<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1996.
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
AMRE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1761 75-2041737
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
8585 N. STEMMONS FREEWAY
SOUTH TOWER
DALLAS, TEXAS 75247
TELEPHONE: (214) 658-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT M. SWARTZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
8585 N. STEMMONS FREEWAY
SOUTH TOWER
DALLAS, TEXAS 75247-3805
TELEPHONE: (214) 658-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE FOR REGISTRANT)
----------------------
Copies to:
GARY M. LAWRENCE, P.C. D.S. BERENSON, ESQ.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. GRIFFIN, BERENSON & MURPHY
1700 PACIFIC AVENUE, SUITE 4100 1912 SUNDERLAND PLACE
DALLAS, TEXAS 75201-4618 WASHINGTON, D.C. 20036-1608
(214) 969-2800 (202) 429-9000
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
Proposed
Amount Maximum Proposed Maximum Amount of
Title of each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) Per Share(2) Offering Price (2) Fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par value 900,000 shares 18.0625 $16,256,250 $5,605.60
=============================================================================================================
</TABLE>
(1) Determined based upon the outstanding Common Stock and Preferred Stock
of Congressional Construction Corporation ("Congressional") as of
April 15, 1996 held by persons other than Congressional in treasury.
(2) Estimated solely for the purpose of calculating the registration fee
based upon the closing sales price of the Registrant's Common Stock on
April 15, 1996.
<PAGE> 2
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE> 3
AMRE, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NO. ITEM IN FORM S-4 LOCATION OR HEADING IN PROSPECTUS
- ----- ---------------- ---------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus . . . . . . . . Facing Page of Registration Statement; Cross-
Reference Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . . . . . . . Available Information; Incorporation of
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus; Summary;
Risk Factors; Market and Market Prices of AMRE
Common Stock; Special Factors; Facelifters
Consolidated Financial Statements; Congressional
Financial Statements; AMRE, Inc. Unaudited Pro
Forma Condensed Combined Financial Statements
4. Terms of the Transaction . . . . . . . . . . . . . . . Summary; Special Factors; The Merger Agreement;
Comparison of Shareholder Rights
5. Pro Forma Financial Information . . . . . . . . . . . Summary; AMRE, Inc. Unaudited Pro Forma
Condensed Combined Financial Statements
6. Material Contacts With the Company Being Acquired . . Summary; Special Factors; Risk Factors; Recent
Developments
7. Additional Information Required For Reoffering by
Persons and Parties Deemed to be Underwriters . . . . Not applicable
8. Interests of Named Experts and Counsel . . . . . . . . Summary; Special Factors; Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities . . . . . . . . . . . . Not applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants . . . . . Outside Front Cover Page of Prospectus; Inside
Front Cover Page of Prospectus; Summary; Risk
Factors; Special Factors; Century 21 License
Agreement; AMRE, Inc. Unaudited Pro Forma
Condensed Combined Financial Statements; Recent
Developments; Management Information of AMRE;
Security Ownership; Executive Compensation;
Certain Relationships and Related Transactions
11. Incorporation of Certain Information by Reference . . Inside front cover page of prospectus
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ITEM
NO. ITEM IN FORM S-4 LOCATION OR HEADING IN PROSPECTUS
- ----- ---------------- ---------------------------------
<S> <C> <C>
12. Information With Respect to S-2 or S-3
Registrants . . . . . . . . . . . . . . . . . . . . . Not applicable
13. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . . . . Not applicable
14. Information With Respect to Registrants Other
Than S-2 or S-3 Registrants . . . . . . . . . . . . . Not applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies . . . . . . Not applicable
16. Information With Respect to S-2 or S-3
Companies . . . . . . . . . . . . . . . . . . . . . . Not applicable
17. Information With Respect to Companies Other Than
S-2 or S-3 Companies . . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus; Summary;
Special Factors; Comparative Per Share Data;
Unaudited Pro Forma Condensed Combined Financial
Statements; Congressional Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Description of
Congressional Capital Stock; Business of
Congressional; Congressional Financial
Statements; Recent Developments
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited . . . . . . . . . . . . . . . . . Not applicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange Offer . . . . . Notice of Special Meeting of Shareholders;
Outside Front Cover Page of Prospectus; Summary;
The Special Meeting; Special Factors; The Merger
Agreement; Recent Developments; Comparison of
Shareholder Rights; Management Information of
AMRE; Security Ownership; Executive Compensation
20. Indemnification of Officers and Directors . . . . . . Special Factors; Comparison of Shareholder
Rights; Part II of the Registration Statement
21. Exhibits and Financial Statement Schedules . . . . . . Financial Statements; Exhibits
22. Undertakings . . . . . . . . . . . . . . . . . . . . . Part II of the Registration Statement
</TABLE>
<PAGE> 5
[CONGRESSIONAL LOGO]
April __, 1996
Dear shareholders of Congressional Construction Corporation ("Congressional")
and participants in the Congressional Construction Corporation Employee Stock
Ownership Plan and Trust (the "ESOP"):
Attached is a Notice of Special Meeting of Shareholders for Congressional
and an accompanying Information Statement/Prospectus which describes the
matters to be acted upon at a special meeting of the shareholders of
Congressional. At the meeting, shareholders of Congressional will be asked to
consider and vote upon a proposal to (i) approve the Agreement and Plan of
Merger (the "Merger Agreement"), dated December 30, 1995, by and among AMRE,
Inc., a Delaware corporation ("AMRE"), AMRE-Congressional Acquisition, Inc., a
Delaware corporation and a newly-formed, wholly owned subsidiary of AMRE
("Merger Sub"), Kenwood Financial, Inc., John B. Nunez and Congressional, and
the transactions contemplated thereby, including the merger of Merger Sub with
and into Congressional (the "Merger"), and (ii) amend Congressional's Articles
of Incorporation to delete the provision requiring that substantially all of
the capital stock of Congressional be owned by its employees, the ESOP or the
participants in the ESOP (the "Charter Amendment"), as is more fully discussed
in the accompanying Information Statement/Prospectus. As the corporation
surviving the Merger, Congressional will become a direct wholly owned
subsidiary of AMRE. A copy of the Merger Agreement is attached to the
Information Statement/Prospectus as Annex A.
Approval of the Merger Agreement and the transactions contemplated thereby,
including the Merger and the Charter Amendment requires the affirmative vote of
more than two-thirds of the outstanding shares of common stock, par value $1.00
per share ("Congressional Common Stock") and two-thirds of the shares of
convertible preferred stock, without par value ("Congressional Preferred
Stock"), voting as separate classes. The ESOP holds 100% of the outstanding
Congressional Preferred Stock. The substitute trustee of the ESOP (the
"Substitute Trustee") shall vote all allocated shares of Congressional
Preferred Stock in accordance with confidential voting instructions received
from participants in the ESOP. Any allocated shares of Congressional Preferred
Stock with respect to which confidential voting instructions are not received
from ESOP participants, and any shares of Congressional Preferred Stock which
are not allocated to ESOP participants' accounts as of December 31, 1995 shall
be voted in the manner determined by the Substitute Trustee that is consistent
with the Internal Revenue Code of 1986, as amended, and the Employee Retirement
Income Security Act of 1974, as amended.
In the Merger, each outstanding share of Congressional Common Stock and
each outstanding share of Congressional Preferred Stock (subject to certain
rounding provisions with respect to fractional shares) will be converted into
601.20 shares and 857.14 shares, respectively, of AMRE Common Stock. An
aggregate of approximately 900,000 shares of AMRE Common Stock is expected to
be issued to holders of Congressional Common Stock and Congressional Preferred
Stock upon consummation of the Merger.
The proposed Merger requires, among other conditions, the approval by the
shareholders of Congressional of the matters described in the Information
Statement/Prospectus. Shareholders are urged to review carefully the attached
Information Statement/Prospectus.
AS DESCRIBED IN THE ATTACHED INFORMATION STATEMENT/PROSPECTUS, THE BOARD OF
DIRECTORS OF CONGRESSIONAL HAS APPROVED BY UNANIMOUS VOTE THE MERGER AGREEMENT,
THE MERGER AND THE CHARTER AMENDMENT.
Although the Congressional Board of Directors has unanimously approved the
Merger Agreement, including the transactions contemplated thereby, and the
Charter Amendment, the Board has determined not to make a recommendation to its
shareholders and the ESOP participants on how they should vote on the proposal
to be presented at the Special Meeting. Recent court decisions regarding
confidential voting instructions by employee stock ownership plan participants
on corporate matters have held that recommendations made by boards of directors
to voting participants may be construed to be coercive to employees. To avoid
any such appearance, the confidential voting instructions by ESOP participants
will be sent to an independent third party who will confidentially tally the
ESOP participants' votes. The Congressional Board will not make any
recommendation to the Congressional shareholders on how they should vote or to
the ESOP participants as to how they should instruct the Substitute Trustee as
to voting the allocated Congressional Preferred Stock. ACCORDINGLY,
THE ESOP
<PAGE> 6
PARTICIPANTS, SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED HEREIN AND THE
CONFIDENTIAL INSTRUCTIONS AND SUPPLEMENTAL INFORMATION PROVIDED BY THE
SUBSTITUTE TRUSTEE BEFORE INSTRUCTING THE SUBSTITUTE TRUSTEE AS TO VOTING ON
THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY.
WE ARE NOT ASKING CONGRESSIONAL SHAREHOLDERS FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY. THE SUBSTITUTE TRUSTEE HAS ADVISED
CONGRESSIONAL THAT THE ESOP PARTICIPANTS WILL RECEIVE A SEPARATE LETTER AND
SUPPLEMENTAL INFORMATION FROM THE SUBSTITUTE TRUSTEE AS TO THE MERGER AND AS TO
COMPLETING CONFIDENTIAL VOTING INSTRUCTIONS WITH RESPECT TO THEIR ALLOCATED
CONGRESSIONAL PREFERRED STOCK.
Sincerely yours,
JOHN B. NUNEZ
President
Congressional Construction Corporation
<PAGE> 7
CONGRESSIONAL CONSTRUCTION CORPORATION
11216 WAPLES MILL ROAD
SUITE 101
FAIRFAX, VIRGINIA 22030
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 28, 1996
To the shareholders of Congressional Construction Corporation and participants
in the Congressional Construction Corporation Employee Stock Ownership Plan and
Trust (the "ESOP"):
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
Congressional Construction Corporation, a Virginia corporation
("Congressional"), will be held on May 28, 1996, commencing at 8:00 a.m., local
time, at Congressional's corporate offices, 11216 Waples Mill Road, Suite 101,
Fairfax, Virginia 22030 for the following proposal which is described in more
detail in the accompanying Information Statement/Prospectus:
To consider and vote, as a single proposal, upon
(a) the proposal to approve and adopt the Agreement and Plan of
Merger, dated as of December 30, 1995 (the "Merger Agreement"), by and
among Congressional, AMRE, Inc., a Delaware corporation ("AMRE"), and AMRE-
Congressional Acquisition, Inc., a Delaware corporation ("Merger Sub"), and
for the limited purposes stated therein, Kenwood Financial, Inc. and John
B. Nunez, and the transactions contemplated thereby, including the merger
of Merger Sub with and into Congressional (the "Merger"), and
(b) in connection with the consummation of the Merger, an amendment to
Congressional's Articles of Incorporation to delete the provision requiring
substantially all of the capital stock of Congressional to be owned by its
employees, the ESOP or the participants in the ESOP.
No other business will be transacted at the special meeting other than
matters incidental to the conduct of such meeting.
The close of business on April 1, 1996 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at,
the meeting and any adjournment or postponement thereof. Participants in the
ESOP are entitled to give confidential voting instructions to D.S. Berenson, as
appointed substitute trustee of the ESOP (the "Substitute Trustee"), to vote
any shares of Congressional Preferred Stock allocated to their account in the
ESOP as of December 31, 1995. Holders of Congressional Common Stock and
Congressional Preferred Stock will have certain dissenters' appraisal rights
if they comply with the Virginia Stock Corporation Act in respect of the Merger.
By Order of the Board of Directors
CONGRESSIONAL CONSTRUCTION
CORPORATION
--------------------------
April __, 1996 Secretary
<PAGE> 8
CONGRESSIONAL CONSTRUCTION CORPORATION
INFORMATION STATEMENT
---------------------
AMRE, INC.
PROSPECTUS
This Information Statement/Prospectus is being furnished to holders of
common stock, par value $1.00 per share ("Congressional Common Stock") and to
participants in the Congressional Construction Corporation Employee Stock
Ownership Plan and Trust (the "ESOP") as indirect beneficial holders of
convertible preferred stock, without par value ("Congressional Preferred
Stock"), of Congressional Construction Corporation, a Virginia corporation
("Congressional"), in connection with a special meeting of shareholders of
Congressional (the "Special Meeting") to be held on May 28, 1996, at
Congressional's corporate offices, 11216 Waples Mill Road, Suite 101, Fairfax,
Virginia 22030, commencing at 8:00 a.m., local time, and at any adjournment or
postponement thereof. At the Special Meeting, shareholders of Congressional
will vote upon a proposal to (i) approve the Agreement and Plan of Merger,
dated as of December 30, 1995 (the "Merger Agreement"), by and among AMRE,
Inc., a Delaware corporation ("AMRE"), AMRE-Congressional Acquisition, Inc., a
Delaware corporation ("Merger Sub"), Kenwood Financial, Inc. ("Kenwood"), and
John B. Nunez, and Congressional, and the transactions contemplated therein
including the merger of Merger Sub with and into Congressional (the "Merger" or
the "Congressional Merger") and (ii) amend Congressional's Articles of
Incorporation (the "Congressional Articles") to delete the provision requiring
that substantially all of the capital stock of Congressional be owned by its
employees, the ESOP or the participants in the ESOP (the "Charter Amendment").
Holders of Congressional Common Stock and Congressional Preferred Stock may
have dissenters' appraisal rights in respect of the Merger. See "The Merger
and the Merger Agreement -- Appraisal Rights" and Article 15 of the Virginia
Stock Corporation Act (the "Virginia Act") attached hereto as Annex B.
This Information Statement/Prospectus also constitutes a prospectus of AMRE
with respect to shares of common stock of AMRE, $0.01 par value ("AMRE Common
Stock"), to be issued in the Merger in exchange for outstanding shares of
Congressional Common Stock and Congressional Preferred Stock. Holders of AMRE
Common Stock do not have dissenters' appraisal rights in respect of the Merger.
An aggregate of approximately 900,000 shares of AMRE Common Stock are
expected to be issued to former holders of Congressional Common Stock and
Congressional Preferred Stock upon consummation of the Merger.
The shares of AMRE Common Stock offered hereby have been approved for
listing on the New York Stock Exchange, Inc. (the "NYSE") subject to notice of
issuance and requisite approvals by Congressional's shareholders. FOR A
DISCUSSION OF CERTAIN CONSIDERATIONS REGARDING THE BUSINESS, OPERATIONS AND
OTHER FACTORS OF AMRE AND CONGRESSIONAL THAT SHOULD BE EVALUATED BEFORE VOTING
ON THE PROPOSALS DESCRIBED HEREIN AT THE SPECIAL MEETING, SEE "RISK FACTORS"
BEGINNING ON PAGE 23.
---------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS INFORMATION STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This Information Statement/Prospectus is first being mailed to shareholders
of Congressional on or about April __, 1996. The Substitute Trustee has
advised AMRE that it will mail the Information Statement/Prospectus, and
accompanying confidential voting instruction forms and supplemental information
regarding the Merger to the ESOP participants on
or about the same date.
The date of this Information Statement/Prospectus is April __, 1996.
<PAGE> 9
AVAILABLE INFORMATION
AMRE is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements, information statements and other information filed
by AMRE with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp, Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, at prescribed rates. AMRE Common Stock is
listed on the NYSE. Reports, proxy and information statements and other
information relating to AMRE can be inspected at the offices of the NYSE at 11
Wall Street, New York, New York 10005.
AMRE has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities to be issued pursuant to the Merger Agreement. This Information
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
Information Statement/Prospectus or in any document incorporated by reference
in this Information Statement/Prospectus as to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits filed as a part
thereof, are available for inspection and copying at the Commission's offices
as described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by AMRE (File No. 1-9632)
pursuant to the Exchange Act are incorporated by reference in this Information
Statement/Prospectus:
1. AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. AMRE's Reports on Form 8-K, dated April 28, 1995, June 19, 1995,
October 17, 1995 and October 31, 1995; and
3. AMRE's Form 8-A, dated July 16, 1987, as amended by Amendment No.
1 to Form 8-A, dated July 28, 1987.
All reports subsequently filed by AMRE pursuant to Section 13(a) or 15(d)
of the Exchange Act after the date of this Information Statement/Prospectus and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference in this Information Statement/Prospectus and to be part hereof from
the date of filing of such reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Information
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so superseded, to
constitute a part of this Information Statement/Prospectus.
THIS INFORMATION STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS INFORMATION
2
<PAGE> 10
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, WITHOUT
CHARGE, DIRECTED TO AMRE, INC. CORPORATE SECRETARY, 8585 N. STEMMONS FREEWAY,
SOUTH TOWER DALLAS, TEXAS, 75247-3805, (214) 658-6300. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUESTS
SHOULD BE MADE BY MAY 10, 1996.
EXCEPT AS INDICATED HEREIN, NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
INFORMATION STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AMRE, CONGRESSIONAL OR ANY OTHER
PERSON. THIS INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL
OR TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
3
<PAGE> 11
TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Congressional Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Merger and the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Security Ownership of Management and Certain Other Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Charter Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Market and Market Prices of AMRE Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Summary Selected Historical Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Selected Unaudited Pro Forma Condensed Combined Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Management of Combined Company; Operating Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Dependence on the CENTURY 21 Home Improvements Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
New Marketing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Costs Relating to Brand Transition, Consummation of License Agreement and the Merger . . . . . . . . . . . . . . . 24
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Integration of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
AMRE Future Taxable Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Dependence on Century 21 License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Volatility of Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Suspension of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Service Mark and Trade Name Infringement Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Congressional ESOP Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Matters to be Considered at the Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Voting at Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Reasons for the Merger; Approvals of the AMRE Board and the Congressional Board . . . . . . . . . . . . . . . . . 30
Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Description of ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Fairness Opinion for ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Federal Securities Laws Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Listing on the New York Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Manner and Basis of Converting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Terms of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
CENTURY 21 LICENSE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Congressional Century 21 License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Facelifters Century 21 License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
CONGRESSIONAL CHARTER AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Facelifters Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
AMRE Charter Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Resignation of Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
AMRE Future Taxable Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
AMRE's First Quarter Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Congressional's First Quarter Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
CONGRESSIONAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
DESCRIPTION OF CONGRESSIONAL CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Congressional Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Congressional Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Authorized Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Possible Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Shareholder Action by Written Consent; Special Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . 63
Amendment to Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Amendment to Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Liability of Directors; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
BUSINESS OF CONGRESSIONAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Company Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Marketing and Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Compliance with Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Trademarks and Service Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
MANAGEMENT INFORMATION OF AMRE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Directors of AMRE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Executive Officers of AMRE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECURITY OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Ownership of AMRE Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Ownership of Congressional Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
AMRE EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Executive Severance Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
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<TABLE>
<S> <C>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION
ACT -- APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex B
NUNEZ EMPLOYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex C
AFFILIATE LETTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex D
OPINION OF ERNST & YOUNG LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex E
FORM OF OPINION OF BARRY GOODMAN LIMITED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex F
</TABLE>
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SUMMARY
The following is only a summary of certain information contained elsewhere
in this Information Statement/Prospectus and does not purport to be complete.
Reference is made to, and this Summary is qualified in its entirety by, the
more detailed information contained elsewhere in this Information
Statement/Prospectus, including the attached Annexes and in documents
incorporated herein by reference. As used in this Information
Statement/Prospectus, the terms "AMRE" and "Congressional" refer to such
corporations, respectively, and, except where the context otherwise requires,
such entities and their respective predecessors and subsidiaries. All
information concerning AMRE included in this Information Statement/Prospectus
has been furnished by AMRE, and all information concerning Congressional or the
ESOP included in this Information Statement/Prospectus has been furnished by
Congressional. Unless otherwise defined herein, capitalized terms used in this
Summary have the meanings ascribed to them elsewhere in this Information
Statement/Prospectus. Unless otherwise indicated, year end financial
information and other information referencing a particular year with respect to
AMRE is as of and for the year ended December 31, and with respect to
Congressional, is for the year ended March 31 (for and prior to 1993), for the
nine months ended December 31, 1993 and for the years ended December 31, 1994
and 1995. Shareholders are urged to read this Information Statement/Prospectus
and the Annexes attached hereto in their entirety.
GENERAL
At the Special Meeting, holders of Congressional Common Stock and
Congressional Preferred Stock (referred to in certain discussions herein
collectively as the "Congressional Shareholders") will be asked to act upon a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger of Merger Sub with and into
Congressional and the Charter Amendment, which are more particularly described
herein. A copy of the Merger Agreement is attached hereto and incorporated
herein by reference as Annex A. If the Merger and related proposals are
approved by the requisite votes of the Congressional Shareholders, Merger Sub
will be merged with and into Congressional, and Congressional will become a
wholly owned subsidiary of AMRE. For a description of certain important federal
income tax consequences of the Merger, see "Summary -- The Merger and the
Merger Agreement"; "-- Certain Federal Income Tax Consequences"; and "Special
Factors -- Certain Federal Income Tax Consequences."
As of April 15, 1996, 14,127,791 shares of AMRE Common Stock were
outstanding. If the matters described in this Information Statement/Prospectus
are approved by the requisite votes of the Congressional Shareholders, AMRE
will issue approximately 900,000 new shares of AMRE Common Stock in exchange
for all shares of Congressional Common Stock and Congressional Preferred Stock
then outstanding.
THE PARTIES
AMRE
AMRE is a direct marketing, in-home sales and installation company
providing quality home improvement products. AMRE commenced business under the
laws of Texas in 1980 and was reincorporated under the laws of Delaware in
February 1987. At December 31, 1995, AMRE had 61 branch offices located in 50
cities in 35 states, and one manufacturing facility. AMRE's principal
executive offices are located at 8585 N. Stemmons Freeway, South Tower, Dallas,
Texas 75247, and its telephone number is (214) 658-6300.
From 1981 until December 1995, AMRE generated virtually all of its revenues
through direct consumer marketing and the in-home sale and installation of
certain home improvement products under an annually renewable license agreement
(collectively, the "AMRE Sears License Agreement"), between American
Remodeling, Inc., a wholly owned subsidiary of AMRE ("ARI"), and Sears, Roebuck
and Co. ("Sears"). ARI, and thereby AMRE, did not renew the AMRE Sears License
Agreement when it expired on December 31, 1995. On October 17, 1995, TM
Acquisition Corp. and Century 21 Real Estate Corporation (collectively referred
to herein as "Century 21"), subsidiaries of HFS Incorporated ("HFS"), and ARI,
entered into a license agreement (the "Century 21 License Agreement"), pursuant
to which Century 21(R) has granted to ARI an exclusive 20 year license to
operate under the name "CENTURY 21 Home Improvements(SM)" ("CENTURY 21 Home
Improvements") for the marketing, sale and installation of certain home
improvement products. ARI
6
<PAGE> 14
also has the right to grant sublicenses under the Century 21 License Agreement.
See "Century 21 License Agreement" and "Risk Factors -- Dependence on the
CENTURY 21 Home Improvements Name"; "-- New Marketing Strategies"; "--
Dependence on Century 21 License Agreement."
AMRE-CONGRESSIONAL ACQUISITION, INC.
AMRE-Congressional Acquisition, Inc. is a wholly owned subsidiary of AMRE
that was formed in order to facilitate the consummation of the Merger and has
conducted no activities other than in connection with the Merger and the Merger
Agreement. The principal executive offices of AMRE-Congressional Acquisition,
Inc. are located at 8585 N. Stemmons, South Tower, Dallas, Texas, 75247, and
its telephone number is (214) 658-6300.
CONGRESSIONAL
Congressional markets, sells, furnishes and installs throughout the
mid-Atlantic region, through its employees and through independent contractors,
vinyl and aluminum siding, wooden decks, replacement vinyl windows, chain link
and vinyl fencing, roofing and patio enclosures. Congressional was
incorporated under the laws of the Commonwealth of Virginia in 1982.
Congressional's principal offices are located at 11216 Waples Mill Road, Suite
101, Fairfax, Virginia 22030, and its telephone number is (703) 934-1000.
Congressional has branch offices in Baltimore, Maryland; Fairfax, Virginia;
Laurel, Maryland; Hagerstown, Maryland; Salisbury, Maryland; Richmond,
Virginia; Norfolk, Virginia; and Trevose, Pennsylvania.
From 1984 through 1995, Congressional sold, furnished and installed home
improvement products under the Sears brand name pursuant to annually renewable
license agreements (collectively, the "Congressional Sears License Agreement").
Congressional has entered into a three-year sublicense agreement with ARI to
sell, furnish and install home improvement products under the CENTURY 21 Home
Improvements name, commencing January 1, 1996 (the "Congressional Century 21
License Agreement"). After consummation of the Merger, the Congressional
Century 21 License Agreement will be terminated automatically. If the Merger
is not consummated, the Congressional Century 21 License Agreement will
continue in effect, with Congressional operating as a sublicensee of AMRE under
the Century 21 License Agreement for the remaining term of the Congressional
Century 21 License Agreement. For additional information regarding
Congressional, see "Business of Congressional."
REASONS FOR THE MERGER
The respective Boards of Directors of AMRE and Congressional have
unanimously approved the Merger Agreement. The principal factors considered by
the AMRE Board and Congressional Board in approving the transaction, are set
forth below.
AMRE
The Board of Directors of AMRE (the "AMRE Board") approved the Merger
Agreement and the Merger and determined that the Merger Agreement and the
transactions contemplated thereby are in the best interests of AMRE and its
shareholders. The AMRE Board considered a combination of AMRE and
Congressional to be an attractive method to take advantage of the strength of
each of the companies and to expand the combined entity's business. The AMRE
Board approved the Merger Agreement and the transactions contemplated thereby
for the following additional reasons: (i) merging with Congressional is a
cost-effective means of expanding AMRE's existing core siding and window
replacement lines into the mid-Atlantic region; (ii) Congressional's operations
complement the mid-Atlantic operations of Facelifters, the leading cabinet
refacing company on the east coast, which AMRE anticipates acquiring through a
merger on or about April 25, 1996; (iii) the Merger should facilitate the
development and expansion of the CENTURY 21 Home Improvements name and related
home improvement products in the mid-Atlantic region; and (iv) Congressional's
divisional management structure and discrete marketing territory create a
favorable environment for AMRE to test new product lines and marketing
programs.
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<PAGE> 15
CONGRESSIONAL
The terms of the Merger Agreement are the result of arms' length
negotiations between representatives of Congressional, the ESOP and AMRE.
After consideration of various factors, including but not limited to, (i) the
size and market presence of the combined entity; (ii) the market liquidity
afforded by the exchange of Congressional Common Stock and Congressional
Preferred Stock for AMRE Common Stock; (iii) the expectation that the Merger
will be a tax-free reorganization for federal income taxation purposes for the
Congressional Shareholders and the ESOP participants (other than in respect to
cash paid to any Congressional Shareholders who properly exercise their
dissenters' rights); and (iv) the fact that the due diligence examination
conducted by representatives of Congressional indicated that AMRE has strong
management, revenue and earnings potential, the Board of Directors of
Congressional (the "Congressional Board") has unanimously approved the Merger
Agreement and the Merger. The consummation of the Merger is conditioned on the
receipt by the Trustees administering the ESOP (the "ESOP Trustees") of the
ESOP Opinion as defined herein. See "Special Factors -- Fairness Opinion for
ESOP."
In evaluating the information summarized above, shareholders should
carefully consider the matters described under "Special Factors -- Reasons for
the Merger"; "Approvals of the AMRE Board and the Congressional Board" and
"Risk Factors."
THE SPECIAL MEETING
PURPOSES OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote, as a single
proposal, upon (i) the approval and adoption of the Merger Agreement and
approval and adoption of the transactions contemplated thereby, including the
Merger, and (ii) in connection with the consummation of the Merger, the Charter
Amendment, which provides for the deletion of the provision requiring that
substantially all of the capital stock of Congressional be owned by its
employees, the ESOP or the participants in the ESOP.
DATE, TIME AND PLACE
The Special Meeting will be held on May 28, 1996, at Congressional's
corporate offices, 11216 Waples Mill Road, Suite 101, Fairfax, Virginia 22030
at 8:00 a.m., local time.
RECORD DATE; SHARES ENTITLED TO VOTE
The Congressional Board has established April 1, 1996 as the record date
for the determination of Congressional Shareholders entitled to notice of and
to vote at the Special Meeting. Each share of Congressional Common Stock is
entitled to one vote, and each share of Congressional Preferred Stock is
entitled to 0.7 of a vote at the Special Meeting. On the record date, there
were 499 shares of Congressional Common Stock and 700 shares of Congressional
Preferred Stock outstanding. All 700 shares of Congressional Preferred Stock
are held by the ESOP. D.S. Berenson, appointed as the substitute trustee of
the ESOP (the "Substitute Trustee"), shall vote all allocated shares of
Congressional Preferred Stock for which instructions are received in accordance
with the confidential voting instructions received from the ESOP participants.
Any allocated shares of Congressional Preferred Stock with respect to which
confidential voting instructions are not received from ESOP participants and
any shares which are not allocated to ESOP participants' accounts as of
December 31, 1995 shall be voted in the manner determined by the Substitute
Trustee that is consistent with the Internal Revenue Code of 1986 (the "Code")
and the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
See "Special Factors--Description of ESOP."
VOTE REQUIRED
The affirmative vote of the holders of more than two-thirds of the issued
and outstanding shares of Congressional Common Stock and more than two-thirds
of the issued and outstanding shares of Congressional Preferred Stock, voting
as separate classes, will be required to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger, and the
Charter Amendment.
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No vote of AMRE stockholders is required to approve and adopt the Merger
Agreement.
For additional information concerning the Special Meeting, see "The Special
Meeting." For information concerning the security ownership of AMRE and
Congressional management and certain other persons, see "Special Factors --
Interests of Certain Persons in the Merger" and "Security Ownership."
CONGRESSIONAL BOARD APPROVAL
The Congressional Board has unanimously approved the Merger Agreement and
the other transactions contemplated thereby, including the Merger and the
Charter Amendment. See "Special Factors -- Reasons for the Merger; Approvals
of the AMRE Board and the Congressional Board."
THE MERGER AND THE MERGER AGREEMENT
THE MERGER AGREEMENT
Pursuant to the Merger Agreement, at the Effective Time (as defined
herein), Merger Sub will merge with and into Congressional, and Congressional
shall continue as the surviving corporation (the "Surviving Corporation") in
the Merger. Ernst & Young has opined that the transaction will qualify as a
tax-free reorganization under Section 368(a)(1)(A) by reason of Section
368(a)(2)(E) of the Code. See "Special Factors -- Certain Federal Income Tax
Consequences."
CONVERSION OF CONGRESSIONAL COMMON STOCK AND CONGRESSIONAL PREFERRED STOCK
Pursuant to the Merger Agreement, each share of Congressional Common Stock
and Congressional Preferred Stock (other than shares held by dissenting
Congressional Shareholders who properly exercise their dissenters' rights or
shares held in treasury) will, at the Effective Time and thereafter, with no
action on the part of the holder thereof, be converted into 601.20 shares and
857.14 shares, respectively, of AMRE Common Stock. No fractional shares of
AMRE Common Stock will be issued. In lieu of any fractional shares, one
additional share of AMRE Common Stock shall be issued for any fractional
interests that otherwise would have been issued. For additional information on
the conversion of shares of Congressional Common Stock and Congressional
Preferred Stock, see "The Merger Agreement -- Manner and Basis of Converting
Shares."
EXCHANGE OF CONGRESSIONAL COMMON STOCK AND CONGRESSIONAL PREFERRED STOCK FOR
AMRE COMMON STOCK
Promptly after consummation of the Merger, The Bank of New York (the
"Exchange Agent") will mail a letter of transmittal with instructions to each
holder of record of Congressional Common Stock and Congressional Preferred
Stock immediately before the Effective Time for use in exchanging certificates
representing shares of Congressional Common Stock and Congressional Preferred
Stock for certificates representing shares of AMRE Common Stock. Certificates
should not be surrendered by the holders of Congressional Common Stock until
they have received a letter of transmittal from the Exchange Agent. See "The
Merger Agreement -- Manner and Basis of Converting Shares."
AMRE Common Stock is listed for trading on the NYSE. The shares of AMRE
Common Stock to be issued in connection with the Merger have been approved for
listing on the NYSE subject to notice of issuance and requisite approvals by
the Congressional Shareholders.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of a number of
conditions to the obligations of the parties to the Merger Agreement. See "The
Merger Agreement -- Terms of the Merger Agreement -- Conditions to the Merger";
"-- Additional Conditions to the Obligations of Congressional"; and " --
Additional Conditions to the Obligations of AMRE."
9
<PAGE> 17
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the later to occur of the issuance of
a Certificate of Merger by the State Corporation Commission of the Commonwealth
of Virginia and the filing of a Certificate of Merger with the Secretary of
State of Delaware at the effective time set forth in such filings (the
"Effective Time"). Assuming all conditions to the Merger contained in the
Merger Agreement are satisfied or waived prior thereto, it is anticipated that
the Effective Time of the Merger will occur as soon as practicable following
the Special Meeting.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the Congressional Shareholders, (i)
by mutual written consent of the boards of AMRE, Merger Sub and Congressional;
(ii) by either of the boards of Merger Sub or Congressional if the Effective
Time shall not have occurred on or before June 30, 1996 and the failure of the
Effective Time occurring on or before such date is not due to any action of the
terminating party; (iii) if an order, decree or ruling shall have been issued
by a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission, or other action is taken which permanently
restrains, enjoins, or otherwise prohibits the transactions contemplated in the
Merger Agreement, and such order, decree, ruling or action becomes final and
nonappealable; or (iv) by Congressional, in the event a third party makes a
bona fide offer to acquire substantially all of the assets of Congressional, to
merge, consolidate or otherwise enter into a combination of interests. If the
Merger Agreement is terminated pursuant to clause (iv) of the preceding
sentence, Congressional will be required to pay AMRE a termination fee of
$500,000 (the "Termination Fee"). If the Merger Agreement is terminated (a)
pursuant to clause (ii) above or (b) if the Effective Time shall not have
occurred on or before June 30, 1996, and for reasons other than the failure to
meet the general conditions and AMRE's additional conditions to effect the
Merger, as set forth under the Merger Agreement, AMRE shall pay Congressional
the Termination Fee.
AMENDMENT TO THE MERGER AGREEMENT
The Merger Agreement may be amended at any time by the boards of directors
of AMRE, Merger Subs and Congressional; provided that, after any shareholder
approval is obtained as described herein, no amendment may be made that changes
the form or reduces the amount of consideration to be paid to the Congressional
Shareholders or that in any other way materially adversely affects the rights
of such Congressional Shareholders (other than the termination of the Merger
Agreement in accordance with its provisions) without further shareholder
approval. Prior to the Effective Time, any provision of the Merger Agreement
may be waived in writing by the party entitled to the benefits thereof. As of
April 17, 1996 the parties amended the Merger Agreement to extend the
termination date from April 30, 1996 to June 30, 1996. Neither AMRE nor
Congressional has any current intention to seek a further amendment to or
waiver of any provision of the Merger Agreement. See "The Merger Agreement --
Terms of the Merger Agreement -- Termination Amendments."
FAIRNESS OPINION FOR ESOP
The consummation of the Merger is conditioned upon the receipt at the
Effective Time by the Substitute Trustee of an opinion (the "ESOP Opinion")
from Barry Goodman Limited or another such qualified independent appraiser,
that (i) the exchange of the Congressional Preferred Stock for AMRE Common
Stock by the ESOP is for adequate consideration (as defined in Section 3(18) of
ERISA and the proposed regulations thereunder) and (ii) the transactions
contemplated by the Merger Agreement (including such exchange) are fair to the
ESOP from a financial point of view. On November 17, 1995, Barry Goodman
Limited conducted a preliminary appraisal of the fair market value of the
Congressional Common Stock and Congressional Preferred Stock for the ESOP
Trustees. The form of the ESOP Opinion is attached to this Information
Statement/Prospectus as Annex F. Congressional Shareholders are urged to read
the ESOP Opinion in its entirety. See "Special Factors -- Fairness Opinion for
ESOP."
10
<PAGE> 18
ACCOUNTING TREATMENT
It is the intent of the parties that the transaction be treated as a
pooling of interests for accounting purposes. In that regard, the parties have
agreed to not (and to not knowingly permit any of their respective affiliates
to) take any reasonable action or fail to take any action that would jeopardize
the treatment of the Merger as a pooling of interests in accordance with
generally accepted accounting principles. If, prior to the Effective Time, the
parties become aware of any circumstance that would prevent the Merger from
being treated as a pooling of interests for accounting purposes, Congressional
shareholder approval will be resolicited. For a discussion of the effect of
the application of pooling of interests to this transaction, see "Special
Factors -- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Congressional has obtained an opinion (the "Ernst & Young Opinion") from
Ernst & Young LLP ("Ernst & Young") as to certain of the expected federal
income tax consequences of the Merger. The Ernst & Young Opinion is attached
to this Information Statement/Prospectus as Annex E. AMRE and Congressional
have been advised that the Internal Revenue Service (the "IRS") no longer
issues rulings in connection with Section 368(a)(1)(A) reorganizations.
Subject to the conditions, qualifications and representations contained
herein and in the Ernst & Young Opinion, Ernst & Young has opined that each of
the following income tax consequences will result (i) the Merger will qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the
Code by reason of Section 368(a)(2)(E) of the Code; (ii) AMRE, Merger Sub and
Congressional will each be a party to the reorganization within the meaning of
Section 368(b) of the Code; (iii) the Merger will not result in the recognition
of gain or loss to AMRE, Merger Sub, Congressional or the Congressional
Shareholders, except for any cash paid in connection with the exercise of
dissenters' rights; (iv) the adjusted basis of each former Congressional
shareholder in the AMRE Common Stock received in the Merger will be the same as
the adjusted basis of the Congressional stock surrendered in exchange therefor;
and (v) the holding period of the AMRE Common Stock received by Congressional
Shareholders will include the holding period of the Congressional stock
surrendered in exchange therefor.
The Ernst & Young Opinion is based on significant representations made by
the parties to the Merger Agreement. If such representations are not accurate,
it is possible that the Merger will instead be treated as a taxable acquisition
of Congressional stock by AMRE. In that event, one consequence would be that
each of the Congressional Shareholders would recognize gain or loss equal to
the difference between the fair market value of the AMRE Common Stock received
and such shareholder's adjusted basis in its Congressional stock.
This summary is based on the Code, Treasury Regulations promulgated
thereunder, administrative rulings, pronouncements of the IRS and judicial
decisions, all as of the date of the Ernst & Young Opinion, and all of which
are subject to change, possibly retroactively. Ernst & Young has no duty to
update its opinion following the effective date of the Merger. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES OF THE
MERGER, THE HOLDING AND DISPOSITION OF THE SECURITIES OFFERED HEREIN, AND THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER
TAX LAWS WITH RESPECT TO THEIR OWN PARTICULAR CIRCUMSTANCES. For a discussion
of these and other federal income tax considerations in connection with the
Merger, see "Special Factors -- Certain Federal Income Tax Consequences."
APPRAISAL RIGHTS
Holders of Congressional Common Stock and Congressional Preferred Stock who
properly dissent and vote against or abstain from voting with respect to the
Merger shall be entitled to receive payment from the Surviving Corporation of
the fair value of such holders' shares pursuant to the Merger Agreement and
under Article 15 of the Virginia Act attached hereto as Annex B. The
Substitute Trustee will assert dissenters' rights on behalf of any ESOP
participant, as to allocated Congressional Preferred Stock beneficially owned
by such ESOP particpant, upon receipt of timely notice thereof from such person
in conformity with the Article 15 requirements of the Virginia Act.
Notwithstanding the foregoing, such ESOP participant must continue to
11
<PAGE> 19
comply with Article 15 of the Virginia Act following such notice. See "Special
Factors -- Appraisal Rights" and "The Merger Agreement." Holders of AMRE
Common Stock are not entitled to dissenters' appraisal rights under the
Delaware General Corporation Law (the "Delaware Act").
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER PERSONS
AMRE
As of April 15, 1996, directors and executive officers of AMRE and their
affiliates beneficially owned approximately 6.8% of the outstanding shares of
AMRE Common Stock. See "Security Ownership -- Ownership of AMRE Securities."
CONGRESSIONAL
As of April 15, 1996, directors and executive officers of Congressional and
their affiliates beneficially owned approximately 80.0% of the outstanding
shares of Congressional Common Stock and were beneficial indirect owners
through accounts held by the ESOP of approximately .026% of the outstanding
shares of Congressional Preferred Stock. See "Security Ownership -- Ownership
of Congressional Securities."
For additional information on share ownership of Congressional and
Congressional's directors and officers, see "Special Factors -- Interests of
Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
At the Effective Time, John B. Nunez, the President of Congressional, will
enter into an employment agreement with AMRE regarding the continuing
management of the business conducted by Congressional. A copy of the
employment agreement for Mr. Nunez, the execution of which is prescribed in the
Merger Agreement, is attached hereto as Annex C.
Certain officers and directors of Congressional, by virtue of their share
ownership in Congressional and/or participation in the ESOP, will receive AMRE
Common Stock upon consummation of the Merger.
For a more detailed description of the foregoing transactions, see "Special
Factors -- Interests of Certain Persons in the Merger -- Employment Agreement";
"-- Background of the Merger"; "-- Interests of Certain Persons in the Merger";
and "-- Effects of the Merger."
CHARTER AMENDMENT
If approved by the Congressional Shareholders at the Special Meeting, the
Charter Amendment will allow for the consummation of the Merger by deleting the
provision that currently requires substantially all of the capital stock of
Congressional to be owned by its employees, the ESOP or the participants in the
ESOP. See "Congressional Charter Amendment."
RECENT DEVELOPMENTS
Facelifters Merger
On October 31, 1995, AMRE entered into an Agreement and Plan of Merger (the
"Facelifters Merger Agreement") with Facelifters Home Systems, Inc., a Delaware
corporation ("Facelifters"), Facelifters Home Systems, Inc., a New York
corporation, and AMRE Acquisition Inc., a newly-formed wholly owned subsidiary
of AMRE ("Facelifters Merger Sub"). Pursuant to the Facelifters Merger
Agreement, Facelifters Merger Sub will merge with and into Facelifters (the
"Facelifters Merger"). The Joint Proxy Statement/Prospectus filed in
connection with the Facelifters Merger became effective on March 27, 1996, and
the related special meeting of stockholders for each of AMRE and Facelifters is
scheduled for April 25, 1996. As the corporation surviving the Facelifters
Merger, Facelifters will become a direct, wholly owned subsidiary of AMRE. In
the Facelifters Merger, each outstanding share of common stock of Facelifters,
$0.01 par value per share (the "Facelifters Common Stock"), will be converted
into one share of AMRE Common
12
<PAGE> 20
Stock. Based on the number of shares of Facelifters Common Stock outstanding
on March 4, 1996, an aggregate of approximately 3,565,680 shares of AMRE Common
Stock are expected to be issued to holders of Facelifters Common Stock upon
consummation of the Facelifters Merger. In addition, AMRE will reserve
approximately 407,791 shares of AMRE Common Stock for issuance upon the
exercise of outstanding options to acquire Facelifters Common Stock. In
connection with the Facelifters Merger, AMRE incurred certain nonrecurring
charges in the quarter ended December 31, 1995. For additional information on
the Facelifters Merger, see "Recent Developments -- the Facelifters Merger" and
"Selected Unaudited Pro Forma Condensed Combined Financial Data."
In connection with the Facelifters Merger and upon approval of shareholders
holding a majority of AMRE Common Stock, the Certificate of Incorporation of
AMRE (the "AMRE Certificate") shall be amended to provide for an increase in
the number of authorized shares of AMRE Common Stock from 20 million to 40
million. See "Recent Developments -- AMRE Charter Amendment."
Wagner Resignation
On December 1, 1995, Ronald I. Wagner announced his resignation as Chairman
of the Board of the AMRE Board. In connection therewith, Mr. Wagner entered
into certain agreements with AMRE relating to his resignation. As a result,
AMRE incurred a nonrecurring charge to operations of approximately $3.9 million
in the quarter ended December 31, 1995. For additional information on Mr.
Wagner's resignation, see "Recent Developments -- Resignation of Chairman."
Election of New Chairman
On December 4, 1995, AMRE announced that Mr. John D. Snodgrass had been
selected as the new Chairman of the AMRE Board. For biographical information
on Mr. Snodgrass, see "Management Information of AMRE -- Directors of AMRE."
AMRE's First Quarter Outlook
While the Sears License Agreement was in effect in 1995, AMRE received
approximately 20.0% of its leads through AMRE employees working in the Sears
retail stores. These Sears "in-store leads" will have to be replaced under the
Century 21 License Agreement, and to this end AMRE opened in 1996 approximately
100 free standing kiosks in major shopping malls across the country and will
increase its presence at home shows. AMRE also plans to substantially increase
its reliance on telemarketing as a lead source and opened two outbound
telemarketing centers in December 1995 and January 1996 in order to accomplish
this objective. In addition, AMRE is working with Century 21 to develop a
program of lead referrals from the Century 21 real estate broker network.
However, there can be no assurance that AMRE will be successful in replacing
its prior Sears in-store lead source and the failure to replace such leads
would have an adverse impact on AMRE's operating results.
Pursuant to the Sears License Agreement, AMRE was required to deliver to
Sears in January 1996, all of the leads it generated under the Sears name
through December 31, 1995. Thus, in January 1996, AMRE had to quickly generate
as many leads as possible and had to do so without Sears in-store leads, a
major 1995 lead source. The new outbound telemarketing centers, the in-mall
program and the Century 21 lead referral program may not produce any
significant amount of cost-effective leads for several months. Therefore, lead
generation in early 1996 will emphasize quick response media, such as
television and radio, as well as telemarketing leads purchased from a third
party vendor, which will increase lead generation costs. In addition, AMRE
will pay license fees to Sears at the 12.0% rate on installed revenue resulting
from the installation of the December 31, 1995 production backlog of $22.3
million which should occur in the 1996 first quarter. As a result of these
factors, AMRE expects to have a significant decline in installed revenues in
the first quarter of 1996, as compared to the same period of 1995, and will
incur a loss from operations. Furthermore, because of the uncertainties
associated with the time and cost to build awareness of the CENTURY 21 Home
Improvements name, AMRE's ability to generate significant amounts of
cost-effective leads and the integration of the companies resulting from the
Congressional and Facelifters mergers, it is not possible to estimate when AMRE
will return to profitability.
13
<PAGE> 21
AMRE's cash and marketable securities totaled $19.1 million at December 31,
1995. AMRE's management believes that existing cash and marketable securities,
available capacity under its $4.0 million revolving line of credit with HFS and
cash flow from operations will be sufficient to meet the company's obligations.
However, the conversion to the CENTURY 21 Home Improvements name, as well as
the integration of the companies resulting from the mergers, will require
substantial attention from management. In addition, there can be no assurance
that AMRE will successfully integrate the operations of the individual
companies upon consummation of the mergers, or that any of the benefits
expected will be realized. Any delays or unexpected costs incurred in
connection with such integration could have an adverse effect on the combined
company's business, operating results or financial condition in the short term.
To ensure that adequate capital is available to complete the brand name
transition and the mergers, AMRE has engaged in discussions with several
investment banking and other firms regarding the possible sale of AMRE
securities to raise additional capital. These discussions include the
possibility of selling up to 2.0 million shares of AMRE Common Stock in a
private placement with registration rights. However, these discussions are
still in their formative stages, and there can be no assurance that additional
sources of capital will be available to AMRE. Historically, AMRE has relied on
cash flow from operations to finance both short and long term capital needs.
Management believes that once the brand name transition has been completed,
this will once again be the case in the future. See "Risk Factors -- New
Market Strategies"; "-- Costs Relating to Brand Transition, Consummation of
License Agreement and the Merger"; "-- Integration of the Business"; and "--
Seasonality."
Congressional's First Quarter Outlook
While the Sears License Agreement was in effect in 1995, Congressional
received approximately 40.0% of its leads through Congressional employees
working in the Sears retail stores. This Sears "in-store lead" source will
have to be replaced under the Century 21 License Agreement, and to this end
Congressional increased its reliance on telemarketing as a lead source and
opened a second outbound telemarketing center in February 1996, in order to
accomplish this objective. Congressional also increased its expenditures on
television and mail marketing lead sources. In addition, Congressional is
working to develop a program of lead referrals from the Century 21 real estate
broker network. However, there can be no assurance that Congressional will be
successful in replacing its prior Sears in-store lead source and the failure to
replace such leads would have an adverse impact on Congressional's operating
results.
Pursuant to the Sears License Agreement, Congressional was required to
deliver to Sears in January 1996, all of the leads it generated under the Sears
name through December 31, 1995. Thus, in January 1996, Congressional had to
generate leads without the benefit of in-store leads, a major 1995 lead source.
The new outbound telemarketing center, the increased expenditures on television
and mail marketing and the Century 21 lead referral program may not produce any
significant amount of cost-effective leads for several months. In addition,
Congressional will pay license fees to Sears at a blended 13.5% rate on the
installed revenue resulting from the installation of the December 31, 1995
production backlog of approximately $1.9 million which was completed in the
1996 first quarter. As a result of these factors, Congressional had a
significant decline in installed revenues in the first quarter of 1996, as
compared to the same period of 1995, and incurred a loss from operations.
Furthermore, because of the uncertainties associated with the time and cost to
build awareness of the CENTURY 21 Home Improvements name, Congressional's
ability to generate significant amounts of cost-effective leads and the
integration of the companies resulting from the Merger, it is not possible to
estimate if or when Congressional will return to profitability.
Congressional's management believes that cash flow from operations will be
sufficient to meet the company's obligations. However, the conversion to the
CENTURY 21 Home Improvements name, as well as the integration with AMRE
resulting from the Congressional Merger, will require substantial attention
from management. In addition, there can be no assurance that AMRE and
Congressional will successfully integrate the operations of the individual
companies upon consummation of the Merger, or that any of the benefits expected
will be realized. Any delays or unexpected costs incurred in connection with
such integration could have an adverse effect on the combined company's
business, operating results or financial condition in the short term. See
"Risk Factors -- New Marketing Strategies;" "-- Costs Relating to Brand
Transition -- Consummation of License Agreement and the Merger;" "--
Integration of the Business;" and "-- Seasonality."
14
<PAGE> 22
MARKET AND MARKET PRICES OF
AMRE COMMON STOCK
AMRE Common Stock is traded on the NYSE under the symbol AMM. The
information presented in the table below represents the high and low sale
prices per share on the NYSE for AMRE Common Stock for the periods indicated.
On November 29, 1995, the last full trading day prior to the public
announcement of the Merger, the last sale price for AMRE Common Stock was $12
1/2, and on April 17, 1996, the last full trading day for which quotations were
available as of the date of this Information Statement/Prospectus, the last
sale price for AMRE Common Stock was $18. Following the Merger, AMRE Common
Stock will continue to be traded on the NYSE.
<TABLE>
<CAPTION>
AMRE COMMON STOCK
Calendar ------------------
Year High Low
- -------- ---- ---
<S> <C> <C>
1994
First Quarter . . . . . . . . . . . . . . . . . . . . . $4 5/8 $3 1/2
Second Quarter . . . . . . . . . . . . . . . . . . . . . $4 1/8 $3 1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . $4 1/2 $3 1/8
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $5 7/8 $ 4
1995
First Quarter . . . . . . . . . . . . . . . . . . . . . $5 5/8 $4 1/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . $4 7/8 $3 7/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . $4 1/2 $3 1/8
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $15 $4 1/4
1996
First Quarter . . . . . . . . . . . . . . . . . . . . . . 21 7/8 14 3/8
Second Quarter (through April 16, 1996) . . . . . . . . . 19 1/4 $ 18
</TABLE>
CONGRESSIONAL SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE AMRE COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE
MARKET PRICE OF THE AMRE COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE
MERGER IS CONSUMMATED. THE MARKET PRICE OF THE AMRE COMMON STOCK WILL
FLUCTUATE BETWEEN THE DATE OF THIS INFORMATION STATEMENT/PROSPECTUS AND THE
DATE ON WHICH THE MERGER IS CONSUMMATED AND THEREAFTER.
CONGRESSIONAL COMMON STOCK AND PREFERRED STOCK
There is no established public trading market for Congressional Common
Stock or Congressional Preferred Stock.
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<PAGE> 23
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected historical
consolidated financial data for AMRE and Congressional. The financial data for
the periods indicated have been derived from the AMRE historical consolidated
financial statements incorporated by reference in this Information
Statement/Prospectus and from the Congressional historical financial statements
included elsewhere in this Information Statement/Prospectus. The information
below should also be read in conjunction with AMRE Consolidated Financial
Statements and related notes incorporated by reference in this Information
Statement/Prospectus and Congressional Financial Statements and related notes
included elsewhere in this Information Statement/Prospectus.
AMRE, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the
Years Ended
-----------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Operations
(For the Period):
Revenue . . . . . . . . . . $271,337 $ 285,930 $ 260,692 $ 274,268 $294,716
Income (loss) from
continuing operations . . (22,385) 1,459 856 8,240 5,251
Income (loss) from
continuing operations
per share . . . . . . . . (1.73) .11 .07 .59 .37
Weighted average shares . . 12,903 13,031 13,120 13,928 13,879
Financial Position (At
Period End):
Total assets . . . . . . . . $ 54,314 $ 68,827 $ 70,581 $ 71,289 $ 83,760
Working capital . . . . . . 189 11,862 9,556 8,404 3,849
Long-term debt . . . . . . . 241 -- -- -- --
Redeemable preferred stock . 3,000 -- -- -- --
Stockholders' equity . . . . 13,345 33,410 33,493 34,624 28,535
</TABLE>
16
<PAGE> 24
CONGRESSIONAL CONSTRUCTION CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Year For the Nine For the Fiscal
Ended Months Ended Year Ended
December 31, December 31, March 31,
---------------------- ---------------- -----------------------------
1995 1994 1993 1993 1992
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Summary of Operations
(For the Period)
Revenue . . . . . . . . $18,818 $ 17,520 $ 10,460 $ 13,579 $ 10,597
Income (loss) from
continuing operations (209) 235 (143) (9) 38
Income (loss) from
continuing operations
per share . . . . . . (336) 412 (143) (9) 38
Weighted average shares .623 .570 1 1 1
Financial Position (at
Period End):
Total assets . . . . 1,426 1,832 1,074 956 1,242
Working capital . . . (808) (369) (407) 236 265
Long-term debt . . . 4,808 5,364 6,178 10 17
Shareholders' equity (5,347) (5,546) (6,503) 303 312
</TABLE>
17
<PAGE> 25
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma condensed combined
financial data present (1) the Congressional Merger and (2) the Facelifters
Merger, assuming such mergers are consummated. The data are presented assuming
the Congressional Merger and the Facelifters Merger will be treated as poolings
of interests for accounting purposes. The Financial Position data reflect the
combined historical data of AMRE, Congressional and Facelifters at December 31,
1995. The unaudited pro forma condensed combined summary of operations data
were derived from the consolidated financial statements of AMRE for the years
ended December 31, 1995, 1994 and 1993; the financial statements of
Congressional for the twelve months ended December 31, 1995 and 1994, the nine
months ended December 31, 1993, and the fiscal year ended March 31, 1993; and
the consolidated financial statements of Facelifters for the nine months ended
December 31, 1995 and 1994 and the fiscal years ended March 31, 1995, 1994 and
1993. The consolidated financial statements of Congressional and Facelifters
have been recast to a calendar year to conform with AMRE's fiscal year in
computing the unaudited pro forma condensed combined summary of operations data
for all periods presented.
The unaudited pro forma condensed combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the Congressional Merger and the Facelifters Merger been in effect on the
date indicated or as of the beginning of the periods presented and should not
be construed as representative of future operations.
18
<PAGE> 26
AMRE, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
AMRE AND CONGRESSIONAL
SUMMARY OF OPERATIONS (FOR THE PERIOD):
Revenue . . . . . . . . . . . . . . . . . . . . $ 290,155 $ 303,450 $ 273,601
Income (loss) from continuing operations . . . (22,594) 1,694 79
Income (loss) from continuing operations per
share . . . . . . . . . . . . . . . . . . . (1.65) .10 (.01)
Weighted average shares . . . . . . . . . . . . 13,803 13,931 14,020
FINANCIAL POSITION (AT PERIOD END):
Total assets . . . . . . . . . . . . . . . . . $ 55,740
Working capital . . . . . . . . . . . . . . . . (869)
Long-term debt . . . . . . . . . . . . . . . . 5,049
Redeemable preferred stock . . . . . . . . . . 3,000
Stockholders' equity . . . . . . . . . . . . . 7,748
AMRE, CONGRESSIONAL AND FACELIFTERS
SUMMARY OF OPERATIONS (FOR THE PERIOD):
Revenue . . . . . . . . . . . . . . . . . . . . $ 339,907 $ 337,608 $ 299,375
Income (loss) from continuing operations . . . (23,862) 2,025 1,451
Income (loss) from continuing operations
per share . . . . . . . . . . . . . . . . . (1.40) .10 .07
Weighted average shares . . . . . . . . . . . . 17,194 17,108 18,181
FINANCIAL POSITION (AT PERIOD END):
Total assets . . . . . . . . . . . . . . . . . $ 68,086
Working capital . . . . . . . . . . . . . . . . (518)
Long-term debt . . . . . . . . . . . . . . . . 6,120
Redeemable preferred stock . . . . . . . . . . 3,000
Stockholders' equity . . . . . . . . . . . . . 10,665
</TABLE>
19
<PAGE> 27
COMPARATIVE PER SHARE DATA
(unaudited)
The following tables set forth certain historical per share data of AMRE and
Congressional and combined per share data of (i) AMRE and Congressional, (ii)
AMRE and Facelifters, and (iii) AMRE, Congressional and Facelifters and
combined equivalent per share data of (i) AMRE and Congressional and (ii) AMRE,
Congressional and Facelifters on an unaudited pro forma basis after giving
effect to the Congressional Merger and Facelifters Merger as poolings of
interests assuming (i) the issuance of 900,000 shares of AMRE Common Stock in
the Congressional Merger for all of the outstanding Congressional Preferred
Stock and Congressional Common Stock and (ii) the issuance of one share of
AMRE Common Stock in the Facelifters Merger in exchange for each share of
Facelifters Common Stock. This data should be read in conjunction with the
summary selected historical consolidated financial data, the unaudited pro
forma condensed combined financial statements included elsewhere in the
Information Statement/Prospectus, AMRE consolidated financial statements and
related notes incorporated by reference in this Information
Statement/Prospectus and Congressional financial statements and related notes
and Facelifters consolidated financial statements and related notes included
elsewhere in this Information Statement/Prospectus.
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
HISTORICAL AMRE
Income (loss) from continuing
operations per share . . . . . . . . . . . . $ (1.73) $ .11 $ .07
Cash dividends declared per share . . . . . . . $ .06 $ .12 $ .12
Book value per share(1) . . . . . . . . . . . . $ 1.00
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months
December 31, Ended December 31,
------------------------------ -------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
HISTORICAL CONGRESSIONAL
Income (loss) from continuing
operations per share . . . . . . . . . . . . $ (209) $ 235 $ (143)
Cash dividends declared per share . . . . . . . $ -- $ - $ -
Book value per share(1) . . . . . . . . . . . . $ (5,347)
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
AMRE AND CONGRESSIONAL(2)
Pro Forma Combined
Income (loss) from continuing
operations per share(3) . . . . . . . . . . $ (1.65) $ .10 $ (.01)
Cash dividends declared per share(6) . . . . . $ .05 $ .11 $ .11
Book value per share(3) . . . . . . . . . . . . $ .56
</TABLE>
20
<PAGE> 28
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
AMRE AND FACELIFTERS(2)
PRO FORMA COMBINED
Income (loss) from continuing
operations per share(4) . . . . . . . . . . $ (1.47) $ .10 $ .12
Cash dividends declared per share(7) . . . . . $ .05 $ .10 $ .10
Book value per share(4) . . . . . . . . . . . . $ .97
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
AMRE, CONGRESSIONAL AND FACELIFTERS(2)
PRO FORMA COMBINED
Income (loss) from continuing
operations per share(5) . . . . . . . . . . $ (1.40) $ .10 $ .07
Cash dividends declared per share(8) . . . . . $ .05 $ .09 $ .09
Book value per share(5) . . . . . . . . . . . . $ .60
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
AMRE AND CONGRESSIONAL(2)
EQUIVALENT PRO FORMA COMBINED(9)
Income (loss) from continuing
operations per share . . . . . . . . . . . . $ (967.93) $ 60.12 $ (6.01)
Cash dividends declared per share . . . . . . . $ 30.36 $ 66.13 $ 66.13
Book value per share . . . . . . . . . . . . . $ 336.67
AMRE, CONGRESSIONAL AND FACELIFTERS(2)
EQUIVALENT PRO FORMA COMBINED(9)
Income (loss) from continuing
operations per share . . . . . . . . . . . . $ (841.68) $ 60.12 $ 42.08
Cash dividends declared per share . . . . . . . $ 30.06 $ 54.11 $ 60.12
Book value per share . . . . . . . . . . . . . $ 372.74
</TABLE>
(1) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding (in thousands)
on the face of each company's balance sheet included in Form 10-K, Form
10-Q or herein, as appropriate, as of the date indicated.
(2) For purposes of the Pro Forma Combined and the Equivalent Pro Forma
Combined Data, Congressional and Facelifters data has been recast to a
calendar year to conform with AMRE's fiscal year end for all periods
presented.
(3) AMRE and Congressional Pro Forma Combined per share data is computed after
giving effect to the issuance of 900,000 shares of AMRE Common Stock for
all of the outstanding shares of Congressional Preferred Stock and
Congressional Common Stock to effect the Congressional Merger. For all
periods presented, the earnings (loss) per share from continuing operations
gives effect to the dividends on the AMRE Senior Convertible Preferred
Stock (as defined herein) ($240,000 annually) issued incident to the
Century 21 License Agreement; however, the AMRE Senior Convertible
Preferred Stock was not considered a common stock equivalent for any of the
periods presented.
(4) AMRE and Facelifters Pro Forma Combined per share data is computed after
giving effect to the issuance of one share of AMRE Common Stock for each
share of Facelifters Common Stock to effect the Facelifters Merger. For
all periods presented, the earnings (loss) per share from continuing
operations gives effect to the dividends on the AMRE Senior Convertible
Preferred Stock (as defined herein) ($240,000 annually) issued incident to
the Century 21 License Agreement; however, the AMRE Senior Convertible
Preferred Stock was not considered a common stock equivalent for any of the
periods presented.
21
<PAGE> 29
(5) AMRE, Congressional and Facelifters Pro Forma Combined per share data is
computed after giving effect to the transactions in Footnotes 3 and 4
above.
(6) For purposes of the Pro Forma Combined data, cash dividends per share is
computed by dividing the total cash dividends paid by the Pro Forma shares
outstanding after giving effect to the transactions described in Footnote
3.
(7) For purposes of the Pro Forma Combined data, cash dividends per share is
computed by dividing the total cash dividends paid by the Pro Forma shares
outstanding after giving effect to Footnote 4 described above.
(8) For purposes of the Pro Forma Combined data, cash dividends per share is
computed by dividing the total cash dividends paid by the Pro Forma shares
outstanding after giving effect to Footnote 5 described above.
(9) The Equivalent Pro Forma Combined data equates the Pro Forma Combined per
share amounts to the respective values per share of Congressional Common
Stock and is calculated by multiplying the respective Pro Forma Combined
data by the number of shares of AMRE Common Stock into which each share of
Congressional Common Stock is being converted.
22
<PAGE> 30
RISK FACTORS
The following factors should be considered carefully by the Congressional
Shareholders in connection with voting upon the Merger Agreement and the
transactions contemplated by the Merger Agreement, including the Merger and the
Charter Amendment, in addition to other matters as set forth herein or
incorporated hereby by reference. This Information Statement/Prospectus
contains certain forward looking statements about the business, operations and
financial condition of AMRE and Congressional, including various statements
contained in "Summary -- Recent Developments"; "Recent Developments"; and
"Congressional Management's Discussion and Analysis of Financial Condition and
Results of Operations;" and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which is incorporated herein by
reference from AMRE's Annual Report on Form 10-K for the year ended December
31, 1995. The actual results of AMRE and Congressional could differ materially
from those forward looking statements. The following information sets forth
certain factors that could cause the actual results of each of AMRE and
Congressional (and AMRE and Congressional as a combined company) to differ
materially from those contained in the forward looking statements.
MANAGEMENT OF COMBINED COMPANY; OPERATING LOSSES
The integration of both Facelifters and Congressional into AMRE, as well as
the conversion to the CENTURY 21 Home Improvements name, will require
substantial attention from management. In addition, AMRE and Congressional
incurred operating losses for the fourth quarter and for the 1995 year, and
Facelifters incurred operating losses for the nine- month period ending
December 31, 1995 and expects to incur a loss for the year ended March 31,
1996. The diversion of management attention and any other difficulties
encountered in the conversion or transition process or continued losses by
AMRE, Facelifters and Congressional could have an adverse effect on the
business, financial condition and results of operations of the combined
company.
DEPENDENCE ON THE CENTURY 21 HOME IMPROVEMENTS NAME
The Sears brand name is widely recognized and accepted in the home
improvement industry and has significant brand name appeal to a wide variety of
customers. Although the CENTURY 21 Home Improvements name was not used in the
home improvement industry before 1996 at which time AMRE began using the name,
AMRE's management believes such brand name will also be well recognized;
however, there can be no assurance that revenues under the CENTURY 21 Home
Improvements name will be similar to or greater than those under the Sears
brand name. In addition, neither Facelifters nor Congressional renewed their
respective Sears License Agreements. Congressional and Facelifters entered
into sublicenses under AMRE's Century 21 License Agreement and thus, their
businesses will be subject to substantially the same risks as AMRE in operating
under the CENTURY 21 Home Improvements name. If the CENTURY 21 Home
Improvements name does not result in advertising response rates and sales rates
equal to or better than those experienced under the Sears brand name, it will
likely have an adverse effect on the business, operating results and financial
condition of the combined company.
NEW MARKETING STRATEGIES
Leads on potential customers are critically important to AMRE's business,
and under the terms of the AMRE Sears License Agreement, AMRE was required to
deliver to Sears all customer leads generated through December 31, 1995. Thus,
in January 1996, AMRE had to quickly generate as many leads as possible.
Under the Sears brand name, AMRE generated 80.0% of its leads for potential
customers through television, radio, direct mail, telemarketing and alternative
media sources. AMRE now conducts this advertising using the CENTURY 21 Home
Improvements name. There is no way to estimate the time required to build
brand awareness of the CENTURY 21 Home Improvements name or whether AMRE will
23
<PAGE> 31
receive advertising response rates similar to those experienced under the Sears
brand name. While the AMRE Sears License Agreement was in effect, AMRE
received approximately 20.0% of its leads through AMRE employees working in the
Sears retail stores. This Sears in-store lead source will have to be replaced
under the Century 21 License Agreement, and to this end AMRE has opened
approximately 100 free standing kiosks in major shopping malls across the
country and intends to increase its presence at home shows. The mall kiosk
program required a capital investment of approximately $750,000 and future
annual operating lease rentals are estimated to be $2.0 million for the initial
approximately 100 locations. AMRE will periodically evaluate the in-mall
program and may open additional locations during 1996. AMRE also plans to
substantially increase its reliance on telemarketing as a lead source and has
opened two outbound telemarketing centers since December 1995 in order to
accomplish this objective. In addition, AMRE is working with Century 21 to
develop a program of lead referrals from the Century 21 real estate broker
network. However, there can be no assurance that AMRE will be successful in
replacing its prior Sears in-store leads, and the failure to replace such leads
will have an adverse impact on the operating results of the combined company.
COSTS RELATING TO BRAND TRANSITION, CONSUMMATION OF LICENSE AGREEMENT AND THE
MERGER
In an effort to begin operations under the CENTURY 21 Home Improvements
name on January 1, 1996 with an adequate supply of leads, AMRE incurred
significant marketing costs in the quarter ended December 31, 1995 to build
brand identity and provide leads under the CENTURY 21 Home Improvements name.
An additional approximately $3.2 million was spent in this regard. AMRE also
incurred a nonrecurring charge to operations of approximately $5.1 million in
the quarter ended December 31, 1995 to reflect costs associated with
consummating the Century 21 License Agreement. In addition to the costs
expensed in 1995, AMRE and Congressional expect additional nonrecurring charges
to operations currently estimated to be approximately $250,000 during 1996, to
reflect transition and other costs associated with combining operations of the
two companies. Although management of AMRE and Congressional are not aware of
any circumstances or conditions that could make consummation of the Merger or
integration of their businesses unusually difficult, if AMRE and Congressional
encounter unexpected difficulties in the consummation of the Merger or in the
integration of their businesses, the transaction fees and expenses incident to
the Merger, such as legal and accounting fees, could increase. There can be no
assurance that the combined company will not incur charges in subsequent
quarters to reflect additional costs which could have an adverse effect on
AMRE's business, financial condition and results of operations.
LIQUIDITY
AMRE's cash and marketable securities totaled $19.1 million at December 31,
1995. AMRE's management believes that existing cash and marketable securities,
available capacity under its $4.0 million revolving line of credit with HFS and
cash flow from operations will be sufficient to meet the company's obligations.
However, the conversion to the CENTURY 21 Home Improvements name, as well as
the integration of the companies resulting from the Facelifters and
Congressional Mergers, will require substantial attention from management. In
addition, there can be no assurance that AMRE will successfully integrate the
operations of the individual companies upon consummation of the mergers, or
that any of the benefits expected will be realized. Any delays or unexpected
costs incurred in connection with such integration could have an adverse effect
on the combined company's business, operating results or financial condition in
the short term. To ensure that adequate capital is available to complete the
brand name transition and the mergers, AMRE has engaged in discussions with
several investment banking and other firms regarding the possible sale of AMRE
securities to raise additional capital. These discussions include the
possibility of selling up to 2.0 million shares of AMRE Common Stock in a
private placement with registration rights. However, these discussions are
still in their formative stages, and there can be no assurance that additional
sources of capital will be available to AMRE. Historically, AMRE has relied on
cash flow from operations to finance both short and long term capital needs.
Management believes that if the brand name transition is successful, this will
once again be the case in the future. See "Risk Factors -- New Marketing
Strategies"; "-- Costs Relating to Brand Transition, Consummation of License
Agreement and the Merger"; "-- Integration of the Business;" and "--
Seasonality."
24
<PAGE> 32
INTEGRATION OF THE BUSINESS
The Merger involves the integration of two companies that have previously
operated independently. As soon as practicable following the Merger, AMRE
intends to integrate certain aspects of the operations of the combined company.
However, there can be no assurance that AMRE will successfully integrate the
operations of Congressional with those of AMRE or that all of the benefits
expected from such integration will be realized. Any delays or unexpected
costs incurred in connection with such integration could have an adverse effect
on the combined company's business, operating results or financial condition.
Furthermore, there can be no assurance that the operations, management and
personnel of the two companies will be compatible or that AMRE or Congressional
will not experience the loss of key personnel. AMRE expects to encounter
similar integration issues in the event that the Facelifters Merger is
consummated. Among the factors considered by the AMRE Board and Congressional
Board in connection with their approval of the Merger Agreement were the
opportunities for economies of scale and operating efficiencies that are
expected to result from the Merger. While AMRE and Congressional expect to
achieve savings in operating costs as a result of the Merger, there can be no
assurance that such savings will be realized.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. However, the consummation of the Merger is
not conditional upon the Merger being treated as a pooling of interests for
accounting purposes. Nonetheless, if, prior to the Effective Time, the parties
become aware of any circumstance that would prevent the Merger from being
treated as a pooling of interests for accounting purposes, Congressional
shareholder approval will be resolicited. Certain events may prevent the
Merger from qualifying as a pooling of interests for accounting and financial
reporting purposes.
Pursuant to the Merger Agreement, AMRE and Congressional have agreed not to
(and to not knowingly permit any of their respective affiliates to) take any
action, or fail to take any reasonable action, that would jeopardize the
treatment of the Merger as a pooling of interests. In the event the Merger
does not qualify as a pooling of interests, it would be accounted for under the
purchase method of accounting which would result in the recording of a
significant amount of goodwill (the excess of the value of AMRE Common Stock
exchanged in the Merger over the fair value of the net assets of
Congressional). Depending upon the actual amount of goodwill recorded and the
amortization period selected, the future operating income of the combined
company would be reduced by $0.5 million to $1.0 million per year under the
purchase method of accounting. If, prior to the Effective Time, the parties
become aware of any circumstance that would prevent the Merger from being
treated as a pooling of interests for accounting purposes, Congressional
shareholder approval will be resolicited.
AMRE FUTURE TAXABLE INCOME
AMRE has recorded a valuation allowance to reflect the uncertainties
associated with the ultimate realization of its deferred tax asset. A
valuation reserve is required when management determines that it is more likely
than not that the deferred tax asset will not be realized. Management
periodically reviews the expected realization of AMRE's deferred tax asset and
makes adjustments to the valuation allowance, as appropriate, when existing
conditions change the probability of ultimate realization. AMRE established a
valuation allowance of $5.9 million at December 31, 1995 which equals 100% of
its deferred tax asset.
Management's evaluation as to the deferred tax asset takes into
consideration available evidence, both positive and negative, regarding
ultimate realization. Negative evidence considered by management included (1)
a significant operating loss in 1995, (2) operating losses in two of the last
three years, (3) the expected short-term decline in revenues and first quarter
1996 operating loss, (4) the uncertainties associated with the time and cost to
build awareness of the CENTURY 21 Home Improvements name and AMRE's ability to
generate significant amounts of cost-effective leads and the process of
integrating the companies if the mergers are consummated make it difficult to
estimate when AMRE will return to profitability and (5) costs relating to brand
transition and the mergers.
25
<PAGE> 33
Positive evidence considered by management include (1) a 3.0% license fee
(subject to an $11.0 million minimum in 1996) to be paid for use of the CENTURY
21 Home Improvements name as compared to a 12.0% license fee paid to Sears in
1995 and (2) expanded geographic and product opportunities under the Century 21
License Agreement.
Until the Century 21 License Agreement is in operation for a period of
time, there is no historical or objective evidence to determine its impact on
taxable income. Therefore, based on the existing objective evidence,
management believes it is more likely than not that AMRE will be unable to
generate sufficient taxable income to utilize the deferred tax asset and that
the entire deferred tax asset should be reserved for as of December 31, 1995.
Management will review the valuation allowance in the future as the results and
impact of the Century 21 License Agreement are known.
DEPENDENCE ON CENTURY 21 LICENSE AGREEMENT
The combined company will market and sell its products under the Century
21 License Agreement, and its revenues will be dependent upon the continued
existence of such license agreement. AMRE is obligated to make certain minimum
royalty payments under the Century 21 License Agreement. The license has a 20
year term, but may be terminated earlier by the licensor in the event of
default by AMRE, including the failure to make the minimum royalty payments as
provided therein. If the Century 21 License Agreement is terminated early,
such termination will likely have an adverse effect on AMRE's business.
VOLATILITY OF STOCK PRICE
The market price for AMRE Common Stock is volatile and could be subject to
additional significant fluctuations in response to variations in AMRE's
operating results and other factors, including among others, investor
perceptions of AMRE and the industry in which it operates, developments in
AMRE's relationship with Century 21 and its customers and general market
conditions. Consequently, there can be no assurance that the market value of
shares of AMRE Common Stock will be maintained subsequent to the Merger.
SEASONALITY
Historically, AMRE's business has been subject to seasonal fluctuations.
Although some products sold by AMRE and Congressional are interior products,
extreme winter weather conditions can have an adverse effect on scheduling
sales appointments and installations. Products such as siding and windows
usually cannot be installed in inclement weather. In addition, the home
improvement industry is affected by economic factors, including, among others,
interest rates, the availability of financing and general economic conditions.
AMRE has historically incurred losses in the first quarter of the year, and
will incur a loss in the first quarter of 1996.
SUSPENSION OF DIVIDENDS
AMRE had paid a quarterly dividend on AMRE Common Stock from December 18,
1987 until September 22, 1995, at which time the quarterly dividend was
suspended. AMRE's ability to pay dividends is restricted under the terms of
AMRE's existing credit agreement. There can be no assurance that AMRE will pay
any dividends in the future.
DILUTION
In connection with the Merger, Congressional Shareholders will be issued
approximately 900,000 shares of AMRE Common Stock or approximately 6.0% of the
outstanding AMRE Common Stock based on the number of shares of AMRE Common
Stock outstanding on April 15, 1996 and taking into account the shares
anticipated to be issued to Congressional shareholders in connection with the
contemplated Congressional Merger. In addition, in the event that the
Facelifters Merger is consummated, Facelifters shareholders will be issued
3,565,680 shares of AMRE Common Stock or approximately 20.2% of the outstanding
AMRE
26
<PAGE> 34
Common Stock as of April 15, 1996 based on the number of shares of AMRE Common
Stock outstanding on April 15, and taking into account the shares anticipated
to be issued in connection with the contemplated Facelifters Merger. If the
AMRE Charter Amendment is approved, the AMRE Board shall be able to issue
additional shares of AMRE Common Stock without obtaining prior shareholder
approval. Although the AMRE Board will authorize such issuances only when it
considers doing so to be in the best interest of the shareholders, the issuance
of additional AMRE Common Stock may, among other things, have a dilutive effect
on earnings and earnings per share of AMRE Common Stock and on the voting
rights of holders of shares of AMRE Common Stock. See "Recent Developments --
AMRE Charter Amendment."
SERVICE MARK AND TRADE NAME INFRINGEMENT CLAIM
AMRE has been named as a defendant in a proceeding filed on February 29,
1996 in the Superior Court of California by a party who claims ownership of a
registered service mark and trade name styled "21st Century Home Improvement."
The plaintiff alleges, among other things, that the CENTURY 21 Home
Improvements name is an infringement of the plaintiff's trade name and
registered mark and constitutes an unfair business practice. The plaintiff
seeks a preliminary and permanent injunction enjoining AMRE from operating
under the Century 21 Home Improvements name, general damages according to
proof, all profits realized by AMRE from operating under the Century 21 Home
Improvements name in California and costs and attorneys' fees.
AMRE has been advised by Century 21, the owner of the CENTURY 21 Home
Improvements name, that it gave notice to counsel for the owner of the "21st
Century Home Improvement" mark that the latter mark infringed on Century 21's
federally registered mark. AMRE has further been advised by Century 21 that:
(i) it is its policy and practice to vigorously defend its trade name, (ii)
Century 21 has successfully litigated in the past to protect its trade name and
federally registered mark, and (iii) it has obtained a number of judgments
against such entities which had used "21st CENTURY" or marks containing the
word "CENTURY" in connection with remodeling or home construction services.
In addition, Century 21 has advised AMRE that Century 21's federal registration
predates the use of the "21st Century Home Improvement" mark, and for the
above-listed reasons, AMRE believes at this time that it is legally entitled to
use the CENTURY 21 Home Improvements name in California.
COMPETITION
AMRE operates in an industry that is highly fragmented. Although AMRE
believes it is the largest company in the nation involved in the direct
marketing, in-home sale and installation of home improvement products, AMRE
competes with numerous contractors in each of the territories in which it
operates, with reputation, price, workmanship and services being the principal
competitive factors. These contractors typically conduct operations in a
single metropolitan area. In certain of the territories in which it operates,
AMRE also competes against retail stores that may have greater financial or
other resources than AMRE and that sell similar products in the stores as well
as offer installation services, and will compete with contractors that are
Sears licensees.
CONGRESSIONAL ESOP MATTERS
At the Effective Time of the Merger, the Surviving Corporation will be
entitled to appoint and will appoint new ESOP Trustees. In addition, AMRE
currently intends to cause the Surviving Corporation to terminate the ESOP.
Upon the termination of the ESOP, the newly appointed ESOP Trustees may work
with the Surviving Corporation to effect the termination of the ESOP and the
liquidation of its assets. Shortly after the termination of the ESOP, the ESOP
Trustees would distribute to the ESOP participants all of their allocated
shares of AMRE Common Stock received in the Merger. The ESOP Trustees will
exercise their discretion, however, in compliance with all of their obligations
under ERISA, in determining the most appropriate means of liquidating the
ESOP's unallocated assets. Depending upon, among other things, the character,
timing and sequence of such termination and liquidation of unallocated assets,
including any disposition of the ESOP's unallocated AMRE Common Stock which the
ESOP Trustees may determine appropriate, the value ultimately received by the
ESOP participants in connection with the Merger and the timing of the
distribution of unallocated assets could be affected. See "Special Factors --
Description of the ESOP."
27
<PAGE> 35
THE SPECIAL MEETING
This Information Statement/Prospectus is being furnished to the holders of
Congressional Common Stock and the ESOP participants as indirect beneficial
owners of Congressional Preferred Stock in connection with the Special Meeting
to be held on May 28, 1996, at Congressional's corporate offices, 11216 Waples
Mill Road, Suite 101, Fairfax, Virginia 22030, commencing at 8:00 a.m. local
time, and at any adjournment or postponement thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Congressional Common Stock and
Congressional Preferred Stock will consider and vote upon the single proposal
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger and the Charter Amendment. No other business
will be presented at the Special Meeting other than those matters incidental to
the conduct of the Special Meeting.
THE CONGRESSIONAL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE CONSUMMATION OF THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER AND CHARTER AMENDMENT.
VOTING AT SPECIAL MEETING
The Congressional Board has established April 1, 1996, as the record date
for the determination of Congressional Shareholders entitled to notice of and
to vote at the Special Meeting. Only holders of record of Congressional Common
Stock or Congressional Preferred Stock at the close of business on such date
are entitled to vote at the Special Meeting. The approval of Congressional's
Shareholders of the Merger and the Merger Agreement and the transactions
contemplated thereby, including the Merger, and the Charter Amendment will
require the affirmative vote of the holders of record of more than two-thirds
of the issued and outstanding shares of Congressional Common Stock and more
than two- thirds of the issued and outstanding Congressional Preferred Stock,
voting as separate classes. In determining whether the proposal has received
the requisite number of affirmative votes, abstentions will have the same
effect as a vote against the proposal.
On the record date, Congressional had outstanding and entitled to vote 499
shares of Congressional Common Stock, each of which is entitled to one vote per
share, and 700 shares of Congressional Preferred Stock, each of which is
entitled to 0.7 votes per share. Participants in the ESOP, which holds 100.0%
of the outstanding shares of Congressional Preferred Stock, will be entitled to
confidentially direct the manner in which shares of Congressional Preferred
Stock allocated to their respective ESOP accounts are to be voted by delivering
confidential voting instructions to the Substitute Trustee. Each ESOP
participant shall be provided with a voting instruction sheet pursuant to which
confidential voting directions may be given to an independent third party
(designated by the Substitute Trustee) who will confidentially tabulate votes
and provide instructions to the Substitute Trustee as to the voting of such
shares as so directed. The third party shall not disclose the confidential
voting directions of any individual ESOP participant to Congressional or the
Substitute Trustee. Any allocated shares of Congressional Preferred Stock with
respect to which confidential voting instructions are not received from the
ESOP participants and any shares of Congressional Preferred Stock which are not
allocated to ESOP participants' accounts as of December 31, 1995 shall be voted
in the manner determined by the Substitute Trustee that is consistent with the
Code and ERISA. See "Special Factors -- Description of ESOP."
Mr. John B. Nunez and Mr. Melvin H. Rosenblatt, Trustees of the ESOP, have
determined that their participation in presenting the ESOP's vote on the
Merger, as directed by the ESOP participants, might represent a conflict of
interest, as the transactions contemplated by the Merger Agreement will have a
financial impact on each of the Trustees personally. As such, they have
removed themselves from participation in presenting the ESOP's vote and have
appointed D.S. Berenson to act as Substitute Trustee for the ESOP participants.
No matters other than those referred to in this Information
Statement/Prospectus will be brought before the Special Meeting, except for
matters incidental to the conduct of the Special Meeting.
28
<PAGE> 36
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Both AMRE and Congressional have had a long-standing familiarity with one
another. Both companies have been engaged in the same general line of home
improvement business, and both companies have been licensees of Sears. Because
of this familiarity, senior management of both companies recognized that
Congressional's home improvement business and strength in marketing would
complement AMRE's existing business.
On October 17, 1995, AMRE announced that it had entered into the Century 21
License Agreement and was not going to renew the AMRE Sears License Agreement.
On November 1, 1995, Mr. Robert Swartz, the Chief Executive Officer and a
director of AMRE, and Mr. Dennis Constantine, then the Vice President of
Operations of AMRE, met with several companies engaged in businesses similar to
AMRE's in order to present them with background information regarding AMRE and
to describe to them possible synergies with AMRE. Mr. Melvin Rosenblatt, the
Chairman of the Board and Secretary of Congressional, and Mr. D.S. Berenson,
Corporate Counsel of Congressional, attended the meeting.
On November 6, 1995, Mr. Berenson sent a letter to AMRE's senior management
describing the historical business of Congressional, and on November 13, 1995,
he sent another letter describing the structure for a possible business
combination transaction between AMRE and Congressional.
On November 14, 1995, Mr. Constantine, Mr. John Vanecko, the Chief
Financial Officer and Vice President of AMRE, and their financial advisors,
travelled to Congressional's corporate headquarters in Fairfax, Virginia to
begin a financial and operational due diligence investigation of Congressional.
Messrs. Vanecko and Constantine also met with Messrs. Nunez, Rosenblatt and
Berenson to discuss the possibility of a business combination.
On November 15, 1995, Mr. Berenson sent AMRE's senior management certain
financial information regarding Congressional's business. On the same date,
the ESOP engaged Barry Goodman Limited to conduct a preliminary appraisal of
the Congressional Preferred Stock owned by the ESOP, assuming the existence of
a willing purchaser of the Congressional Preferred Stock or of all of the
outstanding stock of Congressional and to deliver the ESOP Opinion. Mr.
Berenson provided Mr. Barry Goodman of Barry Goodman Limited with general and
financial information with respect to Congressional in order to complete such
appraisal.
On November 16, 1995, Mr. Goodman orally conveyed to the ESOP through Mr.
Berenson an appraisal for the Congressional Preferred Stock of $5,722,794
($8,175.42 per share of Congressional Preferred Stock), assuming the existence
of a willing purchaser of the Congressional Preferred Stock or of all the
outstanding stock of Congressional.
On November 17, 1995, representatives of AMRE and of Congressional
conducted several conference calls throughout the day to discuss the possible
structure of the transaction and the type of consideration to be provided
therefor. The parties discussed a tax-free reorganization pursuant to which
shares of Congressional Common Stock and Congressional Preferred Stock would be
exchanged for AMRE Common Stock. The parties discussed the valuation of
Congressional, the structure of the transaction with respect to its intended
treatment as a pooling of interest and various issues relating to the ESOP.
On November 18 and 19, 1995, Messrs. Swartz and Constantine participated in
several telephone conversations with Mr. Berenson regarding the number of
shares of AMRE Common Stock to be issued to the ESOP and the Congressional
Common Shareholders in the proposed transaction.
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<PAGE> 37
On the same date, Mr. Berenson met with the Congressional Board and the
ESOP Board of Trustees. Mr. Berenson presented the appraisal of the
Congressional Preferred Stock communicated to him by Mr. Goodman. The ESOP
Board of Trustees removed themselves from participating on behalf of the ESOP
in any vote regarding a business combination between Congressional and AMRE due
to concerns of possible conflicts of interest. The ESOP Board of Trustees
nominated Mr. Berenson to act as Substitute Trustee in the event a vote of the
Congressional Preferred Stock held by the ESOP was required. The Congressional
Board discussed the economic conditions affecting Congressional, including
Congressional's relationship with Sears and the Congressional Sears License
Agreement, the possible risks and benefits of a relationship with AMRE and
Century 21, and the price and volume history of AMRE Common Stock. Following
these discussions, the Congressional Board unanimously approved continuing
negotiations with AMRE regarding a possible business combination, subject to
shareholder approval, due diligence and acceptable terms.
On November 21, 1995, Messrs. Rosenblatt, Nunez and Berenson, representing
Congressional and the ESOP, and Messrs. Swartz, Constantine, Vanecko, and
their legal and financial advisors, met in Dallas, Texas to conduct
negotiations of the proposed transaction. As a result of such negotiations, a
preliminary term sheet was drafted.
On November 29, 1995, representatives of Congressional and AMRE drafted a
final term sheet, pursuant to which the parties agreed to, among other things,
(i) the merger of Congressional with a subsidiary of AMRE; (ii) the issuance of
900,000 shares of AMRE Common Stock in connection with the merger; (iii) the
execution of a sublicense agreement relating to the CENTURY 21 Home
Improvements name by and between Congressional and ARI; (iv) the execution of
an employment agreement between Mr. Nunez and AMRE; and (v) the merger being
contingent upon the completion and satisfactory results in due diligence
investigations.
On December 5, 1995, the AMRE Board conducted a meeting during which the
AMRE Board discussed with senior management of AMRE the background for the
proposed transaction, including the benefits to its shareholders of a
stock-for-stock tax-free business combination, a summary of the financial
analysis of the transaction and the valuation of Congressional. The AMRE Board
unanimously approved the terms of the transaction, as set forth in the draft of
the Merger Agreement presented to the AMRE Board.
On December 6, 1995, attorneys for AMRE delivered the first draft of the
Merger Agreement to Congressional. Negotiations with respect to certain of the
terms of such document continued through December 30, 1995, including matters
concerning the ESOP, the ESOP fiduciary and related issues. The parties
conducted expedited due diligence regarding each other throughout this period.
On December 30, 1995, the Congressional Board met and discussed in detail
the terms of the transactions as set forth in a draft of the Merger Agreement
presented, and the Merger Agreement, and the transactions set forth therein and
contemplated thereby, including the Merger, were unanimously approved. See
"Special Factors -- Reasons for the Merger"; "Approvals of the AMRE Board and
the Congressional Board."
REASONS FOR THE MERGER; APPROVALS OF THE AMRE BOARD AND THE CONGRESSIONAL BOARD
The respective Boards of Directors of AMRE and Congressional have
unanimously approved the Merger Agreement.
AMRE. The AMRE Board believes that the Merger with Congressional is in the
best interests of AMRE and its stockholders for the following reasons:
o Merging with Congressional is a cost effective means of expanding
AMRE's existing core siding and replacement window product lines into
the mid-Atlantic region. AMRE was previously precluded under its
agreement with Sears from marketing its core products in the
mid-Atlantic states. Currently, AMRE is free to market its products
throughout North America under the CENTURY 21 Home Improvements name
and AMRE's growth strategy includes expanding its core product lines
into
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<PAGE> 38
newly licensed geographic markets. AMRE has determined that acquiring
an existing regional siding and window operation is a desirable means
of accessing the mid-Atlantic region given the high initial investment
associated with the alternative of developing a new sales,
administration and installation infrastructure in the region.
o Congressional's operations complement the mid-Atlantic operations of
Facelifters, the leading cabinet refacing company on the east coast,
which AMRE anticipates acquiring through a merger on or about April
25, 1996. AMRE determined that its core product group would be well
represented in the mid-Atlantic region through a combined regional
marketing, manufacturing and installation organization offering both
Facelifter's cabinet refacing products and services as well as
Congressional's siding and replacement window products and services.
Congressional was chosen as a merger candidate because of its strong
market position, experienced management, compatible operating
philosophy, and its commitment to the CENTURY 21 Home Improvements
concept.
o The Merger is intended to facilitate the development and expansion of
the CENTURY 21 Home Improvements name and related home improvement
products by expanding the name into the mid-Atlantic region with
respect to AMRE's core siding and replacement window products.
o Congressional's divisional management structure and discrete marketing
territory create a favorable environment for AMRE to test new product
lines and marketing programs, as well as for implementing new
management and administrative structures.
Congressional. In reaching its conclusion to unanimously approve the
Merger Agreement and the transactions contemplated thereby, including the
Merger, and the Charter Amendment necessary for consummation of the Merger, the
Congressional Board considered a number of factors. The Congressional Board
did not assign any relative or specific weights to the factors considered.
Among other things, the Congressional Board considered the following:
o the combined entity, operating under the Century 21 License Agreement,
was anticipated to be the largest home improvement company in the
United States;
o the market liquidity afforded by the listing on the NYSE of the
additional common stock of AMRE to be issued to the Congressional
Shareholders and ESOP participants compared to the closely held
restricted stock they currently hold;
o the ESOP Opinion;
o the Congressional Board's review with its legal advisors of the
provisions of the Merger Agreement;
o the price and volume history of AMRE Common Stock on the NYSE;
o the fact that the Merger was expected to be a tax-free reorganization
for federal income tax purposes for the holders of Congressional
Common Stock and ESOP participants (other than in respect to cash paid
to Congressional Shareholders who properly exercise their dissenters'
rights); and
o the fact that the due diligence examination of AMRE conducted by
representatives of Congressional indicated that AMRE has strong
management and the potential for strong capital, revenue and earnings;
the Congressional Board's belief that holders of Congressional Common
Stock and Congressional Preferred Stock who exchange their shares may
have enhanced prospects for long-term growth in their investment in
Congressional; and the financial condition, results of operations,
current business and expansion opportunities and constraints, and
prospects of future performance and earnings of Congressional on a
stand-alone basis.
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<PAGE> 39
Although the Congressional Board of Directors has unanimously approved
the Merger Agreement, including the transactions contemplated thereby, and the
Charter Amendment, the Board has determined not to make a recommendation to its
shareholders and the ESOP participants on how they should vote on the proposal
to be presented at the Special Meeting. Recent court decisions regarding
confidential voting instructions by employee stock ownership plan participants
on corporate matters have held that recommendations made by boards of directors
to voting participants may be construed to be coercive to employees. To avoid
any such appearance, the confidential voting instructions by ESOP participants
will be sent to an independent third party who will confidentially tally the
ESOP participants' votes. The Congressional Board will not make any
recommendation to the Congressional shareholders on how they should vote or to
the ESOP participants as to how they should instruct the Substitute Trustee as
to voting the Congressional Preferred Stock. ACCORDINGLY, SHAREHOLDERS AND THE
ESOP PARTICIPANTS SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED HEREIN
BEFORE VOTING OR INSTRUCTING THE SUBSTITUTE TRUSTEE AS TO VOTING THE ALLOCATED
CONGRESSIONAL PREFERRED STOCK ON THE PROPOSAL TO APPROVE THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
EFFECTS OF THE MERGER
Conversion of Congressional Common Stock and Congressional Preferred Stock.
Pursuant to the Merger Agreement, among other things, Merger Sub will be merged
with and into Congressional, and Congressional will become a wholly owned
subsidiary of AMRE. In the Merger, each outstanding share of Congressional
Common Stock and Congressional Preferred Stock (other than shares held by
dissenting Congressional Shareholders who properly exercise their dissenters'
rights or shares held in treasury by Congressional) will be converted into
601.20 shares and 857.14 shares, respectively, of AMRE Common Stock. See "The
Merger Agreement."
Dilution. Immediately subsequent to the Merger, former Congressional
Shareholders will hold an aggregate of approximately 900,000 shares of AMRE
Common Stock, representing approximately 6.0% of the outstanding AMRE Common
Stock based on the number of shares of AMRE Common Stock outstanding on April
15, 1996 and taking into account the shares anticpated to be issued to
Congressional shareholders in connection with the contemplated Congressional
Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Congressional Shareholders. In considering the approval of the
Congressional Board with respect to the Merger Agreement, Congressional
Shareholders should be aware that as of December 31, 1995 the following member
of the Congressional Board was the beneficial owner of the following shares of
Congressional Common Stock and Congressional Preferred Stock:
<TABLE>
<CAPTION>
Shares of Congressional Shares of Congressional
Name of Common Stock Preferred Stock
Beneficial Owner Beneficially Owned Beneficially Owned
- ---------------- ----------------------- -----------------------
<S> <C> <C>
John B. Nunez . . . . . . . . . . . . . . . . . . . . . 400 18.60955
</TABLE>
Employment Agreement. In connection with the consummation of the Merger,
AMRE will enter into an employment agreement with John B. Nunez, the President
of Congressional (the "Nunez Employment Agreement"), attached hereto as Annex
C. The Nunez Employment Agreement provides that Nunez will be employed by AMRE
for an initial term of two years. Mr. Nunez shall serve as a Vice President of
AMRE and shall have such additional appropriate responsibilities and authority,
if any, as may be designated by the Chief Executive Officer of AMRE, at a
salary of $150,000 per annum plus a $500 per month automobile allowance and
certain other benefits. Mr. Nunez shall also be eligible to receive an annual
bonus calculated with reference to the projected annual earnings before
interest and taxes of the Surviving Corporation in the
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<PAGE> 40
Merger. Mr. Nunez's employment will terminate upon his death, disability for
three consecutive months or for "cause," which includes, among other things,
continued failure to perform his duties, negligence or gross misconduct that is
materially injurious to AMRE or a felony conviction. Mr. Nunez may terminate
his employment if his health becomes impaired to the extent that continued
performance of his duties is hazardous to his physical or mental health despite
reasonable accommodation therefor or for "good reason," which includes the
failure of AMRE to obtain a satisfactory agreement from a successor to Mr.
Nunez, or AMRE's non-compliance with any material provisions of the Nunez
Employment Agreement that is not cured after 30-days' notice is provided to
AMRE.
DESCRIPTION OF ESOP
The ESOP was formed on June 30, 1993. As of December 31, 1995, there were
58 participants in the ESOP. In connection with the ESOP's initial purchase of
700 shares of Congressional Preferred Stock Congressional borrowed $7.0 million
(the "NationsBank Loan") from a predecessor of NationsBank, N.A.
("NationsBank") and in turn loaned the entire loan proceeds to the ESOP on
substantially similar terms (the "Mirror Loan") in order to facilitate the
purchase of the ESOP Shares. Congressional estimates that the NationsBank loan
had an outstanding balance of approximately $5.4 million as of December 31,
1995, the date of the most recent allocation of ESOP Shares. As of that date,
Congressional estimates that there were 192.59210 ESOP Shares allocated to the
accounts of ESOP participants and 507.4079 ESOP Shares remaining unallocated.
At the Effective Time, each ESOP Share will be exchanged for 857.14 shares
of AMRE Common Stock (the "ESOP AMRE Shares"). The ESOP AMRE Shares received
in exchange for the allocated ESOP Shares will be allocated to each ESOP
participant's stock account on a pro rata basis in an amount equal to the fair
market value of the allocated ESOP Shares in such participant's stock account
at the Effective Time. The ESOP AMRE Shares received in exchange for the
unallocated ESOP Shares will continue to secure the ESOP Loan. In addition, at
the Effective Time, the current ESOP Board of Trustees, including the
Substitute Trustee, will resign their positions, and a new Board of Trustees
will be appointed by the Surviving Corporation.
Pursuant to the Merger Agreement, the respective obligations of the parties
to effect the Merger is subject to the fulfillment of the conditions that,
among other things, Kenwood, a shareholder of Congressional, and Norman Rales,
the principal individual shareholder of Kenwood, shall have been released from
any liability in connection with the NationsBank Loan. In addition, the
obligation of AMRE and Merger Sub to effect the Merger is further conditioned
upon the receipt by AMRE and Congressional of a written consent of NationsBank
to the Merger. NationsBank and AMRE are currently negotiating the terms upon
which NationsBank would consent to the Merger and grant the requested release
of liability and certain amendments to the existing NationsBank Loan documents.
At the Effective Time of the Merger, the Surviving Corporation will be
entitled to and will appoint new ESOP Trustees. In addition, AMRE currently
intends to cause the Surviving Corporation to terminate the ESOP. The
termination of the ESOP will require the newly appointed ESOP Trustees to work
with the Surviving Corporation to effect the termination of the ESOP and the
liquidation of its assets. In connection with any termination of the ESOP, the
ESOP Trustees would distribute to the ESOP participants all of their allocated
shares of AMRE Common Stock received in the Merger. The ESOP Trustees would
exercise their discretion, in compliance with all of their obligations under
ERISA, in determining the most appropriate disposition of the ESOP's
unallocated assets, including the unallocated shares of AMRE Common Stock
received in the Merger. Depending upon, among other things, the character,
timing and sequence of such termination and disposition of unallocated assets,
including any disposition of the ESOP's unallocated AMRE Common Stock which the
ESOP Trustees may determine appropriate, the value ultimately received by the
ESOP participants in connection with the Merger and the timing of the
distribution of the unallocated assets could be affected.
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<PAGE> 41
Pursuant to the terms of the Merger Agreement, AMRE has covenanted not to
cause Congressional or a fiduciary of the ESOP to take any action that does not
comply in all material respects with ERISA, the Code and the ESOP.
Furthermore, AMRE has covenanted that following the Merger, it will not permit
any unallocated ESOP AMRE Shares to be allocated to individuals other than
those who are participants in the ESOP as of the Effective Time.
FAIRNESS OPINION FOR ESOP
The ESOP has received a form of opinion from Barry Goodman Limited which
will be updated as of the Effective Time that (i) the exchange of the
Congressional Preferred Stock for AMRE Common Stock by the ESOP was for
adequate consideration (as defined in Section 3(18) of ERISA and the proposed
regulations thereunder), and (ii) the transactions contemplated by the Merger
Agreement are fair to the ESOP from a financial point of view.
The ESOP Trustees retained Barry Goodman Limited ("BGL") as financial
advisor to express the following opinions as of the Effective Time of the
Merger:
1. That the fair market value of 599,998 shares of AMRE Common Stock to
be received by the ESOP in exchange for 700 shares of Congressional
Preferred Stock (hereafter referred to as the "Exchange Ratio") as
described below is not less than the fair market value of the
Congressional Preferred Stock and that the AMRE Common Stock is at
least "adequate consideration" (as defined under Section 3(18) of
ERISA) for the Congressional Preferred Stock; and
2. That the terms and conditions of the transactions contemplated by the
Merger are fair to the ESOP from a financial point of view.
As a condition to the consummation of the Merger, BGL will render the ESOP
Opinion (including the above opinions) to D.S. Berenson as the Substitute
Trustee and to the ESOP participants as of the Effective Time of the Merger.
No limitations will be imposed upon BGL with respect to the investigations made
or procedures followed in rendering the ESOP Opinion.
The ESOP Trustees engaged BGL because of its record and experience in
making independent valuations for ESOPs. BGL is a business valuation
consultant which regularly engages in rendering fairness opinions. In
connection with its engagement, BGL entered into its customary fee arrangement
with the ESOP and Congressional. BGL's compensation is not contingent on an
action or event resulting from the analyses, opinions or conclusions in or the
use of the opinion letter. BGL is also employed by the ESOP Trustees to
perform the annual valuation for the ESOP.
The form of the ESOP Opinion which sets forth certain assumptions which
will be made, matters considered and limits on the review undertaken by BGL, is
attached hereto as Annex F. The ESOP participants are urged to read the ESOP
Opinion in its entirety. The following summary of the procedures and analysis
performed and assumptions used by BGL is qualified in its entirety by reference
to the text of such ESOP Opinion. The ESOP Opinion is directed to the
Substitute Trustee and the ESOP participants only and is directed only to the
Exchange Ratio and the fairness of the transactions contemplated by the Merger
and does not constitute a recommendation to the Substitute Trustee or the ESOP
participants as to how they should direct the Substitute Trustee to vote at
Congressional's upcoming shareholder meeting with regard to the Merger.
The analysis and underlying assumptions included herein were derived by
BGL, based partially upon information provided by the management of
Congressional and AMRE as well as BGL's own assessment of general economic and
market conditions. No other experts named elsewhere herein have been involved
in or consulted with respect to such assumptions.
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<PAGE> 42
In arriving at its opinions, BGL will review and analyze, among other
things, the following:
1. The Merger Agreement;
2. Congressional's Audited Financial Statements for the fiscal years
ended March 31, 1986 through March 31, 1993 and nine months ended
December 31, 1993, and twelve months ended December 31, 1994 and
December 31, 1995;
3. The annual reports of AMRE for the years 1986 through 1995;
4. Financial statements for AMRE for the calendar year 1995;
5. The registration statement on Form S-4, dated April 18, 1996, that
will be filed with the Securities and Exchange Commission;
6. Various articles and reports about AMRE from professional and business
journals;
7. Various articles and other sources regarding the financial condition
of the home improvement industry;
8. Certain other publicly available financial and other information
concerning Congressional and AMRE;
9. Publicly available information concerning other companies in the
remodeling business and possible mergers and acquisitions in the same
or similar business;
10. The license that AMRE has with Century 21 through its ARI subsidiary;
11. ESOP plan and trust documents and Amendments No. 1 and 2 and proposed
Amendment No. 3 to the plan;
12. Certain Congressional Board Minutes related to the Merger and related
matters; and
13. Certain Proposed Board of Trustees resolutions.
In conducting its review and in arriving at its opinions, BGL relied upon
and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available and did not attempt
independently to verify the same. BGL did not make or obtain any evaluations
or appraisals of the properties of Congressional or AMRE. For purposes of its
opinions, BGL will assume that the Merger will have the tax accounting and
legal effects (including, without limitation, that the Merger will be accounted
for as a pooling of interests) described in the Merger Agreement. BGL's ESOP
Opinion is limited to the fairness, from a financial point of view, to the ESOP
participants of the Exchange Ratio and other aspects of the exchange of
Congressional Preferred Stock for AMRE Common Stock, and does not address
Congressional's and AMRE's underlying business decisions to proceed with the
Merger. BGL did not participate in any negotiations with respect to the amount
of AMRE Common Stock to be exchanged for the Congressional Preferred Stock held
by the ESOP and the Congressional Common Stock.
The scope of BGL's work included the following and other factors:
1. Analysis of information provided by Congressional's management
regarding Congressional's products, services, customers and markets,
history and background and other related data, along with discussions
with Congressional's management on related topics;
2. A review and analysis of the historical financial performance and
condition of Congressional;
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<PAGE> 43
3. A study of the general and specific economic factors that have
impacted and, in all likelihood, will continue to impact the financial
performance of Congressional;
4. The determination of the cost of capital that stockholders of
corporations use in the pricing of their securities;
5. The identification and review of firms in the same or similar business
with specific emphasis on how they have performed relative to
Congressional; and
6. A similar review of AMRE with respect to the items listed in 1 - 5
above.
In connection with rendering the ESOP Opinion to the Substitute Trustee and
the ESOP participants, BGL performed certain financial analyses, which are
summarized below. BGL believes that its analysis must be considered as a whole
and that selecting portions of such analysis and the factors considered
therein, without considering all factors and analysis, could create an
incomplete view of the analysis and the processes underlying BGL's ESOP
Opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. In its analyses, BGL made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond the control of Congressional or AMRE. Any
estimates contained in BGL's analyses are not necessarily indicative of future
results or values, which may be substantially more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. BGL further assumes and will assume that the public market
for the AMRE Common Stock is sufficiently efficient to estimate the fair market
value of that stock except that BGL has considered and will consider the
volatility of the AMRE Common Stock just prior to the Effective Time of the
Merger. None of the financial analyses performed by BGL was assigned or will
be assigned a greater significance by BGL than any other.
Set forth below is a brief summary of the analyses that will be performed
by BGL in preparation of the ESOP Opinion. BGL will assume for purposes of its
opinions that the Merger will be accounted for as a pooling of interests
transaction under generally accepted accounting principles. Unless otherwise
noted in this summary, BGL will use an exchange ratio of 857.14:1 as the
Exchange Ratio for Congressional's Preferred Stock which is owned by the ESOP.
BGL also will assume that the exchange ratio of Congressional Common Stock for
AMRE Common Stock will be 601.2:1. These exchange ratios assume that the
Effective Time of the Merger and of the exchange will be the date of the ESOP
Opinion pursuant to the Merger Agreement.
Because the Congressional Preferred Stock held by the ESOP is convertible
into Congressional Common Stock at a rate of 0.7 shares for each share of
Congressional Preferred Stock, BGL has to estimate the value of the
Congressional Common Stock, on a fully-diluted basis, before estimating the
value of the Congressional Preferred Stock.
The estimation of the fair market value of Congressional's Common Stock.
The valuation of Congressional Common Stock will involve the use of two
valuation methods -- a discounted future income (or cash flow) method and a
capitalization of income method. BGL also will consider the publicly-traded
values of AMRE and Facelifters in the valuation process. Both of the valuation
methods used will be applied on a "debt-free basis." BGL will consider the
high debt level, the poor financial position of Congressional because of the
ESOP loan (for which it was responsible), the preferred stock dividends, the
termination of the Congressional Sears License Agreement and the recent decline
in Congressional's profitability before choosing the capitalization and
discount rates to be applied in the valuation analysis. BGL will also consider
the fact that Congressional Common Stock is not publicly-traded, the
requirement that Congressional make a market for the ESOP's stock upon
distribution to participants and that the ESOP's stock represents a large
minority interest (assuming a full conversion of the Preferred Stock to Common
Stock). Based upon this methodology, which BGL will use to determine the fair
market value of the Congressional Common Stock as of the Effective Time of the
Merger, on a non-controlling and fully-
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<PAGE> 44
diluted basis, BGL already determined that such stock was valued at $5,288.17
per share at December 31, 1995.
The estimation of the fair market value of the ESOP's Congressional Preferred
Stock.
Based upon the above estimate of the value of Congressional's Common Stock,
BGL also estimated that the fair market value of the Congressional Preferred
Stock held by the ESOP as of December 31, 1995, was approximately $7,814.11 per
share. This computation is shown below:.
SUMMARY OF PREFERRED VALUE CALCULATION
<TABLE>
<S> <C>
Face value of each preferred share $10,000
Market preferred yield without conversion 9.5%
Marketability adjustment 0.5%
Adjusted market preference 10.0%
Preferred stock dividend rate 6.78%
Yield on preferred 6.78%
VALUE AS A PREFERRED WITHOUT CONVERSION $6,780
Value per share of common, fully-diluted $5,288.17
Conversion premium-market value of preferred 111.1%
Total dividend $474,600
Common shares conversion 0.700
Common value of preferred $3,702
Exercise price $10,000
Value as a preferred without conversion $6,780
CONVERSION VALUE OF PREFERRED ONLY $1,034.11
TOTAL VALUE OF PREFERRED $7,814.11
Price paid by ESOP per share $10,000
Total shares purchased by ESOP 700
Conversion premium upon purchase 170.12
ESOP loan amount $7,000,000
Total value of preferred shares purchased $5,469,877
Common stock convertible into 490
If converted, percent of total common 49.54%
</TABLE>
As can be seen above, the face amount of the Congressional Preferred Stock
is $10,000. BGL will value the preferred stock in two portions. First, the
preferred stock will be valued without the conversion right, then the
conversion right will be valued separately. In valuing the Congressional
Preferred Stock without the conversion right, BGL must compare the
Congressional Preferred Stock dividend rate of 6.78% to the rate that the
market would demand for a non- convertible preferred stock issued by
Congressional.
In order to estimate what this market dividend rate would be, BGL has
reviewed and will review yields on publicly- traded preferred stock. BGL
believes that the Congressional Preferred Stock, even considering the small
size of Congressional and the lack of the marketability of its preferred
shares, would be investment grade.(1) Conservatively, BGL believes that
Congressional Preferred Stock could be equal to utility securities rated baa by
Moody's Investors Services ("Moody's"). Moody's describes this rating as
follows:
________________________
(1) Investment grade includes the top four ratings from the major rating
services.
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An issue which is rated baa is considered to be medium grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.(2)
According to Moody's, utility preferreds with this rating were yielding
8.00% at the end of 1995. BGL then increased this yield to 9.50% because of
the additional risk brought on by the ESOP's debt and the other risk factors
mentioned above. In consideration for the fact that the Congressional
Preferred Stock held by the ESOP is not publicly- traded, BGL made a 5.00%
marketability adjustment to the comparable yield which resulted in a comparable
yield of 10.00% Dividing the actual rate paid of 6.78% by the market rate of
10.00%, and multiplying the quotient by the face value of the Congressional
Preferred Stock, BGL has arrived at a preliminary preferred value of $6,780.00
per share as of December 31, 1995, and will use this same method in arriving at
a final preferred value as of the Effective Time of the Merger. Using the
Black-Scholes and Shelton option valuation methods, BGL also has determined
that the conversion rights had a fair market value of $1,034.11 per share as of
December 31, 1995. BGL also will use this same method in arriving at a final
value for the conversion rights as of the Effective Time of the Merger. Adding
the pure preferred value to the value of the conversion right, BGL determined
that the total value of the Congressional Preferred Stock held by the ESOP as
of December 31, 1995, was $7,814.11 per share.
Based upon this estimated value per share of $7,814.11, the total value of
the 700 shares of Congressional Preferred Stock held by the ESOP would be
approximately $5,469,877. Given the Exchange Rate, the ESOP will receive a
total of 599,998 shares of AMRE Common Stock in the Merger. The fair market
value of AMRE Common Stock, as traded on the NYSE, at April 13, 1996, was
18.375. The total fair market value of the AMRE Common Stock to be received by
the ESOP, therefore, in exchange for the Congressional Preferred Stock would be
approximately $11,024,963. In analyzing the appropriate factors discussed
above, it is BGL's opinion, and will likely be its opinion as of the Effective
Time of the Merger (which is a condition to the consummation of the Merger),
that the ESOP will be receiving at least "adequate consideration" (as defined
in Section 3(18) of ERISA) for the Congressional Preferred Stock it exchanges
for AMRE Common Stock in the Merger.
In rendering its opinions that the value of the 599,998 shares of AMRE
Common Stock received by the ESOP in exchange for the Congressional Preferred
Stock will constitute "adequate consideration" within the meaning of Section
3(18) of ERISA and that the terms and conditions of the transactions
contemplated by the Merger will be fair to the ESOP, its participants and their
beneficiaries, from a financial point of view, BGL will not, however, be making
any recommendation as to how ESOP participants should direct the Substitute
Trustee to vote the allocated shares of Congressional Preferred Stock or as to
whether the ESOP and/or the ESOP participants should hold or sell the AMRE
Common Stock after the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the assets
and liabilities of AMRE and Congressional will be combined based on the
respective carrying values of the accounts in the historical financial
statements of each entity. Results of operations of the combined company will
include income of AMRE and Congressional for the entire fiscal period in which
the combination occurs and the historical results of operations of the separate
companies for the fiscal years prior to the Merger will be adjusted to a
calendar year to conform with AMRE's fiscal year and will be combined and
reported as the results of operations of the combined company.
Pursuant to the Merger Agreement, AMRE and Congressional have agreed to not
(and to not knowingly permit any of their respective affiliates to) take any
action, or fail to take any reasonable action, that would jeopardize the
treatment of the Merger as a pooling of interests. In the event such an action
occurred, the Merger would not qualify as a pooling of interests and, rather,
would be accounted for under the purchase
________________________
(2) Moody's Bond Record, (New York: Moody's Investor's Service, January,
1996), p. 336.
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<PAGE> 46
method which would result in the recording of a significant amount of goodwill
(the excess of the value of AMRE Common Stock exchanged in the Merger over the
fair value of the net assets of Congressional). Depending upon the amount of
goodwill recorded and the amortization period selected, the future operating
income of the combined company would be reduced by $0.5 million to $1.0 million
per year under the purchase method of accounting. If, prior to the Effective
Time, the parties become aware of any circumstance that would prevent the
Merger from being treated as a pooling of interests for accounting purposes,
Congressional shareholder approval will be resolicited. See "The Merger
Agreement" and "Special Factors -- Federal Securities Laws Consequences."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material federal income tax consequences which
are expected to result from the Merger and the issuance of the securities
offered by this Information Statement/Prospectus. It is impracticable to
comment on all aspects of federal, state, local and foreign laws that may
affect the tax consequences of the transactions contemplated hereby as they
relate to the particular circumstances of each shareholder or potential
shareholder. The federal income tax discussion set forth below applies only to
holders of shares of AMRE, Merger Sub, Surviving Corporation or Congressional
who hold such shares as capital assets. The federal income tax consequences to
any particular shareholder may be affected by matters not discussed below. For
example, certain types of holders (including foreign persons, life insurance
companies, tax exempt organizations and taxpayers who may be subject to the
alternative minimum tax) may be subject to special rules not addressed herein.
Furthermore, the discussion may not be applicable with respect to shares
received pursuant to the exercise of employee stock options or otherwise as
compensation.
This summary is based on the current provisions of the Code, existing and
proposed Treasury regulations thereunder and current administrative rulings and
court decisions, all of which are subject to changes that may or may not be
retroactively applied. Many of the provisions of the Code which have been
recently enacted or amended have not been interpreted by the courts or the IRS.
No assurance can be provided that opinions and statements set forth herein
(which do not bind the IRS or the courts) will not be challenged by the IRS or
would be sustained by a court if so challenged.
THE DISCUSSION SET FORTH BELOW ADDRESSES CERTAIN MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF GENERAL APPLICABILITY WHICH ARE EXPECTED TO RESULT FROM THE
MERGER. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
TAX CONSEQUENCES OF THE MERGER, THE HOLDING AND DISPOSITION OF THE SECURITIES
OFFERED HEREIN, AND THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND
FOREIGN INCOME AND OTHER TAX LAWS WITH RESPECT TO THEIR OWN PARTICULAR
CIRCUMSTANCES.
General. Congressional has obtained the Ernst & Young Opinion as to
certain of the expected federal income tax consequences of the Merger, a copy
of which is attached as Annex E hereto. Congressional selected Ernst & Young
on the basis of its national reputation and perceived expertise in connection
with federal income tax matters, including tax- free reorganizations. In
rendering the Ernst & Young Opinion, Ernst & Young has relied, as to factual
matters, solely on the present and continuing accuracy of (i) the description
of the facts relating to the Merger contained in this Information
Statement/Prospectus, (ii) the factual representations contained in the Merger
Agreement and related documents, and (iii) certain factual matters addressed by
representations made by certain executive officers of AMRE and Congressional as
well as Congressional Shareholders, as further described in the Ernst & Young
Opinion.
Subject to the conditions, qualifications and representations contained
herein (and as further described below) and in the Ernst & Young Opinion, Ernst
& Young has opined that each of the following income tax consequences will
result (i) the Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) of the Code;
(ii) AMRE, Merger Sub, and
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<PAGE> 47
Congressional will each be a party to the reorganization within the meaning of
Section 368(b) of the Code; (iii) the Merger will not result in the recognition
of a gain or loss to AMRE, Merger Sub, Congressional, or the Congressional
Shareholders except for any cash paid in connection with the exercise of
dissenters' rights; (iv) the adjusted basis of each former Congressional
Shareholder in the AMRE Common Stock received in the Merger will be the same as
the adjusted basis of the Congressional stock surrendered in exchange therefor;
and (v) the holding period of the AMRE Common Stock received by Congressional
Shareholders will include the holding period of the Congressional stock
surrendered in exchange therefor. The Ernst & Young Opinion represents only
Ernst & Young's best judgment as to the expected federal income tax
consequences of the Merger and is not binding on the IRS. The IRS may
challenge the conclusions stated therein, and Congressional Shareholders may
incur the cost and expense of defending positions taken by them with respect to
the Merger.
The Ernst & Young Opinion states that the Merger will qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Code by reason
of Section 368(a)(2)(E) of the Code and is based on a representation that, as
at the Effective Time, there is no plan or intention by the ESOP participants
and Congressional Shareholders to sell, exchange or dispose of their AMRE
Common Stock received in the Merger or upon distribution from the ESOP. If the
above- described representation is not accurate, it is possible that the Merger
will instead be treated as a taxable acquisition of Congressional stock by
AMRE. See "-- Consequences of Failed Reorganization" below.
Distribution by ESOP. In the event of the termination of the ESOP, the tax
treatment of the resulting distribution of AMRE Common Stock by the ESOP to the
ESOP participants is described below. (This information is not part of the
Ernst & Young opinion.)
A distribution of the AMRE Common Stock in a participant's account in the
ESOP as a result of a termination of the ESOP will likely qualify for treatment
as an eligible rollover distribution. A participant may elect a direct
rollover to an individual retirement account ("IRA") or another qualified plan
of all or any portion of an eligible rollover distribution. A direct rollover
amount is not subject to taxation until the participant later receives a
distribution from the IRA or qualified plan. If a participant's distribution
exceeds $500, he may elect a direct rollover of only a part of the
distribution, provided the portion directly rolled over is at least $500. If
the distribution is $500 or less, the participant must elect either a direct
rollover of the entire amount or payment of the entire amount.
The portion of a distribution from the ESOP which a participant elects to
receive is taxable to the participant unless, within 60 days, he rolls over the
distribution to an IRA or to another employer plan. The taxable portion of a
distribution is subject to 20.0% federal income tax withholding. A participant
may not waive this withholding. However, the amount withheld cannot exceed the
amount of cash (or property other than AMRE Common Stock) he receives. If the
distribution is entirely in the form of AMRE Common Stock, withholding does not
apply. There also is no withholding if the participant receives, in addition
to AMRE Common Stock, no more than $200 in cash, in lieu of fractional stock.
If a participant receives payment of his distribution from the ESOP, he
still may roll over all or any portion of the distribution to an IRA or another
qualified plan that accepts rollovers within 60 days of the participant's
receipt of the payment. The portion of the distribution which the participant
elects to roll over is not subject to taxation until the participant receives
distributions from the IRA or qualified plan. A participant may roll over
100.0% of his eligible rollover distribution even though the employer or plan
administrator of the ESOP has withheld 20.0% of the distribution for income tax
withholding. If a participant elects to roll over 100.0% of the distribution,
the participant must obtain other money within the 60-day period to contribute
to the IRA or qualified plan to replace the 20.0% withheld. If he elects to
roll over only the 80.0% received, the 20.0% withheld will be subject to
taxation.
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If a participant receives a distribution from the ESOP before he reaches
age 59 1/2 and he does not roll over the distribution, the distribution is
subject to a 10.0% penalty tax in addition to any federal income taxes, unless
an exception applies.
If a distribution from the ESOP is a "lump sum distribution," and the
participant receiving it was born before 1936, he may elect special treatment,
but only if the participant does not roll over any part of the lump sum
distribution. A lump sum distribution is a distribution, within one calendar
year, of a participant's entire vested account balance (including the
nontaxable portion of distribution) under the ESOP. The distribution must
occur after the participant attains age 59 1/2 or after he has separated from
service.
A participant must have completed at least five years of active
participation in the ESOP for income averaging to apply to the distribution.
As a general rule, a participant may not elect income averaging for a lump sum
distribution if he elected income averaging with respect to a prior lump sum
distribution received after December 31, 1986, or after he attains the age of
59 1/2.
The Code provides a special rule for a distribution which includes employer
stock such as the AMRE Common Stock. In order to take advantage of this
special rule, the distribution must qualify as a lump sum distribution. Under
this rule, a participant has the option of not paying the tax on the "net
unrealized appreciation" of the stock until he sells the stock. Net unrealized
appreciation generally is the increase in the value of the stock while the ESOP
held the stock. If the participant elects not to apply the special rule, his
net unrealized appreciation is taxable in the year of distribution, unless the
participant rolls over the stock to an IRA or to another qualified plan as
described above.
Consequences of Failed Reorganization. If the Merger does not qualify as a
reorganization under Section 368 of the Code, the transaction will be treated
for federal income tax purposes as a purchase of Congressional stock from the
Congressional Shareholders by AMRE in exchange for AMRE Common Stock. In such
event, each of the Congressional Shareholders, other than the ESOP, would
recognize gain or loss equal to the difference between the fair market value of
the AMRE Common Stock received and each such shareholder's adjusted basis in
its Congressional stock, which gain or loss would be long-term capital gain or
loss if such stock has been held for more than one year, provided the stock has
been held as a capital asset. Additionally, Congressional Shareholders would
recognize income or gain to the extent they receive any cash in connection with
the exercise of dissenter's rights. Neither AMRE nor Congressional would
recognize gain or loss in such event.
Backup Withholding. Federal income tax law requires that a holder of
Congressional stock provide the Exchange Agent with its correct taxpayer
identification number, which, in the case of a shareholder who is an
individual, is his social security number, or, in the alternative, establish a
basis for exemption from backup withholding. Exempt holders (including, among
others, corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. If the correct taxpayer
identification number or an adequate basis for exemption is not provided, the
shareholder will be subject to withholding of 31.0% of the cash (if any)
received with respect to dividends paid or the proceeds of a sale, exchange or
redemption of AMRE Common Stock.
To prevent backup withholding, each shareholder must complete the
Substitute Form W-9 provided by the Exchange Agent with the transmittal letter
and certify under penalties of perjury (i) that the taxpayer identification
number provided is correct (or that such shareholder is awaiting a taxpayer
identification number), and (ii) that the shareholder is not subject to backup
withholding because (a) such shareholder is exempt from backup withholding, (b)
the shareholder has not been notified by the IRS that such shareholder is
subject to backup withholding as a result of the failure to report all interest
or dividends, or (c) the IRS has notified such shareholder that it is no longer
subject to backup withholding. The Substitute Form W-9 should be completed,
signed, and returned to the Exchange Agent. In order for a shareholder who is
a foreign individual to qualify as an exempt recipient, that shareholder must
submit a statement, signed under penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from
Congressional.
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REGULATORY APPROVALS
Based on information available to them, AMRE and Congressional believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such challenge were
made, AMRE or Congressional would prevail or would not be required to accept
certain conditions possibly including certain divestitures in order to
consummate the Merger. See "The Merger Agreement -- Terms of the Merger
Agreement -- Conditions to the Merger."
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of AMRE Common Stock received or held by Congressional
Shareholders in connection with the Merger will be freely transferable under
the federal securities laws, except that shares of AMRE Common Stock received
or held by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Congressional prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of AMRE) or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of AMRE or Congressional
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal shareholders of such party. The
Merger Agreement requires Congressional to use its best efforts to cause each
of its affiliates to execute a written agreement to the effect that such person
will not offer or sell or otherwise dispose of any shares of AMRE Common Stock
issued to such person in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated thereunder by the
Commission.
LISTING ON THE NEW YORK STOCK EXCHANGE
AMRE Common Stock is currently listed for trading on the NYSE, and it is
anticipated that such stock will continue to be traded thereon immediately
following consummation of the Merger. The AMRE Common Stock to be issued upon
consummation of the Merger has been approved for listing on the NYSE, subject
to notice of issuance and approval of the Merger by the Congressional
Shareholders.
APPRAISAL RIGHTS
The Merger Agreement provides that upon approval of the Merger by
Congressional Shareholders, Congressional shall send to each of the
Congressional Shareholders notice as to the Effective Time of the Merger and
the availability of appraisal rights under the Virginia Act. Holders of
Congressional Common Stock and Congressional Preferred Stock who wish to object
to the Merger and exercise dissenters' rights must comply with the provisions
of Article 15 of the Virginia Act, a copy of which is attached as Annex B. The
Substitute Trustee will assert dissenters' rights on behalf of any ESOP
participant, as to allocated preferred shares beneficially owned by such ESOP
participant, upon timely receipt of notice from such ESOP participant in
conformity with the requirements of Article 15 of the Virginia Act.
Notwithstanding the foregoing, participants in the ESOP who wish to exercise
dissenters' rights under Article 15 of the Virginia Act by virtue of their
beneficial interest in Congressional Preferred Stock allocated to their ESOP
accounts must continue to comply with Article 15 of the Virginia Act following
such notice.
To exercise their dissenters' rights, a holder must (i) prior to the vote
taking place, deliver to the Surviving Corporation, at the address shown on the
Notice of Special Meeting, a written notice of intent to demand payment for his
shares pursuant to Article 15 of the Virginia Act if the Merger is effectuated
and (ii) not vote his shares in favor of the Merger. The demand notice should
specify the holder's name and mailing address, the number of shares owned and
that the holder is demanding dissenters' rights. A VOTE AGAINST THE MERGER
WILL NOT IN ITSELF CONSTITUTE SUCH WRITTEN NOTICE, AND A FAILURE TO VOTE WILL
NOT CONSTITUTE A TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.
A record holder of Congressional Common Stock or Congressional Preferred
Stock may assert dissenters' rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies Congressional in writing of
the name and address of each
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person on whose behalf the holder is asserting dissenters' rights. The rights
of a partial dissenter will be determined as if the shares as to which such
holder is dissenting and such holder's other shares were registered in the
names of different shareholders. A beneficial owner of Congressional Common
Stock or Congressional Preferred Stock may assert dissenters' rights as to
shares held on such beneficial owner's behalf only if: (i) such beneficial
owner submits to Congressional the record holder's written consent to the
dissent not later than the time the beneficial owner asserts dissenters'
rights; and (ii) the beneficial owner does so with respect to all shares of
which he is a beneficial owner or over which he has power to direct the vote.
Within ten days after the Effective Date of the Merger, the Surviving
Corporation is required to deliver a dissenters' notice in writing to each
holder of Congressional Common Stock or Congressional Preferred Stock who has
filed such written notice of intent to demand payment for his shares and who
has not voted such shares in favor of the Merger that (i) states where the
payment demand shall be sent and where and when certificates shall be deposited
and includes the information set forth in Article 15 of the Virginia Act; (ii)
supplies a form for demanding payment; (iii) sets a date by which the Surviving
Corporation must receive the payment demand, which date may not be fewer than
30 nor more than 60 days after the date of delivery of the dissenters' notice;
and (iv) is accompanied by a copy of Article 15 of the Virginia Act. A
dissenting shareholder must (i) deposit his certificates in accordance with the
terms of the notice and (ii) send in the form for demanding payment within the
time period specified by the dissenters' notice, or such dissenting holder will
not be entitled to payment for his shares under Article 15.
Within 30 days after receipt of a payment demand, the Surviving Corporation
must pay a dissenting holder of Congressional shares the amount the Surviving
Corporation estimates to be the fair value of the shares, plus accrued
interest. The payment must be accompanied by financial statements of
Congressional, an explanation of how the Surviving Corporation estimated the
fair value of the shares and calculated the interest, a statement of the
holder's right to demand payment as provided in Article 15 of the Virginia Act
(as described below) if dissatisfied with the offer of payment and a copy of
Article 15. The Surviving Corporation may elect to withhold payment from a
dissenting holder of Congressional Common Stock or Congressional Preferred
Stock who was not the beneficial owner of the holder's shares on November 30,
1995, the date of the first publication in the news media of the terms of the
proposed Merger. To the extent the Surviving Corporation withholds payment, it
must estimate the fair value of the Congressional shares, plus accrued
interest, and must offer to pay this amount to each dissenting holder of
Congressional shares who agrees to accept such amount in the full satisfaction
of such holder's demand.
If a dissenting holder believes that the amount paid or offered by the
Surviving Corporation is less than the fair value of his shares or that the
interest due is incorrectly calculated, within 30 days after the date the
Surviving Corporation makes or offers to make payment to the dissenting holder,
such holder may notify the Surviving Corporation in writing of his own estimate
of the fair value of his shares and amount of interest due and, (i) in the case
of a payment by the Surviving Corporation, demand payment of his estimate, less
the payment made by the Surviving Corporation or, (ii) in the case of an offer
by the Surviving Corporation, reject the Surviving Corporation's offer and
demand payment of the fair value of his shares and interest due. Such holder
waives his right to demand payment under Article 15 of the Virginia Act if he
does not notify the Surviving Corporation in writing as set forth in (i) or
(ii) above within 30 days after the Surviving Corporation makes or offers
payment for his shares of Congressional Common Stock or Congressional Preferred
Stock.
If a demand for payment under the preceding paragraph remains unsettled,
within 60 days after receiving a payment demand from a dissenting holder of
Congressional Common Stock or Congressional Preferred Stock, the Surviving
Corporation must either commence a proceeding in the Circuit Court of the City
of Norfolk to determine the fair value of such holder's shares and accrued
interest, or it must pay each dissenting shareholder whose demand remains
unsettled the amount demanded.
The statements made in this summary are qualified in their entirety by
reference to Article 15 of the Virginia Act, a copy of which is attached hereto
as Annex B. The provisions of Article 15 are technical in nature and complex.
IT IS SUGGESTED THAT ANY HOLDER OF CONGRESSIONAL COMMON STOCK OR CONGRESSIONAL
PREFERRED STOCK WHO DESIRES TO EXERCISE A RIGHT TO DISSENT SHOULD CONSULT SUCH
HOLDER'S COUNSEL BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF
ARTICLE 15 MAY DEFEAT DISSENTERS' RIGHTS.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, the full text of which is attached hereto and incorporated herein by
reference as Annex A. The following discussion is qualified in its entirety by
reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, subject to the terms and conditions
thereof, at the Effective Time, Merger Sub will be merged with and into
Congressional, and the separate corporate existence of Merger Sub shall
thereupon cease. Congressional will be the Surviving Corporation in the Merger
and will continue to be governed by the laws of the Commonwealth of Virginia,
and the separate corporate existence of Congressional with all of its rights,
privileges, immunities, powers and franchises will continue unaffected by the
Merger, except as set forth in the Merger Agreement. The Merger will have the
effect specified in the Virginia Act.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective at the
later of (i) the time Articles of Merger are filed with the State Corporation
Commission of Virginia (the "Virginia Commission"), (ii) the Virginia
Commission issues a Certificate of Merger, (iii) Articles of Merger are filed
with the Delaware Secretary of State and (iv) the effective time set forth in
such filings. It is anticipated that, if the Merger Agreement and the
transactions contemplated thereby, including the Merger, are approved and
adopted at the Special Meeting and all other conditions to the Merger have been
satisfied or waived, the Effective Time will occur as soon as practicable the
date of the Special Meeting.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, each outstanding share of Congressional Common Stock
and Congressional Preferred Stock (other than shares held by dissenting
Congressional Shareholders who properly exercise their dissenters' rights or
shares of Congressional Common Stock or Congressional Preferred Stock held in
the treasury of Congressional, which shares will be canceled at the Effective
Time) will be converted into 601.20 shares and 857.14 shares of AMRE Common
Stock, respectively.
Promptly following the Effective Time, AMRE will cause the Exchange Agent
to mail to each record holder of Congressional Common Stock or the Substitute
Trustee on behalf of holders of Congressional Preferred Stock immediately prior
to the Effective Time a letter of transmittal and other information advising
such holder of the consummation of the Merger and for use in exchanging
certificates representing Congressional Common Stock or Congressional Preferred
Stock for certificates representing AMRE Common Stock. After the Effective
Time, there will be no further registration of transfers on the stock transfer
books of Congressional of shares of Congressional Common Stock or Congressional
Preferred Stock that were outstanding immediately prior to the Effective Time.
Stock certificates should not be surrendered for exchange by Congressional
Shareholders prior to the Effective Time and the receipt of a letter of
transmittal. Certificates surrendered for exchange by any person constituting
an "affiliate" of Congressional, for purposes of Rule 145(c) under the
Securities Act, shall not be exchanged until AMRE receives an executed
Affiliate Letter (as defined below).
No fractional shares of AMRE Common Stock will be issued in the Merger. In
lieu of the issuance of fractional shares, one additional share of AMRE Common
Stock will be issued for any fractional share that would have otherwise been
issued.
Until such time as a holder of Congressional Common Stock or the Substitute
Trustee, on behalf of holders of Congressional Preferred Stock, surrenders his
outstanding stock certificate to the Exchange Agent, together with the letter
of transmittal, the shares of Congressional Common Stock or Congressional
Preferred
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<PAGE> 52
Stock, represented thereby (other than those held by dissenters) will be deemed
from and after the Effective Time, for all corporate purposes to evidence the
right to receive a certificate representing the number of newly issued shares
of AMRE Common Stock to be issued therefor. The Exchange Agent shall not be
entitled to vote or exercise any rights of ownership with respect to the shares
of AMRE Common Stock held by it from time to time under the Merger Agreement,
except that it shall receive and hold all dividends or other distributions paid
or distributed with respect to such shares for the account of the persons
entitled thereto. Upon surrender of the certificates previously representing
Congressional Common Stock or Congressional Preferred Stock, the holder thereof
will receive one or more certificates representing the number of shares of AMRE
Common Stock which such holder is entitled to receive. In addition to
certificates for AMRE Common Stock, Congressional Shareholders shall also be
entitled to receive the amount of any dividends or other distributions payable
to holders of record of AMRE Common Stock on or after the Effective Time with
respect to their shares, without interest thereon.
TERMS OF THE MERGER AGREEMENT
The Merger Agreement provides that AMRE and Congressional shall use all
commercially reasonable efforts to take all actions as may be necessary or
appropriate in order to effect the Merger as promptly as practicable.
Conversion of Congressional Stock; Common Stock Exchange Amount and
Preferred Stock Exchange Amount. Under the terms of the Merger Agreement, each
share of Congressional Common Stock and Congressional Preferred Stock (other
than shares held by dissenting Congressional Shareholders who properly exercise
their dissenters' rights or shares held in treasury) will at the Effective Time
be converted into 601.20 shares and 857.14 shares, respectively, of AMRE Common
Stock.
Representations. The Merger Agreement contains various representations and
warranties of the parties, including but not limited to such matters as their
organization; authorization and validity of the Merger Agreement; absence of
conflict with charter documents or agreements by which the parties are bound or
laws or judgments applicable to the parties; governmental approvals and third
party consents; financial statements; the absence of any material adverse
changes; payment of taxes; litigation; absence of environmental issues;
ownership of material assets; full disclosure; and broker's fees. The Merger
Agreement also contains representations by Congressional with respect to real
and personal property holdings; permits; insurance; contracts; employee benefit
plans; shareholder information; and dividend payments. Certain representations
and warranties of AMRE and Congressional regarding financial statements,
environmental liability, and scope of disclosure, as well as certain
representations made by Congressional regarding the ESOP, shall survive the
Merger until a termination of the ESOP and distribution of the ESOP's assets
occurs. AMRE's representation as to continuing a historic line of
Congressional's business shall continue for one year following the Merger. No
other representations and warranties in the Merger Agreement survive the
Merger.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligations of the parties to effect the Merger will be subject to the
fulfillment at or prior to the Effective Time of the conditions that, among
other things, (i) the Merger Agreement and the consummation of the transactions
contemplated in the Merger Agreement shall have been approved and adopted by
the requisite vote of the Congressional Shareholders, as required by applicable
law; (ii) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall be in effect that would make the acquisition
of the shares of Congressional Common Stock and Congressional Preferred Stock
by AMRE or the holding by AMRE of the shares of common stock of the Surviving
Corporation illegal, or otherwise prohibit the consummation of the Merger;
(iii) all consents, approvals and actions by any governmental commission, board
or other regulatory body required to permit the consummation of the Merger
shall have been obtained, except for filings in connection with the Merger and
any other documents required to be filed after the Effective time and except
for such consents or approvals that would not have a material adverse effect on
Congressional or AMRE; (iv) a registration statement on Form S-4 relating to
AMRE Common Stock shall have been declared effective by the Commission, and no
stop order suspending the effectiveness of such registration statement shall be
in
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effect; (v) the AMRE Common Stock to be issued in the Merger shall have been
approved for listing on the NYSE, subject only to official notice of issuance;
(vi) no action shall be pending which has been filed by any state or federal
authority or any other party seeking to enjoin consummation of the transactions
contemplated by the Merger Agreement, including, but not limited to, the
Merger, and no injunction shall have been issued and shall be effective or
enforceable or under appeal if the effectiveness or enforceability thereof has
been lifted or stayed by a court or other authority of competent jurisdiction,
preventing the Merger, or imposing conditions on, the Merger which are
materially adverse to AMRE, Merger Sub, Congressional or any of their
shareholders; (vii) AMRE shall have duly completed all corporate actions to
amend the AMRE Certificate to authorize the issuance of additional AMRE Common
Stock if necessary to consummate the transactions contemplated by the Merger
Agreement; and (viii) Kenwood, a shareholder of Congressional and Norman R.
Rales, the principal shareholder of Kenwood, shall have been released by
NationsBank from any liability in connection with the NationsBank Loan and any
collateral security agreements relating thereto.
Additional Conditions to the Obligation of Congressional. The obligation
of Congressional to effect the Merger is also subject to the fulfillment at or
prior to the Effective Time of certain additional conditions, (unless waived)
or except as otherwise contemplated by the Merger Agreement, including, without
limitation, (i) AMRE and Merger Sub shall in all material respects have
complied with its obligations, agreements and covenants under the Merger
Agreement; (ii) the representations and warranties of AMRE and Merger Sub shall
be true and correct in all material respects, except as effected by the
transactions contemplated under the Merger Agreement; (iii) AMRE and Merger Sub
shall have delivered an Officer's Certificate in which certain officers shall
certify to their best knowledge as to the satisfaction of certain conditions
under the Merger Agreement; (iv) the results of a due diligence review of AMRE
shall be materially satisfactory to Congressional; (v) AMRE shall have executed
and delivered the Nunez Employment Agreement; (vi) Congressional shall have
received the Ernst & Young Opinion; (vii) the ESOP shall have received the ESOP
Opinion; (viii) Congressional shall have received certified copies of the
resolutions of the AMRE Board and the board of Merger Sub authorizing the
Merger; and (ix) Congressional shall have received incumbency certificates from
the secretaries of AMRE and Merger Sub.
Additional Conditions to the Obligation of AMRE and Merger Sub. The
obligations of AMRE and Merger Sub to effect the Merger is also subject to the
fulfillment at or prior to the Effective Time of certain additional conditions,
(unless waived) or except as otherwise contemplated by the Merger Agreement,
including, without limitation, (i) all of the members of the Congressional
Board shall have irrevocably tendered their resignations effective as of the
Effective Time and Congressional shall have accepted such resignations; (ii)
the results of a due diligence review of Congressional shall be deemed
materially satisfactory to AMRE; (iii) Congressional shall have delivered an
Officer's Certificate in which an officer of Congressional shall certify to his
best knowledge as to the satisfaction of certain conditions under the Merger
Agreement; (iv) Congressional shall have complied in all material respects with
the obligations, agreements and covenants under the Merger Agreement; (v) the
representations and warranties made by Congressional and the Shareholders shall
be true and correct in all material respects, except as effected by the
transactions under the Merger Agreement; (vi) Congressional shall have
delivered to AMRE and Merger Sub all necessary releases, consents, waivers,
authorizations and approvals; (vii) AMRE and Congressional shall have received
a written consent of NationsBank to the Merger; (viii) AMRE and Merger Sub
shall have received certified copies of the resolutions of the Congressional
Board and the Congressional Shareholders authorizing the Merger; (ix) AMRE and
Merger Sub shall have received an incumbency certificate from the secretary of
Congressional; and (x) holders of not more than 10.0% of the shares of
Congressional stock shall have exercised and properly perfected dissenters'
rights under Article 15 of the Virginia Act.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the Congressional
Shareholders, (i) by mutual written consent of the boards of AMRE, Merger Sub
and Congressional; (ii) by either of the boards of Merger Sub or Congressional
if the Effective Time shall not have occurred on or before June 30, 1996 and
the failure of the Effective Time occurring on such date is not due to any
action of the terminating party; (iii) if an order, decree or ruling shall have
been issued by a court of competent jurisdiction or governmental, regulatory or
administrative agency
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or commission, or other action is taken which permanently restrains, enjoins,
or otherwise prohibits the transactions contemplated in the Merger Agreement,
and such order, decree, ruling or action becomes final and nonappealable; or
(iv) by Congressional, in the event a third party makes a bona fide offer to
acquire substantially all of the assets of Congressional, merge, consolidate or
otherwise enter into a combination of interests. If the Merger Agreement is
terminated pursuant to clause (iv) of the preceding sentence, Congressional
will be required to pay AMRE a termination fee of $500,000 (the "Termination
Fee"). If the Merger Agreement is terminated (a) pursuant to clause (ii) or
(b) if the Effective Time shall not have occurred on or before June 30, 1996
and for reasons other than the failure to meet the general conditions and
AMRE's additional conditions to effect the Merger, as set forth under the
Merger Agreement, AMRE shall pay Congressional the Termination Fee.
Other Offers. Pursuant to the Merger Agreement and subject to its
fiduciary duties under applicable law, Congressional has agreed that neither it
nor its agents or affiliates shall, directly or indirectly, through any
officer, director, agent, representative or otherwise, (i) solicit, initiate or
encourage proposals or offers from any person relating to any acquisition of
all or substantially all of the assets of, or any equity interest in,
Congressional or any merger, consolidation or business combination with
Congressional; (ii) participate in any discussions regarding or furnish to any
person any information with respect to the foregoing; or (iii) otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing.
Conduct of Congressional's Business Prior to Merger. Pursuant to the
Merger Agreement, Congressional has agreed, among other things, during the
period from the date of the Merger Agreement until the Effective Time, except
in connection with the transactions contemplated by the Merger Agreement or
except as agreed upon in writing, that (i) the business of Congressional shall
be conducted only in the ordinary course of business, and Congressional shall
use its commercially reasonable efforts to maintain and preserve its business
organization, assets, prospects, employees and advantageous business
relationships; (ii) Congressional shall use its commercially reasonable efforts
to preserve its business organization intact, to keep available the services of
its current officers and key employees and to maintain satisfactory
relationships with suppliers, contractors, distributors, customers, licensors,
licensees and others having significant business relationships with it; (iii)
Congressional shall not, directly or indirectly, (a) authorize for issuance,
issue, sell, pledge, deliver, or agree or commit to issue, sell, pledge or
deliver (whether through the issuance or grant of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any capital stock
of Congressional or securities or rights convertible into or exchangeable for,
shares of capital stock or securities convertible into or exchangeable for such
shares; (b) pledge, dispose of or encumber, except in the ordinary course of
business, any of its assets (including any indebtedness owed to it or any
claims held by it); (c) amend or propose to amend its charter or bylaws or
similar organizational documents except as may be required to effect the
transactions contemplated by the Merger Agreement; (d) split, combine or
reclassify any shares of its capital stock or declare, set aside or pay any
dividend or distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock except as in the ordinary course of the
operation of the ESOP; (e) redeem, purchase or otherwise acquire or offer to
redeem, purchase or otherwise acquire any capital stock of Congressional; (f)
transfer any assets or liabilities to an affiliate; or (g) authorize or enter
into an arrangement to do the foregoing; (iv) Congressional will not, directly
or indirectly, (a) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or make any investment either by purchase of stock or securities,
contributions to capital, property transfer or purchase of any amount of
property or assets of any other individual or entity; (b) acquire any assets
for a value in excess of $10,000 other than in the ordinary course of business;
(c) dispose of any assets with a value in excess of $10,000 other than in the
ordinary course of business; (d) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other individual
or entity, make any loans or advances or enter into any other transaction,
except in the ordinary course of business and consistent with past practice;
(e) authorize, recommend or propose any change in its capitalization or any
release or relinquishment of any contract right; (v) Congressional will not
enter into or adopt any new, or amend any existing, severance or termination
benefit arrangements, consulting agreements, any employment benefit plans, or
arrangement,
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other than in the ordinary course of business; (vi) without the prior consent
of AMRE, which consent shall not be unreasonably withheld, Congressional shall
not (except for routine salary increases or other adjustments to employee
benefit arrangements in the ordinary course of business) adopt nor amend any
bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
employee nor increase or pay any benefit not required by any existing plan and
arrangement; (vii) Congressional will not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected or reserved against in
Congressional's financial statements or incurred in the ordinary course of
business; (viii) Congressional shall not waive, release, grant or transfer any
franchises, franchise agreements, patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights or know-how or modify or
change in any respect any existing license, lease, contract franchise,
franchise agreement or other document, other than in the ordinary course of
business; and (ix) Congressional shall not make any capital expenditure in
aggregate in excess of $20,000.
Operation of the Surviving Corporation's Business Following the Effective
Date. Pursuant to the Merger Agreement (i) AMRE and Merger Sub have agreed
that Mr. Nunez, will serve as a Vice President of AMRE with initial
responsibility for material employee decisions for the employees of
Congressional, subject in all respects to the reasonable discretion of the
Chief Executive Officer of AMRE and consistent with AMRE's human resource
policies; (ii) AMRE and Merger Sub have agreed to provide a benefit package to
the former employees of Congressional which is substantially equivalent to the
benefits afforded to the employees of AMRE prior to the Effective Date, in the
event that the current benefit package available to Congressional's employees
is terminated or restructured as a result of the transactions contemplated in
the Merger Agreement; (iii) AMRE and Merger Sub agree to continue any current
insurance policies which cover the Congressional Board or the ESOP Trustees in
full force and effect until (x) the complete termination of the ESOP or (y) the
receipt of a favorable determination letter from the IRS on the qualified
status of the ESOP at termination and distribution of all assets from the ESOP,
whichever of (x) and (y) is later; (iv) AMRE will cause the Surviving
Corporation to observe any indemnification provisions now existing in the
articles of incorporation or bylaws of Congressional or the ESOP plan for the
benefit of any individual who served as a director or officer of Congressional
at any time prior to the Effective Time, and will cause the Surviving
Corporation to indemnify each individual who served as a director or officer or
trustee of Congressional or the ESOP at any time prior to the Effective Time
from and against any and all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses and
fees, including all court costs and reasonable attorneys' fees and expenses,
resulting from, arising out of, relating to, in the nature of, or caused by the
Merger Agreement or any of the transactions contemplated in the Merger
Agreement; and (v) AMRE agrees to cause Surviving Corporation to expressly
assume all obligations of Congressional as such obligations arise under the
following agreements to which Congressional is a party: (A) the NationsBank
Loan; and (B) the Mirror Loan; (vi) AMRE will make or cause the Surviving
Corporation to make cash contributions and to issue cash dividends to the ESOP,
if permitted, in such amounts and at such times which will enable the ESOP to
pay when due all amounts owing by the ESOP under or with respect to the Mirror
Loan and/or that certain Secured Promissory Note dated June 30, 1993 (the
"Secured Note") from the ESOP, whether for principal or interest. A cash
contribution or dividend by AMRE or the Surviving Corporation to the ESOP to
enable the ESOP to make any given payment on the Secured Note shall be made
sufficiently prior to the date such payment is due to provide for timely
payment under the Mirror Loan and the Secured Note and shall be in immediately
available funds. AMRE's obligation under this provision of the Merger
Agreement shall continue until such time as all amounts owed by the ESOP
pursuant to the Mirror Loan and the Secured Note have been satisfied through
the payment of contributions or dividends to the ESOP or through other means
that are permissible under the ESOP plan document, the Code and ERISA;
provided, however, that AMRE will not cause allocated stock to be sold to repay
the Mirror Loan; (vii) it is the present intent of AMRE to cause the Surviving
Corporation to terminate the ESOP (and distribute its assets) to its
participants following the giving of all applicable notices and the receipt and
conclusion of all appropriate and/or required (a) IRS determination letters,
(b) consents, (c) allocations and
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(d) accountings) following consummation of the Merger; (viii) AMRE will not
permit any previously unallocated shares of stock held in the ESOP to be
allocated after the Effective Time to individuals other than those who are
participants in the ESOP as of the Effective Time; and (ix) AMRE will not take
any action or cause the Surviving Corporation or the fiduciary of the ESOP to
take any action in connection with the termination of the ESOP that does not
comply in all material respects with the ESOP plan document, ERISA and the
Code.
Access to Information. Through the Effective Time, Congressional and AMRE
are required to give each other and their respective representatives reasonable
access to all of its officers, employees, agents, facilities, properties,
books, contracts and records, subject to and in accordance with the Merger
Agreement.
Additional Agreements. The Merger Agreement provides that the parties
thereto shall use all commercially reasonable efforts to take all such actions
as may be necessary or appropriate in order to effectuate the transactions
contemplated by such agreement, including, among other things, to cause the
Merger to be treated as a pooling of interests for accounting purposes and as a
Section 368 tax-free reverse triangular merger for federal income tax purposes.
Affiliates. Congressional shall use its best efforts to deliver or cause
to be delivered concurrently with, as may be necessary until the Effective
Time, executed by each of its affiliates, within the meaning of Rule 145 of the
rules promulgated under the Securities Act and under the Commission's
guidelines applicable to pooling of interests, a letter in substantially the
form attached hereto as Annex D (the "Affiliate Letter"). AMRE shall be
entitled to place certain legends, as specified in the Affiliate Letter, on
certificates for AMRE Common Stock to be received by such affiliates in
connection with the Merger and to issue appropriate stop transfer instructions
to the Exchange Agent consistent with the Affiliate Letter. In addition, none
of the parties to the Merger Agreement shall permit any of its affiliates to
take any action or fail to take any action that would jeopardize the treatment
of the Merger as a pooling of interest.
Amendments. The Merger Agreement may be amended by the boards of directors
of Congressional, Merger Sub and AMRE, at any time before or after approval of
the Merger Agreement by the Congressional Shareholders; provided, however, that
after approval by such Congressional Shareholders, no amendment shall be made
that changes the form or reduces the amount of consideration to be paid to the
Congressional Shareholders or that in any other way materially adversely
affects the rights of such Congressional Shareholders (other than a termination
of the Merger Agreement in accordance with the provisions thereof) without the
further approval of such Congressional Shareholders. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties thereto.
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CENTURY 21 LICENSE AGREEMENT
On October 17, 1995, TM Acquisition Corp. and Century 21 Real Estate
Corporation, subsidiaries of HFS and ARI, a wholly owned subsidiary of AMRE,
entered into the Century 21 License Agreement, pursuant to which Century 21
granted to ARI an exclusive 20 year license to operate under the name "CENTURY
21 Home Improvements" for the marketing, sale and installation of certain home
improvement products. ARI will make royalty payments to Century 21 in initial
amounts equal to 3.0% of the aggregate contract revenues of ARI and its
sublicensees or certain guaranteed minimums starting at $11.0 million in 1996,
with the minimum royalty payment increasing during the 20 year term of the
Century 21 License Agreement. ARI also has the right to grant sublicenses
under the Century 21 License Agreement. ARI did not renew its license
agreement with Sears when it expired on December 31, 1995.
AMRE made the decision to not renew the AMRE Sears License Agreement and
enter into the Century 21 License Agreement believing that the latter agreement
provides better opportunities for growth and profitability. AMRE believes that
better opportunities for growth are provided by the Century 21 License
Agreement because it (i) provides AMRE with additional geographical areas,
including the entire United States, Canada and Mexico, (ii) covers additional
products, such as roofing and decks, and (iii) permits AMRE to sublicense the
CENTURY 21 Home Improvements name with respect to those products and geographic
markets. During the year ended December 31, 1995, AMRE paid license fees to
Sears of approximately 12.0% of revenues under the AMRE Sears License Agreement
or $32.6 million on revenues of $271.3 million. The Century 21 License
Agreement provides for a license fee of 3.0% of revenues or a minimum fee
beginning at $11.0 million in 1996. Had the Century 21 License Agreement fee
been applicable during the year ended December 31, 1995, and assuming sales
were constant during such period, fees under the Century 21 License Agreement
would have been $11.0 million. See "Risk Factors."
Concurrently with the execution of the Century 21 License Agreement, AMRE
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with
HFS pursuant to which HFS purchased 300,000 shares of AMRE Senior Convertible
Preferred Stock, par value $10.0 per share (the "AMRE Senior Convertible
Preferred Stock"), at $10.0 per share. The AMRE Senior Convertible Preferred
Stock is entitled to a quarterly dividend of 8.0% per annum and is convertible
into AMRE Common Stock as set forth in the Certificate of Designations and
Preferences related thereto. The AMRE Senior Convertible Preferred Stock also
gives HFS the right to designate two members of the AMRE Board.
AMRE and HFS also entered into a Credit Agreement (the "HFS Credit
Agreement") pursuant to which HFS has agreed to provide AMRE with a revolving
credit facility in an amount up to $4.0 million, none of which has been drawn
upon as of the date of this Information Statement/Prospectus. The HFS Credit
Agreement provides for a commitment fee of 0.5% of the unused portion of the
facility and provides that loans made thereunder carry an interest rate of
LIBOR plus 1.5%. Under the HFS Credit Agreement, AMRE is subject to certain
covenants, including limitations on indebtedness and liens, limitations on
asset dispositions, restrictions on the payment of dividends, and restrictions
on certain fundamental changes. Loans made under the HFS Credit Agreement will
be guaranteed by subsidiaries of AMRE, including ARI. Unless earlier
terminated, the HFS Credit Agreement will expire on October 17, 1998.
The cash received by AMRE from HFS in connection with the purchase of the
AMRE Senior Convertible Preferred Stock and the amounts available under the HFS
Credit Agreement will be available for general corporate purposes, including
the payment of start up marketing expenses associated with the transition to
the CENTURY 21 Home Improvements name and for working capital purposes
immediately after such transition.
CONGRESSIONAL CENTURY 21 LICENSE AGREEMENT
On December 31, 1995, ARI and Congressional entered into the Congressional
Century 21 License Agreement, a three year sublicense agreement pursuant to
which Congressional has a sublicense under the Century 21 License Agreement,
which is exclusive for territories in which Congressional operated under the
Congressional Sears License Agreement. The Congressional Century 21 License
Agreement provides for the
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payment of royalties not to exceed 8.0% of revenues and is subject to certain
rebates and certain guaranteed annual minimums. In the event the Merger is not
consummated, the Congressional Century 21 License Agreement will continue in
full force and effect in accordance with its terms. If the Congressional
Merger is consummated, the Congressional Century 21 License Agreement will be
terminated automatically.
Congressional made the decision not to renew the Congressional Sears
License Agreement and to enter into the Congressional Century 21 License
Agreement in order to obtain the right to market additional products, including
roofs and patio enclosures, in additional geographic markets that were not
covered by the Congressional Sears License Agreement. Congressional also
believed that the license fees under the Congressional Century 21 License
Agreement were significantly more advantageous to Congressional than the fees
charged under the Congressional Sears License Agreement. During the 12 months
ended December 31, 1995, Congressional paid license fees to Sears of
approximately 13.5% of revenues, or approximately $2.5 million on revenues of
approximately $19.0 million. The Congressional Century 21 License Agreement
provides for a license fee of 8.0% of revenues. Had the Congressional Century
21 License Agreement fee been in effect for the 12 months ended December 31,
1995 and assuming sales were constant during such period, fees under the
Congressional Century License Agreement would have been approximately $1.5
million. Furthermore, Congressional believed that operating as a licensee
under the CENTURY 21 brand, given the brand recognition in the real estate
market, would provide a desirable identification with the marketing of home
improvement products.
All of Congressional's revenues were derived from sales made under the
Congressional Sears License Agreement. The Sears brand name is widely
recognized and accepted in the home improvement industry and has significant
brand name appeal to a wide variety of customers. Although the CENTURY 21 Home
Improvements name was not used in the home improvement industry before 1996, at
which time AMRE began using the name, Congressional's management believes such
brand name will also be well recognized; however, there can be no assurance
that revenues under the CENTURY 21 Home Improvements name will be similar to or
greater than those under the Sears brand name. Furthermore, Congressional has
and will continue to incur significant marketing costs in order to establish
the CENTURY 21 Home Improvements name. If the CENTURY 21 Home Improvements
name does not result in advertising response rates and sales rates equal to or
better than those experienced under the Sears brand name, it will likely have
an adverse effect on the business, operating results and financial condition of
the combined company. See "The Merger Agreement."
FACELIFTERS CENTURY 21 LICENSE AGREEMENT
In connection with the Facelifters Merger Agreement, ARI and Facelifters
have entered into a three year, non- cancelable (except upon consummation of
the Facelifters Merger) sublicense agreement (the "Facelifters Century 21
License Agreement") pursuant to which Facelifters will have a sublicense under
the Century 21 License Agreement, which will be exclusive for territories in
which it previously operated under its Sears license agreement. The
Facelifters Century 21 License Agreement provides for the payment of royalties
not to exceed 8.0% of revenues subject to certain rebates. In the event the
Facelifters Merger is not consummated, the Facelifters Century 21 License
Agreement will continue in full force and effect in accordance with its terms.
If the Facelifters Merger is consummated, the Facelifters Century 21 License
Agreement will be automatically terminated.
CONGRESSIONAL CHARTER AMENDMENT
If approved by the Congressional Shareholders at the Special Meeting, the
Charter Amendment will allow for the consummation of the Merger by deleting the
provision in Congressional's Charter that requires substantially all of the
outstanding shares of capital stock of Congressional to at all times be owned
by (a) employees of Congressional, (b) the ESOP and/or (c) individuals
receiving shares of Congressional Preferred Stock as a benefit pursuant to the
provisions of the ESOP.
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RECENT DEVELOPMENTS
FACELIFTERS MERGER
Facelifters is a Delaware corporation that markets, sells, designs,
manufactures and installs, directly to and for its customers, kitchen cabinet
refacing products utilized in kitchen remodeling. On October 31, 1995, AMRE,
Facelifters Merger Sub, Facelifters and Facelifters Home Systems, Inc., a New
York corporation, entered into the Facelifters Merger Agreement, pursuant to
which Facelifters Merger Sub will merge with and into Facelifters. The Joint
Proxy Statement/Prospectus filed in connection with the Facelifters Merger
became effective on March 27, 1996, and the related special meetings of
stockholders for each of AMRE and Facelifters is scheduled for April 25, 1996.
As the surviving corporation in the Facelifters Merger, Facelifters will become
a direct, wholly owned subsidiary of AMRE. In connection with the Facelifters
Merger, an aggregate of 3,565,680 shares of AMRE Common Stock will be issued in
exchange for shares of Facelifters Common Stock. AMRE incurred certain
nonrecurring charges in the quarter ended December 31, 1995 in connection with
the Facelifters Merger.
In addition, approximately 407,791 shares of AMRE Common Stock shall be
reserved for issuance upon the exercise of outstanding options under
Facelifters' stock option plans. Each such option shall remain outstanding
following the effective time of the Facelifters Merger and shall be exercisable
for that number of shares of AMRE Common Stock (to the nearest whole share)
which the number of Facelifters shares subject to the option would have been
converted if the option had been exercised at the effective time of the
Facelifters Merger.
In connection with the Facelifters Merger, the AMRE Board authorized the
increase in the number of persons constituting the AMRE Board from ten to
eleven, to cause the election of a designee of Facelifters to the AMRE Board
upon the consummation of the Facelifters Merger. Mr. Murray Gross, President
of Facelifters, has been designated by Facelifters to serve on the AMRE Board.
AMRE CHARTER AMENDMENT
Upon receipt of the requisite shareholder approval at a Special Meeting of
AMRE Stockholders to be held on April 25, 1996, the AMRE Certificate shall be
amended in order to increase the authorized number of shares of AMRE Common
Stock by an additional 20 million shares.
The increase in the number of authorized shares is intended to increase
AMRE's flexibility by increasing the number of shares of AMRE Common Stock that
can be issued without further shareholder approval. The AMRE Board believes
that the proposed amendment will enable AMRE to promptly and appropriately
respond to business opportunities, such as opportunities to raise additional
equity capital or to conclude acquisitions with AMRE Common Stock, and to take
corporate action on, for example, stock splits, stock dividends and employee
benefit plans. Given the number of shares currently available for issuance,
AMRE may not be able to effect certain of these transactions without obtaining
shareholder approval for an increase in the authorized number of shares of AMRE
Common Stock. The cost, prior notice requirements and delay involved in
obtaining shareholder approval at the time that corporate action may become
desirable could eliminate the opportunity to effect the action or reduce the
expected benefits.
The additional shares of AMRE Common Stock proposed to be authorized,
together with existing authorized and unissued shares, generally will be
available for issuance without any requirement for further shareholder
approval, unless shareholder action is required by applicable law or by the
rules of the NYSE or of any other stock exchange on which AMRE's securities may
be listed. Although the AMRE Board will authorize the issuance of additional
shares only when it considers doing so to be in the best interest of
shareholders, the issuance of additional AMRE Common Stock may, among other
things, have a dilutive effect on earnings and earnings per share of AMRE
Common Stock and on the voting rights of holders of shares of AMRE Common
Stock. AMRE's shareholders do not have any preemptive rights to subscribe for
additional AMRE Common Stock that may be issued. Shares of AMRE Common Stock
could be issued in
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transactions that would make a change in control more difficult or costly and,
therefore, less likely. AMRE is not aware of any effort to obtain control of
AMRE by a tender offer, proxy contest, or otherwise. Additional shares of AMRE
Common Stock will be issued in connection with the Facelifters Merger, and AMRE
has engaged in discussions with investment banking and other firms regarding
the possible sale of AMRE securities to raise additional capital. See "Recent
Developments -- Facelifters Merger" and "Risk Factors -- Liquidity."
RESIGNATION OF CHAIRMAN
On December 1, 1995, Ronald I. Wagner resigned as Chairman of the AMRE
Board. On the same date, AMRE and Mr. Wagner entered into a Separation
Agreement (the "Wagner Separation Agreement") pursuant to which Mr. Wagner
resigned from all positions that he held as a director, officer or employee of
AMRE and its affiliates. The Wagner Separation Agreement has resulted in a
nonrecurring charge to operations of approximately $3.9 million in the quarter
ended December 31, 1995. In connection with the execution of the Wagner
Separation Agreement, AMRE and Mr. Wagner agreed, among other things, as
follows:
1. Mr. Wagner will not compete with AMRE in any of its products and
services under the Century 21 License Agreement anywhere in North
America for a period of five years;
2. Mr. Wagner waived and released AMRE from amounts owed him of
approximately $3,375,000 pursuant to the termination provisions of his
employment agreement with AMRE;
3. In exchange for 1 and 2 above, (a) AMRE shall pay Mr. Wagner the sum
of $500,000, payable in two equal installments in 1997 and 1999; (b)
AMRE released Mr. Wagner from his payment obligation under an
outstanding promissory note payable (due April 1997), plus interest,
in the amount of $4,101,824; and (c) AMRE granted demand and
piggy-back registration rights to Mr. Wagner with respect to 550,000
shares of AMRE Common Stock covered by currently exercisable options
for AMRE Common Stock held by Mr. Wagner; and
4. Mr. Wagner and AMRE agreed to terminate the current lease under which
AMRE leases from Mr. Wagner certain of its facilities in Chicago,
Illinois and enter into a new lease commencing January 1, 1996 for a
term of ten years at an annual rent beginning at $180,000 for the
first two years.
On December 5, 1995, AMRE announced that Mr. John D. Snodgrass was elected
to the Chairmanship vacated by the resignation of Mr. Wagner. For additional
information on Mr. Snodgrass, see "Management Information of AMRE -- Directors
of AMRE."
AMRE FUTURE TAXABLE INCOME
AMRE has recorded a valuation allowance to reflect the uncertainties
associated with the ultimate realization of its deferred tax asset. A
valuation reserve is required when management determines that it is more likely
than not that the deferred tax asset will not be realized. Management
periodically reviews the expected realization of AMRE's deferred tax asset and
makes adjustments to the valuation allowance, as appropriate, when existing
conditions change the probability of ultimate realization. The Company
established a valuation allowance of $5.9 million at December 31, 1995 which
equals 100% of its deferred tax asset.
Management's evaluation as to the deferred tax asset takes into
consideration available evidence, both positive and negative, regarding
ultimate realization. Negative evidence considered by management included (1)
a significant operating loss in 1995, (2) operating losses in two of the last
three years, (3) the expected short-term decline in revenues and first quarter
1996 operating loss, (4) the uncertainties associated with the time and cost to
build awareness of the CENTURY 21 Home Improvements mark and AMRE's ability to
generate significant amounts of cost-effective leads and process of integrating
the companies if the mergers
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are consummated make it difficult to estimate when AMRE will return to
profitability and (5) costs relating to brand transition and the mergers.
Positive evidence considered by management include (1) a 3.0% license fee
(subject to an $11.0 million minimum in 1996) to be paid for the use of the
CENTURY 21 Home Improvements name as compared to a 12.0% license fee paid to
Sears in 1995 and (2) AMRE's expanded geographic and product opportunities
under the Century 21 license agreement.
Until the Century 21 License Agreement is in operation for a period of
time, there is no historical or objective evidence to determine its impact on
taxable income. Therefore, based on the existing objective evidence,
management believes it is more likely than not that AMRE will be unable to
generate sufficient taxable income to utilize the deferred tax asset and that
the entire deferred tax asset should be reserved for as of December 31, 1995.
Management will review the valuation allowance in the future as the results and
impact of the Century 21 License Agreement are known.
AMRE'S FIRST QUARTER OUTLOOK
While the Sears License Agreement was in effect in 1995, AMRE received
approximately 20.0% of its leads through Sears in-store leads. This lead
source will have to be replaced under the Century 21 License Agreement, and to
this end AMRE opened in 1996 approximately 100 free standing kiosks in major
shopping malls across the country and will increase its presence at home shows.
AMRE also plans to substantially increase its reliance on telemarketing as a
lead source and opened two outbound telemarketing centers in December 1995, and
January 1996, in order to accomplish this objective. In addition, AMRE is
working with Century 21 to develop a program of lead referrals from the Century
21 real estate broker network. However, there can be no assurance that AMRE
will be successful in replacing the Sears in-store leads and the failure to
replace such leads would have an adverse impact on AMRE's operating results.
Pursuant to the Sears License Agreement, AMRE was required to deliver to
Sears in January 1996, all of the leads it generated under the Sears name
through December 31, 1995. Thus, in January 1996, AMRE had to quickly generate
as many leads as possible and had to do so without Sears in-store leads, a
major 1995 lead source. The new outbound telemarketing centers, the in-mall
program and the Century 21 lead referral program may not produce any
significant amount of cost-effective leads for several months. Therefore, lead
generation in early 1996 will emphasize quick response media, such as
television and radio, as well as telemarketing leads purchased from a third
party vendor which will increase lead generation costs. In addition, AMRE will
pay license fees to Sears at the 12.0% rate on installed revenue resulting from
the installation of the December 31, 1995 production backlog of $22.3 million
which should occur in the 1996 first quarter. As a result of these factors,
AMRE expects to have a significant decline in installed revenues in the first
quarter of 1996, as compared to the same period of 1995, and will incur a loss
from operations. Furthermore, because of the uncertainties associated with the
time and cost to build awareness of the CENTURY 21 Home Improvements name,
AMRE's ability to generate significant amounts of cost-effective leads and the
integration of the companies resulting from the mergers, it is not possible to
estimate when AMRE will return to profitability.
AMRE's cash and marketable securities totaled $19.1 million at December 31,
1995. AMRE's management believes that existing cash and marketable securities,
available capacity under its $4.0 million revolving line of credit with HFS and
cash flow from operations will be sufficient to meet the company's obligations.
However, the conversion to the CENTURY 21 Home Improvements name, as well as
the integration of the companies resulting from the mergers, will require
substantial attention from management. In addition, there can be no assurance
that AMRE will successfully integrate the operations of the individual
companies upon consummation of the mergers, or that any of the benefits
expected will be realized. Any delays or unexpected costs incurred in
connection with such integration could have an adverse effect on the combined
company's business, operating results or financial condition in the short term.
To ensure that adequate capital is available to complete the brand name
transition and the mergers, AMRE has engaged in discussions with several
investment banking and other firms regarding the possible sale of AMRE
securities
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to raise additional capital. These discussions include the possibility of
selling up to 2.0 million shares of AMRE Common Stock in a private placement
with registration rights. However, these discussions are still in their
formative stages, and there can be no assurance that additional sources of
capital will be available to AMRE. Historically, AMRE has relied on cash flow
from operations to finance both short and long term capital needs. Management
believes that once the brand name transition has been completed, this will once
again be the case in the future.
CONGRESSIONAL'S FIRST QUARTER OUTLOOK
While the Sears License Agreement was in effect in 1995, Congressional
received approximately 40.0% of its leads through in-store leads. This lead
source will have to be replaced under the Century 21 License Agreement, and to
this end Congressional increased its reliance on telemarketing as a lead source
and opened a second outbound telemarketing center in February 1996, in order to
accomplish this objective. Congressional also increased its expenditures on
television and mail marketing as a lead source. In addition, Congressional is
working with Century 21 to develop a program of lead referrals from the Century
21 real estate broker network. However, there can be no assurance that
Congressional will be successful in replacing the in-store leads and the
failure to replace such leads would have an adverse impact on Congressional's
operating results.
Pursuant to the Sears License Agreement, Congressional was required to
deliver to Sears in January 1996, all of the leads it generated under the Sears
name through December 31, 1995. Thus, in January 1996, Congressional had to
generate leads without the benefit of in-store leads, a major 1995 lead source.
The new outbound telemarketing center, the increased expenditures on television
and mail marketing and the Century 21 lead referral program may not produce any
significant amount of cost-effective leads for several months. In addition,
Congressional will pay license fees to Sears at a blended 13.5% rate on the
installed revenue resulting from the installation of the December 31, 1995
production backlog of approximately $1.9 million which was completed in the
1996 first quarter. As a result of these factors, Congressional had a
significant decline in installed revenues in the first quarter of 1996, as
compared to the same period of 1995, and incurred a loss from operations.
Furthermore, because of the uncertainties associated with the time and cost to
build awareness of the CENTURY 21 Home Improvements name, Congressional's
ability to generate significant amounts of cost-effective leads and the
integration of the companies resulting from the AMRE merger, it is not possible
to estimate if or when Congressional will return to profitability.
Congressional's management believes that cash flow from operations will be
sufficient to meet the company's obligations. However, the conversion to the
CENTURY 21 Home Improvements name, as well as the integration with AMRE
resulting from the mergers, will require substantial attention from management.
In addition, there can be no assurance that AMRE and Congressional will
successfully integrate the operations of the individual companies upon
consummation of the merger, or that any of the benefits expected will be
realized. Any delays or unexpected costs incurred in connection with such
integration could have an adverse effect on the combined company's business,
operating results or financial condition in the short term. See "Risk Factors
- -- New Marketing Strategies," "-- Costs Relating to Brand Transition,
Consummation of License Agreement and the Merger," "-- Integration of the
Business," and "-- Seasonality."
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CONGRESSIONAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of
Congressional's financial position and results of operations for 12 month
periods ended December 31, 1995 and 1994. The Congressional Financial
Statements and the notes thereto included elsewhere herein contain detailed
information that should be referred to in conjunction with this discussion.
Congressional is primarily engaged in the direct marketing, design, sale
and installation of vinyl and aluminum siding, wooden decks, replacement vinyl
windows, chain link, wooden and vinyl fencing, roofing and patio enclosures.
Replacement vinyl windows (1993), chain link and vinyl fences (1994), and
roofing and patio enclosures (1996) have been added to Congressional's product
line since 1992. Congressional sells and installs these products in Maryland,
the District Columbia, and parts of Virginia, West Virginia, Pennsylvania,
Delaware and New Jersey. Sales and administrative offices are located in
Virginia, Maryland and Pennsylvania. Until January 1, 1996, Congressional
operated under the Sears name pursuant to the Congressional Sears License
Agreement. Since that date, Congressional has operated pursuant to the
Congressional Century 21 License Agreement. There can be no assurances that
the results of operations of Congressional under the CENTURY 21 Home
Improvements name will be similar to the results achieved as a licensee of
Sears.
Gross Profit on Congressional's Statements of Operations is recorded net of
the Sears licensing fee. These licensing fees have fluctuated during the
license periods, with Sears receiving from 10.0% to 15.0% of gross revenue from
Congressional, depending upon the fees charged according to the Sears Licensing
Agreement in effect during these periods. These fluctuations had an impact on
the profit margins in Congressional's Statements of Operations, and will be
discussed further herein.
Congressional recognizes revenue under the completed contract method.
Costs directly related to a contract are not recognized until the contract is
completed. Any invoice, commission or bonus paid in a period before the
related contract has been completed is recorded as a current asset (costs
incurred on uncompleted contracts). Contract revenue is recognized when a
contract is completed, and remains on the books as a receivable until
Congressional is paid and the licensor has been paid the licensing fee. At
that time the contract is "cashed-in". All deposits and contract payments
received from the customer are recorded as liabilities until the contracts are
cashed-in, in the event that a customer rejects or cancels a job prior to
completion of the installation.
The director of sales, assistant director of sales and installation manager
have incentive programs based on volume. The president and controller of
Congressional are on incentive programs which are based on net profits of the
company.
RESULTS OF OPERATIONS
Year ended December 31, 1995 compared to year ended December 31, 1994:
Completed contract revenue increased 7.4% to $18,818,416 from $17,520,231
in 1994 largely due to the addition of chain link and wooden fences to the
product line in February, 1994. Sales revenue for fences increased 290%, to
$2,229,000 from $768,293. The gross profit margin decreased to 31.01% from
35.39% largely due to increases in labor and material costs, Sears licensing
fees and sales commissions expenses. Material and labor costs increased from
37.04% of contract revenue in 1994 to 39.18% of contract revenue in 1995 due to
the inception of volume discounts in pricing contracts in 1995 which reduced
the selling price in relation to the costs of the contracts. Sears licensing
fees increased from 12.57% of contract revenue in 1994 to 13.21% of contract
revenue in 1995 due to an increase in the Sears licensing fees on January 1,
1995 in wooden decks and replacement vinyl windows from 10% and 12% to 13% and
14%, respectively. The increase in sales commission expense (from 11.73% of
contract revenue in 1994 to 13.21% in 1995) was due mainly to an increase in
the sales commission rates paid to the contract sales representatives and sales
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managers from 10.0% and 12.0% to 12.0% and 14.0%, respectively, and a
"ride-along" program (instituted on January 1, 1995) that paid sales managers
an additional 5.0% of the contract amount in cases in which the sales manager
was present at a sales presentation by a sales representative that resulted in
sales.
Payroll compensation costs and advertising decreased from 24.12% of
contract revenue in 1994 to 22.38% of contract revenue in 1995 due to a
decrease in gross compensation expense related to the Employee Stock Ownership
Plan of $313,000 from $722,000 in 1994 to $409,000 in 1995. Otherwise, the
reduction in advertising expense from 8.97% of contract revenue in 1994 to
6.62% of contract revenue in 1995 was offset by an increase in payroll
compensation costs due to the growth of the telemarketing staff. During 1995,
Congressional began a gradual conversion of securing leads from more expensive
direct mail and television advertising to telemarketing. In addition, the
in-store marketing program was expanded to complement the telemarketing
program.
Other general and administrative expenses, as a percentage of contract
revenue, increased only slightly, to 6.95% from 6.80%. An increase in
telephone and long distance expenses of $237,641 from 1994 to 1995 resulting
from the increased activity in telemarketing, along with increased expenses of
approximately $80,000 in sales and office expenses resulting from an expanded
sales program were offset by a decrease in legal fees. Congressional incurred
net legal fees of $80,946 in 1995 compared to $428,062 in 1994. A large portion
of the 1994 legal fees were related to a class action lawsuit which was
subsequently settled in its entirety in 1995. At December 31, 1995, the
financial statements reflected a $150,000 liability for other potential legal
fees.
Rent expense increased to $187,044 from $130,263 due largely to an
additional office space leased at Congressional's headquarters in Fairfax,
Virginia for its sales and telemarketing staff (rental date of May 1, 1995),
and partly due to increases in rent at Congressional's Laurel, Maryland and
Trevose, Pennsylvania locations, which were converted from temporary to
permanent locations.
The increase in other income to $67,639 from $30,375 was mainly due to a
credit issued to Congressional by AT&T for delays they were responsible for in
the installation of the telemarketing call processor and T-1 long distance
lines ($32,942).
Fiscal year (twelve month) ended December 31, 1994 compared to nine month
period ending December 31, 1993:
In 1993, Congressional changed from a March 31 fiscal year to a calendar
fiscal year. Accordingly, the financial statements as of December 31, 1993 are
for a nine-month period. On June 30, 1993, the ESOP purchased the ESOP Shares
from an affiliate of Congressional for $7,000,000. Contemporaneously with the
purchase of the ESOP Shares, Congressional borrowed $7,000,000 from a
predecessor of NationsBank, and in turn entered into the Mirror Loan in order
to facilitate the purchase of the ESOP Shares. The ESOP pledged all of the ESOP
Shares to Congressional as security for the Mirror Loan. The impact on the
Statements of Operations was the discontinuance of management fees paid to the
parent company and an increase in compensation costs and interest expense. For
the purpose of comparisons in this discussion, revenue, costs, and expenses for
the nine-month period ending December 31, 1993 will be factored by 1.333.
Contract revenue increased 25.6% in 1994 over 1993 due to the addition of
vinyl replacement windows in September 1993, and the addition of chain link,
wooden and vinyl fences in February 1994. Contract revenue for the vinyl
replacement windows for the fiscal year ended December 31, 1994 was $5,912,139
compared to $513,468 for the nine month period ended December 31, 1993;
contract revenue for chain link and wooden fences for the year ended December
31, 1994 was $676,098. These increases in contract revenue for vinyl
replacement windows and chain link and wooden fences were sufficient to offset
decreases in siding and wooden decks of 13% and 18%, respectively. The
reduction in siding and deck contract revenue was due to Congressional's
re-direction of some of its resources and marketing efforts toward windows and
fences.
The gross profit margin increased to 35.4% from 33.6% during the years
ending December 31, 1994 as compared to the nine month period ending December
31, 1993, due to decreases in the products sold and
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installed by Congressional coupled with an increase in Congressional's pricing.
As a percentage of contract revenue, siding costs decreased to 40.9% from
42.4%; deck costs decreased to 41.1% from 46.4%, and window costs decreased to
42.3% from 47.4%. This offset an increase in sales commission expense as a
percentage of total contract revenue of 13.4% from 11.8%.
Advertising expenses as a percentage of contract revenue decreased in the
year ended December 31, 1994, as compared to the nine-month period ended
December 31, 1993 to 9.0% from 13.1%. Much of this was due to Congressional's
decision to focus more of its advertising budget on its Sears in-store lead
procurement program and its telemarketing programs. These costs, since they
involve personnel employed by Congressional, are classified as compensation
costs on the Statements of Operations.
Based on the annualization of the compensation expenses for the nine-month
period ended December 31, 1993, compensation expenses for the year ended
December 31, 1994 increased to $2,653,928 from $1,694,148. Analyzing expenses
for the nine-months ended December 31, 1993, the following expenses increased
in the year ended December 31, 1994: telemarketing payroll expenses by
$264,000; Sears in-store lead procurement payroll by $180,000; officers'
bonuses by $250,000 (no officer's bonus was expensed in the nine-month period
ended December 31, 1993); and gross ESOP compensation expenses by $272,000.
No management fees were paid to Kenwood in the year ended December 31, 1994
since as of June 30, 1993 it was no longer the parent company of Congressional.
Based on the annualization of the other general and administrative expenses
for the nine-month period ended December 31, 1993, general and administrative
expenses for the year ended December 31, 1994 increased by approximately
$372,000. On an annualized basis, legal fees increased approximately $370,000.
This was due to an outstanding class action suit brought against Congressional
by former customers and was settled in 1995.
On an annualized basis, interest income increased approximately $16,500 in
the year ended December 31, 1994 as compared to the nine-month basis ended
December 31, 1994 because of larger cash balances during the year. Other income
also increased by approximately $16,500 due to an increase in business
insurance premium refunds and income due to late customer cancellations. The
increase in interest expense ($405,231 in year ended December 31, 1994 as
opposed to $181,732 for the nine-month period ended December 31, 1993) is
attributable to interest on the ESOP note, which was secured on June 30, 1993.
LIQUIDITY AND CAPITAL RESOURCES
Congressional has always relied on the cash flow from its operations to
satisfy its cash requirements and expects to do so in 1996 and future years.
Congressional does not have a line of credit arrangement with any banking
institutions. Net cash provided by operations decreased $13,046 during the
year ended December 31, 1995 due to net loss of $209,398 adjusted by an
increase in contract receivables balance of $145,003 and reductions in accrued
liabilities and income tax payable balances of $65,102 and $157,138,
respectively, and reduced by compensation expenses for ESOP shares released of
$409,009 and an increase in accounts payable balance of $127,664. Cash
purchases of property and equipment of $78,223 and repayments of notes payable
and capital lease obligations of $557,449 produced the 1995 net decrease in
cash and cash equivalent of $654,442.
Operations provided cash of $1,369,372 during the year ended December 31,
1994 due to a net income of $234,977 adjusted by compensation expense for ESOP
shares released of $721,956 and increases in accounts payable and accrued
liabilities which offset an increase in contract receivables. Repayments of
notes payable and capital lease obligations of $842,929 and purchases of
property and equipment of $36,646 reduced the net increase in cash and cash
equivalents to $462,797.
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Congressional has provided a 100% valuation allowance for its deferred tax
assets because management currently believes it is more likely than not that
such assets will not be realized.
Subsequent to the year ended December 31, 1995, Congressional had leased
additional telemarketing call processing equipment at a cost of $79,900. The
delivery and lease date of this equipment was January 8, 1996. Congressional
believes that the anticipated cash flow from operations will be sufficient to
meet all of its anticipated cash requirements, including the ESOP note payments
and all lease obligations.
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DESCRIPTION OF CONGRESSIONAL CAPITAL STOCK
IN GENERAL
As of the date hereof, Congressional's authorized capital stock consists of
1,000 shares of Congressional Common Stock, of which 499 shares are
outstanding, and 700 shares of Congressional Preferred Stock, all of which are
outstanding. The following is a summary of the terms of the Congressional
Common Stock and the Congressional Preferred Stock which does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Congressional Articles and bylaws of Congressional (the "Congressional
Bylaws").
CONGRESSIONAL COMMON STOCK
Holders of Congressional Common Stock are entitled to one vote per share in
the election of directors and on all other matters submitted to a vote of
shareholders and have cumulative voting rights in the election of directors.
Holders of a majority of the votes entitled to be cast in any election of
directors, shall constitute a quorum.
Holders of Congressional Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Congressional Board out of funds
legally available therefor, subject to the payment or setting aside for payment
of cash dividends required to be paid to holders of Congressional Preferred
Stock.
Upon the liquidation, dissolution or winding up of Congressional, the
holders of Congressional Common Stock are entitled to receive ratably the net
assets of Congressional available after payment of all debts and other
liabilities, subject to the prior rights of any outstanding Congressional
Preferred Stock. Holders of Congressional Common Stock have no preemptive,
subscription, redemption or conversion rights.
CONGRESSIONAL PREFERRED STOCK
Holders of Congressional Preferred Stock are entitled to 0.7 votes per
share in the election of directors and on all other matters submitted to a vote
of shareholders except as otherwise provided by law, and have cumulative voting
rights in the election of directors.
Holders of Congressional Preferred Stock are entitled to receive cash
dividends, when and as declared by the Congressional Board, at the rate of $678
per share per annum. Pursuant to the Congressional Bylaws, the Congressional
Board may fix the record date not to exceed 20 days prior to a shareholders
meeting, for the determination of holders entitled to receive dividends. Cash
dividends are cumulative and accrue from the shares' date of issue.
Each share of Congressional Preferred Stock is convertible into 0.7 shares
of Congressional Common Stock at any time at the option of the holder. Upon
the distribution of shares of Congressional Preferred Stock to a participant
under the ESOP, such shares shall automatically convert into Congressional
Common Stock at the greater of (i) 0.7 per share and (ii) a ratio of the fair
market value per share of Congressional Preferred Stock to the fair market
value per share of Congressional Common Stock, as such values were established
at the prior fiscal year end. Converted shares of Congressional Preferred
Stock cannot be reissued. Upon any increase or reduction in the number of
shares of Congressional Common Stock outstanding, the number of shares of
Congressional Common Stock to be issued to holders of Congressional Preferred
Stock will be adjusted to preserve equitably, as far as reasonably possible,
the original conversion rights provided to holders of Congressional Preferred
Stock.
Congressional Preferred Stock is callable by Congressional on or after July
1, 2003. Upon notice of a call, each holder of Congressional Preferred Stock
shall be entitled to receive $10,000 per share in addition
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to any accrued dividends. Holders shall have reasonable opportunity within 45
days of the call to exercise their conversion rights with respect to their
shares of Congressional Preferred Stock.
Upon the liquidation, dissolution or winding up of Congressional, the
holders of Congressional Preferred Stock shall be entitled to receive $10,000
per share plus accrued dividends, whether or not Congressional shall have a
surplus or earnings available for dividends.
The Commonwealth of Virginia has two anti-takeover statutes in force: the
Control Share Acquisitions Statute and the Affiliated Transaction Statute.
Neither of these statutes is applicable to a corporation, like Congressional,
that has fewer than 300 shareholders.
The Congressional Bylaws provide that special meetings of shareholders of
Congressional may be called by a majority of the Congressional Board, the
President or Vice President of Congressional.
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COMPARISON OF SHAREHOLDER RIGHTS
If the Merger is consummated, all Congressional Shareholders (other than
those who properly exercise their dissenters' rights) immediately prior to the
Effective Time will become shareholders of AMRE. The following is a summary of
the material differences between the respective rights of holders of the
capital stock of AMRE and the rights of holders of the capital stock of
Congressional. These differences arise from the various provisions of the AMRE
Certificate and the AMRE Bylaws, and the Congressional Articles and the
Congressional Bylaws.
AUTHORIZED STOCK
The AMRE Certificate authorizes the AMRE Board to issue up to 20 million
shares of AMRE Common Stock and up to one million shares of AMRE preferred
stock in one or more series and with such voting powers and designations,
preferences, limitations and relative rights as may be designated by the AMRE
Board. In connection with the Facelifters Merger and subject to the approval
by holders of a majority of AMRE Common Stock, the AMRE Certificate will be
amended to authorize the AMRE Board to issue up to 40 million shares of AMRE
Common Stock. As of April 15, 1996, 14,127,791 shares of AMRE Common Stock,
and 300,000 shares of AMRE Senior Convertible Preferred Stock were issued and
outstanding. In addition, approximately 3,565,680 additional shares of AMRE
Common Stock will be issued in connection with the Facelifters Merger and
approximately 900,000 additional shares of AMRE Common Stock will be issued in
connection with the Congressional Merger.
The Congressional Articles authorize the Congressional Board to issue up to
1,000 shares of Congressional Common Stock and up to 700 shares of
Congressional Preferred Stock. As of April 1, 1996, 499 shares of
Congressional Common Stock, and 700 shares of Congressional Preferred Stock
were issued and outstanding.
POSSIBLE ANTI-TAKEOVER PROVISIONS
AMRE is subject to Section 203 of the Delaware Act. Section 203 provides,
with certain exceptions, that a Delaware corporation may not engage in any of a
broad range of business combinations with a person or an affiliate, or
associate of such person, who is an "interested shareholder" for a period of
three years after the date such person became an interested shareholder,
unless: (i) the transaction resulting in a person becoming an interested
shareholder, or the business combination, is approved by the board of directors
of the corporation before the person becomes an interested shareholder, (ii)
the interested shareholder acquired 85.0% or more of the outstanding voting
stock of the corporation in the same transaction that makes such person an
interested shareholder (excluding shares owned by the persons who are both
officers and directors of the corporation, and shares held by certain employee
stock ownership plans) or (iii) on or after the date the person becomes an
interested shareholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding the shares owned by the interested shareholder. Under Section 203,
an "interested shareholder" is defined as any person who is (i) the owner of
15.0% or more of the outstanding voting stock of the corporation or (ii) an
affiliate or associate of the corporation who was the owner of 15.0% or more of
the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested shareholder. By restricting
the ability of AMRE to engage in business combinations with an interested
person, the application of Section 203 may provide a barrier to hostile or
unwanted takeovers.
DIRECTORS
Number and Term. Pursuant to the AMRE Certificate and AMRE Bylaws, the
number of directors of AMRE shall not be less than three nor more than twelve
and shall be determined from time to time in accordance with the AMRE Bylaws by
resolution of the AMRE Board or of AMRE's shareholders. The
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AMRE Bylaws provide that the AMRE Board is divided into three classes of
directors serving staggering three-year terms, and that each director shall
hold office for the term of office for which he is elected and until his
successor is elected and qualified. The Congressional Bylaws provide that the
number of directors shall be one or such greater number as the Congressional
Board may, from time to time within the limits permitted by law, determine.
Resignation and Removal. The AMRE Bylaws provide that any director may
resign at any time upon giving written notice to AMRE. The AMRE Bylaws further
provide that, at any meeting of shareholders called expressly for the purpose
of removing a director or directors, any director or the entire AMRE Board may
be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote at an election of directors. The
Congressional Bylaws provide substantially the same resignation provisions.
The Delaware Act provides that directors serving on classified boards, such as
the AMRE Board, may not be removed without cause.
Vacancies. The AMRE Bylaws provide that vacancies may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum, and that the directors so chosen shall hold office for the unexpired
term of their predecessors in office. Any directorship to be filled by reason
of an increase in the number of directors may be filled by the affirmative vote
of a majority of the directors, and directors so chosen shall hold office until
their successors are duly elected and qualified.
The Congressional Bylaws provide that vacancies and newly created
directorships may be filled by the remaining director(s) electing some or if
there be none, by the requisite vote of the shareholders at an annual meeting
of the shareholders or at a special meeting of the shareholders called for that
purpose. Directors so elected will hold office for one year or until their
successors are duly elected and qualified.
SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS
Section 228 of the Delaware Act states that unless otherwise provided in
the certificate of incorporation, any stockholder action may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed
by the holders of outstanding shares having not less than the minimum number of
votes which would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote were present and voted. The AMRE Certificate
does not prohibit the taking of actions by AMRE stockholders by written consent
in conformance with Section 228. The AMRE Bylaws also provide that special
meetings of stockholders may be called by the Chairman of the Board or the
President or the Secretary upon the request of two directors, or the AMRE Board
or stockholders owning AMRE capital stock representing 35.0% of all shares of
AMRE capital stock entitled to vote thereat.
Article 8, Section 13.1-657 of the Virginia Act provides that action may be
taken by the stockholder without a stockholders' meeting and without action by
the board of directors if the action is taken by all the stockholders entitled
to vote on the matter and is evidenced by one or more written consents
describing the action taken, signed by all stockholders entitled to vote on the
matter and delivered to the Secretary of the corporation for filing in the
corporate records.
The Congressional Bylaws provide that special meetings of shareholders may
be called by the President, Vice President, a majority of the Congressional
Board or upon written request of the holders of a majority of Congressional
Stock outstanding and entitled to vote with ten days written notice.
AMENDMENT TO CERTIFICATE
In order to amend a corporation's certificate of incorporation after
payment for stock has been received, the Delaware Act requires the
recommendation of the corporation's board of directors and, unless such
corporation's certificate of incorporation provides for a greater vote,
approval by each of (i) a majority of the votes entitled to be cast on the
amendment by each voting group with respect to which the amendment creates
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dissenters' rights; and (ii) a majority of the votes cast by every other voting
group entitled to vote on the amendment, and a Certificate executed setting
forth the amendment and certifying that such amendment has been duly adopted.
Article 10 of the AMRE Certificate provides that AMRE reserves the right to
amend, alter, change or repeal any provision contained in the AMRE Certificate
in the manner now or hereafter prescribed by the laws of the State of Delaware.
Article 11 of the Virginia Act provides that a corporation's board may
adopt certain amendments without shareholder action and provides that certain
amendments must be approved by the shareholders entitled to vote.
AMENDMENT TO BYLAWS
The AMRE Certificate provides that the AMRE Board is expressly authorized
to alter, amend or repeal the AMRE Bylaws and to adopt new bylaws, subject,
however, to repeal or change by the affirmative vote of the holders of 80.0% of
the outstanding shares of AMRE capital stock entitled to vote thereon. The
AMRE Bylaws provide that the AMRE Bylaws may be altered, amended, repealed or
replaced by the affirmative vote of the majority of the AMRE Board at any
regular or special meeting of the AMRE Board, subject to repeal or change at
any regular or special meeting of stockholders at which a quorum is present or
represented by the affirmative vote of not less than 80.0% of the shares
entitled to vote at such meeting, voting together as a single class, and
present or represented thereat, provided notice of the proposed repeal or
change is contained in the notice of such meeting of stockholders. The
Congressional Bylaws may be altered, amended or repealed at any meeting of the
stockholders by a majority vote of the shares entitled to vote at such meeting,
or by a majority vote of the entire Congressional Board; however, in no event
may the Congressional Board alter the provision in the Congressional Bylaws
that provides for amendments thereto.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Under the AMRE Certificate, a director of AMRE shall not be liable to AMRE
or its stockholders for monetary damages for breach of fiduciary duty as a
director, to the fullest extent permitted by the Delaware Act. Specifically, a
director of AMRE will not be personally liable for monetary damages for breach
of a director's fiduciary duty as a director, except for liability resulting
from (i) any breach of the director's duty of loyalty to the respective
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware Act or (iv) any transaction from which
the director derived an improper personal benefit. These provisions do not
limit the rights of AMRE or its stockholders, in appropriate circumstances, to
seek equitable remedies such as injunctive or other forms of non-monetary
relief. The inclusion of the above provisions in the AMRE Certificate may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the respective
corporation and its stockholders.
Section 145 of the Delaware Act provides in part that a corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such persons against expenses (including
attorneys' fees) actually and reasonably incurred in defense or settlement of
any threatened, pending or completed action or suit by or in
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the right of the corporation, if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and provided further that (unless a court of competent
jurisdiction otherwise provides) such person shall not have been adjudged
liable to the corporation. Any such indemnification may be made only as
authorized in each specific case upon a determination by the stockholders or
disinterested directors that indemnification is proper because the indemnitee
has met the applicable standard of conduct. Where an officer or a director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director actually or reasonably incurred.
Article 9 of the AMRE Certificate and Article 11 of the AMRE Bylaws provide
for indemnification of directors and officers, and Section 11.8 of the AMRE
Bylaws provides for the authority to purchase insurance with respect to
indemnification of directors and officers.
Article 11 of the AMRE Bylaws provides that AMRE shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (whether or not by or in the right of AMRE) by
reason of the fact that he is or was or has agreed to become a director,
officer, employee or agent of AMRE, or is or was serving or has agreed to serve
at the request of AMRE as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by
reason of any action alleged to have been taken or omitted in such capacity,
against costs, charges, expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him or on
his behalf in connection with such action, suit or proceeding to the fullest
extent permitted by Delaware law.
The right to indemnification under Article 11 of the AMRE Bylaws is a
contract right which includes, with respect to directors, officers, employees
and agents, the right to be paid by AMRE the costs, charges and expenses
incurred in defending a civil or criminal action, suit or proceeding in advance
of its disposition; provided, however, that the payment of such costs, charges
and expenses incurred by a director or officer in his capacity as a director
and officer (and not in any other capacity in which service was or is rendered
by such person while a director or officer) in advance of the final disposition
of such action, suit or proceeding shall be made only upon delivery to AMRE of
an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under Article 11 of the AMRE Bylaws
or otherwise.
Indemnification agreements have been entered into between AMRE and each
director of AMRE which contractually obligate AMRE to provide to the directors
(i) indemnification, (ii) insurance and (iii) additional indemnification.
Article 12 of the Congressional Bylaws provides that any person who is
serving or has served as a director or officer of Congressional, or at its
request, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise in which it owns a
capital interest or of which it is a creditor, shall be indemnified by
Congressional against judgments, fines, liabilities, costs, amounts paid in
settlement and expenses (including attorney's fees) actually and reasonably
incurred by such person in connection with the defense of any pending or
threatened action, suit or proceeding in which such person is made a party in
his capacity as such, except in relation to matters as to which he is adjudged
to be liable for negligence or misconduct in the performance of duty.
Congressional may make certain advances against costs, expenses and fees, at
the discretion of the Congressional Board. The foregoing rights to
indemnification shall be in addition to and not in restriction or limitation of
any other privilege or power which Congressional may lawfully exercise with
respect to the indemnification or reimbursement of directors, officers and
employees.
Pursuant to Article 12 of the Virginia Act, after the Effective Time, all
debts, liabilities and duties of Congressional, including its obligations to
indemnify its directors and officers, may be enforced against the Surviving
Corporation.
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BUSINESS OF CONGRESSIONAL
GENERAL
Congressional markets, sells, furnishes and installs, through its employees
and through independent contractors, siding, wooden decks, replacement vinyl
windows, chain link and vinyl fencing, roofing and patio enclosures throughout
the mid-Atlantic region.
From 1984 through 1995, Congressional sold, furnished and installed home
improvement products under the Sears brand name pursuant to the Congressional
Sears License Agreement. Congressional entered into the Congressional Century
21 License Agreement to sell, furnish and install home improvement products
under the CENTURY 21 Home Improvements name, commencing January 1, 1996. See
"Congressional Century 21 License Agreement."
Congressional was incorporated under the laws of the Commonwealth of
Virginia in 1982. Congressional's principal offices are located at 11216
Waples Mill Road, Suite 101, Fairfax, Virginia 22030, and its telephone number
is (703) 934-1000. Congressional has branch offices in Baltimore, Maryland;
Fairfax, Virginia; Laurel, Maryland; Hagerstown, Maryland; Salisbury, Maryland;
Richmond, Virginia; Norfolk, Virginia; and Trevose, Pennsylvania.
COMPANY PRODUCTS
General. Congressional markets, sells and installs its products directly
to customers desiring to refurbish or add "finishing touches" to their homes or
to make their homes more energy efficient. Products sold by Congressional are
manufactured and supplied by third party vendors. Each manufacturer or
supplier of a Congressional product produces such product according to
Congressional's strict requirements for product quality and features. All
products marketed by Congressional are presented to the customer and installed
by independent contractors engaged by Congressional. The following table
describes the products sold by Congressional and the respective manufacturer or
supplier of each product.
Product Manufacturer
- ------- ------------
Siding Systems Bird Vinyl Products
Heartland Building Products
Windows Traco
Kensington
Decks Deck America, Inc.
Fences Sunco, Inc.
Heritage Building Products
Roofing Bird Roofing Products, Inc.
Patio Enclosures Temo, Inc.
MARKETING AND SALES
Congressional's principal marketing activities include (i) direct mail
advertising, (ii) telemarketing, (iii) canvassing at home shows (and prior to
1996, at Sears' stores) (iv) referrals, and (v) television advertisement.
Congressional's direct mailings and telemarketing solicitations are made to
homeowners whose profiles fall within certain criteria with respect to
geographic location, age, income, home value, age of home, and length of
residency. Congressional's target market is the dual-income family with gross
earnings of $30,000 and
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above per year. Congressional's marketing department monitors and inputs
information from direct mailings and telemarketing solicitations into a
centralized internal computer system.
Direct mail, although more expensive than television or radio advertising,
offers a number of advantages. Direct mail allows specific prospect targeting,
with the assurance of reaching the intended prospect. Leads can be received
either by a Business Reply Card (BRC) or telephonically through use of
Congressional's 1-800 number. Responses can be precisely monitored by the
company's marketing department and computer facilities for future use.
Congressional compiles data on leads resulting in sales by geographical
location, consumer profiles based on age, income, home value, home age, length
of residency, zip code and census information.
Congressional's telemarketing department typically operates on a 12 to 13
hour day, Monday through Saturday. Marketing personnel follow scripts prepared
by Congressional, in addition to answering inquiries generated by advertising
activities, and schedule in-home sales presentations. Congressional does not
engage in telemarketing selling, whereby a sale is consummated over the
telephone.
Congressional utilizes television advertisements on a seasonal basis.
Congressional will often run one-to-two minute commercials during weekend
movies, with specific focus on the time slot and program materials designed to
reach Congressional's target market. Referrals allow Congressional to
capitalize on the easiest and most valuable advertising, "word-of-mouth."
Congressional engages independent sales representatives ("Direct Sellers"),
on a commission basis who are responsible for the actual presentation and sale
to Congressional's customers. Direct Sellers are familiar with Congressional's
in-home sales presentation and sales kit, which includes a presentation book,
photographs, sample products and other sales materials. Results of in-home
presentations are tabulated on a daily basis, allowing Congressional the
ability to evaluate each Direct Seller's performance with respect to sales as a
percentage of in-home presentations, cancellations and average dollar amounts
of sales and commissions earned. On occasion, Congressional's managers may
also engage in selling products to a customer.
At December 31, 1995, Congressional engaged, on a full or part-time basis,
either as employees or independent contractors, approximately 165 individuals,
including 50 telemarketers, 75 Direct Sellers, 20 administrative personnel, and
20 management personnel. In addition, Congressional had working arrangements
with approximately seven independent installation contracting companies
("Contractors") for installation of Congressional's products. Approximately
50.0% of Congressional's workforce is comprised of independent contractors, and
the other 50.0% of employees.
Contractors employ their own employees, if they so desire, and are required
to maintain their own vehicles, equipment, tools, licenses, workers
compensation coverage and general liability insurance. The Contractors assume
full financial risk in their performance of an installation. A Contractor will
obtain a work order from Congressional, which specifies all the work to be
performed pursuant to the sales agreement. The Contractor then obtains the
materials from one of Congressional's suppliers. Installations are generally
completed within three to five working days, at which time the Contractor
obtains a certificate of completion and satisfaction from the customer, and
returns all documentation and excess materials to Congressional and the
supplier. The Contractor is paid by Congressional upon satisfactory completion
of each job, at which time Congressional receives an invoice for services from
the Contractor and the customer-signed completion certificate. Fees for each
installation are paid to the Contractor based upon an amount negotiated between
Congressional and the Contractor. While Congressional is discriminating in
accepting a Contractor to provide services for its products, Congressional
believes it can meet its short term and long term installation needs from such
Contractors.
Congressional provides each customer with a 12-month limited warranty
covering defective materials and workmanship. Congressional requires its
Contractors to correct defective workmanship for a 12-month period.
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Congressional provides each customer with a specific manufacturer's warranty on
the products installed in addition to 12-month workmanship warranty provided by
Congressional.
COMPLIANCE WITH GOVERNMENT REGULATIONS
Congressional's retail sales operations are subject to certain Federal
Trade Commission regulations, which provide, in part, for a "cooling off "
period for in-home sales. This rule requires an in-home seller to inform the
buyer orally and in writing of his right to cancel the transaction at any time
prior to midnight of the third business day after the date of the sales
transaction. Many states, including the ones in which Congressional does
business, have also provided for a similar right of cancellation for the
consumer. Under the prior Sears relationship, customer satisfaction was
guaranteed and therefore under certain circumstances, customers may elect to
cancel orders at any time.
Generally, Congressional's activities are subject to various federal and
state laws and regulations and municipal ordinances relating to, among other
things, in-home sales, telemarketing, closed-end or open-end consumer
financing, advertising, the licensing of home improvement contractors, and
zoning regulations. Congressional has procedures designed to comply with such
laws and regulations and to ensure complete customer satisfaction.
TRADEMARKS AND SERVICE MARKS
Congressional has on file with the U.S. Department of Commerce Office of
Patent and Trademarks "Intent To Use Applications" for the mark "Great
American Family Rooms". Congressional is currently using Great American Family
Rooms in interstate commerce in connection with providing enclosure services to
its customers. Congressional is in receipt of a filing certificate on this
application and expects approval of the application by May 1997.
SEASONALITY
Congressional's operating results are subject to moderate seasonal
fluctuations. Home improvement activity is historically higher during the
second and third quarters of Congressional's fiscal year. Home improvement
products such as siding, fencing and replacement windows are usually not
installable during extreme weather conditions.
INFLATION
Inflation has recently been at low levels, and Congressional does not
anticipate inflation to materially impact its future operations; indeed, rising
home prices often increase the demand for improvements of existing homes.
Sharply rising interest rates, which are not presently forecasted, could be a
negative influence on Congressional sales since the majority of Congressional's
customers, as do many homeowners, finance home improvements through the use of
third-party finance institutions.
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MANAGEMENT INFORMATION OF AMRE
DIRECTORS OF AMRE
Current Directors. Listed below are the names and ages of, and certain
other information about, all of the current directors of AMRE.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
John D. Snodgrass . . . . . . . . . . . . 39 Chairman of the Board of Directors
Robert M. Swartz . . . . . . . . . . . . 43 President, Chief Executive Officer and Director
Ronald L. Bliwas . . . . . . . . . . . . 53 Vice Chairman of the Board of Directors
Dennis S. Bookshester . . . . . . . . . . 57 Director
Arthur P. Frigo . . . . . . . . . . . . . 54 Director
Stephen P. Holmes . . . . . . . . . . . . 39 Director
Jack L. McDonald . . . . . . . . . . . . 62 Director
David L. Moore . . . . . . . . . . . . . 40 Director
Robert W. Pittman . . . . . . . . . . . . 42 Director
Sheldon I. Stein . . . . . . . . . . . . 42 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the
directors of AMRE.
Mr. John D. Snodgrass has served as a director of AMRE since December
1995 when he was appointed as Chairman of the AMRE Board of Directors after Mr.
Ronald I. Wagner resigned from that position. Mr. Snodgrass serves as
President and Chief Operating Officer of HFS, a franchisor of hotels and the
parent entity of Century 21 Real Estate Corporation. Prior to joining HFS, Mr.
Snodgrass held the position of President and Chief Operating Officer of Days
Inns of America, Inc., a hotel company. He currently serves as a director of
HFS and National Gaming Corp.
Mr. Robert M. Swartz joined AMRE in July 1995 and was elected to the
position of President and member of the Board of Directors. In September 1995,
Mr. Swartz was elected to the position of Chief Executive Officer of AMRE.
Prior to July 1995, Mr. Swartz was employed by Recognition International Inc.,
a $220 million supplier of electronic document systems where he most recently
served as Senior Vice President of Recognition and President of the Worldwide
Systems Group. He served as Senior Vice President and Chief Financial Officer
of Recognition International from 1992 to 1994, and as Vice President, Chief
Financial Officer and Treasurer from November 1990 until 1992. Prior to
joining Recognition, he held several financial and operations positions with
Nashua Corporation of Nashua, New Hampshire, a supplier of office supplies and
computer products.
Mr. Ronald L. Bliwas has served as a director of AMRE since June 1987
and also serves as the Vice Chairman of the Board of Directors. Since January
1982 he has served as President, Chief Executive Officer and a director of A.
Eicoff & Company, the direct advertising division of Ogilvy & Mather.
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Mr. Dennis S. Bookshester has served as a director of AMRE since
August 9, 1991. From December 1990 through May 1991 he served as President and
Chief Executive Officer of Zale Corporation, a specialty retailer of jewelry.
For more than five years prior thereto he was employed by Carson Pirie Scott &
Company, a retailer of general merchandise, in various capacities, most
recently as Chairman and Chief Executive Officer of the retail division. At
present, Mr. Bookshester is self-employed as a business consultant. He also
serves as a director of Evans, Inc., Playboy Enterprises, Inc., Fruit of the
Loom, Inc. and Sundance Homes, Inc.
Mr. Arthur P. Frigo has served as a director of AMRE since August 9,
1991. From 1977 to 1989 he served as Chief Executive Officer of Super-Cut,
Inc., a manufacturer of industrial diamond products. During the period 1978 to
1982 he also served as President of Megadiamond, Inc., a manufacturer of
man-made diamonds. Since 1988 he has served as Chief Executive Officer of M.B.
Walton Company, a manufacturer and marketer of consumer products.
Mr. Stephen P. Holmes was elected as a director of AMRE on November
15, 1995 in connection with the transactions contemplated by the Century 21
License Agreement. Since July 1990 he has served as Executive Vice President
and Chief Financial Officer of HFS. Prior to July 1990, he was employed by The
Blackstone Group, serving as Managing Director. He currently serves as a
director of HFS and National Gaming Corp. Mr. Holmes serves on the AMRE Board
as an HFS nominee under that certain Stock Purchase Agreement pursuant to which
HFS has the right to designate two AMRE directors. See "Century 21 License
Agreement."
Mr. Jack L. McDonald has served as a director of AMRE since April 1,
1992. From July 1978 to January 1985 he served as President and Chief
Operating Officer of Centex Corporation, a company engaged in the home
building, cement, oil and gas and general construction industries, where he had
been employed since 1966. Since 1985 he has been self- employed as a business
consultant. He also serves as a director of American Homestar Corporation,
Bally's Grand, Inc., Triangle Pacific Corporation and U. S. Home Corporation.
Mr. David L. Moore was elected as a director of AMRE on November 15,
1995 pursuant to the terms of a letter agreement between AMRE and Mr. Moore,
dated October 17, 1995, entered into in connection with the transactions
contemplated by the Century 21 License Agreement. Since May 19, 1992 he has
served as Chief Executive Officer of Garden State Exterior Remodeling, Inc., a
company involved in the installation and sale of remodelling products. From
December 1, 1990 until May 19, 1992, he was the Chief Executive Officer of
Garden State Brickface & Stucco Company.
Mr. Robert W. Pittman was elected as a director of AMRE on November
15, 1995 in connection with the transactions contemplated by the Century 21
License Agreement. Since September 1995, Mr. Pittman has served as Managing
Partner and Chief Executive Officer of Century 21 Real Estate Corporation. From
1990 to September 1995, he served as Chief Executive Officer and President of
Time Warner Enterprises, and from December 1991 to September 1995, he was
Chairman and Chief Executive Officer of Six Flags Entertainment. Mr. Pittman
also previously served as President and Chief Executive Officer of MTV
Networks, Inc. and President and Chief Executive Officer of Quantum Media, Inc.
He currently serves as a director of 3DO, HFS, America Online, Inc. and Excite,
Inc. Mr. Pittman serves on the AMRE Board as an HFS nominee under that certain
Stock Purchase Agreement pursuant to which HFS has the right to designate two
AMRE directors. See "Century 21 License Agreement."
Mr. Sheldon I. Stein has served as a director of AMRE since April 1,
1992. He is a Senior Managing Director of Bear, Stearns & Co. Inc., an
investment banking firm, and is in charge of its Southwest Corporate Finance
Department. Prior to joining Bear, Stearns & Co. Inc. in August 1986, Mr.
Stein was a partner in the Dallas law firm of Hughes & Luce. He also serves as
a director of Cinemark USA, Inc., Fresh America Corporation, the Men's
Wearhouse, Inc. and Tandycrafts, Inc.
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Designees for Directors. Facelifters has the right pursuant to the
Facelifters Merger Agreement to designate one person to serve as a member of
the AMRE Board, and such designee may also be appointed to serve on the various
committees of the AMRE Board. Facelifters has selected Murray Gross as its
designee. Pursuant to the Facelifters Merger Agreement, the AMRE Board has
authorized the increase in the number of persons constituting the AMRE Board to
11, such increase to be effective upon consummation of the Facelifters Merger,
and to cause the election of the designee of Facelifters to fill the vacancy so
created. Set forth below is the name and age of and certain other information
about such designee for director of the AMRE Board.
Mr. Murray Gross, age 57, joined Facelifters in May 1987 as Executive
Vice President and Director and has been President of Facelifters since January
1990. Mr. Gross has been involved in the home improvement industry for 36
years. In 1963, Mr. Gross founded Busy Beaver Remodelers as a subsidiary of
Busy Beaver Home Centers, Inc., a Pittsburgh, Pennsylvania home center chain.
Mr. Gross served as Executive Vice President of Busy Beaver Remodelers from
1963 until 1979, and as President from 1979 until 1981. From August 1981 to
September 1983, Mr. Gross was employed at Home Craftsman Co. in Dallas, Texas
("HCC"), and from September 1983 to January 1987, Mr. Gross was Executive Vice
President, Chief Operating Officer and a Director of HCC.
EXECUTIVE OFFICERS OF AMRE
Listed below are the names and ages of, and certain other information
about, all the current executive officers of AMRE.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------- ------ ----------------------------------------
<S> <C> <C>
John D. Snodgrass . . . . . . . . . . . . . . . 39 Chairman of the Board of Directors (1)
Robert M. Swartz . . . . . . . . . . . . . . . 43 President and Chief Executive Officer (1)
Dennis R. Constantine . . . . . . . . . . . . . 54 Senior Vice President -- Operations(2)
Keith L. Abrams . . . . . . . . . . . . . . . . 40 Vice President -- Manufacturing and Installation(3)
Patrick J. Aulson . . . . . . . . . . . . . . . 44 Vice President -- Human Resources(4)
Thomas J. Bureson . . . . . . . . . . . . . . 45 Vice President -- Window Products(5)
C. Curtis Everett . . . . . . . . . . . . . . . 65 Vice President -- Law, Secretary and General
Counsel(6)
Daniel A. Grandon . . . . . . . . . . . . . . . 36 Vice President -- Siding Products and Field
Marketing(7)
Larry H. Lattig . . . . . . . . . . . . . . . . 48 Vice President -- Investor Relations and
Treasurer(8)
John S. Vanecko . . . . . . . . . . . . . . . . 51 Vice President and Chief Financial Officer(9)
J. David Young . . . . . . . . . . . . . . . . 57 Vice President -- Licensing and Development(10)
</TABLE>
(1) Member of the AMRE Board. See "Management Information of AMRE --
Directors of AMRE" above for additional information.
(2) Mr. Constantine joined AMRE as Vice President -- Operations in October
1995 and became Senior Vice President -- Operations in February 1996.
Prior to such time, he served as Division President of Recognition
International, Inc., a $220 million supplier of electronic document
systems, from August 1990 to October 1995.
(3) Mr. Abrams joined AMRE in October 1988 upon the acquisition by AMRE of
Cabinet Magic, Inc. and Jay Laminators, Inc., companies at which Mr.
Abrams served as Vice President. At such time, he was named Vice
President -- Production, for the Cabinet Division. In January 1991,
Mr. Abrams
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was promoted to the position of Executive Vice President -- Interior
Division; in November 1992 he was named Regional Vice President --
Central Region and in January 1995 he was elected Vice President --
Business Development. He currently serves as Vice President --
Manufacturing and Installation.
(4) Mr. Aulson joined AMRE in August 1995 as Vice President -- Human
Resources. From April 1987 to May 1995, he served as Vice President
of Human Resources for Republic Insurance Co. Prior to such time, he
was employed by Texas Instruments, an electronics company, in various
human resource positions.
(5) Mr. Bureson joined AMRE in October 1995 as Vice President -- Sales,
for the Windows Division and in February 1996 became Vice President --
Window Products. Prior to such time, he was employed from June 1988
to October 1995 by Nashua Corporation of Nashua, New Hampshire, a
supplier of office supplies and computer products, in the areas of
marketing, sales and strategic planning.
(6) Mr. Everett joined AMRE in June 1991 as Vice President -- Law,
Secretary and General Counsel. For more than 34 years prior to
joining AMRE, he practiced law with the Chicago law firm of Bell, Boyd
& Lloyd, specializing in corporate and securities matters.
(7) Mr. Grandon joined AMRE in March 1993 as Regional Vice President --
Northeast Region and was elected Regional Vice President -- East
Region in November 1993. Effective January 1, 1995, he was elected
Vice President -- Sales and Installation for the Siding Division and
in February 1996 became Vice President -- Siding Products and Field
Marketing. For four years prior to joining AMRE, he was employed by
EcoLab, Inc., an institutional chemical company, and served as
Division Vice President of its wholly owned subsidiary, ChemLawn
Services Corporation, a residential landscape service company.
(8) Mr. Lattig joined AMRE as Vice President -- Investor Relations and
Treasurer in October 1995. Prior to such time, he served as Vice
President and Treasurer of Recognition International, Inc., a $220.0
million supplier of electronic document systems, from February 1989 to
October 1995.
(9) Mr. Vanecko joined AMRE in July 1991 as Chief Financial Officer and
was also named a Vice President in May 1992. For more than five years
prior to joining AMRE, he was employed by Microdot, Inc., a
manufacturer of connecting devices, where he served as Vice President
-- Finance and, subsequent to January 1989, as Senior Vice President
and Chief Financial Officer.
(10) Mr. Young joined AMRE in March 1996 as Vice President -- Licensing and
Development. Prior to such time, he was employed at HFS, where he
served as Managing Director of International Franchise Sales and
Development from 1995 to 1996; Senior Vice President of Franchise
Sales -- Domestic from 1992 to 1995 and Regional Vice President of
Franchise Sales -- Domestic from 1990 to 1992. He served as Regional
Vice President of Franchise Sales and Development for Days Inns
Franchising, Inc. from 1989 to 1990.
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<PAGE> 80
SECURITY OWNERSHIP
OWNERSHIP OF AMRE SECURITIES
The following table sets forth certain information, with respect to the
beneficial ownership of AMRE Common Stock, as of April 15, 1996, by (i) all
persons who are known by AMRE to be beneficial owners of 5% or more of such
stock, (ii) each director of AMRE, (iii) certain executive officers and (iv)
all executive officers and directors of AMRE as a group. Unless otherwise
noted, the persons named below have sole voting and investment power with
respect to such shares. No effect has been given to shares reserved for
issuance under outstanding stock options except where otherwise indicated.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED AND
PERCENTAGE OF OUTSTANDING
SHARES AS OF APRIL 15, 1996
-----------------------------------
BENEFICIAL PERCENT
NAME AND ADDRESS OF OWNER OR IDENTITY OF GROUP OWNERSHIP OF CLASS
- ---------------------------------------------- --------- --------
<S> <C> <C>
DIRECTORS
Robert M. Swartz . . . . . . . . . . . . . . . . . . . . . . . . . 2,200 (2)
John D. Snodgrass . . . . . . . . . . . . . . . . . . . . . . . . . 0
Ronald L. Bliwas . . . . . . . . . . . . . . . . . . . . . . . . . 60,900(1) (2)
Dennis S. Bookshester . . . . . . . . . . . . . . . . . . . . . . . 20,000(1) (2)
Arthur P. Frigo . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000(1) (2)
Stephen P. Holmes . . . . . . . . . . . . . . . . . . . . . . . . . 0
Jack L. McDonald . . . . . . . . . . . . . . . . . . . . . . . . . 16,000(1) (2)
David L. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . 762,000(1)(3) 5.4%
Robert W. Pittman . . . . . . . . . . . . . . . . . . . . . . . . . 0
Sheldon I. Stein . . . . . . . . . . . . . . . . . . . . . . . . . 15,000(1) (2)
EXECUTIVE OFFICERS
Keith L. Abrams . . . . . . . . . . . . . . . . . . . . . . . . . . 29,487(1) (2)
C. Curtis Everett . . . . . . . . . . . . . . . . . . . . . . . . . 12,500(1) (2)
John S. Vanecko . . . . . . . . . . . . . . . . . . . . . . . . . . 11,931(1) (2)
Daniel A. Grandon . . . . . . . . . . . . . . . . . . . . . . . . . 15,833(1) (2)
All Directors and Executive Officers as a group (18 persons) . . . 960,851(1) 6.8%
OTHER 5% STOCKHOLDERS
Montgomery Asset Management, L.P. . . . . . . . . . . . . . . . . . 1,396,700(4) 9.9%
600 Montgomery Street
San Francisco, California 94111
Janus Capital Corporation and Thomas H. Bailey . . . . . . . . . . 1,303,100(5) 9.2%
100 Fillmore Street, Suite 300
Denver, Colorado 80206-4923
Pioneering Management Corp. . . . . . . . . . . . . . . . . . . . . 1,221,900(6) 8.6%
60 State Street
Boston, Massachusetts 02114
Brinson Partners, Inc. . . . . . . . . . . . . . . . . . . . . . . 1,036,888(7) 7.3%
209 South LaSalle
Chicago, Illinois 60604
Matthew L. Feshbach and Stockbridge Partners . . . . . . . . . . . 955,946(8) 6.8%
425 Sherman Avenue, Suite 200
Palo Alto, California 94306
</TABLE>
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<PAGE> 81
_________________
(1) The numbers and percentages of shares of AMRE Common Stock owned by
directors and nominees, and by all directors and officers as a group, as
shown in the table, assume that outstanding options to purchase shares of
AMRE Common Stock, which are exercisable within 60 days of April 12, 1996,
had been exercised as follows: Mr. Bliwas -- 52,500 shares; Mr.
Bookshester -- 15,000 shares; Mr. Frigo -- 15,000 shares; Mr. McDonald --
15,000 shares; Mr. Moore - 400,000 shares; Mr. Stein -- 15,000 shares; Mr.
Abrams - 29,487 shares; Mr. Everett -12,500 shares; Mr. Vanecko - 11,931
shares; Mr. Grandon - 8,333; and all directors and executive officers as a
group (including such individuals) -- 574,751 shares.
(2) Less than 1.0% of the outstanding shares of AMRE Common Stock.
(3) Includes 162,000 shares that Green Street Partners, L.P. was obligated to
buy upon closing of the transactions incident to the Century 21 License
Agreement. Mr. Moore controls the general partner of Green Street
Partners, L.P.
(4) Beneficial ownership of these shares of AMRE Common Stock is shown as of
February 19, 1996. As stated in Schedule 13G dated March 6, 1996 filed
with the Commission, Montgomery Asset Management, L.P. has sole voting
power with respect to 1,204,700 of such shares and sole dispositive power
with respect to 1,396,700 of such shares.
(5) Beneficial ownership of these shares of AMRE Common Stock is shown as of
February 13, 1996. As stated in Schedule 13G dated February 13, 1996,
filed with the Commission jointly by Janus Capital Corporation and Thomas
H. Bailey, both Janus Capital Corporation and Mr. Bailey have shared voting
power and shared dispositive power with respect to these shares. However,
the schedule includes a disclaimer by Janus Capital Corporation that
although, as investment manager of certain managed portfolios, it may be
deemed to be the beneficial owner of such shares, it disclaims any
ownership with respect to the right to receive any dividends from, or the
proceeds from the sale of, such shares. The schedule includes an
additional disclaimer by Mr. Bailey to the effect that he specifically
disclaims beneficial ownership over such shares and further disclaims any
ownership with respect to the right to receive any dividends from, or the
proceeds from the sale of, such shares.
(6) Beneficial ownership of these shares of AMRE Common Stock is shown as of
January 3, 1996. As stated in Schedule 13G dated January 3, 1996, filed
with the Commission, Pioneering Management Corporation had sole voting
power and shared dispositive power with respect to these shares.
(7) Beneficial ownership of these shares of AMRE Common Stock is shown as of
February 9, 1996. As stated in Schedule 13G dated February 9, 1996, filed
with the Commission by Brinson Partners, Inc., on behalf of itself, Brinson
Trust Company, Brinson Holdings, Inc., SBC Holding (USA), Inc. and Swiss
Banking Corporation. Brinson Partners, Inc., Brinson Holdings, Inc., SBC
Holding (USA), Inc. and Swiss Banking Corporation have shared voting power
and shared dispositive power with respect to all 1,036,888 shares of AMRE
Common Stock. Brinson Trust Company, a wholly owned subsidiary of Brinson
Partners, Inc., has shared voting power and shared dispositive power with
respect to 273,450 shares of AMRE Common Stock. Brinson Partners, Inc. is
a wholly owned subsidiary of Brinson Holdings, Inc. Brinson Holdings, Inc.
is a wholly owned subsidiary of SBC Holding (USA), Inc. SBC Holding (USA),
Inc. is a wholly owned subsidiary of Swiss Banking Corporation.
(8) Beneficial ownership of these shares of AMRE Common Stock is shown as of
February 8, 1996. As stated in Schedule 13D dated February 8, 1996, filed
with the Commission, Matthew L. Feshbach has sole voting power and sole
dispositive power with respect to 910,946 of these shares. The Schedule
13D also stated that Stockbridge Partners has sole voting power and sole
dispositive power with respect to 45,000 of these shares.
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<PAGE> 82
OWNERSHIP OF CONGRESSIONAL SECURITIES
The following table sets forth certain information as to the number of
shares of Congressional Common Stock and Congressional Preferred Stock
beneficially owned by (i) each person who is known to Congressional to be the
beneficial owner of more than 5.0% of the Congressional Common Stock and
Congressional Preferred Stock and (ii) Congressional's executive officers as of
December 31, 1995.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
CONGRESSIONAL CONGRESSIONAL
COMMON STOCK PREFERRED STOCK
------------ ---------------
BENEFICIAL PERCENT BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP OWNERSHIP OF CLASS OWNERSHIP OF CLASS
- --------------------------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John Nunez . . . . . . . . . . . . 400 80% 18.1 .03%
OTHER 5.0% SHAREHOLDERS
ESOP . . . . . . . . . . . . . . . 0 0 700 100%
11216 Waples Mill Road, Suite 101
Fairfax, VA 22030
Kenwood Financial, Inc. . . . . . . 99 20% 0 0
4000 N. Federal Highway, Suite 204
Boca Raton, FL 33431
</TABLE>
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<PAGE> 83
AMRE EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total cash and non-cash compensation for
the stated periods for each Chief Executive Officer of AMRE during the fiscal
year ended December 31, 1995, the four most highly compensated executive
officers who were serving as executive officers at December 31, 1995 and one
individual who would have been included among the four most highly compensated
executive officers but for the fact that he was not serving as an executive
officer at December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND COMPENSATION (IN SHARES) COMPENSATION
PRINCIPAL POSITION YEAR(1) SALARY BONUS(2) (3) (4) (5)
- -------------------------- ------- -------- --------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Swartz 1995 $152,945 $100,000 $ --- 500,000 $ -0-
- President
- Chief Executive Officer
V. James Sardo 1995 121,692 -0- --- -0- 524,152(9)
- President 1994 231,231 75,000 53,370(7) 375,000 5,371
- Chief Executive Officer
Ronald I. Wagner(11) 1995 456,350 -0- --- -0- 11,023(11)
- Chairman 1994 426,942 -0- --- 550,000 10,038
1993 439,499 -0- 73,843(6) -0- 7,828
Keith L. Abrams 1995 235,796 -0- --- 10,000 7,366
- Vice President-Business 1994 234,300 -0- --- 10,000 7,034
Development 1993 217,268 -0- --- -0- 6,860
Robert E. Horton, Jr. 1995 187,783 -0- --- 16,000 14,038(10)
- Vice President-Marketing 1994 179,080 15,000 --- 34,000 1,764
1993 55,774 -0- 19,637(7) 15,000(8) 1,107
C. Curtis Everett 1995 185,942 -0- --- 12,500 9,526
- Vice President-Law 1994 177,373 -0- --- 37,500 8,632
- Secretary 1993 147,536 -0- --- -0- 8,142
- General Counsel
Daniel A. Grandon 1995 183,419 -0- --- 25,000 2,906
- Vice President-Sales 1994 162,570 -0- --- 25,000 2,296
and Installation 1993 109,544 39,500 --- 15,000 1,077
</TABLE>
_____________
(1) The employment of Messrs. Swartz, Sardo, Horton and Grandon commenced in
July 1995, April 1994, August 1993 and March 1993, respectively. Mr.
Wagner continued as Chairman of the Board following the election in April
1994 of Mr. Sardo as President and Chief Executive Officer. Mr. Sardo left
AMRE in April 1995. Mr. Horton left AMRE on December 31, 1995.
(2) No bonuses were paid pursuant to AMRE's Management Incentive Plan for the
fiscal years ended December 31, 1993, 1994 and 1995. Mr. Sardo was paid a
bonus for 1994 in accordance with his employment agreement as an incentive
for him to accept his position with AMRE. Mr. Horton was paid a bonus in
1994 in accordance with his offer of employment as an incentive for him to
accept his position with AMRE. Mr. Swartz was paid a bonus for 1995 in
accordance with his employment agreement as
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<PAGE> 84
an incentive for him to accept his position with AMRE. Mr. Grandon was
paid a bonus for 1993 in accordance with his offer of employment as an
incentive for him to accept his position with AMRE.
(3) The table includes such other annual compensation which exceeded, in the
aggregate, the lesser of either $50,000 or 10.0% of salary.
(4) The option awards for 1994 included options granted in exchange for
surrendered options as follows: Wagner--550,000; Sardo--375,000;
Horton--15,000; Everett--30,000 and Grandon--15,000.
(5) The amounts shown include life and disability insurance premiums paid by
AMRE on behalf of the respective executive officers and AMRE contributions
to the Savings Investment Plan for the benefit of the respective executive
officers, as shown below.
<TABLE>
<CAPTION>
LIFE/DISABILITY SAVINGS INVESTMENT PLAN
INSURANCE (401(K) PLAN)
------------------------------------- -----------------------------------
1993 1994 1995 1993 1994 1995
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Swartz . . . . $ --- $ --- $ -0- $ --- $ --- $ -0-
Ronald I. Wagner . . . . 7,202 7,694 8,696 2,323 2,344 2,327
V. James Sardo . . . . . --- 5,371 10,178 --- -0- -0-
Keith L. Abrams . . . . . 4,555 4,736 5,068 2,305 2,298 2,298
Robert E. Horton, Jr. . . 1,007 1,114 1,241 -0- 650 2,310
C. Curtis Everett . . . . 5,929 6,338 7,216 2,213 2,294 2,310
Daniel A. Grandon . . . . 1,077 1,082 1,095 --- 1,214 1,811
</TABLE>
(6) Includes $70,000 paid in 1993 for personal financing planning and the
preparation and filing of personal income tax returns in accordance with
Mr. Wagner's employment agreement.
(7) Includes relocation expenses in the amounts of $26,617 and $18,598 for
Messrs. Sardo and Horton, respectively. The amount shown for Mr. Sardo
also includes a country club membership fee in the amount of $26,753.
(8) Represents options granted to Messrs. Horton and Grandon in 1993, and
subsequently cancelled and re-granted in 1994.
(9) Includes severance payments in the aggregate amount of $513,975.
(10) Includes payments of $10,487 for accrued vacation.
(11) See also "Recent Developments -- Resignation of Chairman."
STOCK OPTIONS
The following table sets forth the number of shares of AMRE Common Stock
subject to options held by the executive officers named in the Summary
Compensation Table above.
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<PAGE> 85
AGGREGATED UNEXERCISED OPTIONS
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT OPTIONS AT
EXERCISE REALIZED DECEMBER 31, 1995 DECEMBER 31, 1995(1)
----------- -------- ------------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Swartz . . --- --- -0- 500,000 -0- $5,250,000
Ronald I. Wagner . . --- --- 550,000 -0- 6,118,750 -0-
V. James Sardo . . . --- --- -0- -0- -0- -0-
Keith L. Abrams . . . --- --- 69,487 16,667 682,080 175,420
Robert E. Horton, Jr. 11,333 $113,330 -0- -0- -0- -0-
C. Curtis Everett . . --- --- 12,500 37,500 139,063 404,688
Daniel A. Grandon . . --- --- 8,333 41,667 92,704 438,545
</TABLE>
_________________
(1) The closing price for AMRE Common Stock as reported by the New York Stock
Exchange on December 29, 1995, (the last trading day in 1995) was $14.625.
Value is calculated on the basis of the difference between the option
exercise price of "in-the-money" options and $14.625 multiplied by the
number of shares of AMRE Common Stock subject to the options.
The following table sets forth information with respect to options granted
during 1995 to the executive officers named in the Summary Compensation Table
above. The table also shows the value of the options at the end of the ten
year option term if the stock price were to appreciate annually by 5.0% and
10.0%, respectively. There is no assurance that the stock price will
appreciate at those rates. The table also indicates that if the stock price
does not appreciate there will be no increase in the potential realizable value
of the options.
OPTIONS GRANTED IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE EXPIRATION --------------------------
NAME GRANTED(1) IN 1995 PRICE DATE 0% 5% 10%
---- ---------- ---------- -------- ---------- --- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Swartz . . . . . . . . 500,000 73.89 4.125 06/1/05 -0- 1,297,000 3,287,000
V. James Sardo . . . . . . . . . -0- --- --- --- --- --- ---
Ronald I. Wagner . . . . . . . . -0- --- --- --- --- --- ---
Keith L. Abrams . . . . . . . . . 10,000 1.48 4.50 10/11/05 -0- 28,000 72,000
Robert E. Horton, Jr. . . . . . . 16,000 2.36 4.50 10/11/05 -0- 45,000 115,000
C. Curtis Everett . . . . . . . . 12,500 1.85 4.50 10/11/05 -0- 35,000 90,000
Daniel A. Grandon . . . . . . . . 25,000 3.69 4.50 10/11/05 -0- 71,000 179,000
</TABLE>
_________________
(1) All options granted to the named officers, other than Mr. Swartz, were
granted on October 11, 1995, under the direction of the Stock Option Plan
Committee of the AMRE Board. The options granted to Mr. Swartz were
granted pursuant to the terms of his employment agreement and become
exercisable in cumulative annual increments of one- fourth commencing on
June 1, 1996. The options granted to Messrs. Abrams, Horton, Everett and
Grandon become exercisable in cumulative annual increments of one-third
commencing on October 11, 1996. All options were granted with an exercise
price equal to 100% of the market price for AMRE Common Stock on the date
of grant of such stock options and are exercisable for a period of ten
years from the date of grant.
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<PAGE> 86
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and AMRE Common Stock holdings are
dependent on the future performance of the AMRE Common Stock and overall
stock market conditions. There can be no assurance that the values
reflected in this table will be achieved.
If the price of the AMRE Common Stock appreciates, the value of the AMRE
Common Stock held by shareholders of AMRE will also increase. For example, the
market value of the 14,127,457 outstanding shares of AMRE Common Stock on March
12, 1996, was approximately $236,635,000 based upon the market price on that
date. If the price per share of AMRE Common Stock increases by 5.0% per year,
the market value on March 12, 2001 of the same number of shares would be
approximately $385,453,000. If the price per share of AMRE Common Stock
increases by 10.0% per year, the market value on March 12, 2006 of the same
number of shares would be approximately $613,770,000.
COMPENSATION OF DIRECTORS
In 1995 each outside director received annual compensation of $20,000 plus
an additional $2,000 for each AMRE Board meeting attended and for attendance at
other meetings, such as committee meetings, involving members of the AMRE Board
which were held on a day when no AMRE Board meeting was held. Cash
compensation paid to outside directors for the fiscal year ended December 31,
1995, amounted to an aggregate of $269,944. Directors who are employees of
AMRE are not compensated for attending meetings of the AMRE Board.
EXECUTIVE SEVERANCE PLAN
Certain members of senior management of AMRE, including Messrs. Abrams,
Everett and Grandon, are participants in an Executive Severance Plan. This
plan provides for the payment of an amount equal to one year's compensation to
a participant who has been an employee of AMRE for a minimum of eight months if
the employment of the participant is terminated by AMRE without "cause" or by
the participant due to an "adverse change in conditions," as defined in the
plan. In addition, any participant, without regard to length of service, will
receive an amount equal to two years compensation if the employment of the
participant is terminated by AMRE without "cause" or by the participant for
"good reason" following a "change in control," as defined in the plan. Mr.
Horton, who left AMRE on December 31, 1995, will receive compensation under
this plan during 1996.
EMPLOYMENT AGREEMENTS
AMRE had an employment agreement with Ronald I. Wagner for a term ending
May 31, 1997 (the "Wagner Employment Agreement"). The Wagner Employment
Agreement provided for a base salary at the rate of $500,000 per annum, and
contemplated annual increases. In addition, Mr. Wagner was eligible for an
annual cash bonus in an amount determined by the AMRE Board. The Wagner
Employment Agreement also provided for the payment to Mr. Wagner of an amount
equal to three times his highest aggregate annual salary and cash bonus
established during the term of the Wagner Employment Agreement in the event of
a termination by him of his employment for "good reason," which includes a
"change in control" of AMRE, as defined in the Wagner Employment Agreement.
AMRE and Ronald I. Wagner entered into the Wagner Separation Agreement on
December 1, 1995, the date that Mr. Wagner announced that he was retiring as
Chairman of the AMRE Board. See "Recent Developments -- Resignation of
Chairman."
AMRE has an employment agreement with Robert M. Swartz for a term of two
years from any given date (the "Swartz Employment Agreement"). The Swartz
Employment Agreement provides for salary at the rate of $300,000 per annum. In
addition, Mr. Swartz is eligible for an annual cash bonus opportunity of at
least 100% of his annual salary. The Swartz Employment Agreement also provides
for a minimum bonus of $100,000 to be paid for the fiscal year ended December
31, 1995. Upon termination by Mr. Swartz of his employment for "good reason"
following a "change in control" of AMRE, as defined in the Swartz Employment
Agreement, such agreement provides for the payment to him of all accrued
vacation pay and an
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<PAGE> 87
amount equal to 299.0% of his base salary in effect on the date prior to the
change of control plus an amount equal to 299.0% of any additional payments to
which he would have been entitled had he been terminated by AMRE for other than
"good cause" as defined in the Swartz Employment Agreement. Such additional
payments include a pro rata share (based upon the portion of the year for which
he was employed) of any bonus to which he would have been entitled had he been
employed as of the end of the then current fiscal year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sheldon I. Stein, a member of AMRE's Compensation Committee, is a Senior
Managing Director of Bear Stearns, an investment banking firm, and is in charge
of its Southwest Corporate Finance Department. During the fiscal year ended
December 31, 1995, AMRE paid fees to Bear Stearns in the amount of $178,018.
Such fees include $100,000 of the fees to be received by Bear Stearns for
rendering an opinion in connection with the Facelifters Merger that such merger
is fair, from a financial point of view, to the public shareholders of AMRE.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Commencing in October 1988, with its acquisition of Cabinet Magic, Inc.,
AMRE began leasing certain of its facilities in Chicago, Illinois from Ronald
I. Wagner. This lease was for a term of ten years expiring in 1998 and
provided for annual payments of approximately $165,000. Upon Mr. Wagner's
resignation as Chairman of the AMRE Board, Mr. Wagner and AMRE agreed to
terminate the original lease and enter into a new lease commencing January 1,
1996 for a term of ten years at an annual rent beginning at $180,000 for the
first two years.
AMRE made loans against the receipt of collateralized promissory notes to
certain executive officers of AMRE in fiscal years 1990 and 1991, which loans
are due on April 30, 1997. As of January 1, 1993, new notes were issued in
modification of and substitution for the initially issued notes to increase the
principal amount by the amount of interest due for the year ended December 31,
1992. As of January 1, 1994, new notes were issued in modification of and
substitution for the January 1, 1993 notes to increase the principal amount by
the amount of interest due for the year ended December 31, 1993. As of April
30, 1994, new notes were issued in modification of and substitution for the
January 1, 1994 notes to increase the principal amount by the amount of
interest due for the four months ended April 30, 1994, and to decrease the
interest rate from 7.0% to 5.88% compounded annually. At January 1, 1995,
principal and accrued interest on the loans to Messrs. Wagner and Abrams
amounted to $3,895,922.30 and $486,990.31, respectively. Upon Mr. Wagner's
resignation as Chairman of the AMRE Board on December 1, 1995, AMRE and Mr.
Wagner entered into the Wagner Separation Agreement in which AMRE agreed, among
other things, to offset amounts owed to Mr. Wagner under the Wagner Employment
Agreement by releasing Mr. Wagner's payment obligation under the outstanding
promissory note payable, plus interest, in the amount of $4,101,824. Mr.
Abrams paid all principal and accrued interest on his promissory note on
February 2, 1996.
Ronald L. Bliwas, a director of AMRE and Vice Chairman of the AMRE Board,
is the President, Chief Executive Officer and a director of A. Eicoff &
Company, a direct advertising agency. AMRE has retained A. Eicoff & Company for
direct response television advertising since 1985. In this capacity, A. Eicoff
& Company has the responsibility for producing television commercials and
purchasing television air time for AMRE. Payments made by AMRE to A. Eicoff &
Company during the fiscal year ended December 31, 1995, including reimbursement
of payments for purchased television time and development of television
commercials for AMRE by A. Eicoff & Company, were approximately $5,933,000.
AMRE believes that the payments made are reasonable when compared to those that
would have been made to unrelated third parties for the same services.
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<PAGE> 88
Since January 1, 1995, AMRE has paid fees in the amount of approximately
$384,000 to Bear, Stearns & Co. Inc. an investment banking firm in which
Sheldon I. Stein, a director of AMRE, is a Senior Managing Director and is in
charge of its Southwest Corporate Finance Department.
David Moore was appointed as a director of AMRE on November 15, 1995. As
consideration for services provided by Mr. Moore in connection with the
negotiation of the Century 21 License Agreement and related transactions, AMRE
(i) issued options to purchase 200,000 shares of AMRE Common Stock at $5.00 per
share and options to purchase 200,000 shares of AMRE Common Stock at $5.50 per
share to Mr. Moore on October 17, 1995; (ii) issued 200,000 shares of AMRE
Common Stock to Mr. Moore on October 17, 1995; (iii) guaranteed a $900,000 cash
payment to Mr. Moore; (iv) granted a sublicense to a corporation controlled by
Mr. Moore to operate under the trademarks granted under the Century 21 License
Agreement and (v) sold to designees of Mr. Moore, Gregory Kiernan and Green
Street Partners, L.P., 38,000 shares and 162,000 shares, respectively, at a
price of $5.00 per share on February 16, 1996 and December 29, 1995,
respectively.
INDEPENDENT ACCOUNTANTS
Representatives of Deloitte & Touche LLP, Congressional's independent
accountants, are expected to be present at the Special Meeting with the
opportunity to make a statement if they so desire. Such representatives are
also expected to be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the securities to be issued in connection with the Merger
will be passed upon for AMRE by Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700
Pacific Avenue, Suite 4100, Dallas, Texas 75201.
EXPERTS
The consolidated financial statements of AMRE, Inc. incorporated by
reference to this Information Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of said firm as experts in giving said report.
The financial statements of Congressional Construction Corporation included
in this Information Statement/Prospectus have been audited by Deloitte & Touche
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The consolidated annual financial statements of Facelifters Home Systems,
Inc. included in this Information Statement/Prospectus have been audited by
Grant Thornton, LLP, independent certified public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in giving said report.
The opinion regarding the tax treatment of the Merger included in this
Information Statement/Prospectus has been rendered by Ernst & Young, LLP,
independent public accountants, as indicated in their opinion with respect
thereto, and is included herein in reliance upon the authority of such firm as
experts in giving said opinion.
81
<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONGRESSIONAL CONSTRUCTION CORPORATION
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet as of December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . . F-4
Statements of Stockholders' Equity (Deficit) Years Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . F-6
Notes to Financial Statements for Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . . F-7
FACELIFTERS HOME SYSTEMS, INC.
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . F-12
Consolidated Balance Sheets as of March 31, 1994 and 1995 and
December 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Consolidated Statements of Operations for the Years Ended
March 31, 1993, 1994 and 1995 and for the Nine Month Periods Ended
December 31, 1994 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Consolidated Statement of Stockholders' Equity for the Years Ended March 31,
1993, 1994 and 1995 and for the Nine Month Period Ended December 31, 1995 (unaudited) . . . . . F-15
Consolidated Statements of Cash Flows for the Years Ended March 31, 1993,
1994 and 1995 and for the Nine Month Periods Ended December 31, 1994
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Notes to Consolidated Financial Statements for the Years Ended March 31, 1993,
1994 and 1995 and for the Nine Month Periods Ended December 31, 1994 and 1995 (unaudited) . . . F-17
AMRE, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Unaudited Pro Forma Condensed Combined Statements of
Operations for the Year Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-35
Unaudited Pro Forma Condensed Combined Statements of
Operations for the Year Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . F-37
Unaudited Pro Forma Condensed Combined Statements of
Operations for the Year Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . F-39
Notes to Unaudited Pro Forma Condensed Combined Financial Statements . . . . . . . . . . . . . . . F-41
</TABLE>
F-1
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Congressional Construction Corporation:
We have audited the accompanying balance sheet of Congressional Construction
Corporation as of December 31, 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the two years ended December
31, 1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Congressional Construction Corporation at
December 31, 1995, and the results of its operations and its cash flows for the
two years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
March 4, 1996
F-2
<PAGE> 91
CONGRESSIONAL CONSTRUCTION CORPORATION
BALANCE SHEET
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 306,601
Contract receivables (net of allowance for doubtful
accounts of $63,507) 590,370
Costs incurred on uncompleted contracts 161,818
Prepaid expenses and other assets 98,293
--------------
Total current assets 1,157,082
--------------
PROPERTY AND EQUIPMENT:
Autos 15,131
Furniture and fixtures 369,791
Leasehold improvements 6,214
--------------
391,136
Less: Accumulated depreciation and amortization (121,940)
--------------
269,196
--------------
$ 1,426,278
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable $ 624,320
Current portion of capital lease obligation 37,587
Accounts payable 590,739
Customer deposits 290,043
Accrued liabilities 422,104
--------------
Total current liabilities 1,964,793
NOTES PAYABLE 4,788,145
CAPITAL LEASE OBLIGATION 20,100
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock, no par value; 700 shares
authorized, issued, and outstanding (aggregate
liquidation value of $7,746,900 at December 31, 1995) 500
Common stock, $1 par value; 1,000 shares
authorized and issued; 499 shares outstanding 1,000
Retained deficit (27,556)
Unearned ESOP compensation (5,320,204)
Less: 501 shares of common stock in treasury (500)
--------------
Total stockholders' equity (5,346,760)
--------------
$ 1,426,278
==============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 92
CONGRESSIONAL CONSTRUCTION CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
CONTRACT REVENUE $ 18,818,416 $ 17,520,231
COST OF CONTRACTS COMPLETED:
Materials and labor 7,373,310 6,489,174
Selling costs 3,091,846 2,628,189
License fees 2,485,999 2,202,369
-------------- -------------
Gross profit 5,867,261 6,200,499
-------------- -------------
OPERATING EXPENSES:
Advertising 1,246,119 1,571,819
Compensation costs 2,964,997 2,653,928
Other general and administrative 1,308,058 1,191,266
Rent 187,044 130,263
Depreciation and amortization 45,290 34,883
Bad debt expense 24,666 3,346
-------------- -------------
5,776,174 5,585,505
-------------- -------------
OPERATING INCOME 91,087 614,994
-------------- -------------
OTHER INCOME (EXPENSE):
Interest income 26,242 33,639
Other income 67,639 30,375
Interest expense (445,030) (405,231)
-------------- -------------
(351,149) (341,217)
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (260,062) 273,777
INCOME TAX EXPENSE (BENEFIT) (50,664) 38,800
-------------- -------------
NET INCOME (LOSS) $ (209,398) $ 234,977
============== =============
WEIGHTED AVERAGE NUMBER OF SHARES $ 623 $ 570
============== =============
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT
SHARE $ (336.11) $ 412.24
============= =============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 93
CONGRESSIONAL CONSTRUCTION CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE UNEARNED
PREFERRED COMMON PAID-IN RETAINED ESOP TREASURY
STOCK STOCK CAPITAL EARNINGS SHARES STOCK TOTAL
---------- --------- ------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994 $ 500 $ 1,000 $ 9,000 $ 149,904 $(6,663,208) $ (500) (6,503,304)
Compensation expense for ESOP
shares released - - (9,000) (84,809) 815,765 - 721,956
Net income - - - 234,977 - - 234,977
------- -------- ------- ---------- ----------- -------- -----------
BALANCE DECEMBER 31, 1994 500 1,000 - 300,072 (5,847,443) (500) (5,546,371)
Compensation expense for ESOP
shares released - - - (118,230) 527,239 - 409,009
Net loss - - - (209,398) - - (209,398)
------- -------- ------- ---------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1995 $ 500 $ 1,000 $ - $ (27,556) $(5,320,204) $ (500) (5,346,760)
======= ======== ======= ========== =========== ======== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 94
CONGRESSIONAL CONSTRUCTION CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (209,398) $ 234,977
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Bad debt expense 24,666 3,346
Depreciation and amortization 45,290 34,883
Compensation expense for ESOP shares released 409,009 721,956
Loss on disposal of property and equipment 2,607 -
Changes in operating assets and liabilities:
Contract receivables (145,003) (231,480)
Costs incurred on uncompleted contracts (48,966) 40,082
Prepaid expenses and other assets (31,632) 23,881
Deferred taxes 34,957 (43,000)
Accounts payable 127,664 200,168
Accrued liabilities (65,102) 304,282
Income taxes payable (157,138) 80,277
------------ ------------
Net cash provided by (used in) operating activities (13,046) 1,369,372
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (78,233) (63,646)
Disposal of property and equipment 500 -
Purchases of leasehold improvements (6,214) -
------------ ------------
Net cash used in investing activities (83,947) (63,646)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligation (26,404) (14,704)
Repayments of notes payable (531,045) (828,225)
------------ ------------
Net cash used in financing activities (557,449) (842,929)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (654,442) 462,797
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 961,043 498,246
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 306,601 $ 961,043
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation $ 31,185 $ 67,610
============ ============
Note payable for acquisition of auto $ 15,131 $ -
============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 95
CONGRESSIONAL CONSTRUCTION CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business and Organization - Congressional Construction
Corporation (the Company) is a contractor for siding, wood decks, fences,
and replacement windows for homes. The Company operates in Virginia,
Maryland, the District of Columbia, Pennsylvania, New Jersey, and West
Virginia under a license agreement with Sears, Roebuck and Company (Sears).
Revenue and Cost Recognition - Revenues are recognized under the
completed-contract method. This method is used because the typical
contract is completed in one week or less and financial position and
results of operations do not vary significantly from those that would
result from the use of the percentage-of-completion method. A contract is
considered complete when physical installation has been substantially
completed. Contract costs include direct materials, direct labor, license
fees, building permits, service costs, salespersons' commissions and
bonuses, customer financing costs, and contract administration costs.
Earnings (Loss) Per Common Share - Earnings per common share and common
equivalent share were computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year. The convertible preferred stock, which is
held by the ESOP, has been considered to be the equivalent of common stock
to the extent of the shares committed to be released for allocation at its
conversion rate of .7 common shares for each preferred share.
Property and Equipment - Property and equipment are stated at cost and are
depreciated using the straight-line method over estimated useful lives
ranging from three to seven years. Equipment under capital leases is
amortized over the related lease term.
Cash Equivalents - For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Income Taxes - Deferred income taxes are provided for differences in income
for financial statement and tax purposes, which arise primarily from
differences in the methods of accounting for depreciation, contract costs,
ESOP compensation expense, and deferred rent.
Concentration of Credit Risk - The Company extends credit to customers on
both secured and unsecured bases in the normal course of business. No
single customer is significant to the Company's sales or accounts
receivable, and the Company's customers are not concentrated in any
specific geographic region within the Company's licensed territory. The
Company has in place policies governing the extension of credit and
collection of amounts due from customers.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-7
<PAGE> 96
2. CONVERTIBLE PREFERRED STOCK AND EMPLOYEE STOCK OWNERSHIP PLAN
In June 1993, the Company authorized the issuance of 700 shares of
convertible preferred stock. These 700 shares were then issued to Kenwood
in exchange for 501 shares of the Company's common stock then owned by
Kenwood. The preferred stock has no par value. Dividends at an annual
rate of $678 per share on the preferred stock are cumulative from the date
of original issue and are payable when and as declared by the Company's
board of directors.
Voluntary and involuntary liquidation value of each preferred share is
$10,000 plus unpaid dividends. The voluntary or involuntary liquidation
value is payable prior to any payments to holders of common stock at
liquidation. The preferred stock is convertible at any time at the option
of the holder into common stock at a conversion rate of 0.7 common shares
for each preferred share. The preferred stock is redeemable for cash at
any time on or after July 1, 2003 at the option of the Company, in whole or
in part, at a price of $10,000 per share plus unpaid dividends.
Effective June 30, 1993, the Company established an Employee Stock
Ownership Plan (ESOP) covering all employees. The ESOP purchased
approximately 50% of the outstanding stock of the Company from one of the
Company's stockholders. To finance this purchase, the Company borrowed $7
million (ESOP Loan) from a bank, and then lent that sum to the ESOP. The
ESOP Loan bears interest at 85% of the bank's Prime Rate (effective rate of
7.225% at December 31, 1995 and 1994) and is secured by collateral provided
by Kenwood's stockholder. The loan and security agreement, among other
provisions, contains certain restrictive covenants, the most restrictive of
which requires that the Company meet a financial ratio test. Principal
payments on the ESOP Loan are due in forty quarterly installments
commencing on September 30, 1993, and ending on June 30, 2003. During the
years ended December 31, 1995 and 1994, principal of $527,239 and $815,765,
respectively, was repaid, including additional prepayments of principal.
The ESOP used the proceeds of the original ESOP Loan to purchase the 700
shares of the Company's convertible preferred stock from Kenwood. The
balance of the ESOP Loan is included in the Company's balance sheet as
unearned compensation relating to the ESOP. The employees receive the
ESOP's stock shares in lieu of cash compensation. The stock held by the
ESOP is released for allocation to participants' accounts as principal is
paid on the ESOP Loan. Any preferred shares, or fractions thereof, upon
distribution to a participant or beneficiary under the ESOP, automatically
convert into common stock.
During 1995 and 1994, the Company made $527,239 and $815,765, respectively,
of contributions to the ESOP that was used to pay principal on the ESOP
Loan. In 1994, contributions included dividends on the convertible
preferred stock of $439,600. Since the dividends on the unallocated shares
were used to make additional principal payments on the ESOP Loan, they have
been reflected as compensation expense in the accompanying financial
statements for the year ended December 31, 1994. At December 31, 1995,
aggregate arrearages in cumulative preferred dividends were $746,900.
Gross compensation expense (i.e., the fair value of shares allocated to
participant accounts) was approximately $409,000 and $722,000 for the years
ended December 31, 1995 and 1994, respectively. Unearned compensation
(equal to the balance of the unreleased ESOP shares) of $5,320,204 and
$5,847,443 is reflected as a reduction of stockholders' equity at December
31, 1995 and December 31, 1994, respectively.
Upon the retirement or other termination of an ESOP participant, the shares
of stock in which the participant is vested are automatically distributed
in that form, with fractional shares paid in cash, and the shares of the
stock are then purchased back from the participant by the Company at fair
market value as determined by an independent appraiser.
F-8
<PAGE> 97
3. NOTES PAYABLE
Notes payable at December 31, 1995, consist of the following:
<TABLE>
<S> <C>
ESOP Loan (see Note 2) $ 5,398,956
Note to a bank bearing interest at 8.5% in monthly installments
of $374, including interest and principal, through June 1999,
secured by an automobile with a net book value of $12,187
at December 31, 1995 13,509
-------------
$ 5,412,465
=============
</TABLE>
Future principal payments for the years ended December 31 are due as
follows:
<TABLE>
<S> <C>
1996 $ 624,340
1997 656,914
1998 691,200
1999 724,942
2000 760,379
2001 and thereafter 1,954,690
-------------
$ 5,412,465
=============
</TABLE>
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments when it is practicable to estimate that value. Notes payable
included in the balance sheet approximate fair value because the applicable
interest rates reflect current market interest rates. The carrying amount
of other assets and liabilities reported on the balance sheet that require
such disclosure approximates fair value.
5. LEASE OBLIGATIONS
The Company leases office space and telephone equipment under various
noncancelable lease agreements. Rental expense under operating leases for
the years ended December 31, 1995 and 1994, was $187,044 and $130,263,
respectively. The Company's operating leases contain certain clauses for
extensions at the option of the Company. The Company also leases certain
equipment under capital leases expiring in 1997. The cost and accumulated
depreciation related to the equipment under capital lease as of December
31, 1995, were as follows:
<TABLE>
<S> <C>
Cost of equipment under capital lease $ 98,795
Accumulated depreciation (16,715)
----------
$ 82,080
==========
</TABLE>
F-9
<PAGE> 98
The future minimum payments under the leases with remaining noncancelable
lease terms of one year or more for the years ending December 31 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
1996 $ 42,581 $ 196,544
1997 20,902 181,191
1998 -- 148,166
1999 -- 62,867
---------- -----------
Total minimum lease payments 63,483 $ 588,768
===========
Amounts representing interest 5,796
----------
Present value of minimum lease payments $ 57,687
==========
</TABLE>
6. WARRANTY RESERVES
Accrued liabilities include an estimate for anticipated future expenditures
for customer service work to be performed on decks and siding already
installed by the end of the fiscal year. The amount accrued at December
31, 1995 was $30,000. Service expenditures for the years ended December
31, 1995 and 1994, were $78,145 and $42,076, respectively.
7. INCOME TAXES
Income tax expense (benefit) for the year ended December 31, 1995, consists
of the following:
<TABLE>
<S> <C>
Current:
Federal $ -
State -
-----------
-
-----------
Deferred (167,664)
Change in valuation
allowance 117,000
-----------
Total $ (50,664)
===========
</TABLE>
F-10
<PAGE> 99
A reconciliation of the income tax provision (benefit) and the amount
computed by applying the statutory U.S. income tax rate of 34% is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
---------------
<S> <C>
Amount at Statutory U.S. rate $ (88,400)
State taxes, net of U.S. income tax benefit (12,000)
ESOP compensation (45,600)
Change in valuation allowance 117,900
Other (22,564)
------------
Total $ (50,664)
============
</TABLE>
The approximate tax effect of each type of temporary difference and
carryforward that gave rise to the Company's deferred tax assets and
liabilities at December 31, 1995, are as follows:
<TABLE>
<S> <C>
Depreciation $ (19,310)
Contract costs 11,586
ESOP compensation 55,982
Rent 6,347
Accrued expenses (38,192)
Capital leases (9,422)
Less: valuation allowance (6,991)
------------
$ -
============
</TABLE>
8. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995 and 1994, the Company paid
customer financing costs of $7,890 and $12,957, respectively, to an
affiliate of Kenwood.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Interest $ 442,362 $ 399,301
========= =========
Income taxes $ 20,639 $ 1,500
========= =========
</TABLE>
10. SUBSEQUENT EVENTS
Effective January 1, 1996, the Company terminated its license agreement
with Sears and entered into a sublicense agreement with AMRE, Inc., which
has a license agreement with Century 21 Real Estate Corporation. Under
this sublicense agreement, the Company has the license to use the trademark
"Century 21 Home Improvements."
On December 30, 1995, the Company and AMRE, Inc. signed an Agreement and
Plan of Merger which would result in the Company becoming a wholly owned
subsidiary of AMRE, Inc. The merger is subject to shareholder approval by
the Company's shareholders in 1996.
F-11
<PAGE> 100
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Facelifters Home Systems, Inc.
We have audited the accompanying consolidated balance sheets of Facelifters
Home Systems, Inc. and Subsidiaries as of March 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Facelifters Home Systems, Inc. and Subsidiaries as of March 31, 1995 and 1994,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended March 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for lead acquisition costs for the year ended
March 31, 1995.
GRANT THORNTON LLP
Fort Lauderdale, Florida
June 16, 1995
F-12
<PAGE> 101
FACELIFTERS CONSOLIDATED FINANCIAL STATEMENTS
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, -------------------------------
1995 1995 1994
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Current assets:
- --------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,211,703 $ 983,561 $ 556,960
U.S. Treasury Securities available for sale, at market
value which approximates cost (Note 1H) . . . . . . . --- 737,842 ---
----------- ----------- ------------
Total cash and cash equivalents . . . . . . . . . . . . 2,211,703 1,721,403 556,960
Marketable securities, at market value which
approximates cost in 1995 and lower of
cost or market in 1994 (1H) . . . . . . . . . . . . . 1,039,251 819,685 475,556
Accounts receivable (net of allowances of $137,000,
$95,000 and $12,000 at December 31, 1995, March 31,
1995 and March 31, 1994, respectively) (Note 13) . . . 2,873,609 2,481,769 1,079,791
Inventories (Notes 1B, 4 and 13) . . . . . . . . . . . . 1,596,047 1,710,337 778,084
Prepaid expenses and other current
assets (Notes 1E and 15) . . . . . . . . . . . . . . 964,218 977,006 1,565,887
----------- ----------- ------------
Total current assets . . . . . . . . . . . . . . . . 8,684,828 7,710,200 4,456,278
Property and equipment, at cost - net of accumulated
depreciation and amortization (Notes 1C, 3, 6,
13 and 20) . . . . . . . . . . . . . . . . . . . . . 3,391,401 3,163,399 2,522,596
Goodwill, net of accumulated amortization of $449,711,
$220,616 and $136,926 at December 31, 1995,
March 31, 1995 and March 31, 1994,
respectively (Notes 1F and 2) . . . . . . . . . . . . 731,893 960,988 507,543
Other assets (Note 17) . . . . . . . . . . . . . . . . . 237,394 731,386 405,333
----------- ----------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . $13,045,516 $12,565,973 $ 7,891,750
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
- -------------------
Notes payable (Note 13) . . . . . . . . . . . . . . . . $ 1,471,342 $ 651,305 $ 103,129
Accounts payable . . . . . . . . . . . . . . . . . . . . 1,778,480 1,776,366 1,076,716
Accrued expenses and other current
liabilities (Note 15) . . . . . . . . . . . . . . . . 3,654,493 2,076,674 1,129,569
Customer deposits (Note 1D) . . . . . . . . . . . . . . 529,513 984,076 1,052,185
Obligations under capital leases due within
one year (Note 6) . . . . . . . . . . . . . . . . . . 99,230 45,090 62,176
Due to officers (Note 5) . . . . . . . . . . . . . . . . --- --- 16,667
----------- ----------- ------------
Total current liabilities . . . . . . . . . . . . . . . 7,533,058 5,533,511 3,440,442
----------- ----------- ------------
Noncurrent liabilities:
- ----------------------
Notes payable (Notes 13) . . . . . . . . . . . . . . . . 752,030 1,387,048 765,062
Obligations under capital leases (Note 6) . . . . . . . 319,146 58,050 101,412
Other liabilities . . . . . . . . . . . . . . . . . . . 24,248 72,248 80,556
----------- ----------- ------------
Total noncurrent liabilities . . . . . . . . . . . . . . 1,095,424 1,517,346 947,030
----------- ----------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . 8,628,482 7,050,857 4,387,472
----------- ----------- ------------
Commitments and contingencies (Notes 9 and 14) --- --- ---
Stockholders' Equity
- --------------------
Preferred stock, $.01 par value; authorized - 1,000,000
shares; issued and outstanding - none . . . . . . . --- --- ---
Common stock, $.01 par value; authorized - 20,000,000
shares; issued and outstanding - 3,398,548 and
3,366,583 and 2,560,885 shares at December 31, 1995,
March 31, 1995 and March 31, 1994, respectively . . 33,985 33,666 25,609
Additional paid-in capital (Note 18) . . . . . . . . . 8,815,094 8,758,163 6,308,793
Accumulated deficit . . . . . . . . . . . . . . . . . (4,432,045) (3,276,713) (2,830,124)
------------ ----------- ------------
Total stockholders' equity . . . . . . . . . . . . . . 4,417,034 5,515,116 3,504,278
----------- ----------- ------------
Total liabilities and stockholders' equity . . . . . . $13,045,516 $12,565,973 $ 7,891,750
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-13
<PAGE> 102
FACELIFTERS HOME SYSTEMS, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(unaudited)
Nine-month period ended For the Years Ended,
December 31, March 31,
--------------------------- -------------------------------------------
1995 1994 1995 1994 1993
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Continuing Operations:
- ---------------------
Net sales . . . . . . . . . . . . . . . . $ 39,085,328 $ 28,098,268 $ 38,764,667 $ 26,358,187 $ 20,261,267
Costs and expenses:
Cost of sales . . . . . . . . . . . . 15,181,992 10,533,147 14,837,729 9,855,821 8,305,371
Provision for plant closing (Note 20) 1,065,340 --- --- --- ---
Merger and other non-recurring
costs (Note 19) . . . . . . . . . . 800,000 --- --- --- ---
Marketing & selling (Notes 1E and 7) . 13,117,452 11,002,589 14,838,470 8,903,808 6,834,155
License fees (Note 14) . . . . . . . . 3,995,620 3,044,829 4,199,780 2,868,349 1,878,215
General and administrative . . . . . . 6,017,794 3,773,135 5,297,998 3,731,448 3,041,490
Interest . . . . . . . . . . . . . . . 160,714 85,295 138,418 60,938 41,433
------------ ------------ ------------ ------------ -------------
40,338,912 28,438,995 39,312,395 25,420,364 20,100,664
------------ ------------ ------------ ------------ -------------
Net sales less costs and expenses . . . . (1,253,584) (340,727) (547,728) 937,823 160,603
Interest and other income . . . . . . . . 222,211 166,213 211,077 177,995 61,813
------------ ------------ ------------ ------------ -------------
Income (Loss) from continuing operations
before provision for income taxes . . (1,031,373) (174,514) (336,651) 1,115,818 222,416
Provision for income taxes . . . . . . . 73,000 74,800 76,500 67,500 75,700
------------ ------------ ------------ ------------ -------------
Income (Loss) from continuing operations $ (1,104,373) $ (249,314) $ (413,151) $ 1,048,318 $ 146,716
------------ ------------ ------------ ------------ -------------
Discontinued operations:
- -----------------------
Income from tabletop division, less
applicable income tax provision . . . --- --- --- --- 76,100
Gain on disposal of tabletop division,
less $58,500 provision for income taxes --- --- --- --- 113,609
------------ ------------ ------------ ------------ -------------
Net income from discontinued operations . --- --- --- --- 189,709
------------ ------------ ------------ ------------ -------------
Extraordinary item (Note 8):
- ---------------------------
Tax benefit from loss-carryforward . . . --- --- --- --- 159,400
------------ ------------ ------------ ------------ -------------
Net income (loss) . . . . . . . . . . . . $ (1,104,373) $ (249,314) $ (413,151) $ 1,048,318 $ 495,825
============ ============ ============ ============ =============
Income (loss) per share of common and common
- --------------------------------------------
equivalent stock (Note 10)
--------------------------
From continuing operations . . . . . . $ (0.33) $ (0.08) $ (0.13) $ 0.31 $ 0.06
From discontinued operations . . . . . --- --- --- --- 0.07
From extraordinary item . . . . . . . --- --- --- --- 0.06
------------ ------------ ------------ ------------ -------------
Net income (loss) per share of common
and common equivalent stock . . . . . $ (0.33) $ (0.08) $ (0.13) $ 0.31 $ 0.19
============ ============ ============ ============ =============
Weighted average shares outstanding . . . 3,390,815 3,117,286 3,177,247 4,160,706 4,039,618
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-14
<PAGE> 103
FACELIFTERS HOME SYSTEMS, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------- -------------------
Shares Additional Accumulated Shares
(000) Amount Paid-In Capital Deficit (000) Amount Total
------- -------- --------------- ------------ ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1992 . . 2,531 $ 25,315 $ 6,126,110 $ (4,374,267) 108 $ (22,915) $ 1,754,243
ISO options exercised . . --- --- 7,560 --- (12) 120 7,680
Treasury shares issued for
professional services . --- --- 4,160 --- (4) 40 4,200
Net income . . . . . . . . --- --- --- 495,825 --- --- 495,825
------- -------- ----------- ------------ ------- --------- -----------
Balance - March 31, 1993 . . 2,531 25,315 6,137,830 (3,878,442) 92 (22,755) 2,261,948
Warrants exercised . . . . 30 294 120,937 --- --- --- 121,231
ISO options exercised . . --- --- 28,276 --- (80) 22,630 50,906
Treasury shares issued for
compensation . . . . . . --- --- 21,750 --- (12) 125 21,875
Net income . . . . . . . . --- --- --- 1,048,318 --- --- 1,048,318
------- -------- ----------- ------------ ------- --------- -----------
Balance - March 31, 1994 . . 2,561 25,609 6,308,793 (2,830,124) --- --- 3,504,278
Warrants exercised or
retired . . . . . . . . 543 5,431 2,207,472 --- --- --- 2,212,903
ISO options exercised . . 262 2,626 241,898 --- --- --- 244,524
Net loss . . . . . . . . . --- --- --- (413,151) --- --- (413,151)
Cash dividends paid . . . --- --- --- (33,438) --- --- (33,438)
------- -------- ----------- ------------ ------- --------- -----------
Balance - March 31, 1995 . . 3,366 33,666 8,758,163 (3,276,713) --- --- 5,515,116
ISO options exercised
(unaudited) . . . . . . 32 319 56,931 --- --- --- 57,250
Net loss (unaudited) . . --- --- --- (1,104,373) --- --- (1,104,373)
Cash dividends paid
(unaudited) . . . . . . . --- --- --- (50,959) --- --- (50,959)
------- -------- ----------- ------------ ------- --------- -----------
Balance - December 31, 1995
(unaudited) . . . . . . . 3,398 $ 33,985 $ 8,815,094 $ (4,432,045) --- $ --- $ 4,417,034
======= ======== =========== ============ ======= ========= ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-15
<PAGE> 104
FACELIFTERS HOME SYSTEMS, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine month period ended
December 31, For the Years Ended March 31,
------------------------ ----------------------------------------
1995 1994 1995 1994 1993
------------ --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
- ------------------------------------
Net income (loss) . . . . . . . . . . . . . . . . $ (1,104,373) $(249,314) $(413,151) $ 1,048,318 $ 495,825
Less gain on sale of Tabletop Division . . . . . --- --- --- --- (166,987)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of fixed assets 475,998 194,587 463,799 299,572 226,600
Amortization of intangibles . . . . . . . . . 261,595 79,037 110,357 89,467 77,233
Discount accretion . . . . . . . . . . . . . . --- (3,324) (1,547) (2,809) (4,327)
Straight line accrued rent . . . . . . . . . . (56,000) (6,000) (8,000) (8,000) (8,000)
Leaseholds abandoned . . . . . . . . . . . . . 437,461 --- 9,896 --- 2,500
Compensation paid in treasury stock . . . . . --- --- --- 21,875 ---
Loss on sale of securities . . . . . . . . . . --- --- --- 47,073 ---
Provision for plant closing . . . . . . . . . 146,209 --- --- --- ---
Changes in assets and liabilities:
Increase in accounts receivable . . . . . . . (391,840) (1,647,072) (1,392,978) (324,018) (139,166)
Decrease (increase) in inventories . . . . . . 114,290 (785,880) (916,253) (93,400) (39,814)
Decrease (increase) in prepaid expenses and other
current assets . . . . . . . . . . . . . . . 12,788 561,464 588,881 (236,841) (143,983)
Decrease (increase) in other assets . . . . . 461,492 26,860 (326,053) 28,079 8,460
Decrease in due from officers . . . . . . . . --- --- --- --- 45,868
Increase in accounts payable . . . . . . . . . 2,114 586,618 699,650 34,839 176,883
Increase in accrued expenses and other
current liabilities . . . . . . . . . . . . 1,569,611 427,226 934,322 141,649 362,098
Decrease in customer deposits . . . . . . . . (454,563) (213,226) (68,109) (20,684) (154,200)
Decrease in other liabilities . . . . . . . . --- (308) (308) (419) (9,071)
------------ ---------- ---------- ------------ -----------
Cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . 1,474,782 (1,029,332) (319,494) 1,024,701 729,919
------------ ---------- ---------- ------------ -----------
Cash flows from investing activities:
- ------------------------------------
Net acquisition expenditures . . . . . . . . . . --- (604,255) (604,255) --- (205,172)
Purchase of U.S. Treasury securities and marketable
equity securities . . . . . . . . . . . . . . (219,566) (2,343,026) (1,642,301) (1,580,274) (353,402)
Sale or redemption of U.S. Treasury securities . --- 1,298,172 1,299,719 1,235,377 927,237
Purchase of depreciable assets . . . . . . . . . (839,709) (471,790) (1,086,262) (836,314) (180,595)
Sale of equipment . . . . . . . . . . . . . . . . --- --- --- --- 4,277
Sale of Tabletop Division . . . . . . . . . . . . --- --- --- --- 52,667
Collection of loans to officers . . . . . . . . . --- --- --- 2,853 ---
------------ ---------- ---------- ------------ -----------
Cash (used in) provided by investing
activities . . . . . . . . . . . . . . . . . (1,059,275) (2,120,899) (2,033,099) (1,178,358) 245,012
------------ ---------- ---------- ------------ -----------
Cash flows from financing activities:
- ------------------------------------
Bank loans . . . . . . . . . . . . . . . . . . . 540,000 1,092,800 --- --- ---
Cash dividends paid . . . . . . . . . . . . . . . (50,959) (16,667) (33,438) --- ---
Net proceeds from warrants exercised or redeemed --- 2,212,903 2,212,903 6,947 ---
Stock options exercised . . . . . . . . . . . . . 57,250 211,899 244,524 50,906 11,880
Proceeds from notes payable . . . . . . . . . . . --- --- 1,615,502 --- ---
Repayment of notes due to officers . . . . . . . --- (16,667) (16,667) (79,781) (169,711)
Repayment of capital leases . . . . . . . . . . . (66,517) (44,770) (60,448) (56,512) (91,677)
Repayment of notes payable . . . . . . . . . . . (404,981) (390,714) (445,340) (72,000) (125,789)
------------ ---------- ---------- ------------ -----------
Cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . 74,793 3,048,784 3,517,036 (150,440) (375,297)
------------ ---------- ---------- ------------ -----------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . 490,300 (101,447) 1,164,443 (304,097) 599,634
Cash and cash equivalents - beginning of period . 1,721,403 556,960 556,960 861,057 261,423
------------ ---------- ---------- ------------ -----------
Cash and cash equivalents - end of period . . . . $ 2,211,703 $ 455,513 1,721,403 $ 556,960 $ 861,057
============ ========== ========== ============ ===========
Supplemental information:
- ------------------------
Interest paid . . . . . . . . . . . . . . . . $ 160,714 $ 85,295 $ 138,653 $ 60,938 $ 42,864
============ ========== ========== ============ ===========
Income taxes paid . . . . . . . . . . . . . . $ 83,556 $ --- $ 54,866 $ 4,258 $ ---
============ ========== ========== ============ ===========
</TABLE>
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Facelifters entered into capital leases on equipment for $381,753 during the
nine months ended December 31, 1995 and $246,035 in 1993.
Facelifters issued a note for $216,000 in connection with its 1993 acquisition
and accepted a $265,000 note in connection with the sale of its Tabletop
Division.
Facelifters acquired land and building in 1994 and financed $796,191 of the
purchase price with the seller.
The accompanying notes are an integral part of the
consolidated financial statements.
F-16
<PAGE> 105
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated balance sheet of Facelifters Home Systems, Inc. and
Subsidiaries ("Facelifters") as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the nine month periods ended December 31, 1995 and 1994 are unaudited.
However, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of consolidated
financial position, results of operations, and consolidated cash flows for the
unaudited periods have been made.
A. Description of business and principles of consolidation
The consolidated financial statements include the accounts of Facelifters
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. Operating results for the nine-month period ended
December 31, 1995 are not necessarily indicative of the results which may be
expected for the year ended March 31, 1996.
Facelifters' Retail Division sells and installs kitchen remodeling products
to consumers in various geographic areas throughout the United States,
primarily in the East, with a number of locations in the South and Southwest.
Facelifters' Wholesale Division sells kitchen remodeling products to
independent home improvement contractors located outside of its own retail
market areas.
B. Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method.
C. Depreciation and amortization
Depreciable assets are recorded at cost. Depreciation is provided over
useful lives of such assets using the straight-line method. Amortization of
leasehold improvements is provided using the straight-line method, over the
shorter of the term of the lease or its useful life.
Maintenance and repairs are expensed as incurred. Major renewals and
betterments are capitalized.
D. Recognition of revenue
Wholesale sales are recognized upon shipment of goods from Facelifters'
plant, with no provision for returns since selling terms prohibit returned
merchandise. For its retail operations, Facelifters recognizes revenue on the
completed contract method.
Progress payments received from customers are recorded as a liability under
"Customer Deposits" until the contracts are completed.
E. Lead acquisition costs and advertising expenses
Facelifters uses direct-response oriented media advertising, including
television, direct mail and telemarketing to identify homeowners interested in
its kitchen remodeling products and services in order to produce sales in its
Retail Division. Historically, since "sales" thus derived will not become
recorded
F-17
<PAGE> 106
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
revenues until all contracted work is completed, such lead acquisition costs
were assigned to contracts obtained and charged to expense in the period that
revenue from those contracts was recognized, which generally occurred within a
six- to twelve-week period. Accordingly, lead acquisition costs were
capitalized when incurred and expense recognition was deferred until the period
of associated contract completion. The American Institute of Certified Public
Accountants issued Statement of Position 93-7 ("SOP 93-7"), "Reporting on
Advertising Costs," which is effective for fiscal years beginning after June
15, 1994, with earlier application encouraged. SOP 93-7 requires that
Facelifters's lead acquisition costs be expensed as they are incurred.
Facelifters elected early adoption of SOP 93-7 as of the beginning of the
fiscal year ended March 31, 1995. In connection therewith, all capitalized
lead acquisition costs were expensed with the implementation of SOP 93-7, and
such lead acquisition costs will be expensed as they are incurred in the
future.
For the fiscal year ended March 31, 1995 and the nine months ended December
31, 1995 and 1994, advertising expenses, including lead acquisition costs, were
expensed as incurred. For the fiscal years ended March 31, 1994 and 1993,
advertising expenses including lead acquisition costs,were capitalized with the
expense deferred until the period of associated contract completion. Lead
acquisition costs and advertising expenses for the nine months ended December
31, 1995 and 1994 and for the fiscal years ended March 31, 1995, 1994 and 1993,
were $7,374,312 and $7,614,524 and $10,063,506, $5,109,308 and $3,728,659,
respectively.
F. Goodwill
Goodwill results from corporate acquisitions accounted for using the
purchase method of accounting and includes the excess of cost over the fair
market value of the net assets of the acquired businesses. As of December 31,
1995 and March 31, 1995, substantially all goodwill is being amortized over
periods of up to ten years. On an ongoing basis, management reviews the
valuation and amortization of goodwill. As part of this review, Facelifters
considers both the current and future levels of net income generated by the
related subsidiaries and the continuing value of intangible assets acquired to
determine whether impairment has occurred. Any write-downs of goodwill due to
impairment are charged to operations at the time that impairment is identified
by management.
During the quarter ended December 31, 1995 management decided to phase out
the Woodlor line of cabinet fronts. A write-down of approximately $155,000 was
taken for the goodwill associated with the original acquisition of the
exclusive distribution rights for the Woodlor line of cabinet fronts.
The Financial Accounting Standards Board has recently issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." SFAS 121 establishes guidance for when to recognize and
how to measure impairment losses of long-lived assets and certain identifiable
intangible assets, such as goodwill. The statement is effective for fiscal
years beginning after December 15, 1995. Facelifters does not expect the
implementation of SFAS 121 to have a material effect on Facelifters' financial
position or results of operations.
G. Cash Equivalents
For purposes of the statement of cash flows, Facelifters considers all
highly liquid debt instruments purchased with an original maturity of 90 days
or less to be cash equivalents.
F-18
<PAGE> 107
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
H. Marketable Equity Securities and U.S. Treasury Securities Available for
Sale.
In accordance with Statement of Financial Accounting Standards No. 115
("SFAS 115") "Accounting for Certain Investments in Debt and Equity
Securities", marketable equity securities and U.S. Treasury securities
available for sale are carried at fair value (market value), inclusive of
unrealized gains and/or losses, and net of discount accretion and premium
amortization computed using the level yield method. Any net unrealized gains
and losses will be reflected as a separate component to stockholders' equity,
net of applicable deferred taxes. Gains and losses on the sale of securities
are recognized using the specific identification method.
Securities are designated for the available for sale portfolio at the time
of purchase.
Prior to Facelifters' adoption of SFAS 115, effective April 1, 1994,
marketable equity securities were carried at the lower of cost or market value,
determined in the aggregate. Any net unrealized losses would have been
recognized in a valuation allowance and a corresponding separate component to
stockholders' equity.
I. Reclassifications
Certain balances in the fiscal year 1993, 1994 and 1995, and nine months
ended December 31, 1994 consolidated financial statements have been
reclassified to conform with the nine months ended December 31, 1995
presentation.
NOTE 2 - ACQUISITIONS AND DIVESTITURE:
Effective April 1, 1992, Facelifters purchased substantially all of the
assets of Saduco Industries, Inc. for a $338,172 note payable, of which
$72,000 and $144,000 was unpaid at March 31, 1994 and 1993, respectively. The
note was paid in full during the 1995 fiscal year. Saduco Industries was an
exclusive distributor of Woodlor brand cabinet doors and drawer fronts
manufactured by Jasper Plastics, a division of Kimball International. Assets,
principally inventories, totaling $39,952 were acquired. Of the excess costs,
$50,000 represents a non-compete agreement which was being amortized over its
five-year life and $248,220 represents goodwill under the purchase method which
was being amortized over ten years. Since this was an acquisition of a supplier
of materials to Facelifters, it was integrated into the operations of
Facelifters without retaining any separate identity. During the quarter ended
December 31, 1995, Facelifters determined to discontinue and phase out the
Woodlor brand product line. Accordingly, Facelifters incurred approximately
$240,000 in expenses relating to the discontinuance of the Woodlor brand
product line in the quarter ended December 31, 1995, representing $85,000 of
inventory obsolescence reserves and $155,000 to write-off the goodwill and the
non-compete agreement associated with the Saduco Industries acquisition.
On March 31, 1993, Facelifters sold its Tabletop Division to FCD Tabletops,
Inc. for $412,783 which included a $265,000 five year note receivable due in
equal monthly installments. The sale included the existing customer base,
distribution network, machinery and inventories attributable to this segment of
Facelifters business, but excluded existing accounts receivables. After
deducting $150,680 book value of assets sold and related selling expenses, a
nonrecurring pretax gain of $166,987 was recorded from the sale. Another
$10,000 representing a one-year consulting contract was deferred and taken into
income
F-19
<PAGE> 108
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
over the 12 months ended March 31, 1994. The contract of sale also provides for
possible future revenues to Facelifters equal to 10% of those annual sales
through March 31, 1998 which exceed an agreed base amount determined by
historical sales levels and future anticipated growth. No such amounts were due
to Facelifters at March 31, 1995. The principal balance due on the note
receivable was $145,663, $175,262 and $223,979 at December 31, 1995, March 31,
1995 and March 31, 1994, respectively.
FCD Tabletops, Inc. sub-leased office and production space and
certain services, within Facelifters' Brooklyn plant for 12 months at $9,387
per month. This lease was not renewed at March 31, 1994.
Effective September 2, 1994, Facelifters purchased substantially all
of the assets of Cabinet Masters of Southern California, Inc. and placed them
in a separate wholly-owned subsidiary, Facelifters West, Inc. CMSC had been in
the kitchen cabinet refacing business in southern California since 1977. The
total cost of the acquisition was approximately $604,000 of which approximately
$67,000 was assigned to specific tangible assets. The remaining goodwill of
approximately $537,000 is being amortized over its estimated economic life of
10 years.
Prior to the acquisition, CMSC had begun to sell, furnish and install
kitchen cabinet refacing in southern California for HomeBase, a chain of home
improvement warehouses in that market. A license agreement required a fee to
be paid on all sales made to customers generated through HomeBase stores or
obtained through marketing under the HomeBase name. In January, 1995,
Facelifters determined that it was not in its best interests to continue the
license arrangement with HomeBase and gave notice to terminate the license
effective March 1, 1995. Facelifters continues to operate in this region under
the Facelifters name.
NOTE 3 - PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
(unaudited)
December 31, March 31,
-------------- ---------------------------- Estimated
1995 1995 1994 Life in Years
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Property and equipment at cost
Land . . . . . . . . . . . . . . . . $ 50,000 $ 50,000 $ 50,000 ---
Buildings . . . . . . . . . . . . . . 1,345,365 1,082,012 892,758 39
Machinery and equipment . . . . . . . 1,432,053 1,229,542 803,521 5
Furniture and office equipment . . . . 2,091,498 1,589,034 1,226,899 3-10
Leasehold improvements . . . . . . . . 26,199 991,574 1,000,035 3-15
Vehicles . . . . . . . . . . . . . . . 140,744 149,005 141,196 3-5
-------------- ------------ ------------
5,085,859 5,091,167 4,114,409
Less:
Accumulated depreciation and
amortization . . . . . . . . . . . 1,549,458 1,927,768 1,591,813
Reserve for abandonment . . . . . . 145,000 --- ---
-------------- ------------ ------------
$ 3,391,401 $ 3,163,399 $ 2,522,596
============== ============ ============
</TABLE>
F-20
<PAGE> 109
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
Depreciation and amortization expense of $463,799, $299,572 and
$226,600 was recorded for the years ended March 31, 1995, 1994 and 1993,
respectively, and $475,998 and $194,587 for the nine months ended December 31,
1995 and 1994, respectively.
NOTE 4 - INVENTORIES:
Inventories at December 31, 1995, March 31, 1995, and March 31, 1994
are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
------------ -----------------------------
1995 1995 1994
---------- ------------ -----------
<S> <C> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . 739,817 924,631 486,548
Work in progress . . . . . . . . . . . . . . . . 802,001 729,334 251,694
Finished goods . . . . . . . . . . . . . . . . . 54,229 56,372 39,842
---------- ------------ -----------
$1,596,047 $ 1,710,337 $ 778,084
========== ============ ===========
</TABLE>
NOTE 5 - RELATED PARTY TRANSACTIONS:
The following summarizes transactions between Facelifters and its
executive officers:
A. Facelifters leases its Brooklyn, New York facility from the
Chief Executive Officer and Chairman of the Board, Mark Honigsfeld, under a
15-year lease executed April 1, 1987. The lease currently provides for a base
monthly rental of $20,480 with an escalation for any month in which the prime
lending rate exceeds 9 1/2%. Beginning April 1, 1995, the base rent is subject
to a 2% increase. Facelifters had also agreed to pay $4,493 per month through
June 30, 1994 to Mr. Honigsfeld for certain leasehold improvements he provided.
Facelifters has initiated a plan to phase-out its manufacturing
operations at the Brooklyn facility now that its new Virginia plant is equipped
and staffed to accommodate the expanded capacity. In connection with the
phase out of its manufacturing operations at the Brooklyn facility, Facelifters
and Mr. Honigsfeld have reached an agreement in principle pursuant to which
Facelifters paid Mr. Honigsfeld $525,000 to terminate the Brooklyn facility
lease in lieu of Facelifters making the remaining payments due under the lease
after April 1, 1996, which total approximately $1,580,000.
See Note 20 for additional information relative to the closing of the Brooklyn
plant.
To provide for an orderly transition of its phase-out plan,
Facelifters executed a new one-year lease with Mr. Honigsfeld, commencing with
Facelifters' new fiscal year beginning April 1, 1996, with rents of $18,000
per month for six months and $7,500 per month for the final six months.
B. At the beginning of fiscal year 1992, Facelifters was indebted
to Mr. Honigsfeld for $360,221. During that year, he advanced Facelifters an
additional $84,036 and Facelifters repaid him $322,107 which included $200,000
from the proceeds of the August 1991 additional public offering. At March 31,
1992, Mr. Honigsfeld held a note from Facelifters dated August 14, 1991 in the
original principal amount of $200,000 payable approximately $5,555 per month
for 36 months plus interest at 2% over prime, with an unpaid principal balance
of $161,111.
F-21
<PAGE> 110
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
During fiscal years 1995, 1994, and 1993, there were no new advances
to Facelifters by Mr. Honigsfeld and at March 31, 1995, his note was paid in
full. The note was collateralized by a blanket security interest in all of the
parent corporation's otherwise unencumbered assets.
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES AND INSTALLMENT DEBT:
At December 31, 1995, March 31, 1995 and March 31, 1994, obligations
under capital leases consisted of capitalized leases for machinery and
equipment and furniture, office and computer equipment due to various lenders,
payable in equal monthly installments aggregating $11,484, $6,937 and $6,940
respectively, including interest, ranging from 9% to 19% per annum. The leases
generally contain a bargain purchase option payable at the end of the lease.
The leases mature at various dates between January, 1996 and August, 2001, and
are collateralized by assets under leases having a net book value of $424,815,
$123,014 and $172,220 at December 31, 1995, March 31, 1995 and March 31, 1994,
respectively.
Future minimum lease payments under the capital leases, together with
the present value of the net minimum lease payments at December 31, 1995 and
March 31, 1995, are as follows:
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1995
----------------- --------------
(unaudited)
<S> <C> <C>
FY 1996 $ 34,451 $ 56,631
FY 1997 137,806 41,321
FY 1998 116,631 23,590
FY 1999 96,484 ---
FY 2000-2001 128,827 ---
------------ ------------
Total minimum lease payments 514,199 121,542
Less: amount representing interest (95,823) (18,402)
------------ ------------
Present value of minimum lease payments 418,376 103,140
Less: current portion (99,230) (45,090)
------------ ------------
Noncurrent portion $ 319,146 $ 58,050
============ ============
</TABLE>
Depreciation of $78,235 and $36,905 and $49,206, $49,206 and $64,462 was
recognized on the assets securing capital leases during the nine months ended
December 31, 1995 and 1994 and the years ended March 31, 1995, 1994 and 1993,
respectively.
NOTE 7 - MARKETING AND SELLING COSTS
The major portion of marketing and selling costs relate to those
marketing activities undertaken to acquire new retail contracts. For the years
ended March 31, 1994 and 1993, these lead acquisition costs were deferred and
not expensed until the related contracts were completed and recorded as
revenue.
For the year ended March 31, 1995, Facelifters adopted the American
Institute of Certified Public Accountants "Statement of Position" 93-7 which
relates to accounting for advertising. Adoption of this SOP requires that
Facelifters' lead acquisition costs be expensed as incurred. As a result,
$1,851,712 (the acquisition costs of the backlog of contracts held but not yet
complete at March 31, 1995) was recorded as additional marketing expense in
1995. The change in accounting had the effect of reducing net income for the
year ended March 31, 1995 and the nine months ended December 31, 1994 by
$1,851,712 or $0.54 per share and $1,682,081 or $0.49 per share, respectively.
F-22
<PAGE> 111
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE 8 - INCOME TAXES:
Effective April 1, 1993, Facelifters adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
temporary difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The adoption of SFAS No. 109 had no
material impact on the consolidated financial statements.
For years ended prior to March 31, 1994, Facelifters accounted for
income taxes in accordance with Accounting Principles Board Opinion No. 11.
Facelifters provided for income taxes on transactions in the period they
entered into the determination of net income irrespective of when they were
recognized for income tax purposes. In the statement of operations, applicable
income taxes were deducted from operating income; any tax benefit resulting
from a net operating loss carryforward was shown as an extraordinary item in
the period in which it was realized.
As of December 31, 1995 and March 31, 1995, Facelifters has a net
operating loss carryforward of approximately $3,470,000 and $2,700,000,
respectively, for income tax purposes. Such net loss carryforwards expire in
various years through the year 2007. Facelifters' issuance of stock and
warrants in August, 1991 resulted in a change in ownership as defined in
Section 382 of the Internal Revenue Code. Accordingly, Facelifters' ability to
utilize approximately $2,136,000 of the loss carryforward is subject to an
estimated annual limitation of $400,000. Facelifters also has unused job
credits of approximately $31,000.
Since all Federal income taxes which would otherwise apply to
Facelifters' net income for the periods included in the Statements of
Operations are offset by available net operating loss carryforwards, the only
tax expense recognized in the operating statements for those periods relates to
state and local income taxes in those jurisdictions where no net operating loss
carryforwards exist or where such carryforwards do not completely offset the
tax liability.
The components of the net deferred tax asset (liability) at December
31, 1995 and March 31, 1995 and 1994, were:
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1995 March 31, 1994
----------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
Loss carryforwards $1,214,000 $ 921,000 $ 1,207,000
Tax credit carryforwards 31,000 31,000 31,000
Deferred inventory reserve 45,000 22,000 27,200
Deferred goodwill amortization 54,000 47,000 ---
Other deferred expenses 211,000 20,000 (324,533)
---------- ----------- -----------
Net total 1,555,000 1,041,000 940,667
Less valuation allowance (1,555,000) (1,041,000) (940,667)
---------- ----------- -----------
Net deferred tax asset (liability) $ --- $ --- $ ---
========== =========== ===========
</TABLE>
SFAS No. 109 requires a valuation allowance against the net deferred tax
assets if, based on the weight of available evidence, it is more likely than
not that some or all of the net deferred tax assets may not be realized. The
valuation allowances at December 31, 1995 and March 31, 1995 and 1994,
primarily pertain to uncertainties with respect to future utilization of net
operating loss carryforwards. The
F-23
<PAGE> 112
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
valuation allowance for net deferred tax assets increased by approximately
$514,000 for the nine months ended December 31, 1995 and $100,000 for the year
ended March 31, 1995.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
A. Employment agreements
As of October 1, 1993 Facelifters entered into employment agreements (the
"1993 Employment Agreements") with Facelifters' two key executive officers
which are in effect for a period of three years from the date of execution, and
are automatically extended one additional year upon the anniversary date so
that the unexpired term of the agreements as of the anniversary date shall
always be three years unless either party thereto notifies the other in writing
that such party does not desire to so extend the term of the agreements. The
base salary to be received by Messrs. Mark Honigsfeld, Facelifters' Chairman of
the Board and Chief Executive Officer, and Murray Gross, Facelifters' President
and Chief Operating Officer, is $218,400 and $188,500, respectively. Under the
terms of the 1993 Employment Agreements, the base salary is to be adjusted
upwards annually based upon the greater of either; (i) reported cost of living
increases, (ii) a graduated formula ranging between 0 and 20% based on
Facelifters' growth in annual net sales or (iii) Facelifters' net profits
before income taxes and executive bonuses. Messrs. Mark Honigsfeld and Murray
Gross will each earn bonuses under the 1993 Employment Agreements which
commenced April 1, 1993 as follows: 5% of Facelifters' Earnings Before Taxes
and Executive Bonuses ("EBTEB") when Facelifters earns more than $250,000 but
less than $500,000; 6% of Facelifters' EBTEB when Facelifters earns more than
$500,000 but less than $1,000,000; 7 1/2% of Facelifters's EBTEB when
Facelifters earns $1,000,000 or more but less than $1,500,000 and 10% of
Facelifters' EBTEB when Facelifters earns $1,500,000 or more. The agreements
provide a provision which protects these bonuses against unusual losses
Facelifters may incur as a result of start-up costs for a new business entity
or for non-cash losses as a result of an accounting change or other non
recurring type losses. All decisions on executive compensation and bonuses
are reviewed by and subject to the approval of the Executive Compensation
Committee which includes two outside directors of Facelifters and by the full
board of directors. Should Facelifters undergo a change of control, Messrs.
Mark Honigsfeld and Murray Gross shall be entitled to receive all benefits to
which they are entitled under the unexpired portion of the agreements. For the
fiscal year ended March 31, 1995, Messrs. Mark Honigsfeld and Murray Gross
voluntarily forgave 58% or $278,371 of their bonuses to which they were
entitled under the terms of their employment agreements.
For the years ended March 31, 1995 and 1994, $200,000 and $265,251,
respectively, was earned for bonuses under existing employment agreements.
During the nine months ended December 31, 1995 and 1994, $200,000 and
$376,875, respectively, was accrued for bonuses under existing employment
agreements.
B. Operating leases
Facelifters leases its main facilities from Facelifters' Chief Executive
Officer under the terms set forth in Note 5. Facelifters also leases
office/warehouse facilities in several locations throughout the country.
F-24
<PAGE> 113
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
Future minimum rents to be paid under the leases at March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
March 31, 1995
--------------
<S> <C>
FY 1996 $ 986,039
FY 1997 942,813
FY 1998 755,887
FY 1999 508,369
FY 2000 442,905
FY 2001-2002 701,707
----------
$4,337,720
==========
</TABLE>
Rent expense of $903,430 and $788,393 and $812,053, $705,238 and
$577,348 was charged to operations for the nine months ended December 31, 1995
and 1994 and for the years ended March 31, 1995, 1994 and 1993, respectively.
During the nine months ended December 31, 1995, Facelifters leased
offices in Fort Lauderdale, Florida and Providence, Rhode Island. The lease
terms were three years at an average annual rental of $18,636 for the Fort
Lauderdale lease and five years at an average annual rental of $36,021 for the
Providence lease.
C. Equipment purchase/financing commitments
Facelifters has an outstanding commitment for the purchase of
approximately $500,000 of furniture, fixtures and equipment and, subsequent to
March 31, 1995, has received a commitment for a $500,000 line of credit to
finance the purchase of such assets.
During the nine months ended December 31, 1995, Facelifters entered
into capital leases on equipment and utilized $381,753 of the outstanding
commitment.
D. Legal Proceedings
In the ordinary course of business, Facelifters is involved in legal
proceedings, none of which, in the opinion of management, will materially
affect Facelifters's financial position or results of operations.
NOTE 10 - INCOME (LOSS) PER SHARE OF COMMON STOCK:
For the year ended March 31, 1995, loss per share of common and common
equivalent stock was computed using weighted average shares outstanding of
3,177,247.
For 1994 and 1993, income per share of common and common equivalent
stock was adjusted, using the modified treasury stock method, for interest
expense eliminated and interest income earned on the assumed proceeds from the
exercise of common stock equivalents in excess of 20% of Facelifters'
outstanding common stock. The weighted average number of shares used in the
computation of income per share was 4,160,706 and 4,039,618 shares in 1994 and
1993, respectively.
For the nine month periods ended December 31, 1995 and 1994,
respectively, loss per share of common and common equivalent stock was
calculated based on the weighted average number of shares outstanding, since
the treasury stock method was anti-dilutive. The weighted average number of
shares used in the computation of loss per share was 3,390,815 and 3,117,286
respectively.
F-25
<PAGE> 114
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE 11 - STOCK OPTION PLANS:
Facelifters has instituted five stock option plans, the first in
fiscal 1986 (the "1985 Option Plan") reserving 31,250 shares of common stock,
the second in fiscal 1990 (the "1989 Option Plan") reserving 500,000 shares of
common stock, the third in fiscal year 1993 (the "1993 Stock Compensation
Plan") reserving 300,000 shares of common stock, the fourth (the "Outside
Directors Option Plan") reserving 100,000 shares of common stock and the fifth
(the "Qualified Employee Stock Purchase Plan") reserving 250,000 shares of
common stock. During fiscal 1995, an additional 300,000 shares were reserved
for the 1993 stock compensation plan.
The stock option plans provide for an option price to be determined
when an option is granted, but not less than 110% of its market value for
options granted to individuals holding more than 10% of the combined voting
power of all classes of Company stock, or 100% of its market value for all
other individuals. The term of each option shall not be more than 5 years for
those individuals owning more than 10% of the combined voting power, nor more
than 10 years for all others.
The following table summarizes options granted and/or exercised during
the years ended March 31, 1993, 1994 and 1995. At March 31, 1993, 1994 and
1995, 324,000, 498,209 and 313,625 options, respectively, were eligible for
exercise under the terms of the various option plans.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7) (8) (9)
$4.56- $6.50-
-------- ------
$8.00 $2.16 $.64 $.704 $1.75 $2.75 $3.02 $5.02 $7.50 TOTAL
------ -------- -------- -------- -------- -------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding 3/31/92 . . 4,375 24,750 173,125 137,500 339,750
Granted . . . . . . . . 182,500 182,500
Exercised . . . . . . . (12,000) (12,000)
Canceled . . . . . . . (5,000) (5,000)
------ -------- -------- -------- -------- --------
Outstanding 3/31/93 . . 4,375 24,750 156,125 137,500 182,500 505,250
Previously reported
as canceled in error 1,250 1,250
Granted . . . . . . . . 37,500 37,500 71,000 7,000 153,000
Exercised . . . . . . . (79,541) (79,541)
Canceled . . . . . . . (3,750) (3,750)
------ -------- -------- -------- -------- -------- ------ -------- ------ --------
OUTSTANDING 3/31/94 . . 625 24,750 77,834 137,500 182,500 37,500 37,500 71,000 7,000 576,209
Granted . . . . . . . . 100,000 80,400 180,400
Exercised . . . . . . . (24,750) (65,334) (137,500) (35,000) (262,584)
Canceled . . . . . . . (1,800) (2,200) (4,000)
------ -------- -------- -------- -------- -------- ------ -------- ------ --------
OUTSTANDING 3/31/95 . . 625 -- 12,500 -- 147,500 37,500 37,500 169,200 85,200 490,025
====== ======== ======== ======== ======== ======== ====== ======== ====== ========
</TABLE>
- -------------------------
(1) Expire 7/23/1996 - 1985 Option Plan
(2) Expire 5/18/1997 - 1985 Option Plan
(3) Expire 1/11/2000 - 1989 Option Plan
(4) Expire 1/11/1995 - 1989 Option Plan
(5) Expire 10/5/2002 - 1989 Option Plan (except 2,000 from 1985 Option Plan)
(6) Expire 3/31/2003 - 1993 Stock Compensation Plan
(7) Expire 3/31/1998 - 1993 Stock Compensation Plan
(8) 6,000 from 1993 Stock Compensation Plan expire 7/1/2003;
5,000 from Outside Directors Option Plan expire 9/9/2003
50,000 from 1993 Stock Compensation Plan expire 6/22/2004
50,000 from 1993 Stock Compensation Plan expire 6/22/1999
(9) 7,000 from 1993 Stock Compensation Plan expire 2/1/2004
5,500 from 1993 Stock Compensation Plan expire 9/16/2004
46,500 from 1993 Stock Compensation Plan expire 8/24/2004
5,000 from Outside Directors Option Plan expire 9/12/2004
23,400 from 1993 Stock Compensation Plan expire 2/1/2005
During the nine months ended December 31, 1995, Facelifters granted the
following options under its 1993 Stock Compensation Plan: 35,000 shares at
$7.00 per share; 35,000 shares at $6.38 per share; and 7,500 shares at $7.25
per share. Facelifters also granted 5,000 shares at $7.25 per share under its
Outside
F-26
<PAGE> 115
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
Directors Option Plan. During this period, 9,000 shares at $5.00 per share
were cancelled from the 1993 Stock Compensation Plan.
During the nine months ended December 31, 1995, 17,500 shares at $1.75 per
share and 12,500 shares at $.64 per share previously granted under the 1989
Stock Option Plan and 1,965 shares at $5.00 previously granted under the 1993
Stock Compensation Plan were exercised.
NOTE 12 - DISCONTINUED OPERATIONS:
In March 1993, Facelifters sold all of its assets (except accounts
receivable) attributable to its Tabletop Division to FCD Tabletops Inc. Sales
of $1,131,442, for the fiscal year ended March 31, 1993, are not included in
the statement of operations; the net income from this business segment is
included as Discontinued Operations.
NOTE 13 - NOTES PAYABLE:
The following liability for notes payable existed at December 31,
1995, March 31, 1995 and March 31, 1994:
<TABLE>
<CAPTION>
(unaudited)
December 31, March 31, March 31,
------------- ----------- -----------
1995 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Acquisition of Saduco Industries;
3 years @ 8% payable $6,000 monthly plus interest . . . . . $ --- $ --- $ 72,000
Lease/Purchase of land and building in Charles City County, Va.;
15 years @ 7% payable $7,156 monthly including interest . . 787,409 762,369 796,191
Purchase of machinery and equipment:
5 years @ 8.2% payable $10,411 monthly
including interest . . . . . . . . . . . . . . . . . . . 288,501 725,984 ---
7 years @ 6% payable $3,798 monthly including interest . . . 277,462 --- ---
Revolving line of credit - $1,000,000 limit at December 31,
1995 and $2,000,000 limit at March 31, 1995 and 1994
- European American Bank @ 10% interest . . . . . . . . . 870,000 550,000 ---
------------- ----------- -----------
Total notes payable . . . . . . . . . . . . . . . . . . . 2,223,372 2,038,353 868,191
Less portion due within one year . . . . . . . . . . . . . . (1,471,342) (651,305) (103,129)
------------- ----------- -----------
Long term notes payable . . . . . . . . . . . . . . . . . $ 752,030 $ 1,387,048 $ 765,062
============= =========== ===========
</TABLE>
Future principal payments on these obligations as of December 31, 1995
and March 31, 1995 are as follows:
<TABLE>
<CAPTION>
(unaudited)
December 31, 1995 March 31, 1995
----------------- --------------
<S> <C> <C> <C>
FY 1996 $ 1,444,577 $ 651,305
FY 1997 36,002 109,688
FY 1998 38,604 118,565
FY 1999 41,395 128,165
FY 2000 44,387 462,223
FY 2001 - 2009 618,407 568,407
----------- ------------
$ 2,223,372 $ 2,038,353
=========== ============
</TABLE>
F-27
<PAGE> 116
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
The note payable to Saduco Industries was unsecured. The note payable to
European American Bank is collateralized by Facelifters' accounts receivable
and inventory. The indebtedness to the County of Charles City, Va. is
collateralized by 7.55 acres of land improved with a 70,000 sq. ft. building,
having a net book value of approximately $1,337,000 at December 31, 1995 and
$892,000 at March 31, 1995. The equipment loan is payable to Central Fidelity
Bank of Richmond, Virginia, and the Industrial Development Authority of Charles
City, Virginia, and is collateralized by machinery and equipment, having a net
book value of approximately $600,000 at December 31, 1995 and $689,000 at March
31, 1995. The bank loans each require compliance with certain financial
covenants.
As a result of the effect of adopting SOP 93-7, Facelifters was not in
compliance with certain financial covenants relating to the loans with European
American Bank and Central Fidelity Bank, at March 31, 1995 and December 31,
1995.
Facelifters received a waiver, until March 31, 1996, from Central Fidelity
Bank for the instances of noncompliance that existed at December 31, 1995.
Since the waiver does not extend for at least one year beyond December 31,
1995, the entire debt has been classified as current at December 31, 1995.
European American Bank has not issued a waiver to Facelifters for the
instances of noncompliance that existed at December 31, 1995 and has informed
Facelifters that in the event the Merger is consummated, the loan will be
called on that date. This debt is classified as a current liability at March
31, 1995 and December 31, 1995.
NOTE 14 - FACELIFTERS SEARS LICENSE AGREEMENT:
Prior to December 31, 1995, Facelifters conducted direct consumer marketing
of its products in twenty of twenty-four sales locations under the Facelifters
Sears License Agreement. The Facelifters Sears License Agreement covered
specific territories and gave Facelifters the right to market and install
kitchen cabinet refacing and countertops under the Sears brand name in those
territories. During the term of the Facelifters Sears License Agreement,
Facelifters could not sell or install similar products in those territories
under any other retailer's name without Sears written consent. The Facelifters
Sears License Agreement was renewable annually and could be terminated by
either Facelifters or Sears, without cause, upon six months written notice.
The Facelifters Sears License Agreement provided for license fees to Sears,
equal to 15% of Facelifters's contract revenues from sales in the licensed
territories. The Facelifters Sears License Agreement also provided for an
additional fee of 1% of the sales price for each sale made pursuant to a
customer referral from Sears, which Sears remitted to the Sears salesperson who
originated the customer referral. Retail installed sales procured in
territories outside of the Sears licensed market areas and any of Facelifters'
wholesale sales were not subject to Sears license fees. As of September 1,
1992 and through February 28, 1993 Sears license fees were reduced from 15% to
8%. This temporary reduction in license fees was given to Sears licensees to
help defray certain costs associated with Sears' new selling policy which was
implemented on November 1, 1992. The new selling policy required the
elimination of negotiated sales practices and requires Sears licensees to sell
its products and services under a fixed pricing program.
As of June 1, 1993 license fees to Sears were reduced from 15% to 13%.
Management of Facelifters believes that this reduction in license fees was
attributable to Sears' decision to provide licensees with an incentive to
strive for higher sales volume. New markets under the Sears license which were
granted in 1994 carried a 10.5% license fee through March 31, 1995. Licenses
for Small Market Multiple Products territories carry a 10% fee.
F-28
<PAGE> 117
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
The license agreements gave Sears the right to settle, at Facelifters's
expense and without its consent, any warranty claims against Sears by
Facelifters's customers. The license arrangement also required Facelifters to
maintain a warranty fund account in a commercial bank which at March 31, 1995
totaled $21,439 (included in Other Assets in the Consolidated Balance Sheet).
These funds were intended to be used for unresolved customer service complaints
between Facelifters and Sears. Sears had the right to withdraw funds from this
account to cover any claims against Sears by customers of Facelifters if not
remedied by Facelifters. Sears had neither settled any warranty claims without
Facelifters's consent nor ever withdrew any funds from Facelifters's warranty
fund account.
The Facelifters Sears License Agreement was not renewed when it expired on
December 31, 1995. (See Note 19.)
From September 2, 1994 to March 1, 1995, Facelifters held a license
agreement with HomeBase (See Note 2) in Southern California to receive leads
generated by HomeBase stores. The license provided for a 12% fee to be paid to
Home Base for all sales resulting from the use of its name. These fees totaled
$105,718 through March 31, 1995. Facelifters elected to terminate the license
effective March 1, 1995.
NOTE 15 - PREPAID EXPENSES AND OTHER CURRENT ASSETS/ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES:
Prepaid expenses and other current assets at December 31, 1995, March 31,
1995 and March 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
(unaudited)
December 31, March 31,
------------ ----------------------------
1995 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Prepaid lead costs (Note 7) $ --- $ --- $1,091,908
Prepaid commissions 408,648 779,396 204,622
Other current assets 555,570 197,610 269,357
----------- ----------- ----------
$ 964,218 $ 977,006 $1,565,887
=========== =========== ==========
</TABLE>
Accrued expenses and other current liabilities at December 31, 1995, March 31,
1995 and March 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
(unaudited)
December 31, March 31,
------------ ----------------------------
1995 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Accrued payroll and payroll taxes . . . . . . . . . . . . . $ 644,384 $ 305,902 $ 320,780
Accrued worker's compensation premiums . . . . . . . . . . --- 58,110 ---
Accrued professional fees . . . . . . . . . . . . . . . . . 461,738 63,000 46,000
Accrued commissions . . . . . . . . . . . . . . . . . . . . 175,876 214,065 92,701
Accrued state income and other taxes . . . . . . . . . . . 125,564 115,748 89,283
Accrued Sears fees . . . . . . . . . . . . . . . . . . . . 1,499,710 799,931 278,605
Accrued unemployment taxes . . . . . . . . . . . . . . . . 27,889 94,152 65,670
Accrued executive bonuses . . . . . . . . . . . . . . . . . 200,000 200,000 164,900
Accrued employee benefits . . . . . . . . . . . . . . . . . 205,050 --- ---
Other accrued expenses . . . . . . . . . . . . . . . . . . 314,282 225,766 71,630
----------- ----------- ----------
$ 3,654,493 $ 2,076,674 $1,129,569
=========== =========== ==========
</TABLE>
F-29
<PAGE> 118
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE 16 - SEGMENTS:
Prior to March 31, 1993 Facelifters operated in two principal business
segments: kitchen remodeling products and services, and the manufacture of
restaurant tabletops. The entire tabletops segment was sold on March 31, 1993.
NOTE 17 - OTHER ASSETS:
Included in other assets at December 31, 1995 was $153,383 of security
deposits for office leases or utilities and $46,703 in down payments made with
orders to acquire new equipment. At March 31, 1995, and 1994, respectively,
these amounts were $149,214 and $25,816 for security deposits and $395,766 and
$0 for down payments.
NOTE 18 - WARRANTS:
As a part of a public offering in August 1991, Facelifters issued 1,236,250
warrants entitling the holder to purchase one share of its common stock for
each warrant at $4.12 per share from August 6, 1992 to August 6, 1993 and at
$5.50 per share thereafter until their expiration on August 6, 1994. These
warrants were callable by Facelifters under certain conditions.
Additionally, in August 1991, Facelifters issued warrants to the
underwriter of the public offering for 115,000 units at $3.30 per unit. Each
unit consisted of one share of common stock and one warrant identical to those
described above.
In October 1992, Facelifters issued private warrants to a NASD firm engaged
in stock brokerage and financial consulting, giving the holder the right to
purchase 100,000 shares of Facelifters' common stock at prices ranging from
$2.25 to $4.00 per share, depending on the number of shares purchased. The
warrants were exercisable for a period of three years. In January 1993,
Facelifters issued warrants under the same terms and conditions, for the
purchase of 25,000 shares of its common stock, to a firm engaged in financial
public relations.
In March 1994, Facelifters filed a registration statement on Form S-1 with
the Securities and Exchange Commission to register (i) 1,206,825 shares
underlying outstanding publicly-held warrants; (ii) 29,425 shares issued August
12, 1993 upon exercise of publicly-held warrants; (iii) 125,000 shares
underlying private warrants, and (iv) 230,000 shares underlying underwriters
warrants. The cost of this registration was $148,014, which was charged
against additional paid-in capital.
In April 1994, all 125,000 private warrants were exercised for a total of
$365,000 and all 115,000 of the underwriter warrants were exercised for
$379,500. In May, 1994, Facelifters called for redemption of the 1,321,825
then outstanding public warrants. A total of 303,114 warrants were exercised
for $1,667,127 and another 1,014,201 warrants were redeemed by Facelifters at
$.05 each or $50,710. The remaining 4,510 warrants can be redeemed at $.05
each until May 12, 1996.
As a result of all the foregoing transactions, Facelifters' stockholders'
equity was increased $2,212,903.
F-30
<PAGE> 119
FACELIFTERS HOME SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1994, AND 1993, AND
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
NOTE 19 - MERGER (UNAUDITED)
On November 1, 1995, Facelifters announced that it had entered into a
merger agreement ("Merger" with AMRE, Inc. ("AMRE"). Subject to stockholder
and regulatory approvals, the Merger is expected to be consummated in the first
half of 1996.
Facelifters notified Sears of its intention to not renew its license
agreement upon expiration on December 31, 1995. In connection with the
transactions contemplated by the Merger, Facelifters entered into a three-year,
non-cancelable sublicense agreement with American Remodeling, Inc., a wholly
owned subsidiary of AMRE, commencing January 1, 1996, to operate under the name
"CENTURY 21 Home Improvements" for the marketing, sale and installation of
certain home improvement products. The sublicense agreement is exclusive for
all geographic markets where Facelifters was previously operating under the
Facelifters Sears License Agreement except in geographic areas where both
Facelifters and American Remodeling, Inc. conducted operations. Facelifters
operated under the Facelifters Sears License Agreement in all except five of
its 26 geographic markets. Effective January 1, 1996, Facelifters began
marketing its products and services under the sublicense agreement. The
license fee under such sublicense agreement is not to exceed 8% of revenues and
is subject to certain rebates. Facelifters competes with AMRE in five of these
26 geographic markets. If the Merger is consummated this sublicense agreement
is to be terminated shortly thereafter.
Facelifters incurred additional non-recurring costs of approximately
$500,000 in the fiscal quarter ended December 31, 1995 in connection with the
Merger and approximately $300,000 in expenses in connection with the change
from the Sears brand name to the CENTURY 21 Home Improvements name, including
$100,000 of expenses in connection with the closing of two sales/installation
locations as discussed below.
In December 1995, Facelifters determined to close two sales/installation
locations due to management's belief that these two markets will not perform
well under the CENTURY 21 Home Improvements name. These locations represented
less than 2% of Facelifters' historical sales.
NOTE 20 - PROVISION FOR PLANT CLOSING (UNAUDITED)
In September 1995, Facelifters decided to phase-out its Brooklyn plant and
consolidate all manufacturing at the Virginia facility. Accordingly, it
recorded a $1,065,340 provision in September, 1995 to cover expected costs
associated with the plant closing. These costs include buy-out of the lease
($525,000), abandonment of leasehold improvements ($437,000), impairment in the
values of redundant machinery and fixtures and other costs directly related to
the plant closing ($103,340).
F-31
<PAGE> 120
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
present the Congressional Merger and the Facelifters Merger. The statements
are presented assuming the Congressional Merger and the Facelifters Merger will
be accounted for as poolings of interests.
The unaudited pro forma condensed combined balance sheet reflects the
combined historical consolidated balance sheets of AMRE, Congressional and
Facelifters as of December 31, 1995. The unaudited pro forma condensed
combined statements of operations are based on the consolidated financial
statements of AMRE for the fiscal years ended December 31, 1995, 1994 and 1993;
and the financial statements of Congressional for the years ended December 31,
1995 and 1994, the nine months ended December 31, 1993, and the fiscal year
ended March 31, 1993; the consolidated financial statements of Facelifters for
the nine months ended December 31, 1995 and 1994 and the fiscal years ended
March 31, 1995, 1994 and 1993. The consolidated financial statements of
Congressional and Facelifters have been recast to a calendar year to conform
with AMRE's fiscal year for all periods presented. In addition, Facelifters'
method of accounting for lead acquisition costs has been conformed to AMRE's
method for all periods presented.
For all applicable periods presented in the pro forma condensed combined
statements of operations, shares used in the computation of earnings per common
and common equivalent shares give effect to the conversion rates for the
Congressional Common and Preferred Stock pursuant to the Congressional Merger
and the Exchange Ratio for the Facelifters Merger.
The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the results that would have been achieved had the
Congressional Merger or the Facelifters Merger occurred on the date indicated
or as of the beginning of the periods presented and should not be construed as
representative of future operations. These pro forma condensed combined
financial statements should be read in conjunction with the related historical
consolidated financial statements and notes thereto of AMRE incorporated by
reference in this Information Statement/Prospectus, the historical financial
statements of Congressional and the historical consolidated financial
statements of Facelifters included elsewhere in this Information
Statement/Prospectus.
F-32
<PAGE> 121
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
TO REFLECT AMRE AND
AMRE CONGRESSIONAL CONGRESSIONAL
DECEMBER 31, DECEMBER 31, CONGRESSIONAL PRO FORMA
1995 1995 MERGER COMBINED
----------- ----------- ------------ -----------
(A)
<S> <C> <C> <C> <C>
Cash and cash equivalents . . . . . $ 10,658 $ 307 $ - $ 10,965
Marketable securities . . . . . . . 8,484 - - 8,484
Accounts receivable . . . . . . . . 10,242 590 - 10,832
Inventories . . . . . . . . . . . . 5,612 162 - 5,774
Prepaid expenses and other . . . . 2,921 98 - 3,019
----------- ----------- ------------ -----------
Total current assets . . . . . 37,917 1,157 - 39,074
Property, plant, & equipment,
net . . . . . . . . . . . . . . . 5,630 269 - 5,899
Goodwill . . . . . . . . . . . . . 9,036 - - 9,036
Notes receivable . . . . . . . . . 469 - - 469
Other assets . . . . . . . . . . . 1,262 - - 1,262
----------- ----------- ------------ -----------
Total assets . . . . . . . . . $ 54,314 $ 1,426 $ - $ 55,740
=========== =========== ============ ===========
Accounts payable . . . . . . . . . 14,147 591 - 14,738
Accrued expenses . . . . . . . . . 6,771 712 - 7,483
Notes payable . . . . . . . . . . . 50 624 - 674
Other accrued liabilities . . . . . 16,760 38 250 17,048
----------- ----------- ------------ -----------
Total current liabilities . . . 37,728 1,965 250 39,943
Long-term debt & capital
lease obligations . . . . . . . . 241 4,808 - 5,049
Other liabilities . . . . . . . . . - - -- -
----------- ----------- ------------ -----------
Total liabilities . . . . . . . 37,969 6,773 250 44,992
Redeemable preferred stock . . . . 3,000 - - 3,000
Stockholders' equity
Convertible preferred stock . . . - 1 (1) -
Common stock . . . . . . . . . . 146 1 8 155
Additional paid-in capital . . . 25,486 - (8) 25,478
Retained earnings . . . . . . . . (1,986) (28) (250) (2,264)
----------- ----------- ------------ -----------
23,646 (26) (251) 23,369
Less: Treasury stock . . . . (10,301) (1) 1 (10,301)
Unearned ESOP
compensation . . . - (5,320) - (5,320)
----------- ----------- ----------- -----------
Total stockholders' equity . . 13,345 (5,347) (250) 7,748
----------- ----------- ------------ -----------
Total liabilities & stockholders'
equity . . . . . . . . . . . $ 54,314 $ 1,426 $ - $ 55,740
=========== =========== ============ ===========
</TABLE>
(See accompanying Notes)
F-33
<PAGE> 122
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
PRO FORMA AMRE,
ADJUSTMENTS CONGRESSIONAL AND
FACELIFTERS TO REFLECT FACELIFTERS
DECEMBER 31, FACELIFTERS PRO FORMA
1995 MERGER COMBINED
----------- ----------- -----------------
(B)
<S> <C> <C> <C>
Cash and cash equivalents . . . . . $ 2,212 $ - $ 13,177
Marketable securities . . . . . . . 1,039 - 9,523
Accounts receivable . . . . . . . . 2,874 - 13,706
Inventories . . . . . . . . . . . . 1,596 - 7,370
Prepaid expenses and other . . . . 964 - 3,983
----------- ----------- ------------
Total current assets . . . . . 8,685 - 47,759
Property, plant, & equipment,
net . . . . . . . . . . . . . . . 3,392 - 9,291
Goodwill . . . . . . . . . . . . . 732 (500) 9,268
Notes receivable . . . . . . . . . - - 469
Other assets . . . . . . . . . . . 237 (200) 1,299
----------- ----------- ------------
Total assets . . . . . . . . . $ 13,046 $ (700) $ 68,086
=========== =========== ============
Accounts payable . . . . . . . . . 1,779 - 16,517
Accrued expenses . . . . . . . . . 3,655 - 11,138
Notes payable . . . . . . . . . . . 1,471 - 2,145
Other accrued liabilities . . . . . 629 800 18,477
----------- ----------- ------------
Total current liabilities . . . 7,534 800 48,277
Long-term debt & capital
lease obligations . . . . . . . . 1,071 - 6,120
Other liabilities . . . . . . . . . 24 - 24
----------- ----------- ------------
Total liabilities . . . . . . . 8,629 800 54,421
Redeemable preferred stock . . . . - - 3,000
Stockholders' equity
Convertible preferred stock . . . - - -
Common stock . . . . . . . . . . 34 - 189
Additional paid-in capital . . . 8,815 - 34,293
Retained earnings . . . . . . . . (4,432) (1,500) (8,196)
----------- ------------ ------------
4,417 (1,500) 29,286
Less: Treasury stock . . . . . - - (10,301)
Unearned ESOP
compensation . . . . . . - - (5,320)
----------- ----------- ------------
Total stockholders' equity . . 4,417 (1,500) 10,665
----------- ----------- ------------
Total liabilities & stockholders'
equity . . . . . . . . . . . . . $ 13,046 $ (700) $ 68,086
=========== =========== ============
</TABLE>
(See accompanying Notes)
F-34
<PAGE> 123
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS AMRE AND
TO REFLECT CONGRESSIONAL
AMRE CONGRESSIONAL CONGRESSIONAL PRO FORMA
DECEMBER 31, 1995 DECEMBER 31, 1995 MERGER COMBINED
----------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Contract revenues . . . . . . . . . . . $ 271,337 $ 18,818 $ - $ 290,155
Less: Contract costs . . . . . . . . . 88,451 7,373 - 95,824
Marketing & selling . . . . . . 123,339 7,303 - 130,642
License fees . . . . . . . . . . 32,576 2,486 - 35,062
General and administrative . . . 41,707 1,565 - 43,272
Provision for plant closing . . - - - -
Nonrecurring charges . . . . . . 11,000 - - 11,000
------------ ------------ ----------- -----------
Total expenses . . . . . . 297,073 18,727 - 315,800
Operating income (loss) . . . . . . . . (25,736) 91 - (25,645)
Other income (loss) . . . . . . . . . . 1,828 (351) - 1,477
------------ ------------ ----------- -----------
Income (loss) before income taxes . . . (23,908) (260) - (24,168)
Income taxes . . . . . . . . . . . . . (1,523) (51) - (1,574)
------------ ------------ ----------- ----------
Income (loss) from continuing
operations . . . . . . . . . . . $ (22,385) $ (209) $ - $ (22,594)
============ ============ =========== ==========
Earnings (loss) per share
from continuing operations . . . $ (1.75) $ (209) $ (1.65)
============ ============ ==========
Income (loss) applicable to
common stockholders (D) . . . . $ (22,625) $ (209) $ - $ (22,834)
============ ============ =========== ==========
Weighted avg. shares outstanding (E) . 12,903 1 899 13,803
============ ============ =========== ==========
</TABLE>
(See accompanying Notes)
F-35
<PAGE> 124
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
PRO FORMA AMRE,
ADJUSTMENTS CONGRESSIONAL AND
TO REFLECT FACELIFTERS
FACELIFTERS FACELIFTERS PRO FORMA
DECEMBER 31, 1995 MERGER COMBINED
----------------- --------------- ------------
<S> <C> <C> <C>
Contract revenues . . . . . . . . . . . $ 49,752 $ - $ 339,907
Less: Contract costs . . . . . . . . . 19,487 - 115,311
Marketing & selling . . . . . . 16,953 - 147,595
License fees . . . . . . . . . . 5,151 - 40,213
General and administrative . . . 7,614 - 50,886
Provision for plant closing . . 1,065 - 1,065
Nonrecurring charges . . . . . . 800 - 11,800
------------ ------------ -----------
Total expenses . . . . . . 51,070 - 366,870
------------ ------------ -----------
Operating income (loss) . . . . . . . . (1,318) - (26,963)
Other income (loss) . . . . . . . . . . 125 - 1,602
------------ ------------ -----------
Income (loss) before income taxes . . . (1,193) - (25,361)
Income taxes . . . . . . . . . . . . . 75 - (1,499)
------------ ------------ -----------
Income (loss) from continuing
operations . . . . . . . . . . . $ (1,268) $ - $ (23,862)
============ ============ ===========
Earnings (loss) per share
from continuing operations . . . $ (0.37) $ (1.40)
============ ===========
Income (loss) applicable to
common stockholders (D) . . . . $ (1,268) $ - $ (24,102)
============ ============ ===========
Weighted avg. shares outstanding (E) . 3,391 - 17,194
============ ============ ===========
</TABLE>
(See accompanying Notes)
F-36
<PAGE> 125
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA AMRE
ADJUSTMENTS AND
TO REFLECT CONGRESSIONAL
AMRE CONGRESSIONAL CONGRESSIONAL PRO FORMA
DECEMBER 31, 1994 DECEMBER 31, 1994 MERGER COMBINED
----------------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C>
Contract revenues . . . . . . . . . . . $ 285,930 $ 17,520 $ - $ 303,450
Less: Contract costs . . . . . . . . . 93,100 6,489 - 99,589
Marketing & selling (C) . . . . 117,383 6,854 - 124,237
License fees . . . . . . . . . . 34,166 2,202 - 36,368
General and administrative . . . 40,244 1,360 - 41,604
------------ ------------- ----------- -----------
Total expenses . . . . . . 284,893 16,905 - 301,798
------------ ------------- ----------- -----------
Operating income (loss) . . . . . . . . 1,037 615 - 1,652
Other income (expense) . . . . . . . . 1,516 (341) - 1,175
------------ ------------- ----------- -----------
Income (loss) before income taxes . . . 2,553 274 - 2,827
Income taxes . . . . . . . . . . . . . 1,094 39 - 1,133
------------ ------------- ----------- -----------
Income (loss) from
continuing operations . . . . . $ 1,459 $ 235 $ - $ 1,694
============ ============= =========== ===========
Earnings (loss) per share from continuing
operations . . . . . . . . . . . $ 0.09 $ 235 $ 0.10
============ ============= ===========
Income (loss) applicable to
common stockholders (D) . . . . $ 1,219 $ 235 $ - $ 1,454
============ ============= =========== ===========
Weighted avg. shares outstanding (E) . 13,031 1 899 13,931
============ ============= =========== ===========
</TABLE>
(See accompanying Notes)
F-37
<PAGE> 126
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
PRO FORMA AMRE,
ADJUSTMENTS CONGRESSIONAL AND
TO REFLECT FACELIFTERS
FACELIFTERS FACELIFTERS PRO FORMA
DECEMBER 31, 1994 MERGER COMBINED
----------------- --------------- ------------
<S> <C> <C> <C>
Contract revenues . . . . . . . . . . . $ 34,158 $ - $ 337,608
Less: Contract costs . . . . . . . . . 13,087 - 112,676
Marketing & selling (C) . . . . 13,275 (826) 136,686
License fees . . . . . . . . . . 3,685 - 40,053
General and administrative . . . 4,623 - 46,227
------------ ------------- -----------
Total expenses . . . . . . 34,670 (826) 335,642
------------ ------------- -----------
Operating income (loss) . . . . . . . . (512) 826 1,966
Other income (expense) . . . . . . . . 81 - 1,256
------------ ------------- -----------
Income (loss) before income taxes . . . (431) 826 3,222
Income taxes . . . . . . . . . . . . . 64 - 1,197
------------ ------------- -----------
Income (loss) from
continuing operations . . . . . $ (495) $ 826 $ 2,025
============ ============= ===========
Earnings (loss) per share from continuing
operations . . . . . . . . . . . $ (0.16) $ 0.10
============ ===========
Income (loss) applicable to
common stockholders (D) . . . . $ (495) $ 826 $ 1,785
============ ============= ===========
Weighted avg. shares outstanding (E) . 3,177 - 17,108
============ ============= ===========
</TABLE>
(See accompanying Notes)
F-38
<PAGE> 127
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS AMRE AND
TO REFLECT CONGRESSIONAL
AMRE CONGRESSIONAL CONGRESSIONAL PRO FORMA
DECEMBER 31, 1993 DECEMBER 31, 1993 MERGER COMBINED
----------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Contract revenues . . . . . . . . . . . $ 260,692 $ 12,909 $ - $ 273,601
Less: Contract costs . . . . . . . . . 78,112 5,002 - 83,114
Marketing & selling (C) . . . . 112,362 4,458 - 116,820
License fees . . . . . . . . . . 30,136 1,802 - 31,938
General and administrative . . . 44,506 2,197 - 46,703
------------ ------------- ----------- -----------
Total expenses . . . . . . 265,116 13,459 - 278,575
------------ ------------- ----------- -----------
Operating income (expense) . . . . . . (4,424) (550) - (4,974)
Other income (loss) . . . . . . . . . . 2,533 (167) - 2,366
------------ ------------- ----------- -----------
Income (loss) before income taxes . . . (1,891) (717) - (2,608)
Income taxes . . . . . . . . . . . . . (2,747) 60 - (2,687)
------------ ------------- ----------- -----------
Income (loss) from
continuing operations . . . . . $ 856 $ (777) $ - $ 79
============ ============= =========== ===========
Earnings (loss) per share from continuing
operations . . . . . . . . . . . $ 0.05 $ (777) $ 0.01
============ ============= ===========
Income (loss) applicable to
common stockholders (D) . . . . $ 616 $ (777) $ - $ (161)
============ ============= =========== ===========
Weighted avg. shares outstanding (E) . 13,120 1 899 14,020
============ ============= =========== ===========
</TABLE>
(See accompanying Notes)
F-39
<PAGE> 128
AMRE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
PRO FORMA AMRE,
ADJUSTMENTS CONGRESSIONAL AND
TO REFLECT FACELIFTERS
FACELIFTERS FACELIFTERS PRO FORMA
DECEMBER 31, 1993 MERGER COMBINED
----------------- --------------- -----------
<S> <C> <C> <C>
Contract revenues . . . . . . . . . . . $ 25,774 $ - $ 299,375
Less: Contract costs . . . . . . . . . 9,376 - 92,490
Marketing & selling (C) . . . . 8,600 58 125,478
License fees . . . . . . . . . . 2,716 - 34,654
General and administrative . . . 3,612 - 50,315
------------ ------------- -----------
Total expenses . . . . . . 24,304 58 302,937
------------ ------------- -----------
Operating income (loss) . . . . . . . . 1,470 (58) (3,562)
Other income (loss) . . . . . . . . . . 110 - 2,476
------------ ------------- -----------
Income (loss) before income taxes . . . 1,580 (58) (1,086)
Income taxes . . . . . . . . . . . . . 150 - (2,537)
------------ ------------- -----------
Income (loss) from
continuing operations . . . . . $ 1,430 $ (58) $ 1,451
============ ============= ===========
Earnings (loss) per share from continuing
operations . . . . . . . . . . . $ 0.34 $ 0.07
============ ===========
Income (loss) applicable to
common stockholders (D) . . . . $ 1,430 $ (58) $ 1,211
============ ============= ===========
Weighted avg. shares outstanding (E) . 4,161 - 18,181
============ ============= ===========
</TABLE>
(See accompanying Notes)
F-40
<PAGE> 129
AMRE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations are
based on the consolidated financial statements of AMRE for the years ended
December 31, 1995, 1994 and 1993; and the financial statements of Congressional
for the years ended December 31, 1995 and 1994, the nine months ended December
31, 1993, and the fiscal year ended March 31, 1993 and the consolidated
financial statements of Facelifters for the nine months ended December 31, 1995
and 1994 and the fiscal years ended March 31, 1995, 1994 and 1993. The
consolidated financial statements of Congressional and Facelifters have been
recast to a calendar year to conform with AMRE's fiscal year in computing the
unaudited pro forma condensed combined statements of operations for all periods
presented. Congressional financial data for the twelve months ended December
31, 1993 was computed by subtracting the nine months ended December 31, 1992
from the twelve months ended March 31, 1993 and adding the result to the nine
months ended December 31, 1993. Facelifters financial data for the twelve
months ended December 31, 1995 was computed by subtracting the nine months
ended December 31, 1994 from the twelve months ended March 31, 1995 and adding
the result to the nine months ended December 31, 1995. Facelifters financial
data for the twelve months ended December 31, 1994, was computed by subtracting
the three months ended March 31, 1995 from the twelve months ended March 31,
1995 and adding the result to the three months ended March 31, 1994.
Facelifters financial data for the twelve months ended December 31, 1993 was
computed by subtracting the three months ended March 31, 1994 from the twelve
months ended March 31, 1994 and adding the result to the three months ended
March 31, 1993.
The unaudited pro forma condensed balance sheet is based on the combined
historical consolidated balance sheets of AMRE, Congressional and Facelifters
as of December 31, 1995, and upon the adjustments and assumptions described
below.
The unaudited pro forma condensed combined statements of operations do not
reflect all expenses expected to be incurred by AMRE and Congressional in
connection with the Congressional Merger, all expenses expected to be incurred
by AMRE and Facelifters in connection with the Facelifters Merger, or the
effect of cost savings, if any, which may be realized after the consummation of
the Congressional Merger and Facelifters Merger.
NOTE 2 - UNAUDITED PRO FORMA ADJUSTMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet
(A) Pro Forma Adjustments to Reflect Congressional Merger -
AMRE and Congressional expect to incur additional nonrecurring charges to
operations currently estimated at approximately $250,000 in 1996, to reflect
the remaining transaction costs. The estimated charge is reflected in the
unaudited pro forma condensed combined balance sheet. No pro forma tax
benefits have been reflected as a result of AMRE's tax position. This
preliminary estimate is subject to change based upon additional information.
The unaudited pro forma condensed combined balance sheet reflects the
issuance of 900,000 shares of AMRE Common Stock for all of the outstanding
shares of Congressional Common Stock and Congressional Preferred Stock to
effect the Congressional Merger; therefore, the historical combined common
stock, preferred stock and paid-in capital account balances have been adjusted
to reflect the number of shares
F-41
<PAGE> 130
AMRE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS (Continued)
assumed to be issued and for differences in par value per common share of AMRE
and Congressional. The impact of this adjustment does not result in a change
to the total combined stockholders' equity.
(B) Pro Forma Adjustments to Reflect Facelifters Merger -
AMRE and Facelifters expect to incur additional nonrecurring charges to
operations currently estimated at approximately $1.5 million in 1996, to
reflect the remaining costs associated with combining the operations of the two
companies, primarily the closing of duplicate facilities and write-off of other
assets of $700,000 and remaining transaction fees and costs incident to the
Merger of approximately $800,000. The estimated charges of $1.5 million are
reflected in the unaudited pro forma condensed combined balance sheet. No pro
forma tax benefits have been reflected as a result of AMRE's tax position.
This preliminary estimate is subject to change based upon additional
information.
The unaudited pro forma condensed combined balance sheet reflects the
issuance of one (1) share of AMRE Common Stock for each share of Facelifters
Common Stock in the Facelifters Merger, therefore, the historical combined
common stock and paid-in capital account balances have been adjusted to reflect
the number of shares assumed to be issued and for the differences in par value
per common share of AMRE and Facelifters. The impact of this adjustment does
not result in a change to the total combined stockholders' equity.
Unaudited Pro Forma Condensed Combined Statements of Operations
(C) Pro Forma Adjustments to Conform Accounting Methods -
The unaudited pro forma condensed combined statements of operations
reflect an adjustment to conform the Facelifters' method of accounting for
capitalized lead acquisition costs to AMRE's method of expensing such costs as
incurred for all periods presented. No pro forma tax provisions or benefits
have been reflected as a result of AMRE's and Facelifters' tax positions.
(D) Income (loss) Applicable to Common Stockholders -
Income (loss) applicable to common stockholders represents income (loss)
from continuing operations less the 8% annual dividends on the AMRE Senior
Convertible Preferred Stock.
(E) Earnings (loss) per Share and Weighted Average Shares Outstanding -
Weighted average shares outstanding reflect (i) the issuance of 601.20
shares of AMRE Common Stock for each share of Congressional Common Stock and
857.14 shares of AMRE Common Stock for each share of Congressional Preferred
Stock to effect the Congressional Merger and (ii) the issuance of one (1) share
of AMRE Common Stock for each share of Facelifters Common Stock to effect the
Facelifters Merger. For all periods presented, the earnings (loss) per share
from continuing operations gives effect to the dividends on the AMRE Senior
Convertible Preferred Stock ($240,000 annually) issued incident to the new
license agreement; however, the AMRE Senior Convertible Preferred Stock was not
considered a common stock equivalent for any of the periods presented.
F-42
<PAGE> 131
ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
dated as of December 30, 1995,
among
AMRE, Inc.
AMRE-Congressional Acquisition, Inc.
Congressional Construction Corporation
and, for the limited purposes set forth herein,
the Shareholders that are signatories hereto.
<PAGE> 132
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 THE MERGER, EFFECTIVE TIME, EXCHANGE AMOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation; Bylaws; Directors and Officers . . . . . . . . . . . . . . . . . . . . . 2
1.5 Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Exchange of Certificates Representing Company Stock . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Adjustment of Exchange Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF AMRE AND
MERGER SUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Consents; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.10 Ownership, Quality and Location of Material Assets . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Organization, Qualification and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorized Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 HSR Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4 Owned Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5 Consents; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.10 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.11 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.13 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.15 Patents, Trademarks, Franchises, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
A-1
<PAGE> 133
<TABLE>
<S> <C> <C>
3.16 Loans, Notes, Accounts Receivable and Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 22
3.17 Corporate Documents, Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.18 Absence of Sensitive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.20 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.22 Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.23 Directors and Officers; Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.24 Ownership, Quality and Location of Material Assets . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.25 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.26 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.27 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.28 Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.29 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.30 Dividend Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4 CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1 Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5 ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.1 Registration Statement and Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.2 Letter to the Company's Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 Company Board Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.4 Consent of Shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.6 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.7 No Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.8 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.9 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.10 Information for Other Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.11 Sub-License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.12 Affiliate Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.13 Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.14 Listing Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.15 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.16 Operation of the Company's Business Following the Effective Date . . . . . . . . . . . . . . . . . . 34
ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.1 Conditions to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . . . . . . 35
6.2 Additional Conditions to the Obligation of the Company . . . . . . . . . . . . . . . . . . . . . . . 36
6.3 Additional Conditions to the Obligations of AMRE and Merger Sub . . . . . . . . . . . . . . . . . . 38
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
A-2
<PAGE> 134
<TABLE>
<S> <C> <C>
ARTICLE 8 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.2 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.6 CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.7 Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.9 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.10 Binding Effect; Benefit; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.11 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.12 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
EXHIBITS
A. Articles of Incorporation of the Company
B. Bylaws of the Company
C. Form of Sub-License Agreement
D Form of Affiliate Letter
E. Form of Employment Agreement
SCHEDULES
1.4 Directors and Officers of Merger Sub
2.4 Conflicts with AMRE Material Agreements
2.5 Other AMRE Liabilities
2.6 Absence of AMRE Changes
2.7 Unfiled AMRE Tax Returns
2.8 AMRE Legal Proceedings
2.10 Material Assets
3.2 Options, Warrants, Etc.
3.5 Acceleration
3.6(d) Other Company Liabilities
3.7 Absence of Company Changes
3.8 Unfiled Company Tax Returns
3.9 Real Property
3.11 Personal Property
3.12 Contracts
3.13 Legal Proceedings
3.14 Labor Matters
3.15 Intellectual Property
3.19 Insurance
3.20 Payroll Register and Employment Contracts
3.21 Company Benefit Plans
3.22 Affiliated Party Transactions
3.23 Directors, Officers and Bank Accounts
3.24 Material Assets
3.27 Permits
3.30 Dividends
A-3
<PAGE> 135
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of
December 30, 1995, by and among AMRE, Inc., a Delaware corporation ("AMRE"),
AMRE-Congressional Acquisition, Inc., a Delaware corporation and a newly
formed, wholly owned subsidiary of AMRE ("MERGER SUB"), Congressional
Construction Corporation, a Virginia corporation (the "COMPANY") and, for the
limited purposes of Article 3, Article 5, and Article 8, the shareholders of
the Company that are signatories hereto (the "SHAREHOLDERS"). The Company and
Merger Sub are hereinafter collectively referred to as the "CONSTITUENT
CORPORATIONS."
PRELIMINARY STATEMENTS
A. AMRE, as the sole stockholder of Merger Sub, and the
respective Boards of Directors of Merger Sub and the Company, have each
approved the execution of this Agreement which provides for, among other
things, the merger of Merger Sub into the Company in accordance with the
Virginia Stock Corporation Act (the "VIRGINIA LAW"), Delaware General
Corporation Law (the "DELAWARE LAW"), and the provisions of this Agreement.
The Board of Directors of the Company has directed that the Merger, as
hereinafter defined, be submitted for approval by the Company's shareholders.
B. It is intended that for federal income tax purposes the Merger
provided for herein shall qualify as a reorganization within the meaning of
Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended (the "CODE"). The parties expect that the Merger will
further certain of their business objectives.
C. It is intended that the Merger be treated as a "pooling of
interests" for accounting purposes.
D. It is understood and agreed that following the Merger and in
connection with the implementation of employee benefits for employees of the
Surviving Corporation (as defined below), it is the intention of AMRE to
terminate, or cause to be terminated, the Congressional Construction
Corporation Employee Stock Ownership Plan and Trust (the "ESOP").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good, valid and binding consideration,
the receipt and sufficiency of which are hereby acknowledged, AMRE, Merger Sub,
the Company and, for the limited purposes of Article 3, Article 5, and Article
8, the Shareholders, intending to be legally bound, hereby agree as follows:
A-4
<PAGE> 136
STATEMENT OF AGREEMENT
ARTICLE 1
THE MERGER, EFFECTIVE TIME, EXCHANGE AMOUNT
1.1 The Merger. At the Effective Time (as defined in Section 1.3
hereof), in accordance with this Agreement, the Virginia Law and the Delaware
Law, Merger Sub shall be merged (such merger being herein referred to as the
"MERGER") with and into the Company, the separate existence of Merger Sub shall
cease, and the Company shall continue as the surviving corporation. The
Company hereinafter sometimes is referred to as the "SURVIVING CORPORATION."
1.2 Effect of the Merger. When the Merger has been effected, the
Surviving Corporation shall thereupon and thereafter possess all of the public
and private rights, privileges, powers and franchises and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations;
all and each of the rights, privileges, powers and franchises of each of the
Constituent Corporations and all property, real, personal and mixed, and all
debts due to either of the Constituent Corporations on whatever account. All
other things belonging to each of such corporations shall be vested in the
Surviving Corporation and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
as possible the property of the Surviving Corporation. Title to any real
estate vested by deed or otherwise, in either Constituent Corporation, shall
not revert or be in any way impaired by reason of the Merger. All rights of
creditors and all liens upon any property of any of the Constituent
Corporations shall be preserved unimpaired. All debts, liabilities and duties
of the respective Constituent Corporations shall thenceforth attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it.
1.3 Consummation of the Merger. As soon as is practicable after
the satisfaction or waiver of the conditions set forth in Article 6 hereof and
provided that this Agreement shall not have been terminated as provided in
Article 7, the parties hereto will cause the Merger to be consummated by filing
with the State Corporation Commission of Virginia (the "VIRGINIA COMMISSION")
articles of merger in such form as required by, and executed in accordance
with, the relevant provisions of the Virginia Law and by filing with the
Secretary of State of Delaware a certificate of merger in such form as required
by, and executed in accordance with, the relevant provisions of the Delaware
Law (the latest of (i) the later of the time of such filings, (ii) the issuance
of a certificate of merger by the Virginia Commission and (iii) the effective
time set forth in such filings being the "EFFECTIVE TIME" and the date of the
Effective Time being the "EFFECTIVE DATE").
1.4 Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation and bylaws of the Surviving Corporation shall be
the Articles of Incorporation and bylaws of the Company as in effect
immediately prior to the Effective Time. Such documents shall be amended and
restated immediately after the Effective Time as approved by the sole
shareholder of the Surviving Corporation. The directors of Merger Sub
immediately prior to the Effective Time will be the initial directors of the
Surviving Corporation and shall serve until
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their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and bylaws (as so amended) and the
Virginia Law. The officers of Merger Sub immediately prior to the Effective
Time will be the initial officers of the Surviving Corporation and shall serve
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and bylaws and the Virginia
Law. It is the current intention of AMRE and Merger Sub that the directors and
officers of Merger Sub immediately prior to the Effective Time shall be those
persons identified on Schedule 1.4 hereto.
1.5 Conversion of Company Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of AMRE, Merger Sub, the
Company, the holders of any of the shares (the "COMMON SHARES") of common
stock, par value $1.00 per share of the Company (the "COMPANY COMMON STOCK"),
or the holders of any of the shares (the "PREFERRED SHARES" and together with
the Common Shares, the "SHARES") of convertible preferred stock, without par
value, of the Company (the "COMPANY PREFERRED STOCK" and together with the
Company Common Stock, the "COMPANY STOCK"):
(a) Each Common Share issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares, as
hereinafter defined, and Common Shares held in the treasury of the
Company) shall be canceled and retired and be converted into 601.20 (the
"COMMON STOCK EXCHANGE AMOUNT") validly issued, fully paid and
non-assessable shares of $0.01 par value common stock of AMRE ("AMRE
COMMON STOCK").
(b) Each Preferred Share issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares
and Preferred Shares held in the Treasury of the Company) shall be
canceled and retired and be converted into 857.14 (the "PREFERRED STOCK
EXCHANGE AMOUNT") validly issued, fully paid and non-assessable shares
of $.01 par value AMRE Common Stock.
(c) Each Share which is issued and outstanding
immediately prior to the Effective Time and which is held in the
treasury of the Company shall be canceled and retired, and no payment
shall be made with respect thereto.
(d) No fractional shares of AMRE Common Stock shall be
issued in connection with the Merger. In lieu thereof, one additional
share of AMRE Common Stock will be issued for any fractional share that
would have otherwise been issued.
(e) Notwithstanding anything in this Agreement to the
contrary, Shares which are outstanding immediately prior to the
Effective Time and which are held by shareholders of the Company who
shall (i) not have consented to the adoption of this Agreement and the
approval of the Merger, (ii) have delivered a written notice of intent
to demand payment for such Shares in the manner provided in Section
13.1-733 of the Virginia Law ("DISSENTING SHARES") and (iii) have
complied with the provisions of Section 13.1-735 of the Virginia Law
shall not be converted into or be exchangeable for
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the right to receive the payment to be paid for each Share converted
pursuant to Section 1.5(a) or Section 1.5(b) hereof, as applicable, but
the holders thereof shall be entitled to payment of the fair value of
such shares in accordance with the provisions of Article 15 of the
Virginia Law; provided, however, that (i) if any holder of Dissenting
Shares withdraws the demand for an appraisal and the Surviving
Corporation accepts such withdrawal, (ii) if the Merger is abandoned, or
(iii) if no demand or petition for an appraisal by a court is made or
filed within the statutory time periods, or (iv) if a court determines
the holder is not entitled to payment, such holder or holders (as the
case may be) shall forfeit the right to appraisal of such shares, and
such shares shall thereupon be deemed to have become exchangeable for,
as of the Effective Time, the right to receive the payment to be paid
for each Share converted pursuant to Section 1.5(a) or Section 1.5(b)
hereof, as applicable; except that, in the case of (ii) directly above,
holders of such dissenting shares shall have no rights whatsoever under
this Agreement. The Surviving Corporation shall assume the obligation,
if any, to pay the fair value of any Shares as to which the holders
thereof have perfected dissenters rights under Article 15 of the
Virginia Law.
(f) As a result of the Merger and without action on the
part of the holder thereof, all Shares shall cease to be outstanding and
shall be canceled and returned and shall cease to exist, and each holder
of a certificate formerly representing any Shares of Company Stock (a
"CERTIFICATE") shall thereafter cease to have any rights with respect to
such Shares except the right to receive, without interest, certificates
representing AMRE Common Stock or cash pursuant to Section 1.5(e) upon
the surrender of such Certificates, and each ESOP Plan participant with
an allocation of any Preferred Shares shall thereafter cease to have any
rights with respect to such Preferred Shares except whatever rights such
participants shall have in the shares of AMRE Common Stock issued in
exchange therefor by virtue of being participants in the ESOP.
1.6 Exchange of Certificates Representing Company Stock.
(a) As of the Effective Time, AMRE shall deposit, or
shall cause to be deposited with AMRE's Transfer Agent (the "EXCHANGE
AGENT") for the benefit of the holders of the Shares of Company Stock,
for exchange in accordance with this Article 1, certificates
representing the shares of AMRE's Common Stock to be issued in exchange
for the Shares of Company Stock. AMRE shall pay all charges and
expenses of the Exchange Agent.
(b) Promptly after the Effective Time, AMRE shall cause
the Exchange Agent to mail to each holder of record of Shares of Company
Stock (i) a letter of transmittal which shall specify that delivery
shall be effective, and risk of loss and title to such Shares shall
pass, only upon delivery of the Certificates to the Exchange Agent and
which shall be in such form and have such other provisions as AMRE or
the Exchange Agent may reasonably specify and (ii) instructions for use
in affecting the surrender of such Certificates in exchange for
certificates representing shares of AMRE Common Stock. Upon surrender
of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed and completed, in accordance
with the instructions thereto, the holder of the Shares of Company Stock
represented by such
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Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of shares of AMRE Common Stock
determined pursuant to Section 1.5(a), 1.5(b) or 1.5(d) above, as
applicable, and the Certificate so surrendered shall be canceled. In
the event of a transfer of ownership of Company Stock which is not
registered in the transfer records of the Company, a certificate
representing the proper number of shares of AMRE Common Stock may be
issued to such a transferee if the Certificate representing such Company
Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
(c) Notwithstanding any other provisions of this
Agreement, no dividends or other distributions declared after the
Effective Time on AMRE Common Stock shall be paid with respect to any of
the Shares of Company Stock until such Certificate representing those
Shares is surrendered for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the certificates representing
shares of AMRE Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time
theretofore payable with respect to such shares of AMRE Common Stock and
not paid, less the amount of any withholding taxes which may be required
thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time but prior to surrender and with a payment date subsequent to
surrender payable with respect to such shares of AMRE Common Stock, less
the amount of any withholding taxes which may be required thereon.
(d) At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Shares of
Company Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Company, such Certificates shall be canceled and exchanged for
certificates of shares of AMRE Common Stock deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set
forth in this Section 1.6. Certificates surrendered for exchange by any
person constituting an "affiliate" of the Company for purposes of Rule
145(c) under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), shall not be exchanged until AMRE has received the executed
letter from such person as provided in Section 5.12 below.
(e) None of AMRE, the Company, the Exchange Agent or any
other person shall be liable to any former holder of Shares of Company
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(f) In the event any Certificate representing Shares of
Company Stock shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by AMRE, the posting by
such person of a bond in such reasonable amount as AMRE may direct as
indemnity against any claim that may be made against it with respect to
such certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed
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Certificate the shares of AMRE Common Stock and unpaid dividends and
distributions on shares of AMRE Common Stock deliverable in respect
thereof pursuant to this Agreement.
1.7 Adjustment of Exchange Amount. In the event that, subsequent
to the date of this Agreement but prior to the Effective Time, the outstanding
shares of AMRE Common Stock, Company Preferred Stock or Company Common Stock,
respectively, shall have been changed into a different number of shares or a
different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, reclassification, split, combination, exchange,
recapitalization or other similar transaction, the Common Stock Exchange Amount
and/or the Preferred Stock Exchange Amount, as applicable, shall be
appropriately adjusted.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
AMRE AND MERGER SUB
AMRE and Merger Sub jointly and severally represent and warrant to the
Company and the Shareholders the following:
2.1 Organization and Qualification. Each of AMRE and Merger Sub
is a Delaware corporation duly organized, validly existing and in good standing
under Delaware law and has the requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted.
AMRE is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
leased or the nature of its activities make such qualification necessary.
However, the failure to be so qualified or in good standing in any given
jurisdiction will not be deemed to be a breach of this Section 2.1 unless the
failure of AMRE to be in good standing in any such jurisdiction individually or
in all such jurisdictions collectively has or is likely to have a material
adverse effect upon the business operations, assets, liabilities or financial
condition of (a "MATERIAL ADVERSE EFFECT") AMRE or on the transactions
contemplated herein.
2.2 Authority. Each of AMRE and Merger Sub has the requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by AMRE
and Merger Sub and the consummation by AMRE and Merger Sub of the transactions
contemplated hereby have been duly authorized by the Boards of Directors of
AMRE and Merger Sub and by AMRE as the sole stockholder of Merger Sub as of the
date of this Agreement, and no other corporate proceedings on the part of AMRE
or Merger Sub are necessary to authorize this Agreement and the transactions
contemplated hereby, except for any corporate action or proceedings which may
be necessary to amend the Certificate of Incorporation of AMRE to authorize the
issuance of additional shares of AMRE Common Stock and the approval of this
Agreement and the transactions contemplated hereby by the holders of a majority
of the outstanding AMRE Common Stock. This Agreement has been duly executed
and delivered by AMRE and Merger Sub and (assuming that it has been duly
executed and delivered by the Company and the Shareholders) constitutes a
legal, valid and binding obligation of each such company, enforceable against
each such company in accordance with its
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terms except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to judicial
discretion.
2.3 No Brokers. AMRE and Merger Sub represent and warrant that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of AMRE or Merger Sub.
2.4 Consents; Effect of Agreement. Other than in connection with
or in compliance with (i) the provisions of the Delaware Law, (ii) the filing
with the Securities and Exchange Commission (the "SEC") of such reports as may
be required under Section 13 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") and the Securities Act and (iii) "Blue Sky" approvals and
permits, no notice to, filing with, or authorization, consent or approval of,
any third party, judicial, governmental or other public body or authority is
necessary for the consummation by AMRE or Merger Sub of the transactions
contemplated by this Agreement which will not have been obtained prior to the
Effective Time, except where failures to give such notices, make such filings,
or obtain authorizations, consents or approvals would, in the aggregate, not
have a Material Adverse Effect on AMRE, Merger Sub or the transactions
contemplated herein. Except as set forth in Schedule 2.4, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will conflict with, violate or result in a
breach of (i) any material agreement to which either AMRE or Merger Sub is a
party; (ii) any provision of the charter documents or bylaws of AMRE or Merger
Sub; or (iii) any material law, rule, regulation or ordinance applicable to
AMRE or Merger Sub.
2.5 Financial Statements.
(a) AMRE and Merger Sub have delivered to the Company and
the Shareholders or their representatives audited consolidated financial
statements of AMRE as of December 31, 1994, and for the year then ended,
including, without limitation, a statement of operations and changes in
stockholders' equity, balance sheet, statement of cash flows, and all
notes relating thereto (the "1994 AMRE FINANCIAL STATEMENTS") which have
been audited by Arthur Andersen LLP, the independent public accountants
of AMRE.
(b) AMRE has also delivered to the Company and the
Shareholders or their representatives unaudited consolidated financial
statements of AMRE as of October 1, 1995, and for the 9-month period
then ended, consisting of a balance sheet and statement of operations
(the "AMRE INTERIM FINANCIAL STATEMENTS"), certified by the chief
financial officer of AMRE.
(c) The 1994 AMRE Financial Statements and the AMRE
Interim Financial Statements, which are collectively referred to herein
as "AMRE FINANCIAL STATEMENTS" (which statements may be in Quarterly
Reports on Form 10-Q or Annual Reports on Form 10-K, as appropriate),
(i) are in accordance with the books and records of AMRE;
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and (ii) except as set forth therein (including the notes thereto),
fairly present in accordance with generally accepted accounting
principles, the financial position and results of operations of AMRE as
of and for the periods indicated, except for the lack of notes to the
AMRE Interim Financial Statements, consistently applied throughout the
periods involved.
(d) There are no liabilities of the kind required by
generally accepted accounting principles to be reflected, noted or
reserved against on the balance sheets of AMRE as of December 31, 1994
and October 1, 1995, except those which have been reflected, noted or
reserved against in the AMRE Financial Statements. Except as set forth
in the preliminary proxy materials filed pursuant to Section 14(a) of
the Exchange Act by AMRE on December 22, 1995 with the SEC and the AMRE
SEC filings incorporated therein by reference (collectively, the "PROXY
STATEMENT") or as incurred in the ordinary course of business since
October 1, 1995, AMRE has no material liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would
be required to be reflected on or reserved against, in a balance sheet
of AMRE or in the notes thereto prepared in accordance with generally
accepted accounting principles consistently applied. Except as set
forth in Schedule 2.5, all liabilities of AMRE can be prepaid without
penalty at any time.
2.6 Absence of Certain Changes or Events. Except as disclosed in
the Proxy Statement or on Schedule 2.6, since September 30, 1995, AMRE has
conducted its business only in the ordinary course of business and:
(a) There has not been any Material Adverse Effect on
AMRE;
(b) There has not been any damage, destruction or loss to
any material asset of AMRE, whether or not covered by insurance; and
(c) There has not been any material change in the
operation of the business of or any material transactions entered into,
except such changes and transactions occurring in the ordinary course of
business and not otherwise required to be disclosed pursuant to this
section, or those occurring in contemplation of this Agreement and the
effectuation thereof.
2.7 Taxes. Except as disclosed in the Proxy Statement or in
Schedule 2.7 hereto, AMRE has timely filed or caused to be timely filed
(including allowable extensions) all federal, state, local, foreign and other
tax returns for income taxes, sales taxes, withholding taxes, employment taxes,
property taxes, franchise taxes and all other taxes of every kind whatsoever
which are required by law to have been filed. All of the tax returns that have
been filed accurately reflect in all material respects the facts regarding the
income, deduction, credits, assets, operations, activities and all other
matters and information required to be shown thereon. AMRE has paid or caused
to be paid all taxes, assessments, fees, penalties and other governmental
charges which were shown to be due pursuant to said returns. All other
material taxes and related assessments, fees, penalties and other governmental
charges which have become due and payable have been paid. The provisions for
income and other taxes reflected in the balance sheet included in the AMRE
Financial Statements make adequate provision for
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all accrued and unpaid taxes of AMRE, whether or not disputed, and AMRE has
made and will continue to make adequate provision for such taxes on its books
and records, including any taxes arising from the transactions contemplated by
this Agreement; provided however, no provision has been made or will be made in
the AMRE Financial Statements or the Subsequent Company Financials for any
taxes resulting from any tax election made by the Surviving Corporation
subsequent to the Effective Time. Except as set forth in Schedule 2.7, AMRE is
not party to any action or proceeding pending or, to the best knowledge of
AMRE, threatened by any governmental authority for assessment or collection of
taxes; no unresolved claim for assessment or collection of such taxes has been
asserted against AMRE, and, to the best knowledge of AMRE, no audit or
investigation by state or local government authorities is under way that would
have a Material Adverse Effect on AMRE.
2.8 Legal Proceedings. Except as disclosed in the Proxy Statement
or set forth in Schedule 2.8, there are no claims, actions, suits,
arbitrations, grievances, proceedings or investigations pending or, to the best
knowledge of AMRE, threatened against AMRE or its subsidiaries, at law, in
equity, or before any federal, state, municipal or other governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which AMRE is a
party, which involve the transactions contemplated herein or which, if
adversely decided, would have a Material Adverse Effect upon AMRE. AMRE is not
in violation of or in default with respect to any applicable judgment, order,
writ, injunction or decree, the violation of which would have a Material
Adverse Effect on AMRE.
2.9 Environmental.
(a) Except as disclosed in the Proxy Statement, to the
best of AMRE'S knowledge, AMRE has not used, stored, treated,
transported, manufactured, handled, produced or disposed of any
Hazardous Materials (as defined hereafter) on, under, at, from, or in
any way affecting any of the owned, leased or operated properties or
assets of AMRE, or otherwise, in any manner which violated any
applicable Environmental Law (as defined hereafter).
(b) Except as disclosed in the Proxy Statement, there
have been no Releases (as defined hereafter) of any Hazardous Material
by AMRE on, under, at, from or in any way affecting any property owned,
leased or operated by AMRE.
(c) Except as disclosed in the Proxy Statement, to the
best of AMRE'S knowledge, AMRE is in material compliance with all
applicable Environmental Laws, and AMRE has not received any
communication, written or oral, that alleges that AMRE is not in
compliance with applicable Environmental Laws.
(d) To the best of AMRE'S knowledge, AMRE does not have
any material liabilities, assessed and, no pending claims have been
received by AMRE and at present no outstanding citations or notices have
been received by AMRE which in the case of any of the foregoing have
been or are imposed by reason of or based upon any provision of any
applicable Environmental Laws, including, but not limited to, any such
liabilities relating to or arising out of or attributable, in whole or
in part, to the manufacture,
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processing, distribution, use, treatment, storage, disposal, transport,
presence or handling of any Hazardous Materials by AMRE.
(e) There are no proceedings by any governmental
authority or third party pending regarding pollution or protection of
human health or the environment to which AMRE is a party, nor are there
any decrees, or orders, or other administrative or judicial
requirements, outstanding under any Environmental Law with respect to
AMRE.
(f) To the best of AMRE's knowledge the real property
currently used, owned or leased by AMRE contains no underground storage
tanks, or underground piping associated with underground storage tanks.
(g) To the best of AMRE'S knowledge, AMRE has obtained
and is in material compliance with all permits, licenses and other
authorizations and has made all registrations and given all
notifications that are required under Environmental Laws, and is in
compliance with all terms and conditions of such permits, licenses and
other authorizations. No notice to, approval of or authorization or
consent from any governmental authority is necessary for the transfer of
or modification to any such permit, and the consummation of the
transaction contemplated by this Agreement will not violate, alter,
impair or invalidate, in any respect, any such permit.
(h) To the best of AMRE'S knowledge, except as previously
disclosed, there are no environmental reports, audits, investigations or
assessments of AMRE or any real or personal property or operations which
are now or have been previously owned, leased, operated or managed by
AMRE.
(i) AMRE has disclosed to the Company all relevant
material facts of which it has knowledge regarding potential or actual
environmental liabilities of AMRE.
(j) Definitions:
(1) as used herein, the term "HAZARDOUS MATERIALS"
means those chemicals, materials or substances which are
defined as or included in the definition of "hazardous
substances," "hazardous wastes," "toxic pollutants,"
"pollutants," "contaminants," or words of similar import under
any Environmental Law;
(2) the term "ENVIRONMENTAL LAWS" means all federal,
state and local laws, rules and regulations relating to
pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including,
without limitation, laws and regulations relating to Releases
or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use
treatment, storage, disposal, transport or handling of
Hazardous Materials; and
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(3) the term "RELEASES" means any release, spill,
emission, leaking, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the atmosphere, soil
surface water, groundwater or property.
2.10 Ownership, Quality and Location of Material Assets. AMRE does
not utilize in its business any assets not reflected in the Financial
Statements or disclosed in the Proxy Statement except for assets which have
been fully amortized or depreciated and which are owned or leased by AMRE and
franchises, licenses, trademarks and tradenames. Except as set forth in
Schedule 2.10, all properties and assets of AMRE are in the possession and
control of AMRE. As of the date hereof, except as set forth in Schedule 2.10,
no physical assets of any value are on the premises at the locations operated
by AMRE which do not belong to or are not leased by AMRE.
2.11 Full Disclosure. No material information furnished, or to be
furnished, by AMRE to the Company or its representatives in connection with
this Agreement (including, but not limited to, the Financial Statements and all
information in the Schedules hereto) is, or will be, false or misleading, and
such information includes all facts required to be stated therein or necessary
to make the statements therein not misleading. No representation or warranty
by or on behalf of AMRE contained in this Agreement, and no statement contained
in any certificate, list, exhibit, or other instrument furnished or to be
furnished to AMRE pursuant hereto contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material facts which are
necessary in order to make the statement contained herein or therein, in light
of the circumstances under which they are made, not misleading. The breach of
this Section 2.11 will not result in a breach of this Agreement or any
condition or covenant herein except where such breach would have a Material
Adverse Effect on AMRE.
2.12 Continuity of Business Enterprise. AMRE and Merger Sub will
continue to operate at least one historic business line, or to use at least a
significant portion of the Company's historic business assets in a business, in
each case within the meaning of Treasury Regulation Section 1.368-1(d).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders jointly and severally represent
and warrant to AMRE and Merger Sub as follows:
3.1 Organization, Qualification and Authority.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Virginia, and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as now
being conducted. The Company is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its
activities make such qualification
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necessary. However, the failure to be so qualified or in good standing
in any jurisdictions will not be deemed to be a breach of this Section
3.1(a) unless the failure of the Company to be in good standing in any
such jurisdiction individually or in all such jurisdictions collectively
has or is likely to have a Material Adverse Effect upon the Company or
on the transactions contemplated herein.
(b) The Company has the requisite corporate and other
power and authority to enter into this Agreement and, subject to
obtaining any necessary shareholder approval of the Merger as required
by the Virginia Law or the ESOP plan document, ERISA or the Code, to
perform its obligations hereunder. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board
of Directors of the Company, and no other corporate proceedings on the
part of the Company are necessary for the execution and delivery of this
Agreement by the Company, and, subject to obtaining any necessary
shareholder approval of the Merger as required by Virginia Law, ERISA
(as defined herein), the ESOP plan document, and the Code, the
consummation by the Company of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and
the Shareholders (assuming that it has been duly executed and delivered
by AMRE and Merger Sub) and, subject to obtaining any necessary
shareholder approval of the Merger, constitutes a legal, valid and
binding obligation of the Company and the Shareholders, enforceable
against the Company and the Shareholders in accordance with its terms
except as enforcement thereof may be limited by ERISA, the ESOP, the
Code, liquidation, conservatorship, bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion.
3.2 Authorized Capitalization of the Company. The authorized
capital stock of the Company consists of 1,000 Shares of Company Common Stock,
and 700 Shares of Company Preferred Stock. As of December 29, 1995, there were
499 Shares Company of Common Stock and 700 Shares of Company Preferred Stock
issued and outstanding. The Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or
which are convertible into or exercisable for securities having the right to
vote) with the shareholders of the Company on any matter. All issued and
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive or rescission rights. Except
as disclosed on Schedule 3.2, (i) there are no outstanding or authorized
subscriptions, options, warrants, calls, rights (including any preemptive
rights), commitments, or other agreements of any character whatsoever which
obligate or may obligate the Company to issue or sell any additional shares of
its capital stock or any securities convertible into or evidencing the right to
subscribe for any shares of its capital stock or securities convertible into or
exchangeable for such shares; (ii) there are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar plans or contracts
or rights with respect to the Company or any of its subsidiaries which are
effective as of the date hereof or which have been executed or agreed to as of
the date hereof with an effective date after the date hereof; and (iii) there
are no shareholders' agreements, voting trusts, proxies or other agreements or
understandings with respect to the voting of the capital stock of the Company
to which the Company or any of the Shareholders is or are a party which are
presently
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effective or have been executed or agreed to as of the date hereof and provide
for an effective date after the date hereof or to which any officer or director
of the Company or any stockholder owned or controlled by such officer or
director is or will be a party in accordance with the terms hereof.
3.3 HSR Applicability. The Company does not meet the applicable
"size of person" test established under the Hart Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT").
3.4 Owned Interests. The Company does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity other than
investments in short term investment securities.
3.5 Consents; Effect of Agreement. The execution, delivery and
performance of this Agreement by the Company and the Shareholders and the
consummation by the Company of the transactions contemplated hereby will not
require any notice to, filing with, or the consent, approval or authorization
of any person or governmental authority, except for filings required under the
Virginia Law. Except as set forth in Schedule 3.5, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in the acceleration or termination of, or
the creation in any party of the right to accelerate, terminate, modify or
cancel, any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which the Company is a party or is bound or to which
any of its assets are subject, (ii) conflict with, violate or result in a
breach of any provision of the charter documents or bylaws of the Company,
(iii) or to the best knowledge of the Company and the Shareholders, conflict
with or violate any law, rule, regulation, ordinance, order, writ, injunction
or decree applicable to the Company or by which any of its properties or assets
is bound or affected or (iv) conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or result in the creation of any lien, charge or
encumbrance on any of the properties or assets of the Company pursuant to any
of the terms, conditions or provisions of any indenture, contract, lease,
sublease, loan agreement, note, permit, license, franchise, agreement or other
instrument, obligation or liability to which the Company or any Shareholder is
a party or by which the Company or any of its assets is bound or affected.
3.6 Financial Statements.
(a) The Company has delivered to AMRE and Merger Sub or
their representatives audited consolidated financial statements of the
Company as of December 31, 1994, and for the year then ended, including,
without limitation, a statement of operations and changes in
stockholders' equity (deficit), balance sheet, statement of operations
and changes in stockholders' equity, balance sheet, statement of cash
flows, and all notes relating thereto (the "1994 FINANCIAL STATEMENTS")
which have been audited by Deloitte & Touche LLP, the independent public
accountants of the Company.
(b) The Company has also delivered to AMRE and Merger Sub
or their representatives unaudited consolidated financial statements of
the Company as of
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September 30, 1995, and for the 9-month period then ended, consisting of
a balance sheet and statement of operations, (the "INTERIM FINANCIAL
STATEMENTS") certified by the President of the Company .
(c) The 1994 Financial Statements and the Interim
Financial Statements (collectively, the "FINANCIAL STATEMENTS") (i) are
in accordance with the books and records of the Company, and (ii) except
as set forth therein (including the notes thereto), fairly present in
accordance with generally accepted accounting principles, the financial
position and results of operations or the Company as of and for the
periods indicated except for the lack of notes to the Interim Financial
Statements, consistently applied throughout the periods involved.
(d) There are no liabilities of the kind required by
generally accepted accounting principles to be reflected, noted or
reserved against on the balance sheets of the Company as of December 31,
1994 and September 30, 1995, except those which have been reflected,
noted or reserved against in the Financial Statements or except as are
disclosed in Schedule 3.6(d). Except as set forth in Schedule 3.6(d),
or as incurred in the ordinary course of business, the Company has no
material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be
reflected on or reserved against, in a balance sheet of the Company or
in the notes thereto prepared in accordance with generally accepted
accounting principles consistently applied. Except as set forth in
Schedule 3.6(d), all liabilities of the Company can be prepaid without
penalty at any time.
(e) Except for the reserves applicable thereto, the notes
and accounts receivable of the Company included on the Interim Financial
Statements, other than those collected prior to the Effective Time,
will, as of the Effective Time, constitute valid and collectible
receivables and are not subject to any defense or setoff.
3.7 Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.7, since September 30, 1995, the Company has conducted its business
only in the ordinary course of business, and:
(a) the Company has not incurred any obligation or
liability in excess of $20,000 (contingent or otherwise), except current
liabilities incurred in the ordinary course of business;
(b) the Company has not discharged or satisfied any lien
or encumbrance or paid any obligation or liability (contingent or
otherwise) in excess of $20,000, except current liabilities outstanding
on the applicable date set forth above, current liabilities incurred
since such date in the ordinary course of business and obligations and
liabilities under contracts listed in Schedule 3.12 hereto;
(c) the Company has not mortgaged, pledged or subjected
to lien, charge, security interest or other encumbrance any of its
assets or properties, except in the ordinary course of business;
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(d) the Company has not sold, transferred, leased or
otherwise disposed of any of its assets or properties, except in the
ordinary course of business and for a fair consideration;
(e) the Company has not canceled or compromised any debt
owed to it or claimed by it, except in the ordinary course of business;
(f) the Company has not knowingly and expressly waived or
released any rights of substantial value;
(g) the Company has not sold, assigned, transferred or
granted any rights under any licenses, franchises, patents, inventions,
trademarks, service marks, trade names, or copyrights or rights with
respect to any know-how or other intangible assets, which sale,
assignment, transfer or grant would have a Material Adverse Effect on
the Company;
(h) the Company has not amended or terminated any
contract, franchise, agreement or license to which it is a party, which
amendment or termination would have a Material Adverse Effect on the
Company;
(i) the Company has not knowingly disposed of or
permitted to lapse any rights for the use of any patent, trademark,
service mark, trade name or copyright or knowingly disposed of or
disclosed to any person not an employee, supplier, broker, distributor
or customer any trade secret, process or know-how not theretofore a
matter of public knowledge, which dispositions or disclosures would have
a material adverse effect on its operations;
(j) the Company has not terminated the employment of any
department head or officer of the Company or entered into (i) any
written employment agreement not terminable without penalty by any party
thereto upon 60 days' notice, or (ii) any oral employment agreement not
terminable without penalty by any party thereto upon 60 days' notice;
(k) the Company has not increased the rate of
compensation or bonus payments payable or to become payable to any of
its officers or directors (including, without limitation, any payment of
or promise to pay any bonus or special compensation) other than in the
ordinary course of business;
(l) the Company has not declared any dividend or made any
payment or distribution to its shareholders;
(m) the Company has not purchased, redeemed, issued, sold
or otherwise acquired or disposed of any of its shares of capital stock
or other equity securities, or agreed to do so, or granted any options,
warrants or other rights to purchase or convert any obligation into any
shares of its capital stock or any evidence of indebtedness or other
securities;
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(n) the Company has not entered into any other
transaction, contract or commitment other than in the ordinary course of
business;
(o) the Company has not agreed to do any of the things
described in the preceding clauses (a) through (n);
(p) there has not been any Material Adverse Effect on the
Company; and
(q) there has not been any damage, destruction or loss of
or to any material asset of the Company, whether or not covered by
insurance.
3.8 Taxes.
(a) Except as disclosed in Schedule 3.8 hereto, the
Company has timely filed or caused to be timely filed (including
allowable extensions) all federal, state, local, foreign and other tax
returns for income taxes, sales taxes, withholding taxes, employment
taxes, property taxes, franchise taxes and all other taxes of every kind
whatsoever which are required by law to have been filed. All of the tax
returns that have been filed accurately reflect in all material respects
the facts regarding the income, deductions, credits, assets, operations,
activities and all other matters and information required to be shown
thereon. The Company has paid or caused to be paid all taxes,
assessments, fees, penalties and other governmental charges which were
shown to be due pursuant to said returns. All other material taxes and
related assessments, fees, penalties and other governmental charges
which have become due and payable have been paid or are being contested
in good faith. The Company has not filed or entered into any election,
consent or extension agreement that extends the applicable statute of
limitations with respect to its liability for taxes, except as set forth
in Schedule 3.8 hereto. The provisions for income and other taxes
reflected in the balance sheet included in the Financial Statements make
adequate provision for all accrued and unpaid taxes of the Company,
whether or not disputed, and the Company has made and will continue to
make adequate provision for such taxes on its books and records until
the Effective Time, including any taxes arising from the transactions
contemplated by this Agreement; provided however, no provision has been
made or will be made in the Financial Statements or the Subsequent
Company Financials for any taxes resulting from any tax election made by
the Surviving Corporation subsequent to the Effective Time. Except as
set forth in Schedule 3.8, the Company is not party to any action or
proceeding pending or, to the best knowledge of the Company and the
Shareholders, threatened by any governmental authority for assessment or
collection of taxes; no unresolved claim for assessment or collection of
such taxes has been asserted against the Company, and, to the best
knowledge of the Company and the Shareholders, no audit or investigation
by state or local government authorities is under way that would have a
Material Adverse Effect on the Company.
(b) The Company has not filed and will not file prior to
the Effective Time any consent agreement under Section 341(f) of the
Code or agree to have Section 341(f)(2) of the Code apply to any
disposition of a "subsection (f) asset" (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company.
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(c) The Company is not a party to any tax-sharing or
allocation agreement. In addition, the Company does not owe any amounts
under any tax-sharing or allocation agreement.
(d) The Company has made no payments, is not obligated to
make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will
not be deductible by reason of Section 280G of the Code.
(e) Since June 1993 (prior to which time the Company
filed consolidated returns with its parent company, Kenwood Financial,
Inc.), the Company has not been a member of an affiliated group within
the meaning of Section 1502 of the Code during any part of any
consolidated return year and has not had, and to the best knowledge of
the Company and the Shareholders, does not currently have any liability
for unpaid taxes because it once was a member of an affiliated group.
(f) The Company is not and has not been a United States
real property holding corporation within the meaning of Section
897(c)(2) during the applicable period specified in Section
897(c)(1)(A)(ii).
3.9 Real Property.
(a) Schedule 3.9 contains a complete and accurate list of
as of November 30, 1995 of all real property owned or leased by the
Company (the "SCHEDULE 3.9 PROPERTY"). Except as otherwise disclosed in
Schedule 3.9 and except for liens for taxes not yet due and payable and
title defects which could not reasonably be expected to have any
material adverse effect on the Schedule 3.9 property or the use thereof,
the Schedule 3.9 property owned by the Company is free and clear of all
liens, mortgages, pledges, security interests, conditional sales
agreements, charges, encumbrances and other adverse claims or interests
of any nature whatsoever. All improvements on the Schedule 3.9 property
are in good condition and repair, reasonable wear and tear excepted.
(b) Except as disclosed in Schedule 3.9, there are no
existing leases, subleases, tenancies, licenses and other material
contracts or agreements relating to the Schedule 3.9 property to which
the Company is a party (the "LEASES").
(c) Except as disclosed in Schedule 3.9, (i) each of the
Leases is valid, and neither the Company nor, to the knowledge of the
Company or the Shareholders, any other party thereto is in default
thereunder, nor is there any event which with notice or lapse of time,
or both, would constitute a default thereunder by the Company or, to the
knowledge of the Company or the Shareholders, any other party thereto
(other than with respect to immaterial matters of noncompliance) and
(ii) the Company has not received notice that any party to any Lease
intends to cancel, terminate or refuse to renew the same or to exercise
or decline to exercise any option or other right thereunder.
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(d) None of the Schedule 3.9 property has ever been used
by the Company or, to the best knowledge of the Company or the
Shareholders, by any previous owners and/or operators to generate,
manufacture, refine, produce, store, handle, transfer, process or
transport any hazardous wastes or substances and the Company has not
used in the past any of the Schedule 3.9 property for the principal or
primary purpose of generating, manufacturing, refining, producing,
storing, handling, transferring, processing or transporting of hazardous
wastes or substances.
(e) The Company has all easements of ingress and egress
necessary for all operations conducted by it from the real properties
referred to in Schedule 3.9; and none of such properties has been
condemned, requisitioned or otherwise taken by any public authority, and
to the knowledge of the Company or the Shareholders, no such action is
threatened or contemplated.
3.10 Environmental.
(a) To the best knowledge of the Company and the
Shareholders, the Company has not used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials
on, under, at, from, or in any way affecting any of the owned, leased or
operated properties or assets described in Schedules 3.9 and 3.11, or
otherwise, in any manner which violated any applicable Environmental
Law.
(b) There have been no Releases by the Company of any
Hazardous Material on, under, at, from or in any way affecting any of
the owned, leased or operated properties or assets described in
Schedules 3.9 and 3.11 or otherwise.
(c) To the best knowledge of the Company and the
Shareholders, the Company is in material compliance with all applicable
Environmental Laws, and the Company has not received any communication,
written or oral, that alleges that the Company is not in compliance with
applicable Environmental Laws.
(d) The Company does not have any liabilities, assessed
or to the best knowledge of the Company and the Shareholders,
unassessed, no pending claims have been received by the Company and at
present no outstanding citations or notices have been received by the
Company, which in the case of any of the foregoing have been or are
imposed by reason of or based upon any provision of any applicable
Environmental Laws, including, but not limited to, any such liabilities
relating to or arising out of or attributable, in whole or in part, to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, presence or handling of any Hazardous Materials by
the Company at any of the Schedule 3.9 property or otherwise.
(e) There are no proceedings by any governmental
authority or third party pending regarding pollution or protection of
human health or the environment to which the Company is a party, nor are
there any decrees, or orders, or other administrative or judicial
requirements, outstanding under any Environmental Law with respect to
the Company.
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(f) To the best knowledge of the Company and the
Shareholders, the real property currently used, owned or leased by the
Company contains no underground storage tanks, or underground piping
associated with underground storage tanks.
(g) To the best knowledge of the Company and the
Shareholders, the Company has obtained and is in material compliance
with all permits, licenses and other authorizations and has made all
registrations and given all notifications that are required under
Environmental Laws, and is in compliance with all terms and conditions
of such permits, licenses and other authorizations. No notice to,
approval of or authorization or consent from any governmental authority
is necessary for the transfer of or modification to any such permit, and
the consummation of the transaction contemplated by this Agreement will
not violate, alter, impair or invalidate, in any respect, any such
permit.
(h) To the best knowledge of the Company and the
Shareholders, except as previously disclosed, there are no environmental
reports, audits, investigations or assessments of the Company or any
real or personal property or operations which are now or have been
previously owned, leased, operated or managed by the Company.
(i) The Company has disclosed to AMRE and Merger Sub all
relevant material facts of which it or the Shareholders has knowledge
regarding potential or actual environmental liabilities of the Company.
3.11 Personal Property.
(a) Schedule 3.11 contains a complete and accurate list
as of November 30, 1995, of all personal property owned by the Company
and all personal property whether owned or subject to any (i) lease,
(ii) license, (iii) rental agreement, (iv) contract of sale or (v)
other agreement to which the Company is a party. The personal property
set forth on Schedule 3.11, other than personal property disposed of in
the ordinary course of business since November 30, 1995, all other
personal property acquired by the Company since November 30, 1995 and
all personal property subjected, subsequent to November 30, 1995, to any
of the agreements described in (i) through (v) of the preceding sentence
is hereafter referred to as the "SCHEDULE 3.11 PROPERTY".
(b) Except as otherwise described in Schedule 3.11 or as
may be disclosed in the Financial Statements, the Schedule 3.11 property
is (i) free and clear of all liens, other than liens for taxes not yet
due and payable, mortgages, pledges, security interests, conditional
sales agreements, charges, encumbrances and other adverse claims or
interests of any nature whatsoever (other than any immaterial items),
and (ii) is in good operating condition and repair, reasonable wear and
tear excepted. The Schedule 3.11 property, taken as a whole, is fit and
usable for the purposes for which it is being used, sufficient for all
current operations and business of the Company and conforms with all
applicable ordinances, regulations and laws. Each lease, license,
rental agreement, contract of sale or other agreement to which any
Schedule 3.11 property is subject is valid and neither the Company nor,
to the best knowledge of the Company or the Shareholders, any other
party thereto is in default thereunder, nor is there any event which
with notice or lapse of time, or both, would constitute a default
thereunder by the
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Company or, to the best knowledge of the Company or the Shareholders,
any other party thereto. The Company has not received notice that any
party to any such lease, license, rental agreement, contract of sale or
other agreement intends to cancel, terminate or refuse to renew the same
or to exercise or decline to exercise any option or other right
thereunder.
(c) The inventory of the Company as reflected by the
Company Financials and the inventory as the same shall exist on the date
hereof, consisted and will consist of items which were and will be of
the usual quality and quantity necessary for the normal conduct of the
business of the Company and is reasonably expected to be usable or
saleable within a reasonable period of time in the ordinary course of
the business of the Company. With respect to inventory in the hands of
suppliers for which the Company is committed as of the date hereof, such
inventory is reasonably expected to be usable within 90 days in the
ordinary course of the business of the Company as presently being
conducted.
3.12 Contracts. Schedule 3.12 contains a complete and accurate
list of each of the following to which the Company is a party or by which it or
its assets is bound:
(a) material oral contracts;
(b) mortgages, security agreements, chattel mortgages or
conditional sales agreements or any similar instruments or agreements,
involving a present or future obligation of an amount in excess of
$10,000;
(c) agreements, commitments, notes, indentures or other
instruments relating to the borrowing of money, or the guaranty of any
such obligations for the borrowing of money;
(d) joint venture or other agreements with any person,
firm, corporation or unincorporated association doing business either
within or outside the United States relating to sharing of present or
future commissions, fees or other income or profits;
(e) leases of personal property to the Company, involving
a present or future obligation of an amount in excess of $10,000;
(f) franchise agreements;
(g) non-competition agreements relating to independent
contractors and employees other than non-competition agreements which
are identical in all material respects to the standard Company
non-competition agreement;
(h) broker or distributorship contracts;
(i) advertising, marketing and promotional agreements
(including, but not limited to, any agreements providing for discounts
and/or rebates), involving a present or future obligation of an amount
in excess of $10,000; or
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(j) agreements with suppliers, involving a present or
future obligation of an amount in excess of $10,000.
Except as disclosed in Schedule 3.12, each of the above is valid and
enforceable, to the best knowledge of the Company and the Shareholders, the
Company has performed all obligations imposed upon them thereunder, and neither
the Company nor, to the best knowledge of the Company or the Shareholders, any
other party thereto (other than immaterial defaults, with respect to such third
parties) is in default thereunder, nor is there any event which with notice or
lapse of time, or both, would constitute a default thereunder by the Company
or, to the best knowledge of the Company or the Shareholders, any other party
thereto.
3.13 Legal Proceedings. Except as set forth in Schedule 3.13,
there are no claims, actions, suits, arbitrations, grievances, proceedings or
investigations pending or, to the best knowledge of the Company or the
Shareholders, threatened against the Company, at law, in equity, or before any
federal, state, municipal or other governmental or nongovernmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and
there are no outstanding or unsatisfied judgments, orders, decrees or
stipulations to which the Company is a party, which involve the transactions
contemplated herein or which, if adversely decided, would have a Material
Adverse Effect upon the Company. Except as set forth in Schedule 3.13, the
Company is not currently engaged in or contemplating any legal action to
recover moneys due or damages sustained. The Company is not in violation of or
in default with respect to any applicable judgment, order, writ, injunction or
decree the violation of which would have a Material Adverse Effect on the
Company.
3.14 Labor Matters. Except as set forth on Schedule 3.14 attached
hereto, the Company is not a party to, nor bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to the best knowledge of the Company, threatened against
the Company relating to its business. To the best knowledge of the Company and
the Shareholders, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of Company.
3.15 Patents, Trademarks, Franchises, etc. A true and complete
list of (i) all patents, patent applications, patent agreements, license
arrangements relating to patents, consulting agreements relating to patents,
trademark registrations and applications therefor, trade names, service marks
and copyright registrations and applications therefor, and franchises and
franchise agreements to which the Company is a party or which are used in its
businesses and are owned by or licensed to the Company and (ii) any
interference actions or adverse claims made or, to the best knowledge of the
Company or the Shareholders, threatened in respect thereof and any claims made
or, to the best knowledge of the Company or the Shareholders, threatened for
alleged infringement thereof, is set forth in Schedule 3.15. All patents and
trademarks listed on Schedule 3.15 as being owned by the Company and registered
in the U.S. Patent and Trademark Office have been duly issued or registered
therein, all such registrations have been validly issued and all are in full
force and effect. The Company in its operations does not to the best knowledge
of the Company and the Shareholder infringe any valid patent, trademark, trade
name, service mark or copyright of any other person or entity. All agreements
listed in Schedule 3.15 are valid and enforceable, the Company has currently
performed all obligations
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imposed upon it thereunder, and the Company nor, to the best knowledge of the
Company or the Shareholders, any other party thereto is in default thereunder,
nor is there any event which with notice or lapse of time, or both, would
constitute a default thereunder by the Company or, to the best knowledge of the
Company or the Shareholders, any other party thereto. The Company has not
received notice that any party to any such agreement intends to cancel,
terminate or refuse to renew the same or to exercise or decline to exercise any
option or other right thereunder.
3.16 Loans, Notes, Accounts Receivable and Accounts Payable. To
the best knowledge of the Company and the Shareholders, the loans, notes and
accounts receivable reflected in the Financial Statements and all such loans,
notes and accounts receivable arising after the applicable dates of such
Financial Statements arose, and have arisen, from bona fide transactions of the
Company. Accounts payable of the Company reflected in such Financial
Statements and all accounts payable arising after the applicable dates of such
Financial Statements arose, and have arisen, from bona fide transactions.
3.17 Corporate Documents, Books and Records. Each of (i) the
Articles of Incorporation and bylaws of the Company, attached hereto as Exhibit
A and Exhibit B, respectively, including all amendments thereto; (ii) the
minute books of the Company; and (iii) the stock transfer book of the Company,
are true, correct and complete in all material respects.
3.18 Absence of Sensitive Payment. The Company has not made or
maintained (i) any contributions, payments or gifts of its funds or property to
any governmental official, employee or agent where either the payment or the
purpose of such contribution, payment or gift was or is illegal under the laws
of the United States or any state thereof, or any other jurisdiction (foreign
or domestic); or (ii) any contribution, or reimbursement of any political gift
or contribution made by any other person, to candidates for public office,
whether federal, state, local or foreign, where such contributions by the
Company were or would be a violation of applicable law.
3.19 Insurance. The properties and employees of the Company are
insured by the insurers or through the funds and with the types and amounts of
insurance (including, but not limited to, property, professional liability,
automobile, workers compensation, business interruption and excess indemnity
insurance) set forth in Schedule 3.19 (the "COMPANY INSURANCE COVERAGE").
Since January 1, 1993, the Company has not failed or does not currently fail to
maintain any insurance coverage which may be required by the laws of the states
in which the Company does business. The premiums due on the insurance which
covers calendar year 1995 have been paid in full (or are not delinquent) and
the premiums due for the period from January 1, 1996 to the Effective Time have
been or will be paid in full as and when due. All such insurance complies in
all material respects with the terms of each of its leases and each of the
mortgages, deeds of trust, service agreements with third parties and/or loan
agreements to which Company is a party.
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3.20 Employees.
Except as disclosed in Schedule 3.20, the Company is not a
party to any:
(a) management, employment or other contract providing
for the employment or rendition of executive services;
(b) contract for the employment of any employee which is
not terminable by the Company on 60 days' notice;
(c) material bonus, incentive, deferred compensation,
severance pay, pension, profit-sharing, retirement, stock purchase,
stock option, employee benefit or similar plan, agreement or
arrangement; or
(d) any other current employment contract or other
compensation agreement or arrangement affecting or relating to current
or former employees of the Company.
3.21 Employee Benefit Plans. (a) All employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), all arrangements providing compensation, severance or
other benefits to any employee or director or former employee or director of
the Company or of any ERISA Affiliate of the Company (the "COMPANY BENEFIT
PLANS") are listed in Schedule 3.21. Unless otherwise disclosed in Schedule
3.21, to the extent applicable, any Company Benefit Plan intended to be
qualified under Section 401(a) of the Code has been determined by the Internal
Revenue Service (the "IRS") to be so qualified and no such Company Benefit Plan
has been amended in any way that would alter its qualified status. Neither the
Company nor any ERISA Affiliate of the Company (during the period of its
affiliated status and prior thereto, to its knowledge) maintains, contributes
to or has in the past maintained or contributed to any benefit plan which is
covered by Title IV of ERISA or Section 412 of the Code. No Company Benefit
Plan nor the Company nor any fiduciary has had imposed any liability or penalty
under Section 4975 of the Code or Section 502(i) or 409 of ERISA. To the best
knowledge of the Company and the Shareholders after diligent inquiry, each
Company Benefit Plan has been maintained and administered in all material
respects in compliance with its terms and with ERISA and the Code to the extent
applicable thereto. There are no pending or anticipated claims against or
otherwise involving any of the Company Benefit Plans and no suit, action or
other liability (excluding claims for benefits incurred in the ordinary course
of Company Benefit Plan activities) has been brought against or with respect to
any such Company Benefit Plan, except for any of the foregoing which could not
reasonably be expected to have a Material Adverse Effect on the Company. All
contributions required to be made as of the date hereof to Company Benefit
Plans have been timely made or provided for. All required payments of
principal and interest under any loan to a Company Benefit Plan that is an
employee stock ownership plan have been timely made and no default has occurred
under any such loan other than defaults that have been waived by the applicable
lender or remedied, written evidence of which reasonably satisfactory to AMRE
shall have been provided to AMRE prior to the Effective Date. Neither the
Company nor any ERISA Affiliate of the Company has contributed to, or been
required to
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contribute to, any "multiemployer plan" (as defined in Sections 3(37) and
4001(a)(3) of ERISA). Except for benefits as may be required to be provided
under applicable provisions of federal or state law, there are no plans or
arrangements which provide or has any liability to provide life insurance or
medical or other employee welfare benefits to any employee or former employee
upon his retirement or termination of employment. The only severance
agreements or severance policies applicable to the Company are the agreements
and policies specifically referred to in Schedule 3.20 (and, in the case of
such agreements, the form of which is attached to Schedule 3.20).
(b) True and correct copies of the following documents relating to
Company Benefit Plans will be made available to AMRE or its representatives
including, without limitation, the following: (i) any and all plan documents,
ancillary documents, trust instruments and insurance contracts, together with
amendments or other agreements relating to rights or obligations thereunder,
(ii) any or all of the most recent summary plan descriptions, summary of
material modifications, memoranda to employees, forms or other written
description or disclosure to participants with respect to each plan, (iii) any
and all filings and correspondence within the last two years, and the most
recent determination letters, written rulings, interpretations or other
pronouncements with or from any governmental agency, including the IRS and the
Department of Labor, or any Company Benefit Plan of the Company or any ERISA
Affiliate of the Company or any of their trustees, representatives or
fiduciaries, (iv) copies of any complaint or other action initiating a lawsuit
or any written claims and correspondence threatening or which would reasonably
be expected to result in a lawsuit filed with any court with respect to any
such lawsuit, and (v) loan documents and stock purchase documents relating to
any employee stock ownership plan.
For purposes of this Agreement "ERISA AFFILIATE" means any business or
entity which is a member of the same "controlled group of corporations," is
under "common control" or is a member of an "affiliated service group" with an
entity within the meanings of Sections 414(b), (c) or (m) of the Code, or
required to be aggregated with the entity under Section 414(o) of the Code, or
is under "common control" with the entity, within the meaning of Section
4001(b) of ERISA, or any regulations promulgated or proposed under any of the
foregoing Sections.
3.22 Transactions with Related Parties. Except for transactions
disclosed in Schedule 3.22, there have been no loans or other transactions
between the Company and any officer, director or shareholder of the Company.
Except as disclosed in Schedule 3.22, neither the Company, any officer or
director of the Company nor any spouse or relative of any such person owns or
has any interest in, directly or indirectly, any real or personal property
owned by or leased to the Company or any copyrights, patents, trademarks,
service marks, trade names or trade secrets licensed by the Company.
3.23 Directors and Officers; Banks. Schedule 3.23 contains a true
and complete list showing (i) the names of all the officers and directors of
the Company; (ii) the name of each bank in which the Company has an account or
a safety deposit box and the names of the persons authorized to draw thereon or
having access thereto; and (iii) the name of each
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person holding a general or limited power of attorney from the Company and the
extent of such power.
3.24 Ownership, Quality and Location of Material Assets. The
Company does not utilize in its business any assets not reflected in the
Financial Statements except for assets which have been fully amortized or
depreciated and which are owned or leased by the Company and franchises,
licenses, trademarks and tradenames. Except as set forth in Schedule 3.24, all
properties and assets of the Company are in the possession and control of the
Company. As of the date hereof, except as set forth in Schedule 3.24, no
physical assets of any value are on the premises at the locations operated by
the Company which do not belong to or are not leased by the Company.
3.25 Absence of Undisclosed Liabilities. The Company does not have
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
not disclosed elsewhere herein or in the Schedules hereto or adequately
reflected or reserved against in the Financial Statements, other than current
liabilities incurred in the ordinary course of business since November 30,
1995.
3.26 No Brokers. Neither the Company nor the Shareholders has
retained any broker or finder in connection with the transactions contemplated
by this Agreement. If any other broker or finder asserts a claim for a fee as
a result of such transactions, based upon a contract, written or oral, with
either the Company or any of the Shareholders, such claim shall be payable by
the Shareholders.
3.27 Permits. Except as specifically set forth in Schedule 3.27,
to the best knowledge of the Company and the Shareholders, (a) the Company has
all material licenses, clearances, permits, franchises, grants, authorizations,
easements, consents, certificates and orders necessary to conduct its business
and to operate its properties and assets, and such licenses, clearances,
permits, franchises, grants, authorizations, easements, consents, certificates
and orders are in full force and effect; (b) no material violations exist in
respect of any license, clearance, permit, franchise, grant, authorization,
easement, consent, certificate or order of the Company; (c) no proceeding is
pending or threatened looking toward the revocation or limitation of any such
license, clearance, permit, franchise, grant, authorization, easement, consent,
certificate or order and there is no basis or ground for any such revocation or
limitation except as specifically set forth in Schedule 3.27. Except as
specifically set forth in Schedule 3.27, the Company has complied with all
laws, rules, regulations, ordinances, codes, licenses, clearances, permits,
franchises, grants, authorizations, easements, consents, certificates and
orders relating to any of its properties or applicable to its business,
including, but not limited to, labor, equal employment opportunity,
occupational safety and health, consumer protection, environmental, securities
and antitrust laws and regulations. The Company is not in violation of any
applicable zoning, building or environmental regulation, ordinance or other
law, order, regulation, restriction or requirement relating to its operations
or properties, whether such properties are owned or leased, and no governmental
body or other person has claimed that any such violation exists, or called
attention to the need for any work, repairs, construction, alterations or
installation on or in connection with the properties of the Company. Neither
the Company nor the Shareholders has any knowledge of any pending or threatened
action or proceeding which
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could result in a modification or termination of the zoning laws which
modification or termination would adversely affect the Company or any of its
property. The breach of this Section 3.27 will not result in a breach of this
Agreement or any condition or covenant herein except where such breach would
have a Material Adverse Effect on the Company.
3.28 Shareholder Information. None of the information to be
distributed to shareholders of the Company in connection with the Merger nor
any amendments or supplements of or to any of the foregoing (collectively, the
"SHAREHOLDER INFORMATION"), between the date the Shareholder Information is
first mailed to shareholders and the Effective Time, will contain any material
statement which, at such time and in light of the circumstances under which it
is made, will be false or misleading with respect to any material fact, or will
omit to state any fact necessary in order to make the statements therein not
false or misleading, provided however, that the Company and the Shareholders
make no representation or warranty with respect to any information that AMRE or
Merger Sub will independently supply for use in the Shareholder Information.
3.29 Full Disclosure. No material information furnished, or to be
furnished, by either the Company or any of the Shareholders to AMRE or Merger
Sub or their representatives in connection with this Agreement (including, but
not limited to, the Financial Statements and all information in the Schedules
hereto) is, or will be, false or misleading, and such information includes all
facts required to be stated therein or necessary to make the statements therein
not misleading. No representation or warranty by or on behalf of the Company
contained in this Agreement, and no statement contained in any certificate,
list, exhibit, or other instrument furnished or to be furnished to AMRE
pursuant hereto contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material facts which are necessary in
order to make the statement contained herein or therein, in light of the
circumstances under which they are made, not misleading. The breach of this
Section 3.29 will not result in a breach of this Agreement or any condition or
covenant herein except where such breach would have a Material Adverse Effect
on the Company.
3.30 Dividend Payments. Except as set forth in Schedule 3.30
hereto, as of December 29, 1995, the Company has timely paid or made all
dividends and other distributions on the Company Preferred Stock.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, prior to the Effective Time, unless AMRE and
Merger Sub shall otherwise agree in writing or as otherwise expressly
contemplated by this Agreement:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business, and the Company shall use commercially reasonable
efforts to maintain and preserve its
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business organization, assets, prospects, employees and advantageous
business relationships;
(b) The Company shall not, directly or indirectly, do any
of the following: (i) authorize for issuance, issue, sell, pledge,
deliver, or agree or commit to issue, sell, pledge or deliver (whether
through the issuance or grant of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any capital stock of
the Company or securities or rights convertible into or exchangeable
for, shares of capital stock or securities convertible into or
exchangeable for such shares; (ii) pledge, dispose of or encumber,
except in the ordinary course of business, any assets of the Company
(including any indebtedness owed to it or any claims held by it);
(iii) amend or propose to amend its Articles of Incorporation or
bylaws or similar organizational documents, except as may be necessary
in the opinion of the Board of Directors of the Company, counsel to
the Company and, to the extent applicable, the ESOP Trustee and its
ESOP counsel in order to effectuate the transactions contemplated
herein; (iv) split, combine or reclassify any shares of its capital
stock or declare, set aside or pay any dividend or distribution,
payable in cash, stock, property or otherwise, with respect to any of
its capital stock, except as in the ordinary course of the operation
of the ESOP; (v) redeem, purchase or otherwise acquire or offer to
redeem, purchase or otherwise acquire any capital stock of the
Company; (vi) transfer any assets or liabilities to any affiliate; or
(vii) authorize or propose any of the foregoing or enter into any
contract, agreement, commitment or arrangement to do any of the
foregoing;
(c) The Company shall not, directly or indirectly, (i)
acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or
division thereof or make any investment either by purchase of stock or
securities, contributions to capital, property transfer or purchase of
any amount of property or assets of any other individual or entity;
(ii) acquire any assets for a value in excess of $10,000 other than in
the ordinary course of business; (iii) dispose of any assets with a
value in excess of $10,000 other than in the ordinary course of
business; (iv) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other
individual or entity, make any loans or advances or enter into any
other transaction, except in the ordinary course of business and
consistent with past practice; (v) authorize, recommend or propose any
change in its capitalization or any release or relinquishment of any
contract right; or (vi) authorize or propose any of the foregoing or
enter into or modify any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(d) The Company shall not enter into or adopt any new, or
amend any existing, severance or termination benefit arrangements,
consulting agreements, any employment benefit plans, or arrangement,
other than in the ordinary course of business;
(e) Without the prior written consent of AMRE, which
consent shall not be unreasonably withheld, the Company (except for
routine salary increases or other
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adjustments to employee benefit arrangements in the ordinary course of
business) shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement,
trust, plan, fund or other arrangement for the benefit or welfare of
any employee or increase or pay any benefit not required by any
existing plan and arrangement, including without limitation any
Company Benefit Plan as defined in Section 3.21 hereof;
(f) The Company shall not pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company's Financial
Statements or incurred in the ordinary course of business;
(g) The Company shall not waive, release, grant or
transfer any franchises, franchise agreements, patents, patent rights,
trademarks, trademark rights, trade names, trade name rights,
copyrights or know-how or modify or change in any respect any existing
license, lease, contract franchise, franchise agreement or other
document, other than in the ordinary course of business;
(h) The Company shall use commercially reasonable efforts
to preserve its business organization intact, to keep available the
services of its current officers and key employees and to maintain
satisfactory relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having significant
business relationships with the Company;
(i) The Company shall not make capital expenditures in
the aggregate in excess of $20,000.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Registration Statement and Proxies. AMRE and the Company
shall cooperate and promptly prepare and AMRE shall file with the SEC as soon
as practicable following receipt of SEC comments to the Proxy Statement a Proxy
Statement/Registration Statement on Form S-4 (the "FORM S-4") with respect to
the AMRE Common Stock issuable in the Merger, a portion of which Form S-4 shall
serve as the proxy statement with respect to the meeting of the shareholders of
the Company in connection with the Merger (the "JOINT PROXY
STATEMENT/PROSPECTUS"). The respective parties will cause the Joint Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the provisions of the Securities Act, the Exchange Act and the
rules and regulations thereunder. AMRE shall use commercially reasonable
efforts, and the Company will cooperate with AMRE, to have the Form S-4
declared effective by the SEC as promptly as practicable. AMRE shall use
commercially reasonable efforts to obtain, prior to the effective date of the
Form S-4, all necessary state securities law or "Blue Sky" permits or approvals
required to carry out the transactions contemplated by this Agreement and will
pay all expenses incident
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thereto. AMRE agrees that the Joint Proxy Statement/Prospectus and each
amendment or supplement thereto at the time of mailing thereof and at the time
of the meeting of shareholders of the Company, or, in the case of the Form S-4
and each amendment or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state a
material fact was made by AMRE in reliance upon and in conformity with
information concerning the Company or the Shareholders furnished to AMRE by the
Company or the Shareholders in writing specifically for use in the Joint Proxy
Statement/Prospectus. The Company agrees that the written information
concerning the Company provided by it for inclusion in the Joint Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings of the stockholders of AMRE and
the Company, or, in the case of written information concerning the Company
provided by the Company for inclusion in the Form S-4 or any amendment or
supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. No
amendment or supplement to the Joint Proxy Statement/Prospectus or the Form S-4
nor any request for acceleration thereof will be made by AMRE or the Company
without the approval of the other party, except as required by law. AMRE will
advise the Company, promptly after it receives notice, of the time when the
Form S-4 or any post effective supplement or amendment thereto has become
effective, the issuance of any stop order, the suspension of the qualification
of the AMRE Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, any request by the SEC for amendment of the Joint
Proxy Statement/Prospectus or the Form S-4 or requests by the SEC for
additional information and will promptly provide the Company with copies of any
responses filed by AMRE to SEC comments on the Form S-4.
5.2 Letter to the Company's Accountants. The Company shall use
its best efforts to cause to be delivered to AMRE a letter from Deloitte &
Touche LLP, the Company's independent public accountants, dated a date within
two business days before the date on which the Form S-4 shall become effective
and addressed to AMRE and the Company, in form and substance reasonably
satisfactory to AMRE and customary in scope and substance of letters delivered
by independent public accountants in connection with registration statements
similar to the Form S-4.
5.3 Company Board Action. The Joint Proxy Statement/Prospectus
shall state, among other things, that the Board of Directors of the Company has
approved by unanimous vote the Merger Agreement and the Merger.
5.4 Consent of Shareholders of the Company. The Company shall use
its best efforts to take all action necessary, in accordance with the Virginia
Law and its Articles of Incorporation and bylaws, to transmit the Joint Proxy
Statement/Prospectus to its shareholders and obtain its shareholders' approval
of the Merger as promptly as reasonably practicable. Upon approval of the
Merger by the shareholders of the Company in accordance
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with the Virginia Law, the Company shall send to each of its shareholders, at
each shareholder's address as it appears on the Company's records, by certified
or registered mail, return receipt requested, notice in accordance with Section
13.1-734 of the Virginia Law (the "APPRAISAL RIGHTS NOTICE") as to the
Effective Date and the availability of appraisal rights under Article 15 of the
Virginia Law.
5.5 Expenses. All expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses whether or not the Merger is consummated.
5.6 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to (i) use all commercially
reasonable efforts to take, or cause to be taken, all action and (ii) use all
commercially reasonable efforts to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and to cooperate
with each other in connection with the foregoing, (iii) use all commercially
reasonable efforts to obtain all necessary waivers, consents and approvals from
other parties to material loan agreements, leases and other contracts and to
notify each of the other parties hereto of any request for prepayment with
respect thereto; provided however, all commercially reasonable efforts with
respect to obtaining waivers, consents and approvals under loan agreements does
not obligate the parties hereto to make any prepayment on any such loan, (iv)
use all commercially reasonable efforts to obtain all necessary consents,
approvals and authorizations as are required to be obtained under any federal,
state, local or foreign law or regulations, (v) use commercially reasonable
efforts to defend all lawsuits or other legal proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby, (vi) use
all commercially reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby, (vii) use all commercially
reasonable efforts to effect all necessary registrations and filings and
submissions of information required or requested by governmental authorities,
(viii) use all commercially reasonable efforts to cause the Merger to be
treated as a "pooling of interests" for accounting purposes, and (ix) use all
commercially reasonable efforts to cause the Merger to be treated as a Section
368 tax-free reverse triangular merger for federal income tax purposes.
5.7 No Shopping. Subject to fiduciary duties under applicable law
as advised in writing by legal counsel, the Company shall not, directly or
indirectly, through any officer, director, agent, representative or otherwise,
(i) solicit, initiate or encourage submission of proposals or offers from any
person (other than AMRE and Merger Sub), relating to any acquisition or
purchase of all or substantially all of the assets of, or any equity interest
in, the Company or any merger, consolidation, or business combination with the
Company, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person (other than AMRE and Merger Sub) any information with
respect to, any of the foregoing, or (iii) otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing. The Company shall
promptly notify AMRE and Merger Sub in writing as provided herein if it
receives any such proposal or offer or any inquiry or contact with respect
thereto.
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5.8 Notification of Certain Matters. Each party will promptly
give written notice as provided herein to the other parties upon becoming aware
of the occurrence or failure to occur, or impending or threatened occurrence or
failure to occur, of any event that would cause or constitute, or would be
likely to cause or constitute, a breach of any of its representations,
warranties or covenants contained in this Agreement and will use all reasonable
efforts to prevent or promptly remedy the occurrence or failure. No such
notification shall limit or affect the representations, warranties, covenants
or conditions or remedies of the parties hereunder.
5.9 Access to Information.
(a) The Company and the Company's officers, directors,
employees and agents shall afford the officers, employees and agents
of AMRE and Merger Sub complete access at all reasonable times to its
officers, employees, agents, properties, facilities, books, records
and contracts and shall furnish AMRE and Merger Sub all financial,
operating and other data and information as AMRE and Merger Sub
through their officers, employees or agents, may reasonably request.
AMRE and Merger Sub will hold and will cause their respective
representatives to hold in strict confidence all documents and
information concerning the Company furnished to AMRE or Merger Sub in
connection with the transactions contemplated by this Agreement
(except to the extent that such information can be shown to have been
(i) previously known by AMRE or Merger Sub (or their respective
affiliates) prior to its disclosure to AMRE or Merger Sub by the
Company, (ii) in the public domain through no fault of AMRE or Merger
Sub or (iii) later lawfully acquired by AMRE or Merger Sub (or their
respective affiliates) from other sources), and will not release or
disclose such information to any other person, except in connection
with this Agreement to their respective auditors, attorneys, financial
advisors and other consultants or advisors or responsible financial
institutions and individuals after AMRE or Merger Sub, as the case may
be, has caused such financial institutions and individuals to agree to
be bound by the provisions of this Section 5.9 as if the reference to
AMRE or Merger Sub herein were to them (it being understood that such
persons shall be informed by AMRE or Merger Sub of the confidential
nature of such information and shall be directed by AMRE or Merger Sub
to treat such information confidentially); provided that AMRE, Merger
Sub and their respective representatives may provide such documents
and information in connection with its SEC filings or in response to
judicial or administrative process or applicable governmental laws,
rules, regulations, orders or ordinances, but only that portion of the
documents or information which, on the advice of counsel, is legally
required to be furnished, and provided that AMRE or Merger Sub, as the
case may be, notifies the Company of its obligation to provide such
information prior to such disclosure and fully cooperates with the
Company to protect the confidentiality of such documents and
information under applicable law. If the transactions contemplated by
this Agreement are not consummated, and AMRE or Merger Sub will
destroy or return to the Company all copies of written information
furnished by the Company to AMRE, Merger Sub or their respective
affiliates, agents, representatives or advisers.
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(b) Each of AMRE and Merger Sub shall, and shall cause
its subsidiaries, officers, directors, employees and agents to,
provide the officers, employees and agents of the Company and the ESOP
Trustees with such information concerning AMRE and Merger Sub as may
be necessary for the Company to ascertain the accuracy and
completeness of the information supplied by AMRE and Merger Sub for
inclusion in the Shareholder Information, or in any other document
filed with any other governmental agency or authority and to verify
the performance of and compliance with their representations,
warranties, covenants and conditions herein contained. Subject to the
requirements of law, the Company and the Shareholders shall hold in
confidence all such information, and, upon the termination of this
Agreement, the Company and the Shareholders will deliver to AMRE all
documents, work papers and other material (including copies) obtained
by the Company or the Shareholders, or on their behalf, from AMRE or
Merger Sub, as a result of this Agreement or in connection herewith,
whether so obtained before or after the execution hereof.
(c) No investigation pursuant to this Section 5.9 shall
affect any representations or warranties of the parties herein or the
conditions to the obligations of the parties hereto.
(d) Any schedule which is not attached hereto at the time
that AMRE and Merger Sub execute this Agreement or which is
subsequently updated shall not be binding upon AMRE or Merger Sub
unless such schedule or update is accepted in writing by AMRE and
Merger Sub. If such schedule or update is not so accepted, then any
disclosure contained therein shall not be deemed to have been made for
purposes hereunder, including but not limited to for purposes of
modifying the representations and warranties made hereunder.
(e) Any schedule which is not attached hereto at the time
that the Company and the Shareholders execute this Agreement or which
is subsequently updated shall not be binding upon the Company or the
Shareholders unless such schedule or update is accepted in writing by
the Company or the Shareholders, as the case may be. If such schedule
or update is not so accepted, then any disclosure contained therein
shall not be deemed to have been made for purposes hereunder,
including but not limited to for purposes of modifying the
representations and warranties made hereunder.
5.10 Information for Other Filings. The parties represent to each
other that the information provided and to be provided by AMRE, Merger Sub and
the Company, respectively, for use in any document to be filed with any
governmental agency or authority in connection with the transactions
contemplated hereby shall, at the respective times such documents are filed
with the governmental agency or authority and on the Effective Date be true and
correct in all material respects and shall not omit to state any material fact
required to be stated therein or necessary in order to make such information
not false or misleading, and the Company, AMRE and Merger Sub each agree to so
correct any such information provided by it for use in such documents that
shall have become false or misleading.
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5.11 Sub-License Agreement. No later than December 31, 1995, AMRE
and the Company shall have entered into a Sub-License Agreement, in
substantially the form of Exhibit C hereto.
5.12 Affiliate Letters. Prior to the Effective Time, the Company
shall deliver to AMRE a list (the "COMPANY AFFILIATE LIST") of names and
addresses of those persons who, as of the date of this Agreement, were
"affiliates" (each such person, an "AFFILIATE OF THE COMPANY") of the Company
within the meaning of Rule 145 of the rules and regulations promulgated under
the Securities Act and under the SEC guidelines and interpretations applicable
to "poolings of interests." The Company Affiliate List will be updated as
appropriate from time to time, up to and including the Effective Time. The
Company shall provide AMRE such information and documents as AMRE shall
reasonably request for purposes of reviewing such list. The Company shall use
its best efforts to deliver or cause to be delivered to AMRE, concurrently with
the Effective Time, from each Affiliate of the Company identified in the
Company Affiliate List, an Affiliate Letter substantially in the form attached
hereto as Exhibit D (the "COMPANY AFFILIATE LETTER"). AMRE shall be entitled
to place legends as specified in such Affiliate Letters on the certificates
evidencing any AMRE Common Stock to be received by each Affiliate of the
Company, pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the AMRE Common Stock,
consistent with the terms of such Company Affiliate Letters.
5.13 Pooling. From and after the date hereof and until the
expiration of the Restricted Period (as defined below), none of AMRE, Merger
Sub, the Shareholders or the Company shall or shall knowingly permit any of its
or their "affiliates" (as referred to in Section 5.12) to take any action, or
fail to take any action, that would jeopardize the treatment of the Merger as a
"pooling of interests" for accounting purposes. For purposes hereof, the term
"RESTRICTED PERIOD" shall mean the period commencing on the date hereof and
terminating on the date on which 30 days of combined operations are publicly
announced by AMRE.
5.14 Listing Application. AMRE shall prepare and submit to the
NYSE a listing application covering AMRE Common Stock to be issued in
connection with the Merger and shall use its reasonable efforts to obtain,
prior to the Effective Time, approval for the listing of such AMRE Common Stock
upon official notice of issuance.
5.15 Public Announcements. AMRE, Merger Sub and their affiliates,
on the one hand, and the Company, the Shareholders and their affiliates, on the
other hand, will consult with and receive the consent of each other before
issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement prior to such
consultation; provided, however, that (i) each party shall be permitted to make
such disclosures to the public or to governmental agencies as its counsel shall
deem necessary to maintain compliance with and to prevent violations of
applicable federal or state laws, provided it first notifies the other parties
in writing and furnishes it with a copy of any
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such proposed disclosure; and (ii) each party may make necessary disclosures to
its employees or to certain other parties whose consent or approval may be
required in connection with the Merger, and such disclosures may be made
without any prior written consent.
5.16 Operation of the Company's Business Following the Effective
Date. (i) AMRE and Merger Sub agree that John B. Nunez, current President of
the Company, will maintain responsibility for the normal course-of-business
hiring and firing and the material employee decisions for the former employees
of the Company, subject in all respects to the reasonable discretion of the
Chief Executive Officer of AMRE and consistent with AMRE's human resource
policies; (ii) AMRE and Merger Sub agree to provide a benefit package to the
former employees of the Company which is substantially equivalent to the
benefits afforded to the employees of AMRE prior to the Effective Date, in the
event that the current benefit package available to the Company's employees is
terminated or restructured as a result of the transactions contemplated herein;
(iii) AMRE and Merger Sub agree to continue any current insurance policies
which cover the Board of Directors or the ESOP trustees in full force and
effect until (x) the complete termination of the ESOP or (y) the receipt of a
favorable determination letter from the IRS on the qualified status of the ESOP
at termination and distribution of all assets from the ESOP, whichever of (x)
and (y) is later; (iv) AMRE will cause the Surviving Corporation to observe any
indemnification provisions now existing in the articles of incorporation or
bylaws of the Company or the ESOP Plan for the benefit of any individual who
served as a director or officer of the Company at any time prior to the
Effective Time, and will cause the Surviving Corporation to indemnify each
individual who served as a director or officer or Trustee of the Company or the
ESOP at any time prior to the Effective Time from and against any and all
actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses and fees, including all court costs
and reasonable attorneys' fees and expenses, resulting from, arising out of,
relating to, in the nature of, or caused by this Agreement or any of the
transactions contemplated herein; and (v) AMRE agrees to cause Surviving
Corporation to expressly assume all obligations of the Company as such
obligations arise under the following agreements to which the Company is a
party: (A) that certain ESOP Loan and Security Agreement and ESOP Term Note of
June 30, 1993, as modified on June 30, 1995, by and between the Company and
NationsBank, N.A., as successor in interest to Maryland National Bank; and (B)
that certain ESOP Mirror Loan and Pledge Agreement of June 30, 1993, by and
between the Company and the ESOP (the "ESOP Mirror Loan"); (vi) AMRE will make
or cause the Surviving Corporation to make cash contributions and to issue cash
dividends to the ESOP in such amounts and at such times which will enable the
ESOP to pay when due all amounts owing by the ESOP under or with respect to the
ESOP Mirror Loan and/or that certain Secured Promissory Note dated June 30,
1993 (the "Secured Note") from the ESOP, whether for principal or interest. A
cash contribution or dividend by AMRE or the Surviving Corporation to the ESOP
to enable the ESOP to make any given payment on the Secured Note shall be made
sufficiently prior to the date such payment is due to provide for timely
payment under the ESOP Mirror Loan and the Secured Note and shall be in
immediately available funds. AMRE's obligation under this Section 5.16(vi)
shall continue until such time as all amounts owed by the ESOP pursuant to the
ESOP Mirror Loan and the Secured
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Note have been satisfied through the payment of contributions or dividends to
the ESOP or through other means that are permissible under the ESOP plan
document, the Code and ERISA; provided, however, that AMRE will not cause
allocated stock to be sold to repay the ESOP Mirror Loan; (vii) it is the
present intent of AMRE to cause the Surviving Corporation to terminate the ESOP
(and distribute its assets (e.g., allocated AMRE Common Stock) to its
participants following the giving of all applicable notices and the receipt and
conclusion of all appropriate and/or required (a) IRS determination letters,
(b) consents, (c) allocations and (d) accountings) following consummation of
the Merger; (viii) AMRE will not permit any previously unallocated shares of
stock held in the ESOP to be allocated after the Effective Time to individuals
other than those who are participants in the ESOP as of the Effective Time; and
(ix) AMRE will not take any action or cause the Surviving Corporation or the
fiduciary of the ESOP to take any action in connection with the termination of
the ESOP that does not comply in all material respects with the ESOP plan
document, ERISA and the Code.
ARTICLE 6
CONDITIONS
6.1 Conditions to Obligation of Each Party to Effect the Merger.
The obligations of each of AMRE, Merger Sub and the Company to effect the
Merger shall be subject to the fulfillment or waiver at or prior to the
Effective Time of the following conditions:
(a) the Merger shall have been approved and adopted by
the requisite consent of the shareholders of the Company required by
applicable law and the applicable regulations of any stock exchange;
(b) the Form S-4 shall have been declared effective and
shall be effective at the Effective Time, and no stop order suspending
effectiveness of the Form S-4 shall have been issued;
(c) no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or
by a governmental, regulatory or administrative agency or commission
nor any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority shall be in effect that would
make the acquisition or holding directly or indirectly by AMRE of the
shares of Common Stock of the Surviving Corporation illegal or
otherwise prevent the consummation of the Merger. In the event any
such order or injunction shall have been issued, each party agrees to
use its reasonable efforts to have any such injunction lifted or order
reversed;
(d) all consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board
or other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or
made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and
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except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have
a Material Adverse Effect on either the Company or AMRE;
(e) the AMRE Common Stock to be issued to Company
shareholders in connection with the Merger shall have been approved
for listing on the NYSE, subject only to official notice of issuance;
(f) no action shall be pending which has been filed by
any state or federal authority or any other party seeking to enjoin
consummation of the transactions contemplated by this Agreement,
including, but not limited to, the Merger and no injunction shall have
been issued and shall be effective or enforceable or under appeal if
the effectiveness or enforceability thereof has been lifted or stayed
by a court or other authority of competent jurisdiction, preventing
the Merger, or imposing conditions on, the Merger which are materially
adverse to AMRE, Merger Sub, the Company or any of their shareholders;
(g) AMRE shall have duly completed all corporate actions
and proceedings to amend and shall have amended its Certificate of
Incorporation to authorize the issuance of additional shares of AMRE
Common Stock if necessary to consummate the transactions contemplated
hereby; and
(h) Kenwood Financial, Inc. and Norman R. Rales shall
have been released by NationsBank, N.A. from all liability in
connection with the ESOP Loan and Security Agreement and ESOP Term
Note by and between NationsBank, N.A. and the Company and any
collateral security agreements related thereto.
6.2 Additional Conditions to the Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the
fulfillment at or prior to the Effective Time of the following conditions
(unless waived) or except as otherwise contemplated or permitted by this
Agreement:
(a) each of AMRE and Merger Sub shall in all material
respects have performed each obligation and agreement and complied
with each covenant to be performed and complied with by it hereunder
on or prior to the Effective Time;
(b) the representations and warranties of AMRE and Merger
Sub in this Agreement shall be true and correct in all material
respects when made and at the Effective Time with the same force and
effect as though made at such time, except as affected by the
transactions contemplated hereby;
(c) AMRE and Merger Sub shall have furnished to the
Company a certificate, dated the Effective Date, signed by a
responsible officer of each of AMRE and Merger Sub, to the effect that
to the best of their knowledge, all conditions set forth in Section
6.2(a) and (b) have been satisfied; provided however, such officer
shall have no personal liability therefore unless such officer knew
the certificate to be false at the time such certificate was executed;
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(d) AMRE and Merger Sub shall have provided or made
available to the Company or its designated representatives the
information and documents as specified in Section 5.9(b) for review by
the Company and its agents and representatives and the results of the
due diligence review undertaken by or on behalf of the Company,
including, without limitation, the financial condition of AMRE, shall
be deemed materially satisfactory by the Company;
(e) AMRE shall have entered into an employment agreement
with John Nunez substantially in the form attached hereto as Exhibit F
(the "EMPLOYMENT AGREEMENT");
(f) The Company shall have received the opinion of Ernst
& Young LLP dated on or about the Effective Date to the effect that
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) of
the Code; (ii) AMRE, Merger Sub, and the Company will each be a party
to the reorganization within the meaning of Section 368(b) of the
Code; (iii) the Merger will result in the recognition of no gain or
loss to AMRE, Merger Sub, the Company, or the shareholders of each,
except for any cash paid in connection with the exercise of
dissenters' rights; (iv) the adjusted basis of each former shareholder
of the Company in the AMRE Common Stock received in the Merger will be
the same as the adjusted basis of the Company stock surrendered in
exchange therefor; (v) the holding period of the AMRE Common Stock
received by shareholders of the Company will include the holding
period of the Company stock surrendered in exchange therefor; and (vi)
effectuation of the intended termination of the ESOP, any sale of the
unallocated shares, and distribution of the allocated shares to the
ESOP participants will not invalidate the tax-free status of the
reorganization; and
(g) The ESOP shall have received the opinion of Barry
Goodman, Ltd. or such other qualified independent appraiser (as
defined in Section 401(a)(28)(C) of the Code) at the Effective Time
that (i) the exchange of the Preferred Shares for AMRE Common Stock by
the ESOP was for adequate consideration (as defined in Section 3(18)
of ERISA and the proposed regulations thereunder), and (ii) the
transactions contemplated by the Agreement (including such exchange)
are fair to the ESOP from a financial point of view.
(h) The Company shall have received copies of the
resolutions of the Board of Directors of AMRE and the Board of
Directors of Merger Sub authorizing the execution, delivery and
performance of the Agreement and the consummation of the transactions
contemplated hereby and a copy of the resolutions or other consent of
the shareholder of Merger Sub approving the Merger, all certified by
the Secretary of AMRE or the Secretary of Merger Sub, as the case may
be, on the Effective Date. Such certificates shall state that the
resolutions set forth therein have not been amended, modified, revoked
or rescinded as of the date of such certificates;
(i) The Company shall have received certificates of the
Secretary of AMRE and the Secretary of Merger Sub dated the Effective
Date, as to the incumbency
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and signature of the officers of AMRE and Merger Sub executing this
Agreement and any certificate, agreement or other documents to be
delivered pursuant hereto, together with evidence of the incumbency
of each such Secretary;
6.3 Additional Conditions to the Obligations of AMRE and Merger
Sub. The obligations of AMRE and Merger Sub to effect the Merger are also
subject to the fulfillment at or prior to the Effective Time of the following
conditions (unless waived) or except as otherwise contemplated or permitted by
this Agreement:
(a) the Company shall in all material respects have
performed each obligation and agreement and complied with each
covenant to be performed and complied with by it hereunder on or prior
to the Effective Time;
(b) the representations and warranties of the Company and
the Shareholders in this Agreement shall be true and correct in all
material respects when made and at the Effective Time with the same
force and effect as though made at such time, except as affected by
the transactions contemplated hereby;
(c) the Company shall have furnished to AMRE and Merger
Sub a certificate, dated the Effective Date, signed by a responsible
officer of the Company, to the effect that to the best of his
knowledge, all conditions set forth in Section 6.3(a) and (b) have
been satisfied; provided, however, no such officer shall have no
personal liability therefor unless such officer knew the certificate
to be false at the time such certificate was executed;
(d) the Company shall have provided or made available to
AMRE and Merger Sub or their designated representatives the
information and documents as specified in Section 5.9(a) for review by
AMRE and its agents and representatives, and the results of the due
diligence review undertaken by or on behalf of AMRE, including,
without limitation, the financial condition of the Company, shall be
deemed materially satisfactory by AMRE;
(e) all of the members of the Company's Board of
Directors shall have irrevocably tendered their resignations effective
as of the Effective Time and the Company shall have accepted such
resignations;
(f) AMRE and Merger Sub shall have received an opinion
dated the Effective Date of Griffin, Berenson & Murphy, counsel to the
Company, which opinion shall be reasonably satisfactory to counsel for
AMRE and Merger Sub;
(g) AMRE and the Company shall have received the written
consent of NationsBank, N.A. to the Merger and the other transactions
contemplated hereby, which consent will contain a waiver of any event
of default or acceleration which would result from the execution of
this Agreement or the consummation of the transactions contemplated
hereby;
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(h) AMRE and Merger Sub shall have received a copy of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby and a copy of the
resolutions or other consent of the shareholders of the Company
approving the Merger, all certified by the Secretary of the Company on
the Effective Date. Such certificates shall state that the
resolutions set forth therein have not been amended, modified, revoked
or rescinded as of the date of such certificates;
(i) AMRE and Merger Sub shall have received a certificate
of the Secretary of the Company dated the Effective Date, as to the
incumbency and signature of the officers of the Company executing this
Agreement and any certificate, agreement or other documents to be
delivered pursuant hereto, together with evidence of the incumbency of
such Secretary;
(j) The Company shall have delivered to AMRE and Merger
Sub all material consents, waivers, authorizations and approvals;
(k) AMRE shall have received a letter from Arthur
Andersen LLP that the Merger will be treated as a pooling of interests
for accounting purposes and the Company shall have delivered to AMRE a
letter from Deloitte and Touche LLP that the Company is a poolable
entity; and
(l) Holders of not more than 10% of any class of Shares
shall have exercised and properly perfected dissenter's rights under
Article 15 of the Virginia Law.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time whether before or after approval of the Merger by
the Shareholders :
(a) by mutual written consent of the Boards of Directors
of AMRE, Merger Sub and the Company;
(b) by either of the Boards of Directors of Merger Sub or
the Company if the Effective Time shall not have occurred on or before
April 30, 1996; provided, however, that the right to terminate under
this Section 7.1(b) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of,
or resulted in, the failure of the Effective Time to occur on or
before such date;
(c) if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action (which order, decree
or ruling the parties hereto shall use all reasonable efforts to
lift), in each case permanently restraining, enjoining or otherwise
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prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become final and
nonappealable;
(d) by the Company in the event a third party makes a
bona fide offer to acquire substantially all of the assets of the
Company, merge, consolidate or otherwise enter into a combination of
interests with the Company.
The date on which this Agreement is terminated pursuant to any of the
foregoing subsections of this Section 7.1 is herein referred to as the
"TERMINATION DATE."
7.2 Effect of Termination. Except as set forth in Sections 5.5,
5.9(a), 5.9(b), and 7.3 upon the termination of this Agreement pursuant to
Section 7.1, this Agreement shall forthwith become null and void, except that
nothing herein shall relieve any party from liability for any breach of this
Agreement prior to such termination.
7.3 Fees and Expenses.
(a) In the event the Company terminates this Agreement
pursuant to Section 7.1(d), the Company shall pay AMRE a fee equal to
$500,000 (the "TERMINATION FEE") at the earlier of the Termination
Date or the acceptance of the bona fide offer. Sections 7.3(a) and
7.3(b) are intended to be mutually exclusive with respect to any
Termination Fee imposed upon the Company so that no more than one
Termination Fee may be imposed; and
(b) In the event (i) the Agreement is terminated pursuant
to Section 7.1(b) or (ii) in the event the Effective Time shall not
have occurred on or before April 30, 1996 and either (i) or (ii) occur
for any reason other than the failure to meet the conditions under
Sections 6.1 and 6.3, AMRE shall pay the Company an amount equal to
the Termination Fee.
ARTICLE 8
GENERAL PROVISIONS
8.1 Notices. All notices and other communications hereunder shall
be in writing and, except where notice is specifically required to be given by
telecopier or facsimile shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by
cable, telegram, telecopier or telex to the parties at the following addresses
or at such other addresses as shall be specified by the parties by like notice:
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(a) if to AMRE or Merger Sub, a copy of each of the
President and the General Counsel at:
AMRE, Inc.
8586 N. Stemmons Freeway
South Tower, Suite 102
Dallas, TX 75247
Fax No. (214) 658-6101
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, TX 75201
Fax No. (214) 969-4343
Attn: Gary M. Lawrence, P.C.
(b) if to the Company:
Congressional Construction Corporation
11216 Waples Mill Road
Suite 101
Fairfax, Virginia 22030
Fax No. (703) 934-1009
Attn: John B. Nunez
with copies to:
Griffin, Berenson & Murphy
1912 Sunderland Place, N.W.
Washington, DC 20036-1608
Fax No. (703) 442-4831
Attn: D.S. Berenson
(c) if to the ESOP:
Griffin, Berenson & Murphy
1912 Sunderland Place, N.W.
Washington, D.C. 20036-1608
Fax No. (703) 442-4831
Attn: D.S. Berenson, Esq.
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with a copy to:
David R. Johanson, Esq.
Graham & James
One Maritime Plaza, Suite 300
San Francisco, California 94111
Fax No. (415) 391-2493
(d) if to the Shareholders:
John B. Nunez
11216 Waples Mill Road, Suite 101
Fairfax, Virginia 22030
Fax No. (703) 934-1009
and
Kenwood Financial, Inc.
4000 N. Federal Highway
Suite 204
Boca Raton, FL 33431
Fax No. (407) 750-6900
Attn: Norman R. Rales
Notice shall be given by telecopy followed by overnight
delivery and notice so given shall be deemed to be given and received
on the date of actual transmission.
8.2 Representations and Warranties. The representations and
warranties contained in: (i) Sections 2.5, 2.9, 2.11, 3.6, 3.10, 3.21 and 3.29
shall survive until the distribution of the assets from the ESOP contemplated
by Section 5.16(vii), and (ii) Section 2.12 shall survive until the expiration
of one year from the Effective Time. All other representations and warranties
of AMRE, Merger Sub, the Company and the Shareholders shall expire on the
Effective Date.
8.3 Closing. The Closing of the transactions contemplated by this
Agreement shall take place at Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700
Pacific Avenue, Suite 4100, Dallas, Texas 75201-4618, or such other place as
the parties may agree, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article 6.
8.4 Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable under any applicable law, then
such contravention or invalidity shall not invalidate the entire Agreement.
Such provision shall be deemed to be modified to the extent necessary to render
it legal, valid and enforceable, and if no such modification shall render it
legal, valid and enforceable, then this Agreement shall be construed as if not
containing the provision held to be invalid, and the rights and obligations of
the parties shall be construed and enforced accordingly.
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8.5 Headings. The headings of the Articles, Sections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
8.6 CHOICE OF LAW. EXCEPT TO THE EXTENT ASPECTS OF THE MERGER ARE
SPECIFICALLY GOVERNED BY DELAWARE LAW OR VIRGINIA LAW, THIS AGREEMENT WILL BE
GOVERNED BY THE INTERNAL LAW, INCLUDING VALIDITY, INTERPRETATION AND EFFECT,
AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.
8.7 Jurisdiction and Venue. Any legal action or proceeding with
respect to this Agreement may be brought in the courts of the State of Texas or
of the United States for the Northern District of Texas, and, by execution and
delivery of this Agreement, the parties hereby irrevocably accept for
themselves and in respect of their property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The parties hereby irrevocably waive any
objection which they may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement brought in the courts referred to above and hereby further
irrevocably waive and agree not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
8.9 Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way.
8.10 Binding Effect; Benefit; Assignment. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, and the ESOP shall be deemed a
third party beneficiary of this Agreement, which Agreement shall inure to the
benefit of the ESOP, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by of the parties hereto
or the ESOP without the prior written consent of the other parties.
8.11 Amendment. This Agreement may be amended by the Boards of
Directors of the Company, Merger Sub and AMRE at any time before or after
approval of the Merger by the shareholders of the Company, but, after any such
approval, no amendment shall be made that changes the form or reduces the
amount of consideration to be paid to the shareholders of the Company or that
in any other way materially adversely affects the rights of such shareholders
(other than a termination of this Agreement in accordance with the provisions
hereof) without the further approval of such shareholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
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8.12 Waiver. At any time prior to the Effective Time, any term,
provision or condition of this Agreement may be waived in writing (or the time
for performance of any of the obligations or other acts of the parties hereto
may be extended) by the party that is entitled to the benefits thereof.
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AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE
IN WITNESS WHEREOF, AMRE, Merger Sub, the Company and for the limited
purposes set forth herein, the Shareholders have caused this Agreement to be
executed as of the date first written above.
AMRE, INC.
By: /s/Robert M. Swartz
--------------------------------------------
Printed Name: Robert M. Swartz
---------------------------------
Title: President and Chief Executive Officer
--------------------------------------
AMRE - CONGRESSIONAL ACQUISITION, INC.
By: /s/Robert M. Swartz
--------------------------------------------
Printed Name: Robert M. Swartz
---------------------------------
Title: President and Chief Executive Officer
--------------------------------------
CONGRESSIONAL CONSTRUCTION CORPORATION
By: /s/John B. Nunez
--------------------------------------------
Printed Name: John B. Nunez
---------------------------------
Title: President
--------------------------------------
For the limited purposes of Article 3, Article 5 and Article 8:
SHAREHOLDERS
/s/John B. Nunez
------------------------------------------------
John Nunez
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KENWOOD FINANCIAL, INC.
By: /s/Norman R. Rales
------------------------------------------------
Printed Name: Norman R. Rales
----------------------------------
Title: President, Kenwood Financial, Inc.
-----------------------------------------
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<PAGE> 181
ANNEX B
ANNEX B
VIRGINIA STOCK CORPORATION ACT
ARTICLE 15
DISSENTER'S RIGHTS
13.1-729 DEFINITIONS.--In this article:
"Corporation" means the issuer of the shares held by a dissenter
before the corporate action, except that (i) with respect to a merger,
"corporation" means the surviving domestic or foreign corporation or limited
liability company by merger of that issuer, and (ii) with respect to a share
exchange, "corporation" means the acquiring corporation by share exchange,
rather than the issuer, if the plan of share exchange places the responsibility
for dissenters' rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 13.1-730 and who exercises that right when and
in the manner required by Sections 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
13.1-730 RIGHT TO DISSENT.--A. A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by Section
13.1-718 or the articles of incorporation and the shareholder is entitled to
vote on the merger or (ii) if the corporation is a subsidiary that is merged
with its parent under Section 13.1-719;
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<PAGE> 182
2. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation if the shareholder was entitled to vote
on the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that such
dissenter's rights shall not apply in the case of (i) a sale or exchange
pursuant to court order, or (ii) a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with
respect to a plan of merger or share exchange or a sale or exchange of property
there shall be no right of dissent in favor of holders of shares of any class
or series which, at the record date fixed to determine the shareholders
entitled to receive notice of and to vote at the meeting at which the plan of
merger or share exchange or the sale or exchange of property is to be acted on,
were (i) listed on a national securities exchange or (ii) held by at least
2,000 record shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such
shares provide otherwise;
2. In the case of a plan of merger or share exchange, the holders
of the class or series are required under the plan of merger or share exchange
to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership
interests and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities exchange
or held of record by at least 2,000 record shareholders or members; or
c. A combination of cash and shares or membership interests as
set forth in subdivisions 2a and 2b of this subsection; or
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3. The transaction to be voted on is an "affiliated transaction"
and is not approved by a majority of "disinterested directors" as such terms
are defined in Section 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the
fair value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside
the corporate action; or
3. His demand for payment is withdrawn with the written consent
of the corporation.
13.1-731 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--A. A
record shareholder may assert dissenters rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
1. He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
13.1-732 NOTICE OF DISSENTERS' RIGHTS.--A. If proposed
corporate action creating dissenters' rights under Section 13.1-730 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights under
this article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under Section
13.1-730 is taken without a vote of shareholders, the corporation, during the
ten-day period after the effectuation of such corporate action, shall notify in
writing all record shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
13.1-734.
13.1-733 NOTICE OF INTENT TO DEMAND PAYMENT.--A. If proposed
corporate action creating dissenters' rights under Section 13.1-730 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (i) shall deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated and (ii) shall not vote such shares in favor of
the proposed action.
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B. A shareholder who does not satisfy the requirements of
subsection A of this section is not entitled to payment for his shares under
this article.
13.1-734 DISSENTERS' NOTICE.--A. If proposed corporate action
creating dissenters' rights under Section 13.1-730 is authorized at a
shareholders' meeting, the corporation, during the ten-day period after the
effectuation of such corporate action, shall deliver a dissenters' notice in
writing to all shareholders who satisfied the requirements of Section 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before or after that date;
4. Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
13.1-735 DUTY TO DEMAND PAYMENT.--A. A shareholder sent a
dissenters' notice described in Section 13.1-734 shall demand payment, certify
that he acquired beneficial ownership of the shares before or after the date
required to be set forth in the dissenters' notice pursuant to paragraph 3 of
subsection B of Section 13.1-734, and, in the case of certificated shares,
deposit his certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection
A of this section retains all other rights of a shareholder except to the
extent that these rights are cancelled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment and deposits his
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
13.1-736 SHARE RESTRICTIONS.--A. The corporation may restrict
the transfer of uncertificated shares from the date the demand for their
payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are cancelled or modified by the taking of the
proposed corporate action.
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13.1-737 PAYMENT.--A. Except as provided in Section 13.1-738,
within thirty days after receipt of a payment demand made pursuant to Section
13.1-735, the corporation shall pay the dissenter the amount the corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the corporation under this paragraph may be enforced (i) by the
circuit court in the city or county where the corporation's principal office is
located, or, if none in this Commonwealth, where its registered office is
located or (ii) at the election of any dissenter residing or having its
principal office in the Commonwealth, by the circuit court in the city or
county where the dissenter resides or has its principal office. The court
shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in stockholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value
of the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
Section 13.1-739; and
4. A copy of this article.
13.1-738 AFTER-ACQUIRED SHARES.--A. A corporation may elect
to withhold payment required by Section 13.1-737 from a dissenter unless he was
the beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is
earlier, of the terms of the proposed corporate action, as set forth in the
dissenters' notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and how the
interest was calculated, and a statement of the dissenters' right to demand
payment under Section 13.1-739.
13.1-739 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.--A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under Section 13.1-737), or reject
the corporation's offer under Section 13.1-738 and demand payment of the fair
value of his shares and interest due, if the dissenter believes that the amount
paid under Section 13.1-737 or offered under Section 13.1-738 is less than the
fair value of his shares or that the interest due is incorrectly calculated.
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B. A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing under
subsection A of this section within thirty days after the corporation made or
offered payment for his shares.
13.1-740 COURT ACTION.--A. If a demand for payment under
Section 13.1-739 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the circuit
court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or
county where its principal office is located, or, if none in this Commonwealth,
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this Commonwealth, it shall commence
the proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not
residents of this Commonwealth, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is
commenced under subsection B of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation or (ii)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under Section 13.1-738.
13.1-741 COURT COSTS AND COUNSEL FEES.--A. The court in an
appraisal proceeding commenced under Section 13.1-740 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters did not act in good faith in demanding payment under
Section 13.1-739.
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B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts the
court finds equitable:
1. Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially comply with the
requirements of Sections 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed did not act in good faith with respect to the rights
provided by this article.
C. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
D. In a proceeding commenced under subsection A of Section
13.1-737 the court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters who are
parties to the proceeding, in amounts the court finds equitable, to the extent
the court finds that such parties did not act in good faith in instituting the
proceeding.
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ANNEX C
FORM OF EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this _____
day of _________, 1996, and is between AMRE, Inc., a Delaware corporation (the
"COMPANY"), and John Nunez (the "EXECUTIVE").
PRELIMINARY STATEMENTS
On and subject to the terms and conditions herein provided, the
Company desires to retain the services of the Executive in the capacities and
with the responsibilities and the titles set forth herein in order to ensure
the attention and dedication to the Company of the Executive as a member of the
Company's management, all of which the Company's Board of Directors (the
"BOARD") believes will be in the best interests of the Company and its
stockholders. The Executive desires to commit himself to so serve the Company.
In order to effect the foregoing, the Company and the Executive wish to enter
into an employment agreement on the terms and conditions set forth herein.
Accordingly, in consideration of these preliminary statements and the
respective covenants and agreements of the parties herein contained, and for
other good, valid and binding consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
STATEMENT OF AGREEMENT
1. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as
provided in Section 1 shall commence on the date hereof and end on the second
anniversary hereof.
3. Positions and Duties. The Executive shall serve as Vice
President of the Company and shall have such additional appropriate
responsibilities and authority, if any, from time to time as may be assigned to
the Executive by the Chief Executive Officer ("CEO"). The Executive shall
report to and be responsible to the CEO of the Company. The Executive shall
devote all his working time and efforts to the business and affairs of the
Company.
4. Place of Performance. In connection with the Executive's
employment by the Company, the Executive shall be based in Northern Virginia,
except for required travel on the Company's business.
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5. Compensation and Related Matters.
(a) Salary. During the term of this Agreement, the
Company shall pay to the Executive an annual base salary of one hundred fifty
thousand dollars ($150,000), such base salary (the "BASE SALARY") to be paid in
substantially equal installments and, at a frequency of at least monthly in
arrears.
(b) Bonus. During the term of the Executive's employment
hereunder, in addition to the Base Salary, the Executive shall be eligible to
receive an annual bonus calculated with reference to the projected annual
earnings before interest and taxes ("PROJECTED EBIT") of AMRE-Congressional
Acquisition, Inc. (the "TARGET BUSINESS") as reflected on Exhibit A hereto.
Specifically, it is the intent of the Executive and the Company that the
Executive have the opportunity to earn an annual bonus calculated as follows:
o If actual annual earnings before interest and taxes ("ACTUAL
EBIT") is equal to or greater than fifty percent (50%) of
Projected EBIT then, the Executive shall receive an annual
bonus equal to the Base Salary multiplied by such percentage.
o If Actual EBIT is less than fifty percent (50%) of Projected
EBIT, the Executive shall receive no annual bonus for such
year.
(c) Automobile Allowance. During the term of the
Executive's employment hereunder, the Company shall provide the Executive an
automobile allowance equal to five hundred dollars ($500.00) per month.
(d) Other Benefits. During the term of the Executive's
employment hereunder, the Executive shall be entitled to participate in
employee benefit plans, arrangements and incentive programs generally available
to Company executives holding positions similar to that of the Executive.
(e) Vacations. During the term of the Executive's
Employment hereunder, the Executive shall be entitled to three (3) weeks of
paid vacation in each calendar year. The Executive shall also be entitled to
all paid holidays given by the Company to its executives.
6. Termination. The Executive's employment hereunder may be
terminated without any breach of this Agreement under the following
circumstances:
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. If, as a result of the Executive's
incapacity due to physical or mental illness which incapacity cannot be
reasonably accommodated, the Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of three (3) consecutive
months, and within thirty (30) days after written notice of termination is
given (which may occur before or after the end of such three-month period)
shall not have returned to the performance of his duties hereunder on a full
time basis, the Company may terminate the Executive's employment hereunder.
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(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the Company
shall have "CAUSE" to terminate the Executive's employment hereunder upon (i)
the continued failure by the Executive to perform his duties hereunder (other
than any such failure resulting from the Executive's incapacity due to physical
or mental illness), (ii) the negligence or gross misconduct by the Executive
which, in the sole and exclusive opinion of the CEO, is materially injurious to
the Company, or (iii) conviction of a felony under the laws of any
jurisdiction, or conduct which under the laws of the United States would
constitute a felony.
(d) Termination by the Executive.
(i) The Executive may terminate his employment
hereunder (A) for Good Reason (as defined herein) or (B) if his health
should become impaired to an extent that makes his continued
performance of his duties hereunder hazardous to his physical or
mental health despite reasonable accommodation therefor, provided that
the Executive shall have furnished the Company with a written
statement from a qualified physician to such effect and, provided
further that, at the Company's request, the Executive shall submit to
an examination by a physician or other health professional selected by
the Company and such physician or other health professional shall have
concurred in the conclusion of the Executive's physician.
(ii) For purposes of this Agreement, "GOOD REASON"
shall be strictly construed to mean, without the Executive's consent,
the occurrence and continuation for thirty (30) days after Notice of
Termination, of any of the following:
(A) the failure of the Company to obtain
a satisfactory agreement from any successor to assume and
agree to perform this Agreement, as contemplated in Section 9
hereof;
(B) any failure by the Company to comply
with any material provision of this Agreement that has not
been cured within thirty (30) business days after notice of
such noncompliance has been given by the Executive to the
Company.
(e) Any termination of the Executive's employment by the
Company or by the Executive (other than termination pursuant to subsection (a)
hereof) shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall
mean a written notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(f) "DATE OF TERMINATION" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) hereof
(relating to disability), thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30)-day period), (iii) if the
Executive's
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employment is terminated pursuant to subsection (c) hereof (relating to Cause),
the date specified in the Notice of Termination, and (iv) if the Executive's
employment is terminated for any other reason, the date on which a Notice of
Termination is given.
7. Compensation Upon Termination or During Disability.
(a) During any period that the Executive fails to perform
his duties hereunder as a result of incapacity due to physical or mental
illness, which incapacity cannot be reasonably accommodated, the Executive
shall continue to receive his salary at the rate then in effect for such period
until his employment is terminated pursuant to Section 7(b) hereof.
(b) If the Executive's employment shall be terminated by
his death, for Cause or by the Executive for Good Reason, the Executive shall
receive his salary at the rate then in effect through and including the Date of
Termination.
8. Noncompetition; Nondisclosure. (a) The Executive agrees that
he will not engage in any Competitive Activity (as defined herein) during any
period with respect to which he is receiving payments or benefits of any kind
or character from the Company and for a period of one year thereafter. For
purposes hereof this Section, "COMPETITIVE ACTIVITY" shall mean activity
consisting of the Executive's participation in the management of or as an
employee of or advisor to any other business operation if such operation (a
"COMPETITIVE OPERATION") is then in competition with a business operation of
the Company or any of its subsidiaries.
(b) The Executive agrees not to disclose, either while in
the Company's employ or at any time thereafter, to any person not employed on a
full-time basis by the Company or its affiliates, or not engaged to render
services to the Company or its affiliates, except with the prior written
consent of an officer authorized to act in the matter by the Board, any
confidential information obtained by him while in the employ of the Company,
provided, however, that this provision shall not preclude the Executive from
the use or disclosure of information known generally to the public or of
information not considered confidential by persons engaged in the business
conducted by the Company or from disclosure required by law or court order.
The agreement made in this Section 8 shall be in addition to, and not in
limitation or derogation of, any obligations otherwise imposed by law or by
separate agreement upon the Executive in respect of confidential information of
the Company.
9. Successors; Binding Agreement. The Company agrees to use
commercially reasonable efforts to require any successor to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. Notices. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
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If to the Executive: John Nunez
------------------------------------------
------------------------------------------
------------------------------------------
If to the Company: AMRE, Inc.
8585 N. Stemmons Freeway
South Tower
Eighth Floor
Dallas, TX. 75247-3805
Attn: General Counsel
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4618
Attn: Gary M. Lawrence, P.C.
>
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Modification and Amendments. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and a duly authorized
executive of the Company.
12. No Waiver. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas without regard to its conflicts of law principles.
14. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of any subject matter contained
herein and supersedes all prior severance or other agreements, promises,
covenants, arrangements, communications, representations or
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warranties, whether oral or written, by any officer, employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect
of the subject matter contained herein is hereby terminated and cancelled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
AMRE, Inc.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXECUTIVE
---------------------------------------
John Nunez
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EXHIBIT A
TARGET BUSINESS PROJECTED EBIT
1996 1997 1998
-------------- -------------- --------------
Projected EBIT $ 3,346,792 $ 3,869,104 $ 3,682,893
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ANNEX D
FORM OF AFFILIATE LETTER
AMRE, Inc.
8586 North Stemmons Freeway
South Tower, Suite 102
Dallas, TX 75247
Re: Affiliate Status
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be
an "affiliate" of Congressional Construction Corporation, a Virginia
corporation ("Congressional"), as the term "affiliate" is (i) defined for
purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and/or
(ii) used in and for purposes of Accounting Series Releases 130 and 135, as
amended, of the Commission. Pursuant to the terms of the Merger Agreement,
dated as of December 30, 1995 (the "Agreement"), by and between AMRE, Inc., a
Delaware corporation ("AMRE"), AMRE-Congressional Acquisition, Inc., a Delaware
corporation ("Merger Sub"), and Congressional, Merger Sub will be merged with
and into Congressional (the "Merger").
As a result of the Merger, I may receive shares of Common Stock of
AMRE, $.01 par value per share (the "AMRE Common Stock"), or options to
purchase AMRE Common Stock. I will receive ___________ shares of AMRE Common
Stock in exchange for each share of ____________, _____ par value, of
Congressional ("Congressional Stock") owned by me at the time of the Merger.
I represent and warrant to, and covenant with, AMRE that in the event
I receive any AMRE Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of
any AMRE Common Stock issued to me in the Merger in violation
of the Act or the Rules and Regulations.
B. I shall not make any sale, transfer or other disposition of
any AMRE Common Stock issued to me in the Merger until the
provisions for a "pooling of interests" as specified in
Section 5.13 of the Merger Agreement have been satisfied.
<PAGE> 196
C. I have carefully read this letter and the Agreement and
discussed their requirements and other applicable limitations
upon my ability to sell, transfer or otherwise dispose of any
AMRE Common Stock issued to me in the Merger, to the extent I
felt necessary, with my counsel or counsel for Congressional.
D. I have been advised that the issuance of AMRE Common Stock to
me in the Merger has been or will be registered with the
Commission under the Act on a Registration Statement on Form
S-4. However, I have also been advised that, since at the
time the Merger will be submitted for a vote of the
stockholders of Congressional, I may be deemed to be an
affiliate of Congressional, the distribution by me of any AMRE
Common Stock issued to me in the Merger will not have been
registered under the Act and that I may not sell, transfer or
otherwise dispose of any AMRE Common Stock issued to me in the
Merger unless (i) such sale, transfer or other disposition has
been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with the volume and
other limitations of Rule 145 promulgated by the Commission
under the Act, or (iii) in the opinion of counsel reasonably
acceptable to AMRE, which opinion shall be submitted in
writing to AMRE in form and substance reasonably satisfactory
to AMRE, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
E. I understand that AMRE is under no obligation to register
under the Act the sale, transfer or other disposition by me or
on my behalf of any AMRE Common Stock issued to me in the
Merger or to take any other action necessary in order to make
compliance with an exemption from such registration available;
provided however, AMRE shall use its best efforts to file any
and all documents required to be filed by it under the
Securities Exchange Act of 1934.
F. I have no present intention to sell or dispose of any shares
of Congressional Stock now owned or of any shares of AMRE
Common Stock to be received by me in or as a result of the
Merger.
G. I also understand that stop transfer instructions will be
given to AMRE's transfer agent with respect to the AMRE Common
Stock issued to me in the Merger and that there will be placed
on the certificates representing the AMRE Common Stock issued
to me in the Merger, or any substitutions therefor, a legend
stating in substance:
"The shares represented by this certificate were
issued in a transaction to which Rule 145 promulgated
under the Securities Act of 1933, as amended,
applies. The shares represented by this certificate
may only be transferred in accordance with the terms
of a letter dated ______________, 1996 from the
registered holder hereof to AMRE, Inc., a copy of
which letter is on file at the principal office of
AMRE, Inc."
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H. I also understand that unless the transfer by me of any AMRE
Common Stock issued to me in the Merger has been registered
under the Act or is a sale made in conformity with the
provisions of Rule 145, AMRE reserves the right to put the
following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and were acquired from a person who received
such shares in a transaction to which Rule 145
promulgated under the Securities Act of 1933, as
amended, applies. The shares have been acquired by
the holder not with a view to, or for resale in
connection with, any distribution thereof within the
meaning of the Securities Act of 1933, as amended,
and may not be sold or otherwise transferred except
in accordance with an exemption from the registration
requirements of the Securities Act of 1933, as
amended."
It is understood and agreed that the stop order and legends set forth
in paragraphs G and H above shall be removed by delivery of substitute
certificates without such legend if the undersigned shall have delivered to
AMRE an opinion of counsel in form and substance reasonably satisfactory to
AMRE, to the effect that such legend is not required for purposes of the Act.
DATED AS OF _______________, 1996
Sincerely,
AGREED AND ACKNOWLEDGED:
AMRE, INC.
By: ___________________________________________________
Name: _________________________________________________
Title: ________________________________________________
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ANNEX E
[LETTRHEAD OF ERNST & YOUNG LLP]
April 18, 1996
Mr. John B. Nunez
President
Congressional Construction Corporation
11216 Waples Mill Road
Suite 101
Fairfax, Virginia 22030
Dear Mr. Nunez:
Pursuant to your request, this letter provides our opinion concerning certain
Federal, Washington, D.C., Virginia, Maryland and Florida income tax
consequences which would arise from consummation of the merger ("the Merger")
set forth in the Agreement and Plan dated December 30, 1995 ("Plan of Merger"),
which was made and entered into by Congressional Construction Corporation
("Congressional"), AMRE, Inc. ("AMRE"), AMRE-Congressional Acquisition, Inc.
("Sub"), and, for certain limited purposes, certain shareholders of
Congressional.
In rendering this opinion, we have relied upon: the Plan of Merger; the
Statements of Facts and Representations dated April 11, 1996, by John B. Nunez;
the Statement of Facts and Representations dated April 12, 1996, by Kenwood
Financial Inc.; the Statement of Facts and Representations dated April 15,
1996, by the management of Congressional; the Statement of Facts and
Representations dated April 17, 1996, by AMRE; and the draft Form S-4
Registration Statement dated April 17, 1996 (the "Registration Statement")
(collectively, "the Documents").
You have represented to us that the Documents provide an accurate and complete
description of the facts and circumstances concerning the Merger. We have made
no independent determination regarding such facts and circumstances and,
therefore, have relied upon the Documents with regard thereto for purposes of
this letter.
We understand that you will include a reference and summarization to Ernst &
Young LLP, and a copy of our opinion as an attachment to the Registration
Statement to be filed with the Securities and Exchange Commission. We consent
to such reference and summarization and the inclusion of our opinion therein.
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Congressional Construction Corporation Page 2
FACTS
Congressional has provided us with the following factual information with
respect to the transaction:
AMRE is an in-home direct marketing, sales and installation company providing
quality home improvement products. AMRE commenced business under the laws of
Texas in 1980, and was reincorporated under the laws of Delaware in February
1987.
As of January 1, 1996, AMRE had 20,000,000 authorized shares of common stock,
and 1,000,000 authorized shares of Senior Convertible Preferred Stock. As of
February, 23, 1996, 14,126,341 shares of AMRE common stock and 300,000 shares
of AMRE Senior Convertible Preferred Stock were outstanding. In connection
with the October 31, 1995, acquisition by AMRE of Facelifters Home Systems,
Inc., and upon approval of a majority of the shareholders owning the AMRE
common stock, the Certificate of Incorporation of AMRE will be amended to
provide for an increase in the number of authorized common stock to 40,000,000
shares. All outstanding shares of AMRE capital stock are validly issued, fully
paid and non assessable and not subject to preemptive rights created by
statute. The AMRE common stock is listed for trading on the New York Stock
Exchange.
Congressional markets, sells and installs home improvement products, including
vinyl siding, vinyl and aluminum windows, fencing, decks, roofs and patio
enclosures directly to consumers throughout the Mid-Atlantic region, including
Virginia, Maryland, and Washington, D.C., and to a lesser degree, Delaware,
West Virginia, Pennsylvania, and New Jersey. Congressional commenced business
under the laws of the Commonwealth of Virginia in 1982.
Congressional has 1,000 authorized shares of common stock, of which 499 shares
were issued and outstanding as of December 29, 1995, and 700 authorized shares
of preferred stock, all of which were issued and outstanding as of December 29,
1995. There are no dividends in arrears associated with the Congressional
preferred stock. All outstanding shares of Congressional capital stock are
validly issued, fully paid and non assessable and not subject to preemptive
rights created by statute. There are no options, warrants, calls, conversion
rights, commitments or agreements of any character to which Congressional is a
party or by which Congressional may be obligated (i) to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock of
Congressional, or (ii) to grant, extend or enter into any such option, warrant,
call, conversion right, commitment or agreement.
Congressional has three shareholders: John B. Nunez, who owns 400 shares of
common stock; Kenwood Financial Inc., a Florida corporation, which owns 99
shares of common stock
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Congressional Construction Corporation Page 3
(together, the "Congressional shareholders"); and the Congressional
Construction Corporation Employee Stock Ownership Plan (the "ESOP"), which owns
the 700 shares of preferred stock.
The ESOP was formed on June 30, 1993. As of December 31, 1995, there were 58
participants in the ESOP. On June 30, 1993, the ESOP purchased 700 shares of
Congressional preferred stock from Kenwood Financial for $7,000,000 (the "ESOP
Shares"). Contemporaneously with the purchase of the ESOP Shares, and in order
to facilitate that purchase, Congressional borrowed $7,000,000 from a bank, and
in turn loaned the entire loan proceeds to the ESOP on substantially similar
terms. The ESOP pledged all of the ESOP Shares to Congressional as security
for the loan (the "Unallocated Shares"). As the ESOP makes payments on the
loan, ESOP shares are released from the pledge and allocated to participants in
the ESOP (the "Allocated Shares"). The release and allocation of the ESOP
Shares are made at the end of each plan year (i.e., December 31). At December
31, 1995, 506.93617 of the 700 ESOP Shares were Unallocated Shares. As of
December 31, 1995, John B. Nunez had been allocated 18.60955 of the Allocated
Shares, and Richard Pirozzi had been allocated 17.518 of the Allocated Shares
through the ESOP. The remaining Allocated Shares are beneficially owned by
persons beneficially owning less than 1% of the stock of Congressional.
Sub is a corporation organized under the laws of the state of Delaware solely
for the purpose of the Merger. All of the shares of Sub are held by AMRE and
all such shares are duly authorized, validly issued, fully paid and non
assessable.
BUSINESS PURPOSE
Based on the representations of the management of both AMRE and Congressional
contained under the caption entitled "Reasons for the Merger" as set forth in
the Registration Statement, the Merger will be undertaken for valid business
purposes. As stated in the Registration Statement, the business strategies of
both AMRE and Congressional have been to achieve growth through aggressive
marketing of their respective products. The Boards of Directors of AMRE and
Congressional considered a strategic combination of the two companies to be the
most attractive method to take advantage of the strengths of each of the
individual companies and to grow the business of the combined entity. In
addition, among other things, the Merger will substantially expand the
geographic market coverage of the combined entity, facilitate the development
and expansion of the Century 21 Home Improvement Name and related home
improvement products, and increase revenues and operating cash flows.
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PLAN OF REORGANIZATION
In order to achieve the business objectives set forth above, the following
transactions are proposed:
(i) Sub will merge with and into Congressional with Congressional
continuing as the surviving corporation. Each share of common stock
of Congressional outstanding immediately prior to the effective date
of the Merger will be converted into 601.20 shares of AMRE common
stock, and each share of preferred stock of Congressional will be
converted into 857.14 shares of AMRE common stock. No fractional
shares of AMRE common stock will be issued. In lieu of fractional
shares, one additional share of AMRE common stock shall be issued for
any fractional share interests. The outstanding shares of common
stock of Sub held by AMRE will be converted into stock of
Congressional. Following the consummation of the Merger,
Congressional will be a wholly-owned subsidiary of AMRE. Except as
described in (iii) below, each shareholder has represented that the
AMRE stock will be acquired for such shareholder's own account for
investment, and not with a view to, or for resale in connection with,
any distribution of the AMRE stock. Such shareholder understands that
the effect of these representations is that such shareholder does not
intend to sell or otherwise dispose of all or any part of the AMRE
stock. It is intended that the Merger be treated as a pooling of
interests for accounting purposes.
(ii) Holders of Congressional common stock and preferred stock who properly
dissent and vote against or abstain from voting with respect to the
Merger shall be entitled to receive payment from Congressional of the
fair market value of such holder's shares. Any cash needed to pay the
dissenters will be provided by Congressional.
(iii) The Board of Trustees that administers the ESOP will be replaced
following the Merger with a Board of Trustees appointed by AMRE (the
"New ESOP Committee"). After consummation of the Merger, it is
contemplated by AMRE that the ESOP be terminated. As part of such
termination, it is contemplated that the ESOP, at the New ESOP
Committee's discretion, will sell in the open market the AMRE common
stock received by the ESOP in exchange for the Unallocated Shares.
The ESOP will use the proceeds from the sale of such stock to pay off
the remaining indebtedness owed by the ESOP to Congressional.
Congressional will use such amounts received from the ESOP to repay
the successor to the bank from which Congressional originally borrowed
the amounts loaned to the ESOP. To the extent that the proceeds from
the sale of the AMRE common stock are insufficient to pay off the ESOP
indebtedness, AMRE will satisfy the remaining indebtedness from its
own assets.
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(iv) John B. Nunez, the President of Congressional, will enter an
employment agreement with AMRE with responsibility for certain of
AMRE's operations in connection with the business formerly conducted
by Congressional.
(v) In connection with the Plan of Merger, on January 1, 1996,
Congressional and American Remodeling, Inc., a wholly-owned subsidiary
of AMRE, entered into a three-year sublicense agreement pursuant to
which Congressional will have a sublicense under the Century 21
License Agreement.
REPRESENTATIONS
The following summarizes the representations we have received from the
management of AMRE and Congressional, and the Congressional shareholders, as
the case may be, in connection with the Merger:
(a) The proposed merger of Sub with and into Congressional will qualify as
a statutory merger under the applicable state laws and the regulations
thereunder.
(b) The fair market value of the AMRE stock and other consideration, if
any, to be received by each Congressional shareholder will be
approximately equal to the fair market value of the Congressional
stock surrendered in the exchange.
(c) To the best of the knowledge of the management of Congressional, there
is no plan or intention by the Congressional shareholders who own
greater than 1% of the Congressional stock, and no plan or intention
on the part of the beneficial indirect owners of the Congressional
stock (the "ESOP Participants") to (i) sell, exchange, or otherwise
dispose of, or (ii) reduce the risk of loss associated with the
ownership of, a number of shares of AMRE stock received in the Merger
that would reduce the Congressional shareholders' and the ESOP
Participants' ownership, of AMRE stock to a number of shares having a
value, as of the date of the Merger, of less than 50 percent of the
value of all of the formerly outstanding stock of Congressional as of
the same date. For purposes of this representation, shares of
Congressional stock and shares of AMRE stock held by Congressional
shareholders or the ESOP Participants that are otherwise redeemed by
AMRE or Congressional (including shares held by Congressional
shareholders who exercise their statutory dissenters' rights), or sold
or disposed of by the Congressional shareholders or the ESOP
Participants prior or subsequent to the transaction, (including any
shares distributed to the ESOP Participants as a result of AMRE's
intended termination of the ESOP and a resulting sale of the
Unallocated Shares) have been taken into account.
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(d) Following the transaction, Congressional will hold at least 90 percent
of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets and at least 90 percent of
the fair market value of Sub's net assets and at least 70 percent of
the fair market value of Sub's gross assets held immediately prior to
the transaction. For purposes of this representation, amounts paid by
Congressional to dissenters, amounts used by Congressional or Sub
(other than supplied by AMRE) to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends)
made by Congressional will be included as assets of Congressional or
Sub, respectively, immediately prior to the transaction.
(e) Prior to the transaction, AMRE will be in control of Sub within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended ("the Code").
(f) Congressional has no plan or intention to issue additional shares of
its stock that would result in AMRE losing control of Congressional
within the meaning of Section 368(c) of the Code.
(g) AMRE has no plan or intention to reacquire any of its stock issued in
the transaction.
(h) AMRE has no plan or intention to liquidate Congressional; to merge
Congressional with or into another corporation; to sell or otherwise
dispose of the stock of Congressional except for transfers of stock to
corporations controlled by AMRE within the meaning of Section 368(c)
of the Code; or to cause Congressional to sell or otherwise dispose of
any of its assets or of any of the assets acquired from Sub, except
for dispositions made in the ordinary course of business or transfers
of assets to a corporation controlled by Congressional.
(i) The liabilities of Sub, if any, to be assumed by Congressional and the
liabilities to which the transferred assets of Sub are subject were
incurred by Sub in the ordinary course of its business.
(j) Following the transaction, Congressional will continue its historic
business or use a significant portion of its historic business assets
in a business.
(k) Except for expenses that are directly related to the Merger in
accordance with the guidelines established in Revenue Ruling 73-54,
1973-1 C.B. 187, AMRE, Sub, Congressional, and the shareholders of
Congressional will pay their other respective expenses, if any,
incurred in connection with the transaction.
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(l) There is no intercorporate indebtedness existing between AMRE and
Congressional or between Sub and Congressional that was issued,
acquired, or will be settled at a discount.
(m) AMRE will acquire all of the stock of Congressional solely in exchange
for AMRE common stock.
(n) On the effective date of the transaction, Congressional will not have
outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock
in Congressional that, if exercised or converted, would affect AMRE's
acquisition or retention of control of Congressional, as defined in
Section 368(c) of the Code.
(o) AMRE does not own, directly or indirectly, nor has it owned during the
past five years, any shares of the stock of Congressional.
(p) No parties to the transaction are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(q) AMRE intends to remain in existence after the Merger.
(r) The aggregate fair market value and adjusted basis of the assets of
Congressional exceed the liabilities of Congressional (including any
liability associated with the Congressional Stock Option Plans assumed
by AMRE pursuant to the Plan of Merger) plus any liabilities to which
the Congressional assets are subject.
(s) The shareholders of Congressional (immediately before the proposed
transaction) receiving shares of AMRE common stock will not own
(immediately after the proposed transaction) more than fifty percent
of the total fair market value of AMRE common stock outstanding.
(t) Congressional is not under the jurisdiction of a court in a title 11
or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(u) None of the compensation received by any shareholder-employees of
Congressional will be separate consideration for, or allocable to, any
of their shares of Congressional stock; none of the shares of AMRE
stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and any
employment agreements entered into and compensation paid to any
shareholder-employees will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
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(v) The sublicensing agreement entered into between Congressional and
American Remodeling, Inc. represents an arm's length transaction.
(w) Congressional has no present plan or intention to terminate the ESOP
prior to the Merger.
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TECHNICAL ANALYSIS
Income Tax Consequences - Federal
1. Section 368(a)(1)(A); (a)(2)(E)
a. In general
Section 368(a)(1)(A) of the Code provides that the term "reorganization" means
a statutory merger or consolidation. Section 368(a)(2)(E) provides that a
transaction which otherwise qualifies under Section 368(a)(1)(A) will not be
disqualified by reason of the fact that stock of a corporation (the
"controlling corporation") which, before the merger was in control of the
merged corporation, is used in the transaction, if:
(i) after the transaction, the corporation surviving the merger holds
substantially all of its properties and of the properties of the
merged corporation (other than stock of the controlling corporation
distributed in the transaction); and
(ii) in the transaction, former shareholders of the surviving corporation
exchange, for an amount of voting stock of the controlling
corporation, an amount of stock in the surviving corporation which
constitutes control of such corporation.
b. Substantially all
Section 3.01 of Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement of Section 368(a)(2)(E)(i) is satisfied if
there is a retention of assets representing at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value
of the gross assets held by the surviving corporation immediately prior to the
transfer. (This amount of assets of the merged corporation must also be
transferred to the surviving corporation.) All payments to dissenters and all
redemptions and distributions (except for regular, normal distributions) made
by the corporation immediately preceding the transfer and which are part of the
plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
It has been represented that after the Merger, Congressional will hold assets
representing at least 90 percent of the fair market value of the net assets and
70 percent of the gross assets of Congressional and Sub. Amounts paid to
Congressional's shareholders (including Congressional shareholders who exercise
their statutory dissenters' rights), certain bonuses, extraordinary
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Congressional Construction Corporation Page 10
expenses, and other expenses have been included as part of Congressional's net
and gross assets for purposes of this representation. In addition, no cash
payments will be made for fractional shares. Therefore, the "substantially
all" requirement will be satisfied.
c. Control
Section 368(a)(2)(E)(ii) requires that in the transaction the target
shareholders exchange an amount of target corporation stock constituting
"control" for voting stock of the acquirer. Section 1.368-2(j)(3)(i) of the
Income Tax Regulations (the "Regulations"). Section 368(c) of the Code defines
"control" as ownership of stock possessing at least 80% of the total combined
voting power of all classes of a corporation's voting stock and of at least 80%
of each other class. The target corporation's redemption of common or
nonvoting preferred stock using its own funds will not violate the control
requirement, because the redeemed stock is not considered outstanding for
control purposes. See Reg. Section 1.368-2(j)(7), Examples (2) and (3).
In the present case, all of the stock of Congressional will be exchanged solely
for voting stock of AMRE. Further, any payments made to dissenters will be
made by Congressional from its own funds. Therefore, the control requirement
will be satisfied.
2. General Reorganization Requirements
Sections 1.368-1(b) and 1.368-2(g) of the Regulations provide that the
following additional requirements must be met for a transaction to qualify as a
reorganization within the meaning of Section 368 of the Code:
(i) "continuity of interest" must be present;
(ii) "continuity of business enterprise" must exist; and
(iii) the transaction must be undertaken for reasons pertaining to
the continuance of the business of a corporation which is a
party to the transaction.
Continuity of Interest
In general, the continuity of interest test requires the owners of the
reorganized entity to receive and retain a meaningful equity interest in the
surviving entity. See e.g., Pinellas Ice & Cold Storage Co. v. Comm'r, 287
U.S. 462 (1933); Cortland Specialty Company v. Comm'r, 60 F.2d
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937 (2d Cir.), cert. denied, 288 U.S. 599 (1932); Helvering v. Minnesota Tea
Co., 296 U.S. 378 (1935).
Section 3.02 of Rev. Proc. 77-37, supra, provides that the "continuity of
interest" requirement of Section 1.368-1(b) of the Regulations is satisfied in
this context if there is continuing interest through stock ownership in the
controlling corporation (AMRE) on the part of the former shareholders of the
surviving corporation (Congressional) which is equal in value, as of the
effective date of the reorganization, to at least 50 percent of the value of
all of the formerly outstanding stock of the surviving corporation. Sales,
redemptions, and other dispositions of stock occurring prior or subsequent to
the exchange which are part of the plan of reorganization will be considered in
determining whether there is a continuing interest through stock ownership as
of the effective date of the reorganization.
The continuity of interest requirement set forth in Rev. Proc. 77-37 will be
satisfied in the proposed transaction because there will be a continuing
interest through stock ownership in AMRE on the part of the former shareholders
of Congressional which is, in the aggregate, equal in value, as of the
effective date of the reorganization, to at least 50 percent of the value of
all of the formerly outstanding stock of Congressional as of the same date.
In this regard, it should be noted that Congressional has represented that it
has no present plan to terminate the ESOP prior to the Merger. As represented
in the Documents, however, AMRE has stated its intention to terminate the ESOP.
AMRE has further stated its contemplation of a sale of the Unallocated Shares
and the distribution of the Allocated Shares to the beneficiaries of the ESOP
in the event of such a termination. Because the decision regarding termination
of the ESOP will be made by AMRE, for continuity of interest purposes, such
termination may be treated as separate from the Merger. See Rev. Rul. 79-250,
1979-2 C.B. 156 and Rev. Rul. 69-516, 1969-2 C.B. 56. Even if, however, the
termination of the ESOP were considered part of the Merger, there will still be
a continuing interest through stock ownership in AMRE on the part of the former
shareholders of Congressional and the beneficial owners of the ESOP which is
equal in value to at least 50 percent of the value of all of the formerly
outstanding stock of Congressional. Thus, the shareholders of Congressional
(other than the ESOP) have represented that they have no plan or intention to
sell, exchange or otherwise dispose of the AMRE shares that they will receive
pursuant to the Plan of Merger. Further, the management of Congressional has
represented that to the best of its knowledge, the beneficial owners of the
ESOP owning less than 1% of the Congressional stock currently have no plan or
intention to sell, exchange, or otherwise dispose of the AMRE stock they may
receive if the ESOP is terminated. Accordingly, even counting the Unallocated
Shares and Mr. Pirozzi's Allocated Shares adversely, continuity should be at
the 50% ruling guideline and substantially in excess
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of the lesser case law standard. See John A. Nelson Co. v. Helvering, 296 U.S.
374 (1935), where the Supreme Court found 38% continuity to be sufficient.(1)
As described in (iii) of the Plan of Reorganization, it is contemplated by AMRE
that the ESOP be terminated following the Merger, and, as part of such
termination, the ESOP, at the New ESOP Committee's discretion, will sell in the
open market the AMRE common stock received by the ESOP in exchange for the
Unallocated Shares. The ESOP will use the proceeds from the sale of such stock
to repay the remaining indebtedness owed by the ESOP to Congressional and
Congressional will use such amounts received from the ESOP to repay its
corresponding obligation to the bank. To the extent that the proceeds from the
sale of the AMRE common stock are insufficient to repay the ESOP indebtedness,
AMRE will satisfy the remaining indebtedness owed by the ESOP to Congressional
from its own assets. The current balance of the indebtedness existing between
the ESOP and Congressional is approximately $5 million and the current value of
the Unallocated Shares is approximately $9 million. Therefore, it is unlikely
that AMRE will be required to satisfy any indebtedness. Further, in light of
the contingent nature of the cash payment by AMRE to the ESOP, and the amount
by which the transaction otherwise satisfies the continuity requirement, we
believe that this item does not change our conclusion that continuity of
interest is satisfied.
Continuity of Business Enterprise
Section 1.368-1(b) of the Regulations provides that a continuity of business
enterprise (as described in Section 1.368-1(d) of the Regulations) is requisite
to a reorganization. Section 1.368-1(d) of the Regulations provides that the
continuity of business enterprise requirement is satisfied if either the
acquiring corporation continues the acquired corporation's historic business or
uses a substantial portion of the acquired corporation's historic business
assets in a business. The proposed transaction will meet the continuity of
business enterprise test because it has been represented to us that
Congressional will continue to be engaged in its historic business.
Business Purpose
Section 1.368-2(g) of the Regulations provides that a reorganization must be
undertaken for reasons germane to the continuance of the business of a
corporation a party to the reorganization. Based on the representations of the
management of both AMRE and
- ---------------
(1) While the lower court decision indicated that the acquired corporation's
shareholders actually received stock for 41% of their shares (28 B.T.A.
529 (1933)), the Supreme Court apparently viewed 38% as sufficient.
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Congressional contained under the caption entitled "Reasons for the Merger," as
set forth in the Registration Statement, the proposed transaction will
substantially benefit the business of both AMRE and Congressional. Therefore,
the proposed transaction will be considered as motivated by a valid business
purpose in accordance with Section 1.368-2(g) of the Regulations.
Thus, provided that the Merger constitutes a statutory merger under applicable
state law, the Merger will qualify as a reorganization under Section
368(a)(1)(A). The fact that stock of AMRE will be used in the transaction will
not disqualify the reorganization because (i) after the Merger, Congressional
will hold substantially all of its properties and those of Sub and (ii) in the
Merger, former shareholders of Congressional will exchange, for an amount of
voting stock of AMRE, an amount of stock in Congressional which constitutes
control of Congressional. See Section 368(a)(2)(E) of the Code.
3. Section 368(a)(1)(B)
Section 368(a)(1)(B) of the Code provides that the term "reorganization" (a
"Type B Reorganization") includes the acquisition by one corporation, in
exchange solely for all or a part of its voting stock (or in exchange solely
for all or a part of the voting stock of a corporation which is in control of
the acquiring corporation), of stock of another corporation if, immediately
after the acquisition, the acquiring corporation has control of such other
corporation (whether or not such acquiring corporation had control immediately
before the acquisition). In Rev. Rul. 67-448, 1967-2 C.B. 144, a parent
corporation (P) issued some of its voting shares to its newly formed
subsidiary, S, and S merged into an unrelated corporation (T). In the merger,
the T shareholders exchanged 80 percent or more of the T stock for P stock.
The Service disregarded the transitory existence of S and treated the
transaction as a direct exchange by the T shareholders of their T stock for P
stock in a transaction qualifying as a reorganization within the meaning of
Section 368(a)(1)(B).
Similarly, in this case, the transitory existence of Sub should be disregarded.
Since AMRE will not issue any consideration in the transaction except for its
voting stock, and AMRE will have control of Congressional immediately following
the acquisition, the Merger will also qualify as a reorganization under Section
368(a)(1)(B). As discussed above, the additional requirements of continuity of
interest, continuity of business enterprise and business purpose will be met.
4. Other Statutory and Regulatory Provisions
Section 354(a)(1) of the Code generally provides that no gain or loss is
recognized if stock in a corporation which is a party to a reorganization is,
in pursuance of the plan of reorganization, exchanged solely for stock in such
corporation or in another corporation which is a party to the reorganization.
Section 368(b) of the Code defines the term "a party to a reorganization" to
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include a corporation resulting from a reorganization, both corporations, in
the case of a reorganization resulting from the acquisition by one corporation
of stock or properties of another, and in the case of a reorganization
qualifying under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E), the
controlling corporation (AMRE).
If a Congressional shareholder dissents and receives solely cash in exchange
for his or her Congressional common stock, such cash will be treated as having
been received by such Congressional shareholder as a distribution in redemption
of such shareholder's Congressional stock, subject to the provisions and
limitations of Section 302 of the Code. Section 302(b)(3) provides, in part,
that if a redemption is in complete redemption of all of the stock of a
corporation owned by a shareholder, payment for the stock shall be considered
received by the shareholder as a distribution in exchange for his or her stock.
Section 358(a)(1) of the Code generally provides that in the case of an
exchange to which Section 354 applies, the basis of the property permitted to
be received without the recognition of gain or loss is the same as that of the
property exchanged. (Section 358(a)(1)).
Section 1032(a) of the Code generally provides that no gain or loss is
recognized to a corporation on the receipt of money or other property in
exchange for stock (including treasury stock) of such corporation.
Section 362(b) of the Code generally provides that if property is acquired by a
corporation in connection with a reorganization, then the basis of such
property is the same as it was in the hands of the transferor.
Section 1223(1) of the Code states that in determining the period for which a
taxpayer has held property received in an exchange, the period for which the
taxpayer held the property exchanged is included if the property has, for the
purpose of determining gain or loss from a sale or exchange, the same basis in
whole or in part in the taxpayer's hands as the property exchanged, and the
property exchanged constitutes a capital asset at the time of the exchange.
Section 1223(2) of the Code provides that in determining a taxpayer's holding
period for property, there is included the period for which such property was
held by another person, if such property has, for the purpose of determining
gain or loss from a sale or exchange, the same basis in whole or in part in the
taxpayer's hands as it had in the hands of such other person.
Section 1.358-6(c) of the Regulations sets forth rules for determining the
basis of shares of a subsidiary in a reorganization qualifying under Section
368(a)(1)(A) by reason of the application of Section 368(a)(2)(E) (a "reverse
triangular merger"). Section 1.358-6(c)(2) of the Regulations provides that
the basis of the target corporation's shares owned by the acquiring corporation
after
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a reverse triangular merger will be equal to the sum of (i) the acquiring
corporation's basis in the stock of the controlled corporation before the
reorganization; (ii) the net basis of property transferred by the acquiring
corporation to the controlled corporation in the reorganization that is not
distributed to the target corporation's shareholders in the reorganization; and
(iii) the target corporation's net basis in its property after the merger. If
a reorganization qualifies both as a reverse triangular merger and as a Type B
reorganization, the basis of the target corporation's shares owned by the
acquiring corporation may be determined as described above, or the basis will
be the same as the basis of the stock in the hands of the target shareholders.
Section 362(b).
Income Tax Consequences - State
District of Columbia. The District of Columbia (the "District") has not
expressly adopted the Code. However, the computation of the District's
income-based tax begins with Federal gross income (or Federal adjusted gross
income, in the case of individuals) as defined under Internal Revenue Code
Section 61, where the term "Internal Revenue Code" is defined to mean "the
Internal Revenue Code of 1986 (100 Stat. 2085; 26 U.S.C. 1 et seq.), as amended
through August 10, 1993." D.C. Code Sections 47-1801.4(bb-1)[28-1],
47-1803.2(a), and 47-1807.2(a). In addition to the deductions specifically
allowed by the Internal Revenue Code at the time of enactment of the D.C. Code,
the District of Columbia requires that certain modifications be made to the tax
base, none of which pertain to Internal Revenue Code Section 368(a)(1)(A) or
(a)(2)(E). D.C. Code Section 47-1803.2. The District of Columbia has issued
no other authoritative guidance regarding the treatment of a merger qualifying
as a reorganization under Section 368(a)(1)(A) by reason of Section
368(a)(2)(E) of the Internal Revenue Code.
Therefore, since (a) the starting point for computing the District's income tax
base is Federal gross income (or Federal adjusted gross income, in the case of
individuals), (b) none of the District's required income modifications pertain
to the tax treatment of a merger qualifying as a reorganization under Section
368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code, and (c) the
District has not issued authoritative guidance to the contrary, the treatment
of the above transaction should be the same for District of Columbia income tax
purposes as for Federal income tax. It should be noted that the qualification
of the Merger as a tax-free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E), and the other Federal tax consequences described herein, are not
dependent on tax law enacted after August 10, 1993.
Florida. The State of Florida has not expressly adopted the Code. However,
under Florida law, state net income is defined as adjusted Federal income, and
is computed by starting with the "taxpayer's taxable income" and making certain
modifications to it, none of which pertain to a merger qualifying as a
reorganization under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of
the Code. Florida Statutes, Sec. 220.12 and 13. For purposes of this
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Congressional Construction Corporation Page 16
computation, Florida statutes define a "taxpayer's taxable income" as "taxable
income as defined in s. 63 of the Internal Revenue Code and properly reported
for Federal income tax purposes . . ." where the Internal Revenue Code means
the "United States Internal Revenue Code of 1986, as amended and in effect on
January 1, 1995." Florida Statutes, Secs. 220.03(1)(n) and 220.13(2).
Additionally, while the Florida Department of Revenue has not issued
authoritative guidance specifically addressing the State's tax treatment of a
merger qualifying as a reorganization under Section 368(a)(1)(A) by reason of
Section 368(a)(2)(E), it has stated in a Technical Assistance Advisement
addressing the income tax treatment of Internal Revenue Code Sections 351 and
368(a)(1)(F) of the Code that:
"Florida has not specifically adopted provisions similar to those of
Code Section 368 dealing with tax-free reorganizations . . . However,
since the terms used in the Florida Income Tax Code generally have the
same meaning as when used in the Internal Revenue Code, the result to
the parties to the exchange should be the same for Florida state tax
purposes as if Florida had specifically adopted Code Section[s] 368 .
. . and the corresponding affected Code sections." Technical
Assistance Advisement No. 95(C)1-005 (May 11, 1995).
Therefore, based on the above language, and since (a) Florida begins the
computation of its income tax base with Federal taxable income, and (b) none of
the required modifications pertain to a merger qualifying as a reorganization
under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code, the
income tax treatment for Florida purposes should be the same as that for
Federal income tax purposes. (Note that Florida does not impose an income tax
on individuals.)
Maryland. The State of Maryland has not expressly adopted the provisions of
the Code. However, the State of Maryland computes its tax base by beginning
with Federal taxable income (or Federal adjusted gross income, in the case of
individuals) "as determined under the Internal Revenue Code" and adjusts it for
specific addition and subtraction modifications, none of which relate to a
merger qualifying as a reorganization under Section 368(a)(1)(A) by reason of
Section 368(a)(2)(E) of the Code. Maryland Annotated Code Secs. 10-203,
10-204, 10-304 and 10-305. For purposes of its income tax, Maryland defines
the Internal Revenue Code as "title 26 of the United States Code." Maryland
Annotated Code Sec. 1-101(k). The Maryland Office of the Comptroller of the
Treasury has issued no other authoritative guidance with regards to a merger
qualifying as a reorganization under Section 368(a)(1)(A) by reason of Section
368(a)(2)(E) of the Code.
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Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 17
Therefore, since (a) the starting point for computing the Maryland income tax
base is Federal taxable income (or Federal adjusted gross income, in the case
of individuals), (b) none of the required state income modifications pertain to
the tax treatment of a merger qualifying as a reorganization under Section
368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code, and (c) the State
of Maryland has issued no authoritative guidance to the contrary, the treatment
of the above transaction should be the same for Maryland income tax purposes as
for Federal income tax purposes.
Virginia. While the State of Virginia has not expressly adopted the provisions
of the Code, Virginia Code Section 58.1-301.B infers adoption of the Code
stating that:
"Any reference in this chapter to the laws of the United States
relating to Federal income taxes shall mean the provisions of the
Internal Revenue Code of 1954, and amendments thereto, and other
provisions of the laws of the United States relating to Federal income
taxes, as the same may be or become effective at any time or from time
to time."
Additionally, while Virginia law does not specifically address the income tax
treatment of a merger qualifying as a reorganization under Section 368(a)(1)(A)
by reason of Section 368(a)(2)(E) of the Code, it defines Virginia taxable
income as Federal taxable income (or Federal adjusted gross income, in case of
individuals) adjusted for certain state modifications, none of which pertain to
a merger qualifying as a reorganization under Section 368(a)(1)(A) by reason of
Section 368(a)(2)(E) of the Code. VA Code Secs. 58.1-322, 58.1402.A. and VA
Reg. Sec. 630-3-301. The Virginia Department of Taxation has issued no other
authoritative guidance with regard to a merger qualifying as a reorganization
under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code.
Therefore, since (a) the starting point for computing the Virginia income tax
base is Federal taxable income (or Federal adjusted gross income, in the case
of individuals), (b) none of the required state modifications relate to the tax
treatment of a merger qualifying as a reorganization under Section 368(a)(1)(A)
by reason of Section 368(a)(2)(E), and (c) the State of Virginia has issued no
authoritative guidance to the contrary, the treatment of the above transaction
should be the same for Virginia income tax purposes as for Federal income tax
purposes.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
Based upon the information contained in the Documents, the following Federal
and State income tax consequences will result to AMRE, Sub, Congressional and
the Congressional shareholders:
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Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 18
(1) Provided that the Merger qualifies as a statutory merger under
applicable state law, the Merger will constitute a reorganization
within the meaning of Section 368(a)(1)(A) of the Code. The
reorganization will not be disqualified by reason of the fact that
voting stock of AMRE is used in the transaction (Section 368(a)(2)(E)
of the Code). The Merger also will constitute a reorganization within
the meaning of Section 368(a)(1)(B) of the Code. Congressional, AMRE,
and Sub will each be "a party to the reorganization" within the
meaning of Section 368(b).
(2) No gain or loss will be recognized to the Congressional shareholders
upon the receipt of the AMRE voting common stock solely in exchange
for Congressional common stock. (Section 354(a)(1)).
(3) A dissenting Congressional shareholder who receives only cash pursuant
to appraisal rights will be treated as having received a distribution
in redemption of his or her Congressional stock, subject to the
provisions and limitations of Section 302 of the Code. (Rev. Rul.
74-515, 1974-2 C.B. 118, and Rev. Rul. 73-102, 1973-1 C.B. 186).
(4) The basis of the AMRE common stock to be received by the Congressional
shareholders will be equal to the basis of the Congressional common
stock surrendered in exchange therefor. (Section 358(a)(1)).
(5) The holding period of the AMRE voting common stock to be received by
the Congressional shareholders will include the period during which
the Congressional voting common stock surrendered in exchange therefor
was held, provided that Congressional common stock was held as a
capital asset on the date of the exchange (Section 1223(1)).
(6) No gain or loss will be recognized to AMRE upon the receipt of the
common stock of Congressional solely in exchange for Sub common stock
(Section 354(a)(1)).
(7) No gain or loss will be recognized to Sub upon the transfer of its
assets, if any, to Congressional in exchange for Congressional stock
(Section 361).
(8) No gain or loss will be recognized to Congressional upon the receipt
of the assets of Sub, if any, in exchange for Congressional stock
(Section 1032(a)).
(9) The basis of Sub's assets, if any, received by Congressional will be
the same as the basis of such assets in the hands of Sub immediately
prior to the exchange (Section 362(b)).
(10) The basis of the Sub shares owned by AMRE after the Merger will be
equal to (1) the sum of (i) AMRE's basis in the stock of the Sub
before the Merger; (ii) the net basis of
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Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 19
property transferred by AMRE to Sub in the Merger that is not
distributed to the Congressional shareholders in the Merger; and (iii)
Congressional's net basis in its property after the merger, or (2) the
same as the basis of the stock in the hands of the Congressional
shareholders. (Section 1.358-6 of the Regulations).
(11) The holding period of the assets of Sub, if any, in the hands of
Congressional will, in each instance, include the period such assets
were held by Sub (Section 1223(2)).
(12) The District of Columbia, Florida, Maryland, and Virginia income tax
consequences to Congressional, and the Congressional shareholders
resident in those States should be consistent with those Federal
income tax consequences outlined above.
SCOPE OF OPINION
The scope of this opinion is expressly limited solely to the Federal, District
of Columbia, Florida, Maryland, Virginia income tax issues specifically
addressed in (1) through (12) in the section entitled "FEDERAL AND STATE INCOME
TAX CONSEQUENCES" above. Specifically, our opinion has not been requested, and
we have made no determination nor expressed any opinion with respect to any
other issues, including, but not limited to, any foreign, consolidated return,
employee benefit, and Section 382 issues, or alternative minimum tax
consequences to the parties to this transaction. In addition, no opinion is
expressed as to the qualification of the ESOP for Federal or State purposes, or
as to the effects of the intended termination of the ESOP. Further, no opinion
is expressed as to the qualification of the Merger as a statutory merger under
state law.
Furthermore, our opinion has not been requested and none is expressed with
respect to any state sales and use tax, transfer tax, unemployment tax,
intangible tax, or local tax consequences to Congressional or the shareholders.
Further, we have not addressed the state income tax consequences for states
other than the District of Columbia, Florida, Maryland, and Virginia.
Our opinion, as stated above, is based upon our analysis of the Code, the
Regulations, current case law and published IRS authorities. The foregoing are
subject to change, and such change may be retroactively effective. If so, our
views, as set forth above, may be affected and may not be relied upon. In
addition, our opinion is based on the information contained in the Documents.
Any variation or differences in the Documents may affect our opinion, perhaps
in an adverse manner. We have undertaken no obligation to update this opinion
for changes in facts or law occurring subsequent to the date thereof.
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Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 20
This letter represents our views as to the interpretation of existing law and
is not binding on the IRS or the courts.
Very truly yours,
ERNST & YOUNG LLP
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ANNEX F
BARRY GOODMAN LIMITED
BUSINESS VALUATION CONSULTANTS
1901 PENNSYLVANIA AVE., N.W., SUITE 400
WASHINGTON, D.C. 20006
----------
(202) 296-2777
FAX (202) 331-1563
[April ?, 1996]
Board of Trustees and Participants
Congressional Construction Corporation
Employee Stock Ownership Plan and Trust
Trustees and Participants:
You have requested our written opinions as of today's date as to the valuation
of Congressional Construction Corporation (the "Company") and the fairness,
from a financial point of view, of a merger (the "Merger") between the Company
and AMRE, Inc. ("AMRE"). The Merger will be described herein below. We
express the following opinions:
1. That the value of the 599,998 common stock shares of AMRE to
be received by the Congressional Construction Corporation
Employee Stock Ownership Plan and Trust ("ESOT") in exchange
for its 700 shares of convertible preferred stock of the
Company (hereafter referred to as the "Exchange ratio") as
described below is not less than the fair market value of the
convertible preferred stock held by the ESOT and that the AMRE
common stock is at least "adequate consideration" (as defined
under Section 3(18)(B) of the Employee Retirement Security Act
of 1974, as amended ("ERISA")) for the convertible preferred
stock.
2. That the terms and conditions of the transactions contemplated
by the Merger are fair to the ESOT from a financial point of
view.
In rendering the opinions above, we reviewed the documents listed below and
others, all of which are needed to determine the value of the Company and the
fairness of the transactions contemplated by the Merger:
1. The Agreement and Plan of Merger ("Agreement"), dated December
30, 1995.
2. The Company's Audited financial statements for the fiscal
years 1986 through 1993 ending March 31 and nine months ended
December 31,
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Board of Trustees BARRY GOODMAN LIMITED Page 2
[April ?, 1996] BUSINESS VALUATION CONSULTANTS
1993, and twelve months ended December 31, 1994 and December
31, 1995.
3. The Company's management's projections of income for the years
1996-1999.
4. The annual reports of AMRE for the years 1986 through 1994.
5. Interim financial statements for both the Company and AMRE for
the first nine months of calendar year 1995.
6. The registration statement on Form S-4, dated [April ?, 1996],
that will be filed with the Securities and Exchange
Commission.
7. Various articles and reports about AMRE from professional and
business journals.
8. Various articles and other sources regarding the financial
condition of the home improvement industry.
9. Certain other publicly available financial and other
information concerning the Company and AMRE.
10. Publicly available information concerning other companies in
the remodeling business and possible mergers and acquisition
in the same or similar business.
11. We considered the license that AMRE has with Century 21
through its ARI subsidiary.
12. The Congressional Construction Corporation Employee Stock
Ownership Plan and Trust and amendments number one, two, and
three thereto.
13. Board minutes related to the Merger and related matters dated
December 30, 1995 and [April ?, 1996].
14. Board of Trustees resolutions dated [April?,1996].
The scope of our work included the following and other factors:
1. Analysis of information provided by the management regarding
the Company's products, services, customers and markets,
history and background and other related data, along with
discussions with the Company's management on related topics;
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Board of Trustees BARRY GOODMAN LIMITED Page 3
[April ?, 1996] BUSINESS VALUATION CONSULTANTS
2. A review and analysis of the historical financial performance
and condition of the Company;
3. A study of the general and specific economic factors that have
impacted and, in all likelihood, will continue to impact the
financial performance of the Company.
4. The determination of the cost of capital that stockholders of
corporations use in the pricing of their securities.
5. The identification and review of firms in the same or similar
business with specific emphasis on how they have performed
relative to the Company.
6. We also performed a similar review of AMRE that is listed in
items one through five above.
This letter departs from Standard 10 of the Uniform Standards of Professional
Appraisal Practice ("USPAP") regarding reporting results of a business
appraisal in that not all of the methods employed or considered in reaching the
opinions above are fully described in this letter. However, in my opinion, the
appraisal analysis completed in order to render the opinions does conform to
USPAP Standard 9 which deals with development of a business appraisal.
Additionally, the final report will, in my opinion, conform with Standard 10.
The procedures utilized are designed to follow the general guidelines set forth
by the Internal Revenue Service Revenue Ruling 59-60, and the Department of
Labor's proposed regulations regarding the definition of adequate
consideration.
We hereby submit this opinion letter on our findings in advance of our final
report, which will follow within thirty days of this opinion letter and will
include, at a minimum, the information required by the Department of Labor's
proposed regulations regarding the definition of adequate consideration.
Based upon the foregoing information and subject to the assumptions and
limiting conditions listed herein below, we are of the opinion as financial
analysts and appraisers that, as of the date hereof:
(1) The Exchange ratio is such that it will yield to the ESOT not
less than the fair market value of the Company's convertible
preferred stock held by the ESOT;
(2) That the AMRE common stock received by the ESOT is at least
"adequate consideration" (as defined under Section 3(18)(B) of
the ERISA) for the convertible preferred stock; and
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Board of Trustees BARRY GOODMAN LIMITED Page 4
[April ?, 1996] BUSINESS VALUATION CONSULTANTS
(3) That the other terms and conditions of the transactions
contemplated by the Merger are fair, from a financial point of
view, to the participants of the ESOT and their beneficiaries.
Respectfully Submitted,
BARRY GOODMAN LIMITED
By:
-----------------------------------
Barry R. Goodman, CFA, CPA, CBA, ASA
President
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Board of Trustees BARRY GOODMAN LIMITED Page 5
[April ?, 1996] BUSINESS VALUATION CONSULTANTS
************************************************************
* STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS *
************************************************************
1. An investigation of title of the property has not been made and no
responsibility for any matters regarding title are assumed. It is
assumed that the property is free and clear of all liens and/or
encumbrances.
2. Information furnished by others has been relied upon and is believed
to be reliable but has not been verified in all cases. No
responsibility is assumed or implied for the accuracy of the
information provided.
3. No responsibility can be taken for changes in market conditions after
the appraisal date and there is no obligation to revise this opinion
letter based upon another date or to reflect changes in data that we
were not aware of. The appraised value is based on the financial
position of the Company and the results of the Company as of the
valuation date.
4. This opinion letter has been made only for the purpose stated and
shall not be used for any other purpose other than in a proxy
disclosure prepared for purposes of the Merger. Prior written consent
of Barry Goodman Limited is needed for anyone to use any portion of
this report for anything other than the stated purpose.
5. No individual associated with working on this appraisal opinion will
be required to give testimony or appear in court or other legal
proceedings unless specific arrangements have been made.
6. No one associated with this opinion letter has any interest in the
financial outcome of the business or any legal proceedings associated
with the business or this opinion letter. In no way is the
compensation being paid to Barry Goodman Limited for this opinion
letter contingent upon the conclusion of value.
7. No one involved with this opinion letter has any present or
contemplated future interest in the business.
8. This opinion letter and analysis has been made to conform with the
Standards of Professional Conduct and Code of Ethics of the
Association for Investment Management and Research and the Uniform
Standards of Professional Appraisal Practice (except Standard 10, as
mentioned above).
9. Barry Goodman Limited consents to the inclusion of this material as an
attachment to the S-4 Statement to be filed with the Securities and
Exchange Commission. We consent to such inclusion therein.
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Board of Trustees BARRY GOODMAN LIMITED Page 6
[April ?, 1996] BUSINESS VALUATION CONSULTANTS
*****************
* CERTIFICATION *
*****************
The undersigned certifies that, to the best of my knowledge and belief:
1. The statements of fact contained in this opinion letter are true and
correct to the best of my knowledge.
2. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions, and conclusions.
3. I have no present or prospective interest in the property that is the
subject of this opinion letter, and I have no personal interest or
bias with respect to the parties involved.
4. My compensation is not contingent on an action or event resulting from
the analyses, opinions, or conclusions in, or the use of, this opinion
letter.
5. My analyses, opinions, and conclusions were developed in conformity
with the Uniform Standards of Professional Appraisal Practice (except
Standard 10, as mentioned above).
6. No one provided significant professional assistance to the person
signing this opinion letter.
------------------------------------
Barry R. Goodman, CFA, CPA, ASA, CBA
President
------------------------------------
Date
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware Act empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise. Section 145
also allows a corporation to purchase and maintain insurance on behalf of any
such person.
Article 9 of the AMRE Certificate and Article 11 of the AMRE Bylaws, which
provide for indemnification of directors and officers and for the authority to
purchase insurance with respect to indemnification of directors and officers,
are incorporated herein by reference.
Article 11 of the AMRE Bylaws provides that AMRE shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (whether or not by or in the right of
AMRE) by reason of the fact that he is or was or has agreed to become a
director, officer, employee or agent of AMRE, or is or was serving or has
agreed to serve at the request of AMRE as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges, expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding to the fullest extent permitted by Delaware law.
The right to indemnification under Article 11 of the AMRE Bylaws is a
contract right which includes, with respect to directors, officers, employees
and agents, the right to be paid by AMRE the costs, charges and expenses
incurred in defending a civil or criminal action, suit or proceeding in advance
of its disposition; provided, however, that the payment of such costs, charges
and expenses incurred by a director or officer in his capacity as a director
and officer (and not in any other capacity in which service was or is rendered
by such person while a director or officer) in advance of the final disposition
of such action, suit or proceeding shall be made only upon delivery to AMRE of
an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under Article 11 of the AMRE Bylaws
or otherwise.
The Delaware Act was amended in 1986 to provide that Delaware corporations
may amend their certificates of incorporation to relieve directors of monetary
liability for breach of their fiduciary duty, except under certain
circumstances, including breach of the director's duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct and a knowing
violation of law or any transaction from which the director derived improper
personal benefit. Article 9 of the AMRE Certificate provides that, to the
fullest extent permitted by the Delaware Act, AMRE's directors shall not be
liable to AMRE or its shareholders for monetary damages for breach of their
fiduciary duties as a director.
Finally, individual Indemnification Agreements have been entered into
between AMRE and each director of AMRE which contractually obligate AMRE to
provide to the directors (i) indemnification, (ii) insurance and (iii)
additional indemnification. The Indemnification Agreements are for an
unspecified period of time and are intended to indemnify and hold harmless each
director to the fullest extent permitted or authorized by applicable law and
the AMRE Bylaws.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits
Exhibit No. Title
- ----------- -----
2.1 - Agreement and Plan of Merger dated as of December 30, 1995, among
AMRE, Congressional and Merger Sub (incorporated by reference to
Exhibit 2.1 to AMRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
2.2* - Form of Amendment No. 1, dated as of April 17, 1996 to Agreement
and Plan of Merger, dated as of December 30, 1995, among AMRE,
Congressional and Merger Sub.
2.3 - Agreement and Plan of Merger, dated as of October 31, 1995, among
AMRE, Facelifters and Facelifters Home Systems, Inc., a New York
corporation (incorporated by reference to Exhibit 7.1 to AMRE's
Current Report on Form 8-K dated October 31, 1995).
2.4 - Amendment No. 1 dated December 12, 1995 to Agreement and Plan of
Merger dated as of October 31, 1995 among AMRE, Facelifters Home
Systems, Inc., Facelifters and Facelifters Merger Sub (incorporated
by reference to Exhibit 2.3 to AMRE's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
2.5 - Amendment No. 2, dated February 12, 1996 to Agreement and Plan of
Merger, dated as of October 31, 1995, among AMRE, Facelifters Home
Systems, Inc., Facelifters and Merger Sub, as amended (incorporated
by reference to Exhibit 2.3 to AMRE's Registration Statement on
Form S-4 dated March 26, 1996).
3.1 - Certificate of Incorporation of AMRE, as amended (incorporated by
reference to Exhibit 3.1 to AMRE's Annual Report on Form 10-K for
the fiscal year ended April 30, 1989).
3.2 - Bylaws of AMRE, as amended (incorporated by reference to Exhibit
3.2 to AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
4.1 - Rights Agreement, dated as of November 13, 1992, by and between
AMRE and The Bank of New York, as successor Rights Agent to The
Frost National Bank of San Antonio (incorporated by reference to
Exhibit 1 to AMRE's Registration Statement on Form 8-A, dated
November 19, 1992).
5* - Opinion regarding legality.
8.1* - Opinion of Ernst & Young LLP regarding tax matters.
10.1 - Stock Option Plan of AMRE, as amended (incorporated by reference to
Exhibit 10.1 to AMRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.2 - AMRE Savings Investment Plan, dated September 30, 1990, restating
and retitling AMRE's Profit Sharing Plan, as amended (incorporated
by reference to Exhibit 10.2 to AMRE's Quarterly Report on Form
10-Q for the quarterly period ended October 31, 1990).
10.3 - Amendment No. 1 to AMRE Savings Investment Plan, effective as of
October 1, 1990 (incorporated by reference to Exhibit 10.3 to
AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
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10.4 - Amendment No. 2 to AMRE Savings Investment Plan, effective as of
January 1, 1993 (incorporated by reference to Exhibit 10.5 to
AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
10.5 - Amendment No. 3 to AMRE Savings Investment Plan, effective as of
January 1, 1994 (incorporated by reference to Exhibit 10.5 to
AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.6 - Amendment No. 4 to AMRE Savings Investment Plan, effective as of
January 1, 1994, (incorporated by reference to Exhibit 10.1 to
AMRE's Quarterly Report on Form 10-Q for the quarterly period ended
September 25, 1994).
10.7 - AMRE Savings Investment Trust Agreement, dated September 30, 1990
(incorporated by reference to Exhibit 10.18 to AMRE's Quarterly
Report on Form 10-Q for the quarterly period ended October 31,
1990).
10.8 - Welfare Benefits Plan for Employees of AMRE, dated April 24, 1990,
as amended (incorporated by reference to Exhibit 10.15 to AMRE's
Annual Report on Form 10-K for the fiscal year ended April 30,
1990).
10.9 - Amendment No. 1 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.16 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1991).
10.10 - Amendment No. 2 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.19 to AMRE's Transition
Report on Form 10-K for the transition period ended December 31,
1991).
10.11 - Amendment No. 3 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.9 to AMRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.12 - Amendment No. 4 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.12 to AMRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.13 - Welfare Benefits Trust for Employees of AMRE, dated April 24, 1990
as amended (incorporated by reference to Exhibit 10.24 to AMRE's
Annual Report on Form 10-K for the fiscal year ended April 30,
1990).
10.14 - Amendment No. 1 to Welfare Benefits Trust for Employees of AMRE
(incorporated by reference to Exhibit 10.17 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1991).
10.15 - AMRE Flexible Benefits Plan, as restated effective January 1, 1993
(incorporated by reference to Exhibit 10.12 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1990).
10.16 - Stock Option Agreement, dated as of May 11, 1994, between AMRE and
Ronald I. Wagner (incorporated by reference to Exhibit 10.3 to
AMRE's Quarterly Report on Form 10-Q for the quarterly period ended
June 26, 1994).
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10.17 - Form of Stock Option Agreements, dated as of May 11, 1994, between
AMRE and each of the outside directors of AMRE, which are identical
except for the names of the directors (incorporated by reference to
Exhibit 10.4 to AMRE's Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 1994).
10.18 - Form of Stock Option Agreements, dated as of May 11, 1994, between
AMRE and the outside Directors of AMRE, which are identical except
for names, the dates of respective grants of options surrendered,
the number of shares subject to the surrendered options and the
number of shares subject to the respective options being granted
(which information and exhibit are incorporated by reference to
Exhibit 10.5 to AMRE's Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 1994).
10.19 - License Agreement, dated as of January 1, 1995, between AMRE and
Sears for the sale and installation of siding, overhang and trim
kitchen cabinet refacing, exterior coating and replacement windows
(incorporated by reference to Exhibit 10.25 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
10.20 - Form of Indemnification Agreements between AMRE and the Directors
of AMRE, which are identical except for names and dates
(incorporated by reference to Exhibit 10.27 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1990).
10.21 - Management Incentive Plan for AMRE (incorporated by reference to
Exhibit 10.19 to AMRE's Annual Report on Form 10-K for the fiscal
year ended April 30, 1991).
10.22 - Lease, dated October 11, 1988, between Cabinet Magic, Inc. and
Ronald I. Wagner (incorporated by reference to Exhibit 10.21 to
AMRE's Annual Report on Form 10-K for the fiscal year ended April
30, 1991).
10.23 - Lease, dated November 12, 1991, between AMRE, as Tenant, and Twin
Towers Investment Partnership, as Landlord, with respect to AMRE's
corporate headquarters in Dallas, Texas (incorporated by reference
to Exhibit 10.18 to AMRE's Transition Report on Form 10-K for the
transition period ended December 31, 1991).
10.24 - Promissory Note of Keith L. Abrams, dated as of April 30, 1994, in
the principal amount of $468,499.35, together with related Stock
Pledge Agreement dated January 31, 1995 (incorporated by reference
to Exhibit 10.37 to AMRE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.25 - Description of options granted outside of the AMRE Stock Option
Plan (incorporated by reference to Exhibit 10.29 to AMRE's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992).
10.26 - Form of Executive Severance Plan for Senior Management Positions
between AMRE and certain executives of AMRE, including Keith
Abrams, Curtis Everett, and Daniel Grandon, which agreements are
identical except for names and dates (incorporated by reference to
Exhibit 10.30 to AMRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
10.27 - Merchant Agreement, dated as of July 27, 1993, between AMRE and
Household Bank (Illinois), N.A. (incorporated by reference to
Exhibit 10.1 to AMRE's Quarterly Report on Form 10-Q for the
quarterly period ended September 26, 1993).
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10.28 - Merchant Agreement between AMRE and American General Financial
Center, effective July 1, 1993, as amended January 25, 1994,
(incorporated by reference to Exhibit 10.38 to AMRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.29 - License Agreement, dated October 17, 1995, among TM Acquisition
Corp. and Century 21 Real Estate Corporation and ARI (incorporated
by reference to Exhibit 7.1 to AMRE's Current Report on Form 8-K
dated October 17, 1995.
10.30 - Preferred Stock Purchase Agreement, dated October 17, 1995, between
AMRE and HFS (incorporated by reference to Exhibit 7.2 to AMRE's
Current Report on Form 8-K dated October 17, 1995).
10.31 - Credit Agreement, dated October 17, 1995, between AMRE and HFS
(incorporated by reference to Exhibit 7.3 to AMRE's Current Report
on Form 8-K dated October 17, 1995).
10.32 - Letter Agreement, dated October 17, 1995, between AMRE and David
Moore (incorporated by reference to Exhibit 7.4 to AMRE's Current
Report on Form 8-K dated October 17, 1995).
10.33 - $5.00 Stock Option Agreement, dated October 17, 1995, between AMRE
and David Moore (incorporated by reference to Exhibit 7.5 to AMRE's
Current Report on Form 8-K dated October 17, 1995).
10.34 - $5.50 Stock Option Agreement, dated October 17, 1995, between AMRE
and David Moore (incorporated by reference to Exhibit 7.6 to AMRE's
Current Report on Form 8-K dated October 17, 1995).
10.35 - Stock Purchase Agreement between David Moore or his designees and
AMRE (incorporated by reference to Exhibit 7.7 to AMRE's Current
Report on Form 8-K dated October 17, 1995).
10.36 - Amendment No. 1 to the AMRE, Inc. Savings Investment Trust
(incorporated by reference to Exhibit 10.1 to AMRE's Quarterly
Report on Form 10-Q for the quarterly period ended July 2, 1995).
10.37 - Amended and Restated Merchant Agreement between Household Bank
(Illinois), N.A. and AMRE dated April 24, 1995 (incorporated by
reference to Exhibit 10.2 to AMRE's Quarterly Report on Form 10-Q
for the quarterly period ended July 2, 1995).
10.38 - Separation Agreement dated December 1, 1995 between AMRE and Ronald
Wagner. (incorporated by reference to Exhibit 10.38 to AMRE's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.39 - Amendment No. 1 to Stockholder Agreement between AMRE and the
shareholders of Facelifters signatory thereto (incorporated by
reference to Exhibit 10.39 to AMRE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.40*- Form of Amendment No. 2 to Stockholder Agreement between AMRE and
the shareholders of Facelifters signatory thereto.
10.41 - Employment Agreement, dated as of June 1, 1995, by and between AMRE
and Robert M. Swartz (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed June 19, 1995).
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10.42 - Stock Option Agreement, dated as of June 1, 1995, between AMRE and
Robert M. Swartz (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K filed June 19, 1995).
10.43*- Lease Agreement, dated as of December 31, 1995, by and between
Ronald I. Wagner and ARI.
11 - Statement regarding computation of per share earnings (incorporated
by reference to Exhibit 11 to AMRE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
23.1* - Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
the Exhibit 5 opinion filed herewith).
23.2* - Consent of Arthur Andersen LLP
23.3* - Consent of Deloitte & Touche LLP
23.4* - Consent of Grant Thornton LLP
23.5* - Consent of Ernst & Young LLP (included in the Exhibit 8.1 opinion
filed herewith).
23.6* - Consent of Barry Goodman Limited
24 - Power of Attorney (see the signature pages to this Form S-4
Registration Statement).
27* - Financial Data Schedule
99.1 - Stipulation of Settlement among plaintiffs in the Litigation and
AMRE, Steven D. Bedowitz, Robert Levin and Dennie D. Brown
(incorporated by reference to Exhibit 1 to the Current Report on
Form 8-K filed February 4, 1993).
99.2 - Final judgment and order approving settlement of the Litigation
(incorporated by reference to Exhibit 2 to the Current Report on
Form 8-K filed February 4, 1993).
99.3* - Form of Confidential Voting Instruction Sheet.
__________________________
* Filed herewith.
** To be filed by amendment.
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
2. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in
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<PAGE> 230
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
4. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Information
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 herein, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
5. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
6. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 231
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas, on April 18, 1996.
AMRE, INC.
By: /s/ Robert M. Swartz
-------------------------------------
Robert M. Swartz
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each of the undersigned hereby constitutes
and appoints each of Robert M. Swartz and C. Curtis Everett, and each or any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign, execute, and file with the
Securities and Exchange Commission and any state securities regulatory board or
commission any documents relating to the proposed issuance and registration of
the securities offered pursuant to this Registration Statement on Form S-4
under the Securities Act of 1933, as amended, including any and all amendments
relating thereto, with all exhibits and any and all documents required to be
filed with respect thereto and any regulatory authority, granting unto said
attorney, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he might or could
do if personally present, hereby ratifying and confirming all that said
attorney-in-fact and agent, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John D. Snodgrass Chairman of the Board April 18, 1996
- ------------------------------------------ and Director
John D. Snodgrass
/s/ Robert M. Swartz Chief Executive Officer April 18, 1996
- ------------------------------------------ and Director
Robert M. Swartz
/s/ Ronald L. Bliwas Director April 18, 1996
- ------------------------------------------
Ronald L. Bliwas
</TABLE>
S-1
<PAGE> 232
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dennis S. Bookshester Director April 18, 1996
- ------------------------------------------
Dennis S. Bookshester
/s/ Arthur P. Frigo Director April 18, 1996
- ------------------------------------------
Arthur P. Frigo
/s/ Stephen P. Holmes Director April 18, 1996
- ------------------------------------------
Stephen P. Holmes
/s/ Jack L. McDonald Director April 18, 1996
- ------------------------------------------
Jack L. McDonald
/s/ David L. Moore Director April 18, 1996
- ------------------------------------------
David L. Moore
/s/ Robert W. Pittman Director April 18, 1996
- ------------------------------------------
Robert W. Pittman
/s/ Sheldon I. Stein Director April 18, 1996
- ------------------------------------------
Sheldon I. Stein
/s/ John S. Vanecko Principal Financial and April 18, 1996
- ------------------------------------------ Accounting Officer
John S. Vanecko
</TABLE>
S-2
<PAGE> 233
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 - Agreement and Plan of Merger dated as of December 30, 1995, among
AMRE, Congressional and Merger Sub (incorporated by reference to
Exhibit 2.1 to AMRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
2.2* - Form of Amendment No. 1, dated as of April 17, 1996 to Agreement
and Plan of Merger, dated as of December 30, 1995, among AMRE,
Congressional and Merger Sub.
2.3 - Agreement and Plan of Merger, dated as of October 31, 1995, among
AMRE, Facelifters and Facelifters Home Systems, Inc., a New York
corporation (incorporated by reference to Exhibit 7.1 to AMRE's
Current Report on Form 8-K dated October 31, 1995).
2.4 - Amendment No. 1 dated December 12, 1995 to Agreement and Plan of
Merger dated as of October 31, 1995 among AMRE, Facelifters Home
Systems, Inc., Facelifters and Facelifters Merger Sub (incorporated
by reference to Exhibit 2.3 to AMRE's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
2.5 - Amendment No. 2, dated February 12, 1996 to Agreement and Plan of
Merger, dated as of October 31, 1995, among AMRE, Facelifters Home
Systems, Inc., Facelifters and Merger Sub, as amended (incorporated
by reference to Exhibit 2.3 to AMRE's Registration Statement on
Form S-4 dated March 26, 1996).
3.1 - Certificate of Incorporation of AMRE, as amended (incorporated by
reference to Exhibit 3.1 to AMRE's Annual Report on Form 10-K for
the fiscal year ended April 30, 1989).
3.2 - Bylaws of AMRE, as amended (incorporated by reference to Exhibit
3.2 to AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
4.1 - Rights Agreement, dated as of November 13, 1992, by and between
AMRE and The Bank of New York, as successor Rights Agent to The
Frost National Bank of San Antonio (incorporated by reference to
Exhibit 1 to AMRE's Registration Statement on Form 8-A, dated
November 19, 1992).
5* - Opinion regarding legality.
8.1* - Opinion of Ernst & Young LLP regarding tax matters.
10.1 - Stock Option Plan of AMRE, as amended (incorporated by reference to
Exhibit 10.1 to AMRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.2 - AMRE Savings Investment Plan, dated September 30, 1990, restating
and retitling AMRE's Profit Sharing Plan, as amended (incorporated
by reference to Exhibit 10.2 to AMRE's Quarterly Report on Form
10-Q for the quarterly period ended October 31, 1990).
10.3 - Amendment No. 1 to AMRE Savings Investment Plan, effective as of
October 1, 1990 (incorporated by reference to Exhibit 10.3 to
AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
10.4 - Amendment No. 2 to AMRE Savings Investment Plan, effective as of
January 1, 1993 (incorporated by reference to Exhibit 10.5 to
AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
<PAGE> 234
Exhibit No. Description
- ----------- -----------
10.5 - Amendment No. 3 to AMRE Savings Investment Plan, effective as of
January 1, 1994 (incorporated by reference to Exhibit 10.5 to
AMRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.6 - Amendment No. 4 to AMRE Savings Investment Plan, effective as of
January 1, 1994, (incorporated by reference to Exhibit 10.1 to
AMRE's Quarterly Report on Form 10-Q for the quarterly period ended
September 25, 1994).
10.7 - AMRE Savings Investment Trust Agreement, dated September 30, 1990
(incorporated by reference to Exhibit 10.18 to AMRE's Quarterly
Report on Form 10-Q for the quarterly period ended October 31,
1990).
10.8 - Welfare Benefits Plan for Employees of AMRE, dated April 24, 1990,
as amended (incorporated by reference to Exhibit 10.15 to AMRE's
Annual Report on Form 10-K for the fiscal year ended April 30,
1990).
10.9 - Amendment No. 1 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.16 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1991).
10.10 - Amendment No. 2 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.19 to AMRE's Transition
Report on Form 10-K for the transition period ended December 31,
1991).
10.11 - Amendment No. 3 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.9 to AMRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.12 - Amendment No. 4 to Welfare Benefits Plan for Employees of AMRE
(incorporated by reference to Exhibit 10.12 to AMRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.13 - Welfare Benefits Trust for Employees of AMRE, dated April 24, 1990
as amended (incorporated by reference to Exhibit 10.24 to AMRE's
Annual Report on Form 10-K for the fiscal year ended April 30,
1990).
10.14 - Amendment No. 1 to Welfare Benefits Trust for Employees of AMRE
(incorporated by reference to Exhibit 10.17 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1991).
10.15 - AMRE Flexible Benefits Plan, as restated effective January 1, 1993
(incorporated by reference to Exhibit 10.12 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1990).
10.16 - Stock Option Agreement, dated as of May 11, 1994, between AMRE and
Ronald I. Wagner (incorporated by reference to Exhibit 10.3 to
AMRE's Quarterly Report on Form 10-Q for the quarterly period ended
June 26, 1994).
10.17 - Form of Stock Option Agreements, dated as of May 11, 1994, between
AMRE and each of the outside directors of AMRE, which are identical
except for the names of the directors (incorporated by reference to
Exhibit 10.4 to AMRE's Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 1994).
<PAGE> 235
Exhibit No. Description
- ----------- -----------
10.18 - Form of Stock Option Agreements, dated as of May 11, 1994, between
AMRE and the outside Directors of AMRE, which are identical except
for names, the dates of respective grants of options surrendered,
the number of shares subject to the surrendered options and the
number of shares subject to the respective options being granted
(which information and exhibit are incorporated by reference to
Exhibit 10.5 to AMRE's Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 1994).
10.19 - License Agreement, dated as of January 1, 1995, between AMRE and
Sears for the sale and installation of siding, overhang and trim
kitchen cabinet refacing, exterior coating and replacement windows
(incorporated by reference to Exhibit 10.25 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
10.20 - Form of Indemnification Agreements between AMRE and the Directors
of AMRE, which are identical except for names and dates
(incorporated by reference to Exhibit 10.27 to AMRE's Annual Report
on Form 10-K for the fiscal year ended April 30, 1990).
10.21 - Management Incentive Plan for AMRE (incorporated by reference to
Exhibit 10.19 to AMRE's Annual Report on Form 10-K for the fiscal
year ended April 30, 1991).
10.22 - Lease, dated October 11, 1988, between Cabinet Magic, Inc. and
Ronald I. Wagner (incorporated by reference to Exhibit 10.21 to
AMRE's Annual Report on Form 10-K for the fiscal year ended April
30, 1991).
10.23 - Lease, dated November 12, 1991, between AMRE, as Tenant, and Twin
Towers Investment Partnership, as Landlord, with respect to AMRE's
corporate headquarters in Dallas, Texas (incorporated by reference
to Exhibit 10.18 to AMRE's Transition Report on Form 10-K for the
transition period ended December 31, 1991).
10.24 - Promissory Note of Keith L. Abrams, dated as of April 30, 1994, in
the principal amount of $468,499.35, together with related Stock
Pledge Agreement dated January 31, 1995 (incorporated by reference
to Exhibit 10.37 to AMRE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.25 - Description of options granted outside of the AMRE Stock Option
Plan (incorporated by reference to Exhibit 10.29 to AMRE's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992).
10.26 - Form of Executive Severance Plan for Senior Management Positions
between AMRE and certain executives of AMRE, including Keith
Abrams, Curtis Everett, and Daniel Grandon, which agreements are
identical except for names and dates (incorporated by reference to
Exhibit 10.30 to AMRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
10.27 - Merchant Agreement, dated as of July 27, 1993, between AMRE and
Household Bank (Illinois), N.A. (incorporated by reference to
Exhibit 10.1 to AMRE's Quarterly Report on Form 10-Q for the
quarterly period ended September 26, 1993).
10.28 - Merchant Agreement between AMRE and American General Financial
Center, effective July 1, 1993, as amended January 25, 1994,
(incorporated by reference to Exhibit 10.38 to AMRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.29 - License Agreement, dated October 17, 1995, among TM Acquisition
Corp. and Century 21 Real Estate Corporation and ARI (incorporated
by reference to Exhibit 7.1 to AMRE's Current Report on Form 8-K
dated October 17, 1995.
<PAGE> 236
Exhibit No. Description
- ----------- -----------
10.30 - Preferred Stock Purchase Agreement, dated October 17, 1995, between
AMRE and HFS (incorporated by reference to Exhibit 7.2 to AMRE's
Current Report on Form 8-K dated October 17, 1995).
10.31 - Credit Agreement, dated October 17, 1995, between AMRE and HFS
(incorporated by reference to Exhibit 7.3 to AMRE's Current Report
on Form 8-K dated October 17, 1995).
10.32 - Letter Agreement, dated October 17, 1995, between AMRE and David
Moore (incorporated by reference to Exhibit 7.4 to AMRE's Current
Report on Form 8-K dated October 17, 1995).
10.33 - $5.00 Stock Option Agreement, dated October 17, 1995, between AMRE
and David Moore (incorporated by reference to Exhibit 7.5 to AMRE's
Current Report on Form 8-K dated October 17, 1995).
10.34 - $5.50 Stock Option Agreement, dated October 17, 1995, between AMRE
and David Moore (incorporated by reference to Exhibit 7.6 to AMRE's
Current Report on Form 8-K dated October 17, 1995).
10.35 - Stock Purchase Agreement between David Moore or his designees and
AMRE (incorporated by reference to Exhibit 7.7 to AMRE's Current
Report on Form 8-K dated October 17, 1995).
10.36 - Amendment No. 1 to the AMRE, Inc. Savings Investment Trust
(incorporated by reference to Exhibit 10.1 to AMRE's Quarterly
Report on Form 10-Q for the quarterly period ended July 2, 1995).
10.37 - Amended and Restated Merchant Agreement between Household Bank
(Illinois), N.A. and AMRE dated April 24, 1995 (incorporated by
reference to Exhibit 10.2 to AMRE's Quarterly Report on Form 10-Q
for the quarterly period ended July 2, 1995).
10.38 - Separation Agreement dated December 1, 1995 between AMRE and Ronald
Wagner. (incorporated by reference to Exhibit 10.38 to AMRE's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.39 - Amendment No. 1 to Stockholder Agreement between AMRE and the
shareholders of Facelifters signatory thereto (incorporated by
reference to Exhibit 10.39 to AMRE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.40*- Form of Amendment No. 2 to Stockholder Agreement between AMRE and
the shareholders of Facelifters signatory thereto.
10.41 - Employment Agreement, dated as of June 1, 1995, by and between AMRE
and Robert M. Swartz (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed June 19, 1995).
10.42 - Stock Option Agreement, dated as of June 1, 1995, between AMRE and
Robert M. Swartz (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K filed June 19, 1995).
10.43*- Lease Agreement, dated as of December 31, 1995, by and between
Ronald I. Wagner and ARI.
11 - Statement regarding computation of per share earnings (incorporated
by reference to Exhibit 11 to AMRE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
<PAGE> 237
Exhibit No. Description
- ----------- -----------
23.1* - Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
the Exhibit 5 opinion filed herewith).
23.2* - Consent of Arthur Andersen LLP
23.3* - Consent of Deloitte & Touche LLP
23.4* - Consent of Grant Thornton LLP
23.5* - Consent of Ernst & Young LLP (included in the Exhibit 8.1 opinion
filed herewith).
23.6* - Consent of Barry Goodman Limited
24 - Power of Attorney (see the signature pages to this Form S-4
Registration Statement).
27* - Financial Data Schedule
99.1 - Stipulation of Settlement among plaintiffs in the Litigation and
AMRE, Steven D. Bedowitz, Robert Levin and Dennie D. Brown
(incorporated by reference to Exhibit 1 to the Current Report on
Form 8-K filed February 4, 1993).
99.2 - Final judgment and order approving settlement of the Litigation
(incorporated by reference to Exhibit 2 to the Current Report on
Form 8-K filed February 4, 1993).
99.3* - Form of Confidential Voting Instruction Sheet.
__________________________
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 2.2
AMENDMENT NO. 1 TO MERGER AGREEMENT
This Amendment No. 1 (the "AMENDMENT"), made and entered into as of
the 17h day of April 1996, is by and among AMRE, Inc., a Delaware corporation
("AMRE"), AMRE-Congressional Acquisition, Inc., a Delaware corporation and a
newly formed, wholly owned subsidiary of AMRE ("MERGER SUB"), Congressional
Construction Corporation, a Virginia corporation (the "COMPANY"), Kenwood
Financial, Inc. ("Kenwood") and John B. Nunez ("Nunez") and amends that
certain Agreement and Plan of Merger, made and entered into the 30th day of
December 1995, by and among AMRE, Merger Sub, the Company, Kenwood and Nunez
(the "MERGER AGREEMENT"). Capitalized terms used and not defined herein shall
have the meanings assigned to them in the Merger Agreement.
PRELIMINARY STATEMENTS
AMRE, Merger Sub, the Company, Nunez and Kenwood desire to amend the
Merger Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
STATEMENT OF AMENDMENT
1. Amendatory Provisions.
a. Section 7.1(b) to the Merger Agreement is amended and
restated in its entirety to read as follows:
(b) by either of the Boards of Directors of
Merger Sub or the Company if the Effective Time shall not have
occurred on or before June 30, 1996; provided, however, that
the right to terminate under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such
date;
b. Section 7.3(b) to the Merger Agreement is amended and
restated in its entirety to read as follows:
(b) In the event (i) the Agreement is terminated
pursuant to Section 7.1(b) or (ii) in the event the Effective
Time shall not have occurred on or before June 30, 1996 and
either (i) or (ii) occur for any reason other than the failure
to meet the conditions under Sections 6.1 and 6.3, AMRE shall
pay the Company an amount equal to the Termination Fee.
<PAGE> 2
2. Updated Disclosure Schedule. In compliance with the
requirements of Section 5.8 of the Merger Agreement, Schedule 2.6 is hereby
updated to reflect the additional information contained on Schedule 2.6 hereto.
3. Existing Agreement. Except as expressly amended hereby, all
of the terms, covenants and conditions of the Merger Agreement (i) are ratified
and confirmed, (ii) shall remain unamended and not waived and (iii) shall
continue in full force and effect.
4. GOVERNING LAW. EXCEPT TO THE EXTENT ASPECTS OF THE MERGER ARE
SPECIFICALLY GOVERNED BY DELAWARE LAW OR VIRGINIA LAW, THIS AMENDMENT WILL BE
GOVERNED BY THE INTERNAL LAW, INCLUDING VALIDITY, INTERPRETATION AND EFFECT,
AND NOT THE LAWS OF CONFLICTS, OF THE STATE OF TEXAS.
5. Counterparts. This Amendment may be executed in one or more
counterparts.
6. Enforceability. If any provision of this Amendment shall be
held to be illegal, invalid or unenforceable under any applicable law, then
such contravention or invalidity shall not invalidate the entire Amendment or
the Merger Agreement. Such provision shall be deemed to be modified to the
extent necessary to render it legal, valid and enforceable, and if no such
modification shall render it legal, valid and enforceable, then this Amendment
and the Merger Agreement shall be construed as if not containing the provision
held to be invalid, and the rights and obligations of the parties shall be
construed and enforced accordingly.
IN WITNESS WHEREOF, AMRE, Merger Sub, the Company, Kenwood and Nunez
have caused this Agreement to be executed as of the date first written above.
AMRE, INC.
By: /s/ John S. Vanecko
---------------------------------------------
Printed Name: John S. Vanecko
----------------------------------
Title: Vice President and Chief Financial Officer
-----------------------------------------
Address: 8585 N. Stemmons Freeway
------------------------
South Tower, Suite 102
----------------------
Dallas, TX 75247
----------------
AMRE - CONGRESSIONAL ACQUISITION, INC.
By: /s/ John S. Vanecko
---------------------------------------------
Printed Name: John S. Vanecko
-----------------------------------
Title: Vice President and Chief Financial Officer
------------------------------------------
Address: 8585 N. Stemmons Freeway
------------------------
South Tower, Suite 102
----------------------
Dallas, TX 75247
----------------
<PAGE> 3
CONGRESSIONAL CONSTRUCTION CORPORATION
By: /s/ JOHN B. NUNEZ
---------------------------------------
Printed Name: John B. Nunez
-----------------------------
Title: President
----------------------------------
Address: 11216 Waples Mill Road
----------------------
Suite 101
---------
Fairfax, Virginia 22030
-----------------------
/s/ JOHN B. NUNEZ
-------------------------------------------
Printed Name: John Nunez
----------
Address: 11216 Waples Mill Road, Suite 101
---------------------------------
Fairfax, Virginia 22030
-----------------------
Kenwood Financial, Inc.
By:
---------------------------------------
Printed Name: Norman R. Rales
-----------------------------
Title: President
--------------------------------
Address: 4000 N. Federal Hwy. #204
------------------------------
Boca Raton, Florida 33431
------------------------------
3
<PAGE> 4
Schedule 2.6
To ensure that adequate capital is available to complete the brand name
transition and the mergers, AMRE has engaged in discussions with several
investment banking and other firms regarding the possible sale of AMRE
securities to raise additional capital. These discussions have included the
possibility of selling up to 2.0 million shares of AMRE Common Stock in an
underwritten public offering or in a private placement with registration
rights. However, these discussions are still in their formative stages, and
there can be no assurance that additional sources of capital will be available
to AMRE.
<PAGE> 1
EXHIBIT 5
[AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. LETTERHEAD]
April 17, 1996
AMRE, Inc.
8585 N. Stemmons Freeway
South Tower
Dallas, Texas 75247-3805
Gentlemen:
We have acted as legal counsel to AMRE, Inc., a Delaware corporation
(the "COMPANY"), in connection with the proposed merger between AMRE -
Congressional Acquisition, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company ("MERGER SUB") and Congressional Construction
Corporation, Inc., a Virginia corporation ("CONGRESSIONAL"), whereby the
Company will issue approximately 900,000 shares of common stock of the Company,
par value $.01 per share (the "COMMON STOCK"), in exchange for all of the
outstanding shares of: (i) Congressional common stock, par value $1.00 per
share (the "CONGRESSIONAL COMMON STOCK"), and (ii) Congressional Convertible
Preferred Stock, no par value ("CONGRESSIONAL PREFERRED STOCK"), Congressional
will be merged with Merger Sub pursuant to the terms of an Agreement and Plan
of Merger dated as of December 31, 1995, as amended (the "MERGER AGREEMENT"),
by and between the Company, Merger Sub, Congressional and the shareholders of
Congressional that are signatories thereto for the limited purposes set forth
therein.
We have, as counsel to the Company, examined originals or photostatic,
certified or conformed copies of all such agreements, documents, instruments,
corporate records, certificates of public officials, public records and
certificates of officers of the Company as we have deemed necessary, relevant
or appropriate to enable us to render the opinions stated below. In rendering
such opinions, we have assumed the genuineness of all signatures and the
authenticity of all documents examined by us. As to various questions of fact
material to such opinions, we have relied upon representations of the Company.
Based upon such examination and representations, we advise you that,
subject to approval by a majority of the stockholders of the Company of an
amendment to the Company's certificate of incorporation to increase the number
of authorized shares of the Company, in our opinion:
1. The shares of Common Stock which are to be issued to the
shareholders of Congressional, as contemplated by the Merger
Agreement, have been duly and validly authorized by the
Company.
<PAGE> 2
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
AMRE, Inc.
April 16, 1996
Page 2
2. The shares of Common Stock which are to be issued and
delivered by the Company to the Congressional shareholders
will be validly issued, and upon receipt by the exchange agent
of certificates representing shares of Congressional Common
Stock and Congressional Preferred Stock as contemplated in the
Merger Agreement, fully paid and non-assessable.
We consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Proxy Statement/Prospectus contained therein.
Sincerely,
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
<PAGE> 1
EXHIBIT 8.1
[LETTRHEAD OF ERNST & YOUNG LLP]
April 18, 1996
Mr. John B. Nunez
President
Congressional Construction Corporation
11216 Waples Mill Road
Suite 101
Fairfax, Virginia 22030
Dear Mr. Nunez:
Pursuant to your request, this letter provides our opinion concerning certain
Federal, Washington, D.C., Virginia, Maryland and Florida income tax
consequences which would arise from consummation of the merger ("the Merger")
set forth in the Agreement and Plan dated December 30, 1995 ("Plan of Merger"),
which was made and entered into by Congressional Construction Corporation
("Congressional"), AMRE, Inc. ("AMRE"), AMRE-Congressional Acquisition, Inc.
("Sub"), and, for certain limited purposes, certain shareholders of
Congressional.
In rendering this opinion, we have relied upon: the Plan of Merger; the
Statements of Facts and Representations dated April 11, 1996, by John B. Nunez;
the Statement of Facts and Representations dated April 12, 1996, by Kenwood
Financial Inc.; the Statement of Facts and Representations dated April 15,
1996, by the management of Congressional; the Statement of Facts and
Representations dated April 17, 1996, by AMRE; and the draft Form S-4
Registration Statement dated April 17, 1996 (the "Registration Statement")
(collectively, "the Documents").
You have represented to us that the Documents provide an accurate and complete
description of the facts and circumstances concerning the Merger. We have made
no independent determination regarding such facts and circumstances and,
therefore, have relied upon the Documents with regard thereto for purposes of
this letter.
We understand that you will include a reference and summarization to Ernst &
Young LLP, and a copy of our opinion as an attachment to the Registration
Statement to be filed with the Securities and Exchange Commission. We consent
to such reference and summarization and the inclusion of our opinion therein.
<PAGE> 2
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 2
FACTS
Congressional has provided us with the following factual information with
respect to the transaction:
AMRE is an in-home direct marketing, sales and installation company providing
quality home improvement products. AMRE commenced business under the laws of
Texas in 1980, and was reincorporated under the laws of Delaware in February
1987.
As of January 1, 1996, AMRE had 20,000,000 authorized shares of common stock,
and 1,000,000 authorized shares of Senior Convertible Preferred Stock. As of
February, 23, 1996, 14,126,341 shares of AMRE common stock and 300,000 shares
of AMRE Senior Convertible Preferred Stock were outstanding. In connection
with the October 31, 1995, acquisition by AMRE of Facelifters Home Systems,
Inc., and upon approval of a majority of the shareholders owning the AMRE
common stock, the Certificate of Incorporation of AMRE will be amended to
provide for an increase in the number of authorized common stock to 40,000,000
shares. All outstanding shares of AMRE capital stock are validly issued, fully
paid and non assessable and not subject to preemptive rights created by
statute. The AMRE common stock is listed for trading on the New York Stock
Exchange.
Congressional markets, sells and installs home improvement products, including
vinyl siding, vinyl and aluminum windows, fencing, decks, roofs and patio
enclosures directly to consumers throughout the Mid-Atlantic region, including
Virginia, Maryland, and Washington, D.C., and to a lesser degree, Delaware,
West Virginia, Pennsylvania, and New Jersey. Congressional commenced business
under the laws of the Commonwealth of Virginia in 1982.
Congressional has 1,000 authorized shares of common stock, of which 499 shares
were issued and outstanding as of December 29, 1995, and 700 authorized shares
of preferred stock, all of which were issued and outstanding as of December 29,
1995. There are no dividends in arrears associated with the Congressional
preferred stock. All outstanding shares of Congressional capital stock are
validly issued, fully paid and non assessable and not subject to preemptive
rights created by statute. There are no options, warrants, calls, conversion
rights, commitments or agreements of any character to which Congressional is a
party or by which Congressional may be obligated (i) to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock of
Congressional, or (ii) to grant, extend or enter into any such option, warrant,
call, conversion right, commitment or agreement.
Congressional has three shareholders: John B. Nunez, who owns 400 shares of
common stock; Kenwood Financial Inc., a Florida corporation, which owns 99
shares of common stock
<PAGE> 3
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 3
(together, the "Congressional shareholders"); and the Congressional
Construction Corporation Employee Stock Ownership Plan (the "ESOP"), which owns
the 700 shares of preferred stock.
The ESOP was formed on June 30, 1993. As of December 31, 1995, there were 58
participants in the ESOP. On June 30, 1993, the ESOP purchased 700 shares of
Congressional preferred stock from Kenwood Financial for $7,000,000 (the "ESOP
Shares"). Contemporaneously with the purchase of the ESOP Shares, and in order
to facilitate that purchase, Congressional borrowed $7,000,000 from a bank, and
in turn loaned the entire loan proceeds to the ESOP on substantially similar
terms. The ESOP pledged all of the ESOP Shares to Congressional as security
for the loan (the "Unallocated Shares"). As the ESOP makes payments on the
loan, ESOP shares are released from the pledge and allocated to participants in
the ESOP (the "Allocated Shares"). The release and allocation of the ESOP
Shares are made at the end of each plan year (i.e., December 31). At December
31, 1995, 506.93617 of the 700 ESOP Shares were Unallocated Shares. As of
December 31, 1995, John B. Nunez had been allocated 18.60955 of the Allocated
Shares, and Richard Pirozzi had been allocated 17.518 of the Allocated Shares
through the ESOP. The remaining Allocated Shares are beneficially owned by
persons beneficially owning less than 1% of the stock of Congressional.
Sub is a corporation organized under the laws of the state of Delaware solely
for the purpose of the Merger. All of the shares of Sub are held by AMRE and
all such shares are duly authorized, validly issued, fully paid and non
assessable.
BUSINESS PURPOSE
Based on the representations of the management of both AMRE and Congressional
contained under the caption entitled "Reasons for the Merger" as set forth in
the Registration Statement, the Merger will be undertaken for valid business
purposes. As stated in the Registration Statement, the business strategies of
both AMRE and Congressional have been to achieve growth through aggressive
marketing of their respective products. The Boards of Directors of AMRE and
Congressional considered a strategic combination of the two companies to be the
most attractive method to take advantage of the strengths of each of the
individual companies and to grow the business of the combined entity. In
addition, among other things, the Merger will substantially expand the
geographic market coverage of the combined entity, facilitate the development
and expansion of the Century 21 Home Improvement Name and related home
improvement products, and increase revenues and operating cash flows.
<PAGE> 4
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 4
PLAN OF REORGANIZATION
In order to achieve the business objectives set forth above, the following
transactions are proposed:
(i) Sub will merge with and into Congressional with Congressional
continuing as the surviving corporation. Each share of common stock
of Congressional outstanding immediately prior to the effective date
of the Merger will be converted into 601.20 shares of AMRE common
stock, and each share of preferred stock of Congressional will be
converted into 857.14 shares of AMRE common stock. No fractional
shares of AMRE common stock will be issued. In lieu of fractional
shares, one additional share of AMRE common stock shall be issued for
any fractional share interests. The outstanding shares of common
stock of Sub held by AMRE will be converted into stock of
Congressional. Following the consummation of the Merger,
Congressional will be a wholly-owned subsidiary of AMRE. Except as
described in (iii) below, each shareholder has represented that the
AMRE stock will be acquired for such shareholder's own account for
investment, and not with a view to, or for resale in connection with,
any distribution of the AMRE stock. Such shareholder understands that
the effect of these representations is that such shareholder does not
intend to sell or otherwise dispose of all or any part of the AMRE
stock. It is intended that the Merger be treated as a pooling of
interests for accounting purposes.
(ii) Holders of Congressional common stock and preferred stock who properly
dissent and vote against or abstain from voting with respect to the
Merger shall be entitled to receive payment from Congressional of the
fair market value of such holder's shares. Any cash needed to pay the
dissenters will be provided by Congressional.
(iii) The Board of Trustees that administers the ESOP will be replaced
following the Merger with a Board of Trustees appointed by AMRE (the
"New ESOP Committee"). After consummation of the Merger, it is
contemplated by AMRE that the ESOP be terminated. As part of such
termination, it is contemplated that the ESOP, at the New ESOP
Committee's discretion, will sell in the open market the AMRE common
stock received by the ESOP in exchange for the Unallocated Shares.
The ESOP will use the proceeds from the sale of such stock to pay off
the remaining indebtedness owed by the ESOP to Congressional.
Congressional will use such amounts received from the ESOP to repay
the successor to the bank from which Congressional originally borrowed
the amounts loaned to the ESOP. To the extent that the proceeds from
the sale of the AMRE common stock are insufficient to pay off the ESOP
indebtedness, AMRE will satisfy the remaining indebtedness from its
own assets.
<PAGE> 5
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 5
(iv) John B. Nunez, the President of Congressional, will enter an
employment agreement with AMRE with responsibility for certain of
AMRE's operations in connection with the business formerly conducted
by Congressional.
(v) In connection with the Plan of Merger, on January 1, 1996,
Congressional and American Remodeling, Inc., a wholly-owned subsidiary
of AMRE, entered into a three-year sublicense agreement pursuant to
which Congressional will have a sublicense under the Century 21
License Agreement.
REPRESENTATIONS
The following summarizes the representations we have received from the
management of AMRE and Congressional, and the Congressional shareholders, as
the case may be, in connection with the Merger:
(a) The proposed merger of Sub with and into Congressional will qualify as
a statutory merger under the applicable state laws and the regulations
thereunder.
(b) The fair market value of the AMRE stock and other consideration, if
any, to be received by each Congressional shareholder will be
approximately equal to the fair market value of the Congressional
stock surrendered in the exchange.
(c) To the best of the knowledge of the management of Congressional, there
is no plan or intention by the Congressional shareholders who own
greater than 1% of the Congressional stock, and no plan or intention
on the part of the beneficial indirect owners of the Congressional
stock (the "ESOP Participants") to (i) sell, exchange, or otherwise
dispose of, or (ii) reduce the risk of loss associated with the
ownership of, a number of shares of AMRE stock received in the Merger
that would reduce the Congressional shareholders' and the ESOP
Participants' ownership, of AMRE stock to a number of shares having a
value, as of the date of the Merger, of less than 50 percent of the
value of all of the formerly outstanding stock of Congressional as of
the same date. For purposes of this representation, shares of
Congressional stock and shares of AMRE stock held by Congressional
shareholders or the ESOP Participants that are otherwise redeemed by
AMRE or Congressional (including shares held by Congressional
shareholders who exercise their statutory dissenters' rights), or sold
or disposed of by the Congressional shareholders or the ESOP
Participants prior or subsequent to the transaction, (including any
shares distributed to the ESOP Participants as a result of AMRE's
intended termination of the ESOP and a resulting sale of the
Unallocated Shares) have been taken into account.
<PAGE> 6
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 6
(d) Following the transaction, Congressional will hold at least 90 percent
of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets and at least 90 percent of
the fair market value of Sub's net assets and at least 70 percent of
the fair market value of Sub's gross assets held immediately prior to
the transaction. For purposes of this representation, amounts paid by
Congressional to dissenters, amounts used by Congressional or Sub
(other than supplied by AMRE) to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends)
made by Congressional will be included as assets of Congressional or
Sub, respectively, immediately prior to the transaction.
(e) Prior to the transaction, AMRE will be in control of Sub within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended ("the Code").
(f) Congressional has no plan or intention to issue additional shares of
its stock that would result in AMRE losing control of Congressional
within the meaning of Section 368(c) of the Code.
(g) AMRE has no plan or intention to reacquire any of its stock issued in
the transaction.
(h) AMRE has no plan or intention to liquidate Congressional; to merge
Congressional with or into another corporation; to sell or otherwise
dispose of the stock of Congressional except for transfers of stock to
corporations controlled by AMRE within the meaning of Section 368(c)
of the Code; or to cause Congressional to sell or otherwise dispose of
any of its assets or of any of the assets acquired from Sub, except
for dispositions made in the ordinary course of business or transfers
of assets to a corporation controlled by Congressional.
(i) The liabilities of Sub, if any, to be assumed by Congressional and the
liabilities to which the transferred assets of Sub are subject were
incurred by Sub in the ordinary course of its business.
(j) Following the transaction, Congressional will continue its historic
business or use a significant portion of its historic business assets
in a business.
(k) Except for expenses that are directly related to the Merger in
accordance with the guidelines established in Revenue Ruling 73-54,
1973-1 C.B. 187, AMRE, Sub, Congressional, and the shareholders of
Congressional will pay their other respective expenses, if any,
incurred in connection with the transaction.
<PAGE> 7
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 7
(l) There is no intercorporate indebtedness existing between AMRE and
Congressional or between Sub and Congressional that was issued,
acquired, or will be settled at a discount.
(m) AMRE will acquire all of the stock of Congressional solely in exchange
for AMRE common stock.
(n) On the effective date of the transaction, Congressional will not have
outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock
in Congressional that, if exercised or converted, would affect AMRE's
acquisition or retention of control of Congressional, as defined in
Section 368(c) of the Code.
(o) AMRE does not own, directly or indirectly, nor has it owned during the
past five years, any shares of the stock of Congressional.
(p) No parties to the transaction are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(q) AMRE intends to remain in existence after the Merger.
(r) The aggregate fair market value and adjusted basis of the assets of
Congressional exceed the liabilities of Congressional (including any
liability associated with the Congressional Stock Option Plans assumed
by AMRE pursuant to the Plan of Merger) plus any liabilities to which
the Congressional assets are subject.
(s) The shareholders of Congressional (immediately before the proposed
transaction) receiving shares of AMRE common stock will not own
(immediately after the proposed transaction) more than fifty percent
of the total fair market value of AMRE common stock outstanding.
(t) Congressional is not under the jurisdiction of a court in a title 11
or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(u) None of the compensation received by any shareholder-employees of
Congressional will be separate consideration for, or allocable to, any
of their shares of Congressional stock; none of the shares of AMRE
stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and any
employment agreements entered into and compensation paid to any
shareholder-employees will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
<PAGE> 8
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 8
(v) The sublicensing agreement entered into between Congressional and
American Remodeling, Inc. represents an arm's length transaction.
(w) Congressional has no present plan or intention to terminate the ESOP
prior to the Merger.
<PAGE> 9
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 9
TECHNICAL ANALYSIS
Income Tax Consequences - Federal
1. Section 368(a)(1)(A); (a)(2)(E)
a. In general
Section 368(a)(1)(A) of the Code provides that the term "reorganization" means
a statutory merger or consolidation. Section 368(a)(2)(E) provides that a
transaction which otherwise qualifies under Section 368(a)(1)(A) will not be
disqualified by reason of the fact that stock of a corporation (the
"controlling corporation") which, before the merger was in control of the
merged corporation, is used in the transaction, if:
(i) after the transaction, the corporation surviving the merger holds
substantially all of its properties and of the properties of the
merged corporation (other than stock of the controlling corporation
distributed in the transaction); and
(ii) in the transaction, former shareholders of the surviving corporation
exchange, for an amount of voting stock of the controlling
corporation, an amount of stock in the surviving corporation which
constitutes control of such corporation.
b. Substantially all
Section 3.01 of Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement of Section 368(a)(2)(E)(i) is satisfied if
there is a retention of assets representing at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value
of the gross assets held by the surviving corporation immediately prior to the
transfer. (This amount of assets of the merged corporation must also be
transferred to the surviving corporation.) All payments to dissenters and all
redemptions and distributions (except for regular, normal distributions) made
by the corporation immediately preceding the transfer and which are part of the
plan of reorganization will be considered as assets held by the corporation
immediately prior to the transfer.
It has been represented that after the Merger, Congressional will hold assets
representing at least 90 percent of the fair market value of the net assets and
70 percent of the gross assets of Congressional and Sub. Amounts paid to
Congressional's shareholders (including Congressional shareholders who exercise
their statutory dissenters' rights), certain bonuses, extraordinary
<PAGE> 10
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 10
expenses, and other expenses have been included as part of Congressional's net
and gross assets for purposes of this representation. In addition, no cash
payments will be made for fractional shares. Therefore, the "substantially
all" requirement will be satisfied.
c. Control
Section 368(a)(2)(E)(ii) requires that in the transaction the target
shareholders exchange an amount of target corporation stock constituting
"control" for voting stock of the acquirer. Section 1.368-2(j)(3)(i) of the
Income Tax Regulations (the "Regulations"). Section 368(c) of the Code defines
"control" as ownership of stock possessing at least 80% of the total combined
voting power of all classes of a corporation's voting stock and of at least 80%
of each other class. The target corporation's redemption of common or
nonvoting preferred stock using its own funds will not violate the control
requirement, because the redeemed stock is not considered outstanding for
control purposes. See Reg. Section 1.368-2(j)(7), Examples (2) and (3).
In the present case, all of the stock of Congressional will be exchanged solely
for voting stock of AMRE. Further, any payments made to dissenters will be
made by Congressional from its own funds. Therefore, the control requirement
will be satisfied.
2. General Reorganization Requirements
Sections 1.368-1(b) and 1.368-2(g) of the Regulations provide that the
following additional requirements must be met for a transaction to qualify as a
reorganization within the meaning of Section 368 of the Code:
(i) "continuity of interest" must be present;
(ii) "continuity of business enterprise" must exist; and
(iii) the transaction must be undertaken for reasons pertaining to
the continuance of the business of a corporation which is a
party to the transaction.
Continuity of Interest
In general, the continuity of interest test requires the owners of the
reorganized entity to receive and retain a meaningful equity interest in the
surviving entity. See e.g., Pinellas Ice & Cold Storage Co. v. Comm'r, 287
U.S. 462 (1933); Cortland Specialty Company v. Comm'r, 60 F.2d
<PAGE> 11
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 11
937 (2d Cir.), cert. denied, 288 U.S. 599 (1932); Helvering v. Minnesota Tea
Co., 296 U.S. 378 (1935).
Section 3.02 of Rev. Proc. 77-37, supra, provides that the "continuity of
interest" requirement of Section 1.368-1(b) of the Regulations is satisfied in
this context if there is continuing interest through stock ownership in the
controlling corporation (AMRE) on the part of the former shareholders of the
surviving corporation (Congressional) which is equal in value, as of the
effective date of the reorganization, to at least 50 percent of the value of
all of the formerly outstanding stock of the surviving corporation. Sales,
redemptions, and other dispositions of stock occurring prior or subsequent to
the exchange which are part of the plan of reorganization will be considered in
determining whether there is a continuing interest through stock ownership as
of the effective date of the reorganization.
The continuity of interest requirement set forth in Rev. Proc. 77-37 will be
satisfied in the proposed transaction because there will be a continuing
interest through stock ownership in AMRE on the part of the former shareholders
of Congressional which is, in the aggregate, equal in value, as of the
effective date of the reorganization, to at least 50 percent of the value of
all of the formerly outstanding stock of Congressional as of the same date.
In this regard, it should be noted that Congressional has represented that it
has no present plan to terminate the ESOP prior to the Merger. As represented
in the Documents, however, AMRE has stated its intention to terminate the ESOP.
AMRE has further stated its contemplation of a sale of the Unallocated Shares
and the distribution of the Allocated Shares to the beneficiaries of the ESOP
in the event of such a termination. Because the decision regarding termination
of the ESOP will be made by AMRE, for continuity of interest purposes, such
termination may be treated as separate from the Merger. See Rev. Rul. 79-250,
1979-2 C.B. 156 and Rev. Rul. 69-516, 1969-2 C.B. 56. Even if, however, the
termination of the ESOP were considered part of the Merger, there will still be
a continuing interest through stock ownership in AMRE on the part of the former
shareholders of Congressional and the beneficial owners of the ESOP which is
equal in value to at least 50 percent of the value of all of the formerly
outstanding stock of Congressional. Thus, the shareholders of Congressional
(other than the ESOP) have represented that they have no plan or intention to
sell, exchange or otherwise dispose of the AMRE shares that they will receive
pursuant to the Plan of Merger. Further, the management of Congressional has
represented that to the best of its knowledge, the beneficial owners of the
ESOP owning less than 1% of the Congressional stock currently have no plan or
intention to sell, exchange, or otherwise dispose of the AMRE stock they may
receive if the ESOP is terminated. Accordingly, even counting the Unallocated
Shares and Mr. Pirozzi's Allocated Shares adversely, continuity should be at
the 50% ruling guideline and substantially in excess
<PAGE> 12
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 12
of the lesser case law standard. See John A. Nelson Co. v. Helvering, 296 U.S.
374 (1935), where the Supreme Court found 38% continuity to be sufficient.(1)
As described in (iii) of the Plan of Reorganization, it is contemplated by AMRE
that the ESOP be terminated following the Merger, and, as part of such
termination, the ESOP, at the New ESOP Committee's discretion, will sell in the
open market the AMRE common stock received by the ESOP in exchange for the
Unallocated Shares. The ESOP will use the proceeds from the sale of such stock
to repay the remaining indebtedness owed by the ESOP to Congressional and
Congressional will use such amounts received from the ESOP to repay its
corresponding obligation to the bank. To the extent that the proceeds from the
sale of the AMRE common stock are insufficient to repay the ESOP indebtedness,
AMRE will satisfy the remaining indebtedness owed by the ESOP to Congressional
from its own assets. The current balance of the indebtedness existing between
the ESOP and Congressional is approximately $5 million and the current value of
the Unallocated Shares is approximately $9 million. Therefore, it is unlikely
that AMRE will be required to satisfy any indebtedness. Further, in light of
the contingent nature of the cash payment by AMRE to the ESOP, and the amount
by which the transaction otherwise satisfies the continuity requirement, we
believe that this item does not change our conclusion that continuity of
interest is satisfied.
Continuity of Business Enterprise
Section 1.368-1(b) of the Regulations provides that a continuity of business
enterprise (as described in Section 1.368-1(d) of the Regulations) is requisite
to a reorganization. Section 1.368-1(d) of the Regulations provides that the
continuity of business enterprise requirement is satisfied if either the
acquiring corporation continues the acquired corporation's historic business or
uses a substantial portion of the acquired corporation's historic business
assets in a business. The proposed transaction will meet the continuity of
business enterprise test because it has been represented to us that
Congressional will continue to be engaged in its historic business.
Business Purpose
Section 1.368-2(g) of the Regulations provides that a reorganization must be
undertaken for reasons germane to the continuance of the business of a
corporation a party to the reorganization. Based on the representations of the
management of both AMRE and
- ---------------
(1) While the lower court decision indicated that the acquired corporation's
shareholders actually received stock for 41% of their shares (28 B.T.A.
529 (1933)), the Supreme Court apparently viewed 38% as sufficient.
<PAGE> 13
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 13
Congressional contained under the caption entitled "Reasons for the Merger," as
set forth in the Registration Statement, the proposed transaction will
substantially benefit the business of both AMRE and Congressional. Therefore,
the proposed transaction will be considered as motivated by a valid business
purpose in accordance with Section 1.368-2(g) of the Regulations.
Thus, provided that the Merger constitutes a statutory merger under applicable
state law, the Merger will qualify as a reorganization under Section
368(a)(1)(A). The fact that stock of AMRE will be used in the transaction will
not disqualify the reorganization because (i) after the Merger, Congressional
will hold substantially all of its properties and those of Sub and (ii) in the
Merger, former shareholders of Congressional will exchange, for an amount of
voting stock of AMRE, an amount of stock in Congressional which constitutes
control of Congressional. See Section 368(a)(2)(E) of the Code.
3. Section 368(a)(1)(B)
Section 368(a)(1)(B) of the Code provides that the term "reorganization" (a
"Type B Reorganization") includes the acquisition by one corporation, in
exchange solely for all or a part of its voting stock (or in exchange solely
for all or a part of the voting stock of a corporation which is in control of
the acquiring corporation), of stock of another corporation if, immediately
after the acquisition, the acquiring corporation has control of such other
corporation (whether or not such acquiring corporation had control immediately
before the acquisition). In Rev. Rul. 67-448, 1967-2 C.B. 144, a parent
corporation (P) issued some of its voting shares to its newly formed
subsidiary, S, and S merged into an unrelated corporation (T). In the merger,
the T shareholders exchanged 80 percent or more of the T stock for P stock.
The Service disregarded the transitory existence of S and treated the
transaction as a direct exchange by the T shareholders of their T stock for P
stock in a transaction qualifying as a reorganization within the meaning of
Section 368(a)(1)(B).
Similarly, in this case, the transitory existence of Sub should be disregarded.
Since AMRE will not issue any consideration in the transaction except for its
voting stock, and AMRE will have control of Congressional immediately following
the acquisition, the Merger will also qualify as a reorganization under Section
368(a)(1)(B). As discussed above, the additional requirements of continuity of
interest, continuity of business enterprise and business purpose will be met.
4. Other Statutory and Regulatory Provisions
Section 354(a)(1) of the Code generally provides that no gain or loss is
recognized if stock in a corporation which is a party to a reorganization is,
in pursuance of the plan of reorganization, exchanged solely for stock in such
corporation or in another corporation which is a party to the reorganization.
Section 368(b) of the Code defines the term "a party to a reorganization" to
<PAGE> 14
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 14
include a corporation resulting from a reorganization, both corporations, in
the case of a reorganization resulting from the acquisition by one corporation
of stock or properties of another, and in the case of a reorganization
qualifying under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E), the
controlling corporation (AMRE).
If a Congressional shareholder dissents and receives solely cash in exchange
for his or her Congressional common stock, such cash will be treated as having
been received by such Congressional shareholder as a distribution in redemption
of such shareholder's Congressional stock, subject to the provisions and
limitations of Section 302 of the Code. Section 302(b)(3) provides, in part,
that if a redemption is in complete redemption of all of the stock of a
corporation owned by a shareholder, payment for the stock shall be considered
received by the shareholder as a distribution in exchange for his or her stock.
Section 358(a)(1) of the Code generally provides that in the case of an
exchange to which Section 354 applies, the basis of the property permitted to
be received without the recognition of gain or loss is the same as that of the
property exchanged. (Section 358(a)(1)).
Section 1032(a) of the Code generally provides that no gain or loss is
recognized to a corporation on the receipt of money or other property in
exchange for stock (including treasury stock) of such corporation.
Section 362(b) of the Code generally provides that if property is acquired by a
corporation in connection with a reorganization, then the basis of such
property is the same as it was in the hands of the transferor.
Section 1223(1) of the Code states that in determining the period for which a
taxpayer has held property received in an exchange, the period for which the
taxpayer held the property exchanged is included if the property has, for the
purpose of determining gain or loss from a sale or exchange, the same basis in
whole or in part in the taxpayer's hands as the property exchanged, and the
property exchanged constitutes a capital asset at the time of the exchange.
Section 1223(2) of the Code provides that in determining a taxpayer's holding
period for property, there is included the period for which such property was
held by another person, if such property has, for the purpose of determining
gain or loss from a sale or exchange, the same basis in whole or in part in the
taxpayer's hands as it had in the hands of such other person.
Section 1.358-6(c) of the Regulations sets forth rules for determining the
basis of shares of a subsidiary in a reorganization qualifying under Section
368(a)(1)(A) by reason of the application of Section 368(a)(2)(E) (a "reverse
triangular merger"). Section 1.358-6(c)(2) of the Regulations provides that
the basis of the target corporation's shares owned by the acquiring corporation
after
<PAGE> 15
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 15
a reverse triangular merger will be equal to the sum of (i) the acquiring
corporation's basis in the stock of the controlled corporation before the
reorganization; (ii) the net basis of property transferred by the acquiring
corporation to the controlled corporation in the reorganization that is not
distributed to the target corporation's shareholders in the reorganization; and
(iii) the target corporation's net basis in its property after the merger. If
a reorganization qualifies both as a reverse triangular merger and as a Type B
reorganization, the basis of the target corporation's shares owned by the
acquiring corporation may be determined as described above, or the basis will
be the same as the basis of the stock in the hands of the target shareholders.
Section 362(b).
Income Tax Consequences - State
District of Columbia. The District of Columbia (the "District") has not
expressly adopted the Code. However, the computation of the District's
income-based tax begins with Federal gross income (or Federal adjusted gross
income, in the case of individuals) as defined under Internal Revenue Code
Section 61, where the term "Internal Revenue Code" is defined to mean "the
Internal Revenue Code of 1986 (100 Stat. 2085; 26 U.S.C. 1 et seq.), as amended
through August 10, 1993." D.C. Code Sections 47-1801.4(bb-1)[28-1],
47-1803.2(a), and 47-1807.2(a). In addition to the deductions specifically
allowed by the Internal Revenue Code at the time of enactment of the D.C. Code,
the District of Columbia requires that certain modifications be made to the tax
base, none of which pertain to Internal Revenue Code Section 368(a)(1)(A) or
(a)(2)(E). D.C. Code Section 47-1803.2. The District of Columbia has issued
no other authoritative guidance regarding the treatment of a merger qualifying
as a reorganization under Section 368(a)(1)(A) by reason of Section
368(a)(2)(E) of the Internal Revenue Code.
Therefore, since (a) the starting point for computing the District's income tax
base is Federal gross income (or Federal adjusted gross income, in the case of
individuals), (b) none of the District's required income modifications pertain
to the tax treatment of a merger qualifying as a reorganization under Section
368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code, and (c) the
District has not issued authoritative guidance to the contrary, the treatment
of the above transaction should be the same for District of Columbia income tax
purposes as for Federal income tax. It should be noted that the qualification
of the Merger as a tax-free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E), and the other Federal tax consequences described herein, are not
dependent on tax law enacted after August 10, 1993.
Florida. The State of Florida has not expressly adopted the Code. However,
under Florida law, state net income is defined as adjusted Federal income, and
is computed by starting with the "taxpayer's taxable income" and making certain
modifications to it, none of which pertain to a merger qualifying as a
reorganization under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of
the Code. Florida Statutes, Sec. 220.12 and 13. For purposes of this
<PAGE> 16
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 16
computation, Florida statutes define a "taxpayer's taxable income" as "taxable
income as defined in s. 63 of the Internal Revenue Code and properly reported
for Federal income tax purposes . . ." where the Internal Revenue Code means
the "United States Internal Revenue Code of 1986, as amended and in effect on
January 1, 1995." Florida Statutes, Secs. 220.03(1)(n) and 220.13(2).
Additionally, while the Florida Department of Revenue has not issued
authoritative guidance specifically addressing the State's tax treatment of a
merger qualifying as a reorganization under Section 368(a)(1)(A) by reason of
Section 368(a)(2)(E), it has stated in a Technical Assistance Advisement
addressing the income tax treatment of Internal Revenue Code Sections 351 and
368(a)(1)(F) of the Code that:
"Florida has not specifically adopted provisions similar to those of
Code Section 368 dealing with tax-free reorganizations . . . However,
since the terms used in the Florida Income Tax Code generally have the
same meaning as when used in the Internal Revenue Code, the result to
the parties to the exchange should be the same for Florida state tax
purposes as if Florida had specifically adopted Code Section[s] 368 .
. . and the corresponding affected Code sections." Technical
Assistance Advisement No. 95(C)1-005 (May 11, 1995).
Therefore, based on the above language, and since (a) Florida begins the
computation of its income tax base with Federal taxable income, and (b) none of
the required modifications pertain to a merger qualifying as a reorganization
under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code, the
income tax treatment for Florida purposes should be the same as that for
Federal income tax purposes. (Note that Florida does not impose an income tax
on individuals.)
Maryland. The State of Maryland has not expressly adopted the provisions of
the Code. However, the State of Maryland computes its tax base by beginning
with Federal taxable income (or Federal adjusted gross income, in the case of
individuals) "as determined under the Internal Revenue Code" and adjusts it for
specific addition and subtraction modifications, none of which relate to a
merger qualifying as a reorganization under Section 368(a)(1)(A) by reason of
Section 368(a)(2)(E) of the Code. Maryland Annotated Code Secs. 10-203,
10-204, 10-304 and 10-305. For purposes of its income tax, Maryland defines
the Internal Revenue Code as "title 26 of the United States Code." Maryland
Annotated Code Sec. 1-101(k). The Maryland Office of the Comptroller of the
Treasury has issued no other authoritative guidance with regards to a merger
qualifying as a reorganization under Section 368(a)(1)(A) by reason of Section
368(a)(2)(E) of the Code.
<PAGE> 17
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 17
Therefore, since (a) the starting point for computing the Maryland income tax
base is Federal taxable income (or Federal adjusted gross income, in the case
of individuals), (b) none of the required state income modifications pertain to
the tax treatment of a merger qualifying as a reorganization under Section
368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code, and (c) the State
of Maryland has issued no authoritative guidance to the contrary, the treatment
of the above transaction should be the same for Maryland income tax purposes as
for Federal income tax purposes.
Virginia. While the State of Virginia has not expressly adopted the provisions
of the Code, Virginia Code Section 58.1-301.B infers adoption of the Code
stating that:
"Any reference in this chapter to the laws of the United States
relating to Federal income taxes shall mean the provisions of the
Internal Revenue Code of 1954, and amendments thereto, and other
provisions of the laws of the United States relating to Federal income
taxes, as the same may be or become effective at any time or from time
to time."
Additionally, while Virginia law does not specifically address the income tax
treatment of a merger qualifying as a reorganization under Section 368(a)(1)(A)
by reason of Section 368(a)(2)(E) of the Code, it defines Virginia taxable
income as Federal taxable income (or Federal adjusted gross income, in case of
individuals) adjusted for certain state modifications, none of which pertain to
a merger qualifying as a reorganization under Section 368(a)(1)(A) by reason of
Section 368(a)(2)(E) of the Code. VA Code Secs. 58.1-322, 58.1402.A. and VA
Reg. Sec. 630-3-301. The Virginia Department of Taxation has issued no other
authoritative guidance with regard to a merger qualifying as a reorganization
under Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Code.
Therefore, since (a) the starting point for computing the Virginia income tax
base is Federal taxable income (or Federal adjusted gross income, in the case
of individuals), (b) none of the required state modifications relate to the tax
treatment of a merger qualifying as a reorganization under Section 368(a)(1)(A)
by reason of Section 368(a)(2)(E), and (c) the State of Virginia has issued no
authoritative guidance to the contrary, the treatment of the above transaction
should be the same for Virginia income tax purposes as for Federal income tax
purposes.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
Based upon the information contained in the Documents, the following Federal
and State income tax consequences will result to AMRE, Sub, Congressional and
the Congressional shareholders:
<PAGE> 18
Mr. John B. Nunez April 18, 1996
Congressional Construction Corporation Page 18
(1) Provided that the Merger qualifies as a statutory merger under
applicable state law, the Merger will constitute a reorganization
within the meaning of Section 368(a)(1)(A) of the Code. The
reorganization will not be disqualified by reason of the fact that
voting stock of AMRE is used in the transaction (Section 368(a)(2)(E)
of the Code). The Merger also will constitute a reorganization within
the meaning of Section 368(a)(1)(B) of the Code. Congressional, AMRE,
and Sub will each be "a party to the reorganization" within the
meaning of Section 368(b).
(2) No gain or loss will be recognized to the Congressional shareholders
upon the receipt of the AMRE voting common stock solely in exchange
for Congressional common stock. (Section 354(a)(1)).
(3) A dissenting Congressional shareholder who receives only cash pursuant
to appraisal rights will be treated as having received a distribution
in redemption of his or her Congressional stock, subject to the
provisions and limitations of Section 302 of the Code. (Rev. Rul.
74-515, 1974-2 C.B. 118, and Rev. Rul. 73-102, 1973-1 C.B. 186).
(4) The basis of the AMRE common stock to be received by the Congressional
shareholders will be equal to the basis of the Congressional common
stock surrendered in exchange therefor. (Section 358(a)(1)).
(5) The holding period of the AMRE voting common stock to be received by
the Congressional shareholders will include the period during which
the Congressional voting common stock surrendered in exchange therefor
was held, provided that Congressional common stock was held as a
capital asset on the date of the exchange (Section 1223(1)).
(6) No gain or loss will be recognized to AMRE upon the receipt of the
common stock of Congressional solely in exchange for Sub common stock
(Section 354(a)(1)).
(7) No gain or loss will be recognized to Sub upon the transfer of its
assets, if any, to Congressional in exchange for Congressional stock
(Section 361).
(8) No gain or loss will be recognized to Congressional upon the receipt
of the assets of Sub, if any, in exchange for Congressional stock
(Section 1032(a)).
(9) The basis of Sub's assets, if any, received by Congressional will be
the same as the basis of such assets in the hands of Sub immediately
prior to the exchange (Section 362(b)).
(10) The basis of the Sub shares owned by AMRE after the Merger will be
equal to (1) the sum of (i) AMRE's basis in the stock of the Sub
before the Merger; (ii) the net basis of
<PAGE> 1
EXHIBIT 10.40
AMENDMENT NO. 2 TO STOCKHOLDER AGREEMENT
This Amendment No. 2 (the "AMENDMENT"), made and entered into this
____ day of ________ 1996, is by and among AMRE, Inc., a Delaware corporation
("AMRE"), and the undersigned stockholders of Facelifters Home Systems, Inc., a
Delaware corporation (the "COMPANY") (each such stockholder a "STOCKHOLDER"),
which is the successor in interest, by way of merger, to Facelifters Home
Systems, Inc., a New York corporation and amends that certain Stockholder
Agreement, made and entered into the 31st day of October 1995, by and among
AMRE and the Stockholders, as amended on the 12th day of December (the
"STOCKHOLDER AGREEMENT"). Capitalized terms used and not defined herein shall
have the meanings assigned to them in the Stockholder Agreement.
PRELIMINARY STATEMENTS
AMRE and the Stockholders desire to amend the Stockholder Agreement as
set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
STATEMENT OF AMENDMENT
1. Amendatory Provision. Section 2 to the Stockholder Agreement
is amended and restated in its entirety to read as follows:
2. PROXY WITH RESPECT TO THE SHARES. During the Term,
each Stockholder hereby irrevocably appoints Merger Sub as
Stockholder's attorney-in-fact and proxy, with full power of
substitution, to vote or to express written consent in lieu of a vote
or meeting with respect to all of the Shares which Stockholder is
entitled to vote at any meeting of stockholders (whether annual or
special and whether or not an adjourned meeting) of the Company, or
pursuant to written action taken in lieu of any such meeting or
otherwise, in such manner as to cause the Merger and the Merger
Agreement to be approved and the right to vote against any other
transaction or proposal which would constitute a Change of Control;
provided, however, this proxy shall not be used to vote in favor of
any modification or amendment to the Merger Agreement which would
reduce the Exchange Ratio. During the Term, this proxy is
irrevocable, is coupled with an interest sufficient in law to support
an irrevocable proxy and is granted in consideration of and as an
inducement to cause AMRE and Merger Sub to enter into the transactions
contemplated by this Agreement and the Merger Agreement. During the
Term, this proxy shall revoke any other proxy granted by Stockholder
at any time with respect to the Shares and during the Term, no
subsequent proxies will be given with respect thereto by Stockholder.
"CHANGE OF CONTROL" shall mean any action or agreement that would
impede, interfere with, delay, postpone or attempt to discourage the
Merger, including but not limited to,
<PAGE> 2
(a) any extraordinary corporate transaction (other than the Merger),
such as a merger, other business combination, reorganization or
liquidation involving Company, (b) a sale or transfer of a material
amount of assets of Company or any of its subsidiaries, (c) any change
in the management or board of directors of Company, except as
otherwise agreed to in writing by AMRE, or (d) any material change in
the present capitalization of Company. The duration of the proxy
granted under this Section 2 (the "TERM") will continue until the
earlier of August 30, 1996 or (a) when AMRE, Merger Sub and
Stockholder mutually consent in writing to terminate this Agreement,
or (b) upon the termination of the Merger Agreement by AMRE or Company
pursuant to Section 7.1 of the Merger Agreement.
2. Existing Agreement. Except as expressly amended hereby, all
of the terms, covenants and conditions of the Stockholder Agreement (i) are
ratified and confirmed, (ii) shall remain unamended and not waived and (iii)
shall continue in full force and effect.
3. Governing Law. This Amendment shall be governed in all
respects, including validity, interpretation and effect, by the internal laws
of the State of Delaware without giving effect to the principles of conflict of
laws thereof.
4. Counterparts. This Amendment may be executed in one or more
counterparts.
5. Enforceability. If any provision of this Amendment shall be
held to be illegal, invalid or unenforceable under any applicable law, then
such contravention or invalidity shall not invalidate the entire Amendment or
the Stockholder Agreement. Such provision shall be deemed to be modified to
the extent necessary to render it legal, valid and enforceable, and if no such
modification shall render it legal, valid and enforceable, then this Amendment
and the Stockholder Agreement shall be construed as if not containing the
provision held to be invalid, and the rights and obligations of the parties
shall be construed and enforced accordingly.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK.]
2
<PAGE> 3
IN WITNESS WHEREOF, AMRE has caused this Amendment to be executed by
its duly authorized officer and the Stockholder has executed this Amendment as
of the date and year first above written.
<TABLE>
<S> <C>
AMRE, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
STOCKHOLDERS NUMBER OF SHARES
Mark Honigsfeld
- ----------------------------------------- -------------------------------------------
Printed Name
- -----------------------------------------
Signature
- -----------------------------------------
Address
- -----------------------------------------
Murray Gross
- ----------------------------------------- -------------------------------------------
Printed Name
- -----------------------------------------
Signature
- -----------------------------------------
Address
- -----------------------------------------
Deedee Honigsfeld
- ----------------------------------------- -------------------------------------------
Printed Name
- -----------------------------------------
Signature
- -----------------------------------------
Address
- -----------------------------------------
</TABLE>
3
<PAGE> 1
EXHIBIT 10.43
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between RONALD I. WAGNER
hereinafter referred to as "Landlord", and AMERICAN REMODELING, INC., a Texas
corporation hereinafter referred to as "Tenant";
WITNESSETH:
1. Premises and Term. In consideration of the obligation of Tenant to pay
rent as herein provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby accepts and leases from Landlord certain premises situated within the
County of Cook, State of Illinois, commonly known as 1625 East Algonquin Road,
Arlington Heights, Illinois, together with all rights, privileges, easements,
appurtenances and immunities belonging to or in any way pertaining to the
premises and together with the buildings and other improvements situated upon
said premises (said real property, buildings and improvements hereinafter
referred to as the "premises").
TO HAVE AND TO HOLD the same for a term commencing on January 1, 1996 and
ending December 31, 2005. See paragraph R-2 of Rider attached hereto and made a
part hereof ("Rider").
2. Rental. See paragraph R-3 of Rider.
In addition, Tenant agrees to deposit with Landlord on the date hereof the
sum of Fifteen Thousand and 00/100 Dollars ($15,000.00), which sum shall be held
by Landlord, without obligation for interest, as security for the performance of
Tenant's covenants and obligations under this lease, it being expressly
understood and agreed that such deposit is not an advance rental deposit or a
measure of Landlord's damages in case of Tenant's default. Upon the occurrence
of any event of default by Tenant, Landlord may, from time to time, without
prejudice to any other remedy provided herein or provided by law, use such fund
to the extent necessary to make good any arrears of rent or other payments due
Landlord hereunder, and any other damage, injury, expense or liability caused by
such event of default; and Tenant shall pay to Landlord on demand the amount so
applied in order to restore the security deposit to its original amount.
Although the security deposit shall be deemed the property of Landlord, any
remaining balance of such deposit shall be returned by Landlord to Tenant at
such time after termination of this lease that all of Tenant's obligations under
this lease have been fulfilled.
3. Use. The demised premises shall be used only for the purpose of
manufacturing, receiving, storing, shipping and selling siding, kitchen
cabinets, cabinet fronts, counter tops, custom laminated furniture products,
panelling and related office use. Outside storage, including without limitation,
trucks and other vehicles, is prohibited without Landlord's prior written
consent. Tenant shall at its own cost and expense obtain any and all licenses
and permits necessary for any such use. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
premises, and shall promptly comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the premises, all at Tenant's sole expense. Tenant shall not
permit
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any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to
emanate from the premises, nor take any other action which would constitute a
nuisance or would disturb or endanger any other tenants of the building in which
the premises are situated or unreasonably interfere with their use of their
respective premises. Without Landlord's prior written consent, Tenant shall not
receive, store or otherwise handle any product, material or merchandise which is
explosive or highly inflammable. Tenant will not permit the premises to be used
for any purpose or in any manner (including without limitation any method of
storage) which would render the insurance thereon void or the insurance risk
more hazardous or cause the State Board of Insurance or other insurance
authority to disallow any sprinkler credits.
4. Taxes. See paragraph R-4 of Rider.
5. Landlord's Repairs. Landlord shall at his expense maintain only the
roof, foundation and the structural soundness of the exterior walls of the
building in good repair, reasonable wear and tear excepted. Tenant shall repair
and pay for any damage caused by the negligence of Tenant, or Tenant's
employees, agents or invitees, or caused by Tenant's default hereunder. The term
"walls" as used herein shall not include windows, glass or plate glass, doors,
special store fronts or office entrys. Tenant shall immediately give Landlord
written notice of defect or need for repairs, after which Landlord shall have
reasonable opportunity to repair same or cure such defect. Landlord's liability
with respect to any defects, repairs or maintenance for which Landlord is
responsible under any of the provisions of this lease shall be limited to the
cost of such repairs or maintenance or the curing of such defect.
6. Tenant's Repairs.
A. Tenant shall at its own cost and expense keep and maintain all parts
of the premises (except those for which Landlord is expressly responsible under
the terms of this lease) in good condition, promptly making all necessary
repairs and replacements, including but not limited to, windows, glass and plate
glass, doors, any special office entry, interior walls and finish work, floors
and floor covering, downspouts, gutters, heating and air conditioning systems,
dock boards, truck doors, dock bumpers, paving, plumbing work and fixtures,
termite and pest extermination, regular removal of trash and debris, regular
mowing of any grass, trimming, weed removal and general landscape maintenance
including rail spur areas, keeping the parking areas, driveways, alleys and the
whole of the premises in a clean and sanitary condition. Tenant shall not be
obligated to repair any damage caused by fire, tornado or other casualty covered
by the insurance to be maintained by Landlord pursuant to subparagraph 12(A)
below, except that Tenant shall be obligated to repair all wind damage to glass
except with respect to tornado or hurricane damage.
B. Tenant shall not damage any demising wall or disturb the integrity and
support provided by any demising wall and shall, at its sole cost and expense,
promptly repair any damage or injury to any demising wall caused by Tenant or
its employees, agents or invitees.
7. Alterations. Tenant shall not make any alterations, additions or
improvements to the premises (including but not limited to roof and wall
penetrations) without the prior written consent of Landlord. Tenant may, without
the consent of Landlord, but at its own cost and
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expense and in a good workmanlike manner erect such shelves, bins, machinery and
trade fixtures as it may deem advisable, without altering the basic character of
the building or improvements and without overloading or damaging such building
or improvements, and in each case complying with all applicable governmental
laws, ordinances, regulations and other requirements. All alterations,
additions, improvements and partitions erected by Tenant shall be and remain
the property of Tenant during the term of this lease and Tenant shall, unless
Landlord otherwise elects as hereinafter provided, remove all alterations,
additions, improvements and partitions erected by Tenant and restore the
premises to their original condition by the date of termination of this lease or
upon earlier vacating of the premises; provided, however, that if Landlord so
elects prior to termination of this lease or upon earlier vacating of the
premises, such alterations, additions, improvements and partitions shall become
the property of Landlord as of the date of termination of this lease or upon
earlier vacating of the premises and shall be delivered up to the Landlord with
the premises. All shelves, bins, machinery and trade fixtures installed by
Tenant may be removed by Tenant prior to the termination of this lease if Tenant
so elects, and shall be removed by the date of termination of this lease or upon
earlier vacating of the premises if required by Landlord; upon any such removal
Tenant shall restore the premises to their original condition. All such removals
and restoration shall be accomplished in a good workmanlike manner so as not to
damage the primary structure or structural qualities of the buildings and other
improvements situated on the premises.
8. Signs. Tenant shall have the right to install signs upon the premises
only when first approved in writing by Landlord and subject to any applicable
governmental laws, ordinances, regulations and other requirements. Tenant shall
remove all such signs by the termination of this lease. Such installations and
removals shall be made in such manner as to avoid injury or defacement of the
building and other improvements, and Tenant shall repair any injury or
defacement, including without limitation discoloration, caused by such
installation and/or removal.
9. Inspection. Landlord and Landlord's agents and representatives shall
have the right to enter and inspect the premises at any reasonable time during
business hours, for the purpose of ascertaining the condition of the premises or
in order to make such repairs as may be required or permitted to be made by
Landlord under the terms of this lease. During the period that is six (6) months
prior to the end of the term hereof, Landlord and Landlord's agents and
representatives shall have the right to enter the premises at any reasonable
time during business hours for the purpose of showing the premises and shall
have the right to erect on the premises a suitable sign indicating the premises
are available. Tenant shall give written notice to Landlord at least thirty (30)
days prior to vacating the premises and shall arrange to meet with Landlord for
a joint inspection of the premises prior to vacating. In the event of Tenant's
failure to give such notice or arrange such joint inspection, Landlord's
inspection at or after Tenant's vacating the premises shall be conclusively
deemed correct for purposes of determining Tenant's responsibility for repairs
and restoration.
10. Utilities. Landlord agrees to provide at its cost water, electricity
and telephone service connections into the premises; but Tenant shall pay for
all water, gas, heat, light, power, telephone, sewer, sprinkler charges and
other utilities and services used on or from the premises,
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together with any taxes, penalties, surcharges or the like pertaining thereto
and any maintenance charges for utilities and shall furnish all electric light
bulbs and tubes. If any such services are not separately metered to Tenant,
Tenant shall pay a reasonable proportion as determined by Landlord of all
charges jointly metered with other premises. Landlord shall in no event be
liable for any interruption or failure of utility services on the premises
unless caused by negligence of Landlord in which case liability will be limited
to restoration of service.
11. Assignment and Subletting. Tenant shall not have the right to assign
this lease or to sublet the whole or any part of the premises without the prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Notwithstanding any permitted assignment or subletting, Tenant shall at
all times remain directly, primarily and fully responsible and liable for the
payment of the rent herein specified and for compliance with all of its other
obligations under the terms, provisions and covenants of this lease. Upon the
occurrence of an "event of default" as hereinafter defined, if the premises or
any part thereof are then assigned or sublet, Landlord, in addition to any other
remedies herein provided, or provided by law, may at its option collect directly
from such assignee or subtenant all rents becoming due to Tenant under such
assignment or sublease and apply such rent against any sums due to Landlord from
Tenant hereunder, and no such collection shall be construed to constitute a
novation or a release of Tenant from the further performance of Tenant's
obligations hereunder.
12. Fire and Casualty Damage.
A. Landlord agrees to maintain at Tenant's expense, standard fire and
extended coverage insurance covering the building of which the premises are a
part in an amount not less than 80% (or such greater percentage as may be
required by Landlord's mortgagee or necessary to comply with the provisions of
any co-insurance clauses of the policy) of the "replacement cost" thereof as
such term is defined in the Replacement Cost Endorsement to be attached thereto,
insuring against the perils of Fire, Lightning and Extended Coverage, such
coverages and endorsements to be as defined, provided and limited in the
standard bureau forms prescribed by the insurance regulatory authority for the
state in which the premises are situated for use by insurance companies admitted
in such state for the writing of such insurance on risks located within such
state. Subject to the provisions of subparagraphs 12(C), 12(D) and 12(E) below,
such insurance shall be for the sole benefit of Landlord and under its sole
control. Tenant agrees to pay to Landlord, as additional rental, the amount of
such insurance premiums within ten (10) days after presentation to Tenant of
Landlord's statement setting forth the amount due. Any payment to be made
pursuant to this subparagraph A with respect to the year in which this lease
commences or terminates shall bear the same ratio to the payment which would be
required to be made for the full year as the part of such year covered by the
term of this lease bears to a full year.
B. If the buildings situated upon the premises should be damaged or
destroyed by fire, tornado or other casualty, Tenant shall give immediate
written notice thereof to Landlord.
C. If the buildings situated upon the premises should be totally
destroyed by fire, tornado or other casualty, or if they should be so damaged
thereby that rebuilding or repairs
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<PAGE> 5
cannot reasonably be completed within two hundred (200) days after the date upon
which Landlord is notified by Tenant of such damage or on or before the
expiration of the term of this lease, whichever first occurs, this lease shall
terminate and the rent shall be abated during the unexpired portion of this
lease, effective upon the date of the occurrence of such damage.
D. If the buildings situated upon the premises should be damaged by any
peril covered by the insurance to be provided by Landlord under subparagraph
12(A) above, but only to such extent the rebuilding or repairs can reasonably be
completed within two hundred (200) days after the date upon which Landlord is
notified by Tenant of such damage, this lease shall not terminate, and Landlord
shall at its sole cost and expense thereupon proceed with reasonable diligence
to rebuild or repair such buildings to substantially the condition in which they
existed prior to such damage, except that Landlord shall not be required to
rebuild, repair or replace any part of the partitions, fixtures, additions and
other improvements which may have been placed in, on or about the premises by
Tenant. If the premises are untenantable in whole or in part following such
damage, the rent payable hereunder during the period in which they are
untenantable shall be reduced to such extent as may be fair and reasonable under
all of the circumstances. In the event that Landlord should fail to complete
such repairs and rebuilding within two hundred (200) days after the date upon
which Landlord is notified by Tenant of such damage, Tenant may at its option
terminate this lease by delivering written notice of termination to Landlord as
Tenant's exclusive remedy, whereupon all rights and obligations hereunder shall
cease and terminate.
E. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
premises requires that the insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon all rights and obligations hereunder shall
cease and terminate.
F. Each of Landlord and Tenant hereby releases the other from any loss or
damage to property caused by fire or any other perils insured through or under
them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils insured in policies of insurance covering
such property, even if such loss or damage shall have been caused by the fault
or negligence of the other party, or anyone for whom such party may be
responsible; provided, however, that this release shall be applicable and in
force and effect only with respect to loss or damage occurring during such
times as the releasor's policies shall contain a clause or endorsement to the
effect that any such release shall not adversely affect or impair said policies
or prejudice the right of the releasor to recover thereunder and then only to
the extent of the insurance proceeds payable under such policies. Each of the
Landlord and Tenant agrees that it will request its insurance carriers to
include in its policies such a clause or endorsement. If extra cost shall be
charged therefor, each party shall advise the other thereof and of the amount
of the extra cost, and the other party, at its election, may pay the same, but
shall not be obligated to do so.
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13. Liability. Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other persons whomsoever, for
any injury to person or damage to property on or about the premises, resulting
from and/or caused in part or whole by the negligence or misconduct of Tenant,
its agents, servants or employees, or of any other person entering upon the
premises, or caused by the buildings and improvements located on the premises
becoming out of repair, or caused by leakage of gas, oil, water or steam or by
electricity emanating from the premises, or due to any cause whatsoever, and
Tenant hereby covenants and agrees that it will at all times indemnify and hold
safe and harmless the property, the Landlord (including without limitation the
trustee and beneficiaries if Landlord is a trust), Landlord's agents and
employees from any loss, liability, claims, suits, costs, expenses, including
without limitation attorneys' fees and damages, both real and alleged, arising
out of any such damage or injury; except injury to persons or damages to
property the sole cause of which is the negligence of Landlord or the failure of
Landlord to repair any part of the premises which Landlord is obligated to
repair and maintain hereunder within a reasonable time after the receipt of
written notice from Tenant of reported needed repairs. Tenant shall procure and,
maintain throughout the term of this lease a policy or policies of insurance, at
its sole cost and expense, insuring both Landlord and Tenant against all claims,
demands, or actions arising out of or in connection with: (i) the premises; (ii)
the condition of the premises; (iii) Tenant's operations in and maintenance and
use of the premises; and (iv) Tenant's liability assumed under this lease, the
limits of such policy or policies to be in the amount of not less than
$1,000,000 per occurrence in respect of injury to persons (including death), and
in the amount of not less than $250,000 per occurrence in respect of property
damage or destruction including loss of use thereof, in addition Tenant shall
procure and maintain as provided above an umbrella liability insurance policy in
the amount of $ 1,000,000. All such policies shall be procured by Tenant from
responsible insurance companies satisfactory to Landlord. Certified copies of
such policies, together with receipt evidencing payment of premiums therefor,
shall be delivered to Landlord prior to the commencement date of this lease. Not
less than fifteen (15) days prior to the expiration date of any such policies,
certified copies of the renewals thereof (bearing notations evidencing the
payment of renewal premiums) shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days written notice shall be
given to Landlord before such policy may be cancelled or changed to reduce
insurance provided thereby.
14. Condemnation.
A. If the whole or any substantial part of the premises should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof and the taking would prevent or materially interfere with the use of the
premises for the purpose for which they are being used, this lease shall
terminate and the rent shall be abated during the unexpired portion of this
lease, effective when the physical taking of said premises shall occur.
B. If part of the premises shall be taken for any public or quasi-public
use under any Governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and this lease is not terminated
as provided in the subparagraph above, this lease
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shall not terminate but the rent payable hereunder during the unexpired portion
of this lease shall be reduced to such extent as may be fair and reasonable
under all of the circumstances.
C. See paragraph R-5 of Rider.
15. Holding Over. Tenant will, at the termination of this lease by lapse
of time or otherwise, yield up immediate possession to Landlord. If Landlord
agrees in writing that Tenant may hold over after the expiration or termination
of this lease, unless the parties hereto otherwise agree in writing on the terms
of such holding over, the hold over tenancy shall be subject to termination by
Landlord at any time upon not less than Five (5) days advance written notice, or
by Tenant at any time upon not less than thirty (30) days advance written
notice, and all of the other terms and provisions of this lease shall be
applicable during that period, except that Tenant shall pay Landlord from time
to time upon demand, as rental for the period of any hold over, an amount equal
to one and one-half (1 1/2) the rent in effect on the termination date, computed
on a daily basis for each day of the hold over period. No holding over by
Tenant, whether with or without consent of Landlord, shall operate to extend
this lease except as otherwise expressly provided. The preceding provisions of
this paragraph 15 shall not be construed as Landlord's consent for Tenant to
hold over.
16. Quiet Enjoyment. Landlord covenants that it now has, or will acquire
before tenant takes possession of the premises, good title to the premises, free
and clear of all liens and encumbrances, excepting only the lien for current
taxes not yet due, such mortgage or mortgages as are permitted by the terms of
this lease, zoning ordinances and other building and fire ordinances and
governmental regulations relating to the use of such property, and easements,
restrictions and other conditions of record. In the event this lease is a
sublease, then Tenant agrees to take the premises subject to the provisions of
the prior leases. Landlord represents and warrants that it has full right and
authority to enter into this lease and that Tenant, upon paying the rental
herein set forth and performing its other covenants and agreements herein set
forth, shall peaceably and quietly have, hold and enjoy the premises for the
term hereof without hindrance or molestation from Landlord, subject to the terms
and provisions of this lease.
17. Events of Default. The following events shall be deemed to be events
of default by Tenant under this lease:
(a) Tenant shall fail to pay any installment of the rent herein
reserved when due, or any payment with respect to taxes hereunder when due,
or any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of five (5) days from
the date written notice is given by Landlord.
(b) Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of creditors.
(c) Tenant shall file a petition under any section or chapter of the
United States Bankruptcy Code, as amended, or under any similar law or
statute of the United States or any state thereof, or Tenant shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant
thereunder.
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(d) A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant.
(e) Tenant shall desert or vacate any substantial portion of the
premises.
(f) Tenant shall fail to comply with any term, provision or covenant
of this lease (other than the foregoing in this paragraph 17), and shall
not cure such failure within thirty (30) days after written notice thereof
to Tenant.
18. Remedies. Upon the occurrence of any of such events of default
described in paragraph 17 hereof, Landlord shall have the option to pursue any
one or more of the following remedies without any notice or demand whatsoever:
(a) Terminate this lease, in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails so to do, Landlord
may, without prejudice to any other remedy which it may have for possession
or arrearages in rent, enter upon and take possession of the premises and
expel or remove Tenant and any other person who may be occupying such
premises or any part thereof, by process of law, without being liable for
prosecution or any claim of damages therefor; and Tenant agrees to pay to
Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of such termination, whether through inability to relet
the premises on satisfactory terms or otherwise.
(b) Enter upon and take possession of the premises and expel or remove
Tenant and any other person who may be occupying such premises or any part
thereof, by process of law, without being liable for prosecution or any
claim for damages therefor, and relet the premises and receive the rent
therefor; and Tenant agrees to pay to the Landlord on demand any deficiency
that may arise by reason of such reletting. In the event Landlord is
successful in reletting the premises at a rental in excess of that agreed
to be paid by Tenant pursuant to the terms of this lease, Landlord and
Tenant each mutually agree that Tenant shall not be entitled, under any
circumstances, to such excess rental, and Tenant does hereby specifically
waive any claim to such excess rental.
(c) Enter upon the premises, by process of law, without being liable
for prosecution or any claim for damages therefor, and do whatever Tenant
is obligated to do under the terms of this lease; and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur in
thus effecting compliance with Tenant's obligations under this lease, and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to the Tenant from such action, whether caused by the negligence
of Landlord or otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law, nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver of
any rent due to Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants herein
contained. No act or thing done by the Landlord or its agents during the term
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hereby granted shall be deemed a termination of this lease or an acceptance of
the surrender of the premises, and no agreement to terminate this lease or
accept a surrender of said premises shall be valid unless in writing signed by
Landlord. No waiver by Landlord of any violation or breach of any of the terms,
provisions and covenants herein contained shall be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants herein contained. Landlord's acceptance of the payment
of rental or other payments hereunder after the occurrence of an event of
default shall not be construed as a waiver of such default, unless Landlord so
notifies Tenant in writing. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver for such default or of Landlord's right to
enforce any such remedies with respect to such default or any subsequent
default. If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
concerning or to enforce or defend any of Landlord's rights or remedies
hereunder, Tenant agrees to pay any reasonable attorney's fees so incurred.
19. Landlord's Lien. In addition to any statutory lien for rent in
Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a
continuing security interest for all rentals and other sums of money becoming
due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
furniture, inventory, accounts, contract rights, chattel paper and other
personal property of Tenant situated on the premises, and such property shall
not be removed therefrom without the consent of Landlord until all arrearages in
rent as well as any and all other sums of money then due to Landlord hereunder
shall first have been paid and discharged. In the event of a default under this
lease, Landlord shall have, in addition to any other remedies provided herein or
by law, all rights and remedies under the Uniform Commercial Code, including
without limitation the right to sell the property described in this paragraph 19
at public or private sale upon five (5) days notice to Tenant. Tenant hereby
agrees to execute such financing statements and other instruments necessary or
desirable in Landlord's discretion to perfect the security interest hereby
created. Any statutory lien for rent is not hereby waived, the express
contractual lien herein granted being in addition and supplementary thereto.
20. Mortgages. Tenant accepts this lease subject and subordinate to any
mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a
lien or charge upon the premises or the improvements situated thereon, provided,
however, that if the mortgagee, trustee, or holder of any such mortgage or deed
of trust elects to have Tenant's interest in this lease superior to any such
instrument, then by notice to Tenant from such mortgagee, trustee or holder,
this lease shall be deemed superior to such lien, whether this lease was
executed before or after said mortgage or deed of trust. Tenant shall at any
time hereafter on demand execute any instruments, releases or other documents
which may be required by any mortgagee for the purpose of subjecting and
subordinating this lease to the lien of any such mortgage.
21. Landlord's Default. In the event Landlord should become in default in
any payments due on any such mortgage described in paragraph 20 hereof or in the
payment of taxes or any other items which might become a lien upon the premises
and which Tenant is not obligated to pay under the terms and provisions of this
lease, Tenant is authorized and
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empowered after giving Landlord five (5) days prior written notice of such
default and Landlord's failure to cure such default, to pay any such items for
and on behalf of Landlord, and the amount of such item so paid by Tenant for or
on behalf of Landlord together with any interest or penalty required to be paid
in connection therewith, shall be payable on demand by Landlord to Tenant;
provided, however, that Tenant shall not be authorized or empowered to make any
payment under the terms of this paragraph 21 unless the item paid shall be
superior to Tenants interest hereunder. In the event Tenant pays any mortgage
debt in full, in accordance with this paragraph, it shall, at its election, be
entitled to the mortgage security by assignment or subrogation.
22. Mechanic's Lien. Tenant shall have no authority, express or implied,
to create or place any lien or encumbrance of any kind or nature whatsoever
upon, or in any manner to bind, the interest of Landlord in the premises or to
charge the rentals payable hereunder for any claim in favor of any person
dealing with Tenant, including those who may furnish materials or perform labor
for any construction or repairs, and each such claim shall affect and each such
lien shall attach to, if at all, only the leasehold interests granted to Tenant
by this instrument. Tenant covenants and agrees that it will pay or cause to be
paid all sums legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed on the premises on
which any lien is or can be validly and legally asserted against its leasehold
interest in the premises or the improvements thereon and that it will save and
hold Landlord harmless from any and all loss, cost or expenses based on or
arising out of asserted claims or liens against the leasehold estate or
against the right, title and interest of the Landlord in the premises or under
the terms of this lease.
23. Notices. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing or delivery of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address hereinbelow
set forth or at such other address as Landlord may specify from time to
time by written notice delivered in accordance herewith. Tenant's
obligation to pay rent and any other amounts to Landlord under the terms of
this lease shall not be deemed satisfied until such rent and other amounts
have been actually received by Landlord.
(b) All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address hereinbelow set forth, or at such
other address within the continental United States as Tenant may specify
from time to time by written notice delivered in accordance herewith.
(c) Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not
when deposited in the United States Mail, postage prepaid, Certified or
Registered Mail, addressed to the parties
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hereto at the respective addresses set out below, or at such other address as
they have theretofore specified by written notice delivered in accordance
herewith:
LANDLORD: TENANT:
Ronald I. Wagner American Remodeling, Inc.
45 Masland 1625 East Algonquin Road
Dallas, Texas 75230 Arlington Heights, Illinois 60005
with a copy to:
AMRE, Inc.
8585 N. Stemmons Freeway
South Tower
Dallas, Texas 75247
Attention: General Counsel
If and when included within the term "Landlord", as used in this instrument,
there are more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address for the receipt of notices and payments to
Landlord; if and when included within the term "Tenant", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payments to Tenant. All parties
included within the terms "Landlord" and "Tenant", respectively, shall be bound
by notices given in accordance with the provision of this paragraph to the same
effect as if each had received such notice.
24. Miscellaneous.
A. Words of any gender used in this lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in this
lease shall apply to, inure to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, legal representatives, successors and
permitted assigns, except as otherwise herein expressly provided. Landlord shall
have the right to assign any of its rights and obligations under this lease.
Each party agrees to furnish to the other, promptly upon demand, a corporate
resolution, proof of due authorization by partners, or other appropriate
documentation evidencing the due authorization of such party to enter into this
lease.
C. The captions inserted in this lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this lease, or
any provision hereof, or in any way affect the interpretation of this lease.
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<PAGE> 12
D. This lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
E. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the premises. Upon the expiration or
earlier termination of the term hereof, and prior to Tenant vacating the
premises, Tenant shall pay to Landlord any amount reasonably estimated by
Landlord as necessary to put the premises, including without limitation all
heating and air conditioning systems and equipment therein, in good condition
and repair. Tenant shall also, prior to vacating the premises, pay to Landlord
the amount, as estimated by Landlord, of Tenant's obligation hereunder for real
estate taxes and insurance premiums for the year in which this lease expires or
terminates. All such amounts shall be used and held by Landlord for payment of
such obligations of Tenant hereunder, with Tenant being liable for any
additional costs therefor upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been determined and
satisfied, as the case may be. Any security deposit held by Landlord shall be
credited against the amount payable by Tenant under this subparagraph 24(E).
F. If any clause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this lease shall not be affected thereby, and it is also the
intention of the parties to this lease that in lieu of each clause or provision
of this lease that is illegal, invalid or unenforceable, there be added as a
part of this lease contract a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
G. Because the premises are on the open market and are presently being
shown, this lease shall be treated as an offer with the premises being subject
to prior lease and such offer subject to withdrawal or non-acceptance by
Landlord or to other use of the premises without notice, and this lease shall
not be valid or binding unless and until accepted by Landlord in writing and a
fully executed copy delivered to both parties hereto.
H. All references in this lease to "the date hereof' or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this lease.
12
<PAGE> 13
25. Additional Provisions. See Rider attached hereto and made a part
hereof.
EXECUTED BY LANDLORD, as of the 31st day of December, 1995.
/s/ RONALD I. WAGNER
------------------------------------------
RONALD I. WAGNER
EXECUTED BY TENANT, as of the 31st day of December, 1995.
AMERICAN REMODELING, INC., a
Texas corporation
By: /s/ ROBERT M. SWARTZ
--------------------------------------
ROBERT M. SWARTZ
Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER
-------------------------------------
13
<PAGE> 14
RIDER TO LEASE AGREEMENT DATED AS OF DECEMBER 31,1995, BETWEEN
RONALD I. WAGNER, LANDLORD, AND AMERICAN REMODELING, INC.,
TENANT, FOR PREMISES AT 1625 EAST ALGONQUIN ROAD,
ARLINGTON HEIGHTS, ILLINOIS ("LEASE")
R-1. Rider Governs. In the event of any conflict or inconsistency between
the provisions of this Rider and the provisions of the Lease Agreement to which
this Rider is attached, the provisions of this Rider shall govern.
R-2. Acceptance of Premises. Tenant acknowledges that it has inspected and
accepted the premises, and specifically the buildings and improvements
comprising the same, in their present condition as suitable for the purpose for
which the premises are leased. Taking of possession by Tenant shall be deemed
conclusively to establish that said buildings and other improvements are in good
and satisfactory condition as of when possession was taken, subject to the
Landlord's obligations as contained in paragraph 5 of the lease. Tenant further
acknowledges that no representations as to the repair of the premises, nor
promises to alter, remodel or improve the premises have been made by Landlord,
unless such are expressly set forth in the lease. If the lease is executed
before the premises become vacant or otherwise available and ready for
occupancy, or if any present tenant or occupant of the premises holds over, and
Landlord cannot acquire possession of the premises prior to the date above
recited as the commencement date of the lease, Landlord shall not be deemed to
be in default hereunder, and Tenant agrees to accept possession of the premises
at such time as Landlord is able to tender the same, which date shall
thenceforth be deemed the "commencement date"; and Landlord hereby waives
payment of rent covering any period prior to the tendering of possession in
Tenant hereunder. After the commencement date Tenant shall, upon demand, execute
and deliver to Landlord a letter of acceptance of delivery of the premises.
R-3. Rental. R-3.1. In consideration of the leasing aforesaid, Tenant
hereby covenants and agrees to pay Landlord, in coin or currency which at the
time or times of payment is legal tender for public or private debts in the
United States of America, at 45 Masland, Dallas, Texas 75230 or at such other
place as the Landlord may from time to time designate in writing, an initial
monthly rental of Fifteen Thousand and 00/100 Dollars ($15,000.00) per month,
commencing on the first day of January 1, 1996, and thereafter, as increased
from time to time pursuant to subparagraph R-3.2 hereof, on the first day of
each and every month of the term of the lease, to and including the first day of
December, 2005. Such monthly rental, as adjusted from time to time pursuant to
subparagraph R-3.2 hereof, is referred to herein at times as the "basic rent."
The total basic rent due under the lease is One Million Eight Hundred Thousand
and 00/100 Dollars ($1,800,000.00), subject to increases pursuant to
subparagraph R-3.2 hereof. Basic rent for a partial month during the term of the
lease shall be prorated based upon a 365-day year.
R-3.2. Basic rent as adjusted pursuant to this paragraph from time to time
shall be increased beginning on the second anniversary of the commencement of
the term of the lease and on each anniversary date thereafter throughout the
term of the lease and any extension thereof (the "Adjustment Date") by a
percentage equal to the percentage increase in the CPI (hereinafter
<PAGE> 15
defined) from the date which is two months immediately preceding such
commencement date or successive anniversary date, as the case may be, to the
date two months prior to the Adjustment Date. However, in no event shall basic
rent be increased by more than six percent (6%) on any Adjustment Date. The
basic rent as so increased shall become the basic rent for each month of the one
year period commencing on the Adjustment Date. As used herein and in the lease,
"CPI" means the United States Department of Labor, Bureau of Labor Statistics,
Consumer Price Index for All Urban Consumers, Chicago, Illinois and Northwestern
Indiana Area-All Items (1982-1984=100). If the manner in which the CPI is
determined by the Department of Labor shall be substantially revised, or if the
1982-84 Chicago, Illinois and Northwestern Indiana Area-All Items shall no
longer be used as in index of 100, an adjustment shall be made in such revised
index which would produce results equivalent, as nearly as possible, to those
which would have been obtained if the CPI had not been so revised or if said
average was still in use. If the CPI shall become unavailable to the public
because publication is discontinued, or otherwise, there will be substituted
therefor a comparable index based upon changes in the cost of living or
purchasing power of the consumer dollar published by any other governmental
agency or, if no such index shall then be available, a comparable index
published by a major bank or other financial institution or by a university or a
recognized financial publication or any other recognized authority.
R-4. Taxes and Assessments. R-4.1. Tenant further agrees to pay as
additional rent for the demised premises all taxes and assessments, general and
special, water rates and all other impositions, ordinary and extraordinary, of
every kind and nature whatsoever, which may be levied, assessed or imposed upon
said premises or any part thereof or upon any building or improvements at any
time situated thereon or levied or assessed upon the interest of the Landlord in
or under the lease, now accrued or due, or accruing and becoming due and payable
during the term of the lease, and also all unpaid installments now accrued or
due, or accruing and becoming due and payable during the term of the lease, of
special assessments levied against said premises for improvements completed or
not yet completed, all of which said water rates, taxes, assessments and other
impositions (herein called "Impositions") shall be paid by the Tenant before
they shall respectively become delinquent and in any case within apt time to
prevent any sale or forfeiture of said demised premises therefor or for any part
thereof, provided, however, that the general taxes levied against the demised
premises for the last calendar year of the term, as the same may be renewed,
shall be prorated between the Landlord and the Tenant on and as of the date of
the expiration of the term of the lease on the basis of the then last available
tax bills.
R-4.2. It is mutually covenanted and agreed that nothing herein contained
shall be construed to require the Tenant to pay any franchise, inheritance,
estate, succession or transfer tax of the Landlord or any income or excess
profits tax assessed upon or in respect of the income of the Landlord or
chargeable to or required to be paid by the Landlord unless such tax shall be
specifically levied against the income of the Landlord derived from the rent by
the lease reserved, expressly and as and for a specific substitute for the
taxes, in whole or in part, upon the real estate by the lease demised or the
improvements situated thereon, all of which taxes so specifically levied the
Tenant covenants and agrees to pay as so much additional rent as and when the
same become due and payable; provided, however, that if the amount or rate of
any such income or excess profits tax so levied against the income of the
Landlord, as a specific
R-2
<PAGE> 16
substitute for the taxes on the real estate by the lease demised or the
improvements at any time situated thereon, shall be increased by reason of any
other income received or property owned by the Landlord, then the Tenant shall
not be obligated to pay such increased amount but only such tax as the Landlord
would be obligated to pay in case it derived no income from any source other
than the real estate hereby demised.
R-4.3. Tenant covenants and agrees to deliver to the Landlord from time to
time duplicate receipts or photostatic copies thereof showing the payments of
all said water rates, taxes, assessments, and other Impositions, such delivery
to be made within thirty (30) days after the respective payments evidenced
thereby.
R-4.4. It is further agreed that the Landlord shall at its option have the
right at all times during the term hereof to pay any water rates, taxes,
assessments or other charges or Impositions upon the demised premises or any
interest therein or any other charge, tax or Imposition herein agreed to be paid
by the Tenant remaining unpaid after the same shall have become delinquent, and
to pay, cancel and clear off all tax sales, liens, charges and claims upon or
against said demised premises, and to redeem said premises from the same or any
of them from time to time, and the amounts so paid, including reasonable
expenses, shall be so much additional rent due from the Tenant to the Landlord
at the rent day after any such payment, with interest at the rate of eighteen
percent (18%) per annum from the date of payment thereof by the Landlord until
the repayment thereof by the Tenant to the Landlord.
R-4.5. All other provisions of the lease to the contrary notwithstanding,
Tenant shall not be required to pay, discharge or remove any tax, assessment,
tax lien, or other Imposition or charge upon or against said demised premises or
any part thereof or the improvements at any time situated thereon so long as
Tenant shall in good faith and with due diligence contest the same or the
validity thereof by appropriate legal proceedings which shall have the effect of
preventing the collection of the tax, assessment, tax lien or other Imposition
or charge so contested and the sale or forfeiture of said premises or any part
thereof or any interest therein to satisfy the same, and provided that pending
any such legal proceedings Tenant shall either obtain a bond or letter of credit
in a form and issued by a surety or bank reasonably acceptable to Landlord, or
deposit with the Landlord cash or securities satisfactory to the Landlord, in an
amount equal to not less than one hundred ten percent (110%) of the amount of
the tax, assessment, tax liens or other Impositions, and all interest and
penalties thereon so contested. Pending the diligent, prosecution of any such
legal proceedings, and provided Tenant has maintained the security above
provided for, Landlord shall not have the right to pay, remove or discharge the
tax, assessment, tax lien or other Imposition or charge so contested. The
security so deposited shall be held by the Landlord until said premises shall
have been released and discharged from any such tax, assessment, tax lien or
other Imposition or charge, and shall thereupon be returned to the Tenant less
the amount of any loss, cost, damage and reasonable expense that Landlord may
sustain in connection with the tax, assessment, tax lien or other Imposition or
charge so contested; provided, however, that if Tenant fails to prosecute such
contest with due diligence, or fails to maintain said security as above
provided, or if Tenant is otherwise in default under the provisions of the
lease, Landlord may use the security so deposited to pay any item for which
Landlord would be entitled to make advances under subparagraph
R-3
<PAGE> 17
R-4.4 hereof, or to cure any other such default of Tenant. Landlord agrees to
provide, at Tenant's expense, reasonable cooperation to Tenant in connection
with any such contest.
R-4.6. In the event that Tenant at any time institutes suit to recover any
tax, assessment, tax lien or other Imposition or charge paid by Tenant under
protest in Landlord's name, Tenant shall have the right, at its own sole
expense, to institute and prosecute such suit or suits in Landlord's name, in
which event Tenant covenants and agrees to indemnify Landlord and save it
harmless from and against all costs, charges or liabilities in connection with
any such suit. All funds recovered as a result of any such suit shall belong to
Tenant.
R-5. Condemnation Proceeds. Any award, compensation or damages (hereinafter
sometimes called an "award"), including without limitation any portion
attributable to the value of the leasehold estate, shall be paid to and be the
sole property of Landlord provided, however, that nothing herein shall be deemed
to prevent Tenant from recovering from the condemning authority compensation for
the taking of personal property, machinery, equipment and fixtures belonging to
Tenant, or for interruption or damage to Tenant's business or for moving or
other expenses, to the extent the same are compensable by law.
R-6. Subordination. All mortgages or deeds of trust referred to in
paragraph 20 of the lease shall refer to first mortgages or deeds of trust only.
R-7. Assignment and Subletting. (a) Notwithstanding the provisions of
paragraph 11 of the lease, Tenant shall not sell, assign, encumber or otherwise
transfer by operation of law or otherwise, the lease or any interest herein,
sublet the premises or any portion thereof, or suffer any other person to occupy
or use the premises or any portion thereof, without the prior written consent of
Landlord as provided herein, nor shall Tenant permit any lien to be placed on
the Tenant's interest by operation of law. Tenant shall, by written notice,
advise Landlord of its desire from and after a stated date (which shall not be
less than thirty (30) days nor more than ninety (90) days after the date of
Tenant's notice) to sublet the premises or any portion thereof for any part of
the term thereof; and in such event Landlord shall have the right, to be
exercised by giving written notice to Tenant within ten (10) days after receipt
of Tenant's notice to terminate the lease, as to the portion of the premises
described in Tenant's notice and such notice shall, if given, terminate the
lease with respect to the portion of the premises therein described as of the
date stated in Tenant's notice. Said notice by Tenant shall state the name and
address of the proposed subtenant, and Tenant shall deliver to Landlord a true
and complete copy of the proposed sublease with said notice. If said notice
shall specify all of the premises and Landlord shall give said termination
notice with respect thereto, the lease shall terminate on the date stated in
Tenant's notice. If Landlord, upon receiving said notice by Tenant, with respect
to any of the premises, shall not exercise its right to terminate, Landlord will
not unreasonably withhold its consent to Tenant's subletting the premises
specified in said notice. Tenant shall, at Tenant's own cost and expense,
discharge in full any commission which may be due and owing as a result of any
proposed assignment or subletting, whether or not the lease is terminated
pursuant hereto and rented by Landlord to the proposed subtenant or any other
tenant.
R-4
<PAGE> 18
(b) Any subletting hereunder by Tenant shall not result in Tenant being
released or discharged from any liability under the lease. As a condition to
Landlord's prior written consent as provided for in this paragraph, the
subtenant or subtenants shall agree in writing to comply with and be bound by
all of the terms, covenants, conditions, provisions, and agreements of the
lease, and Tenant shall deliver to Landlord promptly after execution, an
executed copy of each sublease and an agreement of said compliance by each
subtenant.
(c) Landlord's consent to any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent occurrence.
Any sale, assignment, encumbrance, subletting, occupation, lien or other
transfer of the lease which does not comply with the provisions of this
paragraph shall be void.
(d) Tenant may, without Landlord's consent, assign the lease to any
corporation resulting from a merger or consolidation of the Tenant upon the
following conditions: (a) that the total assets and net worth of such assignee
after such consolidation or merger shall be equal to or more than that of Tenant
immediately prior to such consolidation or merger; (b) that Tenant is not at
such time in default hereunder; and (c) that such successor shall execute an
instrument in writing fully assuming all of the obligations and liabilities
imposed upon Tenant hereunder and deliver the same to Landlord. If the aforesaid
conditions are satisfied, Tenant shall be discharged from any further liability
hereunder.
(e) Tenant may, without Landlord's consent, assign the lease or sublet all
or any part of the premises to any of Tenant's affiliates. For the purpose of
this subparagraph, the term "affiliate" means a corporation controlling,
controlled by or under common control with Tenant. The term "control" (including
"controlling", "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management or policies of a person or entity, whether by the ownership of
voting securities, by contract, or otherwise.
R-8. Estoppel Certificates. Each party agrees at any time and from time to
time, upon not less than ten (10) days' prior written request by the other
party, to execute, acknowledge, and deliver to the other party a statement in
writing certifying that the lease is unmodified and in full force and effect (or
if there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the rental and
other charges have been paid in advance, if any, it being intended that any such
statement delivered pursuant to this paragraph may be relied upon by any
prospective purchaser of the fee or mortgage or assignee of any mortgage upon
the fee of the demised premises.
R-9. Tenant's Option to Extend. R-9.1 Provided Tenant is not in default
under the lease and the basic rent for the forthcoming extended term has been
determined in accordance with subparagraph R-9.3 hereof, and the term of the
lease shall not have been terminated prior to the expiration by lapse of time of
the original term of the lease, Tenant shall have and is hereby given an option
to extend the term of the lease for a period of five (5) years commencing
January 1, 2006 and ending December 31, 2010, upon the same terms and conditions
in the lease set forth
R-5
<PAGE> 19
except basic rent during said extended term shall be in the initial amount
determined in accordance with subparagraph R-9.3 hereof, subject to increases
pursuant to paragraph R-3 hereof.
Said option may be exercised and the term of the lease so extended by
written notice to the Landlord of the intention of the Tenant so to extend the
term of the lease not less than six (6) months prior to the expiration of the
original term of the lease.
R-9.2. In like manner and subject to the same provisos contained in
subparagraph R-9.1 hereof, the Tenant shall have and is hereby given one (1)
additional successive option, being on the additional condition that the option
for the preceding period has been exercised, and provided that the term of the
lease as theretofore extended shall not theretofore have been terminated, to
extend the term of the lease for one additional five (5) year period, commencing
January 1, 2011 and ending December 31, 2015. Any such option shall be
exercised and the term of the lease so extended by written notice to the
Landlord of the intention of the Tenant so to extend the term of the lease not
less than six (6) months prior to the expiration of the preceding extended term.
Any such extensions of the term of the lease shall be at the basic rent
determination in accordance with subparagraph R-9.3 hereof.
R-9.3. Initial basic rent for each of the extended terms shall be
determined as follows:
(a) On or before 270 days prior to the expiration of the term of the lease
then in effect, Tenant shall in writing request Landlord to provide Tenant with
Landlord's proposal for the amount of the initial basic rent for the forthcoming
extended term. Landlord shall provide Tenant written notice of such proposal
within 30 days after Landlord's receipt of Tenant's request. Landlord's proposal
shall be the initial basic rent for the extended term unless Tenant, within ten
days after its receipt of Landlord's proposal, notifies Landlord of Tenant's
objection thereto.
(b) If Tenant objects to Landlord's proposal as provided above, the
initial basic rent shall be as mutually agreed by Landlord and Tenant. If
Landlord and Tenant are unable to agree as to the initial basic rent within 30
days after Landlord's receipt of Tenant's objection notice, the initial basic
rent shall be the greater of (i) the basic rent then in effect and (ii) the
average of the fair market rental value of the demised premises as determined in
two separate appraisals, one appraisal to be obtained by and at the expense of
each party within 30 days after the expiration of such 30-day agreement period.
If a party fails to obtain such appraisal within such time period, such average
shall be the fair market rental value as determined in the appraisal obtained by
the other party. Each appraisal shall be performed by a licensed MAI real estate
appraiser having at least ten years experience in appraising rental value of
industrial real estate in the vicinity of the demised premises.
(c) In no event shall the initial basic rent be less than the initial
basic rent for the last year of the original or extended lease term, as the case
may be, multiplied by a percentage equal to the percentage increase in the CPI
from the date which is 21 months immediately preceding the commencement date of
such renewal term to the date nine months prior thereto.
R-6
<PAGE> 20
R-10. Landlord's Performance of Tenant's Covenants. Should Tenant at any
time fail to do any of the things required to be done by it under the provisions
of the lease, Landlord at its option, and in addition to any and all other
rights and remedies of Landlord in such event, may (but shall not be required
to) do the same or cause the same to be done, and the reasonable amount of any
money expended by Landlord in connection therewith shall be so much additional
rental due from Tenant to Landlord and shall be a demand obligation owing by
Tenant to Landlord.
R-11. Right of First Refusal. In the event the Landlord receives a bona
fide offer to purchase the demised premises, any part of the demised premises,
or property which includes the demised premises, during the term of the lease
(the "Purchase Offer"), and desires to accept the same or should the Landlord
during the term of the lease offer to sell the demised premises, any part
thereof or any property which includes the demised premises (the "Sale Offer"),
the Tenant shall have the right of first refusal to purchase the subject
property at the same price and upon the same terms and conditions as contained
in the Purchase Offer or Sale Offer. Immediately upon receiving a Purchase Offer
or prior to making a Sale Offer, the Landlord shall notify the Tenant in
writing, setting forth the name and address of the prospective purchaser, the
proposed purchase price and all other terms and conditions of the Purchase Offer
or Sale Offer. The Tenant shall have a period of twenty one (21) days after
receipt of said notice within which to notify the Landlord of its election to
purchase on the terms contained in such offer. In the event the Tenant fails to
give notice of its election to purchase within such 21-day period, the lease
shall nevertheless remain in full force and effect, shall survive the sale of
the subject property and shall be binding upon the purchaser or purchasers of
the demised premises. If the property subject to a Purchase Offer or a Sale
Offer is not sold on the terms and conditions set forth therein (with no change
in the purchase price or method of payment thereof) to the purchaser making or
accepting such offer no later than six months after the date of closing
specified therein, the Tenant's right of first refusal as provided herein shall
again apply as to such Purchase Offer or Sale Offer and shall also apply as to
any subsequent Purchase Offer or Sale Offer.
R-12. Environmental Indemnity. From and after the date of the lease, Tenant
shall indemnify and hold Landlord and its agents, heirs, legal representatives,
successors and assigns (collectively, the "Landlord Indemnitees") harmless from
and against all liabilities, losses, damages, deficiencies, claims and expenses
(including, without limitation, reasonable attorneys' fees and expenses incurred
in connection with any of the foregoing or in seeking indemnification hereunder)
suffered by Landlord or any of the other Landlord Indemnitees and arising out
of, resulting from or incurred in connection with any occurrence, act or
omission of Tenant or any director, officer, employee, consultant, agent,
subsidiary or affiliate thereof, which takes place after the date hereof and
gives rise to any claim of liability for personal injury, property damage or
violation of law, including, without limitation, liabilities arising under the
Resource Conservation and Recovery Act, as amended from time to time, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
from time to time, or any other federal or state statute which relates to the
protection of the environment or which assigns responsibility for the costs of
investigating or remediating releases of contaminants into the environment and
not arising as a result of the act or omission of Landlord or such Landlord
Indemnitee.
R-7
<PAGE> 21
R-13. Late Charge. With respect to any amount payable by Tenant to Landlord
pursuant to the lease and not paid within five days after written notice of
nonpayment is given by Landlord to Tenant, Tenant shall pay to Landlord on
demand a late charge in an amount equal to five percent of the delinquent amount
to defray additional costs to Landlord in processing such late payment. The
failure to pay such amount within 10 days after demand therefor shall be a
default hereunder. The provisions for such late charge shall be in addition to
all of Landlord's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner.
R-14. Memorandum of Lease. If so requested by Tenant, Landlord shall join
Tenant in the execution of a short form memorandum of the lease in recordable
form. Tenant shall be entitled to record such memorandum with the Recorder of
Deeds in Cook County, Illinois.
R-15. Termination Right of Tenant. Tenant shall have the right to terminate
the lease at any time during the term of the lease including any extended term,
with or without cause, upon: (a) no less than ninety (90) days prior written
notice to Landlord, and (b) payment to Landlord, on the effective date of such
termination, of an amount equal to the product of the monthly base rent that
would have been due and payable under the lease for the month following the
month in which the termination occurs, multiplied by the lesser of (x) 36 or (y)
the number of months of the term that would have remained in the then current
term of the lease but for the termination.
R-16. Termination of Existing Lease. The parties hereto agree that upon the
execution of the lease by Landlord and Tenant, the existing lease between
Landlord and Cabinet Magic, Inc., dated October 11, 1988, shall terminate and
be of no further force and effect.
R-8
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 27, 1996
included in AMRE, Inc.'s Form 10-K for the year ended December 31, 1995 and to
all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 17, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' REPORT
We consent to the use in this Registration Statement of AMRE, Inc. on Form S-4
of our report dated March 4, 1996, on the financial statements of Congressional
Construction Corporation for the years ended December 31, 1995 and 1994,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
April 15, 1996
<PAGE> 1
EXHIBIT 23.4
We have issued our report dated June 16, 1995, accompanying the consolidated
financial statements of Facelifters Home Systems, Inc. and Subsidiaries
contained in the Registration Statement on Form S-4 of AMRE, Inc. We consent
to the use of the aforementioned report in the Registration Statement on Form
S-4 of AMRE, Inc., and to the use of our name as it appears under the caption
"Experts."
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Fort Lauderdale, Florida
April 15, 1996
<PAGE> 1
EXHIBIT 23.6
BARRY GOODMAN LIMITED
BUSINESS VALUATION CONSULTANTS
1901 PENNSYLVANIA AVENUE, N.W., SUITE 400
WASHINGTON, D.C. 20006
------------------
(202) 296-2777
(202) 331-1563 FAX
April 17, 1996
Board of Trustees and Participants
Congressional Construction Corporation
Employee Stock Ownership Plan and Trust
Trustees and Participants:
Barry Goodman Limited consents to the inclusion of this material as an
attachment to the S-4 Statement to be filed with the Securities and Exchange
Commission. We consent to such inclusion therein. We also grant permission to
reference the opinion in the text of the S-4 statement.
/s/Barry R. Goodman
-------------------------------------
Barry R. Goodman, CFA, CPA, ASA, CBA
President
April 17, 1996
-------------------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,658
<SECURITIES> 8,484
<RECEIVABLES> 7,445
<ALLOWANCES> 690
<INVENTORY> 6,080
<CURRENT-ASSETS> 37,917
<PP&E> 20,306
<DEPRECIATION> 14,676
<TOTAL-ASSETS> 54,314
<CURRENT-LIABILITIES> 37,728
<BONDS> 241
3,000
0
<COMMON> 146
<OTHER-SE> 13,199
<TOTAL-LIABILITY-AND-EQUITY> 54,314
<SALES> 271,337
<TOTAL-REVENUES> 271,337
<CGS> 88,451
<TOTAL-COSTS> 88,451
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 789
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> (23,908)
<INCOME-TAX> (1,523)
<INCOME-CONTINUING> (22,383)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,385)
<EPS-PRIMARY> (1.73)
<EPS-DILUTED> (1.73)
</TABLE>
<PAGE> 1
Exhibit 99.3
CONFIDENTIAL VOTING INSTRUCTION SHEET
-------------------------------------
(Print your name)
- -----------------------------------------
(Insert Number of Allocated Shares of
- ----------------------------------------- Congressional Convertible Preferred
Stock as of December 31, 1995)
PLEASE INITIAL ONE OF THE FOLLOWING:
- ----------------------- I hereby direct the Substitute Trustee of the
Congressional Construction Corporation Employee
Stock Ownership Plan and Trust to vote all of the
Allocated Shares referenced above FOR the
Merger of Merger Sub with and into Congressional
Construction Corporation pursuant to the Merger
Agreement, as described in the Information
Statement/Prospectus that has been provided to me
and which I have reviewed and understand.
- ----------------------- I hereby direct the Substitute Trustee of the
Congressional Construction Corporation Employee
Stock Ownership Plan and Trust to vote all of the
Allocated Shares referenced above AGAINST the
Merger of Merger Sub with and into Congressional
Construction Corporation pursuant to the Merger
Agreement, as described in the Information
Statement/Prospectus that has been provided to me
and which I have reviewed and understand.
- ----------------------- I hereby direct the Substitute Trustee of the
Congressional Construction Corporation Employee
Stock Ownership Plan and Trust to assert on my
behalf, in accordance with Section 13.1-731 of the
Virginia Act, my DISSENTER'S RIGHTS as to the
Allocated shares referenced above and direct the
Substitute Trustee to exercise my dissenter's
rights accordingly. I understand that to assert
dissenter's rights I cannot direct the Substitute
Trustee to vote any of the Allocated Shares
referenced above for the Merger of Merger Sub
with and into Congressional Construction
Corporation pursuant to the Merger Agreement, as
described in the Information Statement/Prospectus
that has been provided to me and which I have
reviewed and understand.
DATE: , 1996.
---------------------------------------
SIGNATURE:
--------------------------------------------------------
Upon completion, please return in the enclosed envelope for independent and
confidential tabulating. All voting instructions should be mailed by May 17,
1996, to ensure adequate time for the tabulator to receive and tally your voting
instructions prior to the Special Meeting of the Shareholders of Congressional
Construction Corporation on May 28, 1996.
