<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9632
AMRE, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2041737
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
8585 N. STEMMONS FREEWAY, SOUTH TOWER 75247
DALLAS, TEXAS (Zip Code)
(Address of Principal Executive Offices)
(214) 658-6300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X - No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of February 23, 1996, was $261,207,079. At February 23,
1996, the Registrant had outstanding 14,126,341 shares of its Common Stock, par
value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held May 15, 1996, are incorporated by reference
into Part III of this Report.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
AMRE, Inc. (the "Company") is a direct marketing, in-home sales and
installation company providing quality home improvement products. The Company
commenced business under the laws of Texas in 1980 and was reincorporated under
the laws of Delaware in February 1987. All statements herein relating to the
Company reflect such re-incorporation. As used in this report, the terms
"Company" and "AMRE" refer to AMRE, Inc. and its subsidiary, American
Remodeling, Inc., unless the context otherwise requires.
The Company is engaged, through direct consumer marketing in the
in-home sale and installation of siding and related exterior home improvement
products, kitchen cabinet refacing and custom countertops, replacement windows,
and in certain of its territories, exterior coating. At December 31, 1995, the
Company had 61 branch offices located in 50 cities in 35 states, and one
manufacturing facility. Management believes that AMRE is the largest company
in the nation engaged in the direct marketing, in-home sale and installation of
home improvements.
The Company commenced its siding and related exterior home improvement
business in 1980. In 1981, the Company became a Sears licensee and through
1995 generated virtually all of its revenues through direct consumer marketing
and the in-home sale of certain home improvement products under an annually
renewable license agreement (the "Sears License Agreement") with Sears, Roebuck
and Co., ("Sears"). In October 1988, the Company began selling and installing
kitchen cabinet refacing through the acquisition of a business which was also a
Sears licensee. In 1991, the Company expanded its product offerings by
acquiring a business engaged, under a license from Sears, in the sale and
installation of exterior coating products. In June 1993, under a license from
Sears, the Company began selling and installing replacement windows through its
existing siding offices. The Company did not renew the Sears License Agreement
when it expired on December 31, 1995.
On October 17, 1995, the Company, and TM Acquisition Corporation and
Century 21 Real Estate Corporation, subsidiaries of HFS Incorporated, entered
into an agreement, effective January 1, 1996, pursuant to which the Company was
granted an exclusive 20-year license to operate under the name "CENTURY 21 Home
Improvements(SM) " in the marketing, sale, and installation of certain home
improvement products in the United States, Canada, and Mexico (the "Century 21
License Agreement"). The Company also has the right to grant sublicenses under
the Century 21 License Agreement. See "Item 1: Business - Century 21 License
Agreement."
On October 31, 1995, the Company and Facelifters Home Systems, Inc.
("Facelifters") entered into an agreement whereby a newly formed subsidiary of
the Company shall be merged with and into Facelifters. Facelifters designs,
manufactures, markets, sells and installs kitchen cabinet refacing products
utilized in kitchen remodeling, directly to consumers in 26 markets, primarily
markets in which the Company does not currently operate. The merger, which is
subject to, among other things, stockholder approval, is expected to be
consummated in the Company's second quarter of 1996. Regulatory approval of
the merger under the Hart-Scott-Rodino Pre-Merger Notification Act has been
obtained. In connection with the merger, approximately 3,557,268 shares of
the Company's common stock, $0.01 par value ("AMRE Common Stock"), will be
issued to the existing stockholders of Facelifters, and Facelifters will
become a wholly owned subsidiary of the Company.
On December 30, 1995, the Company and Congressional Construction
Corporation ("Congressional") entered into an agreement whereby a newly formed
subsidiary of the Company shall be merged with and into Congressional.
Congressional markets, sells, furnishes and installs home improvement products,
including vinyl and aluminum siding, fencing, wooden decks, replacement vinyl
windows, roofing and patio enclosures directly to consumers in certain
markets, primarily markets in which the Company does not currently operate.
The obligations of the parties to consummate the merger are subject to several
conditions, including, among other things,
2
<PAGE> 3
stockholder approval, and the results of AMRE's due diligence review of
Congressional being materially satisfactory to AMRE. If all the conditions to
the merger are satisfied, the merger is expected to be consummated in the
Company's second quarter of 1996. In connection with the merger, approximately
900,000 shares will be issued to the existing stockholders of Congressional,
and Congressional shall become a wholly owned subsidiary of the Company.
Both Facelifters and Congressional also previously operated under
license agreements with Sears which expired on December 31, 1995. Effective
January 1, 1996, Facelifters and Congressional began operating under sublicense
agreements with the Company to use the CENTURY 21 Home Improvements name.
DIRECT MARKETING AND SALES
The Company's principal marketing activities have been conducted
through direct mail, television, radio and newspaper advertising,
telemarketing, and, prior to 1996, by Company employees who worked displays in
Sears stores during peak hours to generate leads. In connection with entering
into the Century 21 License Agreement, the "in-store" Sears program is
currently being replaced with an "in mall" program in which Company employees
staff professionally designed kiosks in shopping malls. The mall kiosk program
requires a capital investment of approximately $750,000 and future annual
operating lease rentals estimated at $2.0 million for the initial approximately
100 locations. The kiosks prominently display the Company's products and, the
Company believes, will provide greater opportunity to reach prospective
customers. The Company will periodically evaluate the "in-mall" program and
may open additional locations during 1996. In addition, the Company plans to
substantially increase its reliance on telemarketing and its presence at home
shows in order to replace leads formerly generated in the Sears stores. The
Company opened two outbound telemarketing centers in December, 1995 and
January, 1996 in order to accomplish this objective. The Company also is
working with Century 21 to develop a program of lead referrals from the Century
21 real estate broker network. See also "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook".
The Company's marketing efforts are directed to homeowners whose
demographic characteristics and homes fall within certain criteria, including
income of the homeowner, home value, age of home and length of residency. To
improve the effectiveness of its marketing efforts, the Company uses its
internally developed computer software to monitor responses to determine which
groups of homeowners, as well as marketing media sources, produce the highest
percentages of scheduled appointments and sales and to compile information such
as the average sales price per group.
Lists of persons who respond to the Company's advertising and other
marketing programs are compiled and maintained at the Company's corporate
headquarters. Persons on these lists are contacted by telephone, usually
within three days after their response is received, to schedule appointments
for a personal visit from a Company salesperson, usually the following day.
The scheduled appointments are sent from the Company's corporate
headquarters to the branch offices on a daily basis. The Company typically
schedules two appointments per salesperson per workday, and each salesperson is
required to report the result of each appointment on a daily basis. This data
provides the basis for the computer-generated management information upon which
the Company evaluates each salesperson's performance in such areas as sales as
a percentage of appointments, cancellation rate, average dollar amount of sales
and amount of commission earned.
AMRE conducts a variety of periodic consumer research. The Company's
analysis of information from these external sources, as well as the
aforementioned internally generated information, provides the basis for ongoing
refinement of its marketing lists, media mix, and other marketing and sales
efforts.
3
<PAGE> 4
PURCHASING, MATERIAL AND INSTALLATION
Siding and Related Products. The Company purchases its siding and
related products from unaffiliated producers. The Company purchases virtually
all of its siding requirements from Bird Vinyl Products Limited. The Company
negotiates its purchase agreements on an annual basis and management believes
its siding products are available from numerous suppliers at competitive
prices. The Company's siding product offering includes Double 5 and Dutch Lap
profiles which have a wood grain surface pattern. Inventories are maintained
at each of the Company's warehouses. The Company passes through to its
customers the warranty provided by its suppliers against defective material,
and warrants the installation against defective workmanship for a period of
three years. The siding and coverings for eaves and overhangs sold by the
Company are primarily vinyl products. Complementary products to the vinyl
siding sold and installed by the Company include insulated sheathing, exterior
shutters and continuous gutters.
Kitchen Cabinet Refacing and Custom Countertops. The Company
manufactures all of its cabinet fronts and countertops in its plant at Chicago,
Illinois. In 1995, the Company redesigned its cabinet product line and
converted its manufacturing equipment and processes with the purchase of new
state-of-the art equipment. Cabinet doors and drawer fronts are custom cut in
a computer controlled process, then laminated through a heat vacuum press
reaching 230 degrees Fahrenheit. AMRE cabinet refacing uses premium quality
materials, including foil, vertical grade laminate, high density 45 lb.
furniture core board, 3/4" warp-resistant doors, and self-closing hinges. AMRE
laminate colors are created by Formica(R). Raw materials are purchased from
several suppliers under agreements which are negotiated periodically.
Management believes such materials are available from numerous suppliers at
competitive prices. The Company provides a one year warranty against defective
material and workmanship and extended limited warranties from one to twenty-one
years on certain of its materials.
Replacement Windows. The Company purchases its replacement windows
from unaffiliated suppliers whose products meet the Company's high quality
standards, and whose location and distribution system support the Company's
geographically diverse needs. All windows purchased are custom made and carry
a manufacturer's limited lifetime warranty. The Company warrants the
installation against defective workmanship for a period of three years.
Window products are typically double-pane glass and thermally insulated with
argon gas fill, and include low-E surface coating to reduce heat transfer as
well as a tilt-in feature for easy cleaning. In addition, the Company
purchases from certain suppliers specially coated "easy-clean glass", as well
as "Heat Mirror(TM)" windows that block passage of ultraviolet and infra-red
light. The window products include double hung, sliders, casements, picture
windows, bays, bows, storm windows and garden windows. The Company negotiates
its purchase agreements periodically, and management believes such products are
available from numerous suppliers at competitive prices.
Exterior Coating. The Company purchases its exterior coating product
from an unaffiliated supplier. The product is made from an elastomeric resin
and is warranted by the supplier against chipping, peeling or flaking as long
as the customers own their homes.
Installations. Except for some employees in certain states,
independent contractors perform all of the Company's installations. The
contractors usually obtain work orders and materials from one of the Company's
facilities. On average, installations are completed in five to ten days for
siding, replacement windows and exterior coating, and one to five days for
cabinets. Upon completion, the contractors obtain a certificate of
satisfaction and completion from the customer and return all excess materials
and completed documentation to the Company.
The Company requires its independent contractors to correct defective
workmanship at no charge to the Company. At December 31, 1995, the Company had
131 installation employees and working arrangements with approximately 800
independent contractor crews.
CUSTOMER FINANCING
The Company's customers pay for their home remodeling products upon
completion of the work. Payments are made in cash, on Mastercard, Visa or
Discover cards, or by third-party financing, primarily a revolving unsecured
4
<PAGE> 5
line of credit arranged by the Company. In most third-party lender
transactions, the customer executes a Revolving Credit Agreement with the
lender and the lender pays the Company on completion of the installation upon
receipt of a properly executed completion certificate. The Company assumes no
recourse liability or credit risk in these transactions, except for normal
representations and warranties regarding material and workmanship. In some
instances, the Company provides direct financing to its customers.
CENTURY 21 LICENSE AGREEMENT
From 1981 through 1995, the Company conducted its direct consumer
marketing under the Sears License Agreement. The Sears License Agreement
covered specific territories and gave the Company the right to market, sell and
install siding and related exterior home improvement products, kitchen cabinet
refacing and countertops, replacement windows and exterior coating under the
Sears brand name in those territories. The Sears License Agreement was
renewable annually and could be terminated by either the Company or Sears,
without cause, upon 60 days' written notice. In 1995, the Sears License
Agreement provided for license fees to Sears of 12% of the Company's contract
revenues from sales in the licensed territories. The Company did not renew the
Sears License Agreement when it expired on December 31, 1995.
In 1995 AMRE made a strategic decision to alter significantly the
marketing and distribution focus of its home improvement services, and
accordingly on October 17, 1995, the Company, TM Acquisition Corporation, and
Century 21 Real Estate Corporation entered into the Century 21 License
Agreement pursuant to which Century 21 granted to the Company an exclusive
20-year license to operate under the CENTURY 21 Home Improvements name for the
marketing, sale and installation of certain home improvement products, and the
right to grant sublicenses for such home improvement products.
Under the terms of the Century 21 License Agreement, the Company will
pay fees equal to the greater of 3% of the aggregate contract revenues of the
Company and its sublicensees, or certain guaranteed annual minimums starting at
$11 million in 1996 and increasing during the term of the Century 21 License
Agreement. Additionally, the Century 21 License Agreement provides for a fee
of an additional 10% of the contract revenue for each sale made pursuant to a
customer referral from Century 21, payable to the respective Century 21 broker
who originated the customer referral.
The Century 21 License Agreement provides for immediate termination by
either the Company or Century 21 if either party is negligent in the
performance of its services, becomes insolvent or bankrupt, or fails to comply
with any material provision of the Century 21 License Agreement. In the event
Century 21 were to cancel the Century 21 License Agreement, the Company
believes that its products could be independently marketed by the Company;
however, the cancellation would likely have a material adverse effect on the
business of the Company. See also "Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook."
EMPLOYEES
At December 31, 1995, the Company employed 3,095 persons, including
923 sales representatives, 140 manufacturing employees, 131 installers, 610
administrative personnel, 792 (mostly part-time) in-store promoters and
canvassers, and 499 telemarketing personnel of which 310 are part-time.
COMPETITION
The Company operates in an industry that is highly fragmented.
Although the Company believes it is the largest company in the nation involved
in the direct marketing, in-home sales and installation of home improvement
products, the Company competes with numerous contractors in each of the
territories in which it operates, with reputation, price, workmanship and
service being the principal competitive factors. These contractors typically
conduct operations in a single metropolitan area. In certain of the
territories in which it operates, the Company also competes against retail
stores which may have greater financial or other resources than the Company and
which sell similar products in the stores as well as offering installation
services and will compete with contractors that are Sears licensees.
5
<PAGE> 6
GOVERNMENT REGULATION
The Company's activities and the activities of its subcontractors are
subject to various federal and state laws and regulations and municipal
ordinances relating to, among other things, in-home sales, consumer financing,
advertising, the licensing of home improvement contractors and zoning
regulations.
ITEM 2. PROPERTIES
The Company's corporate headquarters are in Dallas, Texas, where it
occupies seven floors (116,000 square feet) of an office building pursuant to a
lease agreement with an unrelated party for a remaining term of approximately
six years.
At December 31, 1995, the Company leased 61 sales offices, including
35 with warehouse facilities. Sales offices range in size from 1,500 to 5,000
square feet, while those with warehouse facilities range in size from 8,000 to
12,000 square feet.
The Company leases one manufacturing facility containing 30,000 square
feet in which all of its cabinet door and drawer fronts, as well as
countertops, are manufactured. The capacity of the manufacturing facility
exceeds current sales levels.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings arising in the
ordinary course of business, none of which is believed to be material to the
financial position or results of operations of the Company.
AMRE, Inc. has been named as a defendant in a proceeding filed in the
Superior Court of California by a party who claims ownership of a registered
service mark and trade name styled "21st Century Home Improvements." 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.
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 Improvements" mark that the latter mark infringed on Century 21's
federally registered mark. Century 21's federal registration predates the use
of the "21st Century Home Improvements" mark, and at this time AMRE believes
that it is legally entitled to use the CENTURY 21 Home Improvements name.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company did not submit any matters to a vote of its
security-holders during the last quarter of the period covered by this Report.
6
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol AMM. The following table sets forth for the periods indicated the range
of prices for the Common Stock, as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
1993 1994 1995
QUARTERS ----------------- -------------------- -------------------
CALENDAR HIGH LOW HIGH LOW HIGH LOW
- -------- ----------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
First . . . . . $7 7/8 $6 $4 5/8 $3 1/2 $5 3/8 $4 1/8
Second . . . . . 6 7/8 5 3/8 4 1/8 3 1/8 4 7/8 3 7/8
Third . . . . . 6 3/8 2 7/8 4 1/2 3 1/8 4 1/2 3 1/8
Fourth . . . . . 4 5/8 2 1/2 5 7/8 4 15 4 1/4
</TABLE>
The Company's authorized capital stock at December 31, 1995 consists
of 20,000,000 shares of Common Stock, $.01 par value per share, and 1,000,000
shares of Preferred Stock, $.10 par value per share. As of February 23, 1996,
the Company had issued and outstanding 14,126,341 shares of Common Stock and
300,000 shares of Senior Convertible Preferred Stock, 8% per annum, payable
quarterly, and there were 295 record holders of Common Stock. The transfer
agent and registrar of the Company's Common Stock is The Bank of New York -
Houston, Texas.
The Company's ability to pay dividends is restricted under the terms
of its existing credit agreements. The Company had paid a quarterly dividend
from December 18, 1987 until September 22, 1995, at which time the quarterly
dividend was suspended.
7
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
The following table presents certain consolidated financial information.
The selected financial data should be read in conjunction with the financial
statements and accompanying notes beginning on page 25.
<TABLE>
<CAPTION>
OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1991 1992 1993 1994 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract revenues....................................... $294,716 $274,268 $260,692 $285,930 $271,337
Contract costs.......................................... 80,597 75,079 78,112 93,100 88,451
-------- -------- -------- -------- --------
Gross profit 214,119 199,189 182,580 192,830 182,886
-------- -------- -------- -------- --------
Branch operating expenses............................... 19,713 20,208 19,314 19,309 20,296
Marketing and selling expenses.......................... 100,401 113,663 112,362 117,383 123,339
Sears license fees...................................... 43,604 22,830 30,136 34,166 32,576
General and admnistrative expenses...................... 30,224 28,541 25,192 20,935 21,411
Nonrecurring charges.................................... - 1,500 - - 11,000
-------- -------- -------- -------- --------
Operating income (loss)................................. 20,177 12,447 (4,424) 1,037 (25,736)
Other income and expenses, net.......................... 2,360 1,577 2,533 1,516 1,828
Provision for settlement of claims and litigation....... (9,388) - - - -
Provision for office relocation......................... (2,200) - - - -
-------- -------- -------- -------- --------
Income (loss) before income taxes....................... 10,949 14,024 (1,891) 2,553 (23,908)
Income taxes............................................ 5,698 5,784 (2,747) 1,094 (1,523)
-------- -------- -------- -------- --------
Net income (loss)....................................... $5,251 $8,240 $856 $1,459 ($22,385)
======== ======== ======== ======== ========
Net income (loss) per share............................. $0.37 $0.59 $0.07 $0.11 ($1.73)
======== ======== ======== ======== ========
Cash dividends declared per share....................... $0.12 $0.12 $0.12 $0.12 $0.06
======== ======== ======== ======== ========
Weighted average shares outstanding..................... 13,879 13,928 13,120 13,031 12,903
======== ======== ======== ======== ========
<CAPTION>
BALANCE SHEET DATA
(IN THOUSANDS)
AS OF DECEMBER 31,
------------------------------------------------------
1991 1992 1993 1994 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital......................................... $3,849 $8,404 $9,556 $11,862 $189
Total assets............................................ 83,760 71,289 70,581 68,827 54,314
Long term debt.......................................... - - - - 241
Stockholders' equity.................................... 28,535 34,624 33,493 33,410 13,345
</TABLE>
8
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Company is engaged through direct consumer marketing, in the
in-home sale and installation of siding and related exterior home improvement
products, kitchen cabinet refacing and custom countertops, replacement windows,
and in certain of its territories, exterior coating. The business of the
Company is characterized by the need to continuously generate prospective
customer leads, and in this respect, marketing and selling expenses constitute
a substantial portion of the overall expense of the Company.
To assist in understanding the Company's operating results, the
following table indicates the percentage relationship of various income and
expense items included in the Statement of Operations for each of the years
ended December 31, 1993, 1994, and 1995.
<TABLE>
<CAPTION>
PERCENTAGE OF CONTRACT REVENUES
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Contract costs . . . . . . . . . . . . . . . . . . . . 30.0 32.6 32.6
----- ----- -----
Gross profit . . . . . . . . . . . . . . . . . . . . . 70.0 67.4 67.4
----- ----- -----
Branch operating expenses . . . . . . . . . . . . . . 7.4 6.8 7.5
Marketing expenses . . . . . . . . . . . . . . . . . . 24.9 23.8 27.2
Selling expenses . . . . . . . . . . . . . . . . . . . 18.1 17.2 18.2
Sears license fees . . . . . . . . . . . . . . . . . . 11.6 11.9 12.0
General and administrative expenses . . . . . . . . . . 9.7 7.3 7.9
Nonrecurring charges . . . . . . . . . . . . . . . . . - - 4.1
----- ----- -----
Operating income (loss) . . . . . . . . . . . . . . . . (1.7) .4 (9.5)
Other income and expense, net . . . . . . . . . . . . . 1.0 .5 .7
----- ----- -----
Income (loss) before income taxes . . . . . . . . . . . (.7) .9 (8.8)
Income taxes . . . . . . . . . . . . . . . . . . . . . (1.0) .4 (.6)
----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . . . . . 0.3% 0.5% (8.2)%
===== ===== =====
</TABLE>
9
<PAGE> 10
RESULTS OF OPERATIONS
Year ended December 31, 1995 compared with year ended December 31, 1994
On October 17, 1995, the Company, TM Acquisition Corporation and Century 21
Real Estate Corporation, subsidiaries of HFS Incorporated, entered into an
agreement, effective January 1, 1996, pursuant to which the Company was granted
an exclusive 20-year license to operate under the name CENTURY 21 Home
Improvements in the marketing, sale, and installation of certain home
improvement products in the United States, Canada, and Mexico. The Company
also has the right to grant sub-licenses under the agreement. The Company did
not renew its license agreement with Sears when it expired on December 31,
1995.
On October 31, 1995, the Company and Facelifters Home Systems, Inc.
("Facelifters") entered into an agreement whereby a newly formed subsidiary of
the Company shall be merged with and into Facelifters. Facelifters designs,
manufactures, markets, sells and installs kitchen cabinet refacing products
utilized in kitchen remodeling, directly to consumers in 26 markets, primarily
markets in which the Company does not currently operate. The merger, which is
subject to, among other things, stockholder approval, is expected to be
consummated in the Company's second quarter of 1996. Regulatory approval of
the merger under the Hart-Scott-Rodino Pre-Merger Notification Act has been
obtained. In connection with the merger, approximately 3,557,268 shares of
AMRE Common Stock will be issued to the existing stockholders of Facelifters,
and Facelifters will become a wholly owned subsidiary of the Company.
Beginning January 1, 1996, Facelifters and the Company have entered into a
sublicense agreement pursuant to which the Company granted to Facelifters,
under the terms of the Century 21 License Agreement, the right to market, sell
and install certain home improvement products in specified markets under the
name CENTURY 21 Home Improvements. The sublicense agreement provides for
sublicense fees equal to 8% of the sublicense contract revenues subject to
certain rebates. If the Facelifters merger is consummated, the sublicense
agreement will be terminated.
On December 30, 1995, the Company and Congressional Construction
Corporation ("Congressional") entered into an agreement whereby a newly formed
subsidiary of the Company shall be merged with and into Congressional.
Congressional markets, sells, furnishes and installs home improvement products,
including vinyl and aluminum siding, fencing, wooden decks, replacement vinyl
windows, roofing and patio enclosures directly to consumers in certain markets,
primarily markets in which the Company does not currently operate. The
obligations of the parties to consummate the merger are subject to several
conditions, including, among other things, stockholder approval, and the
results of AMRE's due diligence review of Congressional being materially
satisfactory to AMRE. If all the conditions to the merger are satisfied, the
merger is expected to be consummated in the Company's second quarter of 1996.
In connection with the merger, approximately 900,000 shares will be issued to
the existing stockholders of Congressional, and Congressional shall become a
wholly owned subsidiary of the Company.
Beginning January 1, 1996, Congressional and the Company have entered into
a sublicense agreement pursuant to which the Company has granted to
Congressional, under the terms of the Century 21 License Agreement, the right
to market, sell and install certain home improvement products in specified
markets under the name CENTURY 21 Home Improvements. The sublicense agreement
provides for sublicense fees equal to the greater of 8% of the sublicense
contract revenues subject to certain rebates or certain guaranteed annual
minimums. If the Congressional merger is consummated, the sublicense agreement
will be terminated.
The Company incurred a loss from operations of $25,736,000 for the year
ended December 31, 1995. The loss included a fourth quarter nonrecurring
charge of $11,000,000 and approximately $3,200,000 of transitional marketing
costs as more fully described below. Excluding these items, the loss from
operations was approximately $11,536,000 as compared to operating income of
$1,037,000 in the prior year. The production backlog at December 31, 1995 was
approximately $22,330,000, a decline of approximately 5% from the prior year
end amount.
10
<PAGE> 11
The Company's operating performance in 1995 was adversely impacted by a
decline in contract revenues due to lower sales closing rates, increased
marketing expenditures due to lower response rates to the Company's
advertising, and higher costs in the Company's field branch and selling
operations to accommodate an enhanced organization structure designed to better
meet customer needs. In addition, operating results in the Company's fourth
quarter were also adversely impacted by the disruption of its business caused
by the focus of management on the transition from being a Sears licensee to
using the CENTURY 21 Home Improvements name as well as the pending mergers.
For the nine month period ended October 1, 1995, the Company's contract
revenues were relatively unchanged from the prior year although the dollar
amount of sales orders declined 6% resulting from lower sales closing rates.
In the fourth quarter, contract revenues declined 21% as compared to the same
period last year due to lower available production backlog at the beginning of
the quarter and a decline in the number of appointments and sales orders in
November and December as the Company began its transition to the CENTURY 21
Home Improvements name. The number of appointments declined approximately 12%
in the fourth quarter of 1995 as compared to the same period last year.
Pursuant to the Sears License Agreement, the Company was required to deliver to
Sears, in January, 1996, all of the leads it generated under the Sears name
through December 31, 1995 and was restricted from advertising under the CENTURY
21 Home Improvements name until late December. As a result, the Company
reduced its lead generation marketing expenditures under the Sears name during
the quarter but incurred approximately $3,200,000 to effect the transition to
the CENTURY 21 Home Improvements name, including development of advertising
materials and television commercials, as well as limited advertising to
generate as many leads as possible for 1996.
For the year 1995, consolidated contract revenues declined approximately 5%
to $271,337,000 from $285,930,000 in the prior year. The dollar amount of
sales orders was 7% lower than in the prior year due to lower sales closing
rates and a 1% decline in the number of appointments.
Siding and related exterior home improvement product revenues declined 8%
from $152,061,000 in 1994 to $139,901,000 in 1995. The number of installations
for these products declined 10% as compared to the prior year. Average selling
price, which is affected not only by price levels, but by the mix and size of
jobs installed, increased 2%.
Contract revenues from kitchen cabinet refacing declined approximately 4%
to $67,739,000 from $70,772,000 in the prior year. The number of installations
declined approximately 14% from the prior year. Average selling price, which
is affected not only by price levels, but by the mix and size of jobs
installed, increased 10% compared to the prior year.
Contract revenues from replacement windows increased approximately 12% to
$54,859,000 from $49,172,000 in the prior year. While sales closing rates
declined from the previous year, the Company generated more appointments and
improved its installation rate, resulting in a 7% increase in the number of
units installed. Average selling price, which is affected not only by price
levels, but by the mix and size of jobs installed, increased 5%.
Gross profit margin as a percentage of contract revenues was unchanged from
the prior year. Contract costs increased primarily in the window product line
and in the cabinet manufacturing operations. In 1995, the Company successfully
executed the redesign of its cabinet product line and converted its
manufacturing equipment and processes. While the conversion increased
manufacturing costs in the current year, such costs are expected to decline in
the future. The Company increased prices and took other actions, including
programs which reduced its service and workers' compensation costs, all of
which in the aggregate maintained margin at the prior year level.
Branch operating expenses, which are primarily fixed in nature, increased
from 6.8% of contract revenues in the prior year to 7.5% in 1995. Branch
operating expenses in dollar terms increased approximately $987,000 largely due
to higher staffing levels and telecommunication costs to accommodate an
enhanced field organization structure designed to better meet customer needs.
Marketing expenses increased from $68,095,000 or 24% of contract revenues
to $73,825,000 or 27% of contract revenues. Marketing expense in 1995 includes
approximately $3,200,000 for transitional costs to effect the
11
<PAGE> 12
change to the CENTURY 21 Home Improvements name, including development of
advertising materials and television commercials, as well as limited
advertising to generate as many leads as possible for the first quarter of
1996. The remaining increase in marketing expenses in both dollar and
percentage terms is largely due to lower sales closing rates and an increase in
the cost per appointment resulting from lower response rates to the Company's
advertisements.
Selling expenses increased to 18.2% of contract revenues as compared to
17.2% in the prior year. Sales representative compensation declined slightly
from 11.7% to 11.6% of contract revenues. Other selling expenses, primarily
composed of sales manager salaries and training, insurance costs, recruiting
and travel, increased from 5.5% of contract revenues in 1994 to 6.7% in 1995.
The increase is principally due to additional management staffing to
accommodate an enhanced organization structure designed to better meet customer
needs.
General and administrative expenses increased from $20,935,000 or 7.3% of
contract revenues in the prior year period to $21,411,000 or 7.9% of contract
revenues in the current year. General and administrative expenses increased by
$476,000 largely due to a first quarter 1995 charge pursuant to a separation
agreement between the Company and its former President and Chief Executive
Officer.
In connection with the Century 21 License Agreement, the Company recorded a
nonrecurring charge of $5,115,000 consisting primarily of transaction fees and
expenses and costs associated with the termination of the Sears License
Agreement, including the write-off of certain assets and a provision for
incremental warranty costs related to installations sold under the Sears brand
name.
In connection with the proposed Facelifters merger, the Company recorded a
nonrecurring charge of $1,225,000 for transaction fees and expenses associated
with combining operations. However, costs could increase if the Company and
Facelifters encounter unexpected difficulties in the consummation of the merger
or in the integration of their businesses. If all of the conditions to the
merger are met, the Company expects to consummate the merger in the second
quarter of 1996.
In connection with the proposed Congressional merger, the Company recorded
a nonrecurring charge of $745,000 for the transaction fees and expenses
associated with combining operations. However, costs could increase if the
Company and Congressional encounter unexpected difficulties in the consummation
of the merger or in the integration of their businesses. If all of the
conditions to the merger are met, the Company expects to consummate the merger
in the second quarter of 1996.
If the mergers are consummated, they will involve the integration of three
companies that have previously operated independently. The Company intends to
integrate certain aspects of the operations of the companies, including sales,
marketing, finance, and administration. There can be no assurance that the
Company will successfully integrate the operations of the companies 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, results or financial condition in the short
term.
The Company recorded a nonrecurring, non-cash charge of $3,915,000 in
connection with the settlement of, and pursuant to, employment and separation
agreements between the Company and Mr. Ronald Wagner. On December 1, 1995, Mr.
Wagner announced that he was resigning as Chairman of the Board of the Company.
Under the terms of the agreements, the Company agreed to pay Mr. Wagner
$500,000 and release him from his promissory note payable to the Company in
exchange for his waiving termination amounts owed to him under his employment
agreement and his agreement not to compete with the Company for a period of
five years.
The amount reported as income taxes on the Statement of Operations is based
on the loss recognized for financial statement purposes and includes the
effects of temporary differences between the financial statement loss and the
loss recognized for income tax purposes. The Company has recorded as a
receivable the amount of prior year taxes refundable to the Company under
current laws. In addition, in accordance with SFAS 109, the Company has
provided a valuation allowance against the net deferred tax asset arising from
temporary differences between financial reporting
12
<PAGE> 13
and tax reporting.
Year ended December 31, 1994 compared with year ended December 31, 1993
In 1994, contract revenues increased 10% and operating income was
$1,037,000 as compared to an operating loss of $4,424,000 in the prior year.
The Company generated significantly more appointments than it had in the
previous year, and the dollar amount of sales orders increased approximately
9%. The ending backlog of sales orders at December 31, 1994 was approximately
$23,500,000, an increase of approximately 11% over the prior year end amount.
The Company reduced its direct marketing cost per appointment by approximately
7% from the prior year through cost control and effective changes in its lead
source mix. In addition, the Company continued to reduce its overhead cost
through several programs which included a reduction in work force as well as
improving the quality and efficiency of its internal processes.
Contract revenues for 1994 increased approximately 10% to $285,930,000
compared to $260,692,000 for the same period last year. The increase in
contract revenues primarily resulted from the growth of replacement window
revenues, a product line that was introduced in June 1993. Contract revenues
from replacement windows totalled $49,172,000 in 1994 and $9,840,000 in 1993.
Siding and related exterior home improvement product revenues decreased
approximately 10% from $169,114,000 in 1993 to $152,061,000 in 1994. The
number of installations for these products decreased 18%, and average selling
price, which is affected not only by price levels, but by the mix and size of
jobs installed, increased 8%. While extreme weather conditions in the first
quarter of the year, and installation crew shortages in the second quarter,
prevented the Company from achieving the 1993 installation rate (the rate at
which sales orders are installed and revenue recognized), the decline in siding
contract revenues was principally due to a reduction in appointments and lower
sales closing rates. This continued decline in siding revenues prompted the
Company to conduct extensive consumer research in 1994, which led to a redesign
of its siding product offering for 1995.
Cabinet refacing contract revenues in 1994 increased approximately 4% from
$67,801,000 in 1993 to $70,772,000 in 1994. While the Company generated more
appointments than in 1993, lower sales closing rates resulted in a decline in
the number of units installed of approximately 2% from the prior year.
However, average selling price, which is affected not only by price levels but
by the mix and size of jobs installed, increased approximately 6% over the
prior year. Based on the aforementioned consumer research, the Company has
redesigned its cabinet door and drawer front product for 1995. The redesign
includes the consolidation of the Company's cabinet manufacturing operations in
its Chicago facility, as well as a new manufacturing process which caused the
Company to spend approximately $650,000 in 1994 for capital equipment.
Gross profit margin as a percentage of contract revenues decreased from
70.0% to 67.4%. The decline in gross profit margin reflects increased
installation, production and service costs in its siding and cabinet product
lines, as well as the impact of the mix of products installed during the year.
Replacement windows, which typically have lower selling prices and gross profit
margins as compared to siding and kitchen cabinet refacing products,
represented approximately 17% of the consolidated contract revenues in 1994 as
compared to approximately 4% in 1993. The Company has increased prices on all
of its product lines for 1995 and has made changes to its installer pay scales.
In addition, programs are under way to improve the sales/installation process
in order to reduce contract costs, including service costs, in 1995.
Branch operating expenses, which are primarily fixed in nature, decreased
from 7.4% of contract revenues in 1993 to 6.8% of revenues in 1994. Branch
operating expenses in 1993 included a fourth quarter charge of approximately
$600,000 for consolidation of certain branch facilities. Excluding the 1993
fourth quarter charge, branch operating expenses in dollar terms increased in
1994 by approximately the same amount due to higher telecommunication costs and
employee relocation expenses. These cost increases in part related to a plan
to reduce overall overhead expenses through restructuring and re-engineering of
internal processes.
13
<PAGE> 14
Marketing expenses decreased from 24.9% of contract revenues in 1993 to
23.8% of revenues in 1994. The Company generated significantly more leads than
in the same period last year, and continued to change its lead mix, reducing
its direct marketing cost per appointment by approximately 7% from 1993. The
reduction was attributable to higher utilization of lower cost media sources,
such as increased presence in Sears stores, and increased lead generation
efforts through telemarketing.
Selling expenses decreased to 17.2% of contract revenues in 1994 as
compared to 18.1% in the prior year period. Sales representative compensation
was unchanged from 1993 as a percent of contract revenues. Other selling
expenses, primarily composed of insurance costs, sales managers salaries and
training, recruiting and travel, decreased to 7% of contract revenues from 8%
of contract revenues in the prior year. The decrease reflects higher training
costs in 1993 principally associated with the introduction of the replacement
window product, and ongoing cost reduction programs in 1994.
Sears license fees were 11.9% of contract revenues in 1994 as compared to
11.6% in 1993. For the last four months of 1993, the license fee rate for
certain branches and replacement windows was reduced to 8% of contract
revenues.
General and administrative expenses decreased in both dollar and percentage
terms in 1994. The decrease reflected the continuation of cost reduction
programs which included work force reductions related to re-engineering of the
internal processes, as well as reduction of bad debt expense.
Other income in the 1993 period included interest income received from the
Internal Revenue Service resulting from the settlement of an audit of the
Company's U.S. Federal Income Tax returns covering the fiscal years 1986
through 1990.
The Company's effective tax benefit in 1993 was 145.3% of the pre-tax loss.
The unusual rate was primarily due to the tax benefit associated with the
write-off of the investment in the Company's Canadian subsidiary that ceased
operations in 1993, and the refund of taxes associated with the aforementioned
Internal Revenue Service audit.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its liquidity needs with internally
generated funds. Net cash used in operations in 1995 was $9,510,000
principally due to the operating loss during the period. Of the $11,000,000
nonrecurring charges to operations, approximately $7,000,000 was either noncash
or paid in 1995. The balance of approximately $4,000,000 will be paid during
1996. Net cash provided by operations in 1994 was $9,803,000 and included a
refund from the Internal Revenue Service of approximately $3,200,000 resulting
from the carryback of the 1993 income tax loss.
The Company's customers pay for their home remodeling products upon
completion. Payments are made in cash, on Mastercard, Visa or Discover Cards,
or by third-party financing, primarily a revolving unsecured line of credit
arranged by the Company. Approximately 7% in 1995 and 10% in 1994, of the
Company's sales were financed through Sears, which normally remits payment to
the Company within 10 to 14 days of the completion of installation, and
approximately 53% and 51%, respectively, were financed through third party
lending institutions, which normally remit payment within three days of
completion. The remaining amounts of the Company's sales were primarily paid
for upon completion in cash or by credit card.
Capital expenditures for the year ended December 31, 1994 and 1995 were
$1.4 million and $2.4 million, respectively. In both 1994 and 1995, capital
expenditures primarily consisted of manufacturing equipment at the Company's
cabinet manufacturing facility and telephone and computer equipment. In 1995, a
portion of the manufacturing equipment acquired was financed through a note
payable to a bank. Capital spending in 1996 is currently expected to be
approximately $2.0 million, principally for additional manufacturing and
computer equipment, as well
14
<PAGE> 15
as for the initial approximately 100 kiosks used in shopping malls to generate
leads. The Company will periodically evaluate the "in mall" program and may
open additional locations during 1996.
In December 1995 and January 1996, the Company opened two outbound
telemarketing centers for which the Company has executed operating leases for
equipment and facilities at an estimated aggregate cost of $3 million over the
next 5 years. The Company may decide to open additional outbound telemarketing
centers in 1996. Additionally, beginning in 1995 and continuing into 1996, the
Company entered into short term facility leases at approximately 100 shopping
malls across the country at an estimated aggregate annual cost of $2.0 million
to operate its "in mall" program to generate prospective customer leads.
Concurrent with entering into the Century 21 License Agreement, the Company
and HFS entered into a credit agreement pursuant to which HFS provided the
Company with a revolving credit facility in an amount up to $4 million. The
agreement provides for a commitment fee of 1/2% of the unused portion of the
facility and provides that loans made thereunder carry an interest rate of
LIBOR plus 1 1/2%. Under the agreement, the Company is subject to certain
covenants, including limitations on indebtedness and liens, limitations on
asset dispositions, and restrictions on the payment of dividends. At December
31, 1995, no loans had been made under the credit facility.
Concurrent with the execution of the Century 21 License Agreement, the
Company and HFS entered into a Preferred Stock Purchase Agreement pursuant to
which HFS purchased 300,000 shares of AMRE Senior Convertible Preferred Stock,
par value $.10 per share, at $10 per share. The preferred stock will pay a
quarterly dividend of 8% per annum, is convertible into common stock of the
Company and is subject to mandatory redemption on January 1, 2001. From the
period commencing January 1, 1999 and extending through December 31, 2000, the
Company may redeem the Senior Convertible Preferred Stock at any time in whole,
or from time to time in part, at the liquidation price plus accrued and unpaid
dividends.
In connection with the execution of the Century 21 License Agreement, the
Company and a private investor entered into an agreement in which the investor
would purchase up to 200,000 shares of common stock of the Company, $.01 par
value, at $5 per share. At December 31, 1995, the Company had issued 162,000
shares of common stock under the terms of the agreement. The remaining 38,000
shares were purchased in February, 1996.
OUTLOOK
In connection with entering into the Century 21 License Agreement, the
Company made a strategic decision to alter significantly the marketing and
distribution focus of its home improvement services. The Company recognized
that the Sears brand name is widely accepted in the home improvement industry
and has significant brand name appeal to a wide variety of customers. However,
the Company made the decision to not renew the Sears License Agreement and to
enter into the Century 21 License Agreement believing that the latter agreement
provides better opportunities for growth and profitability, including access to
additional geographic markets, a greater array of home improvement products and
the ability to grant sublicenses as well as the use of the CENTURY 21 Home
Improvements name.
Although the CENTURY 21 Home Improvements name was not used in the home
improvement industry prior to 1996, the Company's management believes the 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. 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 Company. In addition, there is no way to estimate the time required to
build brand awareness of the CENTURY 21 Home Improvements name in order to
receive advertising response rates similar to those under the Sears brand name.
While the Sears License Agreement was in effect in 1995, the Company
received approximately 20% of its leads through Company employees working in
the Sears retail stores (instore leads). This lead source will have to be
replaced under the Century 21 License Agreement, and to this end the Company
opened in 1996 approximately 100 free
15
<PAGE> 16
standing kiosks in major shopping malls across the country and will increase
its presence at home shows. The Company 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, the Company 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 the Company will be
successful in replacing the instore leads and the failure to replace such leads
would have an adverse impact on the operating results of the Company.
Pursuant to the Sears License Agreement, the Company 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, the Company had
to quickly generate as many leads as possible and had to do so without instore
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, the
Company will pay license fees to Sears at the 12% rate on installed revenue
resulting from the installation of the December 31, 1995 production backlog of
$22,330,000 which should occur in the 1996 first quarter. As a result of these
factors, the Company 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, the Company'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 the
Company will return to profitability.
Cash and marketable securities totaled $19,142,000 at December 31, 1995.
Management believes that existing cash and marketable securities, available
capacity under the 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 the Company 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, the Company has engaged in discussions with several investment bankers
regarding the possible sale of AMRE securities to raise additional capital.
However, there can be no assurance that any additional sources of capital will
be available to the Company.
INFLATION
The Company does not believe that inflation has had a material effect on
its results of operations during the past three fiscal years.
16
<PAGE> 17
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Generally, because of the holiday season and weather conditions, the
Company's contract revenues and net income decline during the cold weather
months (especially in the first quarter). The following table sets forth
the Company's unaudited quarterly financial information:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 27 JUNE 26 SEPTEMBER 25 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Contract revenues................................ $52,125 $77,589 $80,744 $75,472
Gross profit..................................... 35,241 53,493 54,441 49,655
Operating income (loss).......................... (5,232) 1,100 2,669 2,500
Net income (loss)................................ (2,984) 912 1,857 1,674
Net income (loss) per share...................... (0.23) 0.07 0.14 0.13
<CAPTION>
QUARTER ENDED
--------------------------------------------------
APRIL 2 JULY 2 OCTOBER 1 DECEMBER 31
--------- ------ --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Contract revenues................................ $60,885 $73,737 $76,993 $59,722
Gross profit..................................... 40,360 50,026 52,745 39,755
Nonrecurring charges............................. - - - 11,000
Operating income (loss).......................... (6,695) (2,708) 947 (17,280)
Net income (loss)................................ (3,895) (2,063) 944 (17,371)
Net income (loss) per share...................... (0.29) (0.16) 0.07 (1.33)
</TABLE>
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements are set forth herein beginning on
page 25 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent
accountants on any matter of accounting principles and practices, financial
statement disclosure or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 set forth under the captions
"Election of Directors" and "Executive Officers of the Company" in the
Company's proxy statement with respect to the annual meeting of stockholders to
be held May 15, 1996, is incorporated herein by reference to the extent
necessary to be responsive to the requirements of this Item.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 set forth under the caption
"Executive Compensation and Other Matters" in the Company's proxy statement
with respect to the annual meeting of stockholders to be held May 15, 1996, is
incorporated herein by reference to the extent necessary to be responsive to
the requirements of this Item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 set forth under the captions
"Voting Securities Outstanding and Certain Stock Ownership," and "Election of
Directors" in the Company's proxy statement with respect to the annual meeting
of stockholders to be held May 15, 1996, is incorporated herein by reference to
the extent necessary to be responsive to the requirements of this Item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 set forth under the caption
"Executive Compensation and Other Matters" in the Company's proxy statement
with respect to the annual meeting of stockholders to be held May 15, 1996, is
incorporated herein by reference to the extent necessary to be responsive to
the requirements of this Item.
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) & (2) Financial Statements and Financial Statement Schedules:
The Consolidated Financial Statements are listed in the Index to Financial
Statements on page 25, and are filed as part of this Report.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
NUMBER*
-------
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C> <C> <C>
2.1 - Agreement and Plan of Merger dated as of December 30, 1995, among AMRE, Congressional and Merger Sub.
2.2 - Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, AMRE Acquisition, Inc., 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).
2.3 - 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.
3.1 - Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit
3.1 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1989).
3.2 - By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the 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, Inc. 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, Inc.'s Registration Statement, on Form 8-A, dated November 19,
1992).
10.1 - Stock Option Plan of the Company, 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, Inc. Savings Investment Plan, dated September 30, 1990, restating and retitling the
Profit Sharing Plan of the Company, as amended (incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1990).
10.3 - Amendment No. 1 to AMRE, Inc. Savings Investment Plan, effective as of October 1, 1990
(incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
10.4 - Amendment No. 2 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1993 (incorporated by
reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
</TABLE>
19
<PAGE> 20
(a)(3) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
NUMBER*
-------
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C> <C> <C>
10.5 - Amendment No. 3 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994
(incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.6 - Amendment No. 4 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 25, 1994).
10.7 - AMRE, Inc. Savings Investment Trust Agreement, dated September 30, 1990 (incorporated by
reference to Exhibit 10.18 to Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 1990).
10.8 - Welfare Benefits Plan for Employees of AMRE, Inc., dated April 24, 1990, as amended
(incorporated by reference to Exhibit 10.15 to the 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, Inc. (incorporated by reference
to Exhibit 10.16 to the 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, Inc. (incorporated by reference
to Exhibit 10.19 to the 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, Inc. (incorporated by reference
to Exhibit 10.9 to the 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, Inc. (incorporated by reference
to Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.13 - Welfare Benefits Trust for Employees of AMRE, Inc., dated April 24, 1990 as amended
(incorporated by reference to Exhibit 10.24 to the 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, Inc. (incorporated by
reference to Exhibit 10.17 to the Annual Report on Form 10-K for the fiscal year ended April
30, 1991).
10.15 - AMRE, Inc. Flexible Benefits Plan, as restated effective January 1, 1993 (incorporated by
reference to Exhibit 10.12 to the 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 the Company and Ronald I. Wagner
(incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 1994).
</TABLE>
20
<PAGE> 21
(a)(3) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
NUMBER*
-------
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C> <C> <C>
10.17 - Form of Stock Option Agreements dated as of May 11, 1994, between the Company and each of the
outside Directors of the Company, which are identical except for the names of the Directors
(incorporated by reference to Exhibit 10.4 to the 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 the Company and the outside
Directors of the Company, 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 the 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 the Company and Sears, Roebuck and Co.
for the sale and installation of siding, overhand 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 the Company and the Directors of the Company, which
are identical except for names and dates (incorporated by reference to Exhibit 10.27 to the
Annual Report on Form 10-K for the fiscal year ended April 30, 1990).
10.21 - Management Incentive Plan for the Company (incorporated by reference to Exhibit 10.19 to the
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 the Annual Report on Form 10-K for the fiscal year ended April
30, 1991).
10.23 - Lease dated November 12, 1991, between the Company, as Tenant, and Twin Towers Investment
Partnership, as Landlord, with respect to the Company's corporate headquarters in Dallas, Texas
(incorporated by reference to Exhibit 10.18 to the 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 the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.25 - Description of options granted outside of the AMRE, Inc. Stock Option Plan (incorporated by
reference to Exhibit 10.29 to the 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 the Company and
certain executives of the Company, including Keith Abrams, Robert E. Horton, Jr., and Curtis
Everett, which agreements are identical except for names and dates (incorporated by reference
to Exhibit 10.30 to the Annual Report on form 10-K for the fiscal year ended December 31,
1992).
</TABLE>
21
<PAGE> 22
(a)(3) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
NUMBER*
-------
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C> <C> <C>
10.27 - Merchant Agreement dated as of July 27, 1993, between the Company and Household Bank
(Illinois), N.A. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-
Q for the quarterly period ended September 26, 1993).
10.28 - Merchant Agreement between the Company and American General Financial Center, effective July 1,
1993, as amended January 25, 1994, (incorporated by reference to Exhibit 10.38 to the 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 Corporate 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.
10.39 - Amendment No. 1 to Stockholder Agreement between AMRE and the shareholders of Facelifters
signatory thereto.
10.40 - Employment Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz (incorporated
by reference to Exhibit 10.1 to AMRE's Current Report on Form 8-K dated June 19, 1995).
</TABLE>
22
<PAGE> 23
(a)(3) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
NUMBER*
-------
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C> <C> <C>
10.41 - Stock Option Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz
(incorporated by reference to Exhibit 10.2 to AMRE's Current Report on Form 8-K dated June 19, 1995).
11 - Statement re computation of per share earnings.
21 - Subsidiaries of the Company (incorporated by reference to Exhibit 22 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1993).
27 - Financial Data Schedule
99.1 - Stipulation of Settlement among plaintiffs in the Litigation and AMRE, Inc., 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 - Press Release dated June 19, 1995, announcing the election of Mr. Robert M. Swartz as President and a
member of the Board of Directors of AMRE, Inc. (incorporated by reference to Exhibit 99.1 to AMRE's Current
Report on Form 8-K dated June 19, 1995).
</TABLE>
________________________________
* This information appears only in the manually signed, original, sequentially
numbered copy of this report.
(b) Reports on Form 8-K:
Reports on Form 8-K were filed by the Company on October 17, 1995, and
October 31, 1995, during the quarter ending December 31, 1995.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMRE, Inc.
Date: March 12, 1996 By: /s/ ROBERT M. SWARTZ
----------------------------------
Robert M. Swartz
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JOHN D. SNODGRASS Chairman of the Board March 12, 1996
- ------------------------- and Director
John D. Snodgrass
/s/ ROBERT M. SWARTZ President, Chief Executive March 12, 1996
- ------------------------- Officer and Director
Robert M. Swartz (Principal Executive Officer)
/s/ RONALD L. BLIWAS Director March 12, 1996
- -------------------------
Ronald L. Bliwas
/s/ DENNIS S. BOOKSHESTER Director March 12, 1996
- -------------------------
Dennis S. Bookshester
/s/ ARTHUR P. FRIGO Director March 12, 1996
- -------------------------
Arthur P. Frigo
/s/ SHELDON I. STEIN Director March 12, 1996
- -------------------------
Sheldon I. Stein
/s/ JACK L. MCDONALD Director March 12, 1996
- -------------------------
Jack L. McDonald
/s/ DAVID L. MOORE Director March 12, 1996
- -------------------------
David L. Moore
/s/ STEPHEN P. HOLMES Director March 12, 1996
- -------------------------
Stephen P. Holmes
/s/ ROBERT W. PITTMAN Director March 12, 1996
- -------------------------
Robert W. Pittman
/s/ JOHN S. VANECKO Vice President and March 12, 1996
- ------------------------- Chief Financial
John S. Vanecko Officer (Principal
Financial and Accounting
Officer)
</TABLE>
24
<PAGE> 25
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a) Financial Statements:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Balance Sheet at December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statement of Operations for the Years Ended December 31, 1993,
1994, and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Cash Flows for the Years Ended December 31, 1993,
1994, and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1993, 1994, and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of AMRE, Inc.:
We have audited the accompanying consolidated balance sheets of AMRE, Inc.
(a Delaware Corporation) and subsidiary as of December 31, 1994 and 1995, and
the related consolidated statements of operations, cash flows and changes in
stockholders' equity for the three years ended December 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 financial statements referred to above present fairly,
in all material respects, the financial position of AMRE, Inc. and subsidiary
as of December 31, 1994 and 1995, and the results of their operations and their
cash flows for the three years ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 27, 1996
26
<PAGE> 27
AMRE, INC.
CONDOLIDATED BALANCE SHEET
(In thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................................... $7,927 $10,658
Marketable securities, including restricted securities of $1,250 and $0........................ 19,370 8,484
Accounts receivable -
Trade, net of allowance for doubtful accounts of $1,098 and $690............................ 6,792 5,384
Other....................................................................................... 612 871
Income taxes................................................................................ 575 3,987
Inventories.................................................................................... 5,538 5,612
Deferred income taxes.......................................................................... 1,767 -
Prepaid expenses............................................................................... 4,698 2,921
------- --------
Total current assets..................................................................... 47,279 37,917
Property, plant and equipment, net................................................................ 6,251 5,630
Goodwill, less accumulated amortization of $1,597 and $1,869...................................... 9,308 9,036
Notes receivable - related parties................................................................ 4,217 469
Other assets...................................................................................... 1,772 1,262
------- --------
$68,827 $54,314
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................... $18,645 $14,147
Wages, commissions and bonuses................................................................. 4,098 4,712
Accrued workers' compensation.................................................................. 2,021 2,059
Current portion - long term debt............................................................... - 50
Other accrued liabilities...................................................................... 10,653 16,760
------- --------
Total current liabilities................................................................ 35,417 37,728
------- --------
Long term debt.................................................................................... - 241
------- --------
Total liabilities........................................................................ 35,417 37,969
------- --------
Commitments and contingencies
Senior Convertible Redeemable Preferred stock - $.10 par value;
300,000 shares issued and outstanding;
liquidation value of $10 per share.......................................................... - 3,000
Stockholders' equity:
Preferred stock - $.10 par value, 1,000,000 shares authorized;
300,000 Senior Convertible shares outstanding............................................... - -
Common stock - $.01 par value, 20,000,000 shares authorized,
14,072,000, and 14,573,493, shares issued; 12,849,822 and
13,351,295 shares outstanding............................................................... 141 146
Additional paid-in capital..................................................................... 22,400 25,486
Retained earnings (deficit).................................................................... 21,170 (1,986)
------- --------
43,711 23,646
Less: Treasury stock, at cost (1,222,198 and 1,222,198 shares)................................. (10,301) (10,301)
------- --------
Total stockholders' equity............................................................... 33,410 13,345
------- --------
$68,827 $54,314
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
AMRE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Contract revenues......................... $260,692 $285,930 $271,337
Contract costs............................ 78,112 93,100 88,451
-------- -------- --------
Gross profit.............................. 182,580 192,830 182,886
-------- -------- --------
Branch operating expenses................. 19,314 19,309 20,296
Marketing expenses........................ 65,013 68,095 73,825
Selling expenses.......................... 47,349 49,288 49,514
Sears license fees........................ 30,136 34,166 32,576
General and administrative expenses....... 25,192 20,935 21,411
Nonrecurring charges...................... - - 11,000
-------- -------- --------
187,004 191,793 208,622
-------- -------- --------
Operating income (loss)................... (4,424) 1,037 (25,736)
Investment income......................... 1,292 1,173 1,024
Other income (expense), net............... 1,241 343 804
-------- -------- --------
Income (loss) before income taxes......... (1,891) 2,553 (23,908)
Income taxes.............................. (2,747) 1,094 (1,523)
-------- -------- --------
Net income (loss)......................... $856 $1,459 ($22,385)
======== ======== ========
Net income (loss) per share............... $0.07 $0.11 ($1.73)
======== ======== ========
Weighted average shares outstanding....... 13,120 13,031 12,903
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
AMRE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $856 $1,459 ($22,385)
------- ------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Income taxes............................................... (2,747) 1,094 (1,523)
Depreciation and amortization.............................. 3,557 3,160 3,027
Provision for doubtful accounts............................ 1,595 1,103 789
Other non-cash items....................................... 242 290 6,037
Cash receipts of (payments for) income taxes............... 2,356 3,096 (140)
Changes in assets and liabilities:
Accounts receivable and other........................... 1,485 2,649 3
Inventories............................................. (265) (104) (74)
Prepaid expenses and other assets....................... (53) (1,143) 3,087
Accounts payable......................................... 1,327 1,141 (4,498)
Other liabilities....................................... (2,589) (2,942) 6,167
------- ------- --------
Total adjustments.................................... 4,908 8,344 12,875
------- ------- --------
Net cash provided by (used in) operations..................... 5,764 9,803 (9,510)
------- ------- --------
Cash flows from investing activities:
Sale of marketable securities.............................. 16,352 13,992 28,414
Purchase of marketable securities.......................... (23,867) (14,248) (17,735)
Capital expenditures....................................... (911) (1,377) (2,045)
Notes receivable........................................... (270) (94) -
Other...................................................... 36 60 13
------- ------- --------
Net cash provided by (used in) investing activities........... (8,660) (1,667) 8,647
------- ------- --------
Cash flows from financing activities:
Payments on long term debt................................. - - (26)
Purchase of treasury shares................................ (961) - -
Issuance of common and preferred stock..................... 517 - 4,391
Dividends paid............................................. (1,556) (1,542) (771)
------- ------- --------
Net cash provided by (used in) financing activities........... (2,000) (1,542) 3,594
------- ------- --------
Net increase (decrease) in cash and cash equivalents.......... (4,896) 6,594 2,731
Cash and cash equivalents at beginning of period.............. 6,229 1,333 7,927
------- ------- --------
Cash and cash equivalents at end of period.................... $1,333 $7,927 $10,658
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
AMRE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Retained
---------------------- Paid-in Earnings
Shares Amount Capital (Deficit)
------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1992...................... 14,072 141 22,793 21,940
Net income................................... - - - 856
Exercise of options.......................... - - (393) -
Cash dividends ($.12 per share).............. - - - (1,543)
Purchase of treasury stock................... - - - -
------ ----- -------- ----------
Balance, December 31, 1993...................... 14,072 141 22,400 21,253
Net income.................................... - - - 1,459
Cash dividends ($.12 per share)............... - - - (1,542)
------ ----- -------- ----------
Balance, December 31, 1994...................... 14,072 141 22,400 21,170
Net loss..................................... - - - (22,385)
Exercise of options.......................... 139 1 580 -
Issuance of stock............................ 362 4 1,806 -
Cash dividends ($.06 per share).............. - - - (771)
Stock options granted to non-employee........ - - 700 -
------ ----- -------- ----------
Balance, December 31, 1995...................... 14,573 $146 $25,486 ($1,986)
====== ===== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
-----------------------------
Shares Amount
------- ---------
<S> <C> <C>
Balance, December 31, 1992...................... (1,239) (10,250)
Net income................................... - -
Exercise of options.......................... 112 910
Cash dividends ($.12 per share).............. - -
Purchase of treasury stock................... (95) (961)
------- ---------
Balance, December 31, 1993...................... (1,222) (10,301)
Net income.................................... - -
Cash dividends ($.12 per share)............... - -
------- ---------
Balance, December 31, 1994...................... (1,222) (10,301)
Net loss..................................... - -
Exercise of options.......................... - -
Issuance of stock............................ - -
Cash dividends ($.06 per share).............. - -
Stock options granted to non-employee........ - -
------- ---------
Balance, December 31, 1995...................... (1,222) ($10,301)
======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in tables in thousands)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Company is engaged, through direct consumer marketing, in the in-home
sale and installation of siding and related exterior home improvement products,
kitchen cabinet refacing and custom countertops, replacement windows, and in
certain of its territories, exterior coating. The Company currently conducts
its business in the United States. The consolidated financial statements
include the accounts of AMRE, Inc. and its subsidiary, American Remodeling,
Inc. (herein referred to as the "Company"). All significant intercompany
accounts and transactions are eliminated in consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates in financial statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from these estimates.
Cash equivalents - Cash equivalents are short-term, highly liquid
investments with original maturities of three months or less that are readily
convertible to known amounts of cash and present an insignificant risk of
change in value because of changes in interest rate.
Marketable securities - The Company classifies its investments as
available for sale because it does not acquire the securities for the purpose
of selling them in the near term to generate profits on short-term differences
in price, or, with the intent of holding them to maturity. The Company uses
the specific identification method of determining cost in computing realized
gains and losses.
Accounts receivable - The Company's accounts receivable consist of amounts
due from individuals, credit card sponsors and financial institutions. Certain
of the amounts due from individuals are secured by second mortgages.
Inventories - Inventories (consisting principally of materials) are
carried at the lower of cost (first-in, first- out) or market.
Property, plant and equipment - Property, plant and equipment is carried
at cost, less accumulated depreciation. Depreciation is computed over the
estimated useful lives of the related assets by using the straight-line method
of depreciation for financial reporting purposes. Maintenance and repair
expenditures are charged to operations; renewals and betterments are
capitalized.
Goodwill - Goodwill represents the excess of cost over the fair value of
net tangible assets acquired and is amortized on a straight-line basis over 40
years.
Long-lived assets - The Company periodically evaluates whether the
remaining useful life of long-lived assets, including goodwill, may require
revision or the remaining unamortized balance may not be recoverable. When
factors indicate the asset should be evaluated for possible impairment, the
Company uses an estimate of the specific asset's cash flow in evaluating such
asset's fair value.
Accrued workers' compensation - The Company accrues workers' compensation
costs based on the amount of estimated total losses to be incurred for the
period. These estimates are based on the total payroll, using assumptions
relating to the Company's loss experience as well as future expected losses.
Revenue recognition - The Company recognizes its revenue upon completion
of each home improvement contract.
Contract costs - Contract costs represent the costs of direct material and
direct labor associated with installations and manufacturing overhead
associated with the production of cabinet fronts and countertops.
Advertising Expense - The Company expenses advertising costs as incurred.
Income taxes - Deferred income taxes are provided for temporary
differences between the tax basis of assets and liabilities and their financial
reporting amounts. Deferred taxes are recorded based upon enacted tax rates
anticipated to be in effect when the temporary differences are expected to
reverse. A valuation allowance is provided when required.
31
<PAGE> 32
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Earnings per share - Net income (loss) per common share is based on net
income (loss) after preferred stock dividend requirements and the weighted
average number of common shares outstanding after giving effect to stock
options considered to be dilutive common stock equivalents. Fully diluted net
income (loss) per common share is based on the weighted average number of
common shares outstanding after giving effect to dilutive common stock
equivalents, and adjusted for the incremental dilutive shares attributed to
convertible preferred stock.
NOTE 3 - MARKETABLE SECURITIES
Marketable securities, reported at fair value, which approximates cost,
consist primarily of state and city municipal bonds, with contractual maturity
dates ranging from January 1, 1996 to January 1, 1997. For the years ended
December 31, 1994 and 1995, the Company had no material gains or losses from
the sale of securities.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Depreciation Lives December 31,
------------------ ------------
1994 1995
---- ----
<S> <C> <C> <C>
Machinery and equipment 5 years $10,085 $11,829
Software development cost 5 years 3,496 3,814
Furniture and fixtures 5 years 3,192 3,350
Leasehold improvements 3-10 years 957 1,142
Land 171 171
------- --------
18,621 20,306
Less accumulated depreciation and
amortization (12,370) (14,676)
------- -------
$ 6,251 $ 5,630
======= =======
</TABLE>
NOTE 5 - LICENSE AGREEMENT
Since 1981 substantially all of the Company's contracts have been sold
under a license agreement with Sears. The license agreement was a one-year
renewable agreement, cancelable by either party with 60 days written notice.
The fee is generally paid after the Company has completed the contract and
collected the contract amount.
In April 1993, the Company and Sears agreed to a license fee rate
effective January 1, 1993 of 12%. However, the license fee rate for
replacement windows was established at 8% beginning September 1, 1993 and
ending December 31, 1993. The license fee rate for certain branches was 8%
beginning September 1, 1993 and ending December 31, 1993. License fees were
12% in 1994 and 1995.
On October 17, 1995, American Remodeling, Inc., ("ARI"), a wholly owned
subsidiary of AMRE, and TM Acquisition Corporation and Century 21 Real Estate
Corporation (collectively referred to as "Century 21"), subsidiaries of HFS
Incorporated ("HFS"), entered into an 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 in the United States, Canada, and Mexico ("Century 21
License Agreement"), and the right to grant sublicenses under the agreement.
ARI, and thereby AMRE, did not renew its license agreement with Sears when it
expired on December 31, 1995.
Under the Century 21 License Agreement, the Company will pay fees equal to
the greater of 3% of the aggregate contract revenues of the Company and its
sublicensees, or certain guaranteed annual minimums starting at $11 million in
1996 and increasing during the term of the 20 year agreement. The agreement
provides for a fee of an additional 10% of the contract revenue for each sale
made pursuant to a customer referral from Century 21, payable to the respective
Century 21 broker who originated the customer referral. The Century 21 License
Agreement provides for immediate
32
<PAGE> 33
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
termination by either the Company or Century 21 if either party is negligent in
the performance of its services, becomes insolvent or bankrupt, or fails to
comply with any material provision of the Century 21 License Agreement,
including the payment of license fees as stipulated.
NOTE 6 - NONRECURRING CHARGES
In connection with the Century 21 License Agreement (see Note 5), the
Company recorded a nonrecurring charge of $5,115,000 consisting primarily of
transaction fees and expenses and costs associated with the termination of the
Sears License Agreement, including the write-off of certain assets and a
provision for incremental warranty costs related to installations sold under
the Sears brand name.
In connection with the proposed Facelifters merger (see Note 14), the
Company recorded a nonrecurring charge of $1,225,000 for transaction fees and
expenses associated with combining operations. However, costs could increase
if the Company and Facelifters encounter unexpected difficulties in the
consummation of the merger or in the integration of their businesses. The
Company expects to consummate the merger in the Company's second quarter of
1996.
In connection with the proposed Congressional merger (see Note 14), the
Company recorded a nonrecurring charge of $745,000 for transaction fees and
expenses associated with combining operations. However, costs could increase
if the Company and Congressional encounter unexpected difficulties in the
consummation of the merger or in the integration of their businesses. The
Company expects to consummate the merger in the Company's second quarter of
1996.
The Company recorded a nonrecurring, non-cash charge of $3,915,000 in
connection with the settlement of, and pursuant to, employment and separation
agreements between the Company and Mr. Ronald Wagner (see Note 9). On December
1, 1995, Mr. Wagner announced that he was resigning as Chairman of the Board of
the Company. Under the terms of the agreements, the Company agreed to pay Mr.
Wagner $500,000 and release him from his promissory note payable to the Company
in exchange for his waiving termination amounts owed to him under his
employment agreement and his agreement not to compete with the Company for a
period of five years.
NOTE 7 - SUPPLEMENTAL NON-CASH ACTIVITIES
For the years ended December 31, 1993, 1994 and 1995, the Company
recorded non-cash operating items as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Amortization of investment
premium and discounts $194 $216 $207
Separation agreement --- --- 3,915
Common stock and common
stock options granted for
services rendered --- --- 1,700
Other 48 74 215
---- ---- ------
$242 $290 $6,037
===== ===== ======
</TABLE>
During the year ended December 31, 1995 the Company acquired $317,000
of capital equipment financed with long term debt.
33
<PAGE> 34
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Income taxes
Income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1993 1994 1995
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal ($4,116) ($556) ($3,370)
State 5 126 80
Deferred:
Federal 1,181 1,323 2,047
State 183 201 (280)
-------- ------- --------
Total ($2,747) $1,094 ($1,523)
======== ======= ========
</TABLE>
The effective income tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1993 1994 1995
-------- ------ -------
<S> <C> <C> <C>
Statutory rate (34.0%) 34.0% (34.0%)
State taxes, net of federal benefit 9.9 11.1 (0.9)
Municipal bond income (15.6) (11.0) (1.2)
Valuation allowance - - 24.8
Write-off of foreign subsidiary (60.2) - -
Goodwill amortization 4.9 3.6 0.4
Federal income tax refund (52.9) - -
Other 2.6 5.1 4.5
-------- ------ -------
Effective rate (145.3%) 42.8% (6.4%)
======== ====== =======
</TABLE>
34
<PAGE> 35
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of, and changes in, the net deferred tax asset are as
follows:
<TABLE>
<CAPTION>
December 31, Deferred December 31,
1994 Income Taxes 1995
------------ ------------ ------------
<S> <C> <C> <C>
Workers' compensation.............. $791 $14 $805
Nonrecurring charges............... - 1,066 1,066
Health insurance................... 403 (3) 400
Allowance for doubtful accounts.... 473 27 500
Net operating loss carryforward.... - 2,036 2,036
Other.............................. 100 1,029 1,129
------- ------- --------
Total.............................. 1,767 4,169 5,936
Valuation allowance................ - (5,936) (5,936)
------- ------- --------
Total deferred taxes............... $1,767 ($1,767) $ -
======= ======= ========
</TABLE>
The Company incurred a tax loss in 1995 and has recorded a tax benefit in
the amount refundable from taxes paid in prior years. The Company has a net
operating loss carryforward of approximately $6 million that will expire in
2010 if not utilized earlier. Because of the net operating loss carryforward
and management's inability to predict future taxable income with certainty, a
100% valuation allowance has been provided against the deferred tax asset.
35
<PAGE> 36
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company is a party to certain legal proceedings arising in the
ordinary course of business, none of which is believed to be material to the
financial position or results of operations of the Company.
Leases
The Company operates in leased facilities and also leases certain
equipment. In most cases, management expects that leases currently in effect
will be renewed or replaced by other leases of a similar nature and term.
Escalation charges and restrictions imposed by lease agreements are not
significant. Rental expense under operating leases was $3,748,000, $3,535,000
and $3,859,000 for the years ended December 31, 1993, 1994, and 1995,
respectively. Commitments for future minimum rental payments required under
operating leases with terms in excess of one year for the years ending December
31, are as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,608
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,331
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,673
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,927
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,229
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,564
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,332
=======
</TABLE>
In 1993, the Company began to consolidate certain branches where more
than one leased facility existed in the same local geographic market. In
December 1993, the Company expensed approximately $600,000 for estimated costs
of moving as well as the remaining lease obligations on certain of these leased
branch facilities.
Employment and Other Agreements
The Company has an Employment Agreement with Robert M. Swartz, Chief
Executive Officer, for a term of two years expiring on July 4, 1997. The
agreement provides for an annual salary of $300,000. In addition, Mr. Swartz
is eligible for an annual cash bonus opportunity of at least 100% of his annual
salary. In addition, the agreement provided for a
guaranteed bonus of $100,000 with respect to the fiscal year ended December 31,
1995.
The Company had an Employment Agreement with Ronald I. Wagner, its
former Chairman. Salaries paid to Mr. Wagner under his agreement were
$439,499, $426,942 and $461,538 during 1993, 1994 and 1995 and no bonuses were
paid during these periods.
On December 1, 1995, 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. In connection with 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 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 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.
36
<PAGE> 37
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the Wagner Separation Agreement, the Company
recorded a nonrecurring charge of $3,915,000.
Prior to his resignation, the Company had an Employment Agreement with
V. James Sardo, its former Chief Executive Officer. Salaries and bonuses paid
to Mr. Sardo under his agreement were $231,231 and $193,750 during 1994 and
1995.
The Company has Indemnification Agreements with the members of its
Board of Directors. 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 By-Laws of
the Company.
The Company has an agreement with a financial institution which makes
financing available to the Company's customers. The customer executes a
Revolving Credit Agreement with the lender and the lender pays the Company on
completion of the installation. The agreement provides the financial
institution with right of first refusal on substantially all of the Company's
customer credit applications, and provides for the Company a minimum acceptance
rate of customer credit applications based on specified criteria. The
Company's credit risk is limited to its normal warranties and representations
regarding materials and workmanship. Prior to 1995, the Company assumed some
recourse liability or credit risk in certain customer financing agreements. On
approximately $13 million of contracts financed under such agreements the
Company has agreed to indemnify the financial institution for losses if
customer defaults exceed specified levels. The Company has provided a reserve
for estimated losses under this recourse liability. However, customer defaults
may differ from the estimated amount and therefore the reserve may be adjusted
in future periods.
NOTE 10 - REVOLVING CREDIT FACILITY
Concurrent with entering into the Century 21 License Agreement, the
Company and HFS entered into a revolving credit facility in an amount up to $4
million. The agreement provides for a commitment fee of 1/2% of the unused
portion of the facility and provides that loans made thereunder carry an
interest rate of LIBOR plus 1 1/2%. Under the agreement, the Company is
subject to certain covenants, including limitations on indebtedness and liens,
limitations on asset dispositions, and restrictions on the payment of
dividends. The revolving credit facility matures on December 29, 1998. At
December 31, 1995, no loans had been made under the credit facility.
NOTE 11 - SAVINGS INVESTMENT AND STOCK OPTION PLANS
The Savings Investment Plan is a defined contribution plan under which
qualified employees may elect to defer up to 10% of their salary and provides
for a matching Company contribution of 25% of the amount withheld up to 6% of
salary. Withheld amounts and Company contributions are invested in certain
investment options at the employee's direction. For the years ended December
31, 1993, 1994, and 1995, Company contributions were $315,000, $365,000, and
$363,000, respectively.
The Company has no defined benefit pension plan nor any other
post-retirement or post-employment benefit plan.
The Company has a Stock Option Plan (the "Plan") for the benefit of
its key employees. The Plan authorizes grants, at the then current market
price, of nonqualified options to purchase up to 2,600,000 shares of Common
Stock, and, in certain instances, authorizes the award of limited stock
appreciation rights. The options and stock appreciation rights vest within
three years of the date of the grant and expire 10 years from the date of
grant.
At December 31, 1995, options for 188,169 shares were exercisable
under the Plan, 1,304,913 shares were available for grant and no stock
appreciation rights were outstanding.
37
<PAGE> 38
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Options granted to certain employees to purchase common stock pursuant to
the Company's Plan were as follows:
<TABLE>
<CAPTION>
Options Exercise Price
--------- --------------
<S> <C> <C>
Balance, December 31, 1992 1,119,178 $3.00 - $8.88
Granted 45,000 5.00 - 5.00
Canceled (172,998) 4.25 - 8.88
Exercised (111,763) 3.00 - 6.75
Redemptions (255,007) 3.00 - 8.88
--------- --------------
Balance, December 31, 1993 624,410 3.00 - 8.88
Granted 476,697 3.50 - 5.38
Canceled (43,604) 3.50 - 6.75
Surrendered (324,697) 4.25 - 8.88
--------- --------------
Balance, December 31, 1994 732,806 $3.00 - $8.50
Granted 179,399 3.50 - 8.10
Canceled (136,506) 3.50 - 6.80
Exercised (139,473) 3.00 - 8.40
--------- --------------
Balance, December 31, 1995 636,226 $3.50 - $8.50
========= ==============
</TABLE>
38
<PAGE> 39
AMRE, INC.
NOTES TO CONSOLIDAED FINANCIAL STATEMENTS - (Continued)
In addition to the options granted under the Plan, the Board has
granted options outside the Plan to certain employees and Board members.
Options granted outside the Plan vest in various periods, ranging from
immediately to four years from the date of the grant.
Non-Plan options at December 31, 1995, of which 1,142,500 were vested,
are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE PRICE
----------- -------------------------
<S> <C> <C> <C> <C>
Ronald I. Wagner . . . . . . . . . . . . . . . . . . . . 550,000 $ 3.50
Robert M. Swartz . . . . . . . . . . . . . . . . . . . . 500,000 4.13
Directors . . . . . . . . . . . . . . . . . . . . . . . . 212,500 3.50 - 4.50
Others . . . . . . . . . . . . . . . . . . . . . . . . . 480,000 4.25 - 7.88
--------- ------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,742,500 $ 3.50 - $ 7.88
========= ========================
</TABLE>
On November 15, 1993, the Board of Directors authorized the holders of
all options to surrender their options for a redemption price of $0.50 per
share. The offer remained open until December 20, 1993. Options for 255,007
shares under the Plan, and 41,250 shares outside the Plan were redeemed for a
total of approximately $148,000. On May 11, 1994, the Board of Directors
authorized the holders of all options with an exercise price in excess of $3.50
per share under the Plan, and certain holders of options outside of the Plan,
to surrender their options for new options with an exercise price of $3.50 per
share which would vest based upon the new grant date of May 11, 1994. Options
for 324,697 shares, at prices ranging from $4.25 to $8.88 per share, granted
under the Plan, and for 1,012,500 shares, at prices ranging from $3.63 to $7.63
per share, granted outside of the Plan, were canceled and reissued in
connection with this offer.
On October 17, 1995, in exchange for services rendered in connection
with the Century 21 License Agreement, the Company granted stock options of
200,000 shares at $5.00 per share and 200,000 shares at $5.50 per share, to a
private investor. These options were exercisable upon issuance, and are
included in the above table. Included in nonrecurring charges in the results
of operations for the year ended December 31, 1995 is $700,000 related to
these options.
NOTE 12 - RELATED PARTIES
The Company leases its kitchen cabinet refacing manufacturing facility
in Chicago, Illinois from Ronald I. Wagner, former Chairman of the Board. The
Company paid Mr. Wagner $165,000 for each of the three years ended December 31,
1993, 1994, and 1995. In December 1995, the Company and Mr. Wagner entered
into a new lease agreement which provides for a term of 10 years commencing
January 1, 1996, and for lease payments of $180,000 for each of the first two
years, which payments are adjusted in subsequent years for changes in the
consumer price index. The Company has the option to terminate the lease at any
time for a lump sum cash payment equal to the following 36 monthly installments
under the terms of the agreement.
The Company had made loans pursuant to promissory notes to certain
executive officers. At December 31, 1995, one note for $469,000 was
outstanding. This note was paid in full in February, 1996.
One of the Company's directors is chief executive officer and a
director of a direct advertising agency. The Company has retained this agency
for direct response television advertising since 1985. Payments made by the
Company to this agency, including payments for purchased television time and
development of television commercials for the years ended December 31, 1993,
1994, and 1995 were $6,480,000, $5,294,000, and $5,933,000, respectively.
In connection with the Century 21 License Agreement, the Company added
three members to its Board of Directors from Century 21 and HFS. The Company
also added another member to its Board from a company with which it has entered
into a sublicense agreement.
NOTE 13 - CAPITALIZATION
The Company has a Stockholder Rights Plan under which preferred stock
purchase rights ("Rights") were distributed as a dividend at the rate of one
Right for each share of common stock held. The Rights will expire on
39
<PAGE> 40
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
November 23, 2002. Under the plan, each Right entitles holders of the
Company's common stock to buy one one-hundredth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $25.00. The Rights are
exercisable only if a person or group, as defined, acquires beneficial
ownership of 25% or more of the Company's common stock or a person or group
commences a tender or exchange offer upon consummation of which that person or
group would beneficially own 25% or more of the common stock. Generally, based
on the occurrence of certain events, the holder of a Right may either purchase
shares of the Company's common stock (or other consideration in certain
circumstances) having a calculated value of twice the Right's exercise price or
purchase such person's or group's shares of common stock having a calculated
value of twice the Right's exercise price. Additionally, based on the
occurrence of certain events, the Company's Board of Directors may exchange all
or part, as defined, of the Rights for shares of the Company's common stock on
a one-for-one basis. Notwithstanding the foregoing, the Company will generally
be entitled to redeem the Rights at $.01 each within ten days following a
public announcement that such person or group acquires beneficial ownership of
25% or more of the Company's common stock.
Concurrent with the execution of the Century 21 License Agreement, the
Company and HFS entered into a preferred stock purchase agreement pursuant to
which HFS purchased 300,000 shares of AMRE Senior Convertible Preferred Stock,
par value $.10 , at $10 per share. Under the terms of the agreement, dividends
are payable quarterly at a rate of 8% per annum, are fully cumulative and
accrue whether or not earned or declared. The agreement provides that no
dividends shall be declared or paid on common, or any other class of preferred
stock of the Company, unless full cumulative dividends have been paid on the
Senior Convertible Preferred Stock. The Senior Convertible Preferred Stock is
convertible into common stock of the Company at $5.90 per share subject to
adjustment as specified in the agreement. It is also subject to optional
redemption beginning January 1, 1999, and mandatory redemption on January 1,
2001, both preceded by payment in full of any accrued dividends.
Also concurrent with the execution of the Century 21 License
Agreement, the Company and a private investor entered into an agreement
pursuant to which the investor would purchase up to 200,000 shares of common
stock of the Company, $.01 par value, at $5 per share. At December 31, 1995,
the Company had issued 162,000 shares of common stock under the terms of the
agreement. The remaining 38,000 shares were purchased in February, 1996.
The Company granted 200,000 shares of the Company's common stock to
the investor for services provided in connection with the negotiation of the
Century 21 License Agreement and related transactions. Included in
nonrecurring charges in the results of operations for the year ended December
31, 1995 is $1,000,000 relating to the grant of the common shares.
In 1993, the Company purchased 94,905 shares from a former officer.
NOTE 14 - PENDING MERGERS
Facelifters - On October 31, 1995, the Company and Facelifters Home
Systems, Inc. entered into an agreement whereby a newly formed subsidiary of
the Company shall be merged with and into Facelifters. The merger is expected
to be accounted for as a pooling of interests. Facelifters designs,
manufactures, markets, sells and installs kitchen cabinet refacing products
utilized in kitchen remodeling, directly to consumers in 26 markets, primarily
markets in which the Company does not currently operate. The merger, which is
subject to, among other things, stockholder approval, is expected to be
consummated in the Company's second quarter of 1996. Regulatory approval of
the merger under the Hart-Scott-Rodino Pre Merger Notification Act has been
obtained. In connection with the merger, approximately 3,557,268 shares of the
Company's common stock will be issued to the existing stockholders of
Facelifters, and Facelifters will become a wholly owned subsidiary of the
Company.
Beginning in January 1996, Facelifters and the Company have entered
into a sublicense agreement pursuant to which the Company granted to
Facelifters, under the terms of the Century 21 License Agreement, the right to
market, sell and install certain home improvement products in specified markets
under the name CENTURY 21 Home Improvements. The sublicense agreement provides
for sublicense fees equal to 8% of the sublicense contract revenues subject to
certain rebates. If the Facelifters merger is consummated, the sublicense
agreement will be terminated.
Congressional - On December 30, 1995, the Company and Congressional
Construction Corporation ("Congressional") entered into an agreement whereby a
newly formed subsidiary of the Company shall be merged with and into
Congressional. The merger is expected to be accounted for as a pooling of
interests. Congressional markets, sells, furnishes and installs home
improvement products, including vinyl and aluminum siding, fencing, wooden
decks, replacement vinyl windows, roofing and patio enclosures directly to
consumers in certain markets, primarily markets in which the Company does not
currently operate. The obligations of the parties to consummate the merger are
subject to several conditions, including, among other things, stockholder
approval, and the results of AMRE's due diligence review of Congressional being
materially satisfactory to AMRE. If all the conditions to the merger are
satisfied, the merger is expected to be consummated in the Company's second
quarter of 1996. In connection with the merger, approximately 900,000 shares
will be issued to the existing stockholders of Congressional, and Congressional
shall become a wholly owned subsidiary of the Company.
40
<PAGE> 41
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Beginning in January 1996, Congressional and the Company have entered
into a sublicense agreement pursuant to which the Company has granted to
Congressional, under the terms of the Century 21 License Agreement, the right
to market, sell and install certain home improvement products in specified
markets under the name CENTURY 21 Home Improvements. The sublicense agreement
provides for sublicense fees equal to the greater of 8% of the sublicensee
contract revenues subject to certain rebates or certain guaranteed minimums.
If the Congressional merger is consummated, the sublicense agreement will be
terminated.
In connection with the proposed mergers, the Company will require an
amendment to its Certificate of Incorporation to increase the number of
authorized shares of the Company from 20 million to 40 million in order to
permit issuance of additional shares of AMRE common stock to the former holders
of Facelifters common stock and Congressional common and preferred stock, and
other general corporate purposes.
41
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. DESCRIPTION
- ----------- -----------
<S> <C> <C>
2.1 - Agreement and Plan of Merger dated as of December 30, 1995, among AMRE, Congressional and Merger Sub.
2.2 - Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, AMRE Acquisition, Inc., 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).
2.3 - 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.
3.1 - Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit
3.1 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1989).
3.2 - By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the 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, Inc. 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, Inc.'s Registration Statement, on Form 8-A, dated November 19,
1992).
10.1 - Stock Option Plan of the Company, 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, Inc. Savings Investment Plan, dated September 30, 1990, restating and retitling the
Profit Sharing Plan of the Company, as amended (incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1990).
10.3 - Amendment No. 1 to AMRE, Inc. Savings Investment Plan, effective as of October 1, 1990
(incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
10.4 - Amendment No. 2 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1993 (incorporated by
reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.5 - Amendment No. 3 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994
(incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.6 - Amendment No. 4 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 25, 1994).
10.7 - AMRE, Inc. Savings Investment Trust Agreement, dated September 30, 1990 (incorporated by
reference to Exhibit 10.18 to Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 1990).
10.8 - Welfare Benefits Plan for Employees of AMRE, Inc., dated April 24, 1990, as amended
(incorporated by reference to Exhibit 10.15 to the 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, Inc. (incorporated by reference
to Exhibit 10.16 to the 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, Inc. (incorporated by reference
to Exhibit 10.19 to the 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, Inc. (incorporated by reference
to Exhibit 10.9 to the 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, Inc. (incorporated by reference
to Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.13 - Welfare Benefits Trust for Employees of AMRE, Inc., dated April 24, 1990 as amended
(incorporated by reference to Exhibit 10.24 to the 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, Inc. (incorporated by
reference to Exhibit 10.17 to the Annual Report on Form 10-K for the fiscal year ended April
30, 1991).
10.15 - AMRE, Inc. Flexible Benefits Plan, as restated effective January 1, 1993 (incorporated by
reference to Exhibit 10.12 to the 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 the Company and Ronald I. Wagner
(incorporated by reference to Exhibit 10.3 to the 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 the Company and each of the
outside Directors of the Company, which are identical except for the names of the Directors
(incorporated by reference to Exhibit 10.4 to the 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 the Company and the outside
Directors of the Company, 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 the 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 the Company and Sears, Roebuck and Co.
for the sale and installation of siding, overhand 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 the Company and the Directors of the Company, which
are identical except for names and dates (incorporated by reference to Exhibit 10.27 to the
Annual Report on Form 10-K for the fiscal year ended April 30, 1990).
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit No. DESCRIPTION
- ----------- -----------
<S> <C> <C>
10.21 - Management Incentive Plan for the Company (incorporated by reference to Exhibit 10.19 to the
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 the Annual Report on Form 10-K for the fiscal year ended April
30, 1991).
10.23 - Lease dated November 12, 1991, between the Company, as Tenant, and Twin Towers Investment
Partnership, as Landlord, with respect to the Company's corporate headquarters in Dallas, Texas
(incorporated by reference to Exhibit 10.18 to the 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 the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.25 - Description of options granted outside of the AMRE, Inc. Stock Option Plan (incorporated by
reference to Exhibit 10.29 to the 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 the Company and
certain executives of the Company, including Keith Abrams, Robert E. Horton, Jr., and Curtis
Everett, which agreements are identical except for names and dates (incorporated by reference
to Exhibit 10.30 to the 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 the Company and Household Bank
(Illinois), N.A. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-
Q for the quarterly period ended September 26, 1993).
10.28 - Merchant Agreement between the Company and American General Financial Center, effective July 1,
1993, as amended January 25, 1994, (incorporated by reference to Exhibit 10.38 to the 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 Corporate 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.
10.39 - Amendment No. 1 to Stockholder Agreement between AMRE and the shareholders of Facelifters
signatory thereto.
10.40 - Employment Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz (incorporated
by reference to Exhibit 10.1 to AMRE's Current Report on Form 8-K dated June 19, 1995).
10.41 - Stock Option Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz
(incorporated by reference to Exhibit 10.2 to AMRE's Current Report on Form 8-K dated June 19, 1995).
11 - Statement re computation of per share earnings.
21 - Subsidiaries of the Company (incorporated by reference to Exhibit 22 to the Annual Report on Form 10-K
for the physical year ended December 31, 1993).
27 - Financial Data Schedule
99.1 - Stipulation of Settlement among plaintiffs in the Litigation and AMRE, Inc., 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 - Press Release dated June 19, 1995, announcing the election of Mr. Robert M. Swartz as President and a
member of the Board of Directors of AMRE, Inc. (incorporated by reference to Exhibit 99.1 to AMRE's Current
Report on Form 8-K dated June 19, 1995).
</TABLE>
<PAGE> 1
Exhibit 2.1
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> 2
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>
<PAGE> 3
<TABLE>
<S> <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>
<PAGE> 4
<TABLE>
<S> <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
<PAGE> 5
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:
<PAGE> 6
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 their successors have been duly
elected or appointed and qualified or until their earlier death,
2
<PAGE> 7
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 the right to
receive the payment to be paid for each Share converted pursuant to
3
<PAGE> 8
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 Certificate shall be entitled to
receive in exchange therefor a certificate representing that
4
<PAGE> 9
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 Certificate the shares of
AMRE Common Stock and unpaid dividends and distributions
5
<PAGE> 10
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 terms except as enforcement thereof
may be limited by liquidation, conservatorship, bankruptcy,
6
<PAGE> 11
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; and (ii) except as set forth therein (including the notes
thereto), fairly present in accordance with generally accepted
accounting principles, the financial position and
7
<PAGE> 12
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 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
8
<PAGE> 13
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, processing, distribution, use,
treatment, storage, disposal, transport, presence or handling of any
Hazardous Materials by AMRE.
9
<PAGE> 14
(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
(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.
10
<PAGE> 15
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 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
11
<PAGE> 16
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 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
12
<PAGE> 17
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 September 30, 1995, and for the 9-month period
then ended, consisting of a balance
13
<PAGE> 18
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;
14
<PAGE> 19
(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;
15
<PAGE> 20
(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.
16
<PAGE> 21
(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.
17
<PAGE> 22
(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.
18
<PAGE> 23
(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
19
<PAGE> 24
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
20
<PAGE> 25
(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
21
<PAGE> 26
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.
22
<PAGE> 27
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
23
<PAGE> 28
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
24
<PAGE> 29
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
25
<PAGE> 30
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
26
<PAGE> 31
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
27
<PAGE> 32
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
28
<PAGE> 33
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
29
<PAGE> 34
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.
30
<PAGE> 35
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.
31
<PAGE> 36
(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.
32
<PAGE> 37
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 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
33
<PAGE> 38
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 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
34
<PAGE> 39
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 except
where the failure to have obtained or made any such consent,
authorization,
35
<PAGE> 40
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;
36
<PAGE> 41
(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
37
<PAGE> 42
incumbency 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;
38
<PAGE> 43
(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
39
<PAGE> 44
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:
40
<PAGE> 45
(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.
41
<PAGE> 46
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.
42
<PAGE> 47
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.
43
<PAGE> 48
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.
44
<PAGE> 49
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: /s/ President
--------------------------
For the limited purposes of Article 3, Article 5 and Article 8:
SHAREHOLDERS
/s/ John B. Nunez
--------------------------------
John Nunez
S-1
<PAGE> 50
KENWOOD FINANCIAL, INC.
By: /s/ Norman R. Rales
------------------------------------------
Printed Name: Norman R. Rales
----------------------------
Title: President, Kenwood Financial, Inc.
-----------------------------------
S-2
<PAGE> 1
AMENDMENT NO. 1 TO MERGER AGREEMENT
This Amendment No. 1 (the "AMENDMENT"), made and entered into this
12th day of December 1995, is by and among AMRE, Inc., a Delaware corporation
("AMRE"), AMRE Acquisition, Inc., a Delaware corporation and a newly formed,
wholly owned subsidiary of AMRE ("MERGER SUB"), Facelifters Home Systems, Inc.,
a New York corporation (the "COMPANY"), and Facelifters Home Systems, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("COMPANY
SUB"), and amends that certain Agreement and Plan of Merger, made and entered
into the 31st day of October 1995, by and among AMRE, Merger Sub, the Company
and Company Sub (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 and Company Sub 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 1.5(a)(ii) to the Merger Agreement is amended and
restated in its entirety to read as follows:
(ii) If the Average Price of the AMRE Common Stock
is more than $9.50, except as provided below, then each of the
Shares shall be converted into that number of shares of AMRE
Common Stock determined by multiplying by the following
formula:
11.28
-------------------------------
8.00 + (N - 9.50)
Where: N = the Average Price of the
----- AMRE Common Stock
Notwithstanding any other provision hereof, in no event shall
each Share be converted into less than one (1) share of AMRE
Common Stock, regardless of the Average Price of the AMRE
Common Stock as specified in the above formula.
<PAGE> 2
b. Section 1.5(e) to the Merger Agreement is amended and restated
in its entirety to read as follows:
(e) At the Effective Time, all options
(individually a "Company Option" or collectively, the "Company
Options") then outstanding under the Company's stock option
plans (collectively, the "Company Stock Option Plans") shall
remain outstanding following the Effective Time and shall
remain exercisable pursuant to the terms of such plans. At
the Effective Time, such Company Options shall, by virtue of
the Merger and without any further action on the part of the
Company or the holder of any such Company Options, be assumed
by AMRE in such manner that AMRE (i) is a corporation
"assuming a stock option in a transaction to which Section
424(a) applies" within the meaning of Section 424 of the Code,
or (ii) to the extent that Section 424(a) of the Code does not
apply to any such Company Option, would be such a corporation
were Section 424(a) applicable to such option. Each Company
Option assumed by AMRE shall be exercisable upon the same
terms and conditions as under the applicable Company Stock
Option Plan and the applicable option agreement issued
thereunder, except that (A) each such Company Option shall be
exercisable for that whole number of shares of AMRE Common
Stock (to the nearer whole share) into which the number of
Shares subject to such Option immediately prior to the
Effective Time would be converted under this Section 1.5, and
(B) the option exercise price per share of AMRE Common Stock
shall be an amount equal to the option price per Share subject
to such Company Option in effect prior to the Effective Time
divided by the Exchange Ratio (the price per share, as so
determined, being rounded upward to the nearest full cent).
2. 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.
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 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.
2
<PAGE> 3
IN WITNESS WHEREOF, AMRE, Merger Sub, the Company and Company Sub have
caused this Amendment to be executed as of the date first written above.
AMRE, INC.
By: /s/ Robert M. Swartz
--------------------------------
Name: Robert M. Swartz
---------------------------
Title: President & C.E.O.
--------------------------
AMRE ACQUISITION, INC.
By: /s/ Robert M. Swartz
--------------------------------
Name: Robert M. Swartz
---------------------------
Title: President & C.E.O.
--------------------------
FACELIFTERS HOME SYSTEMS, INC.,
a New York corporation
By: /s/ Murray H. Gross
--------------------------------
Name: Murray H. Gross
---------------------------
Title: President
--------------------------
FACELIFTERS HOME SYSTEMS, INC.,
a Delaware corporation
By: /s/ Murray H. Gross
--------------------------------
Name: Murray H. Gross
---------------------------
Title: President
--------------------------
3
<PAGE> 1
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the "Agreement"), dated as of December
1,1995, is by and between Ronald I. Wagner ("Wagner") and AMRE, Inc., a
Delaware corporation (the "Company").
RECITALS
A. Wagner is currently employed by the Company, and Wagner and
the Company desire to document their agreement regarding Wagner's separation
from employment with the Company and Wagner's resignation from any director or
officer positions with the Company or its affiliates, effective December 1,
1995 (the "Effective Date").
B. Wagner and the Company entered into an Employment Agreement,
dated as of June 1, 1991, as amended by Amendment Number 1 to Employment
Agreement, dated as of August 10, 1993, and by Amendment Number 2 to Employment
Agreement, dated as of April 25, 1994 (as amended, the "Employment Agreement").
C. Wagner executed a promissory note, dated May 1, 1980, payable
to the Company. Such note has been modified, extended, renewed and replaced at
various times, most recently by a note, dated as of April 30, 1994 and due and
payable in full on April 30, 1997 (all such notes collectively referred to as
the "Note"), pursuant to which Wagner agreed to pay to the order of the Company
the original principal amount of $3,200,000, together with interest as set
forth in the Note. As of the Effective Date, Wagner owed the Company $3,200,000
of principal and $905,824.10 of interest, for a balance of $4,105,824.10. In
full satisfaction of the prepayment of the Note, the Company has agreed to
waive a portion of the interest due on the Note and to retire the remaining
balance of the Note in lieu of the payment to Wagner required of the Company
under Section 4(b)(i) of the Employment Agreement.
D. Wagner and the Company entered into a Stock Pledge Agreement,
dated as of January 31, 1995 (the "Pledge Agreement").
E. Wagner and the Company entered into a Stock Option Agreement,
dated as of May 11, 1994 (the "Option Agreement"), pursuant to which Wagner
received options to purchase 550,000 shares of the Company's common stock,
which options are fully vested and shall not lapse or terminate as a result of
this Agreement or the transactions contemplated hereby.
F. The parties acknowledge the costs, hazards, and risks of
leaving any uncertainty as to their relationships and, in part, desire to
provide for an orderly termination of the employment relationship between the
Company and Wagner and to settle in the manner set forth in this Agreement any
claims or controversies which might arise between Wagner and the Company with
respect to Wagner's employment with the Company, Wagner's separation from
employment with the Company, any claims pursuant to Section 4(b)(i) of the
Employment Agreement, any claims pursuant to the Note and any claims pursuant
to the Pledge Agreement.
Page 1
<PAGE> 2
IT IS THEREFORE AGREED:
1. CONSIDERATION. The parties acknowledge the receipt and
adequacy of the consideration as expressed by the recitations and mutual
covenants in this Agreement, and other good and valuable consideration.
2. RESIGNATION. Wagner hereby resigns from all positions that he
holds as a director, officer or employee with the Company or its affiliates
effective as of 10 a.m. on the Effective Date.
3. NONCOMPETITION. Wagner hereby agrees that, for a period of
five years after the Effective Date, he will not, directly or indirectly, on
his own behalf or as an employee or other agent of or an investor in another
individual, partnership, corporation or other entity (a "Person"), except by
ownership of less than five percent of the equity securities of a Person or as
a sublicensee of the Company as set forth below:
(a) engage in the in-home direct marketing, sale and
installation of siding and related exterior home improvement products,
kitchen cabinet refacing and custom countertops, replacement windows,
exterior coating and all other products which the Company and its
affiliates are currently licensed to sell (collectively, the
"Business") in North America (the "Territory"); provided, that Wagner
may engage in the Business as a sublicensee of the Company subject to
entering into a sublicense agreement in the Company's sole discretion;
(b) directly or indirectly influence or attempt to
influence any customer or potential customer of the Company that is
located in the Territory to purchase goods or services related to the
Business from any Person other than the Company; or
(c) employ or attempt to employ or solicit for any
employment competitive with the Company any individuals who are
employees of the Company at the Effective Time or influence or seek to
influence any such employees to leave the Company's employment.
In consideration of the foregoing covenants, the Company shall pay to
Wagner $500,000, payable in two equal installments of $250,000 on each of
December 1, 1997 and December 1, 1999.
4. NONDISCLOSURE. Wagner acknowledges and agrees that all
customer, prospect and marketing lists, sales data, intellectual property,
proprietary information, trade secrets and manufacturing techniques of the
Company (collectively, but excluding any such items already or hereafter in the
public domain other than as a result of a breach of this provision, the
"Confidential Information") are valuable, special and unique assets and are
owned exclusively by Company. As a consequence of Wagner's activities as an
employee of the Company, Wagner has had access to and knowledge of the
Confidentiality Information. In light of the competitive nature of the
Business, Wagner agrees, so long as the provisions of Section 3 are in effect,
that the Confidential Information will be treated as confidential and Wagner
will not disclose any
Page 2
<PAGE> 3
Confidential Information to any Person or make use of any Confidential
Information for his own purposes or for the benefit of any other Person (other
than the Company).
5. AGREEMENTS WITH RESPECT TO CERTAIN OBLIGATIONS. Wagner and
the Company agree as follows:
(a) In full satisfaction of Wagner's obligations to the
Company under the Note, as reduced for prepayment, Wagner hereby
agrees to waive the Company's payment of its obligations in the amount
of $3,375,000 to Wagner under Section 4(b)(i) of the Employment
Agreement, and Wagner hereby releases the Company from, and the
Company shall have no further obligations with respect to such
payment.
(b) In full satisfaction of the Company's obligation to
Wagner under Section 4(b)(i) of the Employment Agreement, the Company
hereby agrees to waive payment by Wagner of the balance, as reduced
for prepayment, of the Note, and the Company acknowledges the full and
complete payment in satisfaction of the Note, and the Company hereby
releases Wagner from any and all indebtedness owed by Wagner to the
Company pursuant to the Note. The Company agrees that such
indebtedness owed by Wagner to the Company pursuant to the Note. The
Company agrees that such indebtedness has been paid in full and
canceled and Wagner is hereby released and discharged from all claims
or causes of action of any kind, contingent or otherwise, relating to
or arising out of such indebtedness.
(c) The terms and conditions of Section 4(b)(ii) of the
Employment Agreement shall remain in full force and effect to the
extent permitted or the Company will pay or reimburse the costs of
maintaining such benefits for the period provided therein.
(d) The Company and Wagner hereby terminate the Pledge
Agreement, acknowledge that the Pledge Agreement shall be of no
further force or effect and acknowledge that they shall have no
further rights or obligations pursuant to the Pledge Agreement.
(e) The Company and Wagner hereby agree to terminate that
certain Lease, dated October 11, 1988, between Wagner and Cabinet
Magic, Inc. The parties agree to enter into a new lease to provide
for a term of 10 years commencing January 1, 1996 and for lease
payments of $15,000 per month for the first two years with adjustments
equal to changes in the consumer price index in subsequent years. The
Company will have the option to terminate such lease for a lump sum
cash payment equal to the next 36 monthly installments.
(f) The Company will indemnify and hold harmless Wagner
in respect of acts or omissions as a director or officer occurring up
to and including the Effective Date to the extent provided under the
Company's certificate of incorporation and bylaws in effect on the
Effective Date, and will indemnify and hold harmless Wagner in respect
of any claims, liabilities, obligations or expenses in respect of or
relating to this Agreement and the transactions contemplated hereby.
The Company has advised Wagner that its
Page 3
<PAGE> 4
directors' and officers' liability insurance policies are on a claims
incurred basis and that Wagner is a named insured.
6. RELEASES. Wagner and the Company agree as follows:
(a) Wagner hereby releases, discharges and acquits the
Company from any causes of action, claims, demands, debts, liability,
expense or costs of court of any and every character and nature
whatsoever, whether or not previously asserted, whether known or
unknown, either in or arising out of the law of contracts, torts,
property rights, statutes or ordinances as to all wrongful discharge
claims, all tort, intentional tort, negligence, employee benefit
claims and contract claims, any claim for attorneys' fees, costs, or
expenses or any claim arising from any federal, state or local civil
rights and/or employment law (including but not limited to, Title VII
of the Civil Rights Act of 1964, the Texas Commission on Human Rights
Act, The Age Discrimination in Employment Act, and the Americans With
Disabilities Act) and/or wages, bonuses, commissions, at law or in
equity, arising out of any matter at any time up to and including the
date of execution of this Agreement; and any other matter whatsoever,
it being the parties' intention that the scope and breadth of this
release be as broad and extensive as lawfully possible in order to lay
to rest forever any potential controversies concerning any matters
existing or occurring prior to the execution of this Agreement;
provided, however, that Wagner does not intend by this Agreement to
release any rights that he may have arising from the express terms of
this Agreement.
(b) The Company hereby releases, discharges and acquits
Wagner from any causes of action, claims, demands, debts, liability,
expense or costs of court of any and every character and nature
whatsoever, whether or not previously asserted, whether known or
unknown, either in or arising out of the law of contracts, torts,
property rights, statutes or ordinances, all tort, intentional tort,
negligence, reimbursement claims, employee benefit claims and contract
claims, any claim for attorneys' fees, costs, or expenses, at law or
in equity, arising out of any matter at any time up to and including
the date of execution of this Agreement; and any other matter
whatsoever, it being the parties' intention that the scope and breadth
of this release be as broad and extensive as lawfully possible in
order to lay to rest forever any potential controversies concerning
any matters existing or occurring prior to the execution of this
Agreement; provided, however, that the Company does not intend by this
Agreement to release any rights that it may have arising from the
express terms of this Agreement.
7. REGISTRATION RIGHTS.
(a) At any time after the Effective Date, Wagner may make
a written request to the Company requesting that the Company effect
the registration of the shares of common stock issuable upon exercise
of Wagner's options under the stock Option Agreement, dated May 11,
1994, between the Company and Wagner (the "Registrable Securities") by
filing a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"). After receipt of such a request, and
subject to any previously granted registration rights, the Company
will, as soon as practicable, use its best efforts to effect the
registration of all Registrable Securities that the Company has
Page 4
<PAGE> 5
been so requested to register by Wagner for offer or sale on such
appropriate registration form as will be selected by the Company and
will permit the disposition of such Registrable Securities in
accordance with the intended method of disposition thereof.
Notwithstanding anything herein to the contrary the Company may, in
its sole discretion and without the consent of Wagner, postpone the
filing of such a registration statement for any reason for a period of
up to 90 days from the date of its receipt of a request.
(b) If the Company at any time after the Effective Date
proposes to file on its behalf or on behalf of any of its security
holders a registration statement under the Securities Act on any form
(other than a registration statement on Form S-4 or any successor form
unless such form is being used in lieu of, or as the functional
equivalent of, registration rights) for any Common Stock, the Company
will, at each such time, give written notice setting forth the terms
of the proposed offering and such other information as Wagner may
reasonably request to Wagner at least 30 days before the anticipated
initial filing with the Securities and Exchange Commission (the
"Commission") of such registration statement, and offer to include in
such filing such Registrable Securities as Wagner may request. If
Wagner desires to have Registrable Securities registered under this
Section, he will advise the Company in writing within 15 days after
the date of receipt of such notice from the Company, setting forth the
number of such Registrable Securities for which registration is
requested. The Company will thereupon include in such filing the
number of Registrable Securities for which registration is so
requested, and will use its best efforts to effect registration under
the Securities Act of such Registrable Securities. Notwithstanding
anything to the contrary in the prior sentence, if the managing
underwriter or underwriters, if any, of such offering deliver a
written opinion to the Company, with a copy to Wagner, that the
success of the offering would be materially and adversely affected by
the inclusion of the Registrable Securities requested to be included,
then the amount of securities to be offered for the account of Wagner
will be reduced to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended
by such managing underwriter or underwriters; provided, however, that
if securities are being offered for the account of other persons as
well as the Company and Wagner, then, with respect to the Registrable
Securities intended to be offered for the account of Wagner, the
proportion by which the amount of Common Stock intended to be offered
for the account of Wagner is reduced will not exceed the proportion by
which the amount of Common Stock intended to be offered by such other
persons (other than the Company) is reduced. The Company shall bear
the costs and expenses of any such registrations, other than
underwriting commissions or broker's fees.
8. PRESS RELEASES. Wagner and the Company agree to issue the
attached press release and to consult with each other before issuing any
additional press releases with respect to this Agreement and the transactions
contemplated by this Agreement and agree not to issue any such additional press
releases prior to such consultation except as may be required by applicable law
or any listing agreement with any national securities exchange.
9. NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of
Page 5
<PAGE> 6
service if served personally on the party to whom notice is to be given, or on
the third day after mailing if mailed to the party to whom notice is to be
given properly addressed, certified mail, return receipt requested, postage
prepaid, as follows: if to the Company, to AMRE, Inc., 8585 N. Stemmons
Freeway, South Tower, Dallas, Texas 75247: Attention: General Counsel; if to
Wagner, at 45 Masland, Dallas, Texas 75230.
10. SEVERABILITY. In the event that any provision of this
Agreement shall be held invalid or illegal for any reason, any illegality or
invalidity shall not affect the remaining parts of this Agreement, but this
Agreement shall be construed and enforced as if the illegal or invalid
provision had never been inserted.
11. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas.
12. ATTORNEYS' FEES. The Company shall pay Wagner's reasonable
attorneys' fees in connection with this Agreement and the transactions
contemplated by this Agreement. In the event of any arbitration or litigation
arising out of this Agreement, the prevailing party in such arbitration or
litigation shall be entitled to recover reasonable costs and expenses incurred
in connection with such arbitration or litigation, including, but not limited
to, attorneys' fees.
13. ENTIRE AGREEMENT. Except as set forth herein, this Agreement
constitutes the entire Agreement among the parties with respect to the
transactions contemplated in this Agreement and there are no understandings or
agreements relating to this Agreement that are not fully expressed in this
Agreement.
14. WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed, or modified, and the terms hereof may be waived,
only by a written instrument signed by the parties, or in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in
exercising the right, power or privilege hereunder shall authorize a waiver
thereof.
15. BINDING EFFECT: NO ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties and the respective successors and
permitted assigns and legal representatives. Neither this Agreement nor any
other rights, interest, or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
16. ARBITRATION. The parties agree to negotiate in good faith with
respect to any dispute with respect to this Agreement or the transactions
contemplated hereby. If the parties are not successful in resolving the dispute
through such negotiations, then the parties agree that the dispute shall be
settled by arbitration in accordance with the provisions of the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction.
17. COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
Page 6
<PAGE> 7
18. HEADINGS. The headings in this Agreement are for reference
only, and shall not effect the interpretation of this Agreement.
19. AUTHORIZATION. The Company represents and warrants that the
person executing this Agreement on behalf of the Company is duly authorized to
act for and on behalf of the Company to execute and deliver this Agreement and
that this Agreement is a valid, binding and enforceable agreement of the
Company.
In witness whereof, the parties have signed this Agreement as of
December 1, 1995.
/s/ Ronald I. Wagner
---------------------------
Ronald I. Wagner
AMRE, Inc.
By:/s/ Robert M. Swartz
------------------------
Name: Robert M. Swartz
----------------------
Title: President & C.E.O.
---------------------
Page 7
<PAGE> 1
AMENDMENT NO. 1 TO STOCKHOLDER AGREEMENT
This Amendment No. 1 (the "AMENDMENT"), made and entered into this
12th day of December 1995, is by and among AMRE, Inc., a Delaware corporation
("AMRE"), and the undersigned stockholders of Facelifters Home Systems, Inc., a
New York corporation (the "COMPANY") (each such stockholder a "STOCKHOLDER"),
and amends that certain Stockholder Agreement, made and entered into the 31st
day of October 1995, by and among AMRE and the Stockholders (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 13 to the Stockholder Agreement
is hereby deleted in its entirety and the section headings subsequent to such
former Section 13 are hereby renumbered to reflect such deletion.
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.
<PAGE> 2
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: /s/ Robert M. Swartz
--------------------------------------
Name: Robert M. Swartz
------------------------------------
Title: Pres. & C.E.O.
-----------------------------------
STOCKHOLDERS NUMBER OF SHARES
Mark Honigsfeld 478,714 plus 122,500 option shares
- ----------------------------------------- -------------------------------------------
Printed Name
/s/ Mark Honigsfeld
- -----------------------------------------
Signature
800 Snediker Ave.
- -----------------------------------------
Address
Brooklyn, NY 11207
- -----------------------------------------
Murray Gross 137,625 plus 235,000 option shares
- ----------------------------------------- -------------------------------------------
Printed Name
/s/ Murray Gross
- -----------------------------------------
Signature
121 NW 53rd St. Suite 450
- -----------------------------------------
Address
Boca Raton, FL 33496
- -----------------------------------------
Deedee Honigsfeld 158,606 plus 0 option shares
- ----------------------------------------- -------------------------------------------
Printed Name
/s/ Deedee Honigsfeld
- -----------------------------------------
Signature
800 Snediker Ave.
- -----------------------------------------
Address
Brooklyn, NY 11207
- -----------------------------------------
</TABLE>
2
<PAGE> 1
EXHIBIT 11
AMRE, INC.
COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Common stock outstanding . . . . . . . . . . . . . . . 13,280 12,850 12,850
Effect of purchase of treasury shares . . . . . . . . . (476) - -
Effect of stock issued on exercise of
stock options . . . . . . . . . . . . . . . . . . . 84 - 53
Common stock equivalents . . . . . . . . . . . . . . . 232 181 -
-------- -------- --------
Weighted average number of shares outstanding . . . . . 13,120 13,031 12,903
======== ======== ========
</TABLE>
<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
<COMMON> 146
3,000
0
<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> (23,383)
<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>
