<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 2, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9632
AMRE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2041737
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8585 N. STEMMONS FREEWAY, SOUTH TOWER 75247
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 658-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of August 3, 1995, there were 12,849,822 shares of the registrant's
stock, $.01 par value, outstanding.
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<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheet - July 2, 1995 and December 31, 1994 . . . . . . . . . . . . . 1
Consolidated Statement of Operations - Three-month periods ended July 2, 1995
and June 26, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Operations - Six-month periods ended July 2, 1995
and June 26, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows - Six-month periods ended July 2, 1995
and June 26, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Stockholders' Equity - Six-month period
ended July 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
- -------------
Note: Items 2 through 5 of Part II are omitted because they are not applicable.
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
AMRE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31,
1995 1994
-------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 3,289 $ 7,927
Marketable securities, including restricted securities of
$1,250 and $1,250 . . . . . . . . . . . . . . . . . . . . . . . 11,566 19,370
Accounts receivable:
Trade, net of allowance for doubtful accounts of $983 and $1,098 10,377 6,792
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 810 612
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 3,280 575
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,269 5,538
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,767 1,767
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 5,532 4,698
-------------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 41,890 47,279
Property, plant and equipment, net . . . . . . . . . . . . . . . . . 5,960 6,251
Goodwill, less accumulated amortization of $1,733 and $1,597 . . . . 9,172 9,308
Notes receivable - related parties . . . . . . . . . . . . . . . . . 4,217 4,217
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,411 1,772
-------------- ------------
$ 62,650 $ 68,827
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,306 $ 18,645
Wages, commissions and bonuses . . . . . . . . . . . . . . . . . . 5,832 4,098
Accrued workers' compensation . . . . . . . . . . . . . . . . . . . 1,678 2,021
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 12,154 10,653
-------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . 35,970 35,417
-------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.10 par value, 1,000,000 shares
authorized; none outstanding . . . . . . . . . . . . . . . . . . -- --
Common stock - $.01 par value, 20,000,000 shares
authorized, 14,072,020 shares issued; 12,849,822
and 12,849,822 shares outstanding . . . . . . . . . . . . . . . . 141 141
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 22,400 22,400
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 14,440 21,170
-------------- ------------
36,981 43,711
Less: Treasury stock, at cost; 1,222,198 and 1,222,198 shares . . (10,301) (10,301)
-------------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 26,680 33,410
-------------- ------------
$ 62,650 $ 68,827
============== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE> 4
AMRE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENDED
--------------------------------------
JULY 2, 1995 JUNE 26, 1994
-------------- ---------------
<S> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,737 $ 77,589
Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 23,711 24,096
-------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,026 53,493
-------------- ---------------
Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 5,126 4,833
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 19,484 18,725
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 13,433 13,609
Sears license fees . . . . . . . . . . . . . . . . . . . . . . . . 8,851 9,256
General and administrative expenses . . . . . . . . . . . . . . . . 5,840 5,970
-------------- ---------------
52,734 52,393
-------------- ---------------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . (2,708) 1,100
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 268 309
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 85
-------------- ---------------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . (2,283) 1,494
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (220) 582
-------------- ---------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,063) $ 912
============== ===============
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . $ (.16) $ .07
============== ===============
Cash dividends declared per share . . . . . . . . . . . . . . . . . $ .03 $ .03
============== ===============
Weighted average shares outstanding . . . . . . . . . . . . . . . . 12,850 12,888
============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
<PAGE> 5
AMRE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
--------------------------------------
JULY 2, 1995 JUNE 26, 1994
-------------- ---------------
<S> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 134,622 $ 129,714
Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 44,236 40,980
-------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,386 88,734
-------------- ---------------
Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 9,921 9,311
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 37,444 34,272
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 25,479 23,502
Sears license fees . . . . . . . . . . . . . . . . . . . . . . . . 16,124 15,288
General and administrative expenses . . . . . . . . . . . . . . . . 10,821 10,493
-------------- ---------------
99,789 92,866
-------------- ---------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . (9,403) (4,132)
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 555 581
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 154
-------------- ---------------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . (8,616) (3,397)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,658) (1,325)
-------------- ---------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,958) $ (2,072)
============== ===============
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . $ (.46) $ (.16)
============== ===============
Cash dividends declared per share . . . . . . . . . . . . . . . . . $ .06 $ .06
============== ===============
Weighted average shares outstanding . . . . . . . . . . . . . . . . 12,850 12,886
============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
3
<PAGE> 6
AMRE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
------------------------------------
JULY 2, 1995 JUNE 26, 1994
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,958) $ (2,072)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operations:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (2,658) (1,325)
Depreciation and amortization . . . . . . . . . . . . . . . . . 1,480 1,632
Provision for doubtful accounts . . . . . . . . . . . . . . . . 186 625
Other non-cash items . . . . . . . . . . . . . . . . . . . . . 96 170
Cash receipts of (payments for) income taxes . . . . . . . . . (85) (21)
Changes in assets and liabilities:
Accounts receivable and other . . . . . . . . . . . . . . . . (3,969) (3,047)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 269 (116)
Prepaid expenses and other assets . . . . . . . . . . . . . . (473) (1,419)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (2,339) 2,371
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 2,929 2,735
------------ ------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . (4,564) 1,605
------------ ------------
Net cash used in operations . . . . . . . . . . . . . . . . . . . (10,522) (467)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities . . . . . . . . . . . . . . . . . 23,323 7,637
Purchase of marketable securities . . . . . . . . . . . . . . . (15,615) (3,209)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (1,052) (532)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 32
------------ ------------
Net cash provided by investing activities . . . . . . . . . . . . 6,656 4,108
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (772) (770)
------------ ------------
Net cash used in financing activities . . . . . . . . . . . . . . (772) (770)
------------ ------------
Net change in cash and cash equivalents . . . . . . . . . . . . . (4,638) (2,871)
Cash and cash equivalents at beginning of period . . . . . . . . 7,927 1,333
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 3,289 $ 4,204
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
4
<PAGE> 7
AMRE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
-------------------- PAID-IN RETAINED ------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 . . . . . . . . . 14,072 $ 141 $ 22,400 $ 21,170 (1,222) $(10,301)
Dividends . . . . . . . . . . . . . . . . . -- -- -- (772) -- --
Net loss . . . . . . . . . . . . . . . . . -- -- -- (5,958) -- --
-------- -------- --------- --------- -------- --------
Balance, July 2, 1995 . . . . . . . . . . . . 14,072 $ 141 $ 22,400 $ 14,440 (1,222) $(10,301)
======== ======== ========= ========= ======== ========
</TABLE>
5
<PAGE> 8
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1995
NOTE 1 - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation - The accompanying interim consolidated financial
statements of AMRE, Inc. (the "Company") as of July 2, 1995 and for the
three-month and six-month periods ended July 2, 1995 and June 26, 1994 are
unaudited; however, in the opinion of management, these interim statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows. These financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's December 31, 1994 Annual Report on Form 10-K.
Reclassifications - Reclassifications have been made to the prior period
statements to conform to the current presentation.
Fiscal period - The Company's quarterly periods end on the Sunday nearest
to the last day in the calendar quarter except at year end which is December
31.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company is a party to certain legal proceedings arising in the ordinary
course of business, none of which are believed to be material to the financial
position of the Company.
The Company has a credit agreement with a bank under which it has a standby
letter of credit in the amount of approximately $1.2 million issued in
connection with its' workers' compensation and general liability insurance
plans. The Company has set aside, in a restricted collateral account,
marketable securities equivalent to the amount of the standby letter of credit.
The Company has agreements with financial institutions which make financing
available to the Company's customers. The customer executes a revolving credit
agreement with the lender and the lender pays the Company on completion of the
installation. The Company assumes some recourse liability or credit risk in
certain of these transactions, in addition to normal representations and
warranties regarding material and workmanship, if customer defaults exceed
specified levels. The Company has provided a reserve for estimated losses on
these agreements.
NOTE 3 - DIVIDENDS DECLARED
On May 17, 1995, the Company declared a cash dividend of $.03 per share,
payable on July 21, 1995, to stockholders of record on June 23, 1995.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is engaged, under a license from Sears Roebuck and Co.
("Sears"), in direct marketing, sales and installation of siding and related
exterior home improvement products, kitchen cabinet refacing and custom
countertops, replacement windows, and in certain of its territories, exterior
coating. The business of the Company is characterized by the need to
continuously generate prospective customer leads, and in this respect,
marketing and selling expenses constitute a substantial portion of the overall
expense of the Company.
To assist in understanding the Company's operating results, the following
table indicates the percentage relationship of various income and expense items
included in the Statement of Operations for the three-month and six-month
periods ended July 2, 1995 and June 26, 1994.
<TABLE>
<CAPTION>
PERCENTAGE OF CONTRACT REVENUES
THREE-MONTH PERIODS ENDED SIX-MONTH PERIODS ENDED
------------------------- -----------------------
JULY 2, JUNE 26, JULY 2, JUNE 26,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Contract revenues . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Contract costs . . . . . . . . . . . . 32.2 31.1 32.9 31.6
------- -------- -------- --------
Gross profit . . . . . . . . . . . . . 67.8 68.9 67.1 68.4
------- -------- -------- --------
Branch operating expenses . . . . . . . 7.0 6.2 7.3 7.2
Marketing expenses . . . . . . . . . . 26.4 24.1 27.8 26.4
Selling expenses . . . . . . . . . . . 18.2 17.6 18.9 18.1
Sears license fees . . . . . . . . . . 12.0 11.9 12.0 11.8
General and administrative expenses . . 7.9 7.7 8.0 8.1
------- -------- -------- --------
Operating income (loss) . . . . . . . . (3.7) 1.4 (6.9) (3.2)
Other income and expense, net . . . . . .6 .5 .5 .6
------- -------- -------- --------
Income taxes . . . . . . . . . . . . . (.3) .7 (2.0) (1.0)
------- -------- -------- --------
Net income (loss) . . . . . . . . . . . (2.8)% 1.2% (4.4)% (1.6)%
======= ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 2, 1995 COMPARED WITH THE SIX MONTHS ENDED JUNE 26, 1994
While contract revenues increased approximately 4% as compared with the
same period last year, the current period operating loss was $9,403,000 as
compared to a loss of $4,132,000 in the prior year. The Company generated
approximately 6% more appointments than in the prior year period, however, the
dollar amount of sales orders declined 5% due to lower sales closing rates and
an imbalance between leads generated and sales staffing levels in several key
markets. The production backlog at July 2, 1995 was $29,050,000. The
Company's installation rate (the rate at which sales orders are converted to
installed revenue) improved over the prior year period reflecting milder
weather conditions as well as reduced installation cycle times and improved
installation staffing. Thus contract revenues increased despite the decline in
sales orders.
7
<PAGE> 10
Contract revenues from the Company's siding and related exterior home
improvement product line decreased approximately 2% to $69,571,000 as compared
to $70,989,000 in the prior year period. The number of installations for these
products declined 5%, and average selling price, which is affected not only by
price levels, but by the mix and size of jobs installed, increased 3%.
Contract revenues from kitchen cabinet refacing were relatively unchanged
at $33,767,000 as compared to $33,710,000 in the prior year. Average selling
price, which is affected not only by price levels, but by the mix and size of
jobs installed, increased 12% over the prior year period, however, the number
of units installed declined.
Contract revenues from replacement windows increased to $26,745,000 from
$17,823,000 in the prior period. The number of installations increased
approximately 31% reflecting the continued growth of this product line as well
as a higher installation rate.
Gross profit margin as a percentage of contract revenues decreased from
68.4% to 67.1%. The decline in gross margin was principally due to increased
installation cost in the windows' product line and higher service costs in all
product lines. While gross profit margin percent declined from the prior year
period, margin increased from 66.3% in the first quarter of the current year to
67.8% in the second quarter reflecting lower service costs and other measures
implemented by management. The Company believes that margins will improve
somewhat for the remainder of the 1995 period.
Branch operating expenses, which are primarily fixed in nature, increased
slightly from 7.2% of contract revenues in the prior period to 7.3% in the
current period. Branch operating expenses in dollar terms increased
approximately $610,000 largely due to higher staffing as compared to the prior
year.
Marketing expense increased from $34,272,000 or 26.4% of contract revenues
in the prior year period, to $37,444,000, or 27.8% of contract revenues in the
current period. While the Company generated more leads than in the prior year,
the increase in marketing expense as a percentage of contract revenues is due
to lower sales closing rates and a second quarter increase in the cost per
appointment resulting from a decline in response rates.
Selling expenses increased to 18.9% of contract revenues as compared to
18.1% in the prior year period. Sales compensation declined from 11.9% to
11.1%. Other selling expenses, primarily composed of insurance costs, sales
manager salaries and training, recruiting and travel, increased to 7.8% of
contract revenues from 6.3% in the prior period. The increase is principally
due to additional management staffing.
General and administrative expenses decreased slightly from 8.1% to 8.0% of
contract revenues. General and administrative expenses increased in dollar
terms principally due to a one time charge in the first quarter of 1995
resulting from a separation agreement between the Company and its former
President and Chief Executive Officer.
The Company's ability to tax benefit the pretax loss at the statutory rate
is uncertain, therefore, the tax benefit has been provided at a lower rate.
8
<PAGE> 11
THREE MONTHS ENDED JULY 2, 1995 AS COMPARED WITH THE THREE MONTHS ENDED JUNE
26, 1994
Contract revenues declined approximately 5% to $73,737,000 from $77,589,000
in the prior period. The operating loss for the period was $2,708,000 as
compared with $1,100,000 of operating income last year. Sales orders declined
15% from the prior year period due to lower sales closing rates and a 2%
reduction in appointments resulting from lower response rates.
Contract revenues from the Company's siding and related exterior home
improvement product line decreased approximately 11% from $43,058,000 in the
1994 period to $38,135,000 in 1995. The number of installations for these
products declined 14%, and average selling price, which is affected not only by
price levels, but by the mix and size of jobs installed, increased 3%.
Contract revenues from kitchen cabinet refacing declined approximately 2%
from $18,443,000 in the 1994 period to $18,145,000 in 1995. Average selling
price, which is affected not only by price levels, but by the mix and size of
jobs installed, increased 18% over the prior year period.
Contract revenues from replacement windows increased 24% to $14,835,000
from $11,985,000 in the prior period. The number of installations increased
approximately 12% reflecting the continued growth of this product line.
Gross profit margin as a percentage of contract revenues decreased from
68.9% to 67.8%. The decline in gross margin was principally due to increased
installation cost and higher service costs. While gross profit margin percent
declined from the prior year period, margin increased from 66.3% in the first
quarter of the current year to 67.8% in the second quarter reflecting lower
service costs and other measures implemented by management.
Branch operating expenses, which are primarily fixed in nature, increased
to 7.0% of contract revenues from 6.2% in the prior period. Branch operating
expenses in dollar terms increased approximately $293,000 largely due to higher
staffing as compared to the prior year.
Marketing expense increased from $18,725,000, or 24.1% of contract revenues
in the prior year period, to $19,484,000, or 26.4% of contract revenues in the
current period. The increase in marketing expense as a percentage of contract
revenues was due to lower sales closing rates and an increase in the cost per
appointment resulting from a decline in response rates.
Selling expenses increased to 18.2% of contract revenues as compared to
17.6% in the prior year period. Sales compensation declined from 12.0% to
11.1%. Other selling expenses, primarily composed of insurance costs, sales
manager salaries and training, recruiting and travel, increased to 7.1% of
contract revenues from 5.6% in the prior period. The increase is principally
due to additional management staffing.
General and administrative expenses, which are primarily fixed in nature,
increased from 7.7% to 7.9% of contract revenues.
The Company's tax benefit for the second quarter reflects a revised annual
effective tax rate as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its liquidity needs with internally generated funds.
Net cash used in operations for the six months ended July 2, 1995 was
$10,522,000. Cash requirements during the period were principally due to the
operating loss and an increase in accounts receivable due to higher revenues in
the second quarter period. Cash and marketable securities totaled
approximately $14,855,000 at July 2, 1995.
9
<PAGE> 12
The Company's capital expenditures totaled approximately $1,052,000 for the
six month period ended July 2, 1995. The increase in expenditures as compared
to the prior year period is principally due to the purchase of manufacturing
equipment associated with the Company's newly designed cabinet product line.
The Company estimates capital expenditures will aggregate $3,000,000 for the
calendar 1995 period, and believes it can obtain financing for the additional
capital expenditures.
The Company has a standby letter of credit with a bank in the amount of
approximately $1.2 million issued in connection with its' workers' compensation
and general liability insurance plans. The Company has set aside in a
restricted collateral account, marketable securities equivalent to the amount
of the letter of credit.
10
<PAGE> 13
SEASONALITY
The Company has found that customers are typically reluctant to commence
home improvement projects during the December holiday season. In addition,
installation of siding and related exterior home improvement products may be
delayed due to poor weather conditions prevalent during the winter months.
Therefore, contract revenues and net income have historically been lowest
during the first quarter.
The following table sets forth, on an unaudited basis, the Company's
quarterly financial information:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MARCH 27, JUNE 26, SEPTEMBER 25, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Contract revenues . . . . . . . . . . . . . . $ 52,125 $ 77,589 $ 80,744 $ 75,472
Gross profit . . . . . . . . . . . . . . . . 35,241 53,493 54,441 49,655
Operating income (loss) . . . . . . . . . . . (5,232) 1,100 2,669 2,500
Net income (loss) . . . . . . . . . . . . . . $ (2,984) $ 912 $ 1,857 $ 1,674
Net income (loss) per share . . . . . . . . . $ (.23) $ .07 $ .14 $ .13
</TABLE>
<TABLE>
<CAPTION>
APRIL 2, JULY 2,
-------- ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Contract revenues . . . . . . . . . . . . . . $ 60,885 $ 73,737
Gross profit . . . . . . . . . . . . . . . . 40,360 50,026
Operating loss . . . . . . . . . . . . . . . (6,695) (2,708)
Net loss . . . . . . . . . . . . . . . . . . $ (3,895) $ (2,063)
Net loss per share . . . . . . . . . . . . . $ (.29) $ (.16)
</TABLE>
___________________
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 2 of Notes to Consolidated Financial Statements
herein for a discussion of legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
NUMBER AND DESCRIPTION OF EXHIBIT
10.1 Amendment No. 1 to the AMRE, Inc. Savings Investment Trust
10.2 Amended and Restated Merchant Agreement between Household Bank
(Illinois), N.A. and the Company dated April 24, 1995.
11. Calculations of weighted average common shares outstanding for the
quarterly period ended July 2, 1995.
27. Financial Data Schedule
__________________________
(b) Reports on Form 8-K:
The following current reports on Form 8-K were filed by the Company during
the quarter ended July 2, 1995:
(1) Report dated May 2, 1995, reporting under Item 5, Other Events,
and Item 7, Exhibits.
2) Report dated June 29, 1995, reporting under Item 5, Other Events,
and Item 7, Exhibits.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMRE, Inc.
DATE: August 11, 1995 /s/ John S. Vanecko
----------------------------------
John S. Vanecko
Vice President and Chief Financial Officer
(Principal financial officer and
duly authorized officer of registrant)
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.1 Amendment No. 1 to the AMRE, Inc. Savings Investment Trust
10.2 Amended and Restated Merchant Agreement between Household Bank
(Illinois), N.A. and the Company dated April 24, 1995.
11. Calculations of weighted average common shares outstanding for the
quarterly period ended July 2, 1995.
27. Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 1
TO
THE AMRE, INC. SAVINGS INVESTMENT TRUST
WHEREAS, AMRE, Inc., a Delaware corporation (the "Corporation"), has
heretofore adopted The AMRE, Inc. Savings Investment Trust (the "Trust"); and
WHEREAS, pursuant to those provisions of the Plan permitting the
Company to amend the Trust from time to time, the Corporation desires to amend
the Trust in certain respects as hereinafter provided;
NOW, THEREFORE, effective as of December 28, 1994, AMRE, Inc. does
hereby amend the Plan in the following particulars, and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION (formerly AMERITRUST TEXAS, N.A.), as Trustee under the
Trust, hereby consents to such amendments:
1. Section 4.01 of the Trust is hereby revised by amending paragraph (o)
thereof to be and read as follows:
"4.01 * * *
(o) To engage in any transactions with (1) a common or collective
trust fund or pooled investment fund which is authorized and
permitted to receive investments from the Trust and which is
maintained by a "party-in-interest", within the meaning of
Section 3(14) of ERISA, which is a bank or trust company
supervised by a State or Federal agency including (but not
limited to), where otherwise permissible under the applicable
laws and regulations, any such fund as maintained by the
Trustee, the provisions of which as they may now or hereafter
exist being hereby incorporated by reference, or (2) a pooled
investment fund of an insurance company qualified to do
business in a State, provided such fund is authorized and
permitted to receive investments from the Trust; if (i) the
transaction is a sale or purchase of an interest in such fund,
and (ii) the bank, trust company or insurance company receives
not more than reasonable compensation
<PAGE> 2
(This provision constitutes the express permission required by
Section 408(b)(8) of ERISA);
* * * * *"
2. Article IV of the Trust is hereby revised by adding at the end thereof
the following new provisions:
"ARTICLE IV
TRUSTEE'S POWERS
* * * * *
4.02 Notwithstanding anything to the contrary herein contained the Board of
Directors of the Company may direct, by written notice, the
segregation of any portion or portions of the Trust Fund in a separate
investment account or investment accounts and in such event, may
appoint an Investment Manager to direct the investment and
reinvestment of any such investment account pursuant to Article III
hereof.
4.03 Any such Investment Manager shall (i) be registered as an investment
adviser under the Investment Advisers Act of 1940; (ii) be a bank, as
defined in that Act; or (iii) be an insurance company qualified to
perform investment management services under the laws of more than
one state. If investment of the Trust Fund is to be directed in whole
or in part by an Investment Manager, the Company shall deliver to the
Trustee a copy of the instruments appointing the Investment Manager
and evidencing the Investment Manager's acceptance of such
appointment, an acknowledgment by the Investment Manager that it is a
fiduciary of the Plan, and, if applicable, a certificate evidencing
the Investment Manager's current registration under said Act. The
Trustee shall be fully protected in relying upon such instruments and
certificates until otherwise notified in writing by the Company.
4.04 The Trustee shall follow the directions of the Investment Manager
regarding the investment and reinvestment of the Trust Fund, or such
portion thereof as shall be under management by the Investment
Manager, and shall exercise the powers set forth in Section 4.01(a),
(b), (c), (d), (e), (f) (g) and (h) as directed by the Investment
Manager. The Trustee shall be under no duty or obligation to review
any investment to be acquired, held or disposed of pursuant to such
directions nor to make any recommendations with respect to the
disposition or continued retention of any such investment or the
exercise or non-exercise of the powers in 4.01 of this Article IV. The
Trustee shall have no liability or
-2-
<PAGE> 3
responsibility for acting or not acting pursuant to the direction of,
or failing to act in the absence of any direction from, the Investment
Manager, unless the Trustee knows that by such action or failure to
act the Trustee would be committing or participating in a breach of
fiduciary duty by the Investment Manager.
4.05 The Investment Manager at any time and from time to time may issue
orders for the purchase or sale of securities directly to a broker;
and in order to facilitate such transaction, the Trustee upon request
shall execute and deliver appropriate trading authorizations. Written
notification of the issuance of each such order shall be given
promptly to the Trustee by the Investment Manager, and the execution
of each such order shall be confirmed by written advice to the Trustee
by the broker. Such notification shall be authority for the Trustee to
pay for securities purchased against receipt thereof and to deliver
securities sold against payment therefor, as the case may be,
4.06 In the event that an Investment Manager should resign or be removed by
the Company, the Trustee shall manage the investment of the Trust Fund
pursuant to Article III and IV unless and until the Trustee shall be
notified of the appointment of another Investment Manager with respect
thereto as provided in this Article IV.
4.07 The accounts, books and records of the Trustee shall reflect the
segregation, pursuant to the provisions of Article IV hereof, of any
portion or portions of the Trust Fund in a separate investment account
or accounts."
IN WITNESS WHEREOF, the Company has caused this AMENDMENT NO. 1 TO THE
AMRE, INC. SAVINGS INVESTMENT TRUST to be executed in its name and on its behalf
this 30th day of December, 1994, effective as of December 28, 1994.
AMRE, INC,
By: /s/ V.J. SARDO
------------------------------
Title: President & CEO
---------------------------
ATTEST:
/s/ C. CURTIS EVERETT
- ------------------------------
-3-
<PAGE> 4
Approved by Texas Commerce Bank National Association, as Trustee:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
BY: /s/ FRANK B. DUNLAP III
------------------------------
Title: Senior Vice President
---------------------------
ATTEST:
/s/ JUAN R. GARCIA
- ------------------------------
-4-
<PAGE> 5
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on the 30th day of
December, 1994, by V. James Sardo, President & CEO of AMRE, Inc., a Delaware
corporation, on behalf of said corporation.
/s/ CAROLYN L. LOOS
------------------------------
Notary Public in and for
the State of Texas
My Commission Expires: Printed Name of Notary:
10-26-96 Carolyn L. Loos
- ------------------------- ------------------------------
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on the 30th day of
December, 1994, by Frank B. Dunlap III, Senior Vice President of Texas Commerce
Bank National Association, on behalf of said association.
/s/ BETTE SUE FARMER
------------------------------
Notary Public in and for
the State of Texas
My Commission Expires: Printed Name of Notary:
11-17-98 Bette Sue Farmer
- ------------------------- ------------------------------
BETTE SUE FARMER
[SEAL] Notary Public, State of Texas
My Commission Expires 11/17/98
-5-
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED MERCHANT AGREEMENT
BANK: Household Bank (Illinois), N.A. MERCHANT: AMRE, Inc.
700 Wood Dale Road 8585 N. Stemmons Freeway
Wood Dale, Illinois 60191 South Tower, Suite 102
Dallas, TX 75247-3805
This Amended and Restated Merchant Agreement ("Restated Agreement") is made and
entered into this 24th day of April, 1995 ("Effective Date"), by and between
Household Bank (Illinois), N.A. ("Household") and AMRE, Inc., and its operating
subsidiary American Remodeling, Inc., (collectively referred to herein as
("AMRE") to revise and restate that certain Merchant Agreement ("Agreement")
dated July 27, 1993 and the Addendum to Merchant Agreement ("Addendum") dated
January 18, 1994 by and between Household and AMRE, Inc.
WHEREAS, the parties hereto have determined that it is to their mutual benefit
to expand the services and modify the obligations contemplated by the Agreement,
and
WHEREAS, the parties have mutually agreed to eliminate the need for a Non
Conforming Portfolio contemplated by the Addendum.
WHEREAS, the parties have determined that in order to facilitate the change in
the relationship and to set forth the new obligations thereof, it is appropriate
and necessary to amend and restate the Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual promises,
covenants, and agreements set forth below and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Household and AMRE agree as follows:
INTRODUCTION
A. Incorporation of Agreement. This Restated Agreement amends and
restates the relationship of the parties with respect to the matters
contained in the Agreement and to all Accounts opened or Sales Slips
presented to Household on and after the Effective Date hereof. Except
as otherwise provided herein, each and every duty, liability and
indemnity of the parties set forth in the Agreement are incorporated
herein and shall remain in full force and effect related to the
transactions contemplated by that Agreement. To the extent any
provision of this Restated Agreement is inconsistent with the
Agreement, this Restated Agreement shall govern.
B. Termination of Addendum. The Addendum to Merchant Agreement (Non
Conforming Portfolio) dated January 18, 1994 is hereby terminated as
of the Effective Date hereof. Any and all obligations of Household to
approve or fund Non Conforming Accounts or to provide AMRE with Charge
Off Reports as contemplated therein relating to Non Conforming
Accounts are hereby discharged. Any and all obligations of AMRE to
purchase Excess Charge-Offs as contemplated therein relating to Non
Conforming Accounts are hereby discharged. The termination of the
Addendum shall not effect any other rights and obligations of the
parties with respect to Non Conforming Accounts set forth in the
Agreement and this Restated Agreement, including but not limited to,
all covenants, representations and warranties of AMRE contained
therein.
C. Signing Bonus. Subject to the terms and conditions contained herein,
and in further consideration of AMRE's execution of this Restated
Agreement, Household agrees to pay AMRE a Signing Bonus in the amount
of $1.4 million, payable on or before August 1, 1995.
Section 1. Definitions. In addition to the words and phrases defined above and
elsewhere in this Restated Agreement, the following words and phrases shall
have the following meanings:
a. "Account" means an account resulting from the issuance of a Card. An
Account may have more than one Card issued for it. Each Account shall
be owned by, and deemed to be the property of, Household.
b. "Affiliate" means any entity that is owned by, owns or is under common
control with Household or its ultimate parent.
c. "Annual Sales Slip Volume" means the aggregate dollar amount of Card
Sales under the Program which are funded by Household in a Program
Year on Accounts excluding cancellations and returns and Card Sales
generated on Accounts in the State of Alabama but including Accounts
previously funded pursuant to the terms of the Agreement.
d. "Applicable Law" means collectively or individually any applicable
law, rule, regulation or judicial, governmental or administrative
order, decree, ruling, opinion or interpretation.
<PAGE> 2
e. "Authorization" means permission from Household to make a Card Sale.
f. "Authorization Center" means the facility designated by Household as
the facility at which Card Sales are authorized.
g. "Billing Cycle" means the period of calendar days between Billing
Dates, usually between twenty eight (28) and thirty one (31) days. The
"First Billing Cycle" will start on the Billing Date which is
immediately prior to the Effective Date of this Restated Agreement
(herein the "First Billing Date").
h. "Business Day" means any day except Saturday or Sunday or a day on
which banks are closed in the State of Illinois.
i. "Card" means the private label credit card bearing AMRE's name and/or
logo issued by Household for the Program.
j. "Cardholder" means (i) the person in whose name an Account is opened,
and (ii) any other authorized users of the Account and Card.
k. "Card Sale" means any sale of Goods that AMRE makes to a Cardholder
pursuant to this Restated Agreement that is charged to an Account.
l. "Chargeback" means the return to AMRE and reimbursement to Household
of a Sales Slip for which AMRE was previously paid.
m. "Credit Slip" means evidence of a credit in a paper form for Goods
purchased from AMRE.
n. "Goods" means the products described in Section 2 below, certain
warranties expressly authorized by Household, and related services
sold by AMRE in the ordinary course of AMRE's business to consumers
for individual, family, personal or household use.
o. "Operating Instructions" means the Regulatory Guidelines (attached
hereto as Exhibit A) and any operating instructions and/or procedures
which may be designated by Household from time to time concerning the
Program.
p. "Program" means the private label revolving credit card program
associated with AMRE whereby Accounts will be established and
maintained by Household, Cards issued by Household to qualified
consumers purchasing AMRE's Goods, and Card Sales funded all pursuant
to the terms of this Restated Agreement.
q. "Program Year" means each consecutive twelve (12) monthly Billing
Cycles commencing with the First Billing Cycle, and thereafter each
subsequent consecutive twelve (12) monthly Billing Cycles.
r. "Sales Slip" means evidence of a Card Sale in paper form for Goods
purchased from AMRE.
s. "Terminal" means an electronic terminal or computer capable of
communicating by means of an on-line or dial-up electronic link with
an Authorization Center.
Section 2. Scope and Purpose. AMRE engages in the sale of siding, cabinet
refacing, windows, exterior coating and other home improvement products and
related services, and AMRE desires to make financing available to consumers
purchasing Goods from AMRE. Household, a credit card bank in the business of
providing revolving credit financing pursuant to a credit card, has agreed to
provide such financing under the Program to individual qualified consumers
purchasing AMRE's Goods pursuant to the terms and conditions set forth in this
Restated Agreement.
a. Forms and Cards. The standard application/agreements, Sales Slips,
Credit Slips, completion certificates, rescission notices and other
forms to be used from time to time by AMRE in the Program, shall be
provided or approved by Household and may be changed from time to time
by Household. The design and content of Cards and billing statements
and the term and conditions of Accounts and application/agreements
shall be determined by Household and are subject to change by
Household from time to time.
b. Credit Review; Ownership of Accounts. All completed applications for
Accounts submitted by AMRE to Household whether mailed, telephoned or
otherwise electronically transmitted will be processed and approved or
declined in accordance with Household's credit criteria and procedure
from time to time established by Household, with Household having and
retaining all rights to reject or accept such applications. Within
sixty (60) days of the Effective Date, Household agrees to maintain an
application approval rate ("Approval Rate") of seventy-seven (77%)
percent based upon total applications submitted by AMRE to Household
during a six month period. Household's obligation to maintain the 77%
Approval Rate is contingent upon AMRE submitting applications to
Household which could be approved, in accordance with Household's
credit criteria and procedures (herein "Satisfactory Apps") such that
no more than 20% of the total applications submitted by AMRE could be
declined, in accordance with Household's credit criteria and
procedures, for containing one or more of the following adverse credit
criteria (a) 3 or more derogatory trade lines or derogatory public
records over $250.00 (Derogatory trade lines shall include, but not be
limited to, chargeoffs, repossessions, foreclosure, held with
collection agency, judgments, historic 90 day plus delinquency or
other adverse action.); (b) bankruptcy; (c) less than 18 months of
credit history; (d) currently 60 days past due; or (e) no credit file
or zero (0) satisfactory trade lines on the credit bureau file.
Household's Approval Rate shall be reviewed on a quarterly basis
("Quarterly Review") beginning January 1, 1996 ("Initial Review")
throughout the term of this Restated Agreement including any Renewal
Term. Provided AMRE has submitted a sufficient percentage of
Satisfactory Apps, Household's failure to maintain a 77% Approval Rate
after the Initial Review or any subsequent Quarterly Review shall be
deemed a material breach of this Restated Agreement and AMRE shall
have the right, in its sole discretion, to terminate this Restated
Agreement pursuant to Section 15. Household will only accept
applications for revolving credit pursuant to the credit card it
issues for individual, personal, family or household use. Household or
its Affiliates shall own the Accounts and shall bear the credit risk
for such Accounts, except as otherwise provided in Sections
2
<PAGE> 3
6 and 15.e. of this Restated Agreement. AMRE acknowledges and agrees
that it shall have no interest in the Accounts except as otherwise
provided in Sections 6 and 15.e. herein. Household shall not be
obligated to take any action under an Account, including making future
advances or credit available to Cardholders. Household shall not be
obligated to accept applications for a Card or to approve any Card
Sale for consumers that do not have their principal residence and
billing address in the Continental United States.
c. Card Promotions, Services and Enhancements. AMRE and Household may
from time to time agree to offer existing or potential Cardholders
special credit promotions, additional services and/or enhancements,
including, without limitation, check access. The terms of such
promotions, services and enhancements shall be mutually agreed upon by
Household and AMRE and are subject to change or discontinuance by
Household. Nothing herein shall limit the number of times the credit
promotions set forth in Section 3.b(i) below may be offered during the
term of this Restated Agreement. In consideration of Household's
providing special credit promotions and to compensate Household for
such promotions, AMRE agrees to pay to Household for the period
designated by Household such rates and amounts as may be designated by
Household. Household may deduct amounts owed to it hereunder from
amounts owed to AMRE under this Restated Agreement.
Section 3. Fees, Discounts, Charges, Rates and Funding.
a. Consumer Rate. The consumer rate to be charged on purchases with the
Card shall be 15.9% during year one and year two of this Restated
Agreement, subject to change in year three in accordance with the
Revised Schedule "A" attached hereto and incorporated herein.
b. Merchant. Merchant agrees to pay Household the following nonrefundable
fees, charges and discounts (some of which are more fully described in
this Restated Agreement):
(i) "Credit Promotion Discount": A percentage of the amount of
each Sales Slip accepted and funded by Household during a
credit promotion as follows:
(a) 90 day no interest/no payment deferred promotion: 1.5%
(b) 6 month no interest/no payment deferred promotion:
5.5%
(ii) "Convenience Usage Charge": 0% of all finance charges that
would otherwise be paid by the Cardholder but for the payment
in full of the outstanding Account balance during any grace
period or promotional period. (Under the Program, Household
may permit Cardholders to pay the entire outstanding balance
due without finance charges during any applicable grace period
or promotional period).
(iii) "Returned Merchandise Charge": 100% of the accrued finance
charges on Accounts with respect to Goods that are returned
and a credit is not applied prior to the end of the billing
cycle period in which the Card Sale was made.
(iv) "Start-up Fee": $0.00.
(v) "Forms Fee": $0.00.
(vi) "Excessive Chargeback Fee": $0.00 per Sales Slip subject to
Chargeback under this Restated Agreement.
(vii) "Application Fee": $0.00 per Cardholder application presented
to Household under the Program.
c. Merchant Participation Fee. The "Merchant Participation Fee" to be
paid by Household to AMRE during the term of this Restated Agreement
shall be 8% of billed finance charges on Card Sales funded by
Household excluding Card Sales on Accounts generated in the State of
Alabama but including Card Sales previously funded by Household
pursuant to the terms of the Agreement. Notwithstanding the foregoing,
if the Annual Sales Slip Volume in the first Program Year exceeds $125
Million, Household shall in lieu of the 8% Merchant Participation Fee,
pay AMRE commencing with the Billing Cycle that immediately follows
the Billing Cycle in which the Annual Sales Slip Volume exceeded such
$125 Million and ending with last Billing Cycle in the first Program
Year, a Merchant Participation Fee of 12% of billed finance charges on
those Card Sales described in the preceding sentence. Notwithstanding
the foregoing, if the Annual Sales Slip Volume in the second Program
Year exceeds $150 Million, Household shall in lieu of the 8% Merchant
Participation Fee, pay AMRE commencing with the Billing Cycle that
immediately follows the Billing Cycle in which the Annual Sales Slip
Volume exceeded such $150 Million and ending with last Billing Cycle
in the second Program Year, a Merchant Participation Fee of 12% of
billed finance charges on those Card Sales described in the first
sentence of this subsection 3.c. Notwithstanding the foregoing, if the
Annual Sales Slip Volume in the third Program Year exceeds $175
Million, Household shall in lieu of the 8% Merchant Participation Fee,
pay AMRE commencing with the Billing Cycle that immediately follows
the Billing Cycle in which the Annual Sales Slip Volume exceeded such
$175 Million and ending with last Billing Cycle in the third Program
Year, a Merchant Participation Fee of 12% of billed finance charges on
those Card Sales described in the first sentence of this subsection
3.c.
In the event this Restated Agreement is terminated for any reason,
whether by Household or AMRE, Household's obligation under
this subsection 3.c. to pay said Merchant Participation Fees shall
automatically terminate upon the effective date of termination of this
Restated Agreement provided, however, AMRE shall be entitled to
receive any earned but unpaid Merchant Participation Fees due AMRE
through the effective date of termination.
3
<PAGE> 4
Except as otherwise stated in subsection 3.a. the rate, fees, discounts and
charges described above in this Section 3 shall not be subject to change by
Household for 3 years from the Effective Date of this Restated Agreement.
d. Acceptance, Offset & Funding. Subject to the terms, conditions,
warranties and representations in this Restated Agreement and provided
that AMRE has satisfied all of the conditions set forth in this
Restated Agreement, including, without limitation, Sections 4, 5, and
7, Household agrees to pay to AMRE the amount of each valid and
authorized Sales Slip presented to Household during the term of this
Restated Agreement, less (i) the amount of the fees, charges, and
discounts described above in this Section, outstanding Account
balances for Sales Slips subject to Chargeback, reimbursements,
refunds, customer credits and any other amounts owed to Household
under this Restated Agreement by AMRE; and (ii) the amount of fees,
charges and other amounts owed to Household Retail Services, Inc, (an
Affiliate of Household), under a separate Merchandise Financing
Agreement between AMRE and Household Retail Services, Inc. Household
may also offset or recoup said amounts from future amounts owed to
AMRE under this Restated Agreement. Any amounts owed by AMRE to
Household which cannot be paid by the aforesaid means shall be due and
payable by AMRE on demand. Any payment made by Household to AMRE shall
not be final but shall be subject to subsequent review and
verification by Household. Household's liability to AMRE with respect
to the funding or processing of any Card Sale, Sales Slip or Credit
Slip shall not exceed the amount on the Sales Slip or Credit Slip in
connection with such transaction. In no event shall Household be
liable for any incidental or consequential damages.
Section 4. AMRE Responsibilities Concerning Consumer Transactions. AMRE
covenants and agrees that AMRE shall:
a. Honor all valid Cards without discrimination, when property presented
by Cardholders for payment of Goods.
b. Not require, through an increase in price or otherwise, any Cardholder
to pay any surcharge at the time of sale or pay any part of any charge
imposed by Household on AMRE.
c. Not establish minimum or maximum charge amounts without Household's
prior written approval.
d. Use only the form of, or modes of transmission for,
application/agreements, completion certificates, rescission notices,
Sales Slips and Credit Slips as are provided by Household, and not use
any application/agreements, Sales Slips, completion certificates,
rescission notices, and Credit Slips provided by Household other than
in connection with a Card transaction.
e. With respect to applications for a Card:
(i) Make sure all information requested on the application is
complete and legible;
(ii) obtain the signature on the application of all persons whose
name will appear on the Account or will be responsible for the
Account;
(iii) give the applicant the initial disclosures at the time of
signing the application/agreement prior to the first
transaction under the Account;
(iv) verify the identification of the individual(s) applying for
the Account, which verification may include, but is not
limited to, obtaining driver's license and social security
numbers;
(v) provide all information required by Household from time to
time for approval of applications by telephone or other
electronic transmission and legibly insert the Account number
and Approval number on the application in the designated area;
and
(vi) send the actual original approved signed application to
Household at Household's address on page one above within ten
(10) Business Days of approval of the application by
Household.
(vii) IDENTIFICATION OF THE APPLICANT IS THE RESPONSIBILITY OF AMRE.
f. With respect to Sales Slips:
(i) Enter legibly on a single Sales Slip prior to obtaining the
Cardholder's signature (1) a description of all Goods
purchased in the same transaction in detail sufficient to
identify the function; (2) the date of the transaction; (3)
the Authorization number, and (4) the entire amount due for
the transaction (including any applicable taxes);
(ii) REQUEST AUTHORIZATION FROM HOUSEHOLD'S AUTHORIZATION CENTER
UNDER ALL CIRCUMSTANCES. (Household may refuse to accept or
fund any Sales Slip that is presented to Household for payment
more than one hundred eighty (180) days after the date of
Authorization of the Card Sale). AMRE agrees not to divide a
single transaction between two or more Sales Slips or between
a Household Sales Slip and a sales slip for another credit
provider who could claim a security interest in the Goods. If
Authorization is granted, legibly enter the Authorization
number in the designated area on the Sales Slip. If
Authorization is denied, not complete the transaction and
follow any instructions from the Authorization Center.
(iii) imprint legibly on the Sales Slip the embossed legends from
the Card and from AMRE's imprinter plate or if the transaction
is to be completed without a Card imprint, then enter legibly
on the Sales Slip sufficient information to identify the
Cardholder and AMRE, including at least, AMRE's name and
address, and Cardholder's name, Account number, expiration
date and any effective date on the Card. AMRE shall be deemed
to warrant the Cardholder's true identity as an authorized
user of the Card;
(iv) check the effective date, if any, and the expiration date on
the Card;
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(v) obtain the signature of the Cardholder on the Sales Slip, and
compare the signature on the Sales Slip with the signature
panel of the Card and if identification is uncertain or if
AMRE otherwise questions the validity of the Card, contact
Household's Authorization Center for instructions.
(vi) IDENTIFICATION OF THE CARDHOLDER IS THE RESPONSIBILITY OF AMRE;
(vii) not present the Sales Slip to Household for funding until all
Goods are delivered and all the services are performed to the
Cardholder's satisfaction. However, if all or a portion of the
Goods are to be delivered or performed at a date later than
ten (10) days from the date of the Card Sale, and a deposit is
to be placed on the Card, then the Cardholder is to sign
separate Sales Slips, one of which represents a "deposit" and
the second of which represents payment of the "balance." The
"deposit" Sales Slip may be presented for payment in AMRE's
normal course, the "balance" Sales Slip is to be presented for
payment only upon delivery of all Goods and performance of all
services, and in addition to the other applicable requirements
specified in this Section 4, AMRE shall (1) enter legibly on
the Sales Slips the word "deposit" or "balance", as
appropriate, and (2) enter legibly the Authorization number on
both Sales Slips for the entire amount of the transaction. The
deposit amount shall not exceed 25% of the total Card Sale. If
the Card Sale is cancelled or the Goods or services canceled
or returned the Sales Slip is subject to Chargeback;
(viii) enter the Card Sale into the Terminal; and
(ix) deliver a true and completed copy of the Sales Slip to the
Cardholder at the time of delivery of the Goods.
g. Credit Slips. If Goods are returned, any Card Sale or services are
terminated or canceled, or AMRE allows any price adjustment, then AMRE
shall not make any cash refund, but shall complete and deliver
promptly to Household a Credit Slip evidencing the refund or
adjustment and deliver to the Cardholder a true and complete copy of
the Credit Slip at the time the refund or adjustment is made. AMRE
shall sign and date each Credit Slip and include thereon a brief
description of the Goods returned, services terminated or canceled,
refund or adjustment made, the date of the original Card Sale,
Authorization number, Cardholder's name, address and Account number,
and the date and amount of the credit, all in sufficient detail to
identify the transaction. AMRE shall imprint or legibly reproduce on
each Credit Slip the embossed legends from the Card and from AMRE's
imprinter plate. The amount of the Credit Slip cannot exceed the
amount of the original transaction as reflected on the Sales Slip.
AMRE shall issue Credit Slips only in connection with previous bona
fide Card Sales and only as permitted hereunder.
h. Not receive any payments from a Cardholder for charges included on any
Sales Slip resulting from the use of any Card, nor receive any
payments from a Cardholder to prepare and present a Credit Slip for
the purpose of effecting a credit to the Cardholder's Account.
i. Cardholder Complaints. AMRE shall within ten (10) days of receipt
provide Household with a copy of any written complaint from any
Cardholder concerning his/her Account.
j. Right of First Refusal. AMRE shall actively promote the Program.
Except as otherwise provided herein, beginning July 1, 1995, AMRE
agrees to give Household the Right of First Refusal in presenting
consumer credit applications on no less than 90% of AMRE's total
consumer credit sales (herein "Credit Sales") where AMRE has been
requested by the consumer to arrange credit financing. Notwithstanding
anything to the contrary contained herein, the parties agree that
consumer credit applications and transactions resulting from specified
"Sears Credit Promotions" shall not be subject to Households' Right of
First Refusal and shall not be included in determining AMRE's total
Credit Sales. AMRE agrees that it will not run more than two Sears
Credit Promotions during any calendar year nor will any such
promotions exceed 45 days in duration. Household reserves the right
to review AMRE's Credit Sales during each preceding six month period
on a quarterly basis beginning January 1, 1996. AMRE agrees to provide
Household with adequate sales volume data, reports or other
information to allow Household to review its Credit Sales. AMRE's
failure to present no less than 90% of its Credit Sales to Household
shall be deemed a material breach of this Restated Agreement and
Household shall have the right, in its sole discretion, and in
addition to any other remedies provided herein, to terminate this
Restated Agreement pursuant to Section 15. Provided, however, AMRE
shall not be required to comply with or be deemed to be in breach of
this Section 4.j. if Household breaches Section 2.b., above. To the
extent AMRE displays other third party credit or charge cards
materials, it shall display the advertising and promotional materials
relating to the Card in a manner and with a frequency equal to or
greater than that accorded any other third party credit or charge
card.
k. Satisfy all other requirements designated in any Operating
Instructions or as may be required from time to time by Household. In
the event there is any inconsistency between any Operating
Instructions and this Restated Agreement, this Restated Agreement
shall govern unless otherwise expressly indicated by Household in any
Operating Instructions.
l. present each Sales Slip and deliver each Credit Slip to Household or
such other person designated by Household, within ten (10) Business
Days after the date of the respective sale or credit transaction.
m. Home Products Requirements. In addition to all other requirements in
this Section, prior to funding of any Sales Slip to AMRE, AMRE
covenants and agrees as follows:
(i) All Goods shall be delivered and properly installed and all
services and work shall be fully completed to the Cardholder's
satisfaction;
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(ii) AMRE shall execute and furnish to Household a blanket mechanic
lien waiver covering AMRE and all contractors, subcontractors,
laborers, material men and others for all work performed or
goods delivered or installed by someone other than AMRE's
employees;
(iii) AMRE shall furnish Household with a separately completed
Completion Certificate on Household's form or on a form
approved by Household, and signed by the Cardholder after all
work has been completed to the Cardholder's satisfaction;
(iv) AMRE shall deliver to the consumers the appropriate rescission
notices required by Applicable Laws in accordance with
Applicable Laws. Household has no obligation to fund the Card
Sale until the applicable rescission period has expired; and
(v) AMRE shall not present to Household any Sales Slip if the Card
Sale has been rescinded by the consumer.
n. In-home Sales. AMRE shall deliver to the consumers the appropriate
rescission notices required by Applicable Laws in accordance with
Applicable Laws. Household has no obligation to fund the Card Sale
until the applicable rescission period has expired.
Section 5. AMRE Representations and Warranties. AMRE represents and warrants to
Household as of the Effective Date and throughout the term of this Restated
Agreement the following:
a. That each Card Sale will arise out of a bona fide sale of Goods by
AMRE and will not involve the use of the Card for any other purpose.
b. That each Card Sale will be to a consumer for personal, family, or
household purposes.
c. That Cardholder applications will be available to the public (i)
without regard to race, color, religion, national origin, sex, marital
status, or age (provided the applicant has the capacity to enter into
a binding contract) and (ii) not in any manner which would
discriminate against an applicant or discourage an applicant from
applying for the Card.
d. That it has full corporate power and authority to enter into this
Restated Agreement; that all corporate action required under any
organization documents to make this Restated Agreement binding and
valid upon AMRE according to its terms has been taken; and that this
Restated Agreement is and will be binding, valid and enforceable upon
AMRE according to its terms.
e. Neither (i) the execution, delivery and performance of this Restated
Agreement, nor (ii) the consummation of the transactions contemplated
hereby will constitute a violation of law or a violation or default by
AMRE under its articles of incorporation, bylaws or any organization
documents, or any material agreement or contract and no authorization
of any governmental authority is required in connection with the
performance by AMRE of its obligations hereunder.
f. AMRE has and will retain all required licenses to perform it's
obligations under this Restated Agreement.
g. Any Card Sale subject to rescission has not been rescinded.
Section 6. Chargebacks to AMRE. AMRE agrees as follows:
a. Chargebacks. Any Sales Slip or Card Sale is subject to Chargeback
under any one or more of the following circumstances, and thereupon
the provisions of Section 6.b. below shall apply:
(i) The application or any information on the application or the
Sales Slip or any required information on the Sales Slip (such
as the account number, expiration date of the Card,
description of Goods purchased, transaction amount or date) is
illegible or incomplete, or the Sales Slip or application is
not executed by the Cardholder; or Authorization is not
obtained from Household's Authorization Center, or a valid
Authorization number is not correctly and legibly entered on
the Sales Slip; or the Sales Slip is a duplicate of an item
previously paid, or the price of the Goods or services shown
on the Sales Slip differs from the amount shown on the
Cardholder's copy of the Sales Slip;
(ii) Household determines that (1) AMRE has breached or failed to
satisfy, any term, condition, covenant, warranty, or other
provision of this Restated Agreement, including, without
limitation, Sections 4 and 5 above, or of the Operating
Instructions, in connection with a Sales Slip or the
transaction to which it relates, or an application for a Card
or the opening of an Account; or (2) the Sales Slip,
application/agreement or Card Sale is fraudulent or is subject
to any claim of illegality, cancellation, rescission,
avoidance or offset for any reason whatsoever, including,
without limitation, negligence, fraud, misrepresentation, or
dishonesty on the part of the customer or AMRE or its agents,
employees, licensees, or franchisees, or that the related
transaction is not a bona fide transaction in AMRE's ordinary
course of business;
(iii) the Cardholder disputes or denies in writing the Card Sale or
other Card transaction, the execution of the Sales Slip or
application/agreement, or the delivery, quality, or
performance of the goods, services or warranties purchased, or
the Cardholder has not authorized the Card Sale, or alleges
that a credit adjustment was requested and refused or that a
credit adjustment was issued by AMRE but not posted to the
Account; or
(iv) AMRE fails to deliver to Household the Sales Slip, Credit
Slip, application or other records of the Card transaction
within the times required in this Restated Agreement.
b. Resolution and Payment. Household will provide AMRE with a weekly
report listing all outstanding customer disputes and Chargebacks. AMRE
is required to resolve any dispute or other of the circumstances
described above in (a) of this Section
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6 to Household's satisfaction within thirty (30) days of notice of
Chargeback or AMRE shall pay to Household the full amount of each such
Sales Slip subject to Chargeback or the portion thereof designated by
Household, as the case may be, plus the finance charges thereon, any
attorney fees incurred by Household, and other fees and charges
provided for in the Cardholder agreement. Upon chargeback to AMRE of a
Sales Slip, AMRE shall bear all liability and risk of loss associated
with such Sales Slip or Account, or the applicable portion thereof,
without warranty by, or recourse or liability to, Household. Household
may deduct amounts owed to Household under this Section from any
amounts owed to AMRE under this Restated Agreement.
c. Excessive Chargebacks. If (i) the aggregate number of Sales Slips
subject to Chargeback exceeds 1.5% of the total number of Card Sales
submitted by AMRE with respect to an individual AMRE location in any
calendar quarter or (ii) the aggregate dollar amount of all Sales
Slips subject to Chargeback in any monthly billing cycle exceeds 5% of
the total net balances of all Accounts at the end of such monthly
billing cycle ((i) and (ii) are herein individually and collectively
called "Excessive Chargebacks"), Household reserves the right to
assess, and AMRE agrees to pay the Excessive Chargeback Fee, in the
amount identified in Section 3.b.(vi). above, for each Sales Slip that
is subject to Chargeback in excess of the 1.5% limit. In addition,
Excessive Chargebacks shall be deemed a material breach of this
Restated Agreement and Household has the right, in its sole
discretion, to terminate this Restated Agreement pursuant to
Section 15.
d. The terms and provisions of this Section 6 shall survive the
termination of this Restated Agreement.
Section 7. Tape or Electronic Transmission & Records. Data, records and
information shall be transmitted and maintained as described below.
a. Transmission of Data. In addition to depositing paper Sales Slips and
Credit Slips with Household, AMRE shall transmit to Household, by
electronic transmission or other form of transmission designated by
Household all data required by this Restated Agreement to appear on
Sales Slips and Credit Slips. All data transmitted shall be in a
medium, form and format designated by Household and shall be presorted
according to Household's instructions. Any errors in such data or in
its transmission shall be the sole responsibility of AMRE. The means
of transmission indicated above in this Section shall be the exclusive
means utilized by AMRE for the transmission of Sales Slip or Credit
Slip transaction data to Household. Household may from time to time
upon notice to AMRE change or cease the use of the electronic
transmission process described in this Section.
b. Receipt of Transmission. Upon successful receipt of any transmission,
Household shall accept such transmission and pay AMRE in accordance
with this Restated Agreement, subject to subsequent review and
verification by Household and to all other rights of Household and
obligations of AMRE as set forth in this Restated Agreement. If data
transmission is by tape, AMRE agrees to deliver upon demand by
Household a duplicate tape of any prior tape transmission, if such
demand is made within forty-five (45) calendar days of the original
transmission.
c. Records. AMRE shall maintain the actual paper Sales Slips, Credit
Slips, completion certificates, rescission notices and
application/agreements ("Transaction Records") covered by this
Restated Agreement for such time and in such manner as Household or any
law or regulation may require, but in no event less than two (2) years
after the date AMRE presents each transaction data to Household, and
AMRE shall make and retain for at least seven (7) years legible
microfilm copies of both sides of such actual paper Transaction
Records. Within fifteen (15) days, or such earlier time as may be
required by Household, of receipt of Household's request, AMRE shall
provide to Household any of the actual paper Transaction Records, and
any other documentary evidence available to AMRE and reasonably
requested by Household to meet its obligations under law (including
its obligations under the Fair Credit Billing Act) or otherwise to
respond to questions, complaints, lawsuits, counterclaims or claims
concerning Accounts or requests from Cardholders, or to enforce any
rights Household may have against a Cardholder, including, without
limitation, litigation by or against Household, collection efforts and
bankruptcy proceedings, or for any other reason. In the event AMRE
fails to comply in any respect with the provisions of this Section,
Household may process a Chargeback for each Card Sale involved
pursuant to Section 6 above.
Promptly upon termination of this Restated Agreement Household may request that
AMRE provide Household with all original or microfilm copies of documents
required to be retained under this Restated Agreement.
Section 8. Payments by Cardholder and Endorsement. AMRE agrees that Household
has the sole right to receive payments on any Sales Slip funded by Household.
Unless specifically authorized in writing by Household, AMRE agrees not to make
any collections on any such Sales Slip. AMRE agrees to hold in trust for
Household any payment received by AMRE of all or part of the amount of any such
Sales Slip and to deliver promptly the same in kind to Household as soon as
received together with the Cardholder's name, Account number, and any
correspondence accompanying the payment and deliver same promptly within five
(5) days of receipt by AMRE. AMRE agrees that AMRE shall be deemed to have
endorsed any Sales Slip, Credit Slip, or Cardholder payments by check, money
order, or other instrument made payable to AMRE that a Cardholder presents to
Household in Household's favor, and AMRE hereby authorizes Household to supply
such necessary endorsements on behalf of AMRE.
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Section 9. AMRE Credit Information. Household may annually review AMRE's
financial stability. To assist Household in doing this, AMRE shall deliver to
Household no later than 120 days after the end of each fiscal year, an audited
financial statement, including, without limitation, all footnotes, and
supporting materials with sufficient detail to accurately portray the financial
condition of AMRE. AMRE warrants and represents that its financial statements
submitted to Household by or on behalf of AMRE are true and accurate and AMRE
agrees to supply such additional credit information as Household may reasonably
request from time to time. AMRE understands that Household may verify the
information on any financial statement or other information provided by AMRE
and, from time to time, may seek credit and other information concerning AMRE
from others and may provide financial and other information to its Affiliates
or others for purposes of its asset securitizations and sales.
Section 10. AMRE Business Practices. AMRE agrees to provide adequate services
in connection with each Card Sale pursuant to standard customs and trade
practices and any applicable manufacturer's warranties, and to provide such
repairs, service and replacements and take such other corrective action as may
be required by law.
Section 11. Cardholder Account Information. AMRE shall not sell, purchase,
provide, or exchange Account information in the form of imprinted Sales Slips,
carbon copies of imprinted Sales Slips, mailing lists, tapes or other media
obtained by reason of a Card transaction to any third party other than to
AMRE's agents for the purpose of assisting AMRE in its business with Household,
to assist AMRE in soliciting customers for other AMRE products or services, or
pursuant to a government request.
Section 12. Change in Ownership. AMRE agrees to send Household at least thirty
(30) days prior written notice of any change in AMRE's name or location, any
material change in ownership of AMRE's business (as set forth in Section 15.b.
(iii)(a)) or any change in Sales Slip or Credit Slip information concerning
AMRE.
Section 13. Indemnification.
a. Indemnification by AMRE. AMRE shall be liable to and shall indemnify
and hold harmless Household and its Affiliates and their respective
officers, employees, agents and directors from any losses, damages,
claims or complaints incurred by Household or any Affiliate of
Household or their respective officers, employees, agents and
directors arising out of: (i) AMRE's failure to comply with this
Restated Agreement or any of the Operating Instructions; (ii) any
claim, dispute, complaint or setoff made by a Cardholder with respect
to anything done or not done by AMRE in connection with Card Sales or
credits; (iii) anything done or not done by AMRE in connection with
the furnishing of any Goods, warranties or services purchased by
Cardholders; (iv) the death or injury to any person or the loss,
destruction or damage to any property arising out of the design,
manufacture or finishing by AMRE of any Goods, warranties or services
purchased by Cardholders; (v) any claim or complaint of a third party
in connection with AMRE's advertisements and promotions relating to
the Card which have not been reviewed or approved by Household; (vi)
any illegal or improper conduct of AMRE or its employees or agents;
and (vii) any claim or complaint by a consumer that AMRE has violated
the Equal Credit Opportunity Act, Truth in Lending Act, or any other
act and related Applicable Laws.
b. Indemnification by Household. Household shall be liable to and shall
indemnify and hold harmless AMRE and its subsidiaries or affiliates
and their respective officers, employees, agents and directors from
any losses, damages, claims or complaints incurred by AMRE or any
subsidiary or affiliate of AMRE or their respective officers,
employees, agents and directors arising out of (i) Household's failure
to comply with this Restated Agreement or any of the Operating
Instructions; (ii) any claim, dispute or complaint by a Cardholder
made in good faith resulting from anything done or not done by
Household in connection with such Cardholder's Account; (iii) any
illegal or improper conduct of Household, or its employees or agents
with respect to the Card, a Card Sale, an Account or any other matters
relating to the Program, (iv) any claim, dispute, complaint or setoff
by a consumer made in good faith resulting from a violation by
Household, with respect to the application/agreement, of the Equal
Credit Opportunity Act, Truth in Lending Act or any other act and
related applicable laws and regulations; and (v) any claim, dispute or
complaint of any thirty party made in good faith in connection with
advertisements and promotions prepared by Household relating to the
Card. Notwithstanding the foregoing, the indemnification by Household
shall not apply to any claim or complaint relating to the failure of
AMRE to resolve a billing inquiry or dispute with a Cardholder where
such failure was not caused by Household. AMRE may deduct any amounts
incurred by AMRE under this Section from amounts owed Household under
this Restated Agreement.
c. Notice of Claim & Survival. In the event that Household or AMRE shall
receive any claim or demand or be subject to any suit or proceeding of
which a claim may be made against the other under this Section, the
indemnified party shall give prompt written notice thereof to the
indemnifying party and the indemnifying party will be entitled to
participate in the settlement or defense thereof with counsel
satisfactory to indemnified party at the indemnifying party's expense.
In any case, the indemnifying party and the indemnified party shall
cooperate (at no cost to the indemnified party) in the settlement or
defense of any such claim, demand, suit, or proceeding. The terms of
this Section shall survive the termination of this Restated Agreement.
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Section 14. Nonwaiver. AMRE's liability under this Restated Agreement,
including, without limitation, its liability under Section 6 above, shall not
be affected by any settlement, extension, forbearance, or variation in terms
that Household may grant in connection with any Sales Slip or Account or by the
discharge or release of the obligations of the Cardholder(s) or any other
person by operation of law or otherwise. AMRE hereby waives any failure or
delay on Household's part in asserting or enforcing any right that Household
may have at any time under this Restated Agreement or under any Account.
Section 15. Term and Termination.
a. Term. This Restated Agreement shall be effective as of the Effective
Date when executed by authorized officers of each of the parties and
shall remain in effect for three (3) years ("Initial Term"), subject to
earlier termination as set forth below. Thereafter, this Restated
Agreement shall be automatically renewed for successive one year terms
(the "Renewal Term(s)") unless and until terminated as provided herein.
The termination of this Restated Agreement shall not affect the rights
and obligations of the parties with respect to transactions and
occurrences which take place prior to the effective date of
termination, except as otherwise provided herein.
b. Termination. This Restated Agreement may be terminated:
(i) by Household or AMRE, upon not less than one hundred-eighty
(180) days notice to the other prior to the end of the Initial
Term or any Renewal Term.
(ii) By AMRE if Household fails, pursuant to Section 2.b., to
maintain a 77% Approval Rate after the Initial Review or any
subsequent Quarterly Review during the term of this Restated
Agreement provided, however, that AMRE shall have the option,
in lieu of termination, to eliminate the requirements of
Section 4.j.
(iii) by Household upon 30 days prior notice (a) if there occurs any
material adverse change in ownership of AMRE provided,
however, Household shall not consider AMRE to have experienced
any material adverse change in ownership unless 51% or more of
its shares come under the control of any one person, or
entity; or (b) if there is a material adverse change in AMRE's
financial condition as determined by Household in Household's
sole discretion, provided, however, Household shall not
consider AMRE to have experienced a material adverse change in
financial condition if AMRE maintains (1) a debt to equity
ratio no greater than 2 to 1, (for purposes of this subsection
b.(iii)(b)(1) "debt" shall include any obligation (A) for
borrowed money, (B) for deferred purchase of property or
services, or (C) any obligation as lessee under any
capitalized lease.), (2) a current ratio of not less than 1.2
to 1, (3) positive shareholder equity (for purposes of
subsections b.(iii)(b)(1)(2) and (3), such determination
shall be made annually by Household based upon AMRE's year end
financial statements), and (4) compliance with any existing
debt covenants; or (c) if AMRE suspends or goes out of
business or substantially reduces its business operations to
include a 50% or more reduction in total sales volume for any
two consecutive quarters below the same prior year quarters;
or (d) sends a notice of a proposed bulk sale of all or any
material part of its business; or (e) in the event AMRE
materially breaches its obligations or any warranty or
representation under this Restated Agreement or in any
Operating Instructions; or (f) if Household receives a
disproportionate number of Cardholder inquiries, disputes, or
complaints for purposes of this subsection b(iii)(f),
Household and AMRE agree that a "disproportionate number"
shall exist when and if the average number of Cardholder
inquiries, disputes or complaints received by Household each
month over any period of six (6) months equals or exceeds 15%
of the total number of Cardholders with a debit or credit
balance on their Account; or (g) if in Household's judgment,
any Applicable Law requires that this Restated Agreement or
either party's rights or obligations hereunder be amended,
modified, waived or suspended in any material respect,
including, without limitation, the amount of finance charges
or fees that may be charged or collected or the consumer rate
that may be charged on purchases with the Card.
(iv) by Household or AMRE upon 30 days written notice to the other
in the event the other party shall elect to wind up or
dissolve its operation or is wound up and dissolved; becomes
insolvent or repeatedly fails to pay its debts as they become
due; makes an assignment for the benefit of creditors; files a
voluntary petition in bankruptcy, or for reorganization or is
adjudicated as bankrupt or insolvent; or has a liquidator or
trustee appointed over its affairs.
c. Termination of Card Acceptance. Household upon notice to AMRE may
elect to terminate the acceptance of the Card at a particular AMRE
location if at such location there are Excessive Chargebacks, high
fraudulent activity or other course of business conduct that is
injurious to the business relationship between Household and AMRE.
d. Duties and Rights Upon Termination. Upon termination of this Restated
Agreement, AMRE will, upon the request of Household, promptly submit
to Household all Card Sales, Sales Slips, credit and other data not
previously furnished, made through the date of termination. Household
is not liable to AMRE for any direct or consequential damages that
AMRE may suffer as a result of Household's termination of this
Restated Agreement. In the event this Restated Agreement is terminated
for any reason or notice of termination is given by either party,
Household may take such other reasonable actions including, but not
limited to, establishing and maintaining a reserve ("Chargeback
Reserve") in an amount equal to the amount of Chargebacks charged to
AMRE during the previous 12 months (excluding the amount of any Non
Conforming Accounts previously charged to and paid by AMRE) to protect
Household's rights under this Restated Agreement and to cover
Chargeback amounts and other amounts owing to Household. After a
period of 18 months following the termination of this
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Restated Agreement any unused Chargeback Reserve shall be paid to AMRE
within 30 days with a report accounting for all activity of such
reserve. Upon termination of this Restated Agreement during the
Initial Term due to material breach by AMRE including, but not limited
to, a breach of Sections 4.j, 6.c, or 15.b(iii)(a) through (f), AMRE
shall refund to Household the Signing Bonus as follows (i) if
termination is during year one of the Initial Term, AMRE shall refund
to Household the entire $1.4 million, or (ii) if termination is during
year two of the Initial Term, AMRE shall refund to Household $934,000.
AMRE shall have no obligation to refund any portion of the Signing
Bonus upon termination of this Restated Agreement, for material breach
or any other reason after year two of the Initial Term. Nothing
contained in this subsection d. shall limit AMRE's right to receive
earned Merchant Participation Fees under Section 3.c., funding for
authorized Sales Slips under Section 3.d. or a refund of the unused
Chargeback Reserve under Section 15.d., as a result of Household's
termination of this Restated Agreement. The provisions of this
subsection shall survive the termination of this Restated Agreement.
e. Purchase Requirements. Notwithstanding anything to the contrary
contained herein, upon termination of this Restated Agreement (other
than termination due to material breach by AMRE during the Initial
Term or any Renewal Term), AMRE, its successors and assigns may, at
AMRE's option and upon AMRE's request, purchase or arrange to purchase
by a third party, the Accounts, without recourse to Household and
without representations or warranty, express or implied. The purchase
price of the Accounts shall be "par" plus a premium to be determined
in accordance with Schedule "E" attached hereto and incorporated
herein, as of the effective date of termination. Par shall include the
outstanding Account balances, plus accrued interest from the last
cycle billing date to the date of the sale. The purchase shall occur
not later than ninety (90) days after the effective date of
termination of this Restated Agreement and to be under such terms and
conditions as are mutually reasonably acceptable to Household and
AMRE.
Section 16. Status of the Parties. In performing their responsibilities
pursuant to this Restated Agreement, Household and AMRE are in the position of
independent contractors, and in no circumstances shall either party be deemed
to be the agent or employee of the other. This Restated Agreement is not
intended to create, nor does it create and shall not be construed to create, a
relationship of partner or joint venturer or an association for profit between
Household and AMRE. Any amounts ever owing by AMRE pursuant to this Restated
Agreement represent contractual obligations only and are not a loan or debt.
Section 17. Force Majeure. Neither party to this Restated Agreement shall be
liable to the other by reason of any failure in performance of this Restated
Agreement in accordance with its terms if such failure arises out of a cause
beyond the control and without the fault or negligence of such party. Such
causes may include but are not limited to acts of God, of the public enemy or
of civil or military authority, unavailability of energy resources, system or
communication failure, delay in transportation, fires, strikes, riots or war.
In the event of any force majeure occurrence, the disabled party shall use its
best efforts to meet its obligations as set forth in this Restated Agreement.
Section 18. Limited License. AMRE hereby authorizes Household for purposes of
this Restated Agreement to use AMRE's name, logo, registered trademarks and
servicemarks (if any) and any other proprietary designations ("Proprietary
Materials") on the Cards, applications, periodic statements, billing
statements, collection letters or documents, promotional or advertising
materials and otherwise in connection with the Program, subject to AMRE's
periodic reasonable review of such use and to such reasonable specifications of
AMRE. AMRE represents and warrants that it has obtained appropriate federal and
state trademark registrations to protect its interest in the use and ownership
of the Proprietary Materials. AMRE shall, indemnify, defend and hold Household
harmless from any loss, damage, expense or liability arising from any claims of
alleged infringement of the Proprietary Materials (including attorneys' fees
and costs). AMRE may not use any name or service mark of Household or any of
its Affiliates in any manner without the prior written consent of Household.
Section 19. Confidentiality. AMRE win keep confidential and not disclose to any
person or entity (except to employees, officers, partners or directors of AMRE
who are engaged in the implementation and execution of the Program) all
information, software, systems and data, that AMRE receives from Household or
from any other source, relating to the Program and matters which am subject to
the terms of this Restated Agreement, including, but not limited to, Cardholder
names and addresses or other Amount information, and shall use, or cause to be
used, such information solely for the purposes of the performance of AMRE's
obligations under the terms of this Restated Agreement. Household will keep
confidential and not disclose to any person or entity (except employees,
officers, agents or directors of Household, its subsidiaries or affiliates who
are engaged in the implementation and execution of the Program) any information
that Household receives from AMRE which is designated confidential by AMRE. In
the event Household sells or assigns the Accounts or any portion of the
Accounts under the Program, Household may disclose any information under this
provision reasonably necessary or required to effectuate such sale or
assignment. Nothing herein shall prohibit or limit AMRE in referring to and/or
filing a copy of this Restated Agreement (or any prior agreements) in
connection with its Securities and Exchange Commission, New York Stock Exchange
or any other regulatory filings, or as required in connection with its public
or private financing, any secondary offerings on behalf of any of its
stockholders or as otherwise required by law or regulation. The provisions of
this Section 19 shall survive termination of this Restated Agreement.
10
<PAGE> 11
Section 20. Additional Products & Services. Household and/or any of its
Affiliates may at any time, whether during or after the term of this Restated
Agreement and whether the Accounts are owned by Household, solicit Cardholders
for any other credit cards or other types of accounts or financial or insurance
services or products offered by Household, and/or any of its Affiliates.
Neither Household nor any of its Affiliates may offer to or solicit Cardholders
for any other merchandise, goods or products covered by this Restated Agreement
without the prior written approval of AMRE.
Section 21. Notices. All notices required or permitted by this Restated
Agreement shall be in writing and shall be sent to the respective parties (if
to Household, to the Attention of President, with a copy to the Attention of
General Counsel, HRS Law Department; if to AMRE, to the Attention of John
Vanecko) at their respective addresses set forth on page one of this Restated
Agreement or such other addresses as each party may designate to the other by
notice hereunder. Said notices shall be deemed to be received when sent to the
above addresses (i) upon three (3) Business Days after deposit in the U.S.
first class mad with postage prepaid, (ii) upon personal delivery, or (iii)
upon receipt by telex, facsimile, or overnight/express courier service or mail.
Section 22. Amendments and Supplementary Documents. Household may amend or
modify this Restated Agreement upon ten (10) days' prior notice to AMRE if such
modification is reasonably determined by Household to be required by any state
or federal law, rule, regulation, governmental or judicial order, opinion,
interpretation or decision. Reference herein to "this Restated Agreement" shall
include any schedules, appendices, exhibits, and amendments hereto. Any other
amendment or modification to this Restated Agreement must be in writing, with
thirty (30) days prior notice to AMRE and must be signed by a duly authorized
officer of Household and AMRE to be effective and binding upon Household and
AMRE; no oral amendments or modifications shall be binding upon the parties.
Section 23. Assignment. This Restated Agreement is binding upon the parties and
their successors and assigns. Notwithstanding, AMRE may not assign this
Restated Agreement without the prior written consent of Household; any
purported assignment without such consent shall be void, Household may without
AMRE's consent assign this Restated Agreement or any of the rights or
obligations hereunder to any Affiliate of Household at any time. In the event
of such assignment, the assignee shall have the same rights and remedies as
Household under this Restated Agreement.
Section 24. Nonwaiver and Extensions. Household shall not by any act, delay,
omission, or otherwise be deemed to have waived any rights or remedies
hereunder. AMRE agrees that Household's failure to enforce any of its rights
under this Restated Agreement shall not affect any other right of Household or
the same right in any other instance.
Section 25. Rights of Persons Not a Party. This Restated Agreement shall not
create any rights on the part of any person or entity not a party hereto,
whether as a third party beneficiary or otherwise.
Section 26. Section Headings. The headings of the sections of this Restated
Agreement are for reference only, are not a substantive part of this Restated
Agreement and are not to be used to affect the validity, construction or
interpretation of this Restated Agreement or any of its provisions.
Section 27. Integrations. This Restated Agreement contains the entire agreement
between the parties. There are merged herein all prior oral or written
agreements, amendments, representations, promises and conditions in connection
with the subject matter hereof. Any representations, warranties, promises or
conditions not expressly incorporated herein shall not be binding on Household
or AMRE.
(THIS SPACE LEFT BLANK INTENTIONALLY)
11
<PAGE> 12
Section 28. Governing Law/Severability. This Restated Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois.
If any provision of this Restated Agreement is contrary to Applicable Law, such
provision shall be deemed ineffective without invalidating the remaining
provisions hereof.
Section 29. JURISDICTION. ANY SUIT, COUNTERCLAIM, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS RESTATED AGREEMENT MUST BE BROUGHT BY AMRE SOLELY IN
THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS; AND AMRE HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS AND ANY APPELLATE COURTS THEREOF FOR THE
PURPOSE OF ANY SUCH SUIT, COUNTERCLAIM, ACTION, PROCEEDING OR JUDGMENT (IT
BEING UNDERSTOOD THAT SUCH CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS
WAIVES ANY RIGHT TO SUBMIT ANY DISPUTES HEREUNDER TO ANY COURTS OTHER THAN
THOSE ABOVE). NOTHING HEREIN CONTAINED SHALL PRECLUDE HOUSEHOLD FROM BRINGING
AN ACTION OR PROCEEDING RELATED TO THIS RESTATED AGREEMENT IN ANY OTHER STATE
OR PLACE HAVING JURISDICTION OVER SUCH ACTION.
Section 30. WAIVER OF JURY TRIAL. HOUSEHOLD AND AMRE HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS RESTATED
AGREEMENT, ANY RELATED DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
RESTATED AGREEMENT, AND AGREE THAT ANY SUCH ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS
PROVISION IS A MATERIAL INDUCEMENT FOR HOUSEHOLD AND AMRE ENTERING INTO THIS
RESTATED AGREEMENT.
IN WITNESS WHEREOF, Household and AMRE have caused their duly authorized
representatives to execute this Restated Agreement as of the date set forth
above.
BANK: MERCHANT:
HOUSEHOLD BANK (ILLINOIS), N.A. AMRE, INC.
By: /s/ T. M. KIMBLE By: /s/ JOHN S. VANECKO
----------------------------- -----------------------------
Print Name: T. M. Kimble Print Name: John S. Vanecko
--------------------- ---------------------
Title: President & CEO Title: Vice President & CFO
-------------------------- --------------------------
ATTESTED OR WITNESSED ATTESTED OR WITNESSED
By: /s/ R. L. BRUCKERT By: /s/ DARYL R. RAMSDALE
----------------------------- -----------------------------
Print Name: R. L. Bruckert Print Name: Daryl R. Ramsdale
--------------------- ---------------------
Title: Sr. Vice President Title: Director of Council
-------------------------- --------------------------
75-2041737
--------------------------------
Merchant's Federal Tax ID #:
12
<PAGE> 13
REVISED SCHEDULE "A" TO AMRE AMENDED AND RESTATED MERCHANT AGREEMENT
YEAR 3 AND RENEWAL TERM CONSUMER RATE ADJUSTMENT SCHEDULE(1)
<TABLE>
<CAPTION>
ONE YEAR T-BILL RATE CONSUMER RATE(2)
-------------------- ----------------
<S> <C>
4.75% - 5.25% 15.10%
5.26% - 5.75% 15.30%
5.76% - 6.25% 15.50%
6.26% - 6.75% 15.70%
6.67% - 7.25% 15.90%
7.26% - 7.75% 16.10%
7.76% - 9.25% 16.30%
8.26% - 8.75% 16.50%
8.76% - 9.25% 16.70%
9.26% - 9.75% 16.90%
</TABLE>
SCHEDULE "E" TO AMRE AMENDED AND RESTATED MERCHANT AGREEMENT
PORTFOLIO PURCHASE PRICE INDEX
<TABLE>
<CAPTION>
If the two year Treasury Note Yield(3) is between: The Portfolio Purchase Price(4) is Par plus:
-------------------------------------------------- --------------------------------------------
<S> <C>
8.01% - 8.25% 3.50%
7.76% - 8.00% 4.00%
7.50% - 7.75% 4.50%
7.26% - 7.50% 5.00%
7.01% - 7.25% 5.50%
6.67% - 7.00% 6.00%
6.51% - 6.75% 6.50%
6.26% - 6.50% 7.00%
</TABLE>
- -----------------
(1) The 1 year Treasury Bill rate will be based upon the highest rate
published in The Wall Street Journal, on the first Tuesday of the
month which falls 90 days prior to the beginning date of Year 3 of the
Restated Agreement or the beginning date of any Renewal Term.
(2) For each subsequent 50 basis point range of increase or decrease,
above or below the highest or lowest stated T-Bill Rates, the Consumer
Rate will increase or decrease by 20 basis points.
(3) The 2 year Treasury Note Yield will be the yield published in The Wall
Street Journal on the first Monday of the month in which the effective
date of termination falls.
(4) For each subsequent 25 basis point range of increase or decrease,
above or below the highest or lowest stated Treasury Note Yield, the
purchase price shall increase or decrease by 50 basis points.
13
<PAGE> 1
EXHIBIT 11
AMRE, INC.
COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three-month Six-month
periods ended periods ended
-------------------- ----------------------
July 2, June 26, July 2, June 26,
1995 1994 1995 1994
------- -------- -------- --------
<S> <C> <C> <C> <C>
Common Stock outstanding . . . . . . . . . . . . 12,850 12,850 12,850 12,850
Common Stock equivalents . . . . . . . . . . . . -- 38 -- 36
------ ------ ------ ------
Weighted average number of shares
outstanding . . . . . . . . . . . . . . . . . 12,850 12,888 12,850 12,886
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUL-02-1995
<CASH> 3,289
<SECURITIES> 11,566
<RECEIVABLES> 11,315
<ALLOWANCES> 938
<INVENTORY> 5,269
<CURRENT-ASSETS> 41,891
<PP&E> 19,674
<DEPRECIATION> 13,714
<TOTAL-ASSETS> 62,651
<CURRENT-LIABILITIES> 35,971
<BONDS> 0
<COMMON> 141
0
0
<OTHER-SE> 26,539
<TOTAL-LIABILITY-AND-EQUITY> 62,651
<SALES> 134,622
<TOTAL-REVENUES> 134,622
<CGS> 44,236
<TOTAL-COSTS> 44,236
<OTHER-EXPENSES> 63,489
<LOSS-PROVISION> 186
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,616)
<INCOME-TAX> (2,658)
<INCOME-CONTINUING> (5,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,958)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
