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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the transition period
from ____________ to ____________
Commission file number: 0-21282
SWISHER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 56-1541396
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6849 FAIRVIEW ROAD
CHARLOTTE, NORTH CAROLINA 28210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 364-7707
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
(Title of Class)
COMMON STOCK $.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Check if disclosure of delinquent filers pursuant 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-K or any amendment to
this Form 10-K [X]
The aggregate market value of the 1,470,182 shares of Common Stock held by
non-affiliates was $12,312,774 as of February 6, 1997. The market value
of the shares was calculated based on a $8.375 closing bid price of such
shares on Nasdaq National Market on such date.
As of January 28, 1997, 1,935,841 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
THE INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT IS INCORPORATED BY
REFERENCE TO THE REGISTRANT'S DEFINITIVE PROXY STATEMENT IF FILED WITH THE
COMMISSION ON OR BEFORE FEBRUARY 28, 1997 OR, IF SUCH PROXY STATEMENT IS NOT
FILED, WILL BE FILED WITH THE COMMISSION AS AN AMENDMENT TO THIS FORM 10-K UNDER
COVER OF FORM 10-K/A, NOT LATER THAN FEBRUARY 28, 1997.
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1. BUSINESS
GENERAL
Swisher International, Inc., (the "Company") was organized in 1986 to
offer hygiene services and products to business customers throughout the
country. From 1983 through 1988, Patrick L. Swisher, the Company's founder
and President, operated a hygiene service business in the southeast portion
of the United States through 11 majority-owned corporations. In 1988, the
Company acquired the controlling interest in these 11 corporations from Mr.
Swisher and the minority shareholders. From 1988 through 1990, the Company
provided hygiene services and products to retail business customers through a
total of 18 majority-owned subsidiaries. In April 1990, the Company
commenced selling its existing majority-owned subsidiaries as hygiene
franchises and initiated a hygiene franchise sales program in new markets.
The Company restructured its operations in order to achieve (i) faster market
expansion and penetration, (ii) lower capital requirements, (iii) higher income
from operations due to higher margins, (iv) lower overhead resulting from
elimination of local Company-employed managers and (v) greater commitment of
management through local franchise ownership. As a result, the Company's
hygiene operations are now conducted principally through franchises located
in the United States and Canada. The Company has also begun development of
international markets, and to date has entered into master license agreements
covering hygiene operations in the United Kingdom, Ireland and the Caribbean.
In February 1994, the Company began operating a residential maid service
in Charlotte, North Carolina, in order to establish a home-cleaning franchise
program. In September 1994, Swisher Maids, Inc., a wholly-owned subsidiary
of the Company, commenced offering franchises for "Swisher Maids" businesses,
specializing in providing residential maid services. The Company currently
conducts its maid services business through nine franchises and certain
Company-owned operations.
Effective July 1, 1996, the Company acquired substantially all of the
assets of a franchise business based in Atlanta, Georgia known as "Surface
Doctor." Surface Doctor has been engaged in franchise operations since 1993,
and currently has 110 franchises located principally in the United States and
Canada. Surface Doctor has also entered into master license agreements
covering Brazil, Singapore/Malaysia/Indonesia, and Saudi Arabia.
The Company's operations are presently comprised of the "Hygiene,"
"Swisher Maids" and "Surface Doctor" franchise programs, as well as certain
Company-owned Hygiene and Maids operations. Certain Company-owned Surface
Doctor operations were sold during the first quarter of 1997. (Unless
the context otherwise requires, the term "Company" refers to Swisher
International, Inc. and its eight wholly-owned subsidiaries, Swisher Hygiene
Franchise Corporation, Swisher International of Charlotte, Inc., Swisher
International of South Carolina, Inc., Swisher Maids, Inc., Swisher Hygienic
Services, Inc., Jacksonville Hygiene, Inc., Surface Doctor, Inc. and
F.M.S., Inc.)
HYGIENE OPERATIONS
HYGIENE FRANCHISE SERVICES
The Company's Hygiene services and products are sold principally through
franchises to a broad spectrum of businesses throughout the United States and
Canada, including restaurants, retail stores, manufacturers, commercial
office buildings, health and childcare facilities, schools, military bases
and hotels. The Company operates nationally through approximately 100
Hygiene franchisees and in portions of North and South Carolina, Florida, and
Oklahoma through Company-owned operations. The Company has also implemented
an aggressive international Hygiene marketing program which is conducted
through master license agreements. To date, the Company has entered into
Hygiene master license agreements covering the United Kingdom, Ireland and
the Caribbean.
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The Hygiene services initially offered by the Company's majority-owned
subsidiaries consisted of the sanitation and detail cleaning of porcelain
restroom fixtures, including toilets, urinals and wash basins. Because
franchisees generally visit retail business customers every week to ten days
to replenish supplies and perform services, the Company has expanded the
services and products offered by its franchisees to include:
- Sanitation and detail cleaning of porcelain fixtures in restrooms;
- Installation and replenishment of dispensers for lanolin, soap and air
fresheners;
- Providing hand sanitizing soap and hand sanitizers in kitchens and
restrooms for food services customers;
- Biologically treating drain lines for food services customers;
- Providing flying insect control systems for use in restaurants;
- Providing grit soap for car dealerships, tire stores and garages;
- Biologically treating grease traps in restaurants;
- Providing and servicing air sanitizers in restrooms, waiting rooms and
common areas; and
- Providing toilet tissue, hand towels and other paper products.
Certain services and products provided by the Company's Hygiene
franchisees are a natural extension of the primary services historically
offered by the Company. Other services, such as providing anti-bacterial
soap, have been promoted by the adoption of government regulations requiring
restaurants and food handlers to use anti-bacterial soap to prevent the
spread of hepatitis and other communicable diseases. Yet other services,
such as the biological treatment of grease traps at food services locations,
have been viewed by the Company as an opportunity to provide expanded
services at restaurants. Management believes that the frequency of regularly
scheduled service visits by its franchisees will continue to provide the
Company with opportunities to expand the services and products marketed by
its franchisees to retail business customers.
The Company's Hygiene franchisees market their services and products to
retail business customers based on factors such as enhanced appearance of the
customer's business premises, cost savings, convenience, reliability,
cleanliness and hygiene. The services offered by the Hygiene franchisees
also enable retail businesses to decrease operating costs by reducing
pilferage of supplies, inventory carrying costs, and training expense.
HYGIENE REVENUES
The Company generates revenue through its Hygiene franchise operations
in the form of initial franchise fees, product sales to franchisees,
royalties, service fees, marketing fees and interest.
INITIAL FRANCHISE FEES. On the sale of a Hygiene franchise, the Company
receives an initial franchise fee which is calculated based upon the
population of the territory purchased by the franchisee. The initial
franchise fee is paid for a single franchise within a given geographic
territory and is not related to the number of service offices opened in that
territory. For territories in which the population is 500,000 persons or
less, the initial franchise fee is $35,000. For each incremental increase in
population of 500,000 persons, the franchise fee increases by $10,000. For
territories in which the population exceeds 2,000,000 persons, the
incremental increase in the initial franchise is $10,000 per 1,000,000
increase in population.
The Company typically finances a significant portion of the initial
Hygiene franchise fee payable by new franchisees and from time to time has
financed 100% of the initial franchise fee payable by an existing franchisee
for expansion of its territory. Since April 1993, the Company has also
offered financial assistance to existing franchisees in the acquisition of
competitors engaged in the hygiene business. Management believes the Company
has accelerated its penetration into new markets by offering financial
assistance to qualified candidates.
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Payment of the franchise fee entitles the franchisee to initial training
of key employees and an initial inventory of hygiene products. The training
course has a two-week curriculum, consisting of one week at the Company's
facilities and one week at the franchisee's proposed business location.
Continuing training is provided to franchisees through semi-annual regional
meetings and a yearly national conference. The initial training program is
designed to provide a franchisee with a working understanding of the
day-to-day operations, management and marketing of a hygiene franchise, to
familiarize the franchisee with the services and products offered by the
Company and to demonstrate marketing techniques. The Company maintains a
permanent staff which provides continuing operating and marketing support to
its franchisees. The Company has also devoted substantial effort to the
development and updating of an operations manual which provides operations,
management and marketing guidelines for Swisher franchises.
PRODUCT SALES TO HYGIENE FRANCHISEES. The franchise agreement requires
franchisees to purchase Hygiene products from approved vendors, which allows
the Company to maintain the quality and integrity of the products delivered
by franchisees to the retail business customer. The Company is the primary
approved product vendor at this time. Management believes that through the
Company's volume buying of Hygiene products, the Company provides quality
Hygiene products at competitive prices. Management believes the prices
charged by the Company for its products are competitive with similar quality
products produced by others. The Company subjects all new products to test
marketing and field tests at its own facilities prior to introduction to its
franchisees. Products provided by the Company to its franchisees include,
among others, cleaning agents, air sanitizers and fresheners, a variety of
handsoaps, flying insect spray, biological drain line and grease trap
products and dispensers.
ROYALTIES. The Company receives a royalty of 6% of a franchisee's gross
revenues, as defined in the franchise agreement.
SERVICE FEES. The Company receives a monthly service fee calculated on
a sliding scale based on the franchisee's sales. The service fee ranges from
$500 per month for franchises with annualized sales of up to $50,000 to
$1,750 per month for franchises generating sales of up to $200,000. The
service fee increases by $250 per month for each additional $100,000 in
annualized sales over $200,000. The service fee is paid to compensate the
Company for services provided to franchisees, which include:
- Generation of invoices to customers;
- Collection services for accounts receivable;
- Preparation of monthly financial statements and monthly receivables
aging reports;
- Referral of national and regional accounts for which the Company has
obtained approved vendor status; and
- Toll-free phone answering services providing customers with account
information and franchisees with message services.
MARKETING FEES. The Company receives a national marketing fee, used for
marketing and advertising, equal to 2% of each franchisee's gross revenues.
The marketing fees are used to fund national marketing and advertising
activities. An advisory council, which consists of four franchisees who are
elected representatives from the four franchise regions and three senior
management representatives from the Company, is responsible for directing the
application of the national marketing fee. A portion of the national
marketing fee is used to market to multi-location businesses such as fast
food franchisors, retailers, convenience stores and manufacturers. The
Company receives 10% of the 2% marketing and advertising fee for management
of the national marketing programs.
INTEREST INCOME. Interest income received by the Company from franchise
operations represents income derived from financing of the initial franchise
fee and purchases of short-term investments.
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HYGIENE FRANCHISE DEVELOPMENT. As of October 31, 1996, the Company had
100 Hygiene franchises and certain Company-owned operations conducting
business in 38 states, the District of Columbia and Canada. This compares to
88, 66 and 41 Hygiene franchises as of October 31, 1995, 1994 and 1993,
respectively. The slower growth in 1996 reflects the Company's broad
geographic market penetration and the limited number of major unsold markets.
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Set forth below is information concerning the location of the Hygiene
franchises sold by the Company as of October 31, 1996. The territories below
are identified by the metropolitan or geographic area in which the franchise
is headquartered and do not, in many cases, reflect the boundaries of the
franchised territory.
<TABLE>
<S> <C> <C> <C>
ALABAMA GEORGIA NEW HAMPSHIRE TENNESSEE
Huntsville Atlanta Ashland Bristol
Mobile Chattanooga
Montgomery ILLINOIS NEW JERSEY Knoxville
Chicago (Metro) Fanwood Memphis
ARIZONA Chicago (Western) Oakhurst Nashville
Phoenix Chicago (Suburban) Rockaway
Tucson TEXAS
INDIANA NEW YORK Austin
ARKANSAS Indianapolis Brewster Dallas
Little Rock(1) Buffalo/Rochester McAllen
KANSAS Long Island San Antonio
CALIFORNIA Kansas City Queens
Beverly Hills UTAH
East Bay Area KENTUCKY NEW MEXICO Salt Lake City
Fresno Louisville Albuquerque
Long Beach VIRGINIA
Mission Viejo LOUISIANA NORTH CAROLINA Norfolk
Redondo Beach New Orleans Greensboro Richmond
Riverside/San Hickory
Bernadino MARYLAND Raleigh WASHINGTON
Sacramento Baltimore Seattle
San Diego OHIO Tacoma
San Francisco MASSACHUSETTS Columbus
San Jose Sterling Cincinnati WEST VIRGINIA
Ventura Plymouth Toledo Beaver
COLORADO MICHIGAN OKLAHOMA WISCONSIN
Denver Detroit Tulsa(2) Madison
Flint Milwaukee
CONNECTICUT Grand Rapids OREGON
South Windsor Kalamazoo Portland ALBERTA, CANADA
Lansing Calgary
DISTRICT OF Rochester Hills PENNSYLVANIA Edmonton
COLUMBIA Central
Washington MINNESOTA Northern ONTARIO, CANADA
Winona Philadelphia Guelph
FLORIDA Pittsburgh Ottawa
Dade County MISSOURI Reading Toronto
Ft. Lauderdale Springfield
Jacksonville(2) St. Louis RHODE ISLAND BRITISH
Orlando North Kingstown COLUMBIA,
Sanibel Island NEBRASKA CANADA
Space Coast(2) Omaha SOUTH CAROLINA Vancouver
Tallahassee/ Columbia
Gainsville NEVADA Greenville SASKATCHEWAN
Tampa Las Vegas Myrtle Beach Saskatoon
Reno(1)
CARIBBEAN(3)
IRELAND(3)
UNITED
KINGDOM(3)
</TABLE>
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(1) Represents franchises which have been sold but are not yet operational.
(2) The Jacksonville, Space Coast and Tulsa franchises are currently owned
and operated by the Company.
(3) Represents master license agreement.
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HYGIENE FRANCHISE AGREEMENT
The Company's Hygiene franchise agreement grants the franchisee an
exclusive geographical territory for a ten-year period. The franchise agreement
permits successive five-year renewal terms following expiration of the initial
term if the franchisee is in compliance with the terms of the agreement. The
Company retains a right of first refusal to repurchase each franchise and also
has the right to approve a purchaser of a franchise in the event the Company
does not exercise its right of first refusal. If ownership of a franchise is
transferred, the Company is entitled to receive a fee equal to 10% of the
original purchase price of the franchise.
Prospective Hygiene franchisees are given an opportunity to reserve an
exclusive territory prior to execution of the franchise agreement by
providing a $5,000 deposit to the Company. Following receipt of the deposit,
a 30-day waiting period is imposed by the Company prior to execution of the
franchise agreement to allow the prospective franchisee time to conduct due
diligence and obtain professional advice and to allow the Company time to
conduct credit and background checks. The deposit is applied against the
franchise fee in the event of the purchase of a franchise, or is refunded,
less a $500 application fee, in the event the franchise sale is not completed.
The Hygiene franchise agreement may be terminated by the Company for,
among other things, bankruptcy, insolvency or liquidation of the franchise; a
material misrepresentation by the franchisee; breach of the franchise
agreement or applicable federal, state or local laws; acquisition by the
franchisee of an interest in a competing business; unauthorized use of the
Company's services or products; or the sale, sublicense or assignment of an
interest in the franchised business. The Company also has the right to
terminate the franchise agreement in the event the franchise does not
generate at least $100,000 in gross revenues in the first year of operation.
Under certain circumstances, the franchisee may have an opportunity to cure
any alleged default under the franchise agreement. The franchisee does not
have a right to terminate the franchise agreement and is subject to a three
year non-compete agreement following expiration or termination of the
franchise agreement.
The Company estimates that the initial investment to establish a new
Hygiene franchise is between $65,700 and $115,200, allocated as follows:
ESTIMATED ESTIMATED
EXPENSES MINIMUM MAXIMUM
-------- --------- ------------
Initial franchise fee ............. $ 35,000 $ 75,000 (1)
Lease deposits and leasehold
improvements ..................... 1,000 1,400
Equipment ......................... 1,000 1,500
Permits and licenses .............. 200 500
Insurance ......................... 700 2,000
Deposits .......................... 300 500
Working capital ................... 27,500 34,300
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Total ............................. $ 65,700 $115,200
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(1) Represents the highest initial franchise fee charged by the Company.
Working capital includes funds for estimated initial start-up costs,
supplies, salaries during the initial six months of operations and royalties,
service fees and marketing fees to be paid to the Company during the initial
six months of operations. A franchisee may require working capital in excess
of these estimates to
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sustain operations, depending on such factors as the geographic distribution
of retail business accounts (which impacts the number of personnel required
to service the accounts), the type of retail business accounts and the
frequency of service required, the balance between credit and C.O.D.
customers and local marketing expenses incurred by the franchisee.
COMPANY-OWNED HYGIENE OPERATIONS
The Company's wholly-owned subsidiary, Swisher International of
Charlotte, Inc., is actively engaged in providing Hygiene services and
products in portions of North and South Carolina. In the course of
conducting its hygiene operations, the Company is able to test new products,
services, marketing strategies and other business practices prior to
introduction to the franchisees. The Charlotte, North Carolina operation is
also used by the Company to provide training to franchisees. The following
table sets forth information concerning the revenues derived from the
Company-owned Hygiene operations:
YEAR ENDED OCTOBER 31,
-------------------------------------
1996 1995 1994
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Hygiene revenues .............. $1,884,785 $1,462,332 $878,605
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(1) Figures for 1994 include revenues attributable to (i) the Company's
wholly-owned hygiene operations in Columbia, South Carolina and Augusta,
Georgia, which were sold in July 1994 and (ii) the Austin, Texas franchise,
which was repurchased by the Company in June 1993 and resold in January 1994.
(2) Figure for 1995 includes revenues attributable to (i) the Houston
franchise, which was owned and operated by the Company during the entire
year, and (ii) the Birmingham, Jacksonville, Space Coast and Tulsa
franchises, each of which the Company repurchased, owned and operated for a
portion of the year. The Company continues to own and operate the
Jacksonville, Space Coast and Tulsa franchises.
INTERNATIONAL HYGIENE LICENSE AGREEMENTS
During 1996 the Company implemented an international Hygiene marketing
program. To date, the Company has entered into Master License Agreements
covering the United Kingdom, Ireland and the Caribbean.
The Master License Agreement grants a ten year, exclusive license to
conduct a Swisher Hygiene business using the Company's trademarks, service
marks, procedures and techniques within a specified country or territory.
The licensee has the right to establish its own Hygiene operations or to
assign such rights to one or more sublicensees. The Company retains a right
of first refusal to repurchase the Master License and also has the right to
approve any proposed transfer of the Master License.
The licensee is required to pay an initial license fee which, to date,
has ranged from $60,000 to $250,000. The licensee is also required to pay
minimum monthly royalties which are based upon (i) initial fees paid by
sublicensees and (ii) ongoing revenues attributable to the Hygiene operations
of the licensee and any of its sublicensees.
The licensee is responsible for the selection, training and supervision
of all sublicensees and for ensuring that its operations comply with applicable
government regulations. The licensee is obligated to develop and maintain a
minimum number of company-owned or sublicensed Hygiene businesses, and to make
certain minimum advertising and marketing expenditures. The licensee and all
sublicensees are required to purchase equipment and supplies from the Company
or from vendors approved by the Company. The Company is oligated to provide
initial training and ongoing suport directly to the licensee.
The Master License Agreement may be terminated by the Company or by the
licensee upon certain breaches or events of default.
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HYGIENE MARKET AND GROWTH STRATEGY
The Company estimates that there are approximately 10 significant
territories in the United States which are not currently served by the Company
or its existing Hygiene franchisees. In order to expand the market for Hygiene
franchises, the Company has developed a Canadian franchise sales program. The
Company sold its first Canadian franchise in Toronto in October 1993, sold
three additional franchises in Canada during the 1994 fiscal year and sold one
additional franchise in Canada in the 1995 fiscal year. The Canadian franchise
sales program is similar to the Company's franchise sales program in the United
States. The Company focuses its franchising activities on selected areas in an
effort to establish multiple franchises within a particular geographic area.
However, the Company has not had extensive experience with international
franchise operations in the past and, accordingly, the Company may be subject to
a number of risks in the development of international franchises.
The Company's Master License program represents the Company's latest
attempt to expand its Hygiene Market. Given the penetration already achieved
by the Company's domestic Hygiene operations, the Company believes that
international markets offer the greatest growth opportunity for Hygiene
revenues. The Company has sold three Hygiene Master Licenses to date, and
international marketing efforts are expected to increase during 1997.
The Company expects that its future growth in Hygiene revenues will be
derived from penetration of international markets, increased product sales to
franchisees, expansion of business accounts serviced by franchisees, sale of
additional franchises, and introduction of new products and services. The
sale of new franchises has the potential to generate franchise fees as well
as increase continuing revenues attributable to continuing product sales,
royalties and/or service fees. The Company offers franchises and master
licenses directly through sales personnel located at the Company's headquarters.
The Company solicits franchise and master license sales through advertisements
placed in ENTREPRENEUR and SUCCESS magazines and other business publications.
The Company also places newspaper advertisements in both domestic and
international markets which are targeted by the Company for expansion. Through
the Company's efforts, it and its franchisees have also received publicity in
magazines, newspapers and on television, which management believes enhances
the Company's ability to market new franchises.
SWISHER MAIDS OPERATIONS
SWISHER MAIDS SERVICES
As of October 31, 1996, the Company had nine Swisher Maids franchises in
operation and Company-owned residential maid services in Charlotte, North
Carolina and Phoenix, Arizona. A Swisher Maids franchisee provides residential
maid services to its customers. A team of house-cleaning professionals is
assigned to each customer's home on a schedule that is set by the customer.
Cleaning services regularly performed include:
- Cleaning and sanitizing bathroom fixtures and mirrors;
- Cleaning counters, appliance surfaces, floors and sinks in the
kitchen;
- Vacuuming carpets, hardwood, tile and vinyl;
- Dusting baseboards, sills, decor and furnishings;
- Spot cleaning to remove fingerprints and smudges; and
- Other services as required by the customer.
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Franchisees provide all necessary cleaning supplies and equipment,
including backpack vacuums, which allows customers to decrease their
household expenses for such items.
A significant service made available to franchisees and their customers
is the Swisher Maids computerized scheduling system. The Company's research
prior to establishment of the Swisher Maids franchise operations indicated
that potential customers are unable to contact most maid services by telephone.
In order to avoid this problem, each Swisher Maid franchisee is equipped with a
computerized scheduling system that is linked to the Company's central office.
Should a customer call when the franchisee is out of his office, the call will
automatically "roll over" to the central office and be answered by the Company's
central operator. The central office has access to each franchisee's
computerized calendar and can schedule an appointment for the customer on the
franchisee's computer.
SWISHER MAIDS REVENUES
The Company generates revenues from its Swisher Maids franchise
operations in the form of franchise fees, royalties, service fees, marketing
fees and interest income. The first five franchises were sold in October
1994, and accordingly, the fiscal year ended October 31, 1995 was the first
full year of operations for Swisher Maids franchisees.
INITIAL FRANCHISE FEES. Franchises are granted for a specific geographic
territory, but unlike the Hygiene franchise, a Swisher Maids franchise entitles
the franchisee to operate from a single location within the specified territory.
Each Swisher Maids franchisee may offer and provide services only to residential
customers which are located within its franchised territory. The initial
franchise fee payable to Swisher Maids is $10,000, plus $1.00 per qualified
household within the territory purchased by the franchisee. A "qualified
household" is a household whose minimum annual income is $50,000 or more,
according to the most recent U.S. Census Bureau data available or from data
provided by a generally accepted independent commercial demographic firm. The
Company expects that territories will generally contain not less than 5,000 nor
more than 20,000 qualified households. Accordingly, the initial franchise fee
ranges from $15,000 to $30,000. Prospective franchisees may pay a $5,000
deposit to the Company to reserve a specified territory. The balance of the
fee is due upon signing the franchise agreement. The deposit is applied against
the initial franchise fee in the event of the purchase of a franchise, or is
refunded, less a $500 administrative fee, in the event the franchise sale is not
completed. As with its sale of Hygiene franchises, the Company may finance
all or a portion of the initial franchise fee payable by a franchisee.
The franchise fee entitles the franchisee to initial training of two
employees designed to provide a franchisee with a working understanding of
the day-to-day operations, management and marketing of the franchise. The
Company also provides continuing operating and marketing support to its
franchisees and provides its franchisees with an operations manual.
PRODUCT PURCHASES BY FRANCHISEES. The franchise agreement requires
franchisees to purchase house-cleaning supplies and equipment from approved
vendors, which allows the Company to maintain the quality and integrity of
the products delivered by franchisees to the retail customer. The Company
does not offer products to franchisees and does not receive any fee in
connection with purchases made by franchisees.
ROYALTIES. Swisher Maids receives a royalty, payable weekly, based on a
franchisee's annual gross revenues, as defined in the franchise agreement.
The royalty is 6% of gross revenues up to $300,000; 5% of gross revenues over
$300,000 and up to $400,000; and 4% of gross revenues over $400,000.
SERVICE FEES. The service fee for each franchise is $75 per week during
the first four weeks. Thereafter, the fee increases by $25 every four weeks
until the fee reaches the maximum of $175 per week. The maximum flat fee
remains in place until weekly gross revenues from the franchise reach $9,600;
thereafter, the service fee is 2% of gross revenues. The service fee is paid
to compensate the Company for certain services
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provided to franchisees, which include telephone answering services for
purposes of scheduling estimates for potential customers. The Company may
also provide management support (including hiring, recruiting, training and
managing) for additional fees specified from time to time.
MARKETING FEES. The Company has established a marketing fund used for
marketing and advertising for Swisher Maids franchises. Each franchisee must
pay a fee equal to 2% of its gross revenues into the fund. This fee is in
addition to the minimum local advertising expenditure required of each
Swisher Maids franchisee in the amount of $2,000 per month. The Company
retains 10% of the marketing fees as compensation for administrative and
overhead expense incurred in managing the marketing and advertising
activities.
SWISHER MAIDS FRANCHISE DEVELOPMENT. As of October 31, 1996, the
Company had nine franchises and Company-owned operations in Charlotte, North
Carolina and Phoenix, Arizona. This compares to 19, 5 and 0 Swisher Maids
franchises as of October 31, 1995, 1994 and 1993. The decline experienced in
1996 reflects the consolidation of certain fr anchise markets and the
Company's intentions to continue Swisher Maids operations at their existing
level for the immediate future.
SWISHER MAIDS FRANCHISE AGREEMENT
Swisher Maids franchisees are granted a sublicense to use the "Swisher
Maids" service mark and associated proprietary names and marks in an
exclusive franchised territory. Franchisees have the right to operate their
business from a single location within the territory for a five year term.
The term of the agreement may be renewed provided, among other conditions,
the franchisee has been, and is, in compliance with the terms of the
agreement and pays Swisher Maids a renewal fee equal to 10% of the initial
franchise fee then being charged for a new Swisher Maids franchise.
Other terms and conditions of the franchise agreement, including the
right of first refusal to repurchase a franchise, the right to approve a
transfer and receive a transfer fee, and the termination provisions, are
similar to those contained in the Company's Hygiene franchise agreement, as
described above. However, unlike the Hygiene franchise agreements, (i) the
Company cannot terminate the Swisher Maids franchise agreement for failure of
the franchisee to generate any specific level of revenue and (ii) the
franchisee is subject to a two year non-compete following expiration or
termination of the franchise agreement.
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<PAGE>
The Company estimates that the initial investment to establish a new
Swisher Maids franchise ranges from approximately $24,200 to $52,100,
allocated as follows:
ESTIMATED ESTIMATED
EXPENSES MINIMUM MAXIMUM
-------- --------- ---------
Initial franchise fee................. $15,000 $30,000
Lease deposits and leasehold
improvements......................... 1,700 4,500
Equipment............................. 200 1,000
Permits and licenses.................. 200 300
Insurance(1).......................... 500 2,000
Automobile(2)......................... 300 400
Computers(3).......................... 0 1,900
Training expense...................... 0 500
Advertising(4)........................ 4,000 5,000
Deposits.............................. 300 500
Working capital....................... 2,000 6,000
------- -------
Total $24,200 $52,100
------- -------
------- -------
(1) One year of liability coverage, including automobile insurance.
Does not include bonds for employees or workers compensation insurance.
(2) Franchisees must purchase or lease at least one vehicle in accordance
with specifications.
(3) Required for telephone answering services and accounting software.
(4) Includes $2,000 for grand opening advertising and one month of the required
$2,000 monthly fee.
A franchisee may require working capital in excess of these estimates to
sustain operations, depending on such factors as whether the business is owner-
operated, the rate of growth of the business, the size of the territory, the
franchisee's business and management skill, economic conditions, competition in
the territory and the quality of the franchisee's customer service.
COMPANY-OWNED SWISHER MAIDS OPERATIONS
The following table sets forth information concerning the revenues
derived from Company-owned Swisher Maids operations:
YEAR ENDED OCTOBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
Swisher Maids................. $641,974 $313,253 $150,405
SWISHER MAIDS MARKET AND CONSOLIDATION STRATEGY
Management believes the aging of the Baby Boom generation and the
increase in dual income families have combined to make residential maid
service a growing industry. Various sources estimate that over 70% of
working-age women in America are employed outside the home, often times as
part of a dual income family with small children. Women in these households
typically have limited time to clean their homes, but do have sufficient
income to contract for maid service. The Company anticipates that this market
will continue to grow.
The Company believes that strong demand exists for residential maid
services. In order to strengthen its Swisher Maids operations, the Company
has taken steps to expand the territories of most of its franchisees. In
particular, the Company has repurchased a total of four Swisher Maids
franchises, of which two have been resold and two are currently owned and
operated by the Company. The Company intends to continue its Swisher Maids
operations at their existing levels for the immediate future.
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<PAGE>
SURFACE DOCTOR OPERATIONS
SURFACE DOCTOR SERVICES
The Company acquired the Surface Doctor franchise operations effective
as of July 1, 1996, from Professional Carpet Systems, Inc. and Old Dixie
Supply Company (together, the "Sellers"). The Sellers operated Surface Doctor
as a jointly-owned operating division. The purchased assets consisted of all
of Sellers' rights under Surface Doctor franchise agreements and all
trademarks, and service marks, accounts and notes receivable, inventories and
equipment relating to the Surface Doctor operations.
Surface Doctor franchise operations were initiated by Sellers in 1994.
As of the Company's acquisition of Surface Doctor, there were approximately
100 domestic and 9 foreign Surface Doctor franchisees. The Company began to
offer Surface Doctor franchisees in August 1996, and there are currently
approximately 115 domestic and 10 foreign Surface Doctor franchises. Surface
Doctor franchises offer mobile, on-location kitchen and bath restoration
services, particularly with respect to cabinets, counter tops, and fixtures.
Surface Doctor restoration services offer customers a low-cost alternative to
the replacement of laminate, porcelain, fiberglass tile, cultured marble,
metal and related surfaces. Restoration services are typically marketed to
homeowners, hotels, apartment complexes, office and industrial facilities,
appliance rental companies, and managers of residential and commercial
properties.
SURFACE DOCTOR REVENUES
The Company generates revenue through its Surface Doctor franchise
operations in the form of initial franchise fees, product sales to
franchisees, royalties, and marketing fees.
INITIAL FRANCHISE FEES. On the sale of a Surface Doctor franchise,
the Company receives an initial franchise fee of $10,800 for each Designated
Marketing Area ("DMA"). A DMA is defined as a single county, parish or
similar geographic area containing at least 100,000 residents. Each
franchisee has the non-exclusive right to use the Surface Doctor names, marks
and business methods in the DMA. Within a DMA, the Company may not sell more
than one Surface Doctor franchise for each 100,000 residents.
Payment of the franchise fee entitles the franchisee to initial
training of key employees. The training course has a two-week curriculum of
classroom and hands-on training which is conducted at the Company's
facilities. Continuing training is provided to franchisees through periodic
meetings and conferences. The initial training program is designed to provide
a franchisee with a working understanding of the management and marketing of a
Surface Doctor franchise and to familiarize the franchisee with the
refinishing and restoration services and products offered by the Company. The
Company maintains a permanent staff which provides continuing operating and
marketing support to its franchisees.
PRODUCT SALES TO SURFACE DOCTOR FRANCHISEES. The franchise agreement
requires franchisees to purchase Surface Doctor products from approved
vendors, which allows the Company to maintain the quality and integrity of the
products delivered by franchisees to the retail business customer. The
Company is the sole approved product vendor at this time. Management believes
that through volume purchasing, the Company provides quality products at
competitive prices. Products provided by the Company to its franchisees
include, tools and equipment, cleaning agents, safety equipment, supplies and
marketing and promotional materials.
ROYALTIES. Pursuant to the Company's current franchise agreement, the
Company receives a royalty on each franchisee's gross revenues. Royalties are
calculated on a sliding scale based on the franchisee's revenues, ranging from
4% to 6% of gross revenues. The Company is entitled to a minimum monthly
royalty of $200. Substantially all of the franchisees as of October 31, 1996
are governed by the prior Surface Doctor franchise agreement, which requires a
$175 monthly royalty.
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<PAGE>
SERVICE FEES. The Company receives a monthly service fee of 2% of
monthly gross revenues. The service fee is paid to compensate the Company for
services provided to franchisees, which include:
- Generation of invoices to customers;
- Collection services for accounts receivable;
- Preparation of monthly financial statements and monthly receivables
aging reports; and
- Toll-free phone answering services providing customers with account
information and franchisees with message services.
MARKETING FEES. Pursuant to the current franchise agreement, the
Company receives a monthly marketing fee equal to 2% of each franchisee's
gross revenues. The marketing fees are used to fund marketing and advertising
activities and to fund various market research and development activities.
The Company has the authority and responsibility for directing the application
of the marketing fee. Substantially all of the franchisees as of October 31,
1996 are governed by the prior franchise agreement, which requires a $25
monthly marketing fee.
SURFACE DOCTOR FRANCHISE DEVELOPMENT. As of October 31, 1996, the
Company had approximately 115 Surface Doctor franchises conducting business in
the United States and approximately ten franchises based in certain foreign
countries as well as one Company-owned operation based in Atlanta. The
Atlanta operation was sold to a franchisee in the first quarter of 1997.
14
<PAGE>
Set forth below is information concerning the location of Surface Doctor
franchises existing as of October 31, 1996. (Except as indicated otherwise,
each market contains one franchise.)
ALABAMA ILLINOIS NEW YORK WASHINGTON
Birmingham Chicago (3) Queens Bainbridge Island
Tuscaloosa Lake County Staten Island
Suffolk County WEST VIRGINIA
ALASKA INDIANA Walden Charleston
Anchorage Indianapolis Westchester County Morgantown
Parkersburg
ARIZONA IOWA NORTH CAROLINA
Phoenix (2) Council Bluffs Charlotte (2) WISCONSIN
Tucson (2) Davenport Kitty Hawk Green Bay
Sioux City Milwaukee
ARKANSAS Des Moines (2) OHIO
Hot Spring Cleveland (2) WYOMING
KANSAS Columbus Casper
CALIFORNIA Kansas City Marietta Upton
Los Angeles (2) Topeka Toledo
Orange County BRAZIL
KENTUCKY OKLAHOMA San Paulo
COLORADO Paducah Oklahoma City
Colorado Springs Tulsa (2) BRITISH COLUMBIA,
Denver LOUISIANA CANADA
Fort Collins Jefferson Parrish OREGON Campbell River
Leadville New Orleans Portland
Stamboat Springs ONTARIO, CANADA
MARYLAND PENNSYLVANIA Amherstview
CONNECTICUT Easton Pittsburgh Carrying Place
Hartford Ottowa
New Haven MICHIGAN SOUTH CAROLINA Wiarton
Grand Rapids Charleston
FLORIDA Muskegon Fort Mill NEWFOUNDLAND,
Destin Greenville CANADA
Indian Harbor MINNESOTA Spartanburg Mount Pearl
Jacksonville Minneapolis
Orlando Rochester SOUTH DAKOTA NOVA SCOTIA,
Palm Harbor/ St. Cloud Sioux Falls CANADA
St. Peterbsurg St. Paul Dartmouth
Pensacola TENNESSEE Halifax
MISSISSIPPI Chatanooga
GEORGIA Gulfport/Biloxi Knoxville SINGAPORE/
Atlanta Nashville (2) INDONESIA/
Augusta MISSOURI MALAYSIA
Columbus Kansas City (2) TEXAS
Decatur Springfield El Paso
Jessup Houston (2)
Kennesaw NEBRASKA Lake Jackson
Savannah Gibbon Midland/Odessa
Tucker Plano
NEVADA
HAWAII Reno (2) VERMONT
Honolulu Burlington
NEW JERSEY
IDAHO East Brunswick VIRGINIA
Boise (2) Alexandria/Arlington
NEW MEXICO Fairfax County
Hobbs Hampton
Richmond
Virginia Beach
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<PAGE>
SURFACE DOCTOR FRANCHISE AGREEMENT
The Company's Surface Doctor franchise agreement grants the franchisee a
nonexclusive geographical territory for a ten-year period. The franchise
agreement permits successive renewal terms following expiration of the
initial term if the franchisee is in compliance with the terms of the
agreement.
The Surface Doctor franchise agreement may be terminated by the Company
for, among other things, bankruptcy, insolvency or abandonment of the
franchisee; a material misrepresentation by the franchisee; breach of the
franchise agreement or applicable federal, state or local laws; unauthorized
use of the Company's services or products; or the unauthorized sale or
assignment of an interest in the franchised business. Under certain
circumstances, the franchisee may have an opportunity to cure any alleged
default under the franchise agreement. The franchisee has the right to
terminate the franchise agreement upon 60 days' prior notice.
The Company estimates that the initial investment to establish a new
Surface Doctor franchise is between $36,000 and $41,900 allocated as follows:
ESTIMATED ESTIMATED
EXPENSES MINIMUM MAXIMUM
-------- --------- ---------
Initial franchise fee........... $10,800 $10,800
Training expenses............... 1,000 3,000
Equipment and Inventory......... 4,000 4,000
Insurance....................... 1,300 2,200
Working capital................. 1,000 2,000
Service van..................... 17,000 19,000
Miscellaneous................... 900 900
------- -------
Total........................... $36,000 $41,900
------- -------
------- -------
Working capital includes funds for estimated start-up costs during
the initial three months of operations, and assumes the franchisee operates
the business himself and thereby avoids payroll costs.
COMPANY-OWNED SURFACE DOCTOR OPERATIONS
The Company acquired Surface Doctor effective July 1, 1996.
Company-owned Surface Doctor operations generated revenues of $84,427 from
July 1, 1996 through October 31, 1996.
SURFACE DOCTOR MARKET AND GROWTH STRATEGY
The Company expects that future growth of Surface Doctor operations
will be derived from sale of additional franchises, increased product sales
to franchisees, and introduction of new products and services. The sale of
new franchises has the potential to generate franchise fees as well as
increase revenues attributable to product sales, royalties and service fees.
Unlike the Company's Hygiene operations, which have already achieved
substantial market coverage in the United States, substantial growth
opportunities continue to exist for Surface Doctor in the United States.
Although there are currently in excess of 100 Surface Doctor franchises in
the United States, such franchises are granted on a nonexclusive basis with a
population requirement of just 100,000 people per franchise. As a result,
the Company expects that the sale of Surface Doctor franchises in the United
States will exceed sales of both Hygiene and Swisher Maids franchises. The
Company also believes that a demand exists for Surface Doctor franchises in
foreign countries, and there are currently a total of ten franchises located
in Canada, Brazil and Singapore/Indonesia/Malaysia. Since August 1996, the
Company has marketed Surface Doctor franchises directly through sales
personnel located at the Company's headquarters, through advertisements
placed in magazines and other business publications. The Company also places
newspaper advertisements in select markets which are targeted by the Company
for expansion.
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<PAGE>
PROPRIETARY RIGHTS
The "SWISHER," "Swisher Maids," "S" design and "Surface Doctor" marks
have been registered as service marks on the principal register of the United
States Patent and Trademark Office. The "Surface Doctor" mark is owned by
the prior owner of the Surface Doctor operations, which is obligated to
assign the mark to the Company. Management of the Company also believes the
Company has developed proprietary rights in the Swisher trade name and in
associated common law trademarks including "Sanitized by Swisher," "Swisher
System" and "Swisher Hygiene." All of the Company's service marks, trade
names and common law trademarks are licensed to franchisees under franchise
agreement provisions strictly regulating their use. The Company has applied
for registration of its marks in Europe, Canada, Brazil, Japan, Jordan,
Mexico, Oman, Saudi Arabia and South Africa, and will make applications in
other countries as the expansion of its operations may require.
The Company intends to file all required renewal applications and to
take other steps reasonably necessary to maintain the integrity of its
services marks, trade names and other proprietary names and marks against
unauthorized use. Failure to defend and protect such service marks and other
proprietary names and marks could adversely affect the Company's sales of
franchises and continuing operations. The Company knows of no currently
infringing uses.
COMPETITION
The Company believes that the markets for its Hygiene, Maids and
Surface Doctor services are highly fragmented. The barriers to entry in each
market are low and, accordingly, competition is intense. The vast majority
of the Company's Hygiene competitors are small, locally-owned janitorial or
hygiene service firms, as well as a number of regional hygiene competitors
based in Florida, Texas and Missouri, while Maid Service competitors consist
generally of local independent operators and a small number of national or
regional companies, including franchise operators. Surface Doctor
competitors consist primarily of providers of traditional remodeling
services, as well as small operators who offer certain of the refinishing
services which are provided by Surface Doctor franchises.
The success of the Company depends in great part on the operating
performance of its Hygiene, Swisher Maids and Surface Doctor franchisees and
their ability to increase market penetration and establish name awareness.
The Company believes that the principal competitive factors in the Hygiene,
Swisher Maids and Surface Doctor industries are quality and timeliness of
services, price, convenience and the mix of services offered. Management
believes that both Hygiene and Surface Doctor franchises compete effectively
on the basis of price, convenience, quality and timeliness of service.
Although Swisher Maids franchises have, for a variety of reasons, competed
less favorably in the market for residential maid services, the Company
believes that the recent consolidation of certain Maids franchises has
strengthened the competitive position of the Company's Maids operations.
There nevertheless can be no assurance that the Company and its franchisees
will be able to compete successfully in their respective markets.
REGULATION
The Company is subject to Federal Trade Commission ("FTC") regulation
and state laws which regulate the offering and sale of franchises. The
Company is also subject to a number of state laws which regulate substantive
aspects of the franchise/franchisee relationship, such as business
opportunity laws. The FTC's Trade Regulation Rule on Franchising (the "FTC
Rule") requires the Company to furnish all prospective franchisees with a
franchise offering circular containing information prescribed by the FTC Rule.
Several states regulate the offer and sale of franchises by requiring
both disclosure to prospective franchisees and, in almost all cases,
registration of the franchise offering. Certain states also regulate the
franchise relationship by requiring that the franchisor deal with its
franchisees in good faith, prohibit
17
<PAGE>
interference with the right of free association among franchisees, limit the
imposition of standards of performance on a franchisee, and regulate
discrimination among franchisees in charges, royalties and fees. Such laws
also restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination, an opportunity to cure
and an obligation to repurchase inventory or pay other compensation. These
provisions have not had a material effect on the Company's operations.
Although the Company is not aware of any pending franchise
legislation which is likely to affect its operations, there can be no
assurance that future franchise legislation will not impose additional
requirements or expenses on the Company's business. The Company believes
that its operations are in compliance with the FTC Rule and state franchise
laws. The Company is presently authorized to sell Hygiene franchises in 47
states, Surface Doctor franchises in 50 states, and Swisher Maid franchises
in 39 states.
The Company may also be subject to government regulation concerning
the offer and sale of licenses and franchises in foreign countries. However,
by offering a master franchise or master license covering an entire country,
the Company expects to minimize the extent to which its international
operations will be governed by the laws of foreign jurisdictions. The
Company's master licensee or master franchisee will, however, be required to
comply with the laws and regulations, if any, governing the sale of
franchises within its country or territory. Government regulations in foreign
jurisdictions may, therefore, slow the development of international franchise
operations.
The Company is also subject to the Fair Labor Standards Act, which
governs such matters as minimum wages, overtime and other working conditions.
A significant number of the personnel employed by the Company are paid at
rates related to the federal minimum wage and, accordingly, increases in the
minimum wage will increase the Company's labor costs.
Federal and state environmental regulations have not had a material
adverse effect on the Company's operations.
EMPLOYEES
The Company employed approximately 110 persons at February 1, 1997.
Approximately 40 persons are employed in the Company's franchise operations,
and approximately 70 persons are employed in the Company-owned Hygiene and
Swisher Maids operations. The Company's employees are not covered by any
collective bargaining agreements. Management believes that its relations
with employees are satisfactory.
ITEM 2. PROPERTIES
The Company maintains its administrative facilities at 6849 Fairview
Road, Charlotte, North Carolina 28210. These facilities consist of
approximately 13,000 square feet of office space which is leased from a
partnership in which Mr. Swisher is a 33% partner. The Company has occupied
the premises since February 1993. The Company's lease extends through March
2000 and requires rental payments of $10,134 per month during the term of the
lease, subject to increase in accordance with the rate of increase of the
Consumer Price Index. Management believes the Company's facilities will be
adequate for its needs for the foreseeable future.
The Company maintains a 2,500 square foot warehouse/office facility
for certain of its Company-owned operations under a lease expiring in May
2001. The lease presently requires monthly payments of $1,500. Lease
payments will increase in future periods, and will total $1,600 per month
during the final year of the lease.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding and is not aware
of any pending or threatened legal proceeding which could reasonably be
expected to have a material adverse effect upon the Company's business,
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the three months ended October 31, 1996.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was quoted on the Electronic Bulletin
Board from its initial public offering through April 20, 1993, and thereafter
the Common Stock has been quoted on the Nasdaq National Market under the
symbol "SWSH". The following table sets forth the range of high and low
closing bid prices, as reported by the National Quotation Bureau during the
past two fiscal years. The prices set forth below reflect interdealer
quotations, without retail markups, markdowns or commissions, and do not
necessarily represent actual transactions.
HIGH LOW
----- -----
1995 FISCAL YEAR
First quarter................................... $3.63 $2.38
Second quarter.................................. 2.88 2.50
Third quarter................................... 3.88 2.75
Fourth quarter.................................. 4.12 2.63
1996 FISCAL YEAR
First quarter................................... $4.88 $3.00
Second quarter.................................. 5.00 3.13
Third quarter................................... 7.00 4.00
Fourth quarter.................................. 5.75 4.50
On January 27, 1997, the closing bid price of the Common Stock was
$8.38. As of January 27, 1997, there were approximately 81 record owners of
the Company's Common Stock.
As reflected in the price quotations above, the Company's Common Stock
has experienced significant price fluctuations. Any purchase or sale of a
significant number of shares during a relatively short time period may have
significantly affected the bid and asked quotations for the Common Stock. Other
factors that may cause the market price of the Common Stock to fluctuate include
quarterly fluctuations in results of operations, announcements of new services
or products by the Company, market conditions specific to the Company's industry
and market conditions in general. In addition, in recent years the stock market
in general has experienced significant price and volume fluctuations. These
fluctuations, which may be unrelated to the operating performance of specific
companies, have had a substantial effect on the market price for many small
capitalization companies such as the Company. Factors such as those cited above,
as well as other factors that may be unrelated to the operating performance of
the Company, may adversely affect the price of the Common Stock.
The Company has never paid any cash dividends on its Common Stock. It
is the current policy of the Company not to pay cash dividends on the Common
Stock. Any payment of cash dividends in the future will be dependent upon the
Company's financial condition, results of operations, current and anticipated
cash requirements, plans for expansion, restrictions, if any, under debt
obligations, as well as other factors that the Board of Directors deems
relevant. The loan agreement between the Company and its bank prohibits the
payment of dividends without the bank's prior written consent.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information is qualified by
reference to, and should be read in conjunction with, the Consolidated
Financial Statements, related Notes to Consolidated Financial Statements and
independent auditors' report, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained elsewhere herein.
STATEMENT OF OPERATIONS:
<TABLE>
FOR THE YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues $ 10,661 $ 7,963 $ 5,978 $ 4,769 $ 3,799
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Expenses:
Selling, general and administrative
expenses $ 4,060 $ 3,124 $ 2,891 $ 1,988 $ 1,435
Cost of product sales to franchisees 3,029 2,104 1,376 930 554
Costs related to Company-owned
hygiene operations 1,789 1,521 785 852 1,074
Costs related to Company-owned
maids operations 725 430 379 -- --
Costs related to Company-owned
Surface Doctor franchises 102 -- -- -- --
Interest 257 162 5 11 23
--------- --------- --------- --------- ---------
$ 9,962 $ 7,341 $ 5,436 $ 3,781 $ 3,086
--------- --------- --------- --------- ---------
Income before other revenues (expenses) $ 699 $ 622 $ 542 $ 988 $ 714
Other revenues (expenses)
Gain on sale of Company-owned hygiene
operations -- -- -- -- 87
Minority interest -- -- -- -- --
---------------------------------------------------------
$ -- $ -- $ -- $ -- $ 87
Income before taxes $ 699 $ 622 $ 542 $ 988 $ 800
Income tax expense (319) (246) (209) (370) (328)
--------- --------- --------- --------- ---------
Net income $ 380 $ 376 $ 333 $ 618 $ 472
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common share $ 0.20 $ 0.20 $ 0.17 $ 0.37 $ 0.39
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of
shares outstanding 1,912,857 1,904,258 2,014,932 1,686,436 1,224,655
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- -------------------
21
<PAGE>
BALANCE SHEET DATA:
OCTOBER 31,
------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(IN THOUSANDS)
Working Capital $ 2,139 $2,144 $2,556 $3,484 $ 228
Total assets 10,213 7,958 5,959 5,344 1,163
Long-term debt 859 1,438 113 2 7
Total liabilities 4,341 3,474 1,007 710 644
Stockholder's equity
5,872 4,484 4,952 4,634 520
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND SELECTED FINANCIAL
DATA APPEARING ELSEWHERE IN THIS ANNUAL REPORT.
The Company operates in four principal business segments: Hygiene, Maids
and Surface Doctor services conducted through franchise operations which
generate franchise sales and annuity revenues (i.e., services fees, product
sales, royalties and marketing fees), and each of the Company's wholly-owned
Hygiene, Swisher Maids and Surface Doctor operations. The Company acquired
Surface Doctor effective July 1, 1996, and the Company's financial statements
reflect the Surface Doctor franchise operations and certain Company-owned
Surface Doctor operations for the four month period ended October 31, 1996.
Company-owned Surface Doctor operations were sold to a franchisee in the first
quarter of the 1997 fiscal year. In February 1994, the Company's wholly-owned
Swisher Maids subsidiary began operating in Charlotte, North Carolina in
preparation for initiating the Maid Service franchise marketing program. In
October 1994, the Company sold its first Swisher Maids franchises.
Prior to and during a majority of the year ended October 31, 1990, the
Company derived its revenues exclusively from Company-owned Hygiene operations.
During the 1990 Fiscal Year, the Company commenced selling its 18 existing
majority-owned Hygiene subsidiaries as franchises in their existing markets and
began selling other franchises in new markets. This repositioning of the
Company was a direct result of management's determination in late 1989 that an
opportunity existed to accelerate the Company's penetration of the national
Hygiene market and increase its profitability through a program of selling
franchises. As the Company implemented its plan to operate as a franchise
business, including the sale of majority-owned subsidiaries as franchises,
revenues from Company-owned Hygiene operations declined, both in terms of
absolute dollars and as a percentage of total revenues. At October 31, 1993,
the Company had substantially completed its repositioning to a franchise
business as a result of the sale as franchises of all of its majority-owned
subsidiaries and had commenced an international franchise sales program. The
Company nevertheless continues to maintain Company-owned Hygiene operations
servicing portions of North and South Carolina, Florida and Oklahoma. In
addition, the Company repurchased and currently owns and operates Hygiene
franchises located in Jacksonville and Space Coast, Florida and Tulsa, Oklahoma.
The Company also continues to operate a Swisher Maids business in portions of
Charlotte, North Carolina.
Management's decision to reposition the Company has resulted in substantial
increases in revenues from franchise operations since the fiscal year ended
October 31, 1991. Revenues from franchise operations, including franchise
sales, product sales, royalties, service fees, marketing fees and interest
income, have increased consistently from $1,412,000 in the 1991 Fiscal Year to
$6,613,000 in the 1996 Fiscal Year. The Company experienced a decrease in net
income during fiscal 1994, due to the cost of expanding the Company's
infrastructure to support its present and future growth in Hygiene services and
products. Net income increased during fiscal 1995 due largely to the increase
in Hygiene franchise revenues, particularly revenues attributable to product
sales and royalties. From April 1993 to October 1996, the total number of
Swisher Hygiene and Maid franchises had grown from 46 to 109; also at October
31, 1996, the Company had 123 Surface Doctor franchises.
Assets held for sale consist of assets purchased by the Company from
certain franchisees who failed to comply with the terms of their franchise
agreements. The Company intends to sell such assets as soon as possible. Notes
receivable consist of all or a portion of the initial franchise fees financed by
the Company. The notes are collateralized by the franchisees' assets and, in
some cases, are personally guaranteed by the franchisees. Notes receivable were
$3,097,000 and $2,729,000 as of October 31, 1996 and 1995, respectively.
Goodwill includes the excess of acquisition costs over fair value of the net
assets acquired in the Surface Doctor transaction, and is being amortized over a
20 year period. During the 1996 Fiscal Year the Company initiated certain
international activities. In particular, the Company began offering Hygiene
master licenses and Surface Doctor franchises in certain foreign markets.
The Company's international operations generated revenues of $256,000 during
the 1996 Fiscal Year. (See Consolidated Financial Statements.)
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<PAGE>
The following table sets forth the percentage relationship to total
revenues or total expenses, as the case may be, of certain items included in
the Company's statement of operations and notes thereto for the periods
indicated.
YEAR ENDED OCTOBER 31,
-----------------------
1996 1995 1994
----- ----- -----
Revenues:
Product sales 30.8% 29.6% 26.1%
Service fees 15.6% 17.4% 16.6%
Royalties 15.3% 15.0% 13.5%
Marketing fees 0.4% 0.6% 0.4%
Initial franchise fees - hygiene 3.6% 7.4% 19.6%
Initial franchise fees - maids (0.4)% 4.4% 0.5%
Initial franchise fees - Surface Doctor 4.6% - -
Company-owned hygiene operations 17.7% 18.4% 14.7%
Company-owned maids operations 6.0% 3.9% 2.5%
Company-owned Surace Doctor operations 0.8% - -
Interest income 2.6% 2.7% 1.6%
Sale of customer lists - - 1.9%
Gain on sale of Company-owned
hygiene operations 2.7% - 2.0%
Other income 0.3% 0.6% 0.6%
----- ------ ------
Total Revenues 100.0% 100.0% 100.0%
Expenses:
Selling, general and administrative
expenses 40.8% 42.6% 53.2%
Cost of product sales 30.4% 28.7% 25.3%
Company-owned hygiene operations 20.7% 14.4%
Company-owned maids operations 25.2% 5.8% 7.0%
Company-owned Surface Doctor operations 1.0% - -
Interest expense 2.6% 2.2% 0.1%
----- ----- -----
Total Expenses 100.0% 100.0% 100.0%
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED OCTOBER 31, 1996 AND OCTOBER 31, 1995.
Total revenues increased by approximately 34% from $7,963,000 in the 1995
Fiscal Year to $10,661,000 in the 1996 Fiscal Year. The increase was due
primarily to an increase in annuity revenues (consisting of product sales,
service fees, royalties and marketing fees), which totalled $6,613,000 in the
1996 Fiscal Year as compared to $4,981,000 in the 1995 Fiscal Year. The
increase in annuity revenues reflects the acquisition of Surface Doctor
effective July 1, 1996, a 39% increase in product sales and the growth in
Hygiene franchise operations. Growth in total revenues was also due to a
combined 42% increase in revenues attributable to Company-owned Hygiene and
Maids operations, as well as the addition of Company-owned Surface Doctor
operations. Initial franchise sales for both Hygiene and Maids declined
during Fiscal 1996 reflecting the broad geographic penetration achieved by
Hygiene franchises and the Company's decision to maintain existing Swisher
Maids operations at their existing level.
Consistent with the expansion of the Company's operations, total expenses
increased by approximately 36% from $7,341,000 in the 1995 Fiscal Year to
$9,962,000 in the 1996 Fiscal Year. In particular, selling, general and
administrative expenses increased by $936,000 from $3,124,000 in the 1995
Fiscal Year to $4,060,000 in the 1996 Fiscal Year, and cost of product sales
increased by $924,000 from $2,104,000 in the 1995 Fiscal Year to $3,029,000
in the 1996 Fiscal Year.
Approximately $439,000, or 6% of the increase in total expenses, was
attributable to a write-down of certain Company assets and acquisition and
reporting expenses associated with Surface Doctor. These expenses accounted
for 7% of the increase in selling, general and administrative expenses and
24% of the increase in Company-owned Maids operations expenses. (In addition,
a $41,000 tax expense provision was incurred to allow for an adjustment of
the deferred tax liabilities.)
As a result of the foregoing, income before taxes increased by 13% from
$622,000 in the 1995 Fiscal Year to $700,000 in the 1996 Fiscal Year, while
net income remained flat.
COMPARISON OF YEARS ENDED OCTOBER 31, 1995 AND OCTOBER 31, 1994.
Total revenues increased by approximately 33% from $5,978,000 in the 1994
Fiscal Year to $7,963,000 in the 1995 Fiscal Year. The increase in revenues
was due primarily to an increase in the Company's annuity revenues (consisting
of product sales, service fees, royalties and marketing fees), which totalled
$4,980,000 in the 1995 Fiscal Year as compared to $3,382,000 in the 1994 Fiscal
Year. The increase in annuity revenues reflects the overall growth in the
Company's franchise operations. The growth in total revenues was also due to
increases in Swisher Maids franchise fees and revenues from both Company-owned
hygiene and maids operations. Swisher Maids franchise fees increased to
$347,000 during the 1995 Fiscal Year as compared to
23
<PAGE>
$30,000 in the 1994 Fiscal Year; such increase was due to the fact that the
program was established in the 1994 Fiscal Year and 1995 represented the
Company's first complete year of offering Swisher Maids franchises. Revenue
from Company-owned hygiene and maids operations were $1,462,000 and $313,000
during the 1995 Fiscal Year, respectively, which represent increases of 66%
and 108% over 1994 revenues. The increase in revenue from Company-owned
hygiene operations reflects the Company's repurchase of four franchises during
1995 and its operation of such franchises for a portion of the year. The
Company's hygiene franchise fees declined from $1,173,000 in the 1994 Fiscal
Year to $587,000 in the 1995 Fiscal Year. The decline in hygiene franchise
fees is attributable to the market penetration already achieved by the hygiene
franchise program and the reduced number of markets available for sale.
Total expenses increased by approximately 35% from $5,436,000 in the 1994
Fiscal Year to $7,341,000 in the 1995 Fiscal Year. Selling, general and
administrative expenses increased by approximately 8% from $2,891,000 in the
1994 Fiscal Year to $3,124,000 in the 1995 Fiscal Year.
Income before taxes increased by approximately 15% from $542,000 in the
1994 Fiscal Year to $622,000 in the 1995 Fiscal Year. The Company's income tax
expense increased by approximately 18% from $209,000 in the 1994 Fiscal Year to
$246,000 in the 1995 Fiscal Year, resulting in net income increasing by
approximately 13% from $333,000 in the 1994 Fiscal Year to $376,000 in the 1995
Fiscal Year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its growth through cash from
operations. In addition, the Company used the proceeds of a public offering
completed in April 1993 to finance the expansion of its franchise system.
During the 1996 Fiscal Year, net cash provided by operations was $536,000
and net cash provided by changes in investing and financing activities was
$133,000. Cash provided by financing activities was $210,000.
The Company had working capital of $2,139,000 at October 31, 1996 as
compared to working capital of $2,144,000 at October 31, 1995. The change in
working capital was due primarily to an $879,000 increase in cash and cash
equivalents and a $472,000 increase in accounts receivable, which were offset by
increases in certain current liabilities, including a $312,000 increase in
borrowings under the Company's line-of-credit and a $682,000 increase in
accounts payable. As of October 31, 1996, the Company's balance of cash, cash
equivalents and restricted cash was $2,070,000 as compared to $1,630,000 at
October 31, 1995. Net accounts receivable from franchisees were $1,616,000 at
October 31, 1996, an increase of $473,000 as compared to October 31, 1995. The
current portion of notes receivable increased from $762,000 at October 31, 1995
to $994,000 at October 31, 1996. The current portion of notes receivable from
related parties and advances to officers totaled $142,000 at October 31, 1996 as
compared to $46,000 at October 31, 1995.
At October 31, 1996, other assets consisted principally of notes
receivable in the amount of $2,103,000 and assets held for sale in the amount
of $839,000. Notes receivable are comprised of notes executed by franchisees
in payment of initial franchise fees which are due beyond the ensuing year,
while the assets held for sale consist of repurchased franchise assets which
are expected to be resold by the Company.
The Company's total current liabilities were $3,386,000 at October 31,
1996, an increase of $1,399,000 over total current liabilities of $1,987,000
at October 31, 1995. The increase in current liabilities was comprised
primarily of a $682,000 increase in accounts payable and a $312,000 increase
in borrowings under the Company's line-of-credit. The Company's long-term
debt was $859,000 at October 31, 1996, a decrease of $579,000 over long-term
debt of $1,438,000 at October 31, 1995.
24
<PAGE>
The Company's material commitments at October 31, 1996 consisted primarily
of office facility, equipment and vehicle leases in varying amounts through
March 2000.
INFLATION
The Company does not believe that inflation will have a material impact
on the Company's future operations.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act and
are subject to the safe harbors created thereby. These forward-looking
statements include the plans and objectives of management for future
operations, including plans and objectives relating to (i) the continued
expansion of the Company's Hygiene, Swisher Maids and Surface Doctor franchise
programs, (ii) the introduction of new products to be sold to franchisees,
(iii) the continued successful operation of franchised businesses by Hygiene,
Surface Doctor and Swisher Maids franchisees, (iv) successful collection of the
Company's notes receivable, particularly those executed by franchisees in the
payment of initial franchise fees, (iv) the Company's ability to re-sell
certain Hygiene businesses which have been repurchased from franchisees and (v)
the Company's ability to expand into international and new domestic markets.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These forward-
looking statements were based on assumptions that the Company would continue to
develop and introduce new products on a timely basis, that competitive
conditions within the Company's markets would not change materially or
adversely, that demand for the Company's Hygiene, Swisher Maids and Surface
Doctor franchises would remain strong, and that there would be no material
adverse change in the Company's operations or business. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no
assurance that the forward-looking information will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are included on
pages F-1 to F-24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no disagreements with accountants on accounting and
financial disclosure. The Company appointed McGladrey & Pullen, LLP as its
accountants effective December 4, 1996. Such change in accountants was
disclosed in a Form 8-K filed with the Securities and Exchange Commission on
December 5, 1996.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to "Election of Directors" in the Company's definitive proxy statement for 1996
to be filed by February 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to "Executive Compensation" in the Company's definitive proxy statement for
1996 to be filed by February 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to "Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive proxy statement for 1996, to be filed by February 28,
1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to "Certain Relationships and Related Transactions" in the Company's definitive
proxy statement for 1996, to be filed by February 28, 1997.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) CONSOLIDATED FINANCIAL STATEMENTS.
Independent Auditor's Report of McGladrey & Pullen, LLP F-1
Independent Auditor's Report of Ehrhardt Keefe Steiner
& Hottman, P.C. F-2
Consolidated Balance Sheets as of October 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
October 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Stockholders' Equity for the years
ended October 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the years ended
October 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-10
(b) EXHIBITS.
The following is a complete list of Exhibits filed as part of this
report and which are incorporated herein.
EXHIBIT NO.
- -----------
* 3.1.1 Articles of Incorporation, as amended, of the Company as filed on
October 10, 1986 with the Secretary of State of the State of
Nevada.
* 3.1.2 Certificate of Amendment of Articles of Incorporation of the Company
as filed on January 19, 1993, with the Secretary of State of the
State of Nevada.
# 3.1.3 Certificate of Designations of Series A Junior Participating
Preferred Stock.
* 3.2.1 Amended and Restated By-Laws of the Company.
* 4.1.1 Form of specimen certificate for Common Stock of the Company.
* 4.1.2 Form of specimen certificate for Warrants of the Company.
** 4.1.3 Form of Warrant Agreement, dated April 12, 1993, between American
Securities Transfer & Trust Co. and the Company.
** 4.2 Form of specimen certificate for Underwriter's Warrant of the
Company.
# 4.3 Form of Rights Agreement and Form of Rights Certificate.
* 10.1.2 Amended Employment Agreement, effective January 1, 1993, between
Patrick L. Swisher and the Company.
* 10.2.1 1992 Incentive Stock Option Plan, effective April 29, 1992,
authorizing 58,334 shares of Common Stock for issuance pursuant to
the Plan.
* 10.2.2 1992 Non-Qualified Stock Option Plan, effective April 29, 1992,
authorizing 133,333 shares of Common Stock for issuance pursuant
to the Plan.
*** 10.2.3 Amendment to 1992 Incentive Stock Option Plan, effective April 12,
1994, authorizing 250,000 shares of Common Stock for issuance
pursuant to the Plan.
*** 10.2.4 Amendment to 1992 Non-Qualified Stock Option Plan, effective April
12, 1994, authorizing 150,000 shares of Common Stock for issuance
pursuant to the Plan.
10.3 Franchise Agreements by and between the Company and its franchisees,
effective dates set forth below:
27
<PAGE>
EXHIBIT NO.
- -----------
* (i) Form of Franchise Agreement by and between the Company and
certain franchisees.
* (ii) Form of Franchise Agreement by and between the Company and
certain franchisees.
* (iii) Form of Franchise Agreement by and between the Company and
certain franchisees.
* (iv) Franchise Agreement, dated August 20, 1990, by and between
the Company and J/S Enterprises, Inc. for Louisville
territory, subsequently transferred to Louisville
Restroom Sanitation Services, Inc. on August 31, 1990.
* (v) Franchise Agreement, dated October 31, 1990, by and between
the Company and Rice & Rice Corporation for Richmond
territory.
** (vi) Form of Franchise Agreement, dated October 31, 1990, by and
between the Company and maid service franchisees.
- (v) Form of Master License Agreement relating to international
licenses by and between the Company's wholly-owned
subsidiary, F.M.S., Inc., and certain licensees.
* 10.4 Lease, dated April 20, 1992, by and between B.S. Associates
Partnership and the Company.
* 10.5 Lease Agreement, dated August 6, 1992, by and between Economy Air,
Inc. and the Company.
* 10.6 Agreement, dated February 11, 1993, by and among Locke Burgess,
Ross Burgess, Lynn Smith and Austin-San Antonio Hygiene Services,
Inc, the Company and Swisher Hygiene Franchise Corp.
* 10.7 Promissory Note and Guaranty, dated December 17, 1992, by and
between Wachovia Bank of North Carolina, N.A. and the Company
(terminated).
- 10.7.1 Revolving Note and Loan Agreement, dated September 19, 1996, by and
between SouthTrust Bank of North Carolina and the Company.
* 10.8 Letter of Intent, dated February 11, 1993, by and between
Consolidated Products, Inc. and the Company.
* 10.9.1 Asset Purchase and Sale Agreement, dated March 12, 1993, by and
between Consolidated Products, Inc. and Swisher Products, Inc.
+ 10.9.2 Asset Purchase Agreement effective July 1, 1996, relating to the
sale of Surface Doctor by Professional Carpet Systems, Inc. and
Old Dixie Supply Company to the Company.
* 10.10.1 Promissory Note, dated April 1, 1993, by and between Branch
Banking and Trust Company and the Company.
* 10.10.2 Loan Agreement, dated April 1, 1993, by and between Branch Banking
and Trust Company and the Company.
o 10.10.3 Loan Agreement, dated April 21, 1995, by and between First Union
National Bank of North Carolina and the Company (terminated).
o 10.10.4 Loan Agreement, dated May 18, 1995, by and between Stephens
Diversified Leasing, Inc., d/b/a Stephens Franchise Finance, and
the Company.
28
<PAGE>
EXHIBIT NO.
- -----------
- 21. List of Subsidiaries of the Company.
- 23. Consent of McGladrey & Pullen, LLP.
- 27. Financial Data Schedule.
_____________
- - Filed herewith.
* Previously filed and incorporated by reference from the Company's
Registration Statement on Form S-1 (S.E.C. File No. 33-58320), filed
February 18, 1993, as subsequently amended and declared effective April 21,
1993.
** Previously filed and incorporated by reference from the Company's Form 10-K
for the fiscal year ended October 31, 1993, filed on January 31, 1994
(S.E.C. File No. 0-21282).
*** Previously filed and incorporated by reference from the Company's Form 10-K
for the fiscal year ended October 31, 1994, filed on January 30, 1995.
(S.E.C. File No. 0-21282).
# Previously filed and incorporated by reference from the Company's
Registration Statement on Form 8-A filed September 19, 1995.
+ Previously filed and incorporated by reference from the Company's Form 8-K
dated July 30, 1996, as filed with the SEC on or about August 8, 1996.
o Previously filed and incorporated by reference from the Company's Form 10-K
for the fiscal year ended October 31, 1995. (S.E.C. File No. 0-21282).
(c) REPORTS ON FORM 8-K.
The Company filed a Form 8-K on or about August 8, 1996 to disclose the
acquisition of Surface Doctor; financial statements for Surface Doctor
were filed pursuant to Form 8-K/A1 on October 15, 1996.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SWISHER INTERNATIONAL, INC.
By: /s/ Patrick L. Swisher
-------------------------------------
Patrick L. Swisher
President, Chief Executive Officer
and Director
Dated: February 12, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Patrick L. Swisher President, Chief Executive and February 18, 1997
- -------------------------- Financial Officer and Director
Patrick L. Swisher
/s/ W. Tom Reeder Vice President, Secretary February 18, 1997
- -------------------------- and Director
W. Tom Reeder
/s/ George K. Moore Director February 18, 1997
- --------------------------
George K. Moore
30
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Swisher International, Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheet of Swisher
International, Inc. and Subsidiaries as of October 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the year then ended. 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 Swisher International, Inc.
and Subsidiaries as of October 31, 1996, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
As described in Note 6 to the consolidated financial statements, during the
current year the Company changed its method of accounting for stock based
compensation.
/s/ McGlodrey & Pullen, LLP
McGlodrey & Pullen, LLP
Charlotte, North Carolina
January 30, 1997
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Swisher International, Inc.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheet of Swisher
International, Inc. and subsidiaries as of October 31, 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years in the two-year period ended October 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swisher International, Inc.
and subsidiaries as of October 31, 1995, and the results of their operations
and their cash flows for each of the years in the two-year ended October 31,
1995, in conformity with generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
December 21, 1995
Denver, Colorado
F-2
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
ASSETS (Note 4) 1996 1995
- ------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 1,809,590 $ 930,492
Cash, restricted (Note 4) 260,826 700,000
Accounts receivable, franchisees, net of
allowance for doubtful accounts
1996 $100,247; 1995 $40,644 1,615,802 1,142,979
Other receivables 382,292 217,716
Current portion of notes receivable (Notes 3 and 5) 993,931 761,686
Current portion of notes receivable - related
parties (Note 3) 29,268 12,660
Advances to officers (Note 2) 112,838 33,300
Inventories 166,042 75,327
Prepaid expenses 76,981 147,125
Prepaid advertising costs 77,605 110,073
----------- ----------
TOTAL CURRENT ASSETS 5,525,175 4,131,358
----------- ----------
Property and equipment (Note 5)
Property, furniture and equipment 1,154,491 1,262,718
Less accumulated depreciation (432,103) (281,440)
----------- ----------
722,388 981,278
----------- ----------
Other assets
Notes receivable (Notes 3 and 5) 2,103,096 1,967,790
Notes receivable - related parties (Note 3) 31,652 10,969
Deferred franchise costs, net of accumulated
amortization 1996 $85,665; 1995 $26,154 105,040 99,782
Intangible assets, net of accumulated amortization
1996 $4,247; 1995 $44,942 127,236 32,673
Goodwill, net of accumulated amortization
1996 $11,057 703,906 --
Assets held for sale (Note 11) 838,369 703,085
Other assets 55,849 31,412
---------- ----------
3,965,148 2,845,711
---------- ----------
TOTAL ASSETS $10,212,711 $7,958,347
----------- ----------
----------- ----------
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------------------------------------------------
Current Liabilities
Note payable (Note 4) $ 64,469 $ --
Line-of-credit (Note 4) 969,573 658,000
Current maturities of long-term debt (Note 5) 516,436 436,158
Accounts payable 1,170,438 488,180
Accrued expenses 181,132 123,851
Deferred revenue 224,124 240,986
Income taxes payable (Note 7) 247,817 11,000
Deferred income taxes (Note 7) 12,000 29,000
---------- ---------
TOTAL CURRENT LIABILITIES 3,385,989 1,987,175
---------- ---------
Long-Term Debt, less current maturities (Note 5) 858,616 1,437,651
---------- ---------
Deferred income taxes (Note 7) 96,480 49,000
---------- ---------
Commitments (Note 8)
Stockholders' Equity (Note 6)
Preferred stock, par value $.10; authorized
1,500,000 shares; none issued -- --
Series A Junior Participation Preferred stock,
par value $1.00; authorized 100,000 shares;
none issued -- --
Common stock, par value $.01; authorized 15,000,000
shares; issued 1996 1,935,799 shares;
1995 1,719,299 shares 19,359 17,194
Additional paid-in capital 4,006,659 3,002,637
Retained earnings 1,845,608 1,464,690
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 5,871,626 4,484,521
---------- ---------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES $10,212,711 $7,958,347
---------- ---------
---------- ---------
F-4
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994
- --------------------------------------------------------------------------------
Revenues
Annuity revenues
Product sales $ 3,279,578 $ 2,359,461 $ 1,559,719
Service fees 1,659,677 1,382,852 992,438
Royalties 1,626,659 1,192,336 804,360
Marketing fees 46,822 45,864 26,045
----------------------------------------
6,612,736 4,980,513 3,382,562
Initial franchise sales - hygiene
(Notes 3 and 9) 379,411 586,846 1,173,025
Initial franchise sales - maids
(Notes 3 and 9) (38,610) 347,272 29,654
Initial franchise sales - Surface Doctor
(Notes 3 and 9) 495,614 - -
Revenue from Company-owned hygiene
operations 1,884,785 1,462,332 878,605
Revenue from Company-owned maids
operations 641,974 313,253 150,405
Revenue from Company-owned Surface
Doctor operations 84,427 - -
Interest income 277,667 213,195 97,104
Sale of customer lists - - 113,000
Gain on sale of Company-owned hygiene
operations 284,017 - 121,495
Other 39,387 59,123 32,200
----------------------------------------
10,661,408 7,962,534 5,978,050
----------------------------------------
Expenses
Selling, general and administrative 4,059,568 3,124,145 2,891,193
Cost of product sales to franchisees 3,028,580 2,104,330 1,375,644
Costs related to Company-owned
hygiene operations 1,789,593 1,521,442 784,553
Costs related to Company-owned
maids operations 725,017 428,888 379,346
Costs related to Company-owned
Surface Doctor operations 101,982 - -
Interest 257,240 162,110 5,456
----------------------------------------
9,961,980 7,340,915 5,436,192
----------------------------------------
INCOME BEFORE INCOME TAXES 699,428 621,619 541,858
Income tax expense (Note 7) 318,510 246,000 209,000
----------------------------------------
NET INCOME $ 380,918 $ 375,619 $ 332,858
========================================
Net income per common share $ 0.20 $ 0.20 $ 0.17
========================================
Weighted average number of common
share and common share equivalents
outstanding 1,912,857 1,904,258 2,014,932
=======================================
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended October 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1993 1,999,133 $ 19,992 $ 3,857,345 $ 756,213 $ 4,633,550
Exercise of stock options
for cash 6,667 67 24,934 - 25,001
Offering costs settled
subsequent to
October 31, 1993 - - (14,197) - (14,197)
Repurchase and retirement
of common stock (5,000) (50) (25,584) - (25,634)
Net income - - - 332,858 332,858
---------------------------------------------------------------------------------------
Balance, October 31, 1994 2,000,800 20,009 3,842,498 1,089,071 4,951,578
Repurchase and retirement
of common stock (281,501) (2,815) (839,861) - (842,676)
Net income - - - 375,619 375,619
---------------------------------------------------------------------------------------
Balance, October 31, 1995 1,719,299 17,194 3,002,637 1,464,690 4,484,521
Issuance of common stock
and options in connection
with an asset acquisition
(Notes 6 and 12) 200,000 2,000 967,062 - 969,062
Issuance of common stock
in connection with the
exercise of stock options 16,500 165 36,960 - 37,125
Net income - - - 380,918 380,918
---------------------------------------------------------------------------------------
Balance, October 31, 1996 $ 1,935,799 $ 19,359 $ 4,006,659 $ 1,845,608 $ 5,871,626
=======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 1996, 1995 and 1994
1996 1995 1994
- ------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 380,918 $ 375,619 $ 332,858
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 153,227 108,452 44,410
Amortization 108,120 67,701 7,888
Deferred income taxes 30,480 52,000 (2,500)
Gain on sale of Company-owned stores (284,017) - (121,495)
Loss on sale of property 17,429 - -
Franchise fee revenue financed
through notes receivable (289,077) (627,018) (814,525)
Sale of customer lists financed
through notes receivable - - (112,654)
Provision for doubtful notes receivable 163,060 - -
Change in working capital components:
(Increase) in accounts receivable (568,333) (466,696) (360,307)
(Increase) in inventories (15,715) (36,705) (11,831)
(Increase) decrease in prepaid expenses 110,648 7,128 (82,036)
(Increase) in deferred franchise costs (64,769) (47,475) (46,061)
(Increase) decrease in prepaid
advertising costs 32,468 (91,716) (82,436)
Increase (decrease) in accounts payable 627,977 (75,298) 256,654
Increase (decrease) in accrued expenses 29,813 75,674 (7,075)
Increase (decrease) in income taxes
payable 236,817 (112,500) (37,500)
Decrease in deferred revenue (133,077) (94,200) (94,619)
----------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 535,969 (865,034) (1,131,229)
----------------------------------
Cash Flows from Investing Activities
Decrease in short-term investments - - 2,380,584
Purchase of equipment (178,943) (227,895) (364,422)
Advances to officer (79,538) (33,300) -
Notes receivable proceeds (287,838) (224,643) (249,084)
Notes receivable-related parties proceeds (37,291) (23,629) -
Notes receivable payments 532,579 534,101 320,127
Purchase of assets held for sale (96,207) (130,787) -
Proceeds from assets held for sale - - 154,641
Proceeds from sale of property 323,410 - -
Acquisition of Surface Doctor assets (20,000) - -
(Increase) decrease in intangible assets
and other assets (23,247) (14,422) 9,262
----------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 132,925 (120,575) 2,251,108
----------------------------------
(Continued)
F-7
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended October 31, 1996, 1995 and 1994
1996 1995 1994
- -------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from stock transactions $ 37,125 $ - $ 25,001
Payment of offering costs - - (14,197)
(Increase) decrease in restricted cash 439,174 (700,000) -
Proceeds from advances on line-of-credit
and short-term notes payable 376,042 658,000 -
Proceeds from long-term debt 85,889 1,522,815 -
Net principal payments on long-term
debt obligations (728,026) (176,071) (35,644)
Repurchase and cancellation of
common stock - (842,676) (25,634)
--------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 210,204 462,068 (50,474)
--------------------------------------
Net increase (decrease) in cash and
cash equivalents 879,098 (523,541) 1,069,405
Cash and cash equivalents - beginning
of year 930,492 1,454,033 384,628
-------------------------------------
Cash and cash equivalents - end of year $ 1,809,590 $ 930,492 $ 1,454,033
=====================================
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for:
Interest $ 250,763 $ 162,110 $ 5,456
Income taxes 51,213 148,900 248,889
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Purchase plant, property and
equipment under notes payable - 272,500 98,513
Notes receivable, included in
deferred revenue 209,324 220,986 54,212
Transfer of accounts receivable
to a note receivable - - 34,950
Notes payable issued for franchise
repurchases 143,380 96,982 -
Notes payable assumed for resale
of franchises - - 64,900
Transfer of accounts receivable
to assets held for sale 51,573 141,117 17,552
Sale of franchises for notes
receivable 265,983 308,699 31,476
Acquisition of Surface Doctor
division:
Assets purchased:
Accounts receivable 120,639 - -
Inventories 75,000 - -
Prepaid expenses 40,504 - -
Notes receivable 79,687 - -
Equipment 56,233 - -
Intangibles 100,000 - -
Goodwill recognized 714,963 - -
-------------------------------------
1,187,026
-------------------------------------
(Continued)
F-8
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended October 31, 1996, 1995 and 1994
1996 1995 1994
- -------------------------------------------------------------------------------
Liabilities assumed:
Accounts payable and accrued
expenses $ 81,749 $ - $ -
Deferred revenue 116,215 - -
-----------------------------------
197,964 - -
Stock and options issued as
consideration 969,062 - -
Cash consideration 20,000 - -
-----------------------------------
$1,187,026 $ - $ -
===================================
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICES
NATURE OF BUSINESS: The Company is engaged in the marketing of franchises
which provide hygiene services and products for public restrooms, residential
maid services and residential and commercial kitchen and bath restoration
services under the service marks "Swisher" and "Surface Doctor" and
associated proprietary names and marks. The Company and its independently
owned franchises are located throughout the world.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of Swisher International, Inc. and its
subsidiary companies, after elimination of intercompany accounts and
transactions.
CASH AND CASH EQUIVALENTS: For purposes of reporting the statement of cash
flows, the Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid short-term
investments purchased with an original maturity of three months or less to be
cash equivalents. The Company maintains deposits with financial institutions
which exceed the federally insured amounts.
INVENTORIES: Inventories are stated at the lower of cost or market and
consist of purchased finished goods. Cost is determined using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful life of the assets, which is five to thirty-nine years.
INTANGIBLE ASSETS: Intangible assets consisting primarily of trademarks and
organization costs are stated at cost and are being amortized using the
straight-line method over periods from five to fifteen years.
GOODWILL: Goodwill includes the excess of acquisition costs over fair value
of the net assets acquired in the purchase of the Surface Doctor division of
Professional Carpet Systems, Inc. and Old Dixie Supply Company (See Note 12)
and is being amortized on the straight-line basis over a twenty year period.
INITIAL FRANCHISE FEES, RELATED FRANCHISE COSTS, AND DEFERRED REVENUE: The
Company has entered into franchise agreements which grant franchisees the
exclusive right to develop and operate franchise businesses within specified
geographic territories for a fee. The initial franchise fee is deferred and
recognized as revenue when substantially all significant services to be
provided by the Company are performed. Initial training costs are accrued as
incurred, and expensed when the initial franchise fee is recognized. Costs
related to the development of the maids service franchise operation are
capitalized and will be amortized over their expected period of benefit of
two to three years. These costs include development of the franchise
document and development of marketing tools for future use by franchisees.
F-10
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company typically finances part of the initial franchise fee payable by
new franchisees and from time to time has financed 100% of the initial
franchise fee payable by an existing franchisee for expansion of its
territory. Before financing is granted to a new franchisee, the Company
performs extensive credit evaluations of the franchisee's financial condition
and obtains a security interest in the underlying franchise and essentially
all of the franchisee's assets. Revenue is recognized on financed sales when
the Company determines that collection is probable.
PREPAID ADVERTISING COSTS: The Company expenses advertising costs as
incurred except for the cost of developing certain magazine ads and other
materials which are capitalized and amortized over the expected useful life
for such materials.
ASSETS HELD FOR SALE: The Company has acquired assets of certain
franchisees who have failed to comply with the terms and conditions of their
franchise agreements. The Company carries these assets at the lower of cost
or market and intends to sell these operations as soon as possible.
ROYALTIES, MARKETING FEES AND SERVICE FEES: Royalties and marketing fees
are recognized as revenue based on a percentage of the monthly gross revenues
as reported by the franchisees. Service fees are recognized as revenue based
on a sliding dollar amount determined by the monthly gross revenues as
reported by the franchisees.
PRODUCT SALES: Product sales consist of product sold to the franchisees and
are recognized as revenue at the time of shipment.
INCOME TAXES: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets may not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
NET INCOME PER COMMON SHARE: Earnings per common share and common share
equivalents outstanding are calculated using the weighted average number of
common shares outstanding during the year and on the net additional number of
shares which would be issuable upon the exercise of all stock options,
assuming that the Company used the proceeds received to purchase additional
common shares at market value.
F-11
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATION: Certain amounts in the 1995 and 1994 financial statements
have been reclassified to conform with the 1996 presentation. These
reclassifications had no effect on 1995 and 1994 net income or retained
earnings.
ACCOUNTING STANDARDS NOT YET ADOPTED: The Financial Accounting Standards
Board ("FASB") has issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which has not
been adopted by the Company as of October 31, 1996. FASB Statement No. 121
is effective for fiscal years beginning after December 15, 1995. FASB
Statement No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Under the guidelines of the new
standard, the Company will be required to review long-lived assets and
certain identifiable intangibles to be held for impairment whenever events or
changes in circumstances, as outlined in Statement No. 121, indicate that the
carrying amount of an asset may not be recoverable. If these events or
changes in circumstances indicate that the carrying amount of an asset that
an entity expects to hold and use may not be recoverable, the Company shall
estimate the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows
is less than the carrying amount of the asset, the Company shall recognize an
impairment loss in accordance with this Statement. At October 31, 1996, the
Company was not required to adopt this statement and accordingly had not
determined the impact of this Statement on the financial statements.
NOTE 2. RELATED PARTY TRANSACTIONS
The Company leases its operating facility from a partnership which owns the
building. The President of the Company is a 33.3% partner in the partnership
(Note 8). Rent expense relating to the lease during the years ended October
31, 1996, 1995 and 1994 was $127,501, 108,187, and $96,400, respectively.
During the years ended October 31, 1996, 1995 and 1994, the Company paid the
President and/or a corporation in which the President is a majority
stockholder $126,950, $88,809, and $73,696, respectively, for the use of an
airplane for business travel.
As of October 31, 1996 and 1995, outstanding advances due from officers were
$112,838 and $33,300, respectively. The advances are without interest or
collateral.
During the years ended October 31, 1995 and 1994, the Company incurred legal
expenses in the amount of $9,267 and $35,673, respectively, to a legal firm
in which a former stockholder and director is a partner. All of the
stockholder's outstanding shares were repurchased by the Company and canceled
during the year ended October 31, 1995.
F-12
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. NOTES RECEIVABLE
Notes receivable consist of all or a portion of the initial franchise fees
financed by the Company. The notes are collateralized by the underlying
franchise and by essentially all of the franchisees' assets incidental to the
operation of the franchise and, for certain franchises, are personally
guaranteed by the owners. Notes receivable totaled $3,097,027 and $2,729,476
as of October 31, 1996 and 1995, respectively. The interest rates associated
with the majority of these notes range from 7% to 13.25% with monthly
principal and interest payments ranging from $70 to $5,401 including interest
over periods ranging from 12 to 120 months with the first note maturing in
1997 and the last one in 2007.
Future minimum principal payments to be received pursuant to the notes are as
follows:
Year Ending October 31,
- -----------------------
1997 $ 993,931
1998 618,556
1999 464,378
2000 268,832
2001 201,743
Thereafter 594,365
------------
3,141,805
Less allowance for doubtful accounts 44,778
------------
$ 3,097,027
============
At the time the notes receivable are executed, the Company considers a
reserve for doubtful collections based on the creditworthiness of the
franchisee. The provision for uncollectible amounts is continually reviewed
and adjusted to maintain the allowance at a level considered adequate to
cover future losses. The allowance is management's best estimate of
uncollectible amounts and is determined based on historical performance of
the notes which is tracked by the Company on an ongoing basis. The losses
ultimately incurred could differ materially in the near term from the amounts
estimated in determining the allowance.
Notes receivable - related parties consists of life insurance premiums paid
by the Company on behalf of the officers of the Company pursuant to a split
dollar life insurance plan. The notes are payable in monthly installments
ranging from $1,392 to $2,789, plus interest at 6%, commencing April, 1997
through July, 1998. The notes are unsecured. Future maturities of these
notes are as follows:
Year Ending October 31,
- -----------------------
1997 $ 29,268
1998 31,652
------------
$ 60,920
============
F-13
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 4. LINE OF CREDIT, NOTE PAYABLE AND PLEDGED ASSETS
The Company has a $1,000,000 line of credit agreement with a bank which
expires February 17, 1999. Borrowings under the agreement bear interest at
2.85% above the LIBOR (5.66% at October 31, 1996) and are due on demand. In
addition, the line of credit is collateralized by substantially all assets of
the Company and the Company must maintain a minimum cash balance of $250,000
at all times. Outstanding borrowings on the line of credit were $969,573 and
$658,000 at October 31, 1996 and 1995, respectively.
The Company also has a $64,469 unsecured note payable which is due November
30, 1996. Interest on the note is payable monthly at 9%.
NOTE 5. LONG-TERM DEBT AND PLEDGED ASSETS
Long-term debt consists of the following:
October 31,
--------------------------
1996 1995
--------------------------
Note payable, finance company, due in monthly
installments ranging from $3,123 to $51,793
including interest at 13.4%, through April
2001; collateralized by certain franchisee
notes receivable. $ 1,079,714 $ 1,417,260
Note payable, individual, paid in full during
fiscal year 1996. - 266,382
Note payable, individual, due in monthly
installments of $3,350, including interest
at 7%, through September 1997; personally
guaranteed by the Company's President and
Secretary. 35,594 68,982
Note payable, bank, due in monthly
installments of $3,125, including interest
at .50% above the banks prime rate (8.25%
at October 31, 1996) through July 1997;
unsecured. 21,707 58,144
Notes payable, vendors, due in monthly
installments of $1,347 including interest
at 9%, through December 1999; unsecured. 43,387 55,072
Note payable, individual, paid in full
during fiscal year 1996. - 7,969
Note payable, individuals, due in monthly
installments of $1,575, including interest
at 8% through January 1998; unsecured. 22,524 -
F-14
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. LONG-TERM DEBT AND PLEDGED ASSETS (CONTINUED)
Note payable, individuals, due in monthly
installments of $1,245, including interest
at 9% through May 2000; unsecured. $ 45,634 $ -
Note payable, individual, due in monthly
installments of $1,065, including interest
at 10% through July 1999; collateralized
by a maids franchise with a net book value at
October 31, 1996 of $61,776. 30,611 -
Note payable, individual, due in monthly
installments of $1,300, noninterest bearing
through January, 1998; unsecured. 21,021 -
Note payable, finance company, due in monthly
installments ranging from $1,189 to $1,464
including interest at 12.5% through June
2001; collateralized by notes receivable
with a balance at October 31, 1996 of
$111,083. 74,860 -
--------------------------
1,375,052 1,873,809
Less current portion (516,436) (436,158)
--------------------------
$ 858,616 $ 1,437,651
==========================
Aggregate maturities required on the long-term debt are as follows:
Year Ending October 31,
- ----------------------
1997 516,436
1998 398,888
1999 303,587
2000 127,472
2001 28,669
------------
$ 1,375,052
============
NOTE 6. STOCK, STOCK OPTIONS AND ACCOUNTING CHANGE
In 1993, the Company completed a public offering which raised $4,560,000 net
of $1,013,949 of offering costs. The offering consisted of 760,000 units of
the Company's securities, each unit consisting of one share of common stock
and one warrant. Two warrants entitle the holder to purchase one share of
common stock at $7.80 per share expiring December 1997. All warrants are
outstanding at October 31, 1996. A warrant to purchase up to 76,000 units
through April 1998 was issued to the Company's Underwriter for $100 in
connection with the offering with an exercise price of $7.20 per share.
F-15
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 6. STOCK, STOCK OPTIONS AND ACCOUNTING CHANGE (CONTINUED)
In December 1992, the stockholders authorized the issuance of 1,500,000
shares of preferred stock. The preferred stock may be issued in one or more
series with such rights and preferences as may be fixed and determined by the
Board of Directors. No preferred shares have been issued as of October 31,
1996.
SHARE PURCHASE RIGHTS PLAN: In June 1995, the Board of Directors authorized
the designation of 100,000 shares of Series A Junior Participating Preferred
Stock with a $1.00 par value per share. Each Series A Preferred Share is
entitled to a cumulative quarterly dividend of 100 times the dividend
declared per common share but in no event less than $1.00 per share. No
Series A Preferred Shares have been issued at October 31, 1996.
Also in June 1995, the Company adopted a Share Rights Purchase Plan (the
"Plan") under which the Board of Directors declared a dividend of one
preferred share purchase right ("Right") for each outstanding share of common
stock. Each right entitles the holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock at
a price of $18.75, subject to adjustment as provided in the Plan. The Rights
will be distributed to all common shareholders ten days following the earlier
of 1) an announcement that a person or group of persons has acquired
beneficial ownership of 15% or more of the outstanding common shares or 2)
the commencement or announcement of a tender offer or exchange offer the
consummation of which would result in the beneficial ownership of 15% or more
of the outstanding common shares. At any time prior to this, the Board of
Directors may redeem the Rights in whole at a price of $.01 per Right. The
Rights expire June 30, 2005. 1,935,799 Rights are outstanding at October 31,
1996.
STOCK OPTION PLANS: In August 1992, the Company adopted an Incentive Stock
Option Plan (the "Incentive Plan"). The Incentive Plan covers an aggregate
of 133,333 shares. In fiscal 1994, the Incentive Plan was amended by a
shareholder vote to reserve 250,000 shares of common stock for issuance under
the Incentive Plan. The Plan is administered by the Compensation Committee
of the Board of Directors, and requires that options be granted at an
exercise price equal to fair market value of the common shares of the Company
on the date of the grant. The options expire up to five years from the date
of grant and may not be exercised during the initial one-year period from the
date of grant. Options to purchase 232,568 shares of the Company's $.01 par
value common stock have been granted pursuant to the Incentive Plan.
The Company also adopted a Non-Qualified Stock Option Plan in August 1992
(the "Non-Qualified Plan"). The Non-Qualified Plan is also administered by
the Compensation Committee of the Board of Directors and covers a total of
58,334 shares. In fiscal 1994, the Non-Qualified Plan was amended by a
shareholder vote to reserve 150,000 shares of common stock for issuance under
the Non-qualified Plan. The Non-Qualified Plan provides that options may be
granted at exercise price not less than 85% of the fair market value of the
Common Shares of the Company on the date of grant. The committee is
empowered to grant bonuses at the time of issuance of non-qualified stock
options in an amount sufficient to cover the tax liability incurred by the
recipient at the date of grant. Options to purchase 47,667 shares of the
Company's $.01 par value commons stock have been granted under the
Non-Qualified Plan. The exercise price of the options approximated the fair
market value of the Company's common stock at the dates of grant.
F-16
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 6. STOCK, STOCK OPTIONS AND ACCOUNTING CHANGE (CONTINUED)
The following is a summary of options granted:
Weighted-Average
Number of Exercise
Options Price
-----------
Outstanding October 31, 1994 270,735 $3.36
Options canceled (55,500) 3.75
-----------
Outstanding October 31, 1995 215,235 3.26
-----------
Options exercised (16,500) 2.25
Options issued 81,500 3.50
-----------
Outstanding October 31, 1996 280,235 3.39
===========
NON-PLAN OPTIONS: In October 1995, the Company entered into a consulting
agreement with a public relations firm. Pursuant to this agreement, the
Company granted to the consultant options to purchase a total of 100,000
shares of common stock at exercise prices ranging from $3.50 to $4.50 per
share which become exercisable only upon the satisfaction of certain
contingencies, as defined. Options for 75,000 shares expired during the
year ended October 31, 1996.
During fiscal 1994, stock options to purchase 6,667 shares of common stock
were exercised at an exercise price of $3.75 per share. In addition, during
fiscal 1996, stock options to purchase 16,500 shares of common stock were
exercised at an exercise price of $2.25 per share.
ACCOUNTING CHANGE: The Company has adopted Financial Accounting Standards
Board Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. FASB
Statement No. 123, requires that the Company account for its stock based
compensation plans using a fair value based method which measures
compensation cost at the grant date based upon the value of the awards, which
is then recognized over the vesting period. The accounting requirements of
the statement apply to awards to employees entered into in fiscal years that
begin after December 15, 1995 and to transactions with non-employees entered
into after December 15, 1995. The Statement allows and the Company has
elected to continue to use APB Opinion No. 25 ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES to measure compensation cost, but is required to disclose the pro
forma effects on net income and earnings per share to reflect the difference
between the compensation cost from applying APB Opinion No. 25 and the
related cost measured by the fair value method defined in the statement for
all awards granted in years beginning after December 15, 1994. The Statement
did not change the reporting required for the Incentive Stock Option Plan and
Non-Qualified Stock Option Plan discussed above. The pro forma effects of
not utilizing the fair value method prescribed in FASB Statement No. 123 for
the Company's stock options is shown in the following table for the year
ending October 31, 1996 and there was no effect for 1995. In computing
the pro forma effects of the SFAS No. 123 compensation cost, the Company used
a 6.4% risk-free interest rate, an expected life of five years, and expected
volatility of 60.7%, and assumed no dividends and that such cost could not be
tax effected.
F-17
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 6. STOCK, STOCK OPTIONS AND ACCOUNTING CHANGE (CONTINUED)
Earnings
Net Income Per Share
----------------------------
Year Ended October 31, 1996:
As reported $380,918 $.20
Pro-forma $215,473 $.11
On April 19, 1996, the Company entered into an agreement with an investment
banking firm whereby the Company granted the investment banking firm options
to purchase 75,000 shares of the Company's common stock at a price of $3.50
per share. The options must be exercised on or before April 17, 1997. In
accordance with FASB Statement No. 123, the transaction was recorded based on
the value of the services received. On January 17, 1997, the investment
banking firm exercised their rights under the option agreement by completing
a cashless exercise for 41,129 shares of common stock.
NOTE 7. INCOME TAXES
Net deferred tax liabilities consist of the following components as of
October 31:
1996 Current Long-Term Total
- --------------------------------------------------------------------------------
Deferred tax asset:
Receivable allowances $ 36,957 $ - $ 36,957
---------------------------------------
Deferred tax liabilities:
Deferred advertising costs (48,957) - (48,957)
Property and equipment - (89,812) (89,812)
Goodwill and other assets - (6,668) (6,668)
---------------------------------------
(48,957) (96,480) (145,437)
---------------------------------------
$ (12,000) $ (96,480) $ (108,480)
=======================================
1995 Current Long-Term Total
- --------------------------------------------------------------------------------
Deferred tax asset:
Receivable allowances $ 13,000 $ - $ 13,000
---------------------------------------
Deferred tax liabilities:
Deferred advertising costs (42,000) - (42,000)
Property and equipment - (49,000) (49,000)
---------------------------------------
(42,000) (49,000) (91,000)
---------------------------------------
$ (29,000) $ (49,000) $ (78,000)
=======================================
F-18
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (CONTINUED)
The provision for income taxes charged to operations for the years ended
October 31, 1996, 1995 and 1994 consists of the following:
For the Year Ended October 31,
---------------------------------------
1996 1995 1994
---------------------------------------
Current tax provision
Federal $ 216,372 $ 169,000 $ 178,000
State 71,658 25,000 33,500
Deferred tax provision
Federal 24,732 44,000 (2,000)
State 5,748 8,000 (500)
----------------------------------------
$ 318,510 $ 246,000 $ 209,000
========================================
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years
ended October 31, 1996, 1995 and 1994 due to the following:
1996 1995 1994
----------------------------------------
Computed expected tax expense: $ 237,806 $ 211,350 $ 184,232
Increase (decrease) in income taxes
resulting from:
State income taxes 37,512 31,081 32,511
Permanent differences 8,830 3,569 (7,743)
Effect of change in tax rate
used in computing deferred taxes 17,128 - -
Other 17,234 - -
----------------------------------------
$ 318,510 $ 246,000 $ 209,000
========================================
NOTE 8. LEASE COMMITMENTS AND RENT EXPENSE
The Company leases its present facility from a partnership in which the
President is a 33.3% partner. The term of the lease extends through March
2000 (See Note 2). During the term of the lease, rent is subject to
increases in accordance with the rate of increase in the Consumer Price
Index. The lease requires the Company to pay for all insurance, maintenance,
and taxes. The Company also leases other facilities, equipment and vehicles
under operating leases which expire in varying amounts through 2001.
F-19
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8: LEASE COMMITMENTS AND RENT EXPENSE (CONTINUED)
Future minimum lease payments pursuant to these leases are as follows:
Year Ending October 31,
- -----------------------
1997 $ 297,984
1998 269,215
1999 238,815
2000 174,532
2001 13,369
----------
$ 993,915
==========
For the years ended October 31, 1996, 1995 and 1994, operating lease expense
was $206,514, $131,850 and $108,160, respectively.
NOTE 9. FRANCHISES
The following table summarizes the number of hygiene franchised operations of
Swisher International, Inc.:
For the Year Ended October 31,
----------------------------------------
1996 1995 1994
----------------------------------------
Franchises at the beginning of
the year 93 88 66
Franchises sold 7 11 22
Closed - (2) -
Repurchased - (4) -
----------------------------------------
Franchises at the end of the year 100 93 88
========================================
Franchises sold and not open at
year end 2 3 6
========================================
The following table summarizes the number of maids operations of Swisher
International, Inc.:
For the Year Ended
----------------------------------------
October 31,
----------------------------------------
1996 1995 1994
----------------------------------------
Franchises at the beginning of
the year 19 5 -
Franchises sold - 15 5
Consolidated (3) - -
Repurchased (4) (1) -
Closed (1) - -
----------------------------------------
Franchises at the end of the year 11 19 5
========================================
Franchises sold and not open at
year end 2 5 4
========================================
F-20
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. FRANCHISES (CONTINUED)
The following table summarizes the number of Surface Doctor operations of
Swisher International, Inc.:
For the Year Ended
October 31, 1996
---------------------------
Franchises acquired upon acquisition 101
Franchises sold 16
---------------------------
Franchises at the end of the year 117
===========================
Franchises sold and not open at year end 1
===========================
As of October 31, 1996, 1995 and 1994, the Company had seven, three and one
corporate operations, respectively.
NOTE 10. SEGMENT INFORMATION
The Company operates in four principal business segments: Hygiene,
residential maid services and residential and commercial resurfacing services
conducted through Company-owned operations and hygiene, residential maid
services and residential and commercial resurfacing services conducted
through franchised operations. Selected financial information is presented
below for the years ended October 31, 1996, 1995 and 1994.
Operating income (loss) is revenue less related costs and direct and
allocated operating expenses, excluding interest and the unallocated portion
of corporate expenses.
Corporate assets are those assets maintained for general purposes,
principally cash and short-term investments.
During the year ended October 31, 1996 foreign sales totalled $256,024.
F-21
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 10. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Maid Hygiene Surface Doctor
Company Company Company Franchise
1996 Operations Operations Operations Operations Total
- ---- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 641,974 $ 1,884,785 $ 84,427 $ 8,050,222 $ 10,661,408
=======================================================================================
Operating income (loss) $ (83,043) $ 95,192 $ (17,555) $ 704,834 $ 699,428
=======================================================================================
Identifiable assets $ 222,725 $ 328,453 $ 83,225 $ 9,578,308 $ 10,212,711
=======================================================================================
Capital expenditures $ - $ - $ - $ 235,176 $ 235,176
=======================================================================================
Depreciation and
amortization $ 11,485 $ 21,893 $ - $ 227,969 $ 261,347
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Maid Hygiene
Company Company Franchise
1995 Operations Operations Operations Total
- ---- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 313,253 $ 1,462,332 $ 6,186,949 $ 7,962,534
==================================================================
Operating income (loss) $ (115,635) $ (59,110) $ 796,364 $ 621,619
==================================================================
Identifiable assets $ 475,480 $ 553,329 $ 6,929,538 $ 7,958,347
==================================================================
Capital expenditures $ 410,447 $ 46,272 $ 43,676 $ 500,395
==================================================================
Depreciation and amortization $ 43,332 $ 40,084 $ 92,737 $ 176,153
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Maid Hygiene
Company Company Franchise
1994 Operations Operations Operations Total
- ---- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 150,405 $ 878,605 $ 4,949,040 $ 5,978,050
==================================================================
Operating income (loss) $ (86,287) $ 215,547 $ 412,598 $ 541,858
==================================================================
Identifiable assets $ 241,147 $ 73,422 $ 5,644,447 $ 5,959,016
==================================================================
Capital expenditures $ 107,854 $ - $ 256,568 $ 364,422
==================================================================
Depreciation and
amortization $ 4,110 $ - $ 48,188 $ 52,298
==================================================================
</TABLE>
NOTE 11. ASSETS HELD FOR SALE
As of October 31, 1996 the Company has seven franchises that they have
acquired for a total consideration of $838,369. The results of operations
for the periods since acquisition are included in company-owned operations in
the accompanying statements of operations.
F-22
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. BUSINESS COMBINATION
Effective July 1, 1996, the Company, pursuant to an Asset Purchase Agreement
completed the acquisition of certain assets and assumption of certain
liabilities of the Surface Doctor division from Professional Carpet Systems,
Inc. and Old Dixie Supply Company. The Surface Doctor division specializes
in resurfacing appliances, counter tops, and fixtures. The acquisition was
accounted for under the purchase method whereby assets and liabilities were
recorded at their fair value and the excess purchase price over fair value of
net assets is recognized as goodwill.
The purchase price for the assets acquired consisted of issuance to the
Sellers of an aggregate of 200,000 shares of the Company's previously
authorized but unissued common stock, $.01 par value. The shares issued
are subject to demand and piggyback registration rights.
In addition, the sellers were granted an option to purchase 75,000 shares of
the Company's common stock at a purchase price of $6.00 per share. The
options must be exercised on or before July 31, 2001.
Assets acquired in connection with the acquisition are as follows:
Accounts receivable $ 120,639
Inventories 75,000
Prepaid expenses 40,504
Notes receivable 79,687
Equipment 56,233
Intangibles 100,000
Goodwill 714,963
------------
$ 1,187,026
============
Liabilities assumed and common stock and options to purchase
common stock issued in connection
with the acquisition are as follows:
Accounts payable $ 54,281
Accrued expenses 27,468
Deferred revenue 116,215
------------
197,964
Consideration paid 989,062
------------
$ 1,187,026
============
Unaudited pro forma consolidated results of operations for the years ended
October 31, 1996 and 1995 as though the Surface Doctor division of Professional
Carpet Systems, Inc. and Old Dixie Supply Company had been acquired as of
November 1, 1994 follow:
1996 1995
----------- ----------
Total revenue $11,811,243 $9,870,811
Net income 490,934 501,701
Net income per common share 0.26 0.24
F-23
<PAGE>
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Financial Standards No. 107,
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair
value amounts have been determined by the Company using available market
information and valuation methodologies described below. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein may not
be indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions or valuation methodologies
may have a material effect on the estimated fair value amounts.
The carrying values of accounts and notes receivable, accounts payable, note
payable and line-of-credit borrowings approximate their fair values due to
the short-term maturities of these instruments. The carrying values of notes
receivable and long-term debt approximate fair values at October 31, 1996 due
to rates being at current market rates.
F-24
<PAGE>
MASTER LICENSE AGREEMENT
BY AND BETWEEN
F.M.S., INC.
AND
------------------------------
a subsidiary of Swisher International, Inc.
and a licensee of
Swisher Hygiene Franchise Corp.
<PAGE>
TABLE OF CONTENTS
SECTION NO. PAGE NO.
- ----------- --------
1. DEFINITIONS 2
2. GRANT OF LICENSE 4
3. USE AND REGISTRATION OF SWISHER MARKS 5
4. BEST EFFORTS 7
5. FEES AND RELATED PROVISIONS 7
6. ACCOUNTING AND RECORDS 11
7. TERM 12
8. PILOT LOCATION; DEVELOPMENT OF SWISHER SUBFRANCHISES 13
9. OBLIGATIONS OF MASTER FRANCHISEE 15
10. SUBRANCHISE AGREEMENTS; SERVICING, TRAINING AND
SUPERVISING SUBFRANCHISEES 16
11. COMPLIANCE WITH TERRITORIAL LAWS 18
12. INDEPENDENT CONTRACTOR 19
13. COMPLIANCE WITH STANDARDS AND SPECIFICATIONS 20
14. EQUIPMENT AND SUPPLIES 20
15. OPERATIONS MANUAL; INDUSTRIAL SECRETS 22
16. SERVICE ASSISTANCE 24
17. ADVERTISING 26
18. NONCOMPETITION 27
19. TAXES AND DUTIES 28
-i-
<PAGE>
SECTION NO. PAGE NO.
- ----------- --------
20. INDEMNIFICATION; INSURANCE 28
21. IMPROVEMENTS AND MODIFICATIONS 29
22. TRANSFER BY SWISHER 30
23. TRANSFER BY MASTER FRANCHISEE 30
24. SWISHER'S RIGHT OF FIRST REFUSAL 32
25. TERMINATION BY SWISHER 33
26. TERMINATION BY MASTER FRANCHISEE 35
27. EFFECT OF TERMINATION 36
28. NOTICES 37
29. SURVIVAL 38
30. SEVERABILITY 39
31. WAIVER 39
32. COSTS OF ENFORCEMENT 39
33. ENTIRE AGREEMENT 40
34. ARBITRATION AND RELATED PROVISIONS 40
35. FORCE MAJEURE 42
36. TRANSLATION 42
37. GUARANTIES 43
38. CORPORATE OR OTHER FORM OF MASTER FRANCHISEE 43
39. GOVERNMENTAL APPROVALS 43
-ii-
<PAGE>
SECTION NO. PAGE NO.
- ----------- --------
40. GOVERNING LAW 44
41. ACKNOWLEDGMENTS 45
EXHIBITS
--------
EXHIBIT A - SWISHER MARKS
EXHIBIT B - GUARANTY
-iii-
<PAGE>
MASTER LICENSE AGREEMENT
This Agreement is made and entered into by and between F.M.S. INC. a
Bahamanian corporation, and a subsidiary of Swisher International, with its
principal offices located at 6849 Fairview Road, Charlotte, North Carolina
28210 (hereinafter referred to as "Swisher") and _____________________________
a corporation organized under the laws of the Country of _____________________
with its principal offices located at ________________________________________
(hereinafter referred to as "Master Franchisee").
WHEREAS, Swisher has developed technology that includes the use of
equipment and processes, some of which embodies confidential, proprietary and
trade secret information belonging to Swisher, for providing restroom hygiene
services and products to restaurants, retail stores, buildings and other types
of commercial establishments; and
WHEREAS, Swisher, as a result of the expenditure of substantial time,
skill, effort and money, has developed a unique and distinctive system
("System") relating to establishing and operating restroom hygiene businesses,
and
WHEREAS, Swisher is the owner of the trademark and service mark SWISHER and
other trademarks, service marks and logos used in connection with the operation
of such businesses in the United States, and identifies or intends to identify
the operation of such businesses with the trademark and service mark SWISHER and
other trademarks, service marks and logos; and
- 1 -
<PAGE>
WHEREAS, Swisher is engaged in the business of providing restroom hygiene
services and products itself and through SWISHER franchises in the United
States; and
WHEREAS, Master Franchisee desires to acquire an exclusive right to own and
operate, and to license others to own and operate, SWISHER businesses in
__________________________________ (the "Territory"); and
WHEREAS, Master Franchisee understands that Swisher has not previously
operated or licensed any other person to operate SWISHER businesses in the
Territory, has no permanent or other establishments in the Territory, and will
not provide Master Franchisee with local assistance in the Territory.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
and for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged by the parties, Swisher and Master Franchisee agree as
follows:
1. DEFINITIONS. As used herein:
(a) "Swisher Technology" shall mean and include the specialized
skills, procedures and techniques developed by Swisher, which include
confidential, proprietary and trade secret information of Swisher, for providing
Licensor Services/Products (defined below) and the operation of a business under
this Agreement.
(b) "Swisher Marks" shall mean and include the mark SWISHER and such
other trademarks, service mark and logos as are listed in Exhibit A hereto or as
may be authorized in writing by an officer of Swisher from time to time.
- 2 -
<PAGE>
(c) "Licensor Services/Products" shall mean restroom hygiene
services and products appropriate for restaurants, retail stores, buildings
and other types of commercial establishments, all provided according to or
meeting the standards and specifications promulgated by Swisher from time to
time.
(d) "Industrial Secrets" shall mean all information, knowledge,
know-how, data and techniques embodied in the System and designated or
treated by Swisher as confidential, proprietary or trade secrets, including
but not limited to information and techniques set forth in the Swisher
Operations Manual (as further referred to in Section 15), and in other
directives, news bulletins and communications provided by Swisher to Master
Franchisee. Without limiting the foregoing, Industrial Secrets shall include
customer lists developed by Swisher, Master Franchisee and Master
Franchisee's subfranchisees.
(e) "Company-owned subfranchisee" shall mean any subfranchisee
owned in whole or part by Master Franchisee or by any person or entity that
has an ownership interest in or is otherwise related to Master Franchisee.
(f) "Company-owned location" shall mean any location, office or
base of operation, however denominated, which is owned and operated by Master
Franchisee for the performance and sale of Licensor Services/Products.
(g) All references in this Agreement to the terms "owner of an
interest in Master Franchisee" and "shareholder of Master Franchisee",
- 3 -
<PAGE>
and all similar references to ownership interest in Master Franchisee,
however evidenced, shall refer jointly and severally, to the owner or owners
of any interest (i) in Master Franchisee or (ii) in any entity that has an
ownership interest in Master Franchisee, either directly or indirectly
through one or more intervening entities.
2. GRANT OF LICENSE. Subject to the terms, conditions and reservations
hereinafter described, Swisher hereby grants to Master Franchisee the exclusive
right and license to: (i) use the Swisher Technology and the Swisher Marks in
connection with promoting and providing Licensor Services/Products in the
country of _____________________ (hereinafter referred to as the "Territory");
(ii) grant to others the right to use the Swisher Technology and the Swisher
Marks in connection with promoting and providing Licensor Services/Products in
the Territory; and (iii) grant other the right to promote and provide services
and products relating to Licensor Services/Products in the Territory. For so
long as Master Franchisee is in compliance with the terms of this Agreement,
Swisher agrees that it will not, during the term of this Agreement and any
extension hereof, provide Licensor Services/Products or license other master
franchisees or subfranchisees to promote and provide Licensor Services/Products
in the Territory. Master Franchisee acknowledges and agrees that the right and
license granted in this Agreement is limited to the Territory, and confers no
rights on Master Franchisee with respect to the Swisher Technology or the
Swisher Marks outside the Territory. Swisher reserves all rights not
- 4 -
<PAGE>
expressly granted to Master Franchisee under this Agreement.
Swisher reserves the right to require that Master Franchisee's right to
provide Licensor Services/Products (as distinguished from Master Franchisee's
right to grant subfranchises) be exercised only through Company-owned
subfranchisees under separate subfranchise agreements.
3. USE AND REGISTRATION OF SWISHER MARKS. Master Franchisee understands
and agrees that the Swisher Marks possess substantial goodwill and reputation,
and connote a certain standard of quality in connection with Licensor
Services/Products provided in the United States. Master Franchisee agrees not
to commit any act or engage in any conduct that adversely affects any of the
Swisher Marks. Master Franchisee agrees to promptly notify Swisher of any
attempt by any party other than Master Franchisee or its subfranchisees to use
the Swisher Marks in the Territory.
Swisher reserves the right to add or substitute different trade names,
service marks, trademarks and indicia of origin for the Swisher Marks for use in
identifying the System and the businesses operated thereunder, if Swisher's
then-current Swisher Marks no longer can be used, or if Swisher, in its sole
discretion, determines that the addition or substitution of different trade
names, service marks, trademarks and indicia of origin will be beneficial to the
System. In such event, Swisher may require Master Franchisee to discontinue
or modify Master Franchisee's use of any of the Swisher Marks or to use one or
more additional or substitute trade names, service marks, trademarks and
- 5 -
<PAGE>
indicia of origin.
Neither Master Franchisee nor any subfranchisee shall use any of the
Swisher Marks as part of its corporate or other legal name.
Master Franchisee understands and agrees that Swisher shall have the sole
right to obtain or renew any trademark or service mark registration in the
Territory that consists of or includes any of the Swisher Marks. None of the
Swisher Marks has been registered or may be registrable in the Territory, and
Swisher makes no warranty that any Swisher Marks will be registered. Swisher
represents: that it has filed or will file an application for registration of
the mark SWISHER in the Territory; that Swisher will pursue the application
diligently; and that Swisher will make any reasonable alterations to the mark
SWISHER as may be advisable to obtain registration. Master Franchisee
acknowledges and agrees that the denial of Swisher's application will not be an
event entitling Master Franchisee to terminate this Agreement, to obtain a
refund of any amount paid or owed to Swisher, or otherwise to modify Master
Franchisee's obligations under this Agreement.
Master Franchisee agrees to fully cooperate with Swisher in recording
this Agreement and in registering Master Franchisee and any subfranchisee as
an authorized user of the Swisher Marks with any governmental agency that
Swisher deems appropriate and necessary, and also to cooperate in canceling
any applicable recordation and registration on termination or expiration of
this Agreement and/or any subfranchise agreement. All such recordations,
registrations and cancellations shall be
- 6 -
<PAGE>
at Master Franchisee's expense. Master Franchisee agrees to appoint Swisher
and/or the members of any law firm designated by Swisher in writing to record,
register or cancel Master Franchisee as an authorized user of the Swisher Marks.
If Swisher seeks registration of any part of the Swisher Technology in the
Territory, the terms of this Section 3 shall equally apply to any recordations,
registrations and cancellations of any licenses related thereto.
4. BEST EFFORTS. Master Franchisee acknowledges that the degree of
success and profitability experienced by Master Franchisee in connection with
the sale of subfranchises and the performance of Licensor Services/Products
under this Agreement depends substantially on the efforts and management of
Master Franchisee and, therefore, Master Franchisee agrees to diligently and
fully exploit its rights under this License Agreement in every manner by
devoting its best efforts and adequate time to promoting and selling
subfranchises to qualified subfranchisees and to promoting and furnishing
Licensor Services/Products to the general public in the Territory.
5. FEES AND RELATED PROVISIONS.
A. In consideration of the exclusive right and license granted in
Section 2, Master Franchisee agrees to pay to Swisher an initial franchise
fee of $U.S.____________ due on execution hereof. [LANGUAGE TO BE ADDED AT
THIS POINT MORE FULLY DESCRIBING THE NATURE OF THE TERRITORIAL DEVELOPMENT
COMMISSION, DEPENDENT ON THE TAX AND OTHER LAWS OF THE PARTICULAR COUNTRY.]
The initial franchise fee shall
- 7 -
<PAGE>
be fully earned on payment to Swisher and shall be nonrefundable.
B. In consideration of the disclosure of confidential, proprietary and
trade secret information comprising a part of Swisher Technology, the provision
of technical assistance, and the grant of the right to use the Swisher Marks and
certain other rights, Master Franchisee shall pay to Swisher, on the 20th day of
each month, a continuing royalty fee equal to the higher of (i) 3% of the Gross
Sales (as defined below) of Master Franchisee and its first Company-owned
subfranchisee in the preceding calendar month, or (ii) $U.S._________ per month
during year 1 of the initial term, $U.S._________ per month during year 2 of the
initial term, and $U.S._________ per month during year 3 of the initial term,
$U.S._________ per month during year 4 of the initial term and $U.S._________
per month during years 5 to 10 of the initial term.
C. Master Franchisee shall pay to Swisher, on the 20th of each month,
_______% of Master Franchisee's then-current initial license fee or similar fee
for each new subfranchise (including each new Company-owned subfranchisee after
Master Franchisee's first) licensed in the preceding calendar month.
D. Master Franchisee shall pay to Swisher, on the 20th day of each month,
for each Company-owned subfranchisee after Master Franchisee's first, and for
each subfranchisee not a Company-owned subfranchisee, a continuing royalty fee
equal to the higher of (i) 1% of Gross Sales (as defined below) of the
subfranchisee in the preceding calendar month, or (ii) $U.S._________ per month
during year 1 of the initial
- 8 -
<PAGE>
term of the subfranchise, $U.S._________ per month during year 2 of the initial
term of the subfranchise, $U.S._________ per month during year 3 of the initial
term of the subfranchise, $U.S._________ per month during year 4 of the initial
term of the subfranchise, and $U.S._________ per month during years 5 to 10 of
the initial term of the subfranchise.
For the purposes of this Agreement, the term "Gross Sales" shall mean all
receipts for Swisher Services/Products and related services and products,
including all cash receipts, the value of all services or products received for
services or products provided, and all amounts charged, excluding excise, sales
and use taxes, gross receipts taxes or similar taxes paid based on sales, if
those taxes are separately stated when customers are charged, and also excluding
bona fide refunds, allowance or discounts to customers.
All payments to Swisher shall be made by wire transfer to a bank or
institution designated by Swisher, and shall be supported by statements that are
formatted as required by Swisher and certified as correct by Master Franchisee.
Master Franchisee agrees to promptly provide Swisher with written responses
to any questions from Swisher about such statements. All payments to Swisher
shall be made free and clear of all taxes, duties, fees, imports and other
levies, and the same shall not be deducted from any payments due Swisher, except
as may be required to comply with tax laws of the Territory; provided, however,
that Master Franchisee shall pay any amounts required to be deducted and
withheld to competent taxing authorities and obtain and furnish Swisher with
official
- 9 -
<PAGE>
receipts for the same, so that Swisher may obtain corresponding tax credits in
the United States. [LANGUAGE APPROPRIATE TO THE TAX LAWS OF THE PARTICULAR
COUNTRY AND TO THE AVAILABILITY OF A FOREIGN TAX CREDIT TO SWISHER WILL BE ADDED
AT THIS POINT.]
If the foreign tax credit currently available to Swisher for taxes imposed
by any taxing authority within the Territory on any income sourced within the
Territory is repealed or restricted, Swisher may terminate this Agreement on 60
days written notice to Master Franchisee, unless within such 60 days Master
Franchisee agrees in writing to increase the amounts payable hereunder to
Swisher to the extent necessary to provide Swisher with the same net amount it
would have received had the foreign tax credit not been so repealed or
restricted.
All amounts payable to Swisher under this Agreement, whether for fees,
reimbursements of expenses or otherwise, shall be payable in United States
dollars (or as Swisher may otherwise direct in writing), and shall be calculated
and converted (to the extent necessary) according to the exchange rate in effect
at the time payment is due, as quoted by a financial institution reasonably
designated by Swisher. All costs of currency exchange shall be borne by Master
Franchisee. If any payment hereunder to Swisher for any reason is not made in
United States dollars, the amount of such payment shall be increased to the
extent necessary to cover any currency exchange expenses to be incurred by
Swisher in converting such payment into United States dollars.
Any amount properly owing from Master Franchisee to Swisher
- 10 -
<PAGE>
under this Agreement, if not paid when due, shall bear interest at a rate equal
to 1-1/2% per month, or the maximum rate permitted under applicable law,
whichever is less, from 30 days after the date such amount was or would have
been due until paid.
6. ACCOUNTING AND RECORDS. Master Franchisee, its Company-owned
subfranchisees and all other subfranchisees shall maintain books and records
which are adequate to clearly ascertain the amount of continuing royalty
fees payable hereunder to Swisher. Such books and records shall show clearly
the Gross Sales of Master Franchisee, its Company-owned subfranchisees and
all other subfranchisees. Such books and records also shall reflect the
amount of initial license fees or similar fees received by Master Franchisee
from all subfranchisees. Swisher may, on reasonable advance notice to Master
Franchisee, inspect the books and records of Master Franchisee and all or any
subfranchisees of Master Franchisee in connection with the business conducted
by Master Franchisee or such subfranchisees under this Agreement. Swisher
may, in its sole discretion, designate certified public accountants to
examine such books and records to determine the accuracy of fees paid or to
be paid under this Agreement. Swisher shall pay the cost of such examination,
unless the results of such examination indicate any deficiency equal to or
greater than 5% of Gross Sales reported by Master Franchisee, in which event
Master Franchisee shall bear the entire cost of such examination. Master
Franchisee agrees to furnish Swisher annually while this Agreement is in
effect with a financial report audited by Master
- 11 -
<PAGE>
Franchisee's internal auditors and/or certified public accountants relating
to the operations of Master Franchisee under this Agreement. Master
Franchisee further agrees to furnish to Swisher such other financial
information Swisher may from time to time reasonably request.
7. TERM. This Agreement shall remain in effect for an initial term of
10 years starting from the date hereof, unless terminated sooner in the
manner provided for herein. This Agreement shall be extended automatically
for successive 10-year terms, if Master Franchise is in compliance with the
terms of this Agreement, subject to and on the terms set forth in this
Section 7. If for any reason Master Franchisee is not in compliance with the
terms of this Agreement during the 90-day period prior to expiration of the
initial term or any subsequent 10-year term, Swisher may, at its option,
preclude any extension of this Agreement by notifying Master Franchisee in
writing of Master Franchisee's noncompliance.
Not less than 90 days prior to the expiration of any terms, Master
Franchisee shall provide Swisher with notice of its intention to extend this
Agreement for an additional term of 10 years and Swisher shall, on evaluating
such factors as population growth and density, business growth, economic
conditions in the Territory, profitability of existing subfranchisees in the
Territory and Swisher's general strategy with respect to expansion in the
Territory, determine if further development of the Territory is warranted.
Swisher shall provide Master Franchisee with notice of its determination as to
whether further development in the
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Territory is warranted. If further development is deemed warranted by
Swisher, then Swisher and Master Franchisee shall mutually agree on Master
Franchisee's development obligations for the subsequent 10-year term. If
Swisher and Master Franchisee are unable to agree on such development
obligations by the expiration of the then-current term, this Agreement shall
immediately terminate or the geographic area covered by this Agreement shall be
modified, as determined by Swisher in its sole discretion. Swisher may
require, as conditions to any such extension, (i) that Master Franchisee execute
the then-current Swisher Master License Agreement (with modifications
appropriate for the Territory) and any ancillary agreements and other legal
documents then customarily used by Swisher for the extension of Master License
Agreements, including a general release in favor of Swisher, its officers,
directors, agents, employees and affiliated companies, and (ii) that Master
Franchisee pay a $10,000 extension fee to Swisher.
8. PILOT LOCATION; DEVELOPMENT OF SWISHER SUBFRANCHISES.
A. Master Franchisee agrees to establish, within 1 year from the date
hereof and within the Territory, a model location acceptable to Swisher (the
"Pilot Location"), either as a Company-owned location or a Company-owned
subfranchisee. Throughout the term of this Agreement, Master Franchisee, a
Company-owned subfranchisee or an independent subfranchisee shall continuously
maintain the Pilot Location or an alternate location acceptable to Swisher for
(i) promoting and providing
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Licensor Services/Products, (ii) testing new services, products and procedures,
and (iii) training subfranchisees. Swisher agrees not to unreasonably withhold
its consent to the Pilot Location or any alternate location.
B. Subject to the terms of Section 8A, Master Franchisee agrees that it
will use its best efforts to maximize the sale of subfranchises (either to
Company-owned subfranchisees or to independent subfranchisees) in the Territory
during the term of this Agreement. Without limiting the foregoing obligation,
Master Franchisee agrees, at a minimum, to license and maintain in operation, by
and as of the end of each year (measured from the date of this Agreement), the
following cumulative number of locations (whether Company-owned locations,
Company-owned subfranchisees, or independent subfranchisees, and including the
Pilot Location) according to the schedule set forth below during years 1 to 5
of the initial term:
CUMULATIVE NUMBER OF
SUBFRANCHISES AND
COMPANY-OWNED LOCATION
END OF YEAR IN OPERATION AS OF YEAR END
----------- ---------------------------
1 _____________
2 _____________
3 _____________
4 _____________
5 _____________
TOTAL _____________
Not less than 90 days prior to the expiration of year 5 to this Agreement,
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Master Franchisee agrees to submit a plan for developing additional
subfranchises for the remainder of the initial term of this Agreement. The
parties shall then agree on a minimum number of subfranchises which Master
Franchisee shall obligate itself to develop during the remainder of the
initial term; provided, that if by the expiration of year 5 of this
Agreement, Swisher and Master Franchisee are unable to agree on such
development obligations, this Agreement shall immediately terminate or the
geographic area covered by this Agreement shall be modified, as determined by
Swisher in its sole discretion.
C. If Master Franchisee fails to meet its obligations in Section 8A and
8B, Swisher may elect to terminate Master Franchisee's exclusive right to
develop SWISHER businesses in the Territory, and may thereafter develop or
license other with the non-exclusive rights to develop SWISHER businesses in
the Territory.
9. OBLIGATIONS OF MASTER FRANCHISEE. Master Franchisee agrees to pay
all of its obligations and liabilities to Swisher, suppliers and creditors
when due. Master Franchisee shall be absolutely responsible and liable for
the prompt payment of all taxes and duties, including income taxes, value
added taxes, sales and use taxes, franchise taxes, gross receipts taxes,
employee withholding taxes or similar taxes, as well as personal property and
real estate taxes payable as a result of Master Franchisee's business.
Swisher shall have no liability for these or any other taxes, and Master
Franchisee shall indemnify Swisher for any such taxes that may be assessed or
levied against Swisher which arise or
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result from the business licensed hereunder.
10. SUBFRANCHISE AGREEMENTS; SERVICING, TRAINING AND SUPERVISING
SUBFRANCHISEES. Master Franchisee warrants, agrees and represents that (a)
each subfranchisee selected by Master Franchisee shall, in the opinion of
Master Franchisee, be of good moral character, and have sufficient business
experience, aptitude and financial resources, to own and operate a SWISHER
business; and (b) each subfranchisee of Master Franchisee shall execute the
form of standard subfranchise agreement approved by Swisher. Master
Franchisee agrees that the standard subfranchise agreement to be executed by
subfranchisees shall not be altered or modified in any respect, without the
prior written approval of Swisher. Master Franchisee agrees, warrants and
guarantees that it shall, at its sole expense, faithfully and vigorously
enforce all of the terms of all subfranchise agreements with its
subfranchisees and that it will take all legal and other actions necessary to
require its subfranchisees to comply with all terms of their subfranchise
agreements.
Each subfranchise agreement shall provide that all rights and interests of
the subfranchisee arise by virtue of Master Franchisee's rights under this
Agreement. Each subfranchise agreement also shall provide that if this
Agreement is terminated or expires, then the subfranchise agreement also shall
expire, or at Swisher's option, Swisher or its successor or assign shall be
substituted in place of Master Franchisee and assume all obligations and rights
of Master Franchisee under the subfranchise
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agreement. On the execution of each subfranchise agreement, Master
Franchisee shall execute and deliver to Swisher an assignment (in the form
designated by Swisher) of all of Master Franchisee's right, title and
interest in and to such subfranchise agreement, provided that such assignment
shall only be effective on (i) the termination or expiration of this
Agreement, and (ii) the election by Swisher, in its sole discretion, to
accept the assignment of the subfranchise agreement. Each such assignment
shall expressly inure to the benefit of Swisher, its successors and assigns.
Master Franchisee covenants that it shall perform all of the obligations
of the subfranchise agreements, and shall employ and train such personnel as
may be necessary to do so. Master Franchisee acknowledges that it is solely
responsible for performance of all obligations toward subfranchisees in the
Territory and shall in no way represent to any subfranchisee that Swisher has
any obligations towards such subfranchisee. Without limiting the generality
of the foregoing, Master Franchisee shall provide field support, guidance and
assistance to subfranchisees on a continuing basis, as well as accounting and
administrative support and guidelines, assistance in identifying and
correcting operational problems and all other support services which Swisher
may from time to time require of the Master Franchisee to properly service
and support subfranchisees in the Territory.
Master Franchisee shall be solely responsible for training all
subfranchisees, and shall develop a training program for subfranchisees which
meets Swisher's requirements and is not less than the training
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provided by Swisher to its franchisees in the United States.
Master Franchisee shall diligently supervise and monitor on a continuing
basis all subfranchisees operating in the Territory to ensure compliance with
their subfranchise agreements, the Operations Manual and Swisher's quality
control standards and specifications. Master Franchisee shall report to
Swisher (or as it may request) on a regular basis (and from time to time as
requested by Swisher) with respect to all subfranchisees operating in the
Territory. Swisher shall have the right, in its sole discretion, to contact
Master Franchisee's subfranchisees directly, to discuss or monitor (i) Master
Franchisee's compliance with this Agreement, (ii) the subfranchisees'
compliance with Swisher's quality control standards and specifications, or
(iii) any disputes between master Franchisee and its subfranchisees.
11. COMPLIANCE WITH TERRITORIAL LAWS. Master Franchisee agrees to comply
with the requirements of all laws affecting Master Franchisee's business
hereunder, including all applicable laws from time to time in effect in any part
of the Territory regarding the offer and sale of franchises in the Territory or
relating to the ongoing relationship between a franchiser and a franchisee. In
the marketing of subfranchises to prospective subfranchises, Master Franchisee
shall provide accurate information, shall not make any misrepresentations
(whether innocent, negligent or fraudulent), shall not mislead prospective
subfranchisees, and shall in all respects adhere to the highest standards of
business ethics and integrity. Master Franchisee shall indemnify and hold
Swisher harmless
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from and against any losses, damages, court costs or attorneys' fees sustained
by Swisher as a result of any activities of the Master Franchisee in violation
of territorial laws, including but not limited to, any such activities in the
franchise selling process. In order to assist Master Franchisee in effecting
compliance with territorial laws, Swisher shall provide Master Franchisee, on
request, such information relating to Swisher as is available and shall
otherwise assist Master Franchisee in all reasonable ways in effecting such
compliance, all at Master Franchisee's expense. Master Franchisee agrees to
submit to Swisher for approval, prior to filing with any territorial, provincial
or municipal governmental entity, true copies of all documents required by any
applicable laws to be filed or submitted by Master Franchisee in connection with
the business licensed under this Agreement.
Master Franchisee acknowledges that Swisher has supplied to Master
Franchisee all information concerning Swisher and the development and operation
of the business licensed hereunder that is required under United States law and
the laws of the Territory and as Master Franchisee deems necessary in order to
make a determination to enter into this Agreement.
12. INDEPENDENT CONTRACTOR. Master Franchisee is an independent
contractor acting exclusively on Master Franchisee's own behalf. Therefore,
Master Franchisee does not have any authority to act as the agent or
representative of Swisher, to create any obligation of any type on behalf of
Swisher, or to enter into any agreement on behalf of Swisher. Master Franchisee
shall conspicuously identify itself in all dealings with
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customers, suppliers, public officials personnel and others as the independent
owner and operator of the business authorized under this Agreement, and shall
place notices of independent ownership and operation on signs, forms, business
cards, stationery, advertising and other materials as Swisher may require.
13. COMPLIANCE WITH STANDARDS AND SPECIFICATIONS. Master Franchisee
acknowledges the reputation for quality associated with services and products
sold in connection with the Swisher Marks in the United States. Master
Franchisee agrees that it and its subfranchisees shall strictly adhere to the
techniques, processes, standards specifications and instructions set forth in
Swisher's Operations Manual. The Operations Manual may be revised from time to
time by Swisher. Master Franchisee agrees that Swisher shall have access to the
facilities of Master Franchisee to observe the procedures, techniques and
employees of Master Franchisee and its subfranchisees, to inspect the equipment
and supplies of Master Franchisee and its subfranchisees, and to accompany
Master Franchisee's and its subfranchisees' employees on job assignments.
14. EQUIPMENT AND SUPPLIES. All equipment and supplies (including, but
not limited to, chemicals) used by Master Franchisee and its subfranchisees
shall meet Swisher's then-current standards and specifications. If Master
Franchisee elects to use equipment from a source other than Swisher or a source
previously approved by Swisher, Master Franchisee first shall submit such
equipment to Swisher or permit Swisher access to such equipment in such other
manner as Swisher may agree, in
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order to allow Swisher to determine whether its then-current standards and
specifications are met. If Master Franchisee elects to use supplies
(including, but not limited to, chemicals) from a source other than Swisher
or a source previously approved by Swisher, Master Franchisee first shall
submit such supplies to Swisher or an independent testing laboratory
designated by Swisher, in order to allow Swisher to determine whether its
then-current standards and specifications are met. Master Franchisee agrees
that the submission and reasonable testing of such equipment and supplies
shall be at Master Franchisee's expense, and Swisher agrees not to
unreasonably withhold approval of a source whose equipment or supplies are
found to meet Swisher's then-current standards and specifications.
Master Franchisee acknowledges and agrees that if it purchases equipment
or supplies from Swisher, Swisher may seek to earn a 20% profit on the sale
of such equipment or supplies. Master Franchisee further acknowledges and
agrees that if it purchases equipment or supplies from a source approved by
Swisher, Swisher may require Master Franchisee to pay Swisher a fee equal to
20% of the purchase price of such equipment or supplies. Swisher agrees that
Master Franchisee may purchase equipment or supplies from other SWISHER
businesses, if such equipment or supplies were originally supplied by Swisher
or a source approved by Swisher and also meet Swisher's then-current
standards and specifications.
Master Franchisee agrees that if any inspection by Swisher discloses any
deviation from Swisher's then-current standards and specifications,
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Master Franchisee shall immediately take such measures as may be prescribed
by Swisher to correct such deviation or Swisher shall have the right to
terminate this Agreement.
On receipt of written notice from Swisher that Swisher's standards and
specifications have been revised or modified, Master Franchisee shall
promptly proceed to comply with Swisher's revised or modified standards and
specifications.
15. OPERATIONS MANUAL; INDUSTRIAL SECRETS. At initial training, Swisher
shall loan Master Franchisee a copy of Swisher's Operations Manual. The Manual
is in English, and Master Franchisee shall bear any costs associated with
translating the manual into any other language. Master Franchisee acknowledges
that the Manual is subject to the protection of United States copyright laws and
of the copyright laws of the Territory; contains valuable confidential,
proprietary and trade secret business information of Swisher; and constitutes a
portion of the Industrial Secrets of Swisher. Master Franchisee agrees not to
make any reproductions of the Manual except for (i) employees of Master
Franchisee who have a need to know the information in the manual and who have
agreed in writing not to make any use or disclosure of such information except
as authorized herein, and (ii) subfranchisees of Master Franchisee under
subfranchise agreements containing non-disclosure provisions similar to this
Section 15. The Manual shall at all times remain the exclusive property of
Swisher and shall be delivered to Swisher on termination of this Agreement,
together with all copies thereof and notes
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therefrom in the possession of Master Franchisee and its subfranchisees.
Neither Master Franchisee nor any officer, director or shareholder of
Master Franchisee, during the term of this Agreement or thereafter, shall: (i)
communicate, divulge or use for the benefit of any other person, persons,
partnership, association or corporation, any Industrial Secrets which may be
communicated to Master Franchisee or any such persons, or of which they may be
apprised, in connection with the development or operation of the business
licensed hereunder or under any subfranchisee agreement, without the prior
written approval of Swisher; (ii) disclose to any third party any information
Master Franchisee or any such persons receive in confidence from Swisher,
without the prior written approval of Swisher; or (iii) disclose to employees of
Master Franchisee any information Master Franchisee or any such persons receive
in confidence from Swisher, except to employees who have a need to know the
same, who have agreed not to make any use or disclosure of the same except as
authorized herein and who have acknowledged no prior experience in the restroom
hygiene business as embodied in the System; provided, however, that, after the
term of this Agreement, Master Franchisee may use any information that has
become generally known or easily accessible to the public other than because of
the breach by Master Franchisee or any officer, director or shareholder of
Master Franchisee of any term of this Agreement.
Master Franchisee acknowledges that any failure to comply with the
requirements of this Section 15 shall constitute a material breach of this
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Agreement, and further, that a violation of the term of this Section 15 would
result in irreparable injury to Swisher for which no adequate remedy at law may
be available. Accordingly, Master Franchisee and its officers, directors and
shareholders consent to the issuance of an injunction or similar form of remedy
prohibiting any conduct in violation of the terms of this Section 15, and agree
to pay all expenses (including court costs and reasonable attorneys' fees)
incurred by Swisher in enforcing the terms of this Section 15.
16. SERVICE AND ASSISTANCE. Swisher shall furnish the following services
and assistance to Master Franchisee in connection with the business to be
conducted under this Agreement:
A. PRE-OPENING SERVICES.
(1) Initial training for 2 representatives of Master Franchisee at the
Swisher training center in Charlotte, North Carolina for up to 3 weeks. Swisher
shall provide the training at its expense, but Master Franchisee shall be
responsible for its and its representatives' wages, benefit, transportation,
lodging, meal and other expenses. Further, Master Franchisee shall be
responsible for and shall indemnify Swisher against the acts of and any injuries
to Master Franchisee or its representatives while receiving training. Training
shall be conducted in connection with:
(a) Marketing
(b) Selling Subfranchises
(c) Operations
(d) Field Sales
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(e) Field Service
(f) General Management
(g) Business Planning
After the completion of initial training in the United States, a
representative or representatives of Swisher shall make at least 1 trip to the
Territory, at a mutually agreeable time, for up to 1 week of additional training
and support, to assist Master Franchisee in establishing the business licensed
hereunder. Swisher shall bear all costs associated with such trip.
(2) Proprietary software package and approved forms (in English).
(3) Samples of forms and marketing materials (in English).
B. CONTINUING SERVICES.
(1) Telephone consultation on a day-to-day basis.
(2) Consultation with Master Franchisee in establishing a marketing
program.
(3) Periodic suggestions on new marketing programs.
(4) Budgetary and financial analysis on request.
(5) Ongoing research and development pertaining to chemicals, equipment
and techniques.
(6) Annual international conference in the United States. Each
conference will last about 2 days and will be designed to deal with common
issues encountered by Master Franchisees in the development of SWISHER
businesses. Each conference will be conducted exclusively in English.
Swisher will provide Master Franchisee with reasonable advance
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notice of the time and place of each conference. Swisher reserves the right
to require Master Franchisee or a representative to attend any conference.
In connection with attending a conference, Master Franchisee will bear the
cost of its and its representatives' wages, benefit, transportation, lodging,
meal and other expenses.
(7) Periodic news bulletins.
(8) In-country assistance at a fee of $500 U.S. per day per Swisher
representative (including travel time), plus all related food, travel lodging
and other expenses incidental to such assistance, for a minimum of 4 days
(assuming 2 days of travel and 2 days of in-country assistance). The fee
must be prepaid by wire transfer. Expenses not prepaid will be invoiced by
facsimile for remittance within 15 days of receipt of the invoice.
17. ADVERTISING. Master Franchisee shall advertise Licensor
Services/Products throughout the Territory. Master Franchisee shall
contribute and require its subfranchisees to contribute, on a monthly basis,
at least 2% of Gross Sales to a fund managed by Master Franchisee and used
solely to finance such advertising.
In addition, Master Franchisee and its subfranchisees shall maintain at
all times during the terms of this Agreement, at Master Franchisee's and its
subfranchisees' expense, display advertisements in Master Franchisee's and
its subfranchisees' primary local telephone directories covering all areas
serviced by Master Franchisee and its subfranchisees. Such advertisements
shall use and display the mark SWISHER, and shall be in the form and size and
contain such wording as is approved in advance by
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Swisher. Annually during the term of this Agreement, Master Franchisee shall
furnish Swisher with proof of Master Franchisee's and its subfranchisees'
subscriptions to or renewal of such advertisements no later than 60 days before
the local telephone companies' deadlines for receiving subscriptions to or
renewals for the applicable telephone directories.
All advertisements placed by Master Franchisee and its subfranchisees, in
any medium, shall be dignified, shall conform to standards prescribed from time
to time by Swisher and shall display the Swisher Mark in a manner approved by
Swisher.
18. NONCOMPETITION. During the term of this agreement and any extension
hereof, and for a period of 1 year after termination, expiration or transfer of
any interest in this Agreement, neither Master Franchisee, nor its subsidiaries
or affiliates, nor its shareholders (or owners of any other interest in Master
Franchisee), nor its officers or directors, shall in any capacity, either
directly or indirectly, except under the terms of this Agreement, engage in
any competing business in the Territory, meaning any business which is the
same or substantially similar to any part of the business that is the subject
of this Agreement, engage in any competing business in the Territory, meaning
any business which is the same or substantially similar to any part of the
business that is the subject of this Agreement or have any direct or indirect
ownership interest in any such business if such interest confers on the owner
the power to influence the economic conduct of such business. Master
Franchisee shall require all officers, directors and shareholders of Master
Franchise to enter into
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similar restrictive covenants for the benefit of Swisher, and shall take all
appropriate legal action necessary to enforce such covenants.
Failure to comply with the requirements of this Section 18 shall
constitute a material breach of this Agreement. Master Franchisee
acknowledges that a violation of the terms of this Section 18 would result in
irreparable injury to Swisher for which no adequate remedy at law may be
available. Master Franchisee and its officers, directors and shareholders
accordingly consent to the issuance of an injunction or similar form of
remedy prohibiting any conduct by Master Franchisee in violation of the terms
of this Section 18.
19. TAXES AND DUTIES. All value added, sales, use and similar taxes
levied or require to be paid under any city, local, county, territorial,
state, federal or other governmental law or regulations by virtue of this
Agreement, shall be promptly paid by Master Franchisee. Master Franchisee
also shall be responsible for, and shall pay, all duties imposed with respect
to the importation of all materials, equipment and supplies relating to its
business, including materials, equipment and supplies furnished by Swisher.
If Swisher is required to pay any such taxes or duties, Master Franchisee
shall reimburse Swisher therefore on demand.
20. INDEMNIFICATION; INSURANCE. Master Franchisee shall indemnify and
hold harmless Swisher, its subsidiaries and affiliates, and their respective
officers, directors, shareholders employees and agents, against any and all
taxes, suits, causes of action, liabilities, damages, claims and demands of
any type whatsoever, arising out of the operation of the
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business conducted by Master Franchisee or any of its subfranchisees, and
against all costs, legal expenses and other expenses arising from or in
connection with any suit proceeding or claim incident to any of the
foregoing. Master Franchisee shall maintain, at Master Franchisee's expense,
comprehensive liability insurance. Such insurance shall be with reliable
companies, shall be of types and amounts satisfactory to Swisher, and shall
name and insure both Master Franchisee and Swisher. Master Franchisee shall
cause Swisher to be furnished, on an annual basis, with certificates of
insurance issued by said insurance companies, together with evidence showing
that the premiums therefore have been paid. Such insurance shall not be
changed or canceled without 60 days written notice to Swisher.
21. IMPROVEMENTS AND MODIFICATIONS. Master Franchisee agrees that if
it shall develop any new concept, process or improvement in the operation or
promotion of the Swisher Technology or the business licensed hereunder, it
shall promptly notify Swisher and provide Swisher with all necessary
information with respect thereto without compensation therefore. Master
Franchisee acknowledges that concepts, processes or improvements which relate
to the Swisher Technology and the business licensed hereunder developed by
Master Franchisee shall become the exclusive property of Swisher, and that
Swisher may itself utilize or disclose such concepts, processes or
improvements to other Swisher franchisees.
Master Franchisee acknowledges and agrees that Swisher may from
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time to time change the components of the System, including, without limitation,
Swisher Technology, Licensor Services/Products, and the equipment and supplies
used in the performance of Licensor Services/Products, in order to enhance the
System and the goodwill associated therewith. Such changes may be made from
time to time by changes in the contents of the Operations Manual, and Master
Franchisee shall abide by, and shall require its subfranchisees to abide by,
any such changes.
22. TRANSFER BY SWISHER. Swisher may assign, encumber or otherwise
transfer all or any part of its rights, interests or obligations under this
Agreement to any person or entity.
23. TRANSFER BY MASTER FRANCHISEE. Master Franchisee and the owners of
any interest in Master Franchisee shall not assign, encumber or otherwise
transfer this Agreement or any ownership interest in Master Franchisee, in
whole or in part, without the prior written consent of Swisher. Swisher
shall not unreasonably withhold consent to transfer.
In determining whether it shall grant its consent to any proposed
transfer, Swisher shall be entitled to consider, without limitation, the
following: (i) the proposed transferee's moral character, business reputation
and ability to conduct the business licensed herein; and (ii) the adequacy of
the proposed transferee's financial resources and capital to successfully
operate the business licensed herein.
Swisher may condition its consent to any proposed transfer on: (i)
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payment of all amounts owed by Master Franchisee or its shareholders or owners
to Swisher, its affiliates or any other party to whom Swisher or its affiliates
has any contingent liability; (ii) payment to Swisher of a U.S. $10,000 transfer
fee; (iii) reimbursement to Swisher of all attorneys' fees, accountants' fees
and other expenses incurred by Swisher in connection with the transfer on
demand; (iv) submission to Swisher of copies of all written agreements relating
to a proposed transfer, all financial statements of the proposed transferee in a
form acceptable to Swisher and a Franchise Application Form completed by the
proposed transferee; (v) submission to Swisher of any additional information
Swisher may request in order to determine if it should grant its consent to a
proposed transfer; (vi) execution by Master Franchisee of a general release, in
form satisfactory to Swisher, of any and all claims against Swisher and its
affiliates, officers, directors, employees and agents; (vii) submission to
Swisher of a written acknowledgment that the proposed transferee must complete
the same initial training Swisher requires of new franchisees as of the date of
the proposed transfer, that Swisher's consent to transfer will be conditioned on
successful completion of initial training by the proposed transferee, and that
the proposed transferee's failure to complete initial training promptly shall
constitute a revocation of Swisher's consent; and (viii) execution by the
proposed transferee of Swisher's then-current form of Master License Agreement
(with modifications appropriate for the Territory).
In the event of the death or permanent disability of a shareholder or other
owner of Master Franchisee, said shareholder/owner's stock (or
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other ownership interest) may be transferred to said shareholder/owner's
heirs or representatives by will or by operation of law, if such
shareholder/owner's heirs or representatives agree in writing to be bound
by all of the terms of this Agreement.
Except as expressly provided herein, the assignment, encumbrance
or other transfer, either voluntarily or by operation of law, of any part of the
capital stock of (or other ownership interest in) Master Franchisee, without the
prior written consent of Swisher, shall constitute a material breach of this
Agreement.
24. SWISHER'S RIGHT OF FIRST REFUSAL. If Master Franchisee or any
shareholder of (or other owner of an interest in) Master Franchisee receives
a bona fide arms length offer from any third party to purchase an interest in
Master Franchisee or Master Franchisee's interest in this Agreement or in the
business conducted hereunder, or if Master Franchisee proposes to convert,
assign or otherwise transfer Master Franchisee's interest in this Agreement
or in the business conducted hereunder, in whole or in part, to any third
party, the shareholder/owner or Master Franchisee, as the case may be, shall
first offer to sell said interest to Swisher. The seller shall make
available to Swisher in a written statement verified by the seller the terms
of the offer received or made by the seller, and Swisher shall have 30 days
from the receipt of said statement to either accept or refuse such offer.
Written notice of Swisher's decision to accept or refuse said offer shall be
delivered to the seller. Acceptance by Swisher shall be on the same price
and terms set forth in
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the written statement submitted by the seller. If Swisher fails to accept
the offer within the 30-day period, the seller shall be free to effect the
disposition described in the statement on the exact terms set forth in the
statement delivered to Swisher, subject to the terms of Section 23.
25. TERMINATION BY SWISHER. This Agreement may be terminated as follows:
A. Master Franchisee shall be deemed to be in default under this
Agreement and Swisher may, at its option, terminate this Agreement and all
rights granted hereunder, effective immediately on giving notice of termination
to Master Franchisee, but without giving any notice of default or opportunity to
cure the default, on the occurrence of any of the following events:
(1) if Master Franchisee or any owner of an interest in Master Franchisee
is convicted of any criminal offense or engages in any conduct or practice that
is reasonably likely, in the sole opinion of Swisher, to adversely affect the
System, the Swisher Marks, the goodwill associated therewith or Swisher's
interest therein;
(2) if Master Franchisee or any owner of an interest in Master Franchisee
breaches any term of Section 15, 18, 23 or 24;
(3) if Master Franchisee knowingly provides or submits any false records
or reports to Swisher or willfully or fraudulently misrepresents any fact or
condition required to be disclosed hereunder;
(4) if Master Franchisee makes, or purports to make, a bulk sale of its
assets;
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<PAGE>
(5) if Master Franchisee or any owner of an interest in Master Franchisee
is adjudged bankrupt, becomes insolvent or makes a general assignment for the
benefit of creditors, or if a receiver, guardian, conservator, trustee in
bankruptcy or similar officer is appointed by a court of competent jurisdiction
to take charge of all or any part of Master Franchisee's or any such owner's
property, or if any proceeding for a composition or similar arrangement with
creditors under any law is instituted by or against Master Franchisee or any
owner of an interest in Master Franchisee, or if a final judgment remains
unsatisfied or of record for 30 days or longer against Master Franchisee or any
owner of an interest in Master Franchisee, or if execution is levied against any
of the assets of the Master Franchisee or any owner of an interest in Master
Franchisee;
(6) if Master Franchisee passes any corporate resolution to enable it to
take proceedings for its dissolution, liquidation or amalgamation, to wind down
Master Franchise;
(7) if a Company-owned subfranchisee defaults under its subfranchise
agreement and does not cure within the time limit therefore, or if any
subfranchise agreement with a Company-owned subfranchisee is terminated prior to
the expiration thereof;
(8) if Master Franchisee disputes or contests, directly or indirectly, the
ownership, validity or enforceability of the Swisher Technology or the Swisher
Marks; or
(9) if Master Franchisee promotes Licensor Services/Products
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<PAGE>
outside the Territory, or uses the Swisher Technology or the Swisher Marks
outside the Territory.
B. Subject to the proviso in the last sentence in Section 8B, Master
Franchisee shall have 180 days after receipt of written notice of default
from Swisher in which to cure any failure by Master Franchisee to meet the
Development Schedule set forth in Section 8. If such failure to meet the
Development Schedule is not cured within the said 180-day period, Swisher may
terminate this Agreement by giving written notice of such termination to
Master Franchisee.
C. Except for any events of default referred to in Sections 25A and 25B,
Master Franchisee shall have 30 days after receipt of written notice of default
from Swisher within which to cure any default in the performance of Master
Franchisee's obligations and covenants hereunder. If any such default is not
cured within said 30-day period, Swisher may terminate this Agreement by giving
written notice of such termination to Master Franchisee.
D. The termination of this Agreement shall be without prejudice to any
remedy or cause of action which Swisher may have against Master Franchisee for
the recovery of any amounts due Swisher or any equipment or property of Swisher,
or to any other right of Swisher to recover damages for any breach hereof.
26. TERMINATION BY MASTER FRANCHISEE. This Agreement may be terminated
by Master Franchisee only if Swisher fails to perform any of its obligations
under this Agreement, and only if such failure is not
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<PAGE>
corrected within 60 days after receipt by Swisher of written notice thereof.
27. EFFECT OF TERMINATION.
A. On termination of this Agreement, whether by reason of lapse of
time, default in performance or other reasons, Master Franchisee and its
Company-owned subfranchisees:
(1) shall immediately discontinue the use of the Swisher Marks, any
marks confusingly similar thereto, and any and all signs and printed
materials bearing said marks or any references thereto;
(2) shall immediately discontinue use of the Swisher Technology, and
shall not operate or do business under any name or in any manner that might
tend to give the general public the impression that this Agreement is still
in force or that Master Franchisee is still connected in any way with
Swisher, and if applicable, shall immediately amend the name under which it
performed Licensor Services/Products under this Agreement, and delete from
that name any references to the Swisher Marks or any marks confusingly
similar thereto, and shall immediately thereafter furnish Swisher evidence of
the same;
(3) shall not avail itself of any of the confidential, proprietary or
trade secret information imparted by Swisher, nor disclose or reveal any such
information, or any portion thereof, to others;
(4) shall immediately discontinue use of and deliver to Swisher all
customer lists, customer service contracts and records, and all copies
thereof, all of which Master Franchisee acknowledges to be Swisher's property;
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<PAGE>
(5) shall promptly return to Swisher the Swisher Operations Manual
furnished herewith, and all copies thereof, together with any other materials
containing confidential, proprietary or trade secret information.
(6) shall not (and it officers, directors and shareholders shall not)
compete with Swisher's business interests for 1 year as provided in Section 18;
and
(7) shall, on request by Swisher, take such action as may be necessary to
cancel any assumed name or equivalent registration which contains the mark
SWISHER or any other Swisher Mark.
B. On termination of this Agreement for whatever reason, all subfranchise
agreements in existence as of the date of termination also shall terminate and
Swisher shall have no further obligation to Master Franchisee or its
subfranchisees; provided, however, that Swisher, its successor or assign, may at
its option and on notice of Master Franchisee, assume all of Master Franchisee's
rights and obligations to all or any of its subfranchisees without payment of
any fee to Master Franchisee, under the assignments executed by Master
Franchisee in accordance with Section 10.
28. NOTICES. All notices required or permitted to be given hereunder
shall be in writing, shall be mailed by certified or registered mail, return
receipt requested, with postage thereon prepaid, or sent by expedited and
receipted delivery, and shall be addressed to Swisher or Master Franchisee at
the following address:
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<PAGE>
Swisher: F.M.S., INC.
6849 Fairview Road
Charlotte, North Carolina 28210
704-364-7707
Facsimile 704-365-8941
With copy to:
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Facsimile:
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Master Franchisee:
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Facsimile:
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If a party changes its address, it shall give written notice to the
other party. Any notice given hereunder by certified or registered mail
shall be deemed to have been given 15 days after the date of mailing, and any
notice given hereunder by expedited delivery service shall be deemed to have
been given 3 days after the date of sending, provided that any written
notice, however given, shall be deemed to have been given no later than the
date of its actual receipt. Except as expressly provided herein or designated
by Swisher, all payments required under this Agreement shall be made at
Swisher's office at the above address, and all deliveries of equipment and
supplies form Swisher to Master Franchisee shall be made F.O.B. Charlotte,
North Carolina.
29. SURVIVAL. Any debts, obligations or liabilities accrued
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<PAGE>
hereunder between the parties hereto, including but not limited to, Master
Franchisee's (and its officers', directors' and shareholders') obligations of
indemnification, of nonuse and non-disclosure of confidential, proprietary or
trade secret information under Section 15, and of non-competition under Section
18, shall survive the expiration, termination or transfer of this Agreement,
regardless of reason.
30. SEVERABILITY. If any term this Agreement is invalid, illegal or
incapable of being enforced by reason of any law or public policy, all other
terms of this Agreement shall nevertheless remain in full force and effect,
and no term shall be dependent on any other term unless so expressed herein.
31. WAIVER. Swisher's failure to enforce or delay in enforcing any of
its rights under this Agreement, including but not limited to, the right of
termination because of breach by Master Franchisee of any term of this
Agreement, shall not be a waiver of Swisher's rights, including but not
limited to, the right of termination for the enforcement of any subsequent
breach or breaches by Master Franchisee of any term of this Agreement.
32. COST OF ENFORCEMENT. If it becomes necessary for Swisher to employ
attorneys, bring an arbitration proceeding or institute any action at law or
in equity against Master Franchisee to secure or protect Swisher's rights
under this Agreement, or to enforce any of Master Franchisee's covenants and
obligations contained herein, Swisher shall be entitled to recover from
Master Franchisee all reasonable attorneys' fees expended, together with
court costs and all damages allowed by law.
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<PAGE>
If Master Franchisee fails to perform any duty or obligation in
accordance with this Agreement, Swisher, at its option (but without any
obligation to do so), may perform or attempt to perform such obligation or
duty on behalf of Master Franchisee. In such event, Master Franchisee shall
promptly pay to Swisher on demand any amount expended by Swisher in such
performance or attempted performance.
33. ENTIRE AGREEMENT. This Agreement (which includes the Exhibits
attached hereto) contains the entire agreement of Swisher and Master
Franchisee. Any representations, inducements, promises or agreements, oral
or otherwise, of Swisher or Master Franchisee that are not set forth herein,
or in a written amendment hereof executed by Swisher and Master Franchisee,
shall not be of any force or effect, and shall not be binding on either
Swisher or Master Franchisee. Master Franchisee acknowledges that it has had
an opportunity to ask questions of Swisher and has received satisfactory
answers concerning the business licensed hereunder and the operations of
Swisher.
34. ARBITRATION AND RELATED PROVISIONS.
A. Any dispute, claim or controversy arising out of or relating to this
Agreement or other offer or execution of this Agreement, if not resolved by
negotiation or mutually agreed mediation, shall be resolved solely and
exclusively under the then-current International Arbitration Rules of the
American Arbitration Association ("AAA"), in Charlotte, North Carolina unless
agreed otherwise by the parties in writing, by 1 AAA arbitrator appointed in
accordance with such rules. The prevailing party
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<PAGE>
in any arbitration proceeding shall be entitled to recover its expenses,
including reasonable attorneys' fees and accounting fees, in addition to any
other relief to which it is found to be entitled. Any award shall provide
for interest from the date of the award until the award is paid in full, at a
rate to be fixed by the arbitrator. The award of the arbitrator shall be the
sole and exclusive remedy between the parties regarding any claims,
counterclaims, issues or accountings presented or pled to the arbitrator, and
shall be enforceable free of any tax, deduction or offset. Any costs, fees
or taxes incident to enforcing the award of the arbitrator, to the maximum
extent permitted by law, shall be charged against the party resisting such
enforcement. Swisher and Master Franchisee each consents to entry of judgment
on the award of the arbitrator in any court having jurisdiction (including
any court in the Territory having jurisdiction), or the grant of any
application made to such court for a judicial acceptance of the award or an
order of enforcement.
B. Swisher and Master Franchisee each waives, to the fullest extent
permitted by law, any right or claim for any punitive or exemplary damages
against the other, and each agree, in the event of a dispute with the other,
to be limited to the recovery of actual damages sustained.
C. Nothing in this Section 34 shall prevent Swisher from obtaining
temporary, preliminary or permanent injunctive relief from a court or agency
of competent jurisdiction against conduct causing actual or threatened
irreparable injury to Swisher. Master Franchisee acknowledges that any
breach by Master Franchisee of any term of Section 15
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<PAGE>
(Operations Manual; Industrial Secrets) or Section 18 (NONCOMPETITION) would
cause irreparable injury to Swisher for which no adequate remedy at law may
be available. Accordingly, Master Franchisee consents to the issuance of
injunctive relief prohibiting any conduct by Master Franchisee in violation
of any term of those Sections.
D. Unless Swisher seeks relief from a court or agency in the Territory
that operates using another language, any arbitration or other proceeding
relating to this Agreement shall be conducted in English.
35. FORCE MAJEURE. If Swisher or Master Franchisee shall be delayed in,
hindered in or prevented from, the performance of any act required hereunder
by reason of fire, casualty, strikes, lockouts, labor trouble, inability to
procure materials or supplies, failure of power, governmental authority,
riots, insurrections, war or other reason of like nature, where such delay,
hindrance or prevention of performance shall not be within reasonable control
of the part obligated to perform and not be avoidable by diligence, the party
so delayed shall promptly give notice to the other party, and performance of
such act shall be excused for such period of delay.
36. TRANSLATION. To the extent deemed necessary by Master Franchisee or
Swisher, as applicable, Master Franchisee or Swisher may appoint a translator
to translate (at Master Franchisee's expense) this Agreement and related
materials correspondence or notices into a language other than English. All
correspondence and all notices required or permitted hereunder from one party
to the other shall be in English,
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<PAGE>
without any translation required. The English version of this Agreement and
related materials, correspondence or notices shall control over any other
versions.
37. GUARANTIES. All shareholders of Master Franchisee, and all holders
of any other ownership interest in Master Franchisee, shall execute the
Guaranty attached hereto as Exhibit B, thereby guaranteeing to Swisher the
obligations of Master Franchisee and themselves under this Agreement. Failure
to provide such Guaranty shall constitute a material default under this
Agreement.
38. CORPORATE OR OTHER FORM OF MASTER FRANCHISEE. If Master Franchisee
is conducting business in a corporate, partnership or similar form, Master
Franchisee shall furnish such evidence of its existence and good standing
under the laws of the Territory as Swisher may request. Additionally, Master
Franchisee shall cause all certificates or instruments representing ownership
interest in the Master Franchisee to bear a legend on their face to the
effect that transfers of the interests represented by such certificates or
instruments are subject to the consent of Swisher under this Agreement.
39. GOVERNMENTAL APPROVALS. Master Franchisee shall obtain all
required approvals, consents, permits and licenses necessary from government
agencies in the Territory to enter into, make enforceable the terms of, or
perform under, this Agreement. In this connection, Swisher will assist Master
Franchisee in responding to inquiries from such government agencies, but
Master Franchisee will be responsible for the
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<PAGE>
cost of any translation of this Agreement or any other document required by
such government agencies (which translation, however, will be subject to
Swisher's approval before its use). If, at any time before approval of this
Agreement or during the term of this Agreement, any government agency in the
Territory requires, directly or indirectly, alteration or modification of any
term of this agreement, or of the performance of the parties under this
Agreement, the parties shall use their best efforts to comply with such
requirement. If, however, either of the parties considers the requirement to
be material and adverse to it, then that party may terminate this Agreement
by giving written notice to that effect to the other party. If required, at
Master Franchisee's cost, Master Franchisee will submit advertising or
promotional materials (whether prepared by or under the directions of Swisher
or Master Franchisee) to any appropriate government agency for review and
approval. If the government agency requires Master Franchisee to
revise any advertising or promotional materials as a condition of approval,
Master Franchisee will submit the revised advertising or promotional
materials to Swisher for approval before their use.
40. GOVERNING LAW. This agreement shall be governed by the laws of North
Carolina, without giving effect to the choice of law principles thereof;
provided that if any term of this Agreement is not enforceable under the laws of
North Carolina, that term shall be governed by the laws of the Territory.
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<PAGE>
41. ACKNOWLEDGMENTS.
A. Master Franchisee acknowledges that it has no prior experience in
the restroom hygiene business as embodied in the System, and that, pursuant
to this Agreement, it will receive valuable specialized training and
information concerning operational sales, promotional and marketing methods
and techniques of Swisher as embodied in the System.
B. Master Franchisee acknowledges that the System and the Swisher Marks
will continue to evolve in order to reflect changing market conditions, and to
meet new and changing consumer and technology demands; and that variations and
additions to the System may be required in order to preserve and enhance the
public image of the Swisher Marks and to ensure the continuing operational
efficiency of SWISHER businesses generally.
C. Master Franchisee acknowledges that Swisher made no representations
or promises to Master Franchisee, or reached any arrangements, understandings
or agreements with Master Franchisee, except as set forth in this Agreement
and, in particular, that Swisher has made no promises to Master Franchisee
regarding now or in the future granting Master Franchisee rights to operate
SWISHER businesses outside of the Territory.
D. Master Franchisee acknowledges that its investment is a speculative
investment, that the most important factors in the success of any SWISHER
business is the operator's personal business, marketing, sales, management and
other skills, and that any investment by Master
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<PAGE>
Franchisee may be a risk and may not be recovered. Master Franchisee
represents and warrants that it has, before signing this Agreement, conducted an
independent investigation of this venture and that in making the decision to
enter into this Agreement and any related agreements, Master Franchisee is
relying on its personal knowledge of the market in the Territory and its own
business abilities and efforts, which will be essential to its possible success.
E. Master Franchisee acknowledges and represents that it has, before
executing this Agreement, obtained the advice of independent legal counsel
experienced in licensing or franchising matters.
F. Master Franchisee acknowledges that it has not received or relied on
any warranty or representations, express or implied, as to the potential
volume, profits or success of the business contemplated by this Agreement.
THIS AGREEMENT is executed as of the ____day of 199___.
F.M.S., INC.
By:
------------------------------------
Title:
---------------------------------
---------------------------------------
---------------------------------------
MASTER FRANCHISEE
By:
------------------------------------
Title:
---------------------------------
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<PAGE>
EXHIBIT A
SWISHER MARKS
SWISHER
SWISHER & "S" Design (See U.S. Reg. No. 1,744,818)
SWISHER HYGIENE
<PAGE>
EXHIBIT B
GUARANTY
As an inducement to F.M.S.,INC. ("Swisher") to execute that certain
Master License Agreement dated _________________, 199_, with ("Master
Franchisee") ___________________________________ the undersigned, jointly and
severally, hereby agree to be individually bound by all the terms of the
above Master License Agreement, including any amendments or modifications
thereto whenever made (hereinafter the "Agreement"), and unconditionally and
irrevocably guarantee to Swisher and its successors and assigns that all of
the obligations of Master Franchisee under the Agreement will be punctually
paid and performed. Without limiting the generality of the foregoing, the
undersigned jointly and severally agree to be individually bound by the terms
of Sections 15, 18, 23 and 24 of the Agreement.
On default by Master Franchisee or notice from Swisher, the undersigned
will immediately make each payment and perform each obligation required of
Master Franchisee under the Agreement. Without affecting the obligations of
the undersigned under this Guaranty, Swisher may, without notice to the
undersigned, extend, modify, amend or release any indebtedness or obligation
of Master Franchisee, or may settle, adjust or compromise any claims against
Master Franchisee.
The undersigned waive all demands and notice of every kind with respect
to this Guaranty and the Agreement, including, without limitation, notice of:
the amendment or modification of this Guaranty or the Agreement; the demand
for payment or performance by Master Franchisee; any default by Master
Franchisee or any guarantor; any release of and any guarantor or other
security for this Agreement or the obligations of Master Franchisee.
Swisher may pursue its rights against the undersigned without first
exhausting its remedies against Master Franchisee and without joining any
other guarantor hereto. No delay on the part of Swisher in the exercise of
Guaranty - 1 -
<PAGE>
any right or remedy shall operate as a waiver of such right or remedy, and no
single or partial exercise by Swisher of any right or remedy shall preclude
the further exercise of such right or remedy.
On the death of an individual guarantor, the estate of such guarantor
will be bound by this Guaranty, but only for defaults and obligations
hereunder existing at the time of death, and the obligations of the other
guarantors hereunder will continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have signed this ____ day of
____________, 199__.
--------------------------------------
GUARANTOR
Name:
---------------------------------
Address:
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GUARANTOR
Name:
---------------------------------
Address:
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--------------------------------------
--------------------------------------
GUARANTOR
Name:
---------------------------------
Address:
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Guaranty - 2 -
<PAGE>
<TABLE>
<S> <C>
$1,000,000.00 Charlotte NC SEPTEMBER 19, 1996
------------ --------------------------------------------------------
(City) (State) (Date)
For value received, the undersigned (whether one or more, hereinafter called the "Obligors") promise(s) to pay to the order
of SouthTrust Bank of North Carolina (hereinafter called the "Bank" or, together with any any other holder of this note, the
"Holder"), at any office of the Bank in Charlotte, NC, or at such other place as the Holder may designate, the sum of ONE
MILLION AND NO/100 Dollars, together with interest thereon at the rate and on the date(s) provided below from the date of this
note until maturity, and with interest on the aggregate unpaid principal and accrued interest after maturity at the rate which
is 2 percent per annum in excess of the rate stated below or the maximum rate allowed by law, whichever is less, from maturity
until and aggregate indebtedness is paid in full.
/X/ VARIABLE RATE
Except as otherwise provided in this note, interest will accrue on the above-stated principal sum at the rate per annum which
is _________ percentage points in excess of the Base Rate. As used in this note, the term "Base Rate" means the rate of
interest designated by the Bank periodically as the Base Rate. The Base Rate is not necessarily the lowest rate charged by the
Bank. The Base Rate on the date of this note is ______________ percent. The rate of interest payable under this note will
change to reflect any change in the Base Rate:
/ / on any day the Base Rate changes. / / on the _____________ day of each month thereafter.
/ / on the day each payment of interest is due as provided below. /X/ See attached Addendum P.S
Obligors may prepay this note in full at any time without penalty.
/ / FIXED RATE
Except as otherwise provided in this note, interest will accrue on the above-stated principal sum at the rate of ____________
percent per annum from the date of this note until maturity.
The above-stated principal sum shall be paid in full:
/ / on ______________________. / / on demand. /X/ on demand, but if no demand is made, then on FEBRUARY 17, 1999
Accrued interest on the unpaid balance of the principal sum shall be paid:
/X/ monthly on the 17th day of each month beginning OCTOBER 17, 1996, and at maturity.
/ / quarterly beginning on ______________________________, on the same day every three months thereafter, and at maturity.
Until the earlier of maturity of this note, or the occurrence of any event giving Bank the right to accelerate maturity of this
note as provided below, or written or oral notice to any Obligor of Bank's election to terminate the line of credit (which
notice Bank may give at its discretion), the undersigned may borrow hereunder, prepay the principal sum in whole or in part
without penalty, and reborrow hereunder, so long as the aggregate unpaid principal balance of such borrowings does not exceed
the principal amount of this note at any time. Bank may require that borrowings be made only upon at least one banking day's
written notice to Bank. For the privilege of having such credit available, the undersigned agrees to pay Bank a commitment fee
of n/a percent per annum on the unused portion of the principal sum of this note, such fee to be calculated and payable as
follows: ______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
The rate of interest under this note may increase upon the occurrence of certain events described on the back of this page.
Interest on the principal sum will be calculated at the rate provided in this note on the basis of /X/ 360 / / 365 day year
and the actual number of days elapsed by multiplying the principal sum by the per annum rate set forth above, multiplying the
product thereof by the actual number of days elapsed, and dividing the product so obtained by /X/ 360 / / 365.
LOAN FEE (this provision applicable only if completed): A loan fee in the amount of $3,000.00 has been / / advanced to
Obligors as a loan under this note and paid to the Bank /X/ paid to the Bank by cash or check at closing. The loan fee is
earned by the Bank when paid and is not subject to refund except to the extent required by law.
LATE CHARGE: If this note is payable in installments of interest or principal and interest, and if any scheduled payment is
late 15 days or more. Obligors agree to pay a late charge equal to 4% of the amount of the payment which is late, but not more
than the maximum amount allowed by applicable law.
This note is secured by every security agreement, pledge, assignment, stock power, deed of trust and/or mortgage covering
personal or real property (all of which are hereinafter included in the term "Separate Agreements") which secures an obligation
so defined as to include this note, including without limitation all such Separate Agreements which are of even date herewith and
delivered to the Bank and/or described in the space below. In addition, as security for the payment of any and all liabilities
and obligations of the Obligors to the Holder (including the Indebtedness evidenced by this note and all extensions, renewals,
and substitutions thereof) and all claims of every nature of the Holder against the Obligors, whether present or future, and
whether joint, several, absolute, contingent, matured, unmatured, liquidated, unliquidated, direct or indirect (all of the
foregoing are hereinafter included in the term "Obligations") the Obligors hereby grant to the Holder a security interest in and
security title to the property described below: (Describe Separate Agreement and Collateral)
As further described in Security Agreement dated September 19, 1996, Pledge
and Security Agreement dated September 19, 1996 executed by Jacksonville
Hygiene, Inc., SaniTec Hygiene, Inc., Swisher Hygenic Services, Inc. and
Swisher International of Charlotte, Inc. and Assignment and Pledge of
Savings or other Deposit Account dated September 19, 1996.
If this note is payable on demand, or on demand but not later than a stated date, all of the Obligations shall be due and
payable in full upon demand by Holder, whether or not any default described below has occurred and whether or not the Holder
reasonably deems itself to be insecure. If this note has no provision for payment on demand, the following terms apply: if
default occurs in the payment of any of the Obligations when due or with respect to any condition or agreement contained in this
note; or if for any reason whatever the Collateral shall cease to be satisfactory to the Holder; or in the event of death (if an
individual) or dissolution (if a partnership or corporation) of, insolvency of, general assignment by, filing of petition
under any chapter of the Federal Bankruptcy Code by or against, filing of application in any court for receiver for, judgment
against, issuance of any writ of execution, attachment or garnishment against, or against any of the property of, any Obligor
or any indorser or guarantor of this note (or any general partner of any Obligor or any indorser of any guarantor); or if there
occurs any default or event authorizing acceleration as contained in any Separate Agreement; or if at any time in the sole
opinion of the Holder the financial responsibility of any Obligor or any indorser or guarantor of this note shall become
impaired; then, if any of the foregoing occur, all unpaid amounts of any and all of the Obligations shall, the the option of
the Holder and without notice or demand, become immediately due and payable, notwithstanding any time or credit allowed under any
of the Obligations or under any instrument evidencing the same.
With respect to any and all Obligations, the Obligors and any indorsers of this note severally waive the following: (1) to
the extent permitted by applicable law, all rights of exemption of property from levy or sale under execution or other process
for the collection of debts under the constitution and laws of the United States or of any state thereof; (2) demand;
presentment, protest, notice of dishonor, still against any party and all other requirements necessary to change or hold any
Obligor liable on any Obligation; (3) any further receipt for or acknowledgment of the Collateral now or hereafter deposited
or statement of indebtedness; (4) all statutory provisions and requirements for the benefit of any Obligor, now or hereafter
in force (to the extent that same may be waived); (5) the right to interpose any set-off or counterclaim of any nature or
description in any litigation in which the Holder and any Obligor shall be adverse parties. The Obligors severally agree that
any Obligations of any Obligor may, from time to time, in whole or in part, be renewed, extended, modified, accelerated,
compromised, discharged or released by the Holder, and any Collateral, lien and/or right of set-off securing any Obligation may,
from time to time, in whole or in part, be exchanged, sold, or released, all without notice to or further reservations of
rights against any Obligor and all without in any way affecting or releasing the liability of any Obligor. The Obligors jointly
and severally agree to pay all filing fees and taxes in connection with this note or the Collateral and all costs of
collecting or securing or attempting to collect or secure any Obligations, including a reasonable attorney's fee if an attorney,
not a salaried employee of the Holder, is consulted with reference to sum or otherwise.
The Obligors shall be jointly and severally liable for all indebtedness represented by this note and have subscribed their
names hereto without condition that anyone else should sign or become bound hereon and without any other condition whatsoever
being made. The provisions printed on the back of this page are a part of this note. The provisions of this note are binding
on the heirs, executors, administrators, assigns and successors of each and every Obligor and shall inure to the benefit of the
Holder, as successors and assigns. This note is executed under the seal of each of the Obligors and of the Indorsers, if any.
Obligor's Tax I.D. #: 56-1541396 Swisher International, Inc. (SEAL)
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No. By /s/ Patrick L. Swisher CEO
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Patrick L. Swisher Title
Officer: Jeffrey C. Covington #190 Signature (SEAL)
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Branch: Morrison Blvd./CLDC Mallard Creek Signature (SEAL)
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The provisions on the reverse side are a part of this note.
</TABLE>
<PAGE>
ADDITIONAL TERMS AND CONDITIONS OF REVOLVING NOTE
(TERMS CONTINUED FROM REVERSE SIDE)
Each Obligor and each guarantor and indorser agrees (a) in the event such
Obligor, guarantor or indorser is other than an individual, to furnish the
Holder at least annually, within 120 days after the end of each calendar year or
other fiscal year of such entity, a current financial statement, including a
balance sheet and statements of income, cash flows and changes in capital for
such year, setting forth in each case in comparative form the corresponding
figures for the previous year, together with accompanying schedules and
footnotes along with the accountant's letter accompanying the financial
statements (if the financial statements were compiled or certified by a
public accountant), such financial statements to be certified by the chief
executive officer, chief financial officer, managing partner or comparable
financial officer of such Obligor, guarantor or indorser to be true and
complete to the best of his or her knowledge and belief and to have been
prepared in accordance with generally accepted accounting principles or, if
not so prepared, setting forth the manner in which such financial statement
departs from generally accepted accounting principles; (b) in the event
such Obligor, guarantor or indorser is an individual, to furnish the Holder
at least annually, within 90 days after each anniversary date of this note, a
personal financial statement in form satisfactory to the Holder, certified
by such person to be true and complete to the best of his or her knowledge
and belief, and to furnish the Holder, within 30 days after the Holder's
request therefor, a copy of the federal income tax return most recently filed
by such person; and (c) that this paragraph applies in addition to and not in
lieu of any other agreement with the Holder which requires the furnishing of
financial information.
If any Obligor, guarantor or indorser falls or refuses to furnish financial
information to the Holder under the preceding paragraph or under the terms of
any other agreement with the Holder which requires the furnishing of financial
information, the Holder, without waiving its right to treat such failure or
refusal as a default under this note, may give written notice to Obligors that
the Holder has not received the required financial information and that the
Holder intends to increase the interest rate under this note if the required
information is not received within 30 days after the date of the notice. If
the required information is not received by the Holder within 30 days after
the date of the notice, at the Holder's option, the rate of interest payable
under this note will increase by 1% per annum. At the Holder's option, the rate
of interest payable under this note will increase by an additional 1% per
annum each 30 days until the required financial information is received by
the Holder, subject of a maximum increase of 4% per annum under the
provisions of this paragraph. Any such increase(s) in the rate of interest
will remain in effect until 30 days after the required information is received
by the Holder. The provisions of this paragraph do not apply if the original
principal amount of this note is $25,000 or less.
As additional Collateral for the payment of all Obligations, the Obligors
jointly and severally transfer, assign, pledge, and set over to the Holder and
grant the Holder a continuing lien upon and security interest in, any and all
property of each Obligor that for any purpose, whether in trust for any Obligor
or for custody, pledge, collection or otherwise, is now or hereafter in the
actual or constructive possession of, or in transit to, the Holder in any
capacity, its correspondents or agents, and also a continuing lien upon and
or right of set-off against all deposits and credits of each Obligor with, and
all claims of each Obligor against, the Holder now or at any time hereafter
existing. The Holder is hereby authorized, at any time or times and without
prior notice, to apply such property, deposits, credits, and claims, in whole
or in part and in such order as the Holder may elect, to the payment of, or
as a reserve against, one or more of the Obligations, whether other
Collateral therefor is deemed adequate or not. All such property, deposits,
credits and claims of the Obligors are included in the term Collateral,
and the Holder shall have (unless prohibited by law) the same rights with
respect to such Collateral as it shall have with respect to other Collateral.
Without the necessity for notice to or consent of any Obligor, the Holder
may exercise any rights of any of the Obligors with respect to any Collateral,
including without limitation thereto the following rights: (1) to record or
register in, or otherwise transfer into, the name of the Holder or its
nominee any part of the Collateral, without disclosing that the Holder's
interest is that of a secured party; (2) to pledge or otherwise transfer any
or all of the Obligations and/or Collateral, whereupon any pledgee or
transferee shall have all the rights of the Holder hereunder, and the Holder
shall thereafter be fully discharged and relieved from all responsibility and
liability for the Collateral so transferred but shall retain all rights and
powers hereunder as to all Collateral not so transferred; (3) to take
possession of any Collateral and to receive any proceeds of and dividends and
income on any Collateral, including money, and to hold the same as Collateral
or apply the same to any of the Obligations, the manner, order and extent of
such application to be in the sole discretion of the Holder; (4) to exercise
any and all rights of voting, conversion, exchange, subscription or their
rights or options pertaining to any Collateral; and (5) to liquidate, demand,
sue for, collect, compromise, receive and receipt for the cash or surrender
value of any Collateral, if for any reason whatsoever the Collateral shall
cease to be satisfactory to the Holder, the Obligors shall upon demand deposit
with the Holder additional Collateral satisfactory to the Holder. Surrender of
this note, upon payment or otherwise, shall not affect the right of the Holder
to retain the Collateral as security for other Obligations. Upon default, the
Obligors agree to assemble the Collateral and make it available to Holder at
such place or places as the Holder shall designate.
The Holder shall be deemed to have exercised reasonable care in the custody
and preservation of any of the Collateral which is in its possession if it
takes such reasonable actions for that purpose as the pledgor of such
Collateral shall request in writing, but the Holder shall have sole power to
determine whether such actions are reasonable. Any omission to do any act
not requested by said pledgor shall not be deemed a failure to exercise
reasonable care. The Obligors shall be responsible for the preservation of the
collateral and shall take all steps to preserve rights against prior parties.
The Holder shall have the right to, but shall not be obligated to, preserve
rights against prior parties; nor shall the Holder be liable for any failure to
realize upon, or to exercise any right or power with respect to, any of the
Obligations or Collateral, or for any delay in so doing.
The Holder, without making any demands whatsoever, shall have the right to
sell all or part of the Collateral, although the Obligations may be contingent
or unmatured, whenever the Holder considers such sale necessary for its
protection. Sale of the Collateral may be made, at any time and from time to
time, at any public or, unless prohibited by applicable law at, private
sale, at the option of the Holder, without advertisement or notice to any
Obligor, except such notice as is required by law and cannot be waived. The
Holder may purchase the Collateral at any such sale (unless prohibited by law)
free from any equity or redemption and from all other claims. After deducting
all expenses, including legal expenses and attorney's fees, for maintaining or
selling the Collateral and collecting the proceeds of sale, the Holder shall
have the right to apply the remainder of said proceeds in payment of, or as a
reserve against, any of the obligations, the manner, order and extent of such
application to be in the sole discretion of the Holder. To the extent notice of
any sale or other disposition of the Collateral is required by law to be
given to any Obligor, the requirement of reasonable notice shall be met by
sending such notice, as provided below, at least ten (10) calendar days
before the time of sale or disposition. The Obligors shall remain liable to
the Holder for the payment of any deficiency, with interest at the rate
provided hereinabove. However, the Holder shall not be obligated to resort to
any Collateral but, at its election, may proceed to enforce any of the
Obligations in default against any or all of the Obligors.
The Obligors understand that the Bank may enter into participation
agreements with participating banks whereby the Bank will sell undivided
interests in this note to such other banks. The Obligors consent that the
Bank may furnish information regarding the Obligors, including financial
information, to such banks from time to time, and also to prospective
participating banks in order that such banks may make an informed decision
whether to purchase a participation in this note. The Obligors hereby grant
to each such participating bank, to the extent of its participation in this
note, the right to set off deposit accounts maintained by the Obligors, or any
of them, with such bank against unpaid sums owed under this note. Upon written
request from the Holder, the Obligors agree to make each payment under this
note directly to each such participating bank in proportion to the
participant's interest in this note as set forth in such request from
the Holder.
If, at any time, the rate of interest payable under this note shall exceed
the maximum rate of interest permitted by applicable law, then, for such time
as the interest rate would be excessive, its application shall be suspended and
there shall be charged instead the maximum rate of interest permitted under such
law, and any excess interest paid by the Obligors or collected by the Holder
shall be refunded to the Obligors or credited against the principal sum of
this note, at the election of the Holder or as required by applicable law.
The Holder shall not by any act, delay, omission or otherwise be deemed to
have waived any of its rights or remedies, and no waiver of any kind shall be
valid, unless in writing and signed by the Holder. All rights and remedies
of the Holder under the terms of this note and under any statutes or rules of
law shall be cumulative and may be exercised successively or concurrently. The
Obligors jointly and severally agree that the Holder shall be entitled to all
the rights of a holder in due course of a negotiable instrument. This
note shall be governed by and construed in accordance with the substantive
laws of the United States and the state where the office of the Bank set
forth above in the first paragraph of this note is located, other than the
rules of such state governing conflicts of law. Any provision of this note
which may be unenforceable or invalid under any law shall be ineffective to
the extent of such unenforceability or invalidity without affecting the
enforceability or validity of any other provision hereof. Any notice required
to be given to any person shall be deemed sufficient if delivered to such
person or if mailed, postage prepaid, to such person's address as it
appears on this note or, if none appears, to any address of such person in
the Holder's files. The Holder shall have the right to correct patent errors
in this note. A photocopy of this note may be filed as a financing statement in
any public office.
EACH GUARANTOR AND INDORSER OF THIS NOTE AGREES TO BE BOUND BY THE PROVISIONS
PRINTED OR OTHERWISE APPEARING ABOVE AND ON THE FACE OF THIS NOTE, INCLUDING
THE PROVISION FOR PAYMENT OF ATTORNEYS' FEES FOR COLLECTION, AND EACH
GUARANTOR AND INDORSER HEREBY WAIVES ANY RIGHTS HE OR IT MAY HAVE UNDER NORTH
CAROLINA GENERAL STATUTES SECTIONS 26-7 ET SEQ.
Signature (SEAL) Signature (SEAL)
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Address Address
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Signature (SEAL) Signature (SEAL)
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Address Address
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NC52718 SouthTrust Corporation (3/93)
<PAGE>
ADDENDUM TO REVOLVING NOTE BY AND BETWEEN SWISHER
INTERNATIONAL, INC. AS "OBLIGOR" AND SOUTHTRUST BANK OF NORTH
CAROLINA AS THE "BANK DATED SEPTEMBER 19,1996.
Interest will accrue on the above stated principal amount at the rate per
annum which is 2.85% above the ninety (90) day London Interbank Offering Rate
(LIBOR) as quoted in the Wall Street Journal. The rate of interest under
this note will change to reflect any change in the index every ninety (90)
days. The ninety (90) day London Interbank Offering Rate on the day of this
note is 5.66%.
Swisher International, Inc.
By /s/ PATRICK L. SWISHER
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Patrick L. Swisher, CEO
<PAGE>
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REVOLVING LOAN AGREEMENT
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This Agreement dated SEPTEMBER 19, 1996, made by and between Swisher
International, Inc. ("Borrower") and SouthTrust Bank of North Carolina
("Bank")
WITNESSETH:
That for valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in consideration of the mutual promises herein made,
Bank and Borrower, intending to be legally bound, agree as follows:
ARTICLE I - THE REVOLVING LOAN
SECTION 1.1 Bank hereby agrees to lend to Borrower, and Borrower hereby
agrees to borrow from Bank, upon the terms and conditions, set forth in this
Agreement, the principal sum of up to ONE MILLION AND NO/100 dollars
($1,000,000.00) (the "Revolving Loan"). Borrower's obligation to repay the
Revolving Loan and the interest thereon shall be evidenced by a promissory
note (the "Note") in form and substance satisfactory to Bank. Until the
earlier of FEBRUARY 17, 1999 or the occurrence of any Event of Default (as
defined under Article VI of this Agreement), or written notice to Borrower of
Bank's election to terminate the availability of new loans under this
Agreement (which notice Bank may give at its discretion, whether or not an
Event of Default has occurred or is threatened). Borrower may borrow
hereunder, prepay the principal sum of such loans in whole or in part without
penalty, and reborrow hereunder, so long as the aggregate unpaid principal
balance of such loans does not exceed the maximum principal amount set forth
in the first sentence of this Section 1.1. Bank may require at any time that
loans be made upon at least one banking day's notice to Bank. Bank may also
require at any time that loans be requested in writing on Bank's loan request
form. Bank may disburse each loan by credit to Borrower's transaction account
with Bank, by check, or in such other manner as Borrower and Bank may agree.
SECTION 1.2. Borrower agrees to pay interest on the Revolving Loan at
the rate(s), on the date(s), and calculated by the method, set forth in the
Note.
SECTION 1.3. Unless payment is required to be made earlier under the
terms of the Note or pursuant to Section 6.2 of this Agreement following an
Event of Default, Borrower shall pay the unpaid principal balance of the
Revolving Loan in full on the maturity date of the Note.
SECTION 1.4. For the privilege of having the Revolving Loan available,
until the earlier of the termination of this Agreement or the effective date
of Bank's election to terminate the availability of new loans, Borrower
agrees to pay to Bank a commitment fee of 0.00% per annum on the unused
portion of the maximum principal amount of the Revolving Loan, such fee to be
calculated and paid as follows:
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ARTICLE II - COLLATERAL
Section 2.1. The repayment by Borrower of the indebtedness under the
Revolving Loan and the Note, and the performance by Borrower of all
obligations under this Agreement, are and shall be secured by every mortgage,
deed of trust, and security agreement (every "Separate Agreement") which
secures an obligation so defined as to include the Revolving Loan or the Note
(including, without limitation, those Separate Agreements described below),
and by all property of Borrower now or hereafter in the possession, control
or custody of Bank (in which property Borrower hereby grants Bank a security
interest to secure such indebtedness and obligations) and by all property in
which Bank has or hereafter acquires a lien, security interest, or other
right, including, without limitation, the property described below (in which
property Borrower hereby grants Bank a security interest to secure such
indebtedness and obligations)
As further described in Security Agrement dated September 19, 1996,
Pledge and Security Agreement dated September 19, 1996 executed by
Jacksonville Hygiene, Inc., SaniTec Hygiene, Inc., Swisher Hygenic Services,
Inc. and Swisher International of Charlotte, Inc. and Assignment and Pledge
of Savings or Other Deposit Account dated September 19, 1996.
(The property described above and the property described in every Separate
Agreement is individually and collectively referred to in this Agreement as
the "Collateral").
SECTION 2.2. Borrower shall execute and deliver, or shall cause to be
executed and delivered, such documents relating to the Collateral as Bank may
from time to time request.
ARTICLE III - BORROWER WARRANTS AND REPRESENTS TO BANK THAT:
SECTION 3.1 Borrower is a Corporation duly organized and existing under
the laws of the State of North Carolina, and is qualified to do business in
all jurisdictions in which it conducts its business.
SECTION 3.2. The execution and delivery by Borrower of, and the
performance by Borrower of its obligations under, this Agreement, the Note
and the Separate Agreements have been duly authorized by all requisite action
on the part of Borrower and do not and will not (i) violate any provision of
Borrower's articles of incorporation, by-laws, or other organizational
documents, any law or any judgment, order or ruling of any court or
governmental agency, or (ii) be in conflict with, result in a breach of, or
constitute, following notice or lapse of time or both, a default under any
indenture, agreement or other instrument to which Borrower is a party or by
which Borrower or any of its property is bound.
SECTION 3.3. Each of this Agreement and the Note is the legal, valid and
binding agreement of Borrower enforceable against Borrower in accordance with
its terms.
SECTION 3.4. There are no pending or threatened actions or proceedings
before any court or administrative or governmental agency that may,
individually or collectively, adversely affect the financial condition or
business operations of Borrower.
SECTION 3.5. The financial statement dated OCTOBER 31, 1995, previously
delivered by Borrower to Bank, fairly and accurately presents the financial
condition of Borrower as of such date and has been prepared in accordance
with generally accepted accounting principles consistently applied. Since
the date of that financial statement, there has been no material adverse
change in the financial condition of Borrower, and, after due inquiry, there
exists no material contingent liability or obligation assertable against
Borrower.
<PAGE>
SECTION 3.6. All federal, state and other tax returns of Borrower
required by law to be filed have been completed in full and have been duly
filed, and all taxes, assessments, and withholdings shown on such returns or
billed to Borrower have been paid, and Borrower maintains adequate reserves
and accruals in respect of all such federal, state and other taxes,
assessments and withholdings. There are no unpaid assessments pending
against Borrower for any taxes or withholdings, and Borrower knows of no
basis therefor.
SECTION 3.7. The obligations of Borrower under this Agreement and the
Note are not subordinated in right of payment to any other obligation of
Borrower.
SECTION 3.8. Borrower possesses all permits, memberships, franchises,
contracts, licenses, trademark rights, trade names, patents, and other
authorizations necessary to enable it to conduct its business operations as
now conducted, and no filing with, and no consent, permission, authorization,
order or license of, any individual, entity, or governmental authority is
necessary in connection with the execution, delivery, performance or
enforcement or this Agreement or the Note.
SECTION 3.9. No event has occurred and is continuing which is, or which
with the giving of notice or lapse of time or both would be, an Event of
Default (as defined in Article VI) of this Agreement.
SECTION 3.10. Borrower has good and marketable title to all of its
properties and assets including, without limitation, the Collateral and the
properties and assets reflected in the above-described financial statement.
SECTION 3.11. The minimum funding standards of Section 302 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") have
been met at all times with respect to all "plans" of Borrower to which such
standards apply; Borrower has not made a "partial withdrawal" or a "complete
withdrawal" from any "multiemployer plan"; and no "reportable event" or
"prohibited transaction" has occurred with respect to any such "plan" (as all
of the quoted terms are defined in ERISA).
SECTION 3.12. Except as otherwise expressly disclosed by Borrower to
Bank in writing on the date of this Agreement: No "hazardous substance" (as
that term is defined in Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ["CERCLA"]) has
been released, discharged, disposed of, or stored on any of Borrower's owned
or leased real or personal property by Borrower, by any third party, or by
any predecessor in interest or in title to Borrower; Borrower and all of
Borrower's properties are in compliance with all applicable local, state and
federal environmental laws and regulations; no notice has been served on
Borrower by any governmental authority or any individual or entity claiming
violation of any environmental protection law or regulation, or demanding
compliance with any environmental protection law or regulation, or demanding
payment, indemnity, or contribution for any environmental damage or injury to
natural resources; no "hazardous substance" (as defined in CERCLA) is
produced or used in Borrower's business; and no improvement on any real
property owned or leased by Borrower contains any asbestos, including,
without limitation, asbestos insulation on ceilings, piping or structural
members or supports.
SECTION 3.13. Bank shall not be obligated to make any loan under the
Revolving Loan until Borrower shall have furnished Bank, at Borrower's
expense and as the Bank may request from time to time, such evidence as Bank
shall require regarding the truth or continued truth of the foregoing
representations and warranties, including, without limitation, opinions of
Borrower's outside legal counsel, opinions and certificates of Borrower's
independent certified public accountants, surveys, appraisals, environmental
audits by qualified environmental engineers selected by Bank, reports of
other independent consultants selected by Bank, and certificates of
Borrower's officers. All such evidence must be in form and content
satisfactory to Bank.
ARTICLE IV - AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as it may borrow under this
Agreement or so long as any indebtedness remains outstanding under the
Revolving Loan or under the Note, Borrower shall:
SECTION 4.1. Deliver to Bank (i) within 30 days after each fiscal
quarter an unaudited financial statement including a balance sheet and
statements of income and cash flows, certified by Borrower's chief executive
or chief financial officer to be correct and complete, (ii) within 120 days
after the end of each year a financial statement including a balance sheet of
Borrower as of the end of such year and statements of income, cash flows and
changes in equity for such year, setting forth in each case in comparative
form the corresponding figures for the previous year, together with
accompanying schedules and footnotes, certified or compiled (at Bank's
election) by the present independent certified public accountants of Borrower
or by another firm of independent certified public accountants designated by
Borrower which is satisfactory to Bank, such financial statement to be
prepared in accordance with generally accepted accounting principles applied
in a manner consistent with the financial statements previously furnished to
Bank, or if not so prepared, setting forth the manner in which such financial
statement departs from generally accepted accounting principles or from
previous financial statements furnished to Bank by Borrower, and (iii) with
reasonable promptness, such other information (including, without limitation,
copies of tax returns and amendments thereto filed by Borrower) as Bank may
request.
SECTION 4.2. Maintain its books, accounts and records in accordance with
generally accepted accounting principles, applied in a manner consistent with
the financial statements previously furnished to the Bank, and shall permit
any person or entity designated in writing by Bank to visit and inspect any
of its properties, books and financial records, and to make copies thereof
and take extracts therefrom, and to discuss Borrower's financial affairs with
Borrower's financial officers and accountants.
SECTION 4.3. Pay and discharge all taxes, assessments, fees,
withholdings and other governmental charges or levies imposed upon it, or
upon its income and profits, or upon any property belonging to it, prior to
the date on which penalties attach thereto, unless the legality thereof shall
be promptly and actively contested in good faith by appropriate proceedings,
and unless adequate reserves for such liability are maintained by Borrower
pending determination of such contest.
SECTION 4.4. Maintain its existence in good standing in the state of its
organization or incorporation and its qualification and good standing in all
jurisdictions where such qualification is required under applicable law, and
conduct its business in the manner in which it is now conducted subject only
to changes made in the ordinary course of business.
SECTION 4.5. Promptly notify Bank in writing of the occurrence of any
Event of Default or of any pending or threatened litigation claiming damages
in excess of $25,000 or seeking relief that, if granted, would adversely
affect the financial condition or business operations of Borrower.
SECTION 4.6. Maintain and keep in force at all times insurance of the
types and in the amounts customarily carried in lines of business similar to
Borrower's and such other insurance as Bank may require, including, without
limitation, fire, public liability, casualty, property damage, flood damage,
and worker's compensation insurance, which insurance shall be carried with
companies and in amounts satisfactory to Bank. All casualty and property
damage insurance shall name Bank as mortgagee or loss payee, as appropriate,
and shall provide for a minimum often days' written notice to Bank before
cancellation. Borrower shall deliver to Bank from time to time at Bank's
request copies of all such insurance policies and certificates of insurance
and schedules setting forth all insurance then in effect. Borrower hereby
appoints Bank the attorney-in-fact for Borrower for purposes of obtaining,
adjusting, settling, and canceling such insurance and of endorsing in
Borrower's name and giving receipt for checks and drafts issued in payment of
losses and as returned premiums. Borrower hereby assigns all insurance
policies at any time covering property that is Collateral for the Note and
all returned and unearned premiums theron to Bank as additional Collateral
for the Note.
SECTION 4.7. Keep all of its properties in good repair and condition, and
from time to time make neccesary repairs, renewals and replacements thereto
so that Borrower's property shall be fully and efficiently preserved and
maintained.
SECTION 4.8. Perform or take, on request of Bank, such action as may be
necessary or advisable to perfect any lien or security interest in the
Collateral or otherwise to carry out the intent of this Agreement.
SECTION 4.9. Pay or reimburse Bank for any out-of-pocket expenses,
including attorneys' fees, incurred by Bank in preparing or enforcing this
Agreement, the Note, and the Separate Agreements, or in collecting the
Revolving Loan and any other sum due under the Note or this Agreement after
default by Borrower in the payment thereof.
SECTION 4.10. Fund all of its "plans" to which the minimum funding
standards of Section 302 of ERISA apply in accordance with such standards;
furnish Bank, promptly upon Bank's request, copies of all reports or other
statements filed with, or received from, the United States Department of
Labor, the Internal Revenue Service, or the Pension Benefit Guaranty
Corporation with respect to all of Borrower's "plans"; and promptly advise
Bank of the occurrence of any "reportable event" or "prohibited transaction"
with respect to any such "plan" (as all of the quoted terms are defined in
ERISA).
SECTION 4.11. Comply with all applicable present and future local, state
and federal laws, including, without limitation, environmental laws and
regulations; notify Bank immediately if any "hazardous substance" (as defined
in CERCLA) is released, discharged, disposed of, stored, or discovered on any
real or personal property owned or leased by Borrower; notify Bank in writing
within three days after Borrower receives notice from any governmental
authority or any individual or entity claiming violation of any environmental
protection law or regulation, or demanding compliance with any environmental
protection law or regulation, or demanding payment, indemnity, or
contribution for any environmental damage or injury to natural resources; and
permit Bank from time to time to observe Borrower's operations and to perform
tests (including soil tests and ground water tests) for "hazardous
substances" on any real or personal property owned or leased by Borrower.
<PAGE>
SECTION 4.13. Use the proceeds of the Revolving Loan only for
temporary and permanent working capital needs of Swisher International, Inc.
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SECTION 4.14.
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ARTICLE V - NEGATIVE COVENANTS
Borrower covenants and agrees that, without the prior written consent
of Bank, so long as it may borrow under this Agreement or so long as any
indebtedness remains outstanding under the Revolving Loan or under the Note,
Borrower shall not:
SECTION 5.1. Use any proceeds of the Revolving Loan except for the
purposes stated in SECTION 4.13.
SECTION 5.2. Make any additional investment in fixed assets in any one
fiscal year in excess of a yearly aggregate of $ n/a.
-------------------------------
SECTION 5.3. Create, incur, assume, or suffer to exist any indebtedness
of any description whatsoever not existing as of the date of this Agreement,
except (i) indebtedness incurred under this Agreement, (ii) any trade
indebtedness incurred in the ordinary course of business payable no later
than 60 days of its incurrence, and (iii)
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SECTION 5.4. Merge, consolidate or enter into a partnership or joint
venture with any other person or entity; or sell, lease, transfer or
otherwise dispose of all or any substantial portion of its assets, except
sales of inventory in the ordinary course of business; or change its name; or
change the location of its chief executive office.
SECTION 5.5. Guarantee or become contingently liable for any obligation or
indebtedness of any other person or entity, except that Borrower may endorse
negotiable instruments for collection in the ordinary course of business.
SECTION 5.6. Make any loans, advances or extensions of credit to any
person or entity.
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SECTION 5.7. Pay or declare any dividend on any of its capital stock
after the date hereof, provided, however, that if Borrower is an S
Corporation, it may pay dividends not to exceed the amount of income taxes
payable by its shareholders attributable to Borrower's income.
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SECTION 5.8. Grant any lien on or security interest in, or otherwise
encumber, any of its properties or assets including, without limitation, the
Collateral, and, except for liens for taxes not yet due and payable or which
are being actively contested in good faith by appropriate proceedings and for
which adequate reserves are being maintained by Borrower and those liens
disclosed to Bank by Borrower in writing prior to the execution of this
Agreement. Borrower shall not permit to exist any lien, security interest or
other encumbrance on any of its properties or assets.
SECTION 5.9. Take, or fail to take, any act if such act or failure to act
results in the imposition of withdrawal liability under Title IV of ERISA.
SECTION 5.10. Release, discharge, dispose of, store, accept or receive for
storage or disposal, or allow to be stored or disposed of, any "hazardous
substance" (as defined in CERCLA) on or in any real or personal property
owned or leased by Borrower, except as otherwise expressly consented to by
Bank in writing; or release, discharge, use, transport, or dispose of any
"hazardous substance" in an unlawful manner.
SECTION 5.11.
(a) Permit its working capital to be at any time less than $ n/a;
----------------
(b) Permit the ratio of its current assets to its current liabilities to
be at any time less than n/a;
--------------------------------------------
(c) Permit its tangible net worth to be at any time
less than $4,250,000.00;
-----------------------------------------------------------
(d) Permit the ratio of its total liabilities to its tangible net worth to
be at any time greater than 1.0 to ?0;
-------------------------------------------------
(e) Permit its Debt Service Coverage to be less than 1.50;
--------------
(f) Change the dates of its fiscal year now employed for financial and
accounting purposes;
(g)
------------------------------------------------------------------------
(h)
------------------------------------------------------------------------
INITIAL
HERE
ARTICLE VI - EVENTS OF DEFAULT AND REMEDIES *See attached Addendum.
SECTION 6.1. Any one or more of the following shall constitute an Event of
Default hereunder by Borrower:
(a) Failure to pay when due any payment of principal or interest due on
the Note or any other sum due hereunder; or
(b) Failure to pay when due any payment of principal or interest due on
any other obligation for money borrowed or the deferred purchase price
of goods or services; or
(c) Default under any Separate Agreement or any other document, note,
agreement, mortgage, security agreement, instrument, or understanding
with, held by, or executed in favor of Bank; or
(d) Should any representation or warranty contained herein or made by or
furnished on behalf of Borrower in connection herewith be false or
misleading in any material respect as of the date made; or
(e) Failure to perform or observe any covenant or agreement contained in
Articles IV or V of this Agreement; or
(f) Failure to pay its debts generally as they become due; or
(g) Borrower's or any Guarantor's making or taking any action to make an
assignment for the benefit of creditors, or petitioning or taking any
action to petition any tribunal for the appointment of a custodian,
receiver or any trustee for it or a substantial part of its assets,
or commencing or taking any action to commence any proceeding under
any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or debtor relief law or statute of any
jurisdiction, whether now or hereafter in effect, including, without
limitation, any chapter of the federal Bankruptcy Code; or, if there
shall have been filed or commenced against Borrower or any Guarantor
any such petition, application or proceeding which is not dismissed
within 30 days or in which an order for relief is entered; or
should Borrower or any such Guarantor by any act or omission indicate
its approval of or acquiescence in any such petition, application or
proceeding or order for relief or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its
properties; or should Borrower or any such Guarantor suffer to exist
any such custodianship, receivership or trusteeship; or
(h) Borrower's or any Guarantor's concealing, removing, or permitting to
be concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them, or making or suffering a
transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or making any
transfer of its property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid, or
suffering or permitting, while insolvent, any creditor to obtain a
lien upon any of its property through legal proceedings or distraint
which is not vacated within 30 days after the date thereof; or
(i) Occurrence of any of the following with respect to Borrower or any
Guarantor: death (if an individual), death of a general partner (if a
partnership), dissolution or cessation of business (if a partnership,
corporation, or other organization), or insolvency.
SECTION 6.2. Upon the occurrence and continuation of an Event of Default,
Bank may (i) terminate all obligations of Bank to Borrower, including,
without limitation, any obligations to lend money under this Agreement or the
Note, (ii) declare immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are expressly waived,
the Note and any other note of Borrower held by Bank, including, without
limitation, principal, accrued interest and costs of collection (including,
without limitation, a reasonable attorney's fee if collected by or through an
attorney who is not a salaried employee of Bank, in bankruptcy or in other
judicial proceedings, which costs Borrower hereby agrees to pay) and (iii)
pursue any remedy available to it under this Agreement, under the Note, under
any other note of Borrower held by Bank, or available at law or in equity.
Page 3 of 5 ________ initials
<PAGE>
SECTION 7.1.
As used in this Agreement, the following terms shall have the meanings set
forth below:
(a) Accounting terms used in this Agreement such as "net income",
"working capital", "current assets", "current liabilities", "tangible
net worth", and "total liabilities" shall have the meanings normally
given them by, and shall be calculated, both as to amounts and
classification of items, in accordance with, generally accepted
accounting principles.
(b) "Agreement" means this Revolving Loan Agreement, as amended or
supplemented in writing from time to time.
(c) "Bank" means the banking corporation or association named in the first
sentence of this Agreement and which executes this Agreement below as
"Bank."
(d) "Borrower" means the person or entity named in the first sentence of
this Agreement and who executes this Agreement below as "Borrower." For
purposes of Section 3.11, 4.10, and 5.9, such term also includes any
member of a "controlled group" (as defined in ERISA) of which the
named Borrower is a member.
(e) "CERCLA" is defined in Section 3.12.
(f) "Collateral" is defined in Section 2.1.
(g) "ERISA" is defined in Section 3.11.
(h) "Event of Default" is defined in Section 6.1.
(i) "Debt Service" means a fraction in which the numerator is the sum of
the net income of Borrower (after provision for federal and state
taxes) for the 12-month period preceding the applicable date plus the
interest, lease and rental expenses of Borrower for the period plus
the sum of non-cash expenses or allowances for such period
(including, without limitation, amortization or write-down of
intangible assets, depreciation, depletion, and deferred taxes and
expenses) and the denominator is the sum of the current portion of
the long-term debt of Borrower as of the applicable date plus the
interest, lease and rental expenses for the 12-month period preceding
the applicable date. If Borrower has elected treatment as an
S Corporation under the Internal Revenue Code, however, "Debt Service"
means a fraction in which the numerator is the sum of the net income
of Borrower (after deduction of an amount equal to the federal and
state income taxes, calculated at the marginal rates which would
otherwise have been applicable to Borrower at such time, which
Borrower would have been required to pay if it had not elected
treatment as an S Corporation for federal and state income tax
purposes) for the 12-month period preceding the applicable date plus
the interest, lease and rental expenses of Borrower for the period
plus the sum of noncash expenses or allowances for such period
(including, without limitation, amortization or write-down of
intangible assets, depreciation, depletion, and expenses), and the
denominator is the sum of the current portion of the long-term debt
of Borrower as of the applicable date plus the interest, lease and
rental expenses for the 12-month period preceding the applicable date.
(j) "Guarantor" means any person or entity who endorses the Note or who
now or hereafter guarantees payment or collection of the Revolving Loan
in whole or in part.
(k) "Note" is defined in Section 1.1 and includes any promissory note or
notes given in extension or renewal of, or in substitution for, the
original Note.
(l) "Revolving Loan" is defined in Section 1.1.
(m) "Separate Agreement" is defined in Section 2.1.
ARTICLE VIII - MISCELLANEOUS
SECTION 8.1. No delay or failure on the part of Bank in the exercise of
any right, power or privilege granted under this Agreement or the Note, or
available at law or in equity, shall impair any such right, power or
privilege or be construed as a waiver of any Event of Default or any
acquiescence therein. No single or partial exercise of any such right, power
or privilege shall preclude the further exercise of such right, power or
privilege. No waiver shall be valid against Bank unless made in writing and
signed by Bank, and then only to the extent expressly specified therein.
SECTION 8.2. All notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed to have been given or
made (i) when actually received, if delivered by hand or sent by facsimile
or telegraphic transmission, or (ii) upon the earlier of the actual receipt
or five (5) days after mailing, if sent by certified or registered mail,
postage prepaid, return receipt requested, and addressed as follows:
(a) If to Bank, SouthTrust Bank of North Carolina
-------------------------------------------
P.O. Box 563972
-------------------------------------------
Charlotte, NC 28256-3972
-------------------------------------------
Facsimile Number: 704-365-3475
-------------------------
Attention: Jeffrey C. Covington,
Vice President
------------------------------
(b) If to Borrower,
-------------------------------------------
Swisher International, Inc.
-------------------------------------------
6849 Fairview Road
-------------------------------------------
Charlotte, NC 28210
-------------------------------------------
Facsimile Number:
-------------------------
Attention: Patrick L. Swisher CEO
------------------------------
Either Borrower or Bank, or both, may change its address or facsimile number
for notice purposes by notice to the other party in the manner provided
herein.
SECTION 8.3. This Agreement and the Note shall be governed by and
construed and enforced in accordance with the substantive laws of the United
States and the state in which the principal office of Bank is located,
without regard to that state's rules governing conflicts of law.
SECTION 8.4. All representations and warranties contained in this
Agreement or made or furnished on behalf of Borrower in connection herewith
shall survive the execution and delivery of this Agreement and the
Note, shall be deemed to be made anew each time Borrower requests a loan
under this Agreement, and shall survive until the Revolving Loan and all
interest thereon are paid in full.
SECTION 8.5. This Agreement shall bind and inure to the benefit of
Borrower and Bank, and their respective successors and assigns; provided,
however, Borrower shall have no right to assign its rights or obligations
hereunder to any person or entity.
SECTION 8.6. Time is of the essence in the payment and performance of
every term and covenant of this Agreement and the Note.
SECTION 8.7. This Agreement may be amended or modified, and Borrower may
take any action herein prohibited, or omit to perform any action required to
be performed by it, only if Borrower shall obtain the prior written consent
of Bank to such amendment, modification, action or omission to act, and no
course of dealing between Borrower and Bank shall operate as a waiver of any
right, power or privilege granted under this Agreement, under the Note or the
Separate Agreements, or available at law or in equity. This Agreement, the
Note, and the Separate Agreements contain the entire agreement between
Borrower and Bank regarding the Revolving Loan and the Collateral. No oral
representations or statements shall be binding on Bank, and no agent of Bank
has the authority to vary the terms of this Agreement except in writing on
the face hereof or on a separate page attached hereto.
SECTION 8.8. All rights, powers and privileges granted hereunder shall
be cumulative, and shall not be exclusive of any other rights, powers and
privileges granted by the Note or any other document or agreement, or
available at law or in equity.
SECTION 8.9. Upon the occurrence and during the continuation of an Event
of Default, Borrower recognizes Bank's right, without notice or demand, to
apply any indebtedness due or to become due to Borrower from Bank in
satisfaction of any of the indebtedness, liabilities or obligations or
Borrower under this Agreement, under the Note, or under any other note,
instrument, agreement, document or writing of Borrower held by or executed in
favor of Bank, including, without limitation, the right to set off against
any deposits or cash collateral of Borrower held by Bank. In addition to the
right of setoff, as additional collateral for the Revolving Loan, Borrower
hereby grants to Bank a continuing lien on and security interest in all
deposit accounts of Borrower now or hereafter held by Bank, including all
certificates of deposit now or hereafter issued to Borrower by Bank.
Page 4 of 5 ______ initials
<PAGE>
SECTION 8.10. Borrower hereby agrees to indemnify Bank and its
officers, directors, agents and attorneys against, and to hold Bank and all
such other persons harmless from, any claims, demands, liabilities, costs,
damages, and judgments (including, without limitation, liability under
CERCLA, the Federal Resource Conservation and Recovery Act, or other
environmental law or regulation, and costs of defense and attorneys' fees)
resulting from any Representation or Warranty made by Borrower or on
Borrower's behalf pursuant to Article III of this Agreement having been false
when made, or resulting from Borrower's breach of any of the covenants set
forth in Articles IV or V of this Agreement. This Agreement of indemnity
shall be a continuing agreement and shall survive payment of the Revolving
Loan and the Note and termination of this Agreement.
WITNESS the hands and seals of the parties hereto on or as of the date
first above written.
<TABLE>
<S> <C>
BANK:
SouthTrust Bank of North Carolina (Corporate and Partnership Borrowers and
other Borrowers executing this note by a
By: /s/ JEFFREY C. COVINGTON representative sign below):
-----------------------------
Jeffrey C. Covington Swisher International, Inc.
Title: Vice President -----------------------------------------
----------------------
By: /s/ PATRICK L. SWISHER AS ITS CEO
--------------------------------------
Patrick L. Swisher
-----------------------------------------
(type or print name of representative
of Borrower)
(CORPORATE SEAL)
(Individual Borrowers executing this note
individually and not in a representative
capacity sign below):
X [SEAL]
--------------------------------
---------------------------------Individually and not in
(type or print name of Borrower) a representative
capacity
X [SEAL]
--------------------------------
---------------------------------Individually and not in
(type or print name of Borrower) a representative
capacity
</TABLE>
<PAGE>
ADDENDUM TO REVOLVING LOAN AGREEMENT BY AND BETWEEN SWISHER INTERNATIONAL,
INC AS "BORROWER" AND SOUTHTRUST BANK OF NORTH CAROLINA AS THE "BANK" DATED
SEPTEMBER 19,1996
Article VI - Events of Default and Remedies:
Notwithstanding the foregoing the Bank will agree Borrower has a five day
right to cure period for monetary default (payment default) and a ten day
right to cure period for any non-monetary default. These cure periods begin
on day of notice.
Swisher International, Inc.
By: /s/ PATRICK L. SWISHER
--------------------------------------
Patrick L. Swisher, CEO
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Swisher Hygiene Franchise Corporation
Swisher International of Charlotte, Inc.
Swisher International of South Carolina, Inc.
Swisher Maids, Inc.
Swisher Hygienic Services, Inc.
Jacksonville Hygiene, Inc.
Surface Doctor, Inc.
F.M.S., Inc.
