2.2% of the Company's consolidated revenues.
o The Dwyer Group National Accounts, Inc. ("National Accounts")
solicits commercial national account customers who can call a
toll free number for their general repair and 24 hour
emergency service needs. The order is filled through the
Company's network of franchisees or qualified subcontractors.
For the year ended December 31, 1997, National Accounts
accounted for approximately 5.7% of the Company's consolidated
revenues.
The Company was incorporated in 1970 in the State of Oklahoma under the
name Mr. Rooter Corporation of America, Inc. The Company's name was changed to
Mr. Rooter Corporation in 1972, and in 1986 the Company was reincorporated as a
Delaware corporation. The Company acquired GBS and Rainbow, each a Texas
corporation, as a result of a reorganization approved by the Board of Directors
in May 1993. Prior to such time, GBS and Rainbow were wholly-owned by Mr. Donald
Dwyer ("Mr. Dwyer"), the Company's Chairman who died in December 1994. In June
1993, Mr. Dwyer was issued 4,035,000 shares of Common Stock of the Company in
exchange for all of his shares of GBS and Rainbow (the "Exchange"), and Rainbow
and GBS became wholly-owned subsidiaries of the Company. These acquisitions are
accounted for in the Company's Consolidated Financial Statements in a manner
similar to a pooling of interests. Following the Exchange, the Board approved a
plan to convert the Company into a holding company and to form a new subsidiary
to operate the Mr. Rooter business. In July 1993, this new subsidiary was
incorporated in Texas under the name Mr. Rooter Corporation and the Company was
renamed The Dwyer Group, Inc.
The Company's principal executive offices are located at 1010 North
University Parks Drive, Waco, Texas 76707, and its telephone number is (254)
745-2400. All references herein to the Company include Rainbow, Mr. Rooter, GBS,
EKW, Aire Serv, Mr. Electric, Mr. Appliance and National Accounts unless the
context otherwise requires.
FRANCHISE OPERATIONS
The Company's goal is to build upon its successful systems of
franchising businesses in order to develop strong new franchises and provide
them with ongoing franchise support.
The franchising industry in which the Company operates is fragmented,
consisting mainly of small, single-service or single-concept franchising
companies. The Company's philosophy is to be a multi-concept franchising
consolidator by bringing its franchising expertise to bear on a number of
businesses in various service fields. The Company applies franchise systems
management and marketing skills in order to maximize the profitability of its
franchised businesses. Thus, instead of franchising only one line of business,
the Company's philosophy is to benefit from economies of scale by the pooling of
resources.
The Company, as a consolidator of franchising businesses, believes that
its existing broad base of franchisees, the diversity of services provided by
its current operations, its centralized financial, marketing, training and
support staff, and the adaptability and versatility of its established franchise
operating system, have positioned it to capitalize on the projected
opportunities for growth in the franchising industry. In addition, the Company
believes that the franchise sales and operations expertise developed by its
management over many years provides the Company with a strong competitive
advantage.
Each of the Company's franchising businesses requires the franchise
owners and/or key employees to undergo training at the Company's Headquarters
located in Waco, Texas prior to commencing operations. The training program for
each franchisee differs depending upon the type of franchise purchased. For
example, Rainbow franchisees are taught how to dye, clean, deodorize and repair
carpets, clean upholstery and perform restoration services. GBS and EKW
franchisees are taught record keeping and tax and business counseling. Mr.
Rooter, Aire Serv, Mr. Electric and Mr. Appliance, on the other hand, are
primarily "conversion" franchisors, which recruit existing people operating in
the "trades" and teach them an improved business methodology. All of the
Company's franchisees receive extensive instruction with respect to broad-based
marketing techniques, as well as guidelines and methods for hiring and managing
personnel, providing quality
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customer service and managing and collecting receivables, among other things. In
addition, the Company's training program, which utilizes proprietary
motivational techniques developed by the Company, educates each franchisee about
the extensive support services offered by the Company and how to best take
advantage of them.
Following completion of the Company's initial training course (which
represents the fulfillment of the services required to be provided for revenue
recognition), the Company's franchisees continue to receive a broad range of
services and support from the Company on an ongoing basis. Certain of the
Company's franchising businesses maintain field trainers to assist franchisees
in resolving day-to-day challenges encountered in operating their franchises.
Each of the Company's franchising businesses also provide numerous follow-up
training sessions for its franchisees each year at various locations around the
United States. In addition, the Company employs directors of franchise systems
management on the staff of each of its franchising businesses whose sole
responsibility is to assist the Company's franchisees and provide them with
marketing support. Each franchisee is contacted by such a director approximately
once a month (more often when necessary) to discuss marketing techniques and
business development. Furthermore, each of the Company's franchising businesses
provides its franchisees with an updated Confidential Operations Manual, which
serves as a reference guide for all aspects of their franchise operations. The
Company believes that its proactive support philosophy with respect to its
franchisees is one of its primary distinguishing features.
Pursuant to foreign master license agreements, the Company licenses
individuals and/or other legal entities, which are typically residents of the
foreign country, the rights to use the Company's trademarks and systems and to
grant franchise rights in their defined geographic territory. Foreign franchise
rights are sold based upon the population of the territory, the estimated number
of potential franchises that could be sold in such territory and the
relationship of that foreign territory's gross national product per capita to
that of the United States.
Each of the heads of the Company's franchise subsidiaries receives, in
addition to salary, bonus compensation based on the overall performance of the
subsidiary or subsidiaries for which he is responsible. Thus, the emphasis is on
profitable growth, not just sales.
Rainbow International Carpet Dyeing and Cleaning Co.
Rainbow is a franchisor of carpet and upholstery cleaning and dyeing,
air duct cleaning, and restoration service businesses. At December 31, 1997,
Rainbow had 389 franchises in the United States, and 138 franchises through
master franchise licensees in 12 foreign countries.
Rainbow offers individual franchises for the operation of a carpet and
upholstery cleaning, dyeing and related services business (such related services
include, but are not limited to, air duct cleaning, problem odor removal, carpet
repair, drapery cleaning and water and smoke damage restoration) for residential
and commercial locations. The franchised business often begins as a single truck
operation which can later be expanded into a multi-truck operation as the
franchisee builds his customer base.
The initial franchise fee is a minimum of $15,000, with an additional
amount depending upon the population of the franchise territory. The franchise
fee can be financed in part (generally 50%) by Rainbow at its discretion. During
the term of a franchise agreement, the franchisee is required to pay Rainbow a
continuing royalty of 7% of weekly gross sales plus a 2% national advertising
fee. The term of the initial franchise agreement is ten years, with a mutual
option to renew and no renewal fee.
No previous knowledge, experience or skills in the carpet cleaning or
dyeing business are required prior to purchasing a Rainbow franchise. Instead,
new franchisees are thoroughly trained on all aspects of the business under an
operating system that the Company believes has proven to be successful. Beyond
initial business and technical training, extensive ongoing support emphasizing
the development of the franchisee's marketing and business management skills is
provided by individually assigned franchise systems managers, through regional
training meetings and toll-free telephone support. Ongoing technical training is
handled in the same manner.
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Mr. Rooter Corporation
Mr. Rooter is a franchisor of plumbing repair and drain cleaning
services under the service mark "Mr. Rooter(R)" and related trade and service
marks. Prior to 1989, Mr. Rooter's franchise sales primarily resulted from
referrals from existing Mr. Rooter franchisees. In 1989, after Mr. Dwyer
acquired control of Mr. Rooter, additional franchise sales staff were hired and
trained to actively sell franchises. At the time of Mr. Dwyer's acquisition of
the Company, Mr. Rooter had 22 franchises. By the end of 1997, Mr. Rooter had a
total of 188 franchises in the United States and had granted master franchise
licenses covering seven foreign countries. Mr. Rooter has shown significant
growth in income from royalties paid by franchisees (from $234,000 in 1989 to
$3,203,000 in 1997).
Mr. Rooter franchisees are required to operate their franchises in
accordance with specified methods, techniques and standards and with specified
equipment within a designated geographic territory. Franchisees are typically
able to service their territory by establishing only one service center within
such territory. Mr. Rooter emphasizes and promotes fast, efficient and high
quality service, seven days a week, using the most modern equipment available
for residential, commercial and industrial drain cleaning and plumbing repair.
A new franchisee pays an initial franchise fee of $185 for each 1,000
of the franchise territory's population, with a minimum initial fee of $18,500.
A portion of the franchise fee (generally 50-70%) may be financed by Mr. Rooter
at its discretion. In general, Mr. Rooter sells its franchises to licensed
plumbers. No training is provided on the technical aspects of operating a
plumbing or drain cleaning business. Instead, Mr. Rooter concentrates its
training and support efforts on marketing, customer service, pricing,
profitability, growth of the business and personnel management. In addition, the
franchisee is required to maintain an advertisement in the Yellow Pages of the
telephone directory serving the franchised territory. Regional consultants
provide support for franchisees in their region.
In addition to the initial franchise fee, under the terms of Mr.
Rooter's standard franchise agreement, a franchisee pays a weekly royalty which
ranges from 3% to 6% of gross sales, depending on weekly gross sales volume. In
addition to the weekly royalty, the franchisees pay an advertising fee equal to
2% of their gross sales, which is used for national advertising and marketing.
Mr. Rooter currently advertises nationally on network radio.
The term of the initial franchise agreement is ten years, which may be
renewed for additional five year terms at the option of the franchisee upon
certain conditions including six months prior notice and payment of a $2,500
renewal fee. Mr. Rooter may terminate a franchise agreement in the event that a
franchisee breaches the terms of the agreement.
General Business Services, Inc.
GBS is a franchisor of small business management and accounting
services. At December 31, 1997, GBS had a total of 334 franchisees located
throughout the United States, one franchisee in Canada and three franchisees in
Thailand through a master franchise licensee. Such business management services
include counseling in financing, accounting, tax matters (including tax
counseling and planning), marketing and profit development. In addition, General
Tax Services, Inc. ("GTS"), a wholly-owned, non-franchising subsidiary of GBS
located in Maryland, provides tax return preparation and tax research services
to GBS and EKW franchisees.
GBS franchisees are typically independent business persons serving
small business owners and professionals. Under the GBS license agreement, a
franchisee obtains the right to use the GBS system and all other trademarks,
trade symbols, emblems, signs or slogans that GBS has adopted or may adopt and
designate for use in connection with the GBS system. GBS provides its
franchisees with information that it believes a franchisee needs to
appropriately counsel other businesses.
The initial franchise fee is $35,000, which must be paid in full prior
to attendance at GBS's basic training program. In addition to the initial
franchise fee, the franchisee is required to pay GBS a continuing royalty fee
which ranges from 2% to 8% of sales, based on both gross billings and length of
service. Currently the initial term of the franchise agreement is ten years and
is renewable for succeeding five year terms. GBS may terminate a franchise
agreement in the event that a franchisee breaches the terms of the franchise
agreement.
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The franchisee enters into his own contractual arrangements with
clients for providing tax and other related business counseling services. As an
independent business counselor, the franchisee meets with his clients
periodically, sets his own fees, installs record keeping systems, counsels his
clients on decisions affecting their businesses and collects information
necessary for the preparation of income tax returns. GTS prepares income tax
returns for the client businesses (submitted by the franchisee) based on the
information supplied by the franchisee. The franchisee is then billed by GTS for
the tax return services, based on the time and complexity of return preparation.
GTS's tax return services are performed at the GTS office in Columbia, Maryland
by a group of tax specialists, including attorneys, certified public accountants
and enrolled agents.
Edwin K. Williams & Co.
EKW is a franchisor of information systems and financial management and
accounting services to small businesses. At December 31, 1997, there were a
total of 156 EKW franchises located throughout the United States and one master
licensee in Canada. EKW's services include bookkeeping and business management
services, business counseling, tax services and other related services to small
businesses. EKW catered exclusively to the retail petroleum industry from 1935
until the early 1970's. Although it has since expanded its client base, a
significant portion of its present client base still consists of petroleum
retail outlets.
EKW has developed a distinctive system for providing bookkeeping and
business management systems and services to oil jobbers (wholesale and retail),
retail petroleum marketing outlets and service station owners, and other retail,
wholesale and service business establishments. In connection with such system,
EKW has designed and developed proprietary computer software. Under the standard
EKW license agreement, a franchisee obtains the right to use the EKW system,
including software, trade names, trademarks, service marks, certain copyright
works and materials, customer lists and other trade secrets designated for use
in connection with EKW services.
The initial franchise fee is $35,000 which must be paid in full prior
to attending EKW's basic training program. In addition, the franchisee is
required to pay a monthly royalty fee which ranges from 2% to 8% of sales, based
on gross billings and length of service. Tax support services, including a tax
support hot line, tax update bulletins and an annual tax training seminar, are
provided by GTS. The initial term of the franchise agreement is ten years and is
renewable for succeeding five year terms. In addition, all supplies and other
customer service materials used by the franchisee must be purchased from EKW,
unless otherwise approved by EKW.
EKW provides its franchisees with certain proprietary information,
including software prescribed by EKW for a franchisee's business operations, and
an initial two-week training course. In addition, all new franchisees spend up
to one week in an existing franchisee's office. EKW franchisees are required to
have 24 hours per year of continuing education in taxation, accounting and other
subjects related to its business. A franchisee is assigned a non-exclusive
marketing area, generally consisting of one or more counties, a small portion of
which will be designated as an exclusive office location area.
Aire Serv Heating & Air Conditioning, Inc.
Aire Serv is a franchisor of heating, ventilating and air conditioning
service businesses providing installation, maintenance, repair and related
services of residential and commercial heating and air conditioning equipment.
At December 31, 1997, Aire Serv had 45 franchises in the United States and one
foreign master franchise licensee.
The minimum initial franchise fee is $15,000, payable in full at the
time of the franchisee's execution of a franchise agreement. The minimum initial
franchise fee is based on a territory population of approximately 100,000. The
initial franchise fee is increased by $150 for each additional 1,000 of
population contained in the franchise territory. Aire Serv may, at its
discretion, agree to finance a portion of the initial franchise fee (generally
50%).
The term of an Aire Serv franchise agreement is ten years from the date
specified in the agreement. A franchisee may elect to renew the term of the
franchise for additional five-year periods upon certain conditions and payment
of a $2,500 renewal fee.
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During the term of its license agreement, the franchisee is required to
pay to Aire Serv (i) an advertising fee equal to 2% of the franchisee's weekly
gross sales and (ii) a continuing royalty fee ranging from 2.5% to 4.5% of
weekly gross sales, depending on weekly gross sales volume. In addition, the
franchisee is required to maintain an advertisement in the Yellow Pages of the
telephone directory serving the franchised territory. Beyond initial business
training, extensive ongoing support emphasizing the development of the
franchisee's marketing and business management skills is provided by
individually assigned franchise systems managers or through regional training
meetings and toll free telephone support.
Mr. Electric Corp.
Mr. Electric is a franchisor of electrical repair and service
businesses under the service mark "Mr. Electric(R)". Mr. Electric began
operations in September 1994, and at December 31, 1997 had 51 franchises in the
United States and three foreign master licensees.
The minimum initial franchise fee is $15,000, payable in full at the
time of the franchisee's execution of a license agreement. The minimum initial
franchise fee is based on a territory population of approximately 100,000. The
initial franchise fee is increased by $150 for each additional 1,000 of
population contained in the franchise territory. Mr. Electric may, at its
discretion, agree to finance a portion of the initial franchise fee (generally
50%).
The initial Mr. Electric franchise agreement term is ten years from the
date specified in the agreement. An election to renew the contract may be made
by the franchisee for additional five year periods upon certain conditions and
payment of a $2,500 renewal fee.
During the term of its license agreement, the franchisee is required to
pay Mr. Electric (i) an advertising fee equal to 2% of the franchisee's weekly
gross sales and (ii) a continuing royalty fee ranging from 3% to 6% of weekly
gross sales, depending on weekly gross sales volume. In addition, franchisees
are required to engage in local promotion of the services and products
available, as well as maintain an advertisement in the Yellow Pages of the
telephone directory serving the franchised territory. Beyond initial business
training, extensive ongoing support emphasizing the development of the
franchisee's marketing and business management skills is provided by
individually assigned franchise systems managers, through regional training
meetings and toll-free telephone support.
Mr. Appliance Corp.
Mr. Appliance is a franchisor of major household appliance service and
repair businesses. Mr. Appliance was organized in January 1996, and at December
31, 1997 had 20 franchises in the United States.
The minimum initial franchise fee is $12,500, payable in full at the
time of the franchisee's execution of a license agreement. The minimum initial
franchise fee is based on a territory population of approximately 100,000. The
initial franchise fee is increased by $125 for each additional 1,000 of
population contained in the franchise territory. Mr. Appliance may, at its
discretion, agree to finance a portion of the initial franchise fee (generally
50-70%).
The initial Mr. Appliance franchise agreement term is ten years from
the date specified in the agreement. An election to renew the contract may be
made by the franchisee for additional five year periods upon certain conditions
and payment of a $2,500 renewal fee.
During the term of the license agreement, the franchisee is required to
pay to Mr. Appliance (i) an advertising fee equal to 2% of the franchisee's
weekly gross sales and (ii) a continuing royalty fee ranging from 3% to 6% of
weekly gross sales, depending on weekly gross sales volume. In addition,
franchisees are required to engage in local promotion of the services and
products available, as well as maintain an advertisement in the Yellow Pages of
the telephone directory serving the franchised territory. The franchisee is also
provided a computerized business package which standardizes the franchise
operation. Beyond initial business training, extensive ongoing support
emphasizing the development of the franchisee's marketing and business
management skills is provided by individually assigned franchise systems
managers, through regional training meetings and toll-free telephone support.
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MARKETING
Rainbow's marketing strategy for franchise sales is based on the sale
of individual franchise territories to business-minded individuals. The primary
lead sources are referrals, print advertising and franchise trade shows.
Recently, contractors have also been targeted with Rainbow's new emphasis on
fire, smoke and water restoration services. International expansion has been
targeted through the sale of additional master licenses in selected foreign
countries. The market for Rainbow's carpet cleaning, dyeing and water and fire
restoration services extends through the residential, commercial, industrial and
municipal markets.
Mr. Rooter considers the market for the drain cleaning and plumbing
industry to be extensive. It is composed of residential, commercial, industrial
and municipal markets. Mr. Rooter's marketing strategy and efforts are directed
toward the sale of franchised operations in all major population areas. The
franchisees follow specific marketing guidelines provided by Mr. Rooter during
their franchise training sessions and as an ongoing service. These marketing
techniques help the franchisee capture a larger market share, which in turn
provides a more consistent stream of revenue.
GBS's and EKW's marketing strategy is focused on existing accountants
or individuals with an accounting background. GBS and EKW franchisees' services
are marketed to individuals as well as businesses, corporations, organizations,
partnerships and other entities who require bookkeeping, accounting, tax return
preparation, counseling and similar services. The market for the business
counseling industry is considered to be extensive. GBS's and EKW's marketing
efforts are directed toward small-to-medium sized companies that employ up to
250 people. In addition, EKW markets heavily to petroleum retail outlets and
consequently has a large client base of those customers.
Aire Serv's marketing strategy is focused on the sale of franchises to
existing heating and air conditioning contractors. The Company believes that the
heating, ventilating and air conditioning ("HVAC") market is extensive. The Aire
Serv franchisee, equipped with state-of-the-art marketing techniques, guidelines
and industry expertise provided by Aire Serv, targets the residential and light
commercial segments of the HVAC market. Aire Serv provides its franchisees with
the critical elements necessary to achieve success as a retailing contractor and
works with the franchisees to implement and execute effective strategies and
systems in these areas. Whether a client is residential or commercial, the
emphasis is on service and repair.
Mr. Electric's marketing strategy is focused on the sale of franchises
to existing electrical contractors and electricians. Mr. Electric's targeted
approach supplies a proven system to make an electrical service and repair
business successful. Franchisees receive extensive training in sales, marketing
and business systems which allows them to achieve a greater market share and
increase their gross sales and profits. Mr. Electric is creating national name
recognition in the electrical service and repair industry.
Mr. Appliance's marketing strategy is to sell franchises to existing
appliance dealers and appliance servicers. Mr. Appliance provides a proven
system, technical and management support, and training to make an appliance
repair and service franchise successful. Franchisees receive extensive training
in sales, marketing and business systems.
COMPETITION
The Company's markets and those of its franchisees are highly
competitive. The Company competes directly with other local and national
franchisors which are also seeking to sell their franchises or business
opportunities to prospective franchisees. Mr. Rooter franchisees compete
principally with Roto-Rooter, Inc., a nationally recognized provider of sewer
and drain cleaning services in the United States, as well as numerous plumbers,
small drain cleaning firms and regional and local firms in other segments of the
market, such as septic tank pumping and hydrojet cleaning. The Company believes
that Mr. Rooter is distinguished from its primary competition because Mr. Rooter
franchisees concentrate on providing plumbing repair while most competitors
focus on providing either drain and sewer cleaning or plumbing services. The
principal competitors of Rainbow's franchisees are Stanley Steemer
International, Inc., Duraclean International, Inc., Harris Research, Inc.,
Steamatic, Inc., Serv-Pro Industries, Inc. and Servicemaster Co., all of which
operate on a national basis, as well as independent carpet cleaning and
restoration companies. The major competitors of GBS and EKW franchises, such as
Comprehensive Business Services, Inc., and Padget Business Services U.S.A.,
Inc., specialize in providing general accounting and bookkeeping services to
small businesses. Local accountants, bookkeepers and individual consultants also
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<PAGE> 10
provide competition. National tax preparation services, such as H & R Block Co.,
and many of the local tax preparers compete with GBS, although such competitors
tend to concentrate on individual tax returns rather than on business returns.
Local or regional HVAC contractors are Aire Serv's primary source of competition
and, to a lesser extent, national home improvement retailers provide competition
in some markets. Local electricians are Mr. Electric's primary source of
competition. Mr. Appliance is the first company to offer franchises in the
fragmented appliance repair and service industry. Local appliance repair
businesses are Mr. Appliance's primary competition.
The Company's franchisees generally compete on the basis of price,
training and support services and reputation. Other companies have entered the
home service market through the acquisition of existing companies.
In addition, the Company expects to encounter competition in attempting
to acquire franchise companies. Potential competitors, many of which are well
established and have extensive experience in connection with identifying and
effecting business acquisitions, may include other franchise companies,
leveraged acquisition partnerships (leveraged buy out funds), business
development companies, investment partnerships and corporations (including
venture capital entities), small business investment companies, large industrial
and financial companies seeking acquisitions directly or through affiliates, and
wealthy individuals. These competitors may have greater financial resources than
the Company and may be in a better position to take advantage of these
opportunities. In the event that the Company succeeds in effecting acquisitions,
the Company will, in all likelihood, become subject to intense competition from
competitors of the acquired business. The degree of competition characterizing
the industry of any prospective acquisition candidate cannot be presently
ascertained.
TRADE NAMES AND SERVICE MARKS
The Company believes that its trademarks and service marks are
important to the marketing of its franchises and the sale of services to
consumers by its franchisees. The Company currently holds the following
federally registered trademark and service marks: The Dwyer Group(R), Providing
a World of Service(R) and Providing a World of Specialty Services(R) and has
applied for federal trademark registration of the stylized Dwyer Group logo. The
Company, through its subsidiaries, currently holds the following federally
registered trademarks and service marks: "Mr. Rooter"(R), the stylized Mr.
Rooter logo, "Mr. Winkie Design", "Quick-as-a-Wink"(R), "Super Kleens"(R),
BiochoiceES(R), "America's Trouble Shooter"(R), "North America's Trouble
Shooter"(R), "Aire Serv"(R), the stylized Aire Serv logo, "America's Comfort
Company"(R), "Mr. Electric"(R), the stylized Mr. Electric design, the "Rainbow
International Carpet Car & Restoration Services" stylized global device,
"Rainbow International"(R), "Vehicle Stripe Design for Rainbow", "GBS"(R),
"Dollartrak"(R), the stylized "General Business Services" logo, "EKW Since
1935"(R), "E.K. Williams & Co." (R), "EKW * Manager", "Good Accounting Doesn't
Cost -- It Pays!", and the stylized "E.K. Williams & Co. logo and E.K. Williams
& Co. - The Accounting and Tax People For Small Business Since 1935". The
Company has applied for federal trademark and service mark registration for "Mr.
Appliance", the stylized Mr. Appliance logo and the van stripe design for each
of Mr. Rooter, Mr. Electric, Mr. Appliance and Aire Serv. The Company holds a
state trademark registration for "Mr. Rooter" in Texas, a service mark
registration for "Rainbow International Carpet Dyeing & Cleaning Co." in 13
states and a state service mark registration for Aire Serv and the stylized Aire
Serv logo in California. In addition, the Company holds copyrights in connection
with all training manuals and materials which it considers proprietary.
Although the Company is not aware of any current use of similar marks,
there can be no assurance that the Company's marks do not or will not violate
the proprietary rights of others, that the Company's marks would be upheld if
challenged or that the Company would not be prevented from using its marks. Any
limitations on the use by the Company of its trade names or service marks and
the ability of its franchisees to use such marks would have an adverse effect on
the Company.
REGULATION
The offer and sale of franchises is subject to extensive federal and
state laws and substantial regulation under such laws by government agencies,
including the Federal Trade Commission (the "FTC") and various state
authorities. Pursuant to FTC regulations, the Company is required to furnish to
prospective franchisees a current franchise offering disclosure document
containing information prescribed by the FTC. The Company uses Uniform Franchise
Offering Circulars to
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<PAGE> 11
satisfy this disclosure obligation. In addition, in certain states, the Company
is required to register or file with such states and to provide prescribed
disclosure documents.
The Company is required to update its offering disclosure documents to
reflect the occurrence of material events. The occurrence of any such events may
from time to time require the Company to cease offering and selling franchises
until the affected disclosure documents are updated. There can be no assurance
that the Company will be able to update its disclosure documents (or in the case
of any newly acquired franchising business, prepare an adequate disclosure
document) or become registered in certain states in a time frame consistent with
its expansion plans, continue offering and selling franchises or comply with
existing or future franchise regulations in any particular state. The failure to
take any of these actions could have an adverse effect on the Company.
The Company is also subject to a number of state laws that regulate
certain substantive aspects of the franchisor-franchisee relationship, such as
termination, cancellation or non-renewal of a franchise (including requirements
that "good cause" exist as a basis for such termination and that a franchisee be
given advance notice of, and a right to cure a default prior to termination) and
may require the franchisor to deal with its franchisees in good faith, prohibit
interference with the right of free association among franchisees, and regulate
discrimination among franchisees in charges, royalties or fees. If the Company
is unable to comply with the franchise laws, rules and regulations of a
particular state relating to offers and sales of franchises, the Company will
generally be unable to engage in offering or selling franchises in or from such
state. In addition, the Company is subject to franchise laws in Alberta, Canada
where, although it has granted foreign master licenses, it also offers and sells
franchises directly. Amendments to existing statutes and regulations, adoption
of new statutes and regulations and the Company's expansion into new states and
foreign jurisdictions could require the Company to continually alter methods of
operations at costs which could be substantial.
The Company believes that it is in substantial compliance with all of
the foregoing federal, state and foreign franchising laws and the regulations
promulgated thereunder and has obtained all licenses and permits necessary for
the conduct of its business. Failure to comply with such laws and regulations in
the future could subject the Company to civil remedies, including fines or
injunctions, as well as possible criminal sanctions, which would have a material
adverse effect on the Company. The Company's franchisees are also subject to
various federal, state and local laws affecting their franchise businesses,
including state and local licensing, zoning, land use, construction and
environmental regulations and various safety and other standards. The failure of
such franchisees to comply with applicable regulations could interrupt the
operations of the affected franchise or otherwise adversely affect the franchise
or the Company.
EMPLOYEES
As of December 31, 1997, the Company had 112 full-time employees and
15 part-time employees, none of whom belong to unions, as detailed below:
<TABLE>
<CAPTION>
Full-time Part-time Total
--------- --------- -----
<S> <C> <C> <C>
Corporate..........................44................ 6..............50
Mr. Rooter.........................11................ 2..............13
Aire Serv.......................... 4................ 0.............. 4
Rainbow............................15................ 0..............15
GBS................................18................ 7..............25
Mr. Electric ...................... 5................ 0.............. 5
E.K. Williams...................... 8................ 0.............. 8
Mr. Appliance...................... 3................ 0.............. 3
National Accounts.................. 4................ 0.............. 4
Total.............................112................ 15.............127
</TABLE>
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<PAGE> 12
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive and administrative offices are
presently located at 1010 - 1020 N. University Parks Drive, Waco, Texas. These
facilities are leased from a related party under an operating lease which
expires December 31, 2000. Monthly rental for these offices is approximately
$31,000. See "Certain Transactions."
The Company also leases office space in Columbia, Maryland, for its GTS
operations, from an unrelated party for $2,035 per month. This lease expires
September 30, 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in various legal proceedings incidental to its
normal business activities. Management has estimated a potential range of loss
due to these proceedings not to exceed $200,000, and the Company has accrued for
its estimate of such losses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on The Nasdaq Stock Market(SM)
under the symbol "DWYR". The Nasdaq Stock Market(SM), which began operation in
1971, is the world's first electronic securities market and the fastest growing
stock market in the U.S. Nasdaq utilizes today's information technologies -
computers and telecommunications - to unite its participants in a screen-based,
floorless market. It enables market participants to compete with each other for
investor orders in each Nasdaq security and, through the use of Nasdaq
WorkstationII(TM) and other automated systems, facilitates the trading and
surveillance of thousands of securities. This competitive marketplace, along
with the many products and services available to issuers and their shareholders,
attracts today's largest and fastest growing companies to Nasdaq. These include
industry leaders in computers, pharmaceuticals, telecommunications,
biotechnology, and financial services. More domestic and foreign companies list
on Nasdaq than on all other U.S. stock markets combined.
The following table sets forth the quarterly high and low sales prices
per share of the Company's Common Stock as reported by The Nasdaq Stock
Market(SM), for each quarter during the last two fiscal years. These per share
quotations represent inter-dealer prices and do not include retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
FISCAL YEAR ENDED DECEMBER 31, 1997
<S> <C> <C>
First Quarter $2.25 $1.38
Second Quarter $2.13 $1.50
Third Quarter $2.19 $1.63
Fourth Quarter $2.38 $1.75
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter $3.00 $2.50
Second Quarter $3.25 $2.38
Third Quarter $3.06 $2.25
Fourth Quarter $2.75 $1.38
</TABLE>
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<PAGE> 13
On March 18, 1998, the closing sales price of the Company's Common
Stock as reported by The Nasdaq Stock Market(SM) was $2.00 per share. As of such
date, there were approximately 400 shareholders of record.
No cash dividends have been paid by the Company on its Common Stock,
and the Company does not currently intend to pay cash dividends on its Common
Stock, but will retain earnings for the operation and development of its
business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Unless otherwise noted, all dollar amounts are rounded to the nearest
thousand. References to 1996 and 1997 are to the years ended December 31 of each
year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
approximate dollar amount (in thousands) and percentage of revenues and net
income derived from each of the Company's subsidiaries.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---- ----
REVENUES:
<S> <C> <C> <C> <C>
Mr. Rooter $ 4,249 27.4% $ 3,964 28.1%
Rainbow 2,983 19.2 3,007 21.3
GBS 2,710 17.5 3,438 24.4
Aire Serv 350 2.3 422 3.0
E.K. Williams 1,846 11.9 1,566 11.1
Mr. Electric 1,029 6.6 626 4.5
Mr. Appliance (1) 335 2.2 87 .6
National Accounts (2) 885 5.7 -0- -0-
Other (3) 1,123 7.2 983 7.0
-------- ------ -------- ------
$ 15,510 100.0% $ 14,093 100.0%
======== ====== ======== ======
NET INCOME (LOSS):
Mr. Rooter $ 860 115.1% $ 634 143.7%
Rainbow 435 58.2 471 106.8
GBS (294) (39.4) (733) (166.2)
Aire Serv (456) (61.0) (718) (162.8)
E.K. Williams 118 15.9 32 7.3
Mr. Electric (63) (8.4) (238) (54.0)
Mr. Appliance (1) (123) (16.4) (24) (5.4)
National Accounts (2) 26 3.5 -0- -0-
Other (3) 244 32.5 135 30.6
-------- ------ -------- ------
$ 747 100.0% $ (441) 100.0%
======== ====== ======== ======
</TABLE>
- ---------------------------
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<PAGE> 14
(1) Mr. Appliance commenced franchise activities in September 1996.
(2) National Accounts began operating in 1997.
(3) Includes revenues or net income of The Dwyer Group, Inc. (parent
holding company) which maintains all corporate activities and functions
(accounting, legal, data processing and administrative). Revenues are
derived primarily from administrative fees charged to related parties.
General and administrative expenses are also allocated to subsidiary
companies.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996:
The Company recorded a net profit of $747,000, or $.11 per share for
1997, as compared to a net loss of $441,000, or $.06 per share for 1996.
Total revenues for 1997 were $15,510,000, an increase of $1,417,000, or
10.1%, compared to revenues of $14,093,000 for 1996. This net increase in
revenues is comprised of the following components: royalty income increased
$698,000, or 9.5%; franchise sales decreased $80,000, or 2.3%; product sales
increased $712,000, or 62.4%; interest income increased $103,000, or 18.6%;
other income decreased $68,000, or 6.0%; and tax services increased $54,000, or
7.4%.
Royalty revenues increased by $698,000 (9.5%) from $7,234,000 in 1996
to $8,022,000 in 1997. Increases in royalty revenues occurred in: Mr. Rooter -
$509,000 or 19.1%; GBS - $66,000 or 6.9%; Rainbow - $48,000 or 2.1%; and Mr.
Electric - $148,000 or 123.2%. These increases, which coincide with the
increased business revenues of existing franchisees as well as an increase in
the number of franchisees producing revenue, are a direct result of the
Company's emphasis placed on providing strong franchise support services, and
its methods and programs created to assist franchisees in building successful
businesses. This in turn is very instrumental to the future of the Company as
royalties are the foundation for the Company's long-term financial strength.
Franchise sales revenue represents the initial franchise fees charged
by the Company to buyers of its individual and regional franchises as well as
fees for its foreign master licenses. These revenues decreased by $80,000 (2.4%)
from $3,496,000 in 1996 to $3,415,000 in 1997. Mr. Electric and Mr. Appliance
showed increases of $236,000 (49%) and $219,000 (256%), respectively, due to the
fact that these concepts are the fastest growing within the Company with the
most potential for new franchise sales. EKW had no franchise sales in 1996 and
recorded $348,000 in sales in 1997. The Company had not franchised EKW since its
acquisition in 1994, but began franchising in early 1997. Aire Serv increased
its franchise sales revenues by $48,000 from 1996 to 1997, due to a planned
slowdown in franchising in 1996. The above increases were more than offset by
decreases in franchise sales revenues for GBS ($642,000 or 46%), Mr. Rooter
($227,000 or 23%) and Rainbow ($62,000 or 15%). The GBS franchise sales decrease
is primarily due to fact that in 1997, more emphasis was placed on recruiting
highly qualified franchisees with strong accounting backgrounds. The franchise
sales staff was also reduced, and although the number of franchises sold
declined, the cost associated with franchise sales was reduced considerably. In
addition, in 1997, the Company refunded approximately $260,000 in 1996 franchise
fees, and recorded such refunds as a reduction in 1997 franchise fee revenues.
Mr. Rooter's franchise sales decreased due to the sale of a foreign master
license in 1996, and due to settlements which were recorded in 1997 as a
reduction in revenues. Rainbow's decrease in franchise sales resulted primarily
from increased market saturation from the standpoint of the number of
franchisees. To combat such saturation, Rainbow has emphasized additional
services, such as fire, smoke and water restoration, thus increasing the average
sales per franchisee.
Revenues from sales of products and services are generated from
National Accounts, GBS and EKW. Such revenues increased by $712,000 from 1996 to
1997 due to the establishment of National Accounts during 1997. National
Accounts accounted for $849,000 in such revenues in 1997. The remaining decrease
is due primarily to a declining market for paper bookkeeping systems, which are
marketed by GBS and EKW.
Interest income increased by $103,000 primarily due to improved
collections of franchisee notes receivable. Interest on these notes is recorded
as revenue when received.
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<PAGE> 15
Costs of product and service sales increased by $635,000 from 1996 to
1997, due primarily to the increase in related sales.
General, administrative and selling expenses decreased by $402,000 (3%).
This overall decrease is generally made up of the net of the following increases
and decreases:
o Professional fees increased by approximately $250,000 primarily due to
increased audit and legal expenses.
o Commission expenses increased by approximately $370,000 primarily due
to commissions paid on increases in royalty revenues.
o Bad debt expenses decreased by approximately $865,000 due to
write-downs and write-offs effected in 1996 to properly reflect the
receivable portfolio and its characteristics.
o Compensation expenses decreased by approximately $285,000 due to staff
reductions implemented by GBS, partially offset by the establishment of
new departments at the corporate level.
o A reduction of other overhead by GBS (excluding the compensation
decrease mentioned above) of approximately $600,000 as part of a
general cost reduction program.
o Increases in overhead associated with Mr. Appliance, Mr. Electric and
National Accounts totaling approximately $490,000, due to increased
activity in Mr. Appliance and Mr. Electric and the establishment of
National Accounts in 1997.
Income tax expense or benefit includes the current federal tax expense
or benefit and the effect of deferred taxes related primarily to timing
differences between financial and income tax reporting. For the years ended
December 31, 1997 and December 31, 1996, the Company recorded income tax expense
of $378,000 and an income tax benefit of $158,000, respectively.
The Company establishes valuation allowances in accordance with the
provisions of SFAS 109, "Accounting for Income Taxes". The Company continually
reviews the adequacy of the valuation allowance and is recognizing benefits only
as reassessment indicates that it is more likely than not that the benefits will
be realized.
The Company expects to realize the net asset principally through the
implementation of reasonable tax strategies based on future income projections.
Although the Company experienced losses in 1996 and 1995, management believes
these losses were primarily attributed to substantial asset writedowns in 1996
that also impacted 1995. Management considers such a writedown as unusual. The
valuation allowance as of December 31, 1997 and 1996 pertains primarily to the
alternative minimum tax net operating losses available for carryforward.
Management has determined it is unlikely that this component of the deferred tax
asset will be realized
During the fourth quarter of 1996, various year-end adjustments were
recorded to the consolidated financial statements. The effect of these
adjustments was a net decrease in total assets of $2,301,000, a net decrease in
liabilities of $305,000, a net decrease in stockholders' equity and
corresponding increased net loss of $1,996,000. These adjustments were primarily
to increase the allowance for doubtful accounts and notes receivable,
adjustments to and write-downs of assets held for sale, and write-off's of notes
receivable.
LIQUIDITY AND CAPITAL RESOURCES:
At December 31, 1997, the Company's working capital ratio was 3.4 to 1
compared to 2.7 to 1 at December 31, 1996. The Company had working capital of
$5,487,000 at the end of 1997, as compared to $4,366,000 at the end of 1996. The
increase in the Company's working capital ratio and working capital is primarily
due to increases in short term investments and marketable securities ($534,000),
accounts receivable from related parties ($344,000), current portion of notes
receivable ($430,000), accounts receivable ($454,000) and inventories and
prepaid expenses ($279,000). These increases were partially offset by decreases
in cash and cash equivalents ($252,000) and federal income tax receivable
($935,000). The Company received cash for the federal income tax receivable with
the exception of $200,000 which was applied toward 1997 taxes.
Capital expenditures for 1997 were $173,000, compared to $404,000 for
1996. Management believes that the Company's cash flow supplemented by the
Company's positive cash position will be adequate to fund the Company's capital
requirements.
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<PAGE> 16
The Company has a $300,000 line of credit, of which $219,500 was
available as of December 31, 1997. The line of credit expires in November 1998.
Net cash used by operating activities for 1997 totaled $453,000 as
compared to $1,400,000 for the year ended 1996. The difference is due primarily
to net income of $747,000 in 1997, as compared to a net loss of $441,000 in
1996. Net cash provided by investing activities for 1997 was $419,000, as
compared to $680,000 used in investing activities in 1996, a net change of
$1,099,000, which is due primarily from reductions in purchases of property and
equipment ($231,000), assets held for resale ($258,000) and net purchases of
marketable securities ($378,000), along with an increase in the amount collected
on notes receivable ($273,000). Net cash used in financing activities in 1997
was $218,000 as compared to $454,000 in cash provided by financing activities in
1996, a net change of $672,000, which is due primarily to a $419,000 payment on
a shareholder note in 1996 and debt reduction in 1997.
In 1993, the Company entered into a Franchise Financing Agreement with
Stephens Franchise Financing, which is now SunTrust Credit Corporation
("SunTrust"), pursuant to which SunTrust agreed to extend credit to qualified
Mr. Rooter and Aire Serv franchisees up to an aggregate amount of $10,000,000.
As of December 31, 1997 and 1996, the aggregate principal amounts of outstanding
franchisee indebtedness under such agreement was approximately $2,249,000 and
$2,431,000, respectively. Pursuant to the terms of the agreement, the Company is
liable for such franchisee indebtedness in the event a default occurs and the
Company has 180 days to correct the default. If the default is not corrected
within such time, the Company is obligated to make the monthly installments on
the note until paid in full or the franchise is sold to another approved party
and the debt is assumed by that party. The Company also has the option of
substituting its notes receivable from franchisees of equal of greater value.
During 1997 and 1996, the Company exchanged notes aggregating approximately
$29,000 and $324,000, respectively, for franchisee defaulted notes. In addition,
approximately $37,000 and $24,000 was paid to SunTrust during 1997 and 1996,
respectively, representing monthly installments on behalf of franchisees in
default.
In September 1996, The Dwyer Group, Inc., Mr. Rooter, Aire Serv, Mr.
Appliance, and Mr. Electric entered into an agreement with Phoenix Leasing
Incorporated ("Phoenix") to finance franchise sales for franchise applicants who
meet Phoenix's qualifications. Phoenix agreed to provide up to $3,000,000 in
debt financing to the franchisees provided that each franchisee's obligations to
Phoenix under its debt financing be guaranteed by The Dwyer Group, Inc. and the
franchising subsidiary for such franchisee. The Company receives from Phoenix an
Aging Report of the amounts due and owing by the franchisees as of the first day
of such month. If an Aging Report shows that any franchisee has failed to make
all of the scheduled monthly payments due during any sixty day period, then The
Dwyer Group, Inc., within ten days of delivery of such Aging Report, shall pay
all of such franchisee's delinquent scheduled payments, together with all late
charges then due. The Company was not required to make any such payments in 1996
or 1997. At December 31, 1997 and 1996, the Parent was contingently liable for
approximately $799,000 and $29,000, respectively, relating to such notes.
Franchisees borrowing from Sun Trust and Phoenix are generally required
to make a down payment equal to 20-30% of the investment to be financed.
In connection with its franchising activities, the Company regularly
extends credit to prospective franchisees to finance their purchase of
franchises. The repayment of such indebtedness is secured by the assets of such
franchises, including the franchise rights sold to the franchisees. The Company
does recognize as revenue, franchise sales represented by notes from franchisees
who have made a down payment in cash of at least 20% of the sales price and have
completed training. At December 31, 1997 and 1996, notes receivable (in excess
of those recognized as deferred liabilities), less allowance for doubtful
collections, were approximately $3,754,000 and $3,408,000, respectively. At
December 31, 1997, the Company's allowance for doubtful notes was $816,000,
which the Company believes is adequate for the size and nature of its notes
receivable.
In February 1995, the Company reached an agreement with the estate of
the late Donald J. Dwyer, Sr. ("Mr. Dwyer") regarding resolution of a
discrepancy between the amount of life insurance on Mr. Dwyer's life which had
been reported and that which was actually in force. The face amount of life
insurance in force at the time of death was less than the $2,000,000 of life
insurance in force as stated at the time of the July 1994 offering of Common
Stock. The life insurance in force at the time of death was $1,050,000. In
February 1995, the estate executed a promissory note in the amount of $950,000
bearing interest of 9% per annum payable in February 1997, resolving the
discrepancy of life insurance in force and life insurance previously reported to
be in force on Mr. Dwyer's life. This transaction was recorded as an additional
capital contribution and as a note receivable. The note receivable was
classified as a reduction in
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<PAGE> 17
stockholders' equity. During 1995, the estate paid principal and interest in the
amount of $531,000 and $65,000, respectively. During 1996, the estate paid the
remaining principal of $419,000 and interest in the amount of $38,000.
YEAR 2000:
The Company has conducted a comprehensive review of its computer
systems to identify the impact of the "Year 2000" issue. The Company has
developed a plan to address the problem and is currently implementing such plan.
The impact is not expected to have a material effect on the Company or its
results of operations.
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY:
The Company's operating results could vary significantly from period to
period as a result of a variety of factors, including the timing of
acquisitions, the length of the Company's franchise sales cycles; the ability of
franchisees to collect their receivables and satisfy obligations under franchise
agreements with the Company; seasonal conditions in the markets in which the
Company's franchisees operate and competitive factors. For instance, Rainbow's
revenues have historically decreased during cold weather months and increased
during hot weather months and GBS's and EKW's revenues typically increase
significantly during the tax season. There can be no assurance that such factors
will not result in significant fluctuations in the Company's operating results
in the future.
INFLATION:
Inflation has not historically had a material effect on the Company's
operations, and is not expected to have a material impact on the Company in the
future.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS:
This Annual Report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in the Annual
Report, including without limitation, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding the Company's financial
position, business strategy and plans and objectives for future performance are
forward-looking statements. Forward-looking statements are commonly identified
by the use of such terms and phrases as "intends", "estimates", "expects",
"projects", "anticipates", "foreseeable future", "seeks", and words or phases of
similar import. Such statements are subject to certain risks, uncertainties or
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected.
ACCOUNTING MATTERS:
Effective December 31, 1997, the Company adopted the provisions of SFAS
No. 128, "Earnings Per Share". This Statement establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. This Statement simplifies
the previous standards for computing earnings per share, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. There was no material impact on the Company's
financial statements resulting from the adoption of SFAS No. 128.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
No 131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected financial information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The disclosure
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<PAGE> 18
requirements of SFAS No. 131 are effective for financial statements for
financial years beginning after December 15, 1997. The Company will comply with
the disclosure requirements of SFAS No. 131 in its financial statements for its
fiscal year ending December 31, 1998. The Company believes that there will be no
material impact on its financial statements resulting from the adoption of SFAS
No. 131.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the
independent auditors' reports of BDO Seidman, LLP for 1997 and Coopers & Lybrand
L.L.P. for 1996, appear on pages 29 through 35 of this report. See Index to
Financial Statements on page 28 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 27, 1997, the Audit Committee of the Board of Directors of the
Company approved the dismissal of Coopers & Lybrand L.L.P. as its certified
independent public accountants and the appointment of BDO Seidman, LLP as its
certified independent public accountants, effective on such date. The Company
did not consult with BDO Seidman, LLP prior to such appointment with respect to
any matter of accounting principles or practices, financial statement
disclosure, auditing scope or procedure, or any disagreement with the Company's
certified independent public accountants. From July 1995, until such date, the
Company had engaged Coopers & Lybrand L.L.P. as its certified independent public
accountants. During the period of the engagement of Coopers & Lybrand L.L.P. by
the Company, there were disagreements expressed in 1997 with the Management of
the Company concerning the application of accounting principles with respect to
accounting for assets held for resale and the collectibility of certain notes
receivable, all of which were ultimately resolved to the satisfaction of Coopers
& Lybrand L.L.P. and communicated to the Audit Committee of the Board of
Directors. As a result of the application of accounting principles with respect
to assets held for resale, the audited financial statements of the Company for
1995 were restated. Non-resolution of these disagreements to the satisfaction of
Coopers & Lybrand L.L.P. would have caused them to make reference to the
disagreements in their financial reports to the Company. Coopers & Lybrand
L.L.P. advised the Audit Committee of the Board of Directors that during their
audits of the 1995 and 1996 consolidated financial statements of the Company,
certain matters were noted involving the Company's internal control structure
and its operation which, in the aggregate, may be considered reportable
conditions, as defined by the American Institute of Certified Public
Accountants. The Company authorized Coopers & Lybrand L.L.P. to respond fully to
the inquiries of the successor accountant concerning the subject matter of each
disagreement. No report on the financial statements of the Company rendered by
Coopers & Lybrand L.L.P. contained an adverse opinion or a disclaimer of opinion
or was qualified or modified as to uncertainty, the scope of audit performed, or
accounting principles, however, the report of Coopers & Lybrand L.L.P. dated
April 11, 1997 contained an explanatory paragraph referring to the prior period
adjustment for the correction of an error in the consolidated financial
statements of the Company for the year ended December 31, 1995.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Theresa Dwyer.............................63..................Chairperson of the Board of Directors and Director
Robert Tunmire............................39..................President, Chief Executive Officer and Director
Dina Dwyer-Owens..........................35..................Secretary, Vice President of Operations and Director
Thomas J. Buckley.........................51..................Treasurer and Chief Financial Officer
Stephen E. Beatty.........................47..................Vice President
Donald J. Dwyer, Jr.......................33..................Director of International Operations and Director
James L. Sirbasku.........................58..................Director
John P. Hayes.............................48..................Director
Donald E. Latin...........................67..................Director
Michael Bidwell...........................39..................President of Rainbow
Richard Cross.............................48..................President of Mr. Rooter and Mr. Appliance
David Bethea..............................55..................President of GBS and EKW
</TABLE>
16
<PAGE> 19
All directors hold office until the next annual meeting of stockholders
or until their successors have been elected and qualified. Officers of the
Company serve at the will of the Board of Directors.
Theresa Dwyer has been Chairperson of the Board of Directors since July 1995 and
Director of the Company since December 1994. She has been the majority
stockholder and President of the following privately held companies: Worldwide
Cabinet Systems, Inc.; Worldwide Refinishing Systems, Inc.; Worldwide Whirlpool
Systems, Inc.; Worldwide Franchise Consultants, Ltd.; Aames Auto Leasing, Inc.;
and Sun Screen of Austin, Inc. since December 1994. She also serves as Vice
President of Worldwide Supply, Inc., and Secretary of Dwyer Real Estate and
Development, Inc. Mrs. Dwyer also serves as Managing Partner of Dwyer
Investments, Ltd. Prior to December 1994 Mrs. Dwyer was self-employed.
Robert Tunmire has been President and Chief Executive Officer of the Company
since December 1994 after serving as Executive Vice President since June 1993.
Mr. Tunmire served as President of the Company, then operating as Mr. Rooter
Corporation, from January 1992 through May 1993, after serving from May 1989 as
Director and Executive Vice President. Mr. Tunmire currently serves as President
of Mr. Electric and Aire Serv. From December 1980 until May 1989, Mr. Tunmire
was employed by Rainbow, most recently as Executive Vice President of Franchise
Counseling. Mr. Tunmire has approximately 22 years experience in the franchising
industry.
Thomas J. Buckley has served as Treasurer and Chief Financial Officer since
August 1997. Prior to that time, he served as Chief Financial Officer of
Watermarc Food Management Co. since 1994. From 1990 to 1994, Mr. Buckley served
as Vice President of Finance and Franchising for Western Sizzlin' Restaurants.
Mr. Buckley has also owned and operated his own franchising business as a
regional franchisor of SpeeDee Oil Change & Tune-Up. Mr. Buckley has over 16
years experience in the franchising industry.
Stephen E. Beatty has served as the Company's Vice President since August 1997.
He previously served as Treasurer and Chief Financial Officer since December
1994 and as Controller from April 1993 to December 1994. Prior to that time, Mr.
Beatty served as Controller for Gulf Stream Coach, Inc., a company that
manufactures recreational vehicles, from August 1991 to April 1993. Mr. Beatty
served as Treasurer and Vice President of Finance for SMI International, Inc., a
company specializing in franchising businesses, from April 1987 to June 1991.
Mr. Beatty has over 13 years of experience in the franchising industry.
Dina Dwyer-Owens has served as Vice President of Operations since September 1995
after serving as Co-Chair of the Board of Directors from December 1994 to July
1995, and has been a Director and Secretary of the Company since May 1989. Ms.
Dwyer-Owens has been employed by Dwyer Real Estate and Development, Inc., a real
estate concern located in Waco, Texas, since June 1981, most recently as
President. She also serves as Director to Rainbow, Mr. Rooter and National
Accounts and is President of National Accounts.
Donald J. Dwyer, Jr. has served as a Director since May 1989. Mr. Dwyer is
currently, and has been since 1994, employed by the Company as Director of
International Operations. He previously served as Director of International
Operations for Rainbow from 1987 to 1994.
James L. Sirbasku has served as a Director since July 1994. He has served as
Chairman and Chief Executive Officer of Profiles International, Inc., an
international company providing pre-employment evaluation systems, since March
1991. From 1980 to 1991, Mr. Sirbasku served as President of SMI International,
Inc., a company specializing in franchising businesses.
John P. Hayes has served as a Director since July 1994. He founded and served,
from January 1987 to 1995, as President of The Hayes Group, Inc., an
international marketing and promotion company specializing in franchised
businesses. Since January 1996, Mr. Hayes has served as a consultant to
franchisors.
17
<PAGE> 20
Donald E. Latin has served as a Director since July 1995. He founded and, since
1986, has served as President of D. Latin and Company, Inc., an investment
banking company which provides such corporate finance services as: the raising
of capital, mergers and acquisitions, valuation of businesses, fairness
opinions, and other financial advisory services.
Michael Bidwell has been President of Rainbow since July 1995. Mr. Bidwell was a
Rainbow franchisee in Tucson, Arizona from April 1984 to June 1995, and a Mr.
Rooter franchisee from August 1992 to June 1995. From 1986 to June 1995, Mr.
Bidwell served as President of Ramsoo, Inc., an Arizona corporation, which
operated the Rainbow and Mr. Rooter franchises in Tucson, Arizona. From November
1987 until July 1995, Mr. Bidwell was also a franchisee and regional director
for Worldwide Refinishing Systems, Inc., a related party to the Company. Mr.
Bidwell also serves as a Director of National Accounts.
Richard Cross has been President and Chief Operating Officer of Mr. Rooter and
Mr. Appliance since December 1997. From December 1994 to December 1997, Mr.
Cross was Vice President and Chief Operating Officer of Mr. Rooter. From January
1996 to December 1997, Mr. Cross was Vice President and Chief Operating Officer
of Mr. Appliance. Mr. Cross previously served as Vice President of Marketing
from December 1991 to October 1993. Prior to that time, he served as National
Marketing Director for Leadership Management, Inc., a company specializing in
franchising businesses, from December 1986 to November 1991. Mr. Cross was also
Chief Operating Officer of Mr. Electric and Aire Serv from December 1994 until
January 1996. Mr. Cross also serves as a Director of National Accounts.
David Bethea was named President of General Business Services and E.K. Williams
in July 1997. For more than a decade, Mr. Bethea owned a very successful
Marcoin/E.K.Williams franchise in Northeast Florida. Diversifying, he purchased
several other businesses in Jacksonville, Florida. In 1992, he joined E.K.
Williams as Director of Training, and went on to become General Manager of EKW.
From 1994 to July 1997, Mr. Bethea served as Executive Vice President of
Franchise Support for both E.K. Williams and General Business Services and he
served as Chief Operating Officer of both companies.
Donald J. Dwyer, Jr. and Dina Dwyer-Owens are the son and daughter,
respectively, of Theresa Dwyer and the late founder, Donald J. Dwyer.
BOARD PARTICIPATION AND STRUCTURE
The Board of Directors met four times during 1997 and additionally took action
once by means of written consent. Each director attended all of the meetings
with the exception of Mr. Sirbasku and Donald Dwyer, Jr., who each missed one
meeting. Non-employee directors are reimbursed for expenses incurred for their
attendance at Board of Directors meetings and are eligible to receive stock
options.
The Audit Committee met twice during 1997. All members attended with the
exception of Mr. Hayes who missed one meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
officers and directors of the Company and persons who beneficially own more than
ten percent of the Company's Common Stock to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors, and greater than 10 percent
beneficial owners also are required by rules promulgated by the SEC to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to the fiscal year ended December 31, 1997, or written representations
from certain reporting persons, the Company believes that all filing
requirements applicable to its directors, officers and persons who own more than
ten percent of a registered class of the Company's equity securities have been
complied with, except that during fiscal 1997 the following officers and
directors were late in filing the number of reports indicated as required by
Section 16(a): Messers. Tunmire (6), Donald Dwyer, Jr. (2), Buckley (1), Hayes
(1), Bethea (5), Cross (4), and Bidwell (5) and Ms. Dwyer (2) and Ms.
Dwyer-Owens (6). No other officer, director, or ten percent shareholder was late
in filing his or its reports pursuant to Section 16(a).
18
<PAGE> 21
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following information sets forth
compensation earned by the Company's Chief Executive Officer and all other of
its executive officers whose annual compensation exceeded $100,000 in 1997, for
services rendered for the Company and its Subsidiaries during the fiscal years
indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------- ----------------
NAME AND SECURITIES UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) OPTIONS
<S> <C> <C> <C> <C> <C>
Robert Tunmire, 1997 $205,500(1) $ ---- ---- ----
President & CEO 1996 215,818(1) ---- ---- ----
1995 196,414(1) 20,779 ---- 100,000
----
Michael Bidwell, 1997 $121,626 $ 13,170 ---- 50,000
President of Rainbow 1996 118,360 44,360 ---- ----
1995 68,495 14,101 ---- 25,000
----
Richard Cross, 1997 $ 69,838 $ 32,761 ---- ----
President of Mr. Rooter & 1996 63,808 26,712 ---- 5,000
Mr. Appliance 1995 54,000 34,244 ---- ----
David Bethea, 1997 $ 78,376 $ 25,628 ---- 6,420
President of GBS & EKW 1996 76,319 9,852 ---- 5,000
1995 66,575 5,000 ---- ----
</TABLE>
- -----------------------------------
(1) Includes salary and any commissions from franchise sales.
The following table sets forth information regarding options granted to the
named executive officers during the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR PRICE (1) DATE
---- ------------------- -------------- --------- ----
<S> <C> <C> <C> <C>
Robert Tunmire ---- ---- ---- ----
Michael Bidwell 25,000 15% $1.88 12/23/07
" " 25,000 15% $2.25 12/23/07
Richard Cross ---- ---- ---- ----
David Bethea 6,420 4% $1.88 12/23/07
</TABLE>
- -------------------------
(1) Reflects the dollars per share exercise price, which is equal to or
greater than the closing market price of the underlying security on the
date of grant.
19
<PAGE> 22
The following table shows option exercises during the year ended December 31,
1997 and the value of unexercised options at December 31, 1997 for the named
executive officers who exercised options during 1997 or who had unexercised
options at December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS
YEAR END AT FISCAL YEAR END
SHARES ACQUIRED (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE) UNEXERCISABLE) (1)
---- ----------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
Robert Tunmire ---- ---- 96,767 / 33,334 $9,030 / -0-
Michael Bidwell ---- ---- 35,000 / 40,000 -0- / $1,500
Richard Cross ---- ---- 3,500 / 4,000 $60 / $240
David Bethea ---- ---- 1,000 / 10,420 $60 / $625
</TABLE>
- -----------------------------
(1) The closing price of the Common Stock on December 31, 1997 was $1.94
per share.
THIS SECTION LEFT INTENTIONALLY BLANK.
20
<PAGE> 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1997, certain
information regarding the beneficial ownership of Common Stock by (i) each of
named executive officers, (ii) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (iii) each director
of the Company and (iv) all directors and officers as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT (2)
- ------------------------------------- ---------------- -----------
<S> <C> <C>
Dwyer Investments, Ltd. (4) (5) 4,060,936 59.2%
Donald J. Dwyer Family Trust (4) 115,092 1.7%
Theresa Dwyer (3) (6) (7) 4,012,454 59.2%
Donald J. Dwyer, Jr. (3) (7) (8) (9) 158,398 2.3%
Dina Dwyer-Owens (3) (8) (10) 39,577 *
Robert Tunmire (3) (8) (11) 124,008 1.8%
John Hayes (12) 20,250 *
James Sirbasku (13) 15,000 *
Donald E. Latin (14) 15,000 *
Michael Bidwell (3) (15) 39,160 *
Richard Cross (3) (16) 5,142 *
David Bethea (3) (17) 1,130 *
Renaissance Capital Growth & Income Fund III (18) 675,000 9.9%
All officers and directors as a group (twelve persons) (5) (6) (7) (19) 4,345,883 61.6%
</TABLE>
- ----------------------
*Less than 1%.
(1) Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person (but not those
held by any other person) and which are exercisable have been
exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) Based on a total of 6,775,427 shares of Common Stock outstanding prior
to the exercise of any outstanding options or warrants.
(3) The principal business address of each of these individuals is c/o the
Company, 1010 N. University Parks Drive, Waco, Texas 76707.
(4) Mr. Dwyer, former Chairman of the Board, President and CEO of the
Company, died December 4, 1994. On April 10, 1997, his Estate
distributed 4,077,501 shares of Common Stock beneficially owned by the
Estate to Ms. Theresa Dwyer with the remaining 115,423 shares
distributed to the Donald J. Dwyer Family Trust (the "Trust"), of which
Ms. Theresa Dwyer and Mr. Donald Dwyer, Jr. are Co-Trustees. On
September 4, 1997, Ms. Theresa Dwyer contributed 3,899,182 beneficially
owned shares, and the Trust contributed 115,092 beneficially owned
shares, to Dwyer Investments, Ltd. (the "Partnership") in exchange for
equity interests. The principal address for the Partnership and the
Trust is c/o the Company, 1010 N. University Parks Drive, Waco, Texas,
76707.
21
<PAGE> 24
(5) The number of shares beneficially owned includes 90,000 Option Shares
(held by the Partnership), currently exercisable pursuant to a Stock
Option Agreement dated April 28, 1989, and 160,200 shares of Common
Stock owned by another stockholder of the Company in connection with
which the Partnership has sole voting power pursuant to a Shareholder
Voting, Proxy and Stock Sale Agreement between Mr. Dwyer and such
stockholder.
(6) Includes 3,896,062 shares of Common Stock of the Partnership over which
Ms. Theresa Dwyer has sole voting power as Managing Partner.
(7) Includes 115,092 shares of Common Stock of the Trust over which Ms.
Theresa Dwyer and Donald J. Dwyer, Jr., have shared voting power as
Co-Trustees.
(8) Includes 7,042 shares of Common Stock of the Partnership over which the
individual has full voting power.
(9) Includes 2,000 shares of Common Stock now exercisable or exercisable
within 60 days under an Incentive Stock Option Plan.
(10) Includes 3,500 shares of Common Stock now exercisable or exercisable
within 60 days under an Incentive Stock Option Plan.
(11) Includes 96,767 shares of Common Stock now exercisable or exercisable
within 60 days under an Incentive Stock Option Plan.
(12) Includes 20,000 shares of Common Stock now exercisable or exercisable
within 60 days pursuant to options granted Mr. Hayes. The principal
business address of Mr. Hayes is 6612 Dupper Court, Dallas, Texas
75252.
(13) Includes 10,000 shares of Common stock now exercisable or exercisable
within 60 days pursuant to options granted Mr. Sirbasku. The principal
business address of Mr. Sirbasku is 5205 Lakeshore Drive, Waco, TX
76710.
(14) Includes 10,000 shares of Common Stock now exercisable or exercisable
within 60 days pursuant to options granted Mr. Latin. The principal
business address of Mr. Latin is 600 N. Pearl Street, Suite 2250,
Dallas, TX 75201.
(15) Includes 35,000 shares of Common Stock now exercisable or exercisable
within 60 days under an Incentive Stock Option Plan.
(16) Includes 4,500 shares of Common Stock now exercisable or exercisable
within 60 days under an Incentive Stock Option Plan.
(17) Includes 1,000 shares of Common Stock now exercisable or exercisable
within 60 days under an Incentive Stock Option Plan.
(18) The principal business address of Renaissance Capital Growth & Income
Fund III, Inc. is c/o Renaissance Capital Group, Inc., 8080 N. Central
Expressway, Suite 210, Dallas, TX 75206.
(19) Includes 186,267 shares of Common Stock now exercisable or exercisable
within 60 days under an Incentive Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently leases its principal executive and administrative
facilities from an affiliated company owned by the Company's majority
stockholder under a lease expiring December 31, 2000 requiring a monthly lease
payment of approximately $31,000. In addition to rent, the Company pays for
repairs and maintenance, promotional materials and other services from entities
controlled by such majority stockholder. The Company expensed $757,271 for such
rent and services in 1997 and $629,769 in 1996.
22
<PAGE> 25
The Company recognized income from related parties for accounting,
legal and administrative services, interest income, product sales, commissions
and management fees totaling $778,701 in 1997 and $812,985 in 1996.
In addition, from time to time, the Company and its affiliates have
made advances to each other, which generally have not had specific repayment
terms and have been reflected in the Company's financial statements as accounts
receivable or payable from related parties. These advances typically result from
the payment of an invoice by one entity for services or items performed or
delivered on behalf of the Company and one or more of its affiliates. The
company that pays the invoice is eventually reimbursed by the other companies
for the appropriate amount based on a pro rata allocation of the services
provided to each company.
Donald J. Dwyer, Jr., and Dina Dwyer-Owens are the son and daughter,
respectively, of Theresa Dwyer ("Ms. Dwyer") and the late founder, Donald J.
Dwyer, Sr. ("Mr. Dwyer").
In January 1998, the Company agreed to purchase Rainbow International
Carpet Dyeing and Cleaning, Ltd., ("Rainbow Canada") from Ms. Dwyer, for a
purchase price of $250,000. Rainbow Canada owns the Rainbow franchise rights for
Canada and currently has 20 franchisees currently generating royalties of
approximately $55,000 per year. The Company believes that the purchase price
approximates the price that would be paid to an unrelated third party in a
similar transaction.
In 1993, the Company, Rainbow, and Mr. Dwyer entered into a
reorganization agreement (the "Reorganization Agreement") pursuant to which Mr.
Dwyer was issued 4,035,555 shares of the Company's common stock in exchange for
all of the outstanding stock of Rainbow and GBS (the "Exchange"), and GBS and
Rainbow became wholly owned subsidiaries of the Company. Of the shares issued,
340,300 shares were placed in escrow (the "Escrow Shares") until such time as
GBS met certain earnings requirements. However the material definitive terms of
the escrow were never resolved.
Ms. Dwyer, and Donald J. Dwyer, Jr., were appointed and qualified as
the personal representatives of Mr. Dwyer's Estate (the "Estate") and are now
serving as co-trustees of the Dwyer Family Trust (the "Trust"). In lieu of the
escrow arrangement contemplated by the Reorganization Agreement, and in order to
more accurately represent the intent of the parties, the Company and personal
representatives of Mr. Dwyer, the Estate and the Trust, entered into an
Agreement relating to the Escrow Shares, effective as of June 1, 1993 (the
"Agreement"). The Agreement provides for the cancellation of the Escrow Shares
and such shares have been returned to the authorized but unissued shares of the
Company's Common Stock as of June 1, 1993. Pursuant to the Agreement, 340,300
new shares of Common Stock (the "Contingent Shares") have been reserved by the
Company's Board of Directors out of the Company's authorized but unissued Common
Stock and may subsequently be issued to the successors and assigns of Mr. Dwyer
if certain earnings targets are achieved by GBS or if GBS is sold to a third
party in certain transactions as provided in the Agreement.
Beginning July 1995, the Company agreed to pay Don Latin, an
independent director, $2,500 for his services. In addition, in August 1995 the
Company entered into a consulting agreement with another independent director,
John Hayes, to provide consulting services regarding public relations, marketing
and special projects for the company. During 1997 and 1996 the Company paid
approximately $110,000 and $171,000 for Mr. Hayes' services, respectively.
In December 1996 the Company, together with selected related parties,
agreed to convert $908,632 of related party accounts receivable and accounts
receivable from affiliates to interest bearing (9.25%) notes receivable. These
notes are payable in full by December 31, 2006.
In February 1995, the Company reached an agreement with the Estate of
Mr. Dwyer regarding resolution of a discrepancy between the amount of life
insurance on Mr. Dwyer's life which had been reported and that which was
actually in force. The face amount of life insurance in force at the time of
death was less than the $2,000,000 of life insurance stated at the time of the
July 19, 1994 offering of Common Stock. The life insurance in force at the time
of Mr. Dwyer's death was $1,050,000. In February 1995 the estate executed a
promissory note in the amount of $950,000 bearing interest of 9% per annum
payable in February 1997, resolving the discrepancy of life insurance in force
and life insurance previously reported to be in force. This transaction was
recorded in February 1995 as an additional capital contribution and as a note
receivable. The note receivable was classified as a reduction in stockholders'
equity. During 1995 the estate paid principal and interest in the amount of
$531,103 and $65,355, respectively. During 1996 the estate paid the remaining
principal of $418,896 and interest of $38,376.
23
<PAGE> 26
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
The Consolidated Financial Statements of the Company are
included in Part II, Item 7. See index on page 28.
<TABLE>
<CAPTION>
2. Exhibits
--------
<S> <C>
3.1 Certificate of Incorporation, as amended (1)
3.2 Certificate of Amendment of Certificate of Incorporation filed June 12, 1987 (2)
3.3 Certificate of Amendment of Certificate of Incorporation filed May 8, 1988 (2)
3.4 Certificate of Amendment of Certificate of Incorporation filed July 30, 1993 (2)
3.5 Bylaws (1)
4.1 Form of Representative's Warrant Agreement, including Representative's Warrant (2)
4.2 Warrants to Purchase Common Stock issued to Norcross Securities, Inc. (2)
10.1 Stock Option Plan, as amended, and form of Employee Stock Option Agreement (1)
10.2 Form of Rainbow International Carpet Dyeing and Cleaning Co. License Agreement (2)
10.3 Form of Mr. Rooter Corporation Franchise Agreement (2)
10.4 Form of General Business Services License Agreement (2)
10.5 Form of Aire Serv Corporation Franchise Agreement (2)
10.6 Certificate of Registration of Service Mark "MR. ROOTER" (1)
10.7 Certificate of Registration of Service Mark "QUICK-AS-A-WINK" (1)
10.8 Certificate of Registration of Mr. Rooter logo (1)
10.9 Certificate of Registration of Service Mark "Super Kleens" logo (1)
10.10 Certificate of Registration for Service Mark "America's Trouble Shooter" (1)
10.11 Certificate of Registration of Trademark "MR. ROOTER" issued by Office of Consumer and Corporate
Affairs in Canada (1)
10.12 Lease Agreement between Donald J. Dwyer and Mr. Rooter Corporation, dated December 20, 1991 (2)
10.13 Lease Agreement between Donald J. Dwyer and Rainbow International Carpet Dyeing and Cleaning Training
Center, commencing January 1, 1993 (2)
10.14 Lease Agreement between Donald J. Dwyer and Rainbow International Carpet Dyeing and Cleaning Waco
Franchise, commencing January 1, 1993 (2)
10.15 Lease Agreement between Donald J. Dwyer and General Business Services, dated August 31, 1993 (2)
10.16 Lease Agreement between Donald J. Dwyer and Rainbow International, dated September 1, 1993 (2)
10.17 Lease Agreement between Donald J. Dwyer and The Dwyer Group, Inc., dated February 18, 1994 (2)
10.18 Agreement and Plan of Reorganization and Share Exchange (3)
10.19 Agreement for Purchase and Sale of Assets of National Manufacturing & Supply Corporation (4)
10.20 Franchisee Financing Agreement dated July 2, 1993, with Addendum dated December 23, 1993 (4)
10.21 Shareholders' Voting Proxy and Stock Sale Agreement, between Donald J. Dwyer, Sr. and Vernon Lee
Russell and wife, Sylvia Russell, and the Company (5)
10.22 Stock Purchase Agreement between Donald J. Dwyer, Sr., Vernon Lee Russell and Sylvia Russell (5)
10.23 Stock Option Agreement between the Company and Donald J. Dwyer (5)
10.24 Incentive Stock Option Agreement between the Company and John Appel for 25,000 shares of the Company's
Common Stock (4)
10.25 Incentive Stock Option Agreement between the Company and Douglas C. Holsted for 12,500 shares of the
Company's Common Stock (1)
10.26 Incentive Stock Option Agreement between the Company and Dina Dwyer-Owens for 2,500 shares of the
Company's Common Stock (1)
10.27 Incentive Stock Option Agreement between the Company and Robert A. Tunmire for 50,000 shares of the
Company's Common Stock (1)
10.28 Employment Contract between the Company and Donald J. Dwyer (1)
10.29 Guaranty Agreement, executed December 1, 1982 by Rainbow International Carpet Dyeing and Cleaning
Company (2)
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
10.30 Guaranty Agreement, executed May 1, 1984 by Rainbow International Carpet Dyeing and Cleaning Company
(2)
10.31 Promissory Note, executed January 7, 1993, by and between Pride Venture Capital, Inc. and GTL Services,
Ltd. (2)
10.32 Form of Affiliate Transactions Agreement (2)
10.33 Stock Purchase Agreement dated May 14, 1994 by and between The Dwyer Group, Inc., Co Data AG and
Central Data BV (6)
10.34 Irrevocable Stock or Bond Power, Note and Security Agreement, dated May 25, 1994, by and between
Christian Mission Concerns, as lender, and the Company, as borrower (2)
10.35 Mutual Release by and between General Business Services, Pride Venture Capital and GTL Services Ltd.,
effective June 10, 1994 (2)
10.36 Assignment of Judgments and Claims, executed by and between General Business Services, Inc., Pride
Venture Capital, Inc., and GTL Services, Ltd., dated June 10, 1994 (3)
10.37 Promissory Note, executed June 8, 1994, by and between the Company and NationsBank of Texas, N.A. (2)
10.38 Promissory Note, executed June 9, 1994, by and between the Company and Central National Bank (2)
10.39 Certificate of Registration of Service Mark "Aire Serv", dated Jan. 25, 1994 (7)
10.40 Stock Purchase Agreement dated September 14, 1994, by and between E.K. Williams & Co. and Service
Station Computers Systems, Inc. (7)
10.41 Stock Option Agreement by and between the Company and James Sirbasku for 10,000 shares of the
Company's Common Stock (7)
10.42 Stock Option Agreement by and between the Company and John Hayes for 10,000 shares of the
Company's Common Stock (7)
10.43 Stock Option Agreement by and between the Company and Anthony DeSio for 10,000 shares of the
Company's Common Stock (7)
10.44 Incentive Stock Option Agreement by and between the Company and Matthew Michel (7)
10.45 Mutual Release by and between General Business Services, Inc., and Paul Woody effective June 30, 1996
10.46 Consulting Agreement by and between General Business Services, Inc., E.K. Williams & Co., and Paul
Woody effective July 1, 1996
10.47 Stock Option Agreement by and between the Company and Paul Woody for 25,000 shares of the
Company's Common Stock
10.48 Agreement dated as of June 1, 1993, between the Company and the personal representatives of
Mr. Donald J. Dwyer, Sr., his Estate and the Dwyer Family Trust regarding cancellation of 340,300
Escrow Shares (8)
10.49* Form Of Stock Option Agreement by and between the Company and Don Latin for 10,000 shares of the
Company's Common Stock
10.50* 1997 Stock Option Plan and Form Of Employee Stock Option Agreement
10.51* Form Of Warrant Agreement and Warrant issued to V. Lee Russell
10.52* Form Of Warrant Agreement and Warrant issued to David B. Duck.
10.53* Form Of Stock Option Agreement by and between the Company and Target Enterprises, Inc. for 28,500
shares of the Company's Common Stock.
10.54* Form Of Stock Option Agreement by and between the Company and John Hayes for 11,420 shares of the
Company's Common Stock
21.1* List of Subsidiaries
27* Financial Data Schedules
</TABLE>
* Filed herewith.
- --------------------------
(1) Incorporated by reference to the Registrant's Form S-18 registration
statement (SEC File No. 33-7290-FW).
(2) Incorporated by reference to the Registrant's Form SB-2 registration
statement (SEC File No. 33-78814).
(3) Incorporated by reference to the Registrant's Form 8-K/A dated as of
June 1, 1993 (SEC File No. 0-15227).
(4) Incorporated by reference to the Registrant's Form 10-K for its fiscal
year ended December 31, 1993 (SEC File No. 0-15227).
25
<PAGE> 28
(5) Incorporated by reference to the Registrant's Schedule 13D of Donald J.
Dwyer, dated May 4, 1989, filed May 9, 1989 (SEC File No. 0-15227).
(6) Incorporated by reference to the Registrant's Form 8-K dated as of May
14, 1994 (SEC File No. 0-15227).
(7) Incorporated by reference to the Registrant's Form 10-KSB for its
fiscal year ended December 31, 1994 (SEC File No. 0-15227).
(8) Incorporated by reference to the Registrant's Form 8-K dated as of July
31, 1997 (SEC File No. 0-15227).
- --------------
(b) Reports on Form 8-K
NONE
26
<PAGE> 29
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Waco and the State of Texas on this
16th day of March, 1998.
The Dwyer Group, Inc.
By: /s/Thomas J. Buckley
-----------------------------------------------
Thomas J. Buckley, Chief Financial
Officer and Treasurer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Theresa Dwyer Chairperson of the March 16, 1998
- --------------------------- Board of Directors and Director
Theresa Dwyer
/s/ Robert Tunmire President and March 16, 1998
- --------------------------- Chief Executive Officer
Robert Tunmire (Principal Executive Officer)
/s/ Dina Dwyer-Owens Secretary and March 16, 1998
- ----------------------- Vice President of Operations
Dina Dwyer-Owens
/s/ Thomas J. Buckley Chief Financial Officer March 16, 1998
- ------------------------ and Treasurer
Thomas J. Buckley
/s/ James Sirbasku Director March 16, 1998
- -------------------------
James Sirbasku
/s/ Donald J. Dwyer, Jr. Director March 16, 1998
- ------------------------
Donald J. Dwyer, Jr.
/s/ John P. Hayes Director March 16, 1998
- ---------------------------
John P. Hayes
/s/ Donald E. Latin Director March 16, 1998
- ---------------------------
Donald E. Latin
</TABLE>
27
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Accountants..................................................................................29-30
Consolidated Balance Sheets as of December 31, 1997 and 1996........................................................31-32
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996...................................33
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997 and 1996.........................34
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996...................................35
Notes to Consolidated Financial Statements.............................................................................36
</TABLE>
28
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
The Dwyer Group, Inc.
Waco, Texas
We have audited the accompanying consolidated balance sheet of The Dwyer Group,
Inc. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Dwyer Group, Inc. and
Subsidiaries as of December 31, 1997, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Dallas, Texas
March 6, 1998
29
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
The Dwyer Group, Inc.
Waco, Texas
We have audited the accompanying consolidated balance sheet of The Dwyer Group,
Inc. and Subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Dwyer Group, Inc. and
Subsidiaries as of December 31, 1996, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
April 11, 1997
30
<PAGE> 33
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,568,187 $ 1,820,167
Short-term investments, held-to-maturity -- 1,084,061
Marketable securities, available-for-sale 2,327,090 709,246
Trade accounts receivable, net of allowance for doubtful
accounts of $265,923 and $429,647, respectively 1,070,573 616,959
Accounts receivable from related parties 660,717 317,053
Accrued interest receivable, including amounts due from
related parties of $183,539 and $134,428, respectively 197,672 183,272
Trade notes receivable, current portion 1,115,707 686,117
Inventories 306,751 143,794
Prepaid expenses 376,556 260,947
Federal income tax receivable -- 935,443
Notes receivable from related parties, current portion 142,723 130,453
----------- -----------
TOTAL CURRENT ASSETS 7,765,976 6,887,512
PROPERTY AND EQUIPMENT, at cost, net 1,070,375 1,259,863
NOTES AND ACCOUNTS RECEIVABLE FROM RELATED PARTIES 1,268,015 1,413,862
ASSETS HELD FOR SALE 166,575 452,428
TRADE NOTES RECEIVABLE, net of allowance for doubtful notes of
$816,054 and $1,633,092, respectively 3,760,824 4,521,896
PURCHASED FRANCHISE RIGHTS, net 1,446,251 1,177,929
INVESTMENT, equity method 418,117 389,241
NET DEFERRED TAX ASSET 429,779 342,046
OTHER ASSETS 212,124 787,301
----------- -----------
TOTAL ASSETS $16,538,036 $17,232,078
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
31
<PAGE> 34
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable, trade $ 774,197 $ 1,007,146
Accounts payable to related parties 44,237 61,490
Accrued liabilities 1,235,101 1,172,417
Current maturities of long-term debt 224,963 280,689
------------ ------------
TOTAL CURRENT LIABILITIES 2,278,498 2,521,742
LONG-TERM DEBT 487,116 612,381
DEFERRED FRANCHISE SALES REVENUE 1,539,085 2,250,299
FRANCHISE FUNDS HELD FOR ADVERTISING -- 459,586
------------ ------------
TOTAL LIABILITIES 4,304,699 5,844,008
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - 500,000 shares authorized,
none outstanding -- --
Common stock, $.10 par value - 15,000,000 shares authorized,
6,895,252 issued and outstanding in 1997 and 7,235,552
issued and outstanding in 1996 689,526 723,556
Additional paid-in capital 9,020,358 8,941,029
Retained earnings 2,543,612 1,796,836
Unrealized gain on available-for-sale securities 74,012 22,770
Treasury stock, at cost, 119,825 shares in 1997 and 122,425
shares in 1996 (94,171) (96,121)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,233,337 11,388,070
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,538,036 $ 17,232,078
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
32
<PAGE> 35
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
----------- ----------
<S> <C> <C>
REVENUES:
Royalties $ 8,022,283 $7,324,213
Franchise fees 3,415,352 3,495,792
Sales of products and services 1,561,710 850,129
Tax services 781,788 728,267
Interest 656,935 553,931
Other 1,072,284 1,140,611
----------- ----------
TOTAL REVENUES 15,510,352 14,092,943
COSTS AND EXPENSES:
General, administrative and selling 11,751,752 12,153,494
Costs of product and service sales 1,112,051 476,780
Cost of tax services 905,724 857,975
Depreciation and amortization 556,642 522,068
Interest 59,108 47,342
Write down of assets held for resale - 634,289
----------- ----------
TOTAL COSTS AND EXPENSES 14,385,277 14,691,948
Income (loss) before income taxes 1,125,075 (599,005)
Income tax (expense) benefit (378,299) 157,882
----------- ----------
NET INCOME (LOSS) $ 746,776 $ (441,123)
=========== ==========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.11 $ (0.06)
=========== ==========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.11 $ (0.06)
=========== ==========
WEIGHTED AVERAGE COMMON SHARES 6,774,323 7,113,127
=========== ==========
WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
DILUTIVE COMMON SHARES 6,886,458 7,315,648
=========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
33
<PAGE> 36
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL RECEIVABLE
COMMON STOCK PAID-IN RETAINED FROM
SHARES DOLLARS CAPITAL EARNINGS SHAREHOLDER
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1,1996 7,235,552 $ 723,556 $ 8,941,029 $ 2,237,959 $ (418,896)
------------ ------------ ------------ ------------ -----------
Net income (loss) for the year -- -- -- (441,123) --
Payments received on stockholder note -- -- -- -- 418,896
Increase in unrealized appreciation in carrying
value of investments (net of tax of $12,262) -- -- -- -- --
------------ ------------ ------------ ------------ -----------
Balance at December 31,1996 7,235,552 723,556 8,941,029 1,796,836 --
Net income for the year -- -- -- 746,776 --
Issuance of stock from treasury -- -- 2,600 -- --
Issuance of options to non-employees -- -- 76,729 -- --
Increase in unrealized appreciation in carrying
value of investments (net of tax of $26,397) -- -- -- -- --
Cancellation of escrow shares (340,300) (34,030) -- -- --
------------ ------------ ------------ ------------ -----------
Balance at December 31,1997 6,895,252 $ 689,526 $ 9,020,358 $ 2,543,612 $ --
============ ============ ============ ============ ===========
<CAPTION>
UNREALIZED
GAIN ON
AVAILABLE
FOR SALE TREASURY STOCK
SECURITIES SHARES DOLLARS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1,1996 $ -- 122,425 $ (96,121) $ 11,387,527
------------ ------------ ------------ ------------
Net income (loss) for the year -- -- -- (441,123)
Payments received on stockholder note -- -- -- 418,896
Increase in unrealized appreciation in carrying
value of investments (net of tax of $12,262) 22,770 -- -- 22,770
------------ ------------ ------------ ------------
Balance at December 31,1996 22,770 122,425 (96,121) 11,388,070
Net income for the year -- -- -- 746,776
Issuance of stock from treasury -- (2,600) 1,950 4,550
Issuance of options to non-employees -- -- -- 76,729
Increase in unrealized appreciation in carrying
value of investments (net of tax of $26,397) 51,242 -- -- 51,242
Cancellation of escrow shares -- -- -- (34,030)
------------ ------------ ------------ ------------
Balance at December 31,1997 $ 74,012 119,825 $ (94,171) $ 12,233,337
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
34
<PAGE> 37
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) for the period $ 746,776 $ (441,123)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 556,642 522,068
Provision for doubtful accounts 81,760 946,846
Notes received for franchise sales (473,272) (1,353,434)
Change in deferred tax asset (87,733) (125,041)
Gain on sale of assets (78,346) (42,673)
Write down of assets held for sale 50,286 634,289
Other adjustments 119,321 (66,144)
Changes in assets and liabilities:
Accounts and interest receivable (468,014) (364,569)
Net change in receivables / payables to related parties (360,917) (553,405)
Inventories (162,957) (7,066)
Prepaid expenses (115,609) (112,093)
Federal income tax receivable 935,443 (288,802)
Accounts payable and accrued liabilities (170,265) 20,087
Franchise funds held for advertising (459,586) 141,139
Deferred franchise sales revenue (711,214) (189,290)
Other 144,450 (121,015)
----------- -----------
Net cash used in operating activities (453,235) (1,400,226)
----------- -----------
Investing activities:
Collections of notes receivable 722,994 450,037
Proceeds from sale of notes receivable -- 175,433
Purchases of property and equipment (172,791) (403,507)
Acquisition of assets held for resale -- (257,697)
Acquisition of other assets (60,168) (318,834)
Purchase of marketable securities (1,781,281) (895,803)
Sale of marketable securities 1,325,844 102,496
Proceeds from sale of assets 200,000 419,061
Unrealized gain on marketable securities 51,242 22,770
Collections on notes receivable from related parties 133,577 26,033
----------- -----------
Net cash provided by (used in) investing activities 419,417 (680,011)
----------- -----------
Financing activities:
Proceeds from debt issued 80,500 589,559
Payments received on shareholder note -- 418,896
Payments on borrowings (298,662) (554,217)
----------- -----------
Net cash provided by (used in) financing activities (218,162) 454,238
----------- -----------
Net decrease in cash and cash equivalents (251,980) (1,625,999)
Cash and cash equivalents, beginning of year 1,820,167 3,446,166
----------- -----------
Cash and cash equivalents, end of year $ 1,568,187 $ 1,820,167
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
35
<PAGE> 38
THE DWYER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization and Description of Business
The Dwyer Group, Inc. (the "Parent") is a holding company for service-based
businesses providing specialty services internationally through franchising. The
consolidated financial statements include the accounts of The Dwyer Group, Inc.
and its wholly-owned subsidiaries (collectively the "Subsidiaries" and together
with the Parent, the "Company"). All material intercompany accounts and
transactions have been eliminated in consolidation.
The Company was incorporated in 1970 in the State of Oklahoma under the name Mr.
Rooter Corporation of America, Inc. The Company's name was changed to Mr. Rooter
Corporation ("Mr. Rooter") in 1972, and in 1986 it was reincorporated as The
Dwyer Group, Inc., a Delaware corporation.
The Company provides a diverse array of specialty services internationally
through its service-based franchising businesses. The Company currently owns
seven such businesses, which have an aggregate of approximately 1,400 franchises
located in the United States, and through their master licensees, in 17 foreign
countries. The Company has positioned itself as a consolidator of franchising
businesses in order to benefit from economies of scale achievable through the
pooling of resources. The Company believes that franchisees are attracted to the
Company's franchise opportunities because of the depth of the Company's support
services, the commitment of the Company to its mission and vision statements and
the established reputation of its management team.
The Company operates its businesses through the following wholly owned
subsidiaries:
o Rainbow International Carpet Dyeing and Cleaning Co. ("Rainbow") is a
franchisor of carpet cleaning and dyeing, air duct cleaning, and
smoke, fire and water restoration services, with 389 franchises in the
United States, and, through master franchise licensees, 138 franchise
operations in 12 foreign countries. For the year ended December 31,
1997, Rainbow accounted for approximately 19.2% of the Company's
consolidated revenues.
o Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of plumbing
repair and drain cleaning services under the service mark "Mr.
Rooter,"(R) with 188 franchise operations in the United States and,
through master licensees, 88 franchises in seven foreign countries.
For the year ended December 31, 1997, Mr. Rooter accounted for
approximately 27.4% of the Company's consolidated revenues.
o General Business Services, Inc. ("GBS") is a franchisor of small
business management services with 334 franchises located throughout
the United States, one franchise in Canada, and three franchises in
Thailand through a master franchise licensee. Such business management
services include, among others, business counseling, tax counseling,
accounting services and products, financial counseling and personnel
services. In addition, General Tax Services, Inc. ("GTS"), a
wholly-owned, non-franchising subsidiary of GBS located in Maryland,
provides tax return preparation and tax research services to GBS and
EKW franchisees. For the year ended December 31, 1997, GBS accounted
for approximately 17.5% of the Company's consolidated revenues.
o Edwin K. Williams & Co. ("EKW") is a franchisor of information systems
and financial management services, specifically designed to meet the
special needs of small businesses. EKW has a total of 156 franchises
located throughout the United States and one master licensee in
Canada. Its financial management services include, among others,
accounting and bookkeeping services and systems, financial management
analysis, payroll processing, and tax preparation and planning
services. For the year ended December 31, 1997, EKW accounted for
approximately 11.9% of the Company's consolidated revenues.
36
<PAGE> 39
o Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
franchisor of heating, ventilating and air conditioning service
businesses under the service mark Aire Serv(R) and has 45 United
States franchises and one foreign master licensee. For the year ended
December 31, 1997, Aire Serv accounted for approximately 2.3% of the
Company's consolidated revenues.
o Mr. Electric Corp. ("Mr. Electric") is a franchisor of electrical
repair and service businesses under the service mark "Mr.
Electric"(R). Mr. Electric has 51 franchises in the United States, and
has granted three foreign master licenses. For the year ended December
31, 1997, Mr. Electric accounted for approximately 6.6% of the
Company's consolidated revenues.
o Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of businesses
relating to service and repair of appliances (both residential and
commercial). Mr. Appliance began franchising in September 1996, and
has 20 franchises in the United States. For the year ended December
31, 1997, Mr. Appliance accounted for approximately 2.2% of the
Company's consolidated revenues.
o The Dwyer Group National Accounts, Inc. ("National Accounts") solicits
commercial national account customers who can call a toll free number
for their general repair and 24 hour emergency service needs. The
order is filled through the Company's network of franchisees or
qualified subcontractors. For the year ended December 31, 1997,
National Accounts accounted for approximately 5.7% of the Company's
consolidated revenues.
The Company's primary sources of revenues are as follows:
o Royalties from existing franchisees based on a percentage of each
franchisee's gross sales. These fees range from 2% to 8% of the
franchisee's sales, depending upon the particular franchise concept
and upon various other factors.
o Franchise fees generated from the sale of new franchises.
o Sales of products and services to its franchisees (by GBS and EKW) and
to unrelated third parties (by National Accounts).
B. Inventories
Inventories consist of products to be sold to the Company's franchisees and are
stated at the lower of cost (first-in, first-out method) or market.
C. Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the respective assets, ranging from three to forty years. The
cost of equipment held under capital leases is equal to the lower of the net
present value of the minimum lease payments or the fair value of the leased
property at the inception of the lease. Amortization of property capitalized
under capital leases is included with depreciation expense.
D. Earnings Per Share (EPS)
Basic earnings per share is computed based on the weighted average number of
shares outstanding during each of the periods. Diluted earnings per share
include the dilutive effect of unexercised stock options and warrants.
37
<PAGE> 40
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS computation:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 1997
--------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Net Income $746,776 6,774,323 $.11
====
Effect of dilutive securities
Warrants and options 112,135
-------- ---------
Diluted EPS $746,776 6,886,458 $.11
======== ========= ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 1996
--------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Net Income $(441,123) 7,113,127 $(.06)
======
Effect of dilutive securities
Warrants and options 202,521
--------- ---------
Diluted EPS $(441,123) 7,315,648 $(.06)
========== ========= ======
</TABLE>
Options and warrants to purchase 542,225 shares of common stock were outstanding
during 1997 but were not included in the computation of diluted EPS because
their exercise prices were greater than the average market price of the common
shares. The options were still outstanding at the end of 1997. Diluted EPS also
does not include 340,300 contingent shares issuable upon certain conditions
related to GBS (See Note 2.)
E. Cash and Cash Equivalents
The Company considers all cash and highly liquid investments purchased with an
initial maturity of three months or less to be cash or cash equivalents. The
Company maintains its cash in bank deposit and money market accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risks on cash and cash equivalents. Cash equivalents at December 31, 1997
includes, but is not limited to, $813,974 in money market funds. Included in
cash equivalents at December 31, 1996 is $490,000 in money market funds and
$200,000 in certificates of deposit. At December 31, 1996, cash and cash
equivalents included national advertising funds held totaling $460,000. No such
funds were included at December 31, 1997.
F. Short Term Investments and Marketable Securities
The Company considers all highly liquid debt instruments purchased with an
initial maturity of not less than three months but not more than twelve months
to be short term investments. At December 31, 1996 the Company maintained a
$1,084,000 Canadian bank one-year certificate of deposit which was held to
maturity and was carried at cost.
Marketable securities, available-for-sale are carried at fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. Realized gains and losses are included in income.
38
<PAGE> 41
G. Franchise Operations
Revenues from the sale of regional franchise agreements and individual
franchises in the United States and master license agreements in foreign
countries are generally recognized, net of an allowance for uncollectible
amounts, when substantially all significant services to be provided by the
Company have been performed. Regional franchise agreements grant the regional
franchisee the right to sell individual franchises in the regional franchisee's
territory. The regional franchisee generally receives a commission on individual
franchises sold as well as a share of future royalties from franchisees in the
regional franchisee's territory. Interest on trade notes receivable is accrued
and recorded as income, net of an allowance for uncollectible amounts, when due.
In situations, however, where revenue from such sales is collectible over an
extended period of time, down payments are not sufficient and/or collectibility
is not reasonably certain, revenue is recognized on the installment method as
amounts are collected. Interest on trade notes receivable resulting from sales
recorded on the installment method is recorded when received.
Revenue from franchise royalties is generally recognized, net of an allowance
for uncollectible amounts, when due from the franchisees.
The Company collects and holds in escrow 2% of Rainbow, Mr. Rooter, Aire Serv,
Mr. Appliance, and Mr. Electric franchisees' sales to be used for national
advertising. Prior to 1997, the Company recorded amounts related to such
national advertising funds on its books. Beginning in 1997, in order to
accurately reflect the nature of such funds, the amounts related to such funds
are excluded from the Company's financial statements.
Revenue from product sales is recognized when orders are shipped. Revenue from
services is recognized upon the completion of the service. For master license
agreements, revenues are recognized upon completion of all significant initial
services provided to the master licensee and upon satisfaction of all material
conditions of the master license.
H. Assets Held for Sale
On occasion, the Company has purchased franchise territories from existing
franchisees, to be marketed to new franchisees. If there was a committed buyer
for the acquired franchise territory, the acquisition was recorded as an asset
held for sale at the lower of cost or fair market value. Any gain or loss
realized when the territory was sold was included in results of operations. The
cost of acquiring a non-operating or troubled franchise territory where there is
not a committed buyer is expensed. The Company had no such assets on its books
at December 31, 1997. The only asset held for sale at that date is real estate
in Waco, Texas, which is carried at fair value.
I. Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of property, plant &
equipment, inventory, and accounts and notes receivable for financial and income
tax reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
The Company files a consolidated tax return on behalf of itself and its
Subsidiaries.
J. Purchased Franchise Rights and Patents and Trademarks
The Company may repurchase regional franchise rights. Regional franchise
repurchases are recorded at the lower of cost or fair value based upon estimated
cash flows from existing franchises operating in the region. Periodically the
Company assesses the fair value of these assets based on estimated, undiscounted
future cash flows to determine if an impairment in the value has occurred and an
adjustment is necessary. If an adjustment is required, a discounted cash flow
analysis is performed and an impairment loss is recorded. The Company had an
investment of $302,738 in such regional franchises at December 31, 1997.
39
<PAGE> 42
The costs of purchased franchise rights and other intangible assets are
amortized using the straight-line method over their estimated lives of six to
fifteen years. Annually, the Company reviews the recoverability of intangible
assets in accordance with SFAS No. 121. The measurement of possible impairment
is based primarily on the ability to recover the balance of the purchased
franchise rights from expected future operating cash flows.
K. Equity Method Investments
In 1994, E.K. Williams acquired 33 1/3% of the outstanding capital stock of
Service Station Computer Systems, Inc. ("SSCS") for $500,000 cash. SSCS is a
private concern headquartered in California which develops and provides
computerized bookkeeping products to conventional service stations, self-serve
stations and convenience store operations. The investment in SSCS has been
accounted for using the equity method of accounting. The cost of SSCS in excess
of amounts attributable to tangible assets at acquisition was approximately
$257,000 and is being amortized to operations over a 10 year period using the
straight-line method.
L. Reclassifications
Certain reclassifications have been made to prior year financial statements to
conform to 1997 presentation.
M. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from these estimates.
N. Investment Securities
At December 31, 1997 and 1996, the amortized cost and estimated fair values of
investment securities by type and contractual maturity are shown below.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------
AMORTIZED GROSS UNREALIZED ESTIMATED FAIR
COST GAINS VALUE
<S> <C> <C> <C>
Marketable Securities $2,214,951 $112,139 $2,327,090
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------
AMORTIZED GROSS UNREALIZED ESTIMATED FAIR
COST GAINS VALUE
<S> <C> <C> <C>
Short term investments
Certificate of Deposit (due within 1 year) $1,084,061 $36,179 $1,120,239
Marketable Securities $674,214 $35,032 $709,246
</TABLE>
During 1997, the Company received proceeds of $1,166,373 from the Certificate of
Deposit held at December 31, 1996. Also during 1997, the Company purchased
marketable securities at a cost of $1,781,281 and sold marketable securities
receiving proceeds of $241,783.
During 1996, the Company sold available-for-sale securities for gross proceeds
of $102,496. There were no sales of securities classified as held-to-maturity
investments during 1996.
40
<PAGE> 43
Also included in other assets at December 31, 1996, were debt securities earning
10.5%, carried at cost of $200,000. These securities were called in December
1997, with the Company receiving $200,000 plus accrued interest.
O. New Accounting Standards
Effective December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings Per Share". This Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This Statement simplifies the previous
standards for computing earnings per share, and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. There was no material impact on the Company's financial
statements resulting from the adoption of SFAS No. 128.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected financial information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The disclosure requirements of SFAS No. 131 are effective
for financial statements for financial years beginning after December 15, 1997.
The Company will comply with the disclosure requirements of SFAS No. 131 in its
financial statements for its fiscal year ending December 31, 1998. The Company
believes that there will be no material impact on its financial statements
resulting from the adoption of SFAS No. 131.
NOTE 2. COMMON STOCK, STOCK OPTIONS, WARRANTS AND CERTAIN TRANSACTIONS
A. Common Stock
In December 1994, the Company's Board of Directors authorized the repurchase of
up to 355,500 shares of its common stock outstanding. At December 31, 1996, the
Company had 122,425 shares of stock in its treasury at a cost of $96,121.
In June 1997, the Company issued 2,600 shares of treasury stock to former
employees in connection with their termination of employment, leaving a balance
of 119,825 shares of stock in its treasury at a cost of $94,171.
In 1993, the Company, Rainbow, and Mr. Donald J. Dwyer, Sr., ("Mr.
Dwyer") entered into a reorganization agreement ("Reorganization Agreement")
pursuant to which Mr. Dwyer was issued 4,035,555 shares of the Company's common
stock, in exchange for all of the outstanding stock of Rainbow and GBS (the
"Exchange") and GBS and Rainbow became wholly owned subsidiaries of the Company.
Of the shares issued, 340,300 shares were placed in escrow (the "Escrow Shares")
until such time as GBS met certain earnings requirements. However the material
definitive terms of the escrow were never resolved.
Theresa Dwyer ("Ms. Dwyer") and her son, Donald J. Dwyer, Jr., were
appointed and qualified and serve as the personal representatives of Mr. Dwyer's
Estate (the "Estate") and the Dwyer Family Trust (the "Trust"). In lieu of the
escrow arrangement contemplated by the Reorganization Agreement, and in order to
more accurately represent the intent of the parties, the Company and personal
representatives of Mr. Dwyer, the Estate and the Trust, have entered into an
agreement relating to the Escrow Shares, to be effective as of June 1, 1993 (the
"Agreement").
The Agreement provides for the cancellation of the Escrow Shares and
such shares have been returned to the authorized but unissued shares of the
Company's Common Stock as of June 1, 1993. Pursuant to the Agreement, 340,300
new shares of Common Stock (the "Contingent Shares") have been reserved by the
Company's Board of Directors out of the Company's authorized but unissued Common
Stock and may subsequently be issued to the successors and assigns of Mr. Dwyer
if certain earnings targets are achieved by GBS or if GBS is sold to a third
party in certain transactions as provided in the Agreement.
41
<PAGE> 44
B. Warrants and Non-Employee Stock Options
In connection with the purchase of Mr. Rooter in 1989, the Company issued
options to purchase 385,000 shares of the Company's Common Stock to Mr. Dwyer,
as follows: (1) 135,000 shares at an exercise price of $1.00 per share, and (2)
250,000 shares at an exercise price of $1.50 per share. The options expire on
April 28, 1999. In 1994, all of the options exercisable at $1.50 per share and
45,000 of the options exercisable at $1.00 per share were transferred to an
unrelated third party. The remaining 90,000 options are now owned by a
partnership controlled by Ms. Dwyer.
In connection with a secondary public offering in 1994, the Company issued
warrants to purchase 125,000 shares of the Company's Common Stock at an exercise
price of $6.16 per share. Such warrants are exercisable until July 19, 1999.
In July 1996, in connection with a consulting agreement, the Company granted
options to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $3.38 per share, to a non-employee of the Company. These options vest
on a graded schedule of 20% per year beginning July 1, 1996, and expire on July
1, 2001.
In 1996, in connection with the purchase of franchise rights, the Company issued
options to purchase 28,500 shares of the Company's Common Stock, at an exercise
price of $2.25 per share, to a non-employee of the Company. These options vest
on a graded schedule of 20% per year beginning March 31, 1998 and expire on
March 31, 2003.
In 1997, in connection with a consulting arrangement, the Company granted
options to purchase the Company's Common Stock to a non-employee of the Company
under the following terms: (1) 25,000 shares at an exercise price of $3.75 per
share until January 1999, and (2) 5,000 shares at an exercise price of $3.00 per
share until January 1999.
In 1997, in connection with the purchase of franchise rights, the Company
granted options to purchase 60,000 shares of the Company's Common Stock at an
exercise price of $1.75 per share, to a non-employee of the Company. These
options expire on April 21, 2002.
In 1997, the Company issued warrants to two non-employees of the Company in
connection with a consulting arrangement. The warrants can be converted to an
aggregate of 109,225 shares of the Company's Common Stock, at an exercise price
of $4.12 per share. These warrants expire in June 2001.
C. Stock-Based Compensation Plan
The Company sponsors a stock-based compensation plan (the "Plan"), which is
described below. The Company applies APB Opinion 25 and related Interpretations
in accounting for its stock-based compensation plan. In 1995, the FASB issued
FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123")
which, if fully adopted by the Company, would change the methods the Company
applies in recognizing the cost of its stock-based compensation plan. Adoption
of the cost recognition provision of SFAS 123 is optional and the Company has
decided not to elect these provisions of SFAS 123. However, pro forma
disclosures as if the Company adopted the cost recognition provisions of SFAS
123 in 1995 are required by SFAS 123 and are presented below.
Under the Plan, the Company is authorized to issue up to 700,000 shares of
Common Stock pursuant to "Awards" granted in the form of incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and nonqualified stock options not qualified under Section 422 of
the Code. Awards may be granted to selected employees and directors of the
Company or any subsidiary. In 1997 and 1996, the Company granted both incentive
stock options and nonqualified stock options.
Employee Stock Options
In 1997, the Company granted a total of 137,045 awards in the form of incentive
stock options and nonqualified stock options under the Plan. In 1996, the
Company granted a total of 79,000 awards in the form of incentive stock options
and nonqualified stock options under the Plan. Under the Plan, the options
granted have contractual terms of 10 years. The
42
<PAGE> 45
incentive options granted generally vest at the rate of 20% per year, beginning
on the first anniversary of the date of grant. All options granted have an
exercise price that is equal to or greater than the fair market value of a share
of common stock on the grant date.
A summary of the status of the Company's stock options as of December 31, 1997
and December 31, 1996 and the changes during the year ended on those dates is
presented below. Data for 1996 has been restated to conform to the provisions of
SFAS 123.
<TABLE>
<CAPTION>
1997 1996
---- ----
# of Shares Weighted # of Shares Weighted
Underlying Average Underlying Average
Options Exercise Prices Options Exercise Prices
------- --------------- ------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of the year 449,826 $ 3.05 408,326 $ 2.32
Granted 137,045 $ 1.94 79,000 $ 2.85
Exercised -- N/A -- N/A
Forfeited (40,000) $ 3.33 (37,500) $ 3.13
Expired (109,225) $ 4.12 -- N/A
-------- --------
Outstanding at end of year 437,646 $ 2.41 449,826 $ 3.05
======== ========
Exercisable at end of year 208,517 $ 2.71 259,159 $ 3.47
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
----- --------
<S> <C> <C>
Weighted-average grant date fair value of all options
granted during the year $1.26 $ 1.54
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1997 and 1996: dividend yield of 0%; risk-free
interest rates are different for each grant and range from 5.21% to 6.98%; the
expected lives of options are from 2.5 to 6 years; and volatility of 50% for all
grants.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------------
Number Wgtd. Avg. Number
Range of Outstanding Remaining Wgtd. Avg. Exercisable Wgtd. Avg.
Exercise Prices at 12/31/97 Contr. Life Exercise Price at 12/31/97 Exercise Price
- --------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.64 to $4.25 437,646 7.5 years $ 2.41 208,517 $ 2.71
</TABLE>
Pro Forma Net Loss and Net Loss Per Common Share
Had the compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS 123, the Company's net income (loss) and
earnings (loss) per common share for 1997 and 1996 would approximate the pro
forma amounts below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
1997 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SFAS 123 Charge $ -- $ 101,000 $ -- $ 71,000
APB25 Charge -- -- -- --
Net Income (Loss) $ 747,000 $ 646,000 $(441,000) $(512,000)
Earnings (Loss) Per Common Share $ .11 $ .10 $ (.06) $ (.07)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future results.
43
<PAGE> 46
NOTE 3. TRADE NOTES RECEIVABLE - FRANCHISE FEES AND DEFERRED FRANCHISE SALES
REVENUE
The Company receives various notes from the sale of new franchises. These notes
receivable are generally collateralized by the rights to the related franchise
territory sold, and bear interest at the approximate market rates prevailing at
the dates of the transactions. A summary of such notes receivable as of December
31, is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Amounts due within one year $ 1,115,707 $ 686,117
Amounts due after one year, net of allowance for uncollectible amounts
of $816,054 and $1,633,092 in 1997 and 1996, respectively 3,760,824 4,521,896
----------- -----------
Total notes receivable $ 4,876,531 $ 5,208,013
=========== ===========
</TABLE>
Activity in the allowance for uncollectible amounts was as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Balance, January 1 $ 1,633,092 $ 855,849
Provision for doubtful accounts 81,760 946,846
Write-offs (898,798) (169,603)
----------- -----------
Balance, December 31 $ 816,054 $ 1,633,092
=========== ===========
</TABLE>
At December 31, 1997 and 1996, the amounts of deferred revenue from franchise
sales were $1,539,085 and $2,250,299, respectively. Fees from franchise sales
accounted for by the installment method are collectible in the years 1998
through 2007.
At December 31, 1997, interest rates on trade notes receivable ranged from 7% to
12%.
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of the Company's financial instruments (all of which are
held for nontrading purposes) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Short term investments $ -- $ -- $1,084,061 $1,120,239
Trade notes receivable 4,831,397 4,708,614 5,208,013 5,039,864
</TABLE>
The carrying amount approximates fair value of cash and cash equivalents. The
fair value of short-term investments is estimated using current interest rates
offered for investments of a similar dollar amount and remaining maturity. The
carrying value of accounts receivable, accrued interest receivable, accounts
payable, accrued liabilities, and other payables approximates fair value because
of the relatively short maturities of these items. The fair value for fixed rate
trade notes receivable are estimated using discounted cash flow analyses, using
interest rates currently being offered for notes with similar terms to
franchisees of similar credit quality. The carrying value of notes payable and
capital lease obligations approximate fair value as they are carried at rates at
which the Company could borrow funds with similar remaining maturities.
44
<PAGE> 47
NOTE 5. PROPERTY AND EQUIPMENT
A summary of property and equipment as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land $ 57,159 $ 57,159
Building and improvements 185,380 184,392
Machinery and equipment 1,652,465 1,530,787
Furniture and fixtures 300,444 288,864
---------- ----------
2,195,448 2,061,202
Less accumulated depreciation 1,125,073 801,339
---------- ----------
$1,070,375 $1,259,863
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was $374,070
and $336,765, respectively.
NOTE 6. INCOME TAXES
Federal income tax expense/benefit for the years ended December 31, 1997 and
1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current tax expense/(benefit): $ 506,931 $ (32,841)
Deferred tax expense/(benefit): (128,632) (125,041)
--------- ---------
Total tax expense/(benefit) $ 378,299 $(157,882)
========= =========
</TABLE>
A reconciliation of income tax expense at the federal statutory rate to the
income tax provision at the Company's effective rate is as follows for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Federal income tax at statutory rate $ 382,499 34% $(191,184) (32%)
Utilization of tax loss carryforward (63,900) (6%) -- --
Goodwill amortization not deductible
for tax purposes 10,200 1% -- --
Other 49,500 5% 33,302 6%
--------- --------- --------- ---------
Total tax expense/(benefit) $ 378,299 (34%) $(157,882) (26%)
========= ========= ========= =========
</TABLE>
THIS SECTION LEFT INTENTIONALLY BLANK.
45
<PAGE> 48
The components of deferred income tax assets and liabilities at December 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation and amortization $ (84,725) $ (59,226)
Franchise agreements (161,851) (190,853)
IRC Section 481 Adjustment (change in
accounting method) (210,252) (420,505)
----------- -----------
Total deferred income tax liabilities (456,828) (670,584)
Deferred tax assets:
Accrued expenses 128,029 99,312
Equity in earnings from subsidiary not in
consolidated group 45 18,607
Net operating losses and tax credits 841,592 905,513
Reserves 586,788 621,608
Deferred fees 105,144 142,581
Other 2,620 2,620
----------- -----------
Total deferred tax assets 1,664,218 1,790,241
Valuation allowance 777,611 777,611
----------- -----------
Net deferred income tax asset $ 429,779 $ 342,046
=========== ===========
</TABLE>
The Company establishes valuation allowances in accordance with the provisions
of SFAS 109, "Accounting for Income Taxes". The Company continually reviews the
adequacy of the valuation allowance and is recognizing benefits only as
reassessment indicates that it is more likely than not that the benefits will be
realized.
The Company expects to realize the net asset principally through the
implementation of reasonable tax strategies based on future income projections.
Although the Company experienced losses in 1996 and 1995, these losses were
primarily attributed to substantial asset write-downs in 1996 that also impacted
1995. Management considers such a write-down as unusual. The valuation allowance
as of December 31, 1997 and 1996 pertains primarily to the alternative minimum
tax net operating losses available for carryforward. Management has determined
it is unlikely that this component of the deferred tax asset will be realized.
At December 31, 1997, the Company has available unused preacquisition operating
loss and alternative minimum tax carryforwards of EKW. The operating loss
carryforwards expire, if not utilized, in 2006 and 2007. Approximately $136,000
of the net operating loss carryfowards expire in 2006 and $32,000 in 2007. The
alternative minimum tax carryforward has no expiration date. These
preacquisition carryforwards may be used only to offset taxable income, if any,
of EKW and may not be used to offset future taxable income of any other member
of the group with which EKW files a consolidated return. The amount of the
preacquisition carryforwards which may be applied in any one year is limited to
the lesser of EKW's taxable income or $67,000, as applied on a cumulative basis.
These carryovers have only been recognized for financial reporting purposes to
the extent of EKW's taxable temporary differences. To the extent that these
carryovers exceed EKW's taxable temporary differences, a valuation allowance has
been created.
THIS SECTION LEFT INTENTIONALLY BLANK.
46
<PAGE> 49
NOTE 7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
The following notes payable and capital lease obligations were outstanding at
December 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Notes payable with no interest to individual third parties with aggregate payments of
$6,333 per month. $ 164,423 $ 56,409
9.25% mortgage loan from a bank, due in monthly installments of $1,593 per
month, including interest, through September of 2006, with a final payment of
$139,798 in October 2006, collateralized by property in Waco, Texas. 153,978 --
Note payable with no interest to an individual. Minimum payments of $1,000 per month
with a balloon of the remaining balance due November 2002. 115,850 150,000
Note payable under a $300,000 line of credit, interest at the Wall Street
Journal prime rate plus 1% (9.5% at December 31, 1997). Collateralized by notes
receivable, expiring in November 1998. 80,500 --
Obligations under capital leases, interest of approximately 13.5%, due in monthly 60,706 98,466
installments through December 2000.
10% note payable to a finance company, assumed in 1996 pursuant to a regional franchise
repurchase, due in installments through October 2000. 44,263 53,354
Note payable with no interest to an individual pursuant to the purchase of a regional
franchise, payable in $10,000 quarterly installments during 1998. 40,000 --
12.5% note payable to a finance company, assumed in 1997 pursuant to a
performance guarantee, due in monthly payments of $787 per month including
interest, through December, 2000. 24,604 --
10% note payable to an employee due in monthly payments through June 1999. 18,426 30,219
13.2% notes payable to a finance company, assumed in 1997 pursuant to a performance
Guaranty, due in monthly payments of $798 per month, including interest. 9,329 --
9.5% note payable to bank collateralized by the Company's telephone system. -- 183,856
Note payable under a line of credit of $200,000, at 7% interest. Guaranteed by a
$200,000 advertising fund certificate of deposit. Expired May 1997. -- 150,000
7.75% mortgage loan from a bank collateralized by property in Waco, Texas. -- 142,230
9.25% mortgage loan from a bank collateralized by 2nd lien on property in Waco, Texas. -- 17,308
8% note payable to an individual. -- 9,889
7.76% note payable, collateralized by a van. -- 1,339
------------ ------------
712,079 893,070
Less current portion 224,963 280,689
------------ ------------
Notes payable and capital lease obligations - long term $ 487,116 $ 612,381
============ ============
</TABLE>
47
<PAGE> 50
Maturities of notes payable and capital lease obligations are as follows:
<TABLE>
<S> <C> <C>
1998 $224,963
1999 141,560
2000 243,451
2001 18,983
2002 12,000
2003 and beyond 71,122
--------
$712,079
========
</TABLE>
NOTE 8. RELATED PARTY TRANSACTIONS
The Company engages in a number of transactions with its Chairperson of the
Board and majority stockholder, Ms. Theresa Dwyer ("Ms. Dwyer"), and with
entities controlled by Ms. Dwyer ("Affiliates"). The Company currently leases
its principal executive and administrative facilities from an Affiliate, under
an operating lease which expires on December 31, 2000, requiring monthly lease
payments of approximately $31,000. In addition to rent, the Company receives
repairs and maintenance, promotional materials and other services from entities
controlled by its majority stockholder. The Company expensed $757,271 for these
rents and services in 1997, and $629,769 in 1996.
The Company recognized income from Affiliates for accounting, legal and
administrative services, interest income, product sales commissions and
management fees totaling $778,701 in 1997 and $812,985 in 1996. In addition,
from time to time, the Company and its Affiliates have made advances to each
other, which generally have not had specific repayment terms and have been
reflected in the Company's financial statements as accounts receivable or
payable from related parties. These advances typically result from the payment
of an invoice by one entity for services or items performed or delivered on
behalf of the Company and one or more of its Affiliates. The company that pays
the invoice is eventually reimbursed by the other companies for the appropriate
amount based on a pro rata allocation of the services provided to each company.
In January 1998, the Company agreed to purchase an Affiliate, Rainbow
International Carpet Dyeing and Cleaning, Ltd., ("Rainbow Canada"), from Ms.
Dwyer, for a purchase price of $250,000. Rainbow Canada owns the Rainbow
franchise rights for Canada and currently has 20 franchisees currently
generating royalties of approximately $55,000 per year. The Company believes
that the purchase price approximates the price that would be paid to an
unrelated third party in a similar transaction.
In both 1997 and 1996, the Company paid an independent director $30,000 for
consulting services. In addition another independent director provides
consulting services regarding public relations, marketing and special projects
to the Company. During 1997 and 1996, the Company expensed approximately
$110,000 and $171,000, respectively, for this independent director's services.
In 1997, the Company entered into an agreement with related parties regarding
cancellation of certain shares of the Company's Common Stock. See Note 2 (A).
In December 1996, the Company, along with selected related parties, agreed to
convert $908,632 of related party accounts receivable and accounts receivable
from Affiliates to interest bearing (9.25%) notes receivable. These notes are
payable in full by December 31, 2006. In total, accounts and notes receivable
from related parties and officers (current and long-term) increased
approximately $285,000 from December 31, 1996 to December 31, 1997. These
receivables are due primarily from Affiliates. The increase from 1996 to 1997 is
due primarily to charges for services performed for those entities by the
Company, net of note payments made by Affiliates to the Company. Ms. Dwyer has
guaranteed payment of all amounts due from Affiliates.
In February 1995, the Company reached an agreement with the estate of the late
Donald J. Dwyer, Sr. regarding resolution of a discrepancy between the amount of
life insurance on Mr. Dwyer's life which had been reported and that which was
actually in force. The face amount of life insurance on Mr. Dwyer's life in
force at the time of his death was less than the
48
<PAGE> 51
$2,000,000 of life insurance in force as stated at the time of the July 19, 1994
offering of Common Stock. The life insurance in force at the time of Mr. Dwyer's
death was $1,050,000, a portion of which ($136,000) had been borrowed against
for the benefit of a wholly-owned subsidiary of the Company, which owned the
policies. On February 10, 1995 the estate executed a promissory note in the
amount of $950,000 bearing interest of 9% per annum payable February 9, 1997
resolving the discrepancy of life insurance in force and life insurance
previously reported to be in force on Mr. Dwyer's life. This transaction was
recorded in February 1995, as an additional capital contribution and as a note
receivable. The note receivable was classified as a reduction in stockholders'
equity. During 1995, the estate paid principal and interest in the amount of
$531,103 and $65,355, respectively. In 1996, the estate paid the remaining
principal balance and accrued interest of $418,896 and $38,376, respectively.
NOTE 9. CONCENTRATION OF CREDIT RISK AND CONTINGENCIES FROM NOTES RECEIVABLE
The Company extends credit to individuals to purchase franchises. These
individuals typically operate their franchises as an owner/manager. Generally,
the loans are collateralized by the related franchise territory rights. The
individual's ability to perform is dependent upon the economic condition of the
franchise. In addition, Mr. Rooter, Aire Serv and Mr. Electric have entered into
an agreement with SunTrust Credit ("STI") to finance franchise sales for
franchise applicants who meet STI's qualifications. This financing is with
recourse and STI's recourse states that, in the event of the franchisee's
default, Mr. Rooter, Aire Serv or Mr. Electric whichever is applicable, has 180
days to correct the default by getting the franchisee to pay, by selling the
franchise to another approved party, by paying off the note, or by exchanging
the note in default with a current note. If at the end of the first 180 days the
default has not been corrected, the responsible company must pay to STI monthly
installments specified in the defaulted franchisee's note, and all other
amounts, if any, specified in the defaulted franchisee's note, until the note
(principal, interest and other amounts, if any) is paid in full. During 1997 and
1996, Mr. Rooter and Aire Serv exchanged with STI several of their notes,
aggregating approximately $29,000 and $324,000, respectively, for defaulted
notes. In addition, approximately $37,000 and $24,000 were paid by Mr. Rooter
during 1997 and 1996, respectively, to STI, representing monthly installments on
behalf of franchisees. At December 31, 1997 and 1996, Rooter, Aire Serv and Mr.
Electric were contingently liable for approximately $2,249,000 and $2,431,000
respectively, relating to such notes.
In September 1996, the Parent, Mr. Rooter, Aire Serv, Mr. Appliance, and Mr.
Electric entered into an agreement with Phoenix Leasing Incorporated ("Phoenix")
to finance franchise sales for franchise applicants who meet Phoenix's
qualifications. Phoenix agreed to provide up to $3,000,000 in debt financing to
the franchisees provided that each franchisee's obligations to Phoenix under its
debt financing be guaranteed by the Parent and the franchising subsidiary for
such franchisee. On or about the 15th day of each calendar month, the Parent
receives from Phoenix an Aging Report of the amounts due and owing by the
franchisees as of the first day of such month. If an Aging Report shows that any
franchisee has failed to make all of the scheduled monthly payments due during
any sixty day period, then the Parent, within ten days of delivery of such Aging
Report, shall pay all of such franchisee's delinquent scheduled payments,
together with all late charges then due and Phoenix shall bill the Parent
directly for amounts due and payable under such franchisee's loan agreement. At
December 31, 1997 and 1996, the Parent was contingently liable for approximately
$799,000 and $29,000, respectively, relating to such notes.
Franchisees borrowing from STI and Phoenix are generally required to make a down
payment equal to 20-30% of the investment to be financed.
NOTE 10. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) plan covering all full-time employees who have
attained age 21 and completed 90 days of service. Plan participants may
contribute up to 15% of their annual compensation before taxes for investment in
several investment alternatives. Employees are fully vested with respect to
their contributions. The Company did not make any contributions to the plan
during 1996 or 1997. Each year the Board of Directors will determine the amount
of any Company contribution based upon the Company's profitability.
49
<PAGE> 52
NOTE 11. COMMITMENT AND CONTINGENCIES
The Company leases its facilities from an Affiliate under an operating lease
expiring December 31, 2000. The approximate minimum rental commitments under
operating leases are as follows:
<TABLE>
<CAPTION>
For Years Ending
----------------
<S> <C> <C>
1998 $ 372,000
1999 372,000
2000 372,000
--------------
$ 1,116,000
==============
</TABLE>
Rent paid to the Affiliate in both 1997 and 1996 was approximately $372,000.
NOTE 12. LITIGATION
The Company and its subsidiaries are parties to various legal proceedings
incidental to its normal business activities; many of which are covered by
insurance. Management of the Company does not believe that the outcome of each
such proceeding or all of them combined will have a material adverse affect on
the Company or its consolidated financial position. Management has estimated
that the potential loss due to these proceedings does not exceed $200,000, and
the Company has accrued for its estimate of such losses.
NOTE 13. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, various year-end adjustments were recorded to
the consolidated financial statements. The effect of these adjustments was a net
decrease in total assets of $2,301,000, a net decrease in liabilities of
$305,000, a net decrease in stockholders' equity and corresponding increased net
loss of $1,996,000. These adjustments were primarily to increase the allowance
for doubtful accounts and notes receivable, adjustments to and write downs of
assets held for sale, and write offs of notes receivable.
50
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
- -------- -----------
<S> <C>
3.1 Certificate of Incorporation, as amended (1)
3.2 Certificate of Amendment of Certificate of Incorporation filed June 12, 1987 (2)
3.3 Certificate of Amendment of Certificate of Incorporation filed May 8, 1988 (2)
3.4 Certificate of Amendment of Certificate of Incorporation filed July 30, 1993 (2)
3.5 Bylaws (1)
4.1 Form of Representative's Warrant Agreement, including Representative's Warrant (2)
4.2 Warrants to Purchase Common Stock issued to Norcross Securities, Inc. (2)
10.1 Stock Option Plan, as amended, and form of Employee Stock Option Agreement (1)
10.2 Form of Rainbow International Carpet Dyeing and Cleaning Co. License Agreement (2)
10.3 Form of Mr. Rooter Corporation Franchise Agreement (2)
10.4 Form of General Business Services License Agreement (2)
10.5 Form of Aire Serv Corporation Franchise Agreement (2)
10.6 Certificate of Registration of Service Mark "MR. ROOTER" (1)
10.7 Certificate of Registration of Service Mark "QUICK-AS-A-WINK" (1)
10.8 Certificate of Registration of Mr. Rooter logo (1)
10.9 Certificate of Registration of Service Mark "Super Kleens" logo (1)
10.10 Certificate of Registration for Service Mark "America's Trouble Shooter" (1)
10.11 Certificate of Registration of Trademark "MR. ROOTER" issued by Office of Consumer and Corporate
Affairs in Canada (1)
10.12 Lease Agreement between Donald J. Dwyer and Mr. Rooter Corporation, dated December 20, 1991 (2)
10.13 Lease Agreement between Donald J. Dwyer and Rainbow International Carpet Dyeing and Cleaning Training
Center, commencing January 1, 1993 (2)
10.14 Lease Agreement between Donald J. Dwyer and Rainbow International Carpet Dyeing and Cleaning Waco
Franchise, commencing January 1, 1993 (2)
10.15 Lease Agreement between Donald J. Dwyer and General Business Services, dated August 31, 1993 (2)
10.16 Lease Agreement between Donald J. Dwyer and Rainbow International, dated September 1, 1993 (2)
10.17 Lease Agreement between Donald J. Dwyer and The Dwyer Group, Inc., dated February 18, 1994 (2)
10.18 Agreement and Plan of Reorganization and Share Exchange (3)
10.19 Agreement for Purchase and Sale of Assets of National Manufacturing & Supply Corporation (4)
10.20 Franchisee Financing Agreement dated July 2, 1993, with Addendum dated December 23, 1993 (4)
10.21 Shareholders' Voting Proxy and Stock Sale Agreement, between Donald J. Dwyer, Sr. and Vernon Lee
Russell and wife, Sylvia Russell, and the Company (5)
10.22 Stock Purchase Agreement between Donald J. Dwyer, Sr., Vernon Lee Russell and Sylvia Russell (5)
10.23 Stock Option Agreement between the Company and Donald J. Dwyer (5)
10.24 Incentive Stock Option Agreement between the Company and John Appel for 25,000 shares of the Company's
Common Stock (4)
10.25 Incentive Stock Option Agreement between the Company and Douglas C. Holsted for 12,500 shares of the
Company's Common Stock (1)
10.26 Incentive Stock Option Agreement between the Company and Dina Dwyer-Owens for 2,500 shares of the
Company's Common Stock (1)
10.27 Incentive Stock Option Agreement between the Company and Robert A. Tunmire for 50,000 shares of the
Company's Common Stock (1)
10.28 Employment Contract between the Company and Donald J. Dwyer (1)
10.29 Guaranty Agreement, executed December 1, 1982 by Rainbow International Carpet Dyeing and Cleaning
Company (2)
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
10.30 Guaranty Agreement, executed May 1, 1984 by Rainbow International Carpet Dyeing and Cleaning Company
(2)
10.31 Promissory Note, executed January 7, 1993, by and between Pride Venture Capital, Inc. and GTL Services,
Ltd. (2)
10.32 Form of Affiliate Transactions Agreement (2)
10.33 Stock Purchase Agreement dated May 14, 1994 by and between The Dwyer Group, Inc., Co Data AG and
Central Data BV (6)
10.34 Irrevocable Stock or Bond Power, Note and Security Agreement,
dated May 25, 1994, by and between Christian Mission Concerns, as
lender, and the Company, as borrower (2)
10.35 Mutual Release by and between General Business Services, Pride Venture Capital and GTL Services Ltd.,
effective June 10, 1994 (2)
10.36 Assignment of Judgments and Claims, executed by and between General Business Services, Inc., Pride
Venture Capital, Inc., and GTL Services, Ltd., dated June 10, 1994 (3)
10.37 Promissory Note, executed June 8, 1994, by and between the Company and NationsBank of Texas, N.A. (2)
10.38 Promissory Note, executed June 9, 1994, by and between the Company and Central National Bank (2)
10.39 Certificate of Registration of Service Mark "Aire Serv", dated Jan. 25, 1994 (7)
10.40 Stock Purchase Agreement dated September 14, 1994, by and between E.K. Williams & Co. and Service
Station Computers Systems, Inc. (7)
10.41 Stock Option Agreement by and between the Company and James Sirbasku for 10,000 shares of the
Company's Common Stock (7)
10.42 Stock Option Agreement by and between the Company and John Hayes for 10,000 shares of the
Company's Common Stock (7)
10.43 Stock Option Agreement by and between the Company and Anthony DeSio for 10,000 shares of the
Company's Common Stock (7)
10.44 Incentive Stock Option Agreement by and between the Company and Matthew Michel (7)
10.45 Mutual Release by and between General Business Services, Inc., and Paul Woody effective June 30, 1996
10.46 Consulting Agreement by and between General Business Services, Inc., E.K. Williams & Co., and Paul
Woody effective July 1, 1996
10.47 Stock Option Agreement by and between the Company and Paul Woody for 25,000 shares of the
Company's Common Stock
10.48 Agreement dated as of June 1, 1993, between the Company and the
personal representatives of Mr. Donald J. Dwyer, Sr., his Estate
and the Dwyer Family Trust regarding cancellation of 340,300
Escrow Shares (8)
10.49* Form Of Stock Option Agreement by and between the Company and Don Latin for 10,000 shares of the
Company's Common Stock
10.50* 1997 Stock Option Plan and Form Of Employee Stock Option Agreement
10.51* Form Of Warrant Agreement and Warrant issued to V. Lee Russell
10.52* Form Of Warrant Agreement and Warrant issued to David B. Duck.
10.53* Form Of Stock Option Agreement by and between the Company and Target Enterprises, Inc. for 28,500
shares of the Company's Common Stock.
10.54* Form Of Stock Option Agreement by and between the Company and John Hayes for 11,420 shares of the
Company's Common Stock
21.1* List of Subsidiaries
27* Financial Data Schedules
</TABLE>
* Filed herewith.
- --------------------------
(1) Incorporated by reference to the Registrant's Form S-18 registration
statement (SEC File No. 33-7290-FW).
(2) Incorporated by reference to the Registrant's Form SB-2 registration
statement (SEC File No. 33-78814).
(3) Incorporated by reference to the Registrant's Form 8-K/A dated as of
June 1, 1993 (SEC File No. 0-15227).
(4) Incorporated by reference to the Registrant's Form 10-K for its fiscal
year ended December 31, 1993 (SEC File No. 0-15227).
<PAGE> 55
(5) Incorporated by reference to the Registrant's Schedule 13D of Donald J.
Dwyer, dated May 4, 1989, filed May 9, 1989 (SEC File No. 0-15227).
(6) Incorporated by reference to the Registrant's Form 8-K dated as of May
14, 1994 (SEC File No. 0-15227).
(7) Incorporated by reference to the Registrant's Form 10-KSB for its
fiscal year ended December 31, 1994 (SEC File No. 0-15227).
(8) Incorporated by reference to the Registrant's Form 8-K dated as of July
31, 1997 (SEC File No. 0-15227). (a) Reports on Form 8-K NONE
<PAGE> 1
EXHIBIT 10.49
OPTION CERTIFICATE
OPTION TO PURCHASE COMMON STOCK
OF
THE DWYER GROUP, INC.
Date: July 31, 1995
This is to certify that, for value received, DONALD E. LATIN
("Holder"), is entitled to purchase, subject to the provisions of this Option,
from THE DWYER GROUP, INC., a Delaware corporation ("Company"), ten thousand
(10,000) shares of Company's common stock, $.10 par value (such class of stock
being referred to herein as the "Stock"), at Three and 375/1000 Dollars ($3.375)
per share (the "Exercise Price"). The number of shares of Stock to be received
hereinafter set forth. The shares of Stock or other securities or property
deliverable upon such exercise, as adjusted from time to time, are hereinafter
sometimes referred to as "Option Shares." Unless the context otherwise requires,
the term "Option" or "Options" as used herein includes this Option and any other
Option or Options which may be issued pursuant to the provisions of this Option,
whether upon transfer, assignment, partial exercise, divisions, combinations,
exchange or otherwise, and the term "Holder" includes any registered transferee
or transfers or registered assignees of Holder, who in each case shall be
subject to the provisions of this Option, and when used with reference to Option
Shares, means the holder or holders of such Option Shares.
SECTION 1. Exercise of Option. Subject to the provisions of Section 9
hereof, this Option may be exercised in whole or in part at any time or from
time during the period commencing on July 31, 1995 (the "Commencement Date") and
ending 5:00 P.M., Central Standard Time, on the date which is five (5) years
after the Commencement Date (the "Expiration Date"), by presentation and
surrender to Company at its principal office of this Option and the Purchase
Form annexed hereto duly executed and accompanied by payment, in cash, certified
or official bank check payable to the order of Company in the amount of the
Exercise Price for the number of Option Shares specified in such form. If this
Option is exercised in part only, Company shall, promptly after presentation of
this Option upon such exercise, execute and deliver a new Option evidencing the
rights of Holder thereof to purchase the balance of the Option Shares
purchasable hereunder upon the same terms and conditions as herein set forth.
Upon and as of receipt by Company at its office, in proper form for exercise and
accompanied by payment as herein provided, Holder shall be deemed to be the
holder of record of the shares of Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Company shall then be closed or
that certificates representing such shares of Stock shall not then be actually
delivered to Holder.
Option to Purchase
TDG Common Stock 1 of 12
<PAGE> 2
SECTION 2. Reservation of Shares. Company shall at all times after the
Commencement Date and until expiration of this Option the number of Option
Shares as shall be required for issuance and delivery upon exercise of this
Option.
SECTION 3. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
With respect to any fraction of a share called for upon exercise hereof, Company
shall pay to Holder an amount in cash equal to such fraction multiplied by the
current market value such fractional share, determined as follows:
(1) if the Stock is listed on a national securities exchange
or admitted to unlisted trading privileges thereon, the
current value shall be the last reported sale price of the
Stock on such exchange on the last business day prior to
the date of exercise of the Option, or if no such sale is
made on such day, such price of the Stock for such
immediately preceding day as such a sale occurred on such
exchange; or
(2) if the Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the mean of
the last reported high and low prices of the Stock
reported by a comparable exchange system selected by the
Board of Directors of Company, on the last business day
prior to the date of the exercise of this Option; or
(3) if the Stock is not so listed or admitted to unlisted
trading privileges, and bid and asked prices are not so
reported the current value shall be an amount, not less
than book value per share of stock, determined in such
reasonable manner as may be agreed to by the Board of
Directors of Company and the Holder.
SECTION 4. Transfer, Assignment or Loss of Option.
(1) This Option may not be assigned or transferred without the
prior written consent of the Company. Any purported
transfer or assignment made other than in accordance with
this Section 4 shall be null and void and of no force and
effect.
(2) Upon receipt by Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Option,
and (in the case of loss, theft or destruction) of
reasonable satisfactory indemnification to Company or (in
the case of mutilation) presentation of this Option for
surrender and cancellation, Company will execute and
deliver a new Option of like tenor and date and any such
lost, stolen, destroyed or
Option to Purchase
TDG Common Stock 2 of 12
<PAGE> 3
mutilated Option shall thereupon become void. Any Option
Certificate or Certificates of different denominations,
of like tenor and representing the aggregate the same
number of Options, upon surrender of such Option
Certificate or Certificates, with the Form of Assignment
fully filled in and executed, to the Company at its
principal office, at any time or from time to time after
the close of business on the Expiration Date. The Company
shall promptly cancel the surrendered Option Certificate
and deliver the new Option Certificate pursuant to the
provisions of this Section.
SECTION 5. Adjustment in the Number of Option Shares Purchasable and
Exercise Price.
5.1 The number of shares of Stock for which this Option may be
exercised shall be subject to adjustment as follows:
(1) in the event there is a subdivision or combination of the
outstanding shares of Stock into a larger or smaller
number of shares, the number of shares of Stock for which
this Option may be exercised shall be increased or reduced
in the same proportion as the increase or decrease in the
outstanding shares of stock:
(2) if Company declares a dividend on Stock or securities
convertible into Stock, the number of shares of Stock for
which this Option may be exercised shall be increased, as
of the record date for determining which holders of Stock
shall be entitled to receive such dividend, in proportion
to the increase in the number of outstanding shares of
Stock as a result of such dividend:
(3) if Company decides to offer rights to all holders of Stock
which entitle them to subscribe to additional Stock or
securities convertible into Stock, Company shall give
written notice of any such proposed rights offering the
Holder at least fifteen days prior to the proposed record
date in order to permit Holder to exercise this Option on
or before such record date. There shall be no adjustment
in the number of shares of Stock for which this Option may
be exercised or the Exercise Price by virtue of such
rights offering or by virtue of any sale of any class of
securities of Company pursuant to such rights offering;
and
(4) if the Company declares a dividend to its shareholders of
securities of any subsidiary of the Company, Holder, upon
exercise thereof, shall be entitled to receive the shares
of such securities that Holder would have been entitled to
receive at the same aggregate Exercise Price if Holder's
Option had been exercised immediately prior to such
dividend.
Option to Purchase
TDG Common Stock 3 of 12
<PAGE> 4
5.2 In the event at any time prior to the expiration of this Option of
any reorganization or reclassification of the outstanding shares of Stock (other
than a change in par value, or from no par value to par value, or from par value
to non par value, or as a result of a subdivision or combination), Holder shall
have the right, but not the obligation, to exercise this Option. Upon such
exercise, Holder shall have the right to receive the same kind and number of
shares of stock and other securities, cash or other property as would have been
distributed to Holder upon such reorganization or reclassification had Holder
exercised this Option immediately prior to such reorganization or
reclassification. Holder shall pay upon exercise such Exercise Price that
otherwise would have been payable pursuant to the terms of this Option. If any
such reorganization or reclassification results in a cash distribution in excess
of the Exercise Price provided by this Option, Holder may, at Holder's option,
exercise this Option without making payment of this Exercise Price, and in such
case Company shall, upon distribution to Holder, consider the Exercise Price to
have been paid in full, and in making settlement to Holder, shall deduct an
amount equal to the Exercise Price from the amount payable to Holder.
5.3 If Company shall, at any time prior to the expiration of this
Option, dissolve, liquidate or wind up its affairs, Holder shall have the right,
but not the obligation, to exercise this Option. Upon such exercise Holder shall
have the right to receive, in lieu of the shares of Stock that Holder otherwise
would have been entitled to receive, the same kind and amount of assets as would
have been issued, distributed or paid to Holder upon any such dissolution,
liquidation or winding up with respect to such shares of Stock had Holder been
the holder of record of such shares of Stock receivable upon exercise of this
Option on the date for determining those entitled to receive any such
distribution. If any such dissolution, liquidation or winding up results in any
cash distribution in excess of the Exercise Price provided for by this Option,
Holder may, at Holder's option, exercise this Option without making payment of
the Exercise Price and, in such case, Company shall, upon distribution to
Holder, consider the Exercise Price to have been paid in full, and in making
settlement to Holder shall deduct an amount equal to the Exercise Price from the
amount payable to Holder.
5.4 In the event at any time prior to the expiration of this Option
that Company is merged into or consolidated with another corporation under
circumstances where Company is not the surviving corporation, or more than 50
percent (50%) of the outstanding voting securities of Company are owned by
another corporation as a result of such merger or consolidation, then at the
election of the Board of Directors of Company:
(1) the successor entity shall assume Company's obligations
hereunder and Holder shall be entitled, upon exercise of this
Option, to receive in lieu of shares of Stock shares of such
stock or other securities as the holder of shares of Stocks
received pursuant to the terms of the merger or consolidation
or
Option to Purchase
TDG Common Stock 4 of 12
<PAGE> 5
(2) this Option may be canceled by the Board of Directors of
Company as of the effective date of any such merger or
consolidation, provided that:
(a) written notice of such cancellation shall
be given to Holder, and
(b) Holder shall have the right to exercise this
Option in full during a thirty day period
preceding the effective date of such merger or
consolidation.
5.5 Company may retain a firm of independent public accountants of
recognized standing (who may be any such firm regularly employed by Company) to
make any computation required under this Section 5, and a certificate signed by
such firm shall be conclusive evidence of the correctness of any computation
made under this Section.
5.6 Whenever the number of shares of Stock purchasable upon the
exercise of this Option is adjusted as herein provided, the Exercise Price shall
be adjusted by multiplying the applicable Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
shares of Stock purchasable upon exercise of this Option immediately prior to
such adjustment and the denominator of which shall be the number of shares of
Stock purchasable immediately after such adjustment.
SECTION 6. Officer's Certificate. Whenever the number of Option Shares
or the Exercise Price shall be adjusted as required by the provisions of Section
5 hereof, Company forthwith shall file in the custody of its secretary or an
assistant secretary, at its principal office, a certificate of the chief
executive officer of Company setting forth the number and kind of shares
purchasable, as so adjusted, stating that such adjustments in the number of kind
of shares or other securities conform to the requirements of Section 5 of this
Option, and setting forth a brief statement of the facts accounting for such
adjustments. Promptly after receipt of such certificate, the Company will
deliver, by first-class, postage pre-paid mail, a brief summary thereof (to be
supplied by the Company) to the Holder; provided, however, that failure to file
or to give any notice required under this Subsection, or any defect therein,
shall not affect the legality or validity of any such adjustments under Section
5. Each such officer's certificate shall be made available at all reasonable
times during reasonable hours for inspection by Holder.
SECTION 7. Notice to Holder. So long as this Option shall be
outstanding, if:
(1) Company shall pay any dividend or make any distribution upon
the Stock otherwise than in cash or
(2) Company shall offer to the holders of Stock for subscription
or purchase by them any shares of any class of stock of the Company or any other
rights or
Option to Purchase
TDG Common Stock 5 of 12
<PAGE> 6
(3) there shall be any capital reorganization of Company,
reclassification of the capital stock of Company, consolidation or merger of
Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of Company, or voluntary or
involuntary dissolution, liquidation or winding up of Company, then in any such
event, Company shall cause to be mailed by certified mail to Holder, at least
twenty (20) days prior to the relevant date described below, a notice containing
a brief description of the proposed action and stating the date or expected date
on which a record is to be taken for the purpose of such dividend, distribution
or rights, or such reclassification, organization, consolidation, merger,
conveyance, lease or transfer, dissolution, liquidation or winding up and the
date or expected date as of which the holders of Stock of record shall be
entitled to exchange their shares of Stock for securities or other property
deliverable upon such event.
SECTION 8. Option Certificate Holder Not Deemed a Stockholder.
Holder shall not, solely because of holding the Option, be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which at any time may be issuable on the exercise of
the Options for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any time thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, conveyance or otherwise), or to receive notice
of meetings or other actions affecting stockholders (except as provided in
Section 7 hereof), or to receive dividend or subscription rights, or otherwise,
until such Option Certificate shall have been exercised in accordance with the
provisions hereof and the receipt of the Exercise Price and any other amounts
payable upon such exercise by the Company.
SECTION 9. Registration Rights.
9.1 Registration Rights. In the event the Company files a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") Holder may demand the inclusion in such
Registration Statement (and any related qualification under blue sky laws or
other compliance) of the Option.
9.2 Registration Procedures.
(1) In performing its obligations under Section 9.1 with
respect to registration of the Options, Company shall, subject to the
limitations provided herein, as expeditiously as possible:
(A) before filing the Registration Statement or the
prospectus (the "Prospectus") which will be included as a part of the
Registration Statement, or any amendments thereto, including documents
incorporated by reference, Company will furnish to Holder draft copies
of all such documents proposed to be filed (other than exhibits, unless
so requested) a reasonable time prior thereto,
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which documents will be subject to the reasonable review of Holder and
its counsel, and will notify Holder of any stop order issued or
threatened by the Commission in connection therewith and take all
reasonable actions required to prevent the entry of such stop order or
to remove such stop order if entered;
(B) prepare and file with the Commission such amendments
and supplements to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration
Statement current and effective and to comply with the provisions of
the Securities Act with respect to the disposition of this Option and
all Option Shares covered by the Registration Statement;
(C) use its reasonable efforts to (a) register or qualify
the Options and Option Shares under such other securities or blue sky
laws of such jurisdictions as Holder shall reasonably request, (b)
Registration Statement remains in effect, and (c) take any other action
which may be reasonably necessary or advisable to enable Holder to
consummate the disposition of the Options or Option Shares in such
jurisdictions, except that Company shall no for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subdivision (iii) be obligated to be so qualified;
(D) use its reasonable efforts to cause the Options and
Option Shares to be registered with or approved by such other United
States federal or state governmental agencies or authorities as may be
necessary to enable Holder to consummate the disposition of the Options
or Option Shares;
(E) if requested by Holder, promptly incorporate in a
prospectus supplement or post-effective amendment such information as
Holder reasonably requests to be included therein with respect to the
number of Option Shares being sold by Holder and Holder's plan of
distribution and promptly make all required filings of such prospectus
supplement or post-effective amendment;
(F) cooperate with Holder to facilitate with timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing Option Shares to be sold under the Registration
Statement, in such denominations and registered in such names as Holder
may reasonably request.
(2) All expenses incident to Company's performance of its obligations
under this Section 9, including without limitations, all registration and filing
fees, fees and expenses of compliance with securities and blue sky laws,
printing expenses, fees and disbursements of Company's counsel, independent
certified public accountants, and other persons retained by Company (all such
expenses being therein call "Registration Expenses) will be borne by Company.
The Shareholder shall be responsible for all selling fees, expenses, discounts
and commissions relating to the Option Shares and for the fees and expenses of
counsel and other persons engaged by the Shareholder.
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(3) The Company shall take all actions reasonable necessary to enable
the Holder to sell the Option Shares without registration under the Securities
Act within the limitations of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time; or (b) any
similar rule or regulation hereafter adopted by the commission including,
without limitation, filing on a timely basis all reports required to be filed by
the Securities Exchange Act of 1934, as amended. Upon the request of the Holder,
the Company will deliver to the Holder a written statement as to whether it has
complied with such requirements.
9.3 Obligations of Holder.
(1) Holder agrees that it will offer and sell Options or Option Shares
in compliance with all applicable state and federal securities laws.
(2) Holder agrees to promptly notify Company after any Options or
Option Shares are sold and when Holder elects to terminate all further offers
and sales of this Options Shares pursuant to the Registration Statement.
9.4 Indemnification.
(1) Indemnification by the Company. To the extent permitted by law, the
Company will, and hereby does, indemnify and hold harmless Holder, its directors
and officers, each other natural person, corporation, business trust,
association, company, partnership, joint venture and other entity (each, a
"Person") who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls Holder or any such
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which Holder or any such
director or officer or underwriter or controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the company will
reimburse Holder and each such director, officer, underwriter and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim liability,
action or proceeding; provided that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written
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information furnished to the Company by Holder expressly for use in the
preparation thereof, and to the Company by Holder expressly for use in the
preparation thereof, and provided further that the Company shall not be liable
to any person to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or as based
upon any violation by it of the Securities Act or the Exchange Act. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of Holder or any such director, officer, underwriter or
controlling person and shall survive the transfer of Shares by Holder.
(2) Indemnification by Holder. To the extent permitted by law,
Holder will, and hereby does, indemnify and hold harmless in the same manner and
to the same extent as set further in subdivision (a) of this Section 9.4, each
underwriter, each Person who controls such underwriter within the meaning of the
securities Act, the Company, each director of the Company, each officer of the
Company and each other Person, if any, who controls the Company within the
meaning of the Securities Act, with respect to any statement of any untrue fact
in such Registration Statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto, or
any omission to state therein a material fact required to be state therein or
necessary to make the statements therein not upon and in strict conformity with
written information furnished to the Company by Holder expressly for use in the
preparation of such Registration Statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, and with respect to any
violation by Holder of the Securities Act or the Exchange Act.
(3) Notices of Claim, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 9.4,
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 9.4, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgement a conflict of interest between such
indemnified and indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so as to assume the defense thereof, the
indemnifying party shall, without the consent of the indemnified party, consent
to the entry of any judgement or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from a liability in respect to such claim
or litigation.
(4) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 9.4 (with appropriate
modifications) shall be given by the Company and Holder with respect to any
required registration or other
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qualification of securities under any Federal or state law or regulation of any
governmental authority other than the Securities Act.
(5) Indemnification Payments. The indemnification required by
this Section 9.4 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(6) Contribution. If the indemnification provided for in this
Section 9.4 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue
statement of material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 9.4(3), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
(7) The parties hereto agree that it would not be just and
equitable if contribution pursuant to Section 9.4(f) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable consecrations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation within the meaning of Section
11(f) of the Securities Act shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. If indemnification is
available under Section 9.4, the indemnifying parties shall indemnify each
indemnified party to the full extent provided in Section 9.4(1) through Section
9.4(5) without regard to the relative fault of said indemnifying party or
indemnified party or any other equitable consideration provided for in Section
9.4(6)
9.5 Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the company in the
performance of or compliance with any of the terms of this Option are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against the violation of any of the terms hereof or otherwise, in
addition to any other remedies which may be available at law or in equity.
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SECTION 10. Agreement of Holder. The Holder, by accepting this Option
consents and agrees with the Company that:
(1) The Options are transferable on the registry books of the
Company only upon the terms and conditions set forth in
this Option; and
(2) The Company may deem and treat the person in whose name
the Option is registered as the absolute owner of the
Option (notwithstanding any notation of ownership or other
writing thereon made by anyone than the Company or the
Option Agent) for all purposes whatever and the Company
shall not be affected by any notice to the contrary,
except as set forth in Section 4 of the Option.
SECTION 11. Governing Law. This Option shall be construed in accordance
with the laws of the State of Texas applicable to contracts executed and to be
performed wholly within such state.
SECTION 12. Notice. Notices and other communications to be given to
Holder of the Options evidenced hereby shall be delivered by hand or by
certified first-class mail, postage prepaid, return receipt requested to Holder
at 12 Carmarthen Court, Dallas, Texas 75225, until another address is filed in
writing by the Holder with the Company. Notices or other communications to
Company shall be deemed to have been sufficiently give if delivered by hand or
by first-class mail, postage prepaid to Company at 1010-1020 North University
Parks Drive, Waco, Texas 76707, or such other address as Company shall have
designated by written notice to such registered owner as herein provided. Notice
by mail shall be deemed given when deposited in the United States mail, postage
prepaid, as herein provided.
SECTION 13. Successors. All the covenants and provisions of this Option
by or for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder, and all covenants and provisions of this
Option by or for the benefit of the Holder of this Option shall bind and inure
to the benefit of the registered holder of the Options.
SECTION 14. Termination. This Agreement shall terminate as of the close
of business on the Expiration Date, or such earlier date upon which all Options
shall have been exercised or deemed. However, with respect to obligations
contained herein regarding the registration of the Option Shares, such
obligations shall continue on and after the Expiration Date if the Option is
fully or partially exercised on or before the Expiration Date.
SECTION 15. Benefits of This Agreement. Nothing in this Agreement or in
the Option Certificates shall be construed to give any person or corporation
other than the Company, and its respective successors and assigns hereunder and
the registered holders of the Options any legal or equitable right, remedy or
claim under this warrant, but this
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Agreement shall be for the sole and exclusive benefit of the Company and its
respective successors and assigns hereunder and the registered holders of the
Options.
SECTION 16. Transfer Books. The Company will at no time close its
transfer books against the transfer of this Option in any manner which
interferes with the timely exercise of this Option.
SECTION 17. Amendment. This Option Certificate may be modified or
amended and any provision hereof may be waived only by a writing executed by the
Company and the Holder.
IN WITNESS WHEREOF, Company has executed this Option as of the date set
forth above.
THE DWYER GROUP, INC.
By:
-------------------------------
Robert Tunmire
THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD OR TRANSFERRED IN WHOLE OR IN
PART, UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), HAS BEEN DECLARED EFFECTIVE WITH RESPECT TO SUCH
SECURITIES, OR COUNSEL SATISFACTORY TO THE DWYER GROUP, INC. HAS RENDERED AN
OPINION TO THE DWYER GROUP, INC. IN FORM AND SUBSTANCE SATISFACTORY TO THE DWYER
GROUP, INC. THAT THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT
OR THE RULES AND REGULATIONS THEREUNDER.
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EXHIBIT 10.50
THE DWYER GROUP, INC.
1997 STOCK OPTION PLAN
INTRODUCTION
On December 23, 1997, the Board of Directors of The Dwyer Group, Inc., a
Delaware corporation (the "Company"), adopted the following Stock Option Plan:
1. PURPOSE: The purpose of the Plan is to provide Employees of
the Company or its Subsidiaries with a proprietary interest in the Company
through the granting of Incentive Options and Nonqualified Options which will:
(a) increase the interest of the Employees in the Company's
welfare;
(b) furnish an incentive to the Employees to continue their
services for the Company; and
(c) provide a means through which the Company and its Subsidiaries
may attract able persons to enter its or their employ.
2. ADMINISTRATION: The Plan shall be administered by the
Committee.
3. PARTICIPANTS: The Committee shall, from time to time, select
the particular Employees of the Company and its Subsidiaries to whom options
are to be granted, and who will, upon such grant, become participants in the
Plan. The individuals eligible for selection by the Committee shall be those
Employees whose performance and responsibilities are determined by the
Committee to be influential to the success of the Company and its Subsidiaries.
4. STOCK OWNERSHIP LIMITATION: No Incentive Option may be
granted to an Employee who owns more that 10% of the voting power of all
classes of stock of the Company or its Parent or Subsidiaries. This limitation
will not apply if the option price is at least 110% of the fair market value of
the stock at the time the Incentive Option is granted and the Incentive Option
is not exercisable more than five years from the date it is granted.
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5. SHARES SUBJECT TO PLAN: Options may not be granted pursuant
to the terms of the Plan for more than 700,000 shares of Common Stock of the
Company, but this number shall be adjusted to reflect, if deemed appropriate by
the Committee, any stock dividend, stock split, share combination,
recapitalization or the like, of or by the Company. Shares to be optioned and
sold may be made available from either authorized but unissued Common Stock or
Common Stock held by the Company in its treasury. Shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase pursuant
to an option granted under the Plan may be reoffered under the Plan.
6. LIMITATION ON AMOUNT: To the extent that the aggregate fair
market value of stock with respect to which incentive stock options are
exercisable for the 1st time by any individual during any calendar year exceeds
$100,000 such options shall be treated as options which are not incentive stock
options. This paragraph shall be applied by taking options into account in the
order in which they were granted.
7. ALLOTMENT OF SHARES: Grants of options under the Plan shall
be as described in this Section 7 of the Plan, provided that the grant of an
option shall not be deemed either to entitle the Employee to, or to disqualify
the Employee from, participation in any other grant of options under the Plan.
(a) The Committee shall determine the number of shares of Common
Stock to be offered from time to time by grant of options to
Employees of the Company or its Subsidiaries.
(b) Any option granted to a person required to report under
Section 16(a) of the Securities Exchange Act of 1934, as
amended, must also be approved by the Board in order to be
effective.
8. GRANT OF OPTIONS: The Committee and the Board are authorized
to grant both Incentive Options and Nonqualified Options under the Plan.
Incentive Options may only be granted to employees within the meaning of
Section 422 of the Internal Revenue Code. The grant of options shall be
evidenced by stock option agreements containing such terms and provisions as
are approved by the Committee but not inconsistent with the Plan,
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including provisions that may be necessary to assure that any option that is
intended to be an Incentive Option will comply with Section 422 of the Internal
Revenue Code. Stock option agreements may provide that an option holder may
request approval from the Committee to exercise an option or a portion thereof
by tendering shares of Common Stock of the Company at the fair market value per
share on the date of exercise in lieu of cash payment of the exercise price.
Moreover, stock option agreements for Nonqualified Options may provide that the
option holder may request approval from the Committee to pay any withholding
associated with the Nonqualified Option by tendering shares of Common Stock of
the Company at the fair market value per share on the date of the exercise. An
option agreement may provide, if the Committee so determines, that upon
exercise of the option the Committee may elect to pay, in lieu of receipt from
the option holder of the exercise price and issuance of certificates for the
shares of stock exercise, an amount equal to the excess of the fair market
value per share on the date of exercise over the per share exercise price under
the option, multiplied by the number of shares covered by the option or portion
thereof being exercised ("Stock Appreciation"). Any such option agreement may
provide that the Stock Appreciation shall be paid to the option holder either
in cash or in Common Stock or in cash and Common Stock (based on the fair
market value of such stock on the date of the exercise by the option holder).
The method of payment shall be determined by the Committee in its sole
discretion. The option to purchase shares shall terminate with respect to the
number of shares for which the stock Appreciation is paid. The Company shall
execute stock option agreements upon instructions from the Committee. The Plan
shall be submitted to the Company's stockholders for approval. The Committee
and the Board may grant options under the Plan prior to the time of stockholder
approval, which options will be effective when granted, but if for any reason
the stockholders of the Company do not approve the Plan prior to one year from
the date of adoption of the Plan by the Board, all options granted under the
Plan will be terminated and of no effect, and no option by be exercised in
whole or in part prior to such stockholder approval.
9. OPTION PRICE. The option price for an Incentive Option shall
not be less than 100% of the fair market value per share of the Common Stock on
the date the option is granted. For any Incentive Option, the Committee shall
determine the fair market value of the Common Stock on the date of grant and
shall set forth the determination in its minutes, using any reasonable
valuation method.
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10. OPTION PERIOD. The Option Period will begin on the date the
option is granted which will be the date the Committee authorizes the option
unless the Committee specifies a later date. No option may terminate later
than ten years from the date the option is granted. The Committee may provide
for the exercise of options in installments and upon such terms, conditions and
restrictions as it may determine. The Committee may provide for termination of
any option in the case of termination of employment.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies
or becomes disabled [within the meaning of Section 22(e)(3) of the Internal
Revenue Code] prior to termination of his right to exercise an option in
accordance with the provisions of his stock option agreement without having
totally exercised the option, the option agreement may provide that it may be
exercised, to the extent of the shares with respect to which the option could
have been exercised by the participant on the date of the participant's death
or disability, (i) in the case of death, by the participant's estate or by the
person who acquired the right to exercise the option by bequest or inheritance
or by reason of the death of the participant, or (ii) in the case of
disability, by the participant or his personal representative, provided the
option is exercised prior to the date of its expiration or one (1) year from
the date of the participant's death or disability, whichever first occurs. The
date of disability of a participant shall be determined by the Committee.
12. PAYMENT. Unless cash is paid to the participant upon exercise
of the option, full payment for shares purchased shall be made in cash or by
check or, if allowed by the stock option agreement and approved by the
Committee, by tendering shares of Common Stock at the fair market value per
share at the time of exercise. Likewise, any withholding associated with a
Nonqualified Option may, if allowed by the stock option agreement and approved
by the Committee, be paid by tendering shares of Common Stock at the fair
market value per share at the time of exercise. No shares may be issued until
full payment of the purchase price therefor has been made, and a participant
will have none of the rights of a stockholder until shares are issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth
below. In no event may an option be exercised or shares be issued pursuant to
an option if any requisite action, approval or consent of any
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governmental authority of any kind having jurisdiction over the exercise of
options shall not have been taken or secured. If the option agreement does not
contain Stock Appreciation provisions, the Committee may offer an option
holder, upon such conditions and restrictions as it deems advisable and in lieu
of receipt from him of the exercise price and issuance of certificates for the
shares of stock exercised, the right to elect to receive payment in cash,
Common Stock, or a combination of cash and Common Stock, as the Committee shall
determine, in an amount equal to the Stock Appreciation.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares
of Common Stock covered by each outstanding option granted under the Plan and
the option price shall be adjusted to reflect, as deemed appropriate by the
Committee, any stock dividend, stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
Stock option agreements may provide, upon such terms and conditions
determined by the Committee, that in certain events, including sales of all or
substantially all of the assets of the Company, mergers, consolidations or
other corporate reorganizations, or changes in control of the Company, that the
exercisability of options evidenced by such stock option agreements are
accelerated effective twenty (20) calendar days before the date of the
applicable transaction and thereby the options become fully vested.
15. NON-ASSIGNABILITY. Options may not be transferred other than
by will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant or as provided in section 11 hereof.
16. INTERPRETATION. The Committee shall interpret the Plan and
shall prescribe such rules and regulations in connection with the operation of
the Plan at it determines to be advisable for the administration of the Plan.
The Committee may rescind and amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (1) materially increase the
number of securities that may be
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issued under the Plan, or (2) materially modify the requirements of eligibility
for participation in the Plan must be approved by the stockholders of the
Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any
action of the Board or the Committee shall be deemed to give any Employee any
right to be granted an option to purchase Common Stock of the Company or any
other rights except as may be evidenced by the stock option agreement, or any
amendment thereto, duly authorized by the Committee and executed on behalf of
the Company and then only to the extent and on the terms and conditions
expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board, this
Plan will terminate on December 22, 2007. The Committee may not grant options
under the Plan after that date, but options granted before that date will
continue to be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the committee or committees of the
Board appointed by the Board to administer the Plan,
or in the absence of such a committee, shall mean the
entire Board.
(c) "Common Stock" means the Common Stock which the
Company is currently authorized to issue or may in
the future be authorized to issue (as long as the
common stock varies from that currently authorized,
if at all, only in amount of par value).
(d) "Company" means The Dwyer Group, Inc., a Delaware
corporation.
(e) "Employee" means any employee, officer, director,
consultant or advisor, provided that bona fide
services shall be rendered by consultants or advisors
and such services must not be in connection with the
offer or sale of securities in a capital-raising
transaction.
(f) "Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended.
(g) "Incentive Option" means an option granted under the
Plan which meets the requirements of Section 422 of
the Internal Revenue Code.
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(h) "Nonqualified Option" means an option granted under
the Plan which is not intended to be an Incentive
Option.
(i) "Option Period" means the period during which an
option may be exercised.
(j) "Parent" means any corporation in an unbroken chain
of corporations ending with the Company if, at the
time of granting of the option, each of the
corporations other than the Company owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in the chain.
(k) "Plan" means this Stock Option Plan, amended from
time to time.
(l) "Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Company if,
at the time of the granting of the option, each of
the corporations other than the last corporation in
the unbroken chain owns stock possessing 50% or more
of the total combined voting power of all classes of
stock in one of the other corporations in the chain,
and "Subsidiaries" means more than one of any such
corporations.
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EXHIBIT 10.51
WARRANT AGREEMENT dated as of June 1, 1997, between The Dwyer Group,
Inc., a Delaware corporation (the "Company"), and V. Lee Russell (hereinafter
referred to as the "Warrant Holder").
W I T N E S S E T H
WHEREAS, the Company proposes to issue to the Warrant Holder
warrants ("Warrants") to purchase up to 66,625 shares (the "Shares") of common
stock of the Company, $.10 par value (the "Common Stock"); and
WHEREAS, the Warrant Holder has provided, and continues to
provide consulting services to the Company, and the Warrants issued pursuant to
this Agreement are being issued by the Company to the Warrant Holder, in
consideration for, and as part of the Warrant Holder's compensation in
connection with said consulting services;
NOW, THEREFORE, in consideration of the premises, the payment
by the Warrant Holder to the Company of Twenty Five Dollars ($25.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Warrant Holder is hereby granted the right to
purchase, at any time from July 1, 1997 until 5:00 P.M., Waco, Texas, time, on
June 1, 2001 (the "Warrant Exercise Term"), up to 66,625 Shares at an initial
exercise price (subject to adjustment as provided in Article 8 hereof) of $4.12
per Share.
2. Warrant Certificates.
The warrant certificate (the "Warrant Certificate")
delivered pursuant to this Agreement, is attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
Page 1 of 11
<PAGE> 2
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are
exercisable at a price of $4.12 per Share, payable in cash or by certified or
official bank check made payable to the order of the Company, or any
combination of cash or such check, subject to adjustment as provided in Article
8 hereof. Upon surrender of the Warrant Certificate with the annexed Form of
Election to Purchase, duly executed, together with payment of the Exercise
Price (as hereinafter defined) for the Shares purchased, at the Company's
principal offices in Waco, Texas (presently located at 1010 N. University Parks
Drive, Waco, Texas 76707) the Warrant Holder shall be entitled to receive a
certificate or certificates for the Shares so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Warrant Holder, in whole or in part (but not as to fractional shares of the
Common Stock). In the case of the purchase of less than all of the Shares
purchasable under any Warrant Certificate, the Company shall cancel said
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares shall be made forthwith (and in any event within
three business days thereafter) without charge to the Warrant Holder including,
without limitation, any transfer tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Warrant Holder; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Warrant Holder, and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
Page 2 of 11
<PAGE> 3
The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the attested signature of
the Warrant Holder. Warrant Certificates shall be dated the date of execution
by the Company upon initial issuance, division, exchange, substitution or
transfer.
The Warrant Certificates and, upon exercise of the Warrants,
in part or in whole, certificates representing the Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), and may
not be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to Rule 144
under the Act (or any similar rule under such Act relating to the disposition
of securities), or (iii) upon the delivery by the holder to the Company of an
opinion of counsel, reasonably satisfactory to counsel to the Company, stating
that an exemption from registration under such Act is available."
5. Restriction on Transfer of Warrants.
The Warrants shall not be assignable or transferable by the
Warrant Holder, except by will or by the laws of descent and distribution.
During the life of the Warrant Holder, the Warrants shall be exercisable only
by him.
The Warrant Holder, by his acceptance thereof, covenants and
agrees that the Warrants are being acquired as an investment and not with a
view to the distribution thereof, and that the Warrants may not be sold,
transferred assigned, hypothecated or otherwise disposed of, in whole or in
part.
Page 3 of 11
<PAGE> 4
6. Price.
6.1 Initial and Adjusted Exercise Price. The
initial exercise price of each Warrant shall be $4.12 per Share. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price"
herein shall mean the initial exercise price or the adjusted exercise price,
depending upon the context.
7. Registration.
The Warrants and the Shares have not been registered
for purposes of public distribution under the Securities Act of 1933, as
amended (the "Act").
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. In case the
Company shall at any time after the date hereof pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, then upon such
dividend or distribution the Exercise Price in effect immediately prior to such
dividend or distribution shall forthwith be reduced to a price determined by
dividing:
(a) an amount equal to the total number of
shares of Common Stock outstanding immediately prior to such dividend or
distribution multiplied by the Exercise Price in effect immediately prior to
such dividend or distribution, by
(b) the total number of shares of Common
Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in
accordance with the provisions of this Section 8.1, the Common Stock issuable
by way of dividend or other distribution on any stock of the Company shall be
deemed to have been issued immediately after the opening of business on the
date following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution.
Page 4 of 11
<PAGE> 5
8.2 Subdivision and Combination. In case the
Company shall at any time subdivide or combine the outstanding shares of Common
Stock, the Exercise Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination.
8.3 Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
8.4 Reclassification, Consolidation, Merger, etc.
In case of any reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), or in the case
of any consolidation of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger in which the Company
is the surviving corporation), or in the case of a sale or conveyance to
another corporation of the property of the Company as an entirety, the Warrant
Holder shall thereafter have the right to purchase the kind and number of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance as if the
Holders were the owners of the Common Stock underlying the Warrants immediately
prior to any such events at a price equal to the product of (x) the number of
shares issuable upon exercise of the Warrants and (y) the Exercise Price in
effect immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if the Warrant Holder had
exercised the Warrants.
Page 5 of 11
<PAGE> 6
8.5 Determination of Outstanding Shares of Common
Stock. The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants, and upon the conversion or exchange of convertible
or exchangeable securities.
8.6 Dividends and Other Distributions with Respect
to Outstanding Securities. In the event that the Company shall at any time
prior to the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution,
or otherwise distribute to its shareholders any monies, assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another person or entity, or any
other thing of value, the Warrant Holder, as to the unexercised Warrants, shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Warrants, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At the time
of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
8.6.
8.7 Subscription Rights for Shares of Common Stock
or Other Securities. In the case the Company or an affiliate of the Company
shall at any time after the date hereof and prior to the exercise of all the
Warrants issue any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliates to all the shareholders of the
Company, the Warrant Holder, as to the unexercised Warrants, shall be entitled,
in addition to the shares of Common Stock or other securities receivable upon
the exercise of such Warrants, to receive such rights at the time such rights
are distributed to the other shareholders of the Company.
Page 6 of 11
<PAGE> 7
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the surrender
hereof by the Warrant Holder at the principal executive office of the Company,
for a new Warrant Certificate of like tenor and date representing in the
aggregate the right to purchase the same number of Shares in such denominations
as shall be designated by the Warrant Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock and shall not be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder.
Page 7 of 11
<PAGE> 8
12. Notices to Warrant Holder.
Nothing contained in this Agreement shall be construed as
conferring upon the Warrant Holder the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holder of
its shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable otherwise than in cash, or
a cash dividend or distribution payable otherwise than in cash, or a
cash dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatments of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of
its Common Stock any additional shares of capital stock of the Company
or securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer book for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the transfer
Page 8 of 11
<PAGE> 9
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration of payment of such dividend or distribution, or the issuance of any
convertible or exchangeable securities or subscriptions rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the Warrant Holder, to the address
as shown on the books of the Company; or
(b) If to the Company, to the address set
forth in Section 3 of this Agreement or to such other address
as the Company may designate by notice to the Warrant Holder.
14. Supplements and Amendments.
The Company and the Representative may from time to time
supplement or amend this Agreement without the approval of the Warrant Holder
in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any provisions
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Warrant Holder may deem necessary
or desirable and which the Company and the Warrant Holder deem not to adversely
affect the interests of the Warrant Holder.
Page 9 of 11
<PAGE> 10
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Warrant Holder inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
June 1, 2003. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date upon the expiration of the Warrant Exercise Term if no
Warrants have been exercised or when all Warrants have been exercised and all
the Shares issuable upon exercise of the Warrants have been resold to the
public.
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of Texas and
for all purposes shall be construed in accordance with the laws of said State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Warrant Holder any legal
or equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the Warrant
Holder.
Page 10 of 11
<PAGE> 11
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] THE DWYER GROUP, INC.
By:
-----------------------------------------
Name:
Title:
Attest:
- ------------------------------
V. Lee Russell
---------------------------------------------
Page 11 of 11
<PAGE> 1
EXHIBIT 10.52
WARRANT AGREEMENT dated as of June 1, 1997, between The Dwyer Group,
Inc., a Delaware corporation (the "Company"), and David B. Duck (hereinafter
referred to as the "Warrant Holder").
W I T N E S S E T H
WHEREAS, the Company proposes to issue to the Warrant Holder
warrants ("Warrants") to purchase up to 46,200 shares (the "Shares") of common
stock of the Company, $.10 par value (the "Common Stock"); and
WHEREAS, the Warrant Holder has provided, and continues to
provide consulting services to the Company, and the Warrants issued pursuant to
this Agreement are being issued by the Company to the Warrant Holder, in
consideration for, and as part of the Warrant Holder's compensation in
connection with said consulting services;
NOW, THEREFORE, in consideration of the premises, the payment
by the Warrant Holder to the Company of Twenty Five Dollars ($25.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Warrant Holder is hereby granted the right to
purchase, at any time from July 1, 1997 until 5:00 P.M., Waco, Texas, time, on
June 1, 2001 (the "Warrant Exercise Term"), up to 46,200 Shares at an initial
exercise price (subject to adjustment as provided in Article 8 hereof) of $4.12
per Share.
2. Warrant Certificates.
The warrant certificate (the "Warrant Certificate")
delivered pursuant to this Agreement, is attached hereto and made a part hereof,
with such
Page 1 of 11
<PAGE> 2
appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are
exercisable at a price of $4.12 per Share, payable in cash or by certified or
official bank check made payable to the order of the Company, or any combination
of cash or such check, subject to adjustment as provided in Article 8 hereof.
Upon surrender of the Warrant Certificate with the annexed Form of Election to
Purchase, duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares purchased, at the Company's principal
offices in Waco, Texas (presently located at 1010 N. University Parks Drive,
Waco, Texas 76707) the Warrant Holder shall be entitled to receive a certificate
or certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Warrant Holder, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all of the Shares purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares shall be made forthwith (and in any event within
three business days thereafter) without charge to the Warrant Holder including,
without limitation, any transfer tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Warrant Holder; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Warrant Holder, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have
page 2 of 11
<PAGE> 3
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the attested signature of
the Warrant Holder. Warrant Certificates shall be dated the date of execution by
the Company upon initial issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants,
in part or in whole, certificates representing the Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration statement
under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act
(or any similar rule under such Act relating to the disposition of securities),
or (iii) upon the delivery by the holder to the Company of an opinion of
counsel, reasonably satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
5. Restriction on Transfer of Warrants.
The Warrants shall not be assignable or transferable by the
Warrant Holder, except by will or by the laws of descent and distribution.
During the life of the Warrant Holder, the Warrants shall be exercisable only by
him.
The Warrant Holder, by his acceptance thereof, covenants and
agrees that the Warrants are being acquired as an investment and not with a view
to the distribution thereof, and that the Warrants may not be sold, transferred
assigned, hypothecated or otherwise disposed of, in whole or in part.
Page 3 of 11
<PAGE> 4
6. Price.
6.1 Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $4.12 per Share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration.
The Warrants and the Shares have not been registered
for purposes of public distribution under the Securities Act of 1933, as amended
(the "Act").
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. In case the
Company shall at any time after the date hereof pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, then upon such
dividend or distribution the Exercise Price in effect immediately prior to such
dividend or distribution shall forthwith be reduced to a price determined by
dividing:
(a) an amount equal to the total number of
shares of Common Stock outstanding immediately prior to such dividend or
distribution multiplied by the Exercise Price in effect immediately prior to
such dividend or distribution, by
(b) the total number of shares of Common
Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in
accordance with the provisions of this Section 8.1, the Common Stock issuable by
way of dividend or other distribution on any stock of the Company shall be
deemed to have been issued
Page 4 of 11
<PAGE> 5
immediately after the opening of business on the date following the date fixed
for the determination of stockholders entitled to receive such dividend or other
distribution.
8.2 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.3 Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.4 Reclassification, Consolidation, Merger, etc. In
case of any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Warrant Holder
shall thereafter have the right to purchase the kind and number of shares of
stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance as if the Holders were the
owners of the Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Warrants and (y) the Exercise Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if the Warrant Holder had exercised the Warrants.
Page 5 of 11
<PAGE> 6
8.5 Determination of Outstanding Shares of Common
Stock. The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants, and upon the conversion or exchange of convertible or
exchangeable securities.
8.6 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution,
or otherwise distribute to its shareholders any monies, assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another person or entity, or any
other thing of value, the Warrant Holder, as to the unexercised Warrants, shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Warrants, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At the time of
any such dividend or distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this Subsection 8.6.
8.7 Subscription Rights for Shares of Common Stock or
Other Securities. In the case the Company or an affiliate of the Company shall
at any time after the date hereof and prior to the exercise of all the Warrants
issue any rights to subscribe for shares of Common Stock or any other securities
of the Company or of such affiliates to all the shareholders of the Company, the
Warrant Holder, as to the unexercised Warrants, shall be entitled, in addition
to the shares of Common Stock or other securities receivable upon the exercise
of such Warrants, to receive such rights at the time such rights are distributed
to the other shareholders of the Company.
Page 6 of 11
<PAGE> 7
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender hereof
by the Warrant Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Warrant Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock and shall not be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any shareholder.
Page 7 of 11
<PAGE> 8
12. Notices to Warrant Holder.
Nothing contained in this Agreement shall be construed as
conferring upon the Warrant Holder the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights whatsoever as
a shareholder of the Company. If, however, at any time prior to the expiration
of the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holder of
its shares of Common Stock for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatments of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer book for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer
Page 8 of 11
<PAGE> 9
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration of payment of such dividend or distribution, or the issuance of any
convertible or exchangeable securities or subscriptions rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the Warrant Holder, to the address as shown
on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the
Company may designate by notice to the Warrant Holder.
14. Supplements and Amendments.
The Company and the Representative may from time to time
supplement or amend this Agreement without the approval of the Warrant Holder in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Warrant Holder may deem necessary or desirable and
which the Company and the Warrant Holder deem not to adversely affect the
interests of the Warrant Holder.
Page 9 of 11
<PAGE> 10
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Warrant Holder inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
June 1, 2003. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date upon the expiration of the Warrant Exercise Term if no Warrants
have been exercised or when all Warrants have been exercised and all the Shares
issuable upon exercise of the Warrants have been resold to the public.
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of Texas and
for all purposes shall be construed in accordance with the laws of said State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Warrant Holder any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Warrant Holder.
Page 10 of 11
<PAGE> 11
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] THE DWYER GROUP, INC.
By:
----------------------------------------
Name:
Title:
Attest:
- ------------------------------
David B. Duck
-------------------------------------------
Page 11 of 11
<PAGE> 1
EXHIBIT 10.53
OPTION CERTIFICATE
OPTION TO PURCHASE COMMON STOCK
OF
THE DWYER GROUP, INC.
Date: March 31, 1997
This is to certify that, for value received, TARGET ENTERPRISES, INC.,
a Maryland corporation having an address of 10028 Whitworth Way, Elliott City,
MD 21042 ("Holder"), is entitled to purchase, subject to the provisions of this
Option, from THE DWYER GROUP, INC., a Delaware corporation ("Company"), TWENTY
EIGHT THOUSAND FIVE HUNDRED (28,500) shares of Company's common stock, $.10 par
value (such class of stock being referred to herein as the "Stock"), at TWO AND
25/100 DOLLARS ($2.25) per share (the "Exercise Price"). The number of shares of
Stock to be received hereinafter set forth. The shares of Stock or other
securities or property deliverable upon such exercise, as adjusted from time to
time, are hereinafter sometimes referred to as "Option Shares." Unless the
context otherwise requires, the term "Option" or "Options" as used herein
includes this Option and any other Option or Options which may be issued
pursuant to the provisions of this Option, whether upon transfer, assignment,
partial exercise, divisions, combinations, exchange or otherwise, and the term
"Holder" includes any registered transferee or transfers or registered assignee
or assignees of Holder, who in each case shall be subject to the provisions of
this Option, and when used with reference to Option Shares, means the holder or
holders of such Option Shares.
SECTION 1. Exercise of Option. Subject to the provisions of Section 9
hereof, this Option shall be exercised with the respect to the number of shares
listed at the times set forth in the following schedule,
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<S> <C>
5,700 March 31, 1998
5,700 March 31, 1999
5,700 March 31, 2000
5,700 March 31, 2001
5,700 March 31, 2002
</TABLE>
<PAGE> 2
by presentation and surrender to Company at its principal office of
this Option and the Purchase Form annexed hereto duly executed and accompanied
by payment, in cash, certified or official bank check payable to the order of
Company in the amount of the Exercise Price for the number of Option Shares
specified in such form. If this Option is exercised in part only, Company shall,
promptly after presentation of this Option upon such exercise, execute and
deliver a new Option evidencing the rights of Holder thereof to purchase the
balance of the Option Shares purchasable hereunder upon the same terms and
conditions as herein set forth. Upon and as of receipt by Company at its office,
in proper form for exercise and accompanied by payment as herein provided,
Holder shall be deemed to be the holder of record of the shares of Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Company shall then be closed or that certificates representing such shares of
Stock shall not then be actually delivered to Holder.
SECTION 2. Reservation of Shares. Company shall at all times after the
Commencement Date and until expiration of this Option the number of Option
Shares as shall be required for issuance and delivery upon exercise of this
Option.
SECTION 3. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
With respect to any fraction of a share called for upon exercise hereof, Company
shall pay to Holder an amount in cash equal to such fraction multiplied by the
current market value of such fractional share, determined as follows:
(a) if the Stock is listed on a national securities exchange
or admitted to unlisted trading privileges thereon, the current value
shall be the last reported sale price of the Stock on such exchange on
the last business day prior to the date of exercise of this Option, or
if no such sale is made on such day, such price of the Stock for such
immediately preceding day as such a sale occurred on such exchange; or
(b) if the Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last
reported high and low prices of the Stock reported by a comparable
exchange system selected by the Board of Directors of Company, on the
last business day prior to the date of the exercise of this Option; or
(c) if the Stock is not so listed or admitted to unlisted
trading privileges, and bid and asked prices are not so reported, the
current value shall be an amount, not less than book value per share of
Stock, determined in such reasonable manner as may be agreed to by the
Board of Directors of Company and the Holder.
SECTION 4. Transfer, Assignment or Loss of Option.
4.1 This Option may not be assigned or transferred without the prior
written consent of the Company. Any purported transfer or assignment made other
than in accordance with this Section 4 shall be null and void and of no force
and effect.
4.2 Upon receipt by Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Option, and (in the case of loss, theft
or destruction) of reasonable satisfactory indemnification to Company or (in the
case of mutilation) presentation of this Option for surrender
<PAGE> 3
and cancellation, Company will execute and deliver a new Option of like tenor
and date and any such lost, stolen, destroyed or mutilated Option shall
thereupon become void. Any Option Certificate or Certificates of different
denominations, of like tenor and representing the aggregate the same number of
Options, upon surrender of such Option Certificate or Certificates, with the
Form of Assignment fully filled in and executed, to the Company at its principal
office, at any time or from time to time after the close of business on the
Expiration Date. The Company shall promptly cancel the surrendered Option
Certificate and deliver the new Option Certificate pursuant to the provisions of
this Section.
Section 5. Adjustment in the Number of Option Shares Purchasable and
Exercise Price
5.1 The number of shares of Stock for which this Option may be
exercised shall be subject to adjustment as follows:
(a) in the event there is a subdivision or combination of the
outstanding shares of Stock into a larger or smaller number of shares,
the number of shares of Stock for which this Option may be exercised
shall be increased or reduced in the same proportion as the increase or
decrease in the outstanding shares of Stock:
(b) if Company declares a dividend on Stock payable in Stock
or securities convertible into Stock, the number of shares of Stock for
which this Option may be exercised shall be increased, as of the record
date for determining which holders of Stock shall be entitled to
receive such dividend, in proportion to the increase in the number of
outstanding shares of Stock as a result of such dividend:
(c) if Company decides to offer rights to all holders of Stock
which entitle them to subscribe to additional Stock or securities
convertible into Stock, Company shall give written notice of any such
proposed rights offering to Holder at least fifteen days prior to the
proposed record date in order to permit Holder to exercise this Option
on or before such record date. There shall be no adjustment in the
number of shares of Stock for which this Option may be exercised or the
Exercise Price by virtue of such rights offering or by virtue of any
sale of any class of securities of Company pursuant to such rights
offering; and
(d) if the Company declares a dividend to its shareholders of
securities of any subsidiary of the Company, Holder, upon exercise
thereof, shall be entitled to receive the shares of such securities
that Holder would have been entitled to receive at the same aggregate
Exercise Price if Holder's Options had been exercised immediately prior
to such dividend.
5.2 In the event at any time prior to the expiration of this Option of
any reorganization or reclassification of the outstanding shares of Stock (other
than a change in per value, or from no par value to par value, or from par value
to nor par value, or as a result of a subdivision or combination), Holder shall
have the right, but not the obligation, to exercise this Option. Upon such
exercise, Holder shall have the right to receive the same kind and number of
shares of stock and other securities, cash or other property as would have been
distributed to Holder upon such reorganization
<PAGE> 4
or reclassification had Holder exercised this Option immediately prior to such
reorganization or reclassification. Holder shall pay upon such exercise the
Exercise Price that otherwise would have been payable pursuant to the terms of
this Option. If any such reorganization or reclassification results in a cash
distribution in excess of the Exercise Price provided by this Option, Holder
may, at Holder's option, exercise this Option without making payment of the
Exercise Price, and in such case Company shall, upon distribution to Holder,
consider the Exercise Price to have been paid in full, and in making settlement
to Holder, shall deduct an amount equal to the Exercise Price from the amount
payable to Holder.
5.3 If Company shall, at any time prior to the expiration of this
Option, dissolve, liquidate or wind up its affairs, Holder shall have the right,
but not the obligation, to exercise this Option. Upon such exercise Holder shall
have the right to receive, in lieu of the shares of Stock that Holder otherwise
would have been entitled to receive, the same kind and amount of assets as would
have been issued, distributed or paid to Holder upon any such dissolution,
liquidation or winding up with respect to such shares of Stock had Holder been
the holder of record of such shares of Stock receivable upon exercise of this
Option on the date for determining those entitled to receive any such
distribution. If any such dissolution, liquidation or winding up results in any
cash distribution in excess of the Exercise Price provided for by this Option,
Holder may, at Holder's option, exercise this Option without making payment of
the Exercise Price and, in such case, Company shall, upon distribution to
Holder, consider the Exercise Price to have been paid in full, and in making
settlement to Holder shall deduct an amount equal to the Exercise Price from the
amount payable to Holder.
5.4 In the event at any time prior to the expiration of this Option
that Company is merged into or consolidated with another corporation under
circumstances where Company is not the surviving corporation, or more than 50
percent (50%) of the outstanding voting securities of Company are owned by
another corporation as a result of such merger or consolidation, then at the
election of the Board of Directors of Company (i) the successor entity shall
assume Company's obligations hereunder and Holder shall be entitled, upon
exercise of this Option, to receive in lieu of shares of Stock shares of such
stock or other securities as the holder of shares of Stock received pursuant to
the terms of the merger or consolidation or (ii) this Option may be canceled by
the Board of Directors of Company as of the effective date of any such merger or
consolidation, provided that (x) written notice of such cancellation shall be
given to Holder, and (y) Holder shall have the right to exercise this Option in
full during a thirty day period preceding the effective date of such merger or
consolidation.
5.5 Company may retain a firm of independent public accountants of
recognized standing (who may be any such firm regularly employed by Company) to
make any computation required under this Section 5, and a certificate signed by
such firm shall be conclusive evidence of the correctness of any computation
made under this Section.
5.6 Whenever the number of shares of Stock purchasable upon the
exercise of this Option is adjusted as herein provided, the Exercise Price shall
be adjusted by multiplying the applicable Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
shares of Stock purchasable upon exercise of this Option immediately prior to
such adjustment and the denominator of which shall be the number of shares of
Stock purchasable immediately after such adjustment.
<PAGE> 5
SECTION 6. Officer's Certificate. Whenever the number of Option Shares
or the Exercise Price shall be adjusted as required by the provisions of Section
5 hereof, Company forthwith shall file in the custody of its secretary or an
assistant secretary, at its principal office, a certificate of the chief
executive officer of Company setting forth the number and kind of shares
purchasable, as so adjusted, stating that such adjustments in the number or kind
of shares or other securities conform to the requirements of Section 5 of this
Option, and setting forth a brief statement of the facts accounting for such
adjustments. Promptly after receipt of such certificate, the Company will
deliver, by first-class, postage pre-paid mail, a brief summary thereof (to be
supplied by the Company) to the Holder; provided, however, that failure to file
or to give any notice required under this Subsection, or any defect therein,
shall not affect the legality or validity of any such adjustments under Section
5. Each such officer's certificate shall be made available at all reasonable
times during reasonable hours for inspection by Holder.
SECTION 7. Notice to Holder. So long as this Option shall be
outstanding, (i) if Company shall pay any dividend or make any distribution upon
the Stock otherwise than in cash or (ii) if Company shall offer to the holders
of Stock for subscription or purchase by them any shares of any class of stock
of the Company or any other rights or (iii) if there shall be any capital
reorganization of Company, reclassification of the capital stock of Company,
consolidation or merger of Company with or into another corporation, sale, lease
or transfer of all or substantially all of the property and assets of Company,
or voluntary or involuntary dissolution, liquidation or winding up of company,
then in any such event, Company shall cause to be mailed by certified mail to
Holder, at least 20 days prior to the relevant date described below, a notice
containing a brief description of the proposed action and stating the date or
expected date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or such reclassification, organization, consolidation,
merger, conveyance, lease or transfer, dissolution, liquidation or winding up
and the date or expected date as of which the holders of Stock of record shall
be entitled to exchange their shares of Stock for securities or other property
deliverable upon such event.
SECTION 8. Option Certificate Holder Not Deemed a Stockholder. Holder
shall not, solely because of holding the Option, be entitled to vote, receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which at any time may be issuable on the exercise of the Options for any
purpose whatsoever, nor shall anything contained herein be construed to confer
upon the Holder, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any time thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise), or to receive notice of
meetings or other actions affecting stockholders (except as provided in Section
7 hereof), or to receive dividend or subscription rights, or otherwise, until
such Option Certificate shall have been exercised in accordance with the
provisions hereof and the receipt of the Exercise Price and any other amounts
payable upon such exercise by the Company.
<PAGE> 6
SECTION 9. Registration Rights.
9.1 Registration Rights. In the event the Company files a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") Holder may demand the inclusion in such
Registration Statement (and any related qualification under blue sky laws or
other compliance) of this Option.
9.2 Registration Procedures.
(a) In performing its obligations under Section 9.1 with
respect to registration of the Options, Company shall, subject to the
limitations provided herein, as expeditiously as possible:
(i) before filing the Registration Staminate or the
prospectus (the "Prospectus") which will be included as a part of the
Registration Statement, or any amendments thereto, including documents
incorporated by reference, Company will furnish to Holder draft copies
of all such documents proposed to be filed (other than exhibits, unless
so requested) a reasonable time prior thereto, which documents will be
subject to the reasonable review of Holder and its counsel, and will
notify Holder of any stop order issued or threatened by the Commission
in connection therewith and take all reasonable actions required to
prevent the entry of such stop order or to remove such stop order if
entered;
(ii) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement current and effective and to comply with the
provisions of the Securities Act with respect to the deposition of this
Option and all Option Shares covered by the Registration Statement;
(iii) use its reasonable efforts to (a) register or
qualify the Options and Option Shares under such other securities or
blue sky laws of such jurisdictions as Holder shall reasonably request,
(b) Registration Statement remains in effect, and (c) take any other
action which may be reasonably necessary or advisable to enable Holder
to consummate the disposition of the Options or Option Shares in such
jurisdictions, except that Company shall no for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subdivision (iii) be obligated to be so qualified;
(iv) use its reasonable efforts to cause the Options
and Option Shares to be registered with or approved by such other
United States federal or state governmental agencies or authorities as
may be necessary to enable Holder to consummate the disposition of the
Options or Option Shares;
(v) if requested by Holder, promptly incorporate in a
prospectus supplement or post-effective amendment such information as
Holder reasonably requests to be included therein with respect to the
number of Option Shares being sold by Holder and Holder's plan of
distribution and promptly make all required filings of such prospectus
supplement or post-effective amendment;
<PAGE> 7
(iv) cooperate with Holder to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing Option Shares to be sold under the Registration
Statement, in such denominations and registered in such names as Holder
may reasonably request.
(b) All expenses incident to Company's performance of its
obligations under this Section 9, including without limitation, all
registration and filing fees, fees and expenses of compliance with
securities and Blue Sky laws, printing expenses, fees and disbursements
of Company's counsel, independent certified public accountants, and
other persons retained by Company (all such expenses being therein call
"Registration Expenses") will be borne by Company. The Shareholder
shall be responsible for all selling fees, expenses, discounts and
commissions relating to the Option Shares and for the fees and expenses
of counsel and other persons engaged by the Shareholder.
(c) The Company shall take all actions reasonable necessary to
enable the Holder to sell the Option Shares without registration under
the Securities Act within the limitations of the exemptions provided by
(a) Rule 144 under the Securities Act, as such Rule may be amended from
time to time; or (b) any similar rule or regulation hereafter adopted
by the commission including, without limitation, filing on a timely
basis all reports required to be filed by the Securities Exchange Act
of 1934, as amended. Upon the request of the Holder, the Company will
deliver to the Holder a written statement as to whether it has complied
with such requirements.
9.3 Obligations of Holder.
(a) Holder agrees that it will offer and sell Options
or Option Shares in compliance with all applicable state and federal
securities laws.
(b) Holder agrees to promptly notify Company after
any Options or Option Shares are sold and when Holder elects to
terminate all further offers and sales of this Option Shares pursuant
to the Registration Statement.
9.4 Indemnification.
(a) Indemnification by the Company. To the extent
permitted by law, the company will, and hereby does, indemnify and hold
harmless Holder, its directors and officers, each other natural person,
corporation, business trust, association, company, partnership, joint
venture and other entity (each, a "Person") who participates as an
underwriter in the offering or sale of such securities and each other
Person, if any, who controls Holder or any such underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Holder or any such director or
officer or underwriter or controlling Person may become subject under
the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such of any
material fact contained in any registration statement under which such
of any material fact contained
<PAGE> 8
in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the company will
reimburse Holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim liability, action or proceeding; provided that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance
upon and in conformity with written information furnished to the
Company by Holder expressly for use in the preparation thereof, and to
the Company by Holder expressly for use in the preparation thereof, and
provided further that the Company shall not be liable to any person to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or as based
upon any violation by it of the Securities Act or the Exchange Act.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of Holder or any such director,
officer, underwriter or controlling person and shall survive the
transfer of Shares by Holder.
(b) Indemnification by Holder. To the extent
permitted by law, Holder will, and hereby does, indemnify and hold
harmless (in the same manner and to the same extent as set further in
subdivision (a) of this Section 9.4, each underwriter, each Person who
controls such underwriter within the meaning of the securities Act, the
Company, each director of the Company, each officer of the Company and
each other Person, if any, who controls the Company within the meaning
of the Securities Act, with respect to any statement of any untrue fact
in such Registration Statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission to state therein a material fact
required to be state therein or necessary to make the statements
therein not misleading if such statement or omission was made in
reliance upon and in strict conformity with written information
furnished to the Company by Holder expressly for use in the preparation
of such Registration Statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, and with
respect to any violation by Holder of the Securities Act or the
Exchange Act.
(c) Notices of Claim, etc. Promptly after receipt by
an indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subdivisions
of this Section 9.4, such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, give written
notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 9.4, except to the extent that
the indemnifying party
<PAGE> 9
is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties actually exists in respect of
such claim, the indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election
so as to assume the defense thereof, the indemnifying party shall,
without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from a liability in respect to such
claim or litigation.
(d) Other Indemnification. Indemnification similar to
that specified in the preceding subdivisions of this Section 9.4 (with
appropriate modifications) shall be given by the Company and Holder
with respect to many required registration or other qualification of
securities under any Federal or state law or regulation of any
governmental authority other than the Securities Act.
(e) Indemnification Payments. The indemnification
required by this Section 9.4 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as
and when bills are received or expense, loss, damage or liability is
incurred.
(f) Contribution. If the indemnification provided for
in this Section 9.4 from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute
tot he amount paid or payable by such indemnified party as a result of
such loss, claims, damages. liabilities or expenses in such proportion
as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which
resulted in such losses, claims, damage, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault
of such indemnifying party and indemnified parties shall be determined
by reference to, among other things, whether any action in question,
including any untrue statement of material fact or omission or alleged
omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified
parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 9.4(c), any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 9.4(f) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable consecrations referred to in the immediately preceding
<PAGE> 10
paragraph. No Person guilty of fraudulent misrepresentation within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. If
indemnification is a available under this Section 9.4, the indemnifying parties
shall indemnify each indemnified party to the full extent provided in Section
9.4(a) through Section 9.4(e) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 9.4(f)
9.5 Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the company in the
performance of or compliance with any of the terms of this Option are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against the violation of any of the terms hereof or otherwise, in
addition to any other remedies which may be available at law or in equity.
SECTION 10. Agreement of Holder. The Holder, by accepting this Option
consents and agrees with the Company that:
(a) The Options are transferable on the registry
books of the Company only upon the terms and conditions set forth in
this Option; and
(b) The Company may deem and treat the person in
whose name the Option is registered as the absolute owner of the Option
(notwithstanding any notation of ownership or other writing thereon
made by anyone other than the Company or the Option Agent) for all
purposes whatever and the Company shall not be affected by any notice
to the contrary, except as set forth in Section 4 of this Option.
SECTION 11. Governing Law. This Option shall be construed in accordance
with the laws of the State of Oklahoma applicable to contracts executed and to
be performed wholly within such state.
SECTION 12. Notice. Notices and other communications to be given to
Holder of the Options evidenced hereby shall be delivered by hand or by
first-class mail, postage prepaid, to RONALD L. ABREMSKI, 10028 Whitworth Way,
Elliott City, MD 21042 (until another address is filed in writing by the Holder
with the Company). Notices or other communications to Company shall be deemed to
have been sufficiently give if delivered by hand or by first-class mail, postage
prepaid to Company at 1020 North University Parks Drive, Waco, TX 76707, or such
other address as Company shall have designated by written notice to such
registered owner as herein provided. Notice by mail shall be deemed given when
deposited in the United States mail, postage prepaid, as herein provided.
SECTION 13. Successors. All the covenants and provisions of this Option
by or for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder, and all covenants and provisions of this
Option by or for the benefit of the Holder of this Option shall bind and inure
to the benefit of the registered holder of the Options.
<PAGE> 11
SECTION 14. Termination. This Agreement shall terminate as of the close
of business on the Expiration Date, or such earlier date upon which all Options
shall have been exercised or deemed. However, with respect to obligations
contained herein regarding the registration of the Option Shares, such
obligations shall continue on and after the Expiration Date if the Option is
fully or partially exercised on or before the Expiration Date.
SECTION 15. Benefits of This Agreement. Nothing in this Agreement or in
the Option Certificates shall be construed to give to any person or corporation
other than the Company, and its respective successors and assigns hereunder and
the registered holders of the Options any legal or equitable right, remedy or
claim under this warrant, but this Agreement shall be for the sole and exclusive
benefit of the Company and its respective successors and assigns hereunder and
the registered holders of the Options.
SECTION 16. Transfer Books. The Company will at no time close its
transfer books against the transfer of this Option in any manner which
interferes with the timely exercise of this Option.
SECTION 17. Amendment. This Option Certificate may be modified or
amended and any provision hereof may be waived only be a writing executed by the
Company and the Holder.
IN WITNESS WHEREOF, Company has executed this Option as of the date set
forth above.
THE DWYER GROUP, INC.
By:
--------------------------------
THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD OR TRANSFERRED IN WHOLE OR IN
PART, UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), HAS BEEN DECLARED EFFECTIVE WITH RESPECT TO SUCH
SECURITIES, OR COUNSEL SATISFACTORY TO THE DWYER GROUP, INC. HAS RENDERED AN
OPINION TO THE DWYER GROUP, INC. IN FORM AND SUBSTANCE SATISFACTORY TO THE DWYER
GROUP, INC. THAT THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT
OR THE RULES AND REGULATIONS THEREUNDER.
<PAGE> 12
PURCHASE FORM
Dated ___________, 19__
The undersigned hereby irrevocably elects to exercise the within Option
to the extent of purchasing _____shares of Stock and hereby makes payment of
$_____in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
----------------------------------------------------------------------
Signature:
---------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________ hereby sells,
assigns and transfers unto:
Name:
-------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
----------------------------------------------------------------------
the right to purchase Stock represented by this Option to the extent of shares
of Stock and does hereby irrevocably constitute and appoint _______________,
attorney, to transfer the same on the books of Company with full power of
constitution in the premises.
Dated: , .
-------------------------------- ----------------
Signature:
---------------------------------------------
<PAGE> 1
EXHIBIT 10.54
THE DWYER GROUP, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to The Dwyer Group, Inc. 1997 Stock Option
Plan (the "Plan") for employees and directors of The Dwyer Group, Inc., a
Delaware corporation (the "Company") and its subsidiaries, the Company grants to
JOHN HAYES
(the "Option Holder")
a nonqualified stock option to purchase from the Company a total of 11,420
shares of Common Stock, $0.10 par value, of the Company at $1.875 per share
(being the fair market value per share of the Common Stock on the date of this
grant), in the amounts, during the periods and upon the terms and conditions set
forth in this Agreement.
2. Time of Exercise. Except only as specifically provided elsewhere in
this Agreement, the Option Holder may exercise this option only in the following
cumulative installments:
2,284 PER YEAR BEGINNING 1/1/98
In the event of the Option Holder's termination of employment for whatever
cause, the option will be exercisable only to the extent that the Option Holder
could have exercised it on the date of his termination of employment.
3. Subject to Plan. This option and the grant and exercise thereof are
subject to the terms and conditions of the Plan, which is incorporated herein by
reference and made a part hereof, but the terms of the Plan shall not be
considered an enlargement of any benefits under this Agreement. In addition,
this option is subject to any rules and regulations promulgated pursuant to the
Plan, now or hereafter in effect.
4. Term. This option will terminate at the first of the following:
<PAGE> 2
(a) 5 p.m. on December 22, 2007.
(b) 5 p.m. on the date one year following the date the Option
Holder's employment or directorship with the Company and its
subsidiaries terminates by reason of the Option Holder's death
or disability.
(c) 5 p.m. on the 30th day following the date the Option Holder's
employment or directorship with the Company and its
subsidiaries terminates for a reason other than death or
disability.
5. Who May Exercise. Except in the case of death or disability
of the Option Holder, this option may be exercised only by the Option Holder. If
the Option Holder dies or becomes disabled prior to the termination date
specified in Section 4 hereof without having exercised the option as to all of
the shares covered thereby, the option may be exercised at any time prior to the
earlier of the dates specified in Section 4(a) and (b) hereof by (i) the Option
Holder's estate or a person who acquired the right to exercise the option by
bequest or inheritance or by reason of the death of the Option Holder in the
event of the Option Holder's death, or (ii) the Option Holder or his personal
representative in the event of the Option Holder's disability, subject to the
other terms of this Agreement, the Plan and applicable laws, rules and
regulations.
6. Restrictions on Exercise. This option:
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no cash or
certificates representing shares subject to such option shall
be delivered, if any requisite approval or consent of any
governmental authority of any kind having jurisdiction over
the exercise of options shall not have been secured; and
(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and
ending on the 30th day prior to the date of exercise the
Option Holder was an employee of either the Company or a
subsidiary of the Company; provided, if the Option Holder's
continuous employment is terminated by death or disability, or
if the Option Holder dies or becomes disabled within said
period, this option may be exercised in accordance with
Section 5.
7. Manner of Exercise. Subject to such administrative regulations
as the Committee administering the Plan may from time to time adopt, the Option
Holder or beneficiary shall, in order to exercise this option, give written
notice to the Company of the exercise price and the number of shares which he
will purchase. Any notice shall include full payment in United States dollars of
the
<PAGE> 3
applicable option exercise price and an undertaking to furnish or execute such
documents as the Company in its discretion shall deem necessary (i) to evidence
such exercise, in whole or in part, of the option evidenced by this Agreement,
(ii) to determine whether registration is then required under the Securities Act
of 1933, or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, or any other law, as
then in effect.
8. Non-Assignability. This option is not assignable or
transferable by the Option Holder except by will or by the laws of descent and
distribution.
9. Rights of Stockholder. The Option Holder will have no rights
as a stockholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 10 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the issuance
of such certificate or certificates.
10. Capital Adjustments. The number of shares of Common Stock
covered by this option, and the option price thereof, shall be subject to such
adjustments as the Board of Directors of the Company deems appropriate to
reflect any stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization, liquidation
or the like, of or by the Company.
In the event the Company shall be a party to any merger, consolidation
or corporate reorganization, as the result of which the Company shall be the
surviving corporation the rights and duties of the Option Holder and the Company
shall not be affected in any manner. In the event the Company shall sell all or
substantially all of its assets or shall be a party to any merger, consolidation
or corporate reorganization, as the result of which the Company shall not be the
surviving corporation, or in the event any other person or entity acquires 100%
of the outstanding Common Stock of the Company (the transaction being
collectively referred to as the "transaction"), then the Company shall notify
the Option Holder that his option evidenced by this Agreement is accelerated
effective as of the effective date of the transaction whether or not such option
shall then be exercisable under the terms of this Agreement. The Option Holder
may exercise any portion of the option as he may desire and deposit with the
Company the requisite cash to purchase in full and not in installments the
Common Stock thereby exercised, in which case the Company shall, prior to the
effective date of the
<PAGE> 4
transaction, issue all Common Stock thus exercised, which shall be treated as
issued stock for purposes of the transaction.
11. Law Governing. This Agreement is intended to be performed in
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
12. Date of Grant. The date of grant of this option is December
23, 1997.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Option Holder, to evidence his
consent and approval of all the terms hereof, has duly executed this Agreement,
as of the date specified in Section 12 hereof.
THE DWYER GROUP, INC.
By:
---------------------------------
------------------------------------
John Hayes, Option Holder
<PAGE> 1
EXHIBIT 21.1
NAMES OF SUBSIDIARY COMPANIES OF THE DWYER GROUP, INC.
1. Rainbow International Carpet Dyeing and Cleaning Co.
2. Mr. Rooter Corporation
3. General Business Services, Inc.
4. Edwin K. Williams & Co.
5. Aire Serv Heating & Air Conditioning, Inc.
6. Mr. Electric Corp.
7. Mr. Appliance Corp.
8. The Dwyer Group National Accounts, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,568,187
<SECURITIES> 2,327,090
<RECEIVABLES> 8,073,508
<ALLOWANCES> 1,081,977
<INVENTORY> 306,751
<CURRENT-ASSETS> 7,765,976
<PP&E> 1,070,375
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,538,036
<CURRENT-LIABILITIES> 2,278,498
<BONDS> 0
0
0
<COMMON> 689,526
<OTHER-SE> 11,543,811
<TOTAL-LIABILITY-AND-EQUITY> 16,538,036
<SALES> 13,781,133
<TOTAL-REVENUES> 15,510,352
<CGS> 2,017,775
<TOTAL-COSTS> 14,385,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,108
<INCOME-PRETAX> 1,125,075
<INCOME-TAX> 378,299
<INCOME-CONTINUING> 746,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746,776
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
