UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
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 0-17338
HOMEOWNERS GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 65-0033743
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
400 SAWGRASS CORPORATE PARKWAY, SUNRISE, FLORIDA 33325
------------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 983-0350
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 _____
On May 2, 1995, there were 5,558,350 shares of the registrant's common stock
issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
HOMEOWNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1996 1995
--------------------------- ------------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $474,357 $997,336
Trading securities 8,155,430 9,250,349
Current portion of securities available for sale 2,060,884 1,811,624
Miscellaneous receivables 1,443,325 1,278,044
Deferred home warranty acquisition costs 5,029,059 5,666,899
Refundable income taxes 1,277,449 1,277,449
Current portion of deferred income taxes 6,478,538 6,769,294
Prepaid expenses and other current assets 921,314 1,080,458
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Total current assets 25,840,356 28,131,453
Restricted cash 3,160,000 3,160,000
Non-current portion of securities available for sale 1,682,689 1,834,981
Property and equipment - net 4,024,661 3,581,893
Other assets 354,486 432,327
Deferred and refundable income taxes - net of current portion 1,937,582 1,373,608
--------------------------- ------------------------
TOTAL $36,999,774 $38,514,262
=========================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts and accrued expenses payable $12,207,438 $11,584,923
Current maturities of long term debt 1,575,920 1,537,257
Deferred home warranty revenue 14,521,906 16,239,431
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Total current liabilities 28,305,264 29,361,611
Long term debt - net of current portion 2,386,858 2,591,929
Commitments and contingencies
Stockholders' equity:
Common stock - $0.01 par value; 45,000,000 shares
authorized; 5,558,350 shares issued and outstanding
at March 31, 1996 and December 31, 1995 55,584 55,584
Additional paid-in capital 7,458,288 7,458,288
Retained earnings (1,251,208) (1,006,367)
Unrealized holding gain (loss) on securities available for sale 44,988 53,217
--------------------------- ------------------------
Total stockholders' equity 6,307,652 6,560,722
--------------------------- ------------------------
TOTAL $36,999,774 $38,514,262
=========================== ========================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
<TABLE>
<CAPTION>
HOMEOWNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------------------------
1996 1995
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<S> <C> <C>
OPERATING REVENUE $10,385,309 $10,835,083
OPERATING COSTS AND EXPENSES:
Direct expenses 8,287,752 8,169,430
General and administrative expenses 2,464,269 2,623,981
---------------------- ---------------------
Total 10,752,021 10,793,411
---------------------- ---------------------
OPERATING INCOME (LOSS) (366,712) 41,672
OTHER INCOME (EXPENSE):
Investment income - net 91,359 557,185
Other income (expense) - net (108,488) (84,918)
---------------------- ---------------------
Total (17,129) 472,267
INCOME BEFORE
INCOME TAXES (383,841) 513,939
PROVISION FOR INCOME TAXES 139,000 (198,000)
---------------------- ---------------------
NET INCOME (LOSS) ($244,841) $315,939
====================== =====================
PER SHARE AMOUNTS:
Net income (loss) ($0.04) $0.06
====================== =====================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,558,350 5,558,350
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
HOMEOWNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1996 1995
------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ($244,841) $315,938
Adjustments:
Depreciation and amortization 175,305 142,092
Provision for deferred income taxes (279,000) 958,000
(Gain) loss on trading securities 84,263 (343,539)
Other net changes in assets and liabilities:
(Increase) decrease in miscellaneous receivables (165,281) 237,865
Decrease in deferred home warranty acquisition costs 637,840 812,880
Decrease in refundable income taxes 0 (765,553)
Increase in deferred income taxes 5,782 0
Increase in prepaid expenses and other assets 221,813 286,444
Increase (decrease) in accounts and accrued expenses payable 745,968 (1,477,227)
Decrease in deferred home warranty revenue (1,717,525) (2,636,520)
Purchases of trading securities (104,508) (421,900)
Proceeds from sales of trading securities 1,365,512 597,193
----------------------- ----------------------
Net cash used in operating activities 725,688 (2,294,327)
----------------------- ----------------------
Cash flows from investing activities:
Property and equipment expenditures (602,900) (286,977)
Purchases of securities classified as available for sale (370,084) (50,833)
Proceeds from sale of securities classified as available for sale 4,676 173,051
Unrealized holding loss on securities available for sale 9,502 40,045
----------------------- ----------------------
Net cash used in investing activities (958,806) (124,714)
----------------------- ----------------------
Cash flows from financing activities:
Repayments of debt (352,747) (179,734)
Amortization of discount on long term debt 62,886 69,850
Borrowings under capital lease obligation 0 140,000
----------------------- ----------------------
Net cash provided by financing activities (289,861) 30,116
----------------------- ----------------------
Net decrease in cash and cash equivalents (522,979) (2,388,925)
Cash and cash equivalents at beginning of period 997,336 5,875,844
----------------------- ----------------------
Cash and cash equivalents at end of period $474,357 $3,486,919
======================= ======================
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest $68,608 $71,917
Income taxes 128,515 8,142
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
HOMEOWNERS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
1. GENERAL
The consolidated balance sheet as of March 31, 1996 and the consolidated
statements of income and cash flows for the three month periods ended March 31,
1996 and 1995 have been prepared by the Company, without audit. In the opinion
of management, all adjustments, which include only normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 1996, and for the periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
included in the Company's 1995 Annual Report on Form 10-K, filed with the
Securities and Exchange Commission.
2. COMMITMENTS AND CONTINGENCIES
The Company is subject to various lawsuits and claims arising in the normal
course of business. In the opinion of management, the resolution of these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
On December 16, 1995, a jury verdict in the amount of $5,156,022 was rendered in
favor of the Plaintiff and against Homeowners Marketing Services, Inc. ("HMS"),
a subsidiary of the Company, in the following matter: ACCELERATION NATIONAL
INSURANCE COMPANY, PLAINTIFF, VS. HOMEOWNERS MARKETING SERVICES, INC., ET AL.,
DEFENDANTS, in the Court of Common Pleas of Franklin County, Ohio. The judgment
is recorded in accrued and other expenses in the accompanying consolidated
balance sheets. In May, 1996, the Company entered into a definitive merger
agreement with The Cross Country Group, Inc. ("Cross Country"), pursuant to
which Cross Country will purchase all of the outstanding shares of the Company
for $2.35 per share in cash. Under the terms of the merger agreement, Cross
Country will pay the amount due to Acceleration under a settlement agreement,
upon closing of the purchase. See further discussion in MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - RECENT
DEVELOPMENTS.
In February 1996, a lawsuit was filed against the Company in the Court of Common
Pleas of Bucks County, Pennsylvania, by the former franchisee of the
Pennsylvania territory, alleging breach of contact, fraud and misrepresentation,
and seeking damages in the amount of $50,000, trebled, reimbursement of costs
and attorney's fees, and an injunction to prevent the Company from terminating
the franchise agreement. The Company believes this suit is without merit. The
motion to transfer the case to Florida was heard on May 7, 1996, and as a result
of this hearing, a settlement conference has been scheduled to discuss amounts
owed to both parties to the litigation. No accrual for this matter has been
reflected in the accompanying consolidated financial statements.
5
<PAGE>
In connection with the transfer of the net assets of POMG Insurance Company, Ltd
("POMG") to Continental Casualty Company ("CNA"), the Company guaranteed the
validity of a $5,000,000 reinsurance recoverable, one of the POMG assets
transferred to CNA. This asset represents amounts recoverable from a third party
reinsurance company under a reinsurance treaty purchased by POMG to protect it
from losses in excess of a predetermined amount. The Company has agreed, if
necessary, to pay the additional $2,000,000 related to the guarantee from future
commissions. The Company has not recorded a provision for this guarantee, based
on the opinion of its special insurance counsel, that the cover note relating to
the reinsurance contract is a binding agreement, enforceable in accordance with
its terms, and that various the objections voiced by the reinsurer do not
support a material basis for it to successfully deny coverage.
3. STOCK OPTIONS, WARRANTS AND PURCHASE RIGHTS
The Company adopted stock option plans in 1988 authorizing issuance of up to
600,000 shares of common stock to officers and other employees. Of the
authorized shares, 300,000 may be issued as 'incentive stock options' within the
meaning of Section 422 of the Internal Revenue Code, and 300,000 may be issued
as non-qualified options. The options issued through 1992 generally become
exercisable two years after the date of grant and expire no later than ten years
after the date of grant. The options issued in 1993 generally become exercisable
over a five year period, beginning on the date of grant. All options become
immediately exercisable upon a change in control of the Company. Information
with respect to options under the above plans follows:
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
STOCK OPTIONS PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1993 4.00 - 9.75 558,550 206,050 38,450
----------- -------- -------- -------
Granted 2.00 80,000 (80,000)
Became exercisable 5.75 75,900
Canceled 4.00 - 9.75 (156,250) (43,650) 156,250
----------- -------- -------- -------
At December 31, 1994 2.00 - 9.00 482,300 238,300 114,700
Granted 2.00 240,000 (240,000)
Became exercisable 2.00 203,000
Canceled 2.00 (286,600) (224,600) 286,600
----------- -------- -------- -------
At December 31, 1995 $2.00 435,700 216,700 161,300
Became exercisable 2.00 147,000
Canceled 2.00 (4,150) (4,150) 4,150
----------- -------- -------- -------
At March 31, 1996 $2.00 431,550 359,550 165,450
</TABLE>
6
<PAGE>
In May 1992, effective September 1991, the Company adopted a non-employee
directors' stock option plan authorizing issuance of up to 300,000 shares of
common stock. Options under this plan become exercisable annually over the five
years following the date of grant and expire no later than ten years after the
date of grant. Options for 75,000 shares were granted at $6.50 per share on
September 26, 1991; options for 25,000 shares were granted at $5.50 per share on
January 28, 1993; options for 25,000 shares were granted at $3.375 per share on
September 23, 1993; and options for 25,000 shares were granted at $0.75 per
share on December 22, 1995. As of March 31, 1996, options for 117,500 remain
outstanding, and options for 62,500 shares were exercisable.
In 1988, the Company issued five-year stock purchase warrants for 100,000 shares
to outside directors and 150,000 shares to the underwriters of the initial
public offering. All 250,000 warrants expired in 1993; none had been exercised.
In 1991, the Company issued similar warrants for 25,000 shares to an outside
director. These warrants, which were for $10.80 per share, expired on April 11,
1996.
In December 1994, the Company repriced all outstanding employee options to $2.00
per share, with the exception of the options granted to the current Chairman and
the former Chairman of the Board of Directors and the Chief Financial Officer.
The options granted to the Chief Financial Officer were repriced to $3.00 per
share. The options granted to the former Chairman were canceled effective
January 1995. Upon such cancellation, 100,000 options were granted to the
current Chairman of the Board, at $3.00 per share. In December 1995, all of the
options granted to the Chief Financial Officer were repriced to $2.00 per share,
Also in December 1995, 140,000 options granted to the Chairman from 1988 through
1992 were canceled and replaced by a new grant of 140,000 options, exercisable
for a ten year period at $2.00 per share. At the same time, an additional grant
of 120,000 options was issued to the Chairman of the Board, effective January 2,
1996. The options became fully exercisable as of the effective date.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
The Special Committee of the Board of Directors formed in January 1995 has
continued to examine alternatives to enhance stockholder value, and on April 12,
1996, the Company announced that it was engaged in discussions with a number of
parties relating to the possible acquisition of the Company. As a result of
these discussions, the Company announced on May 15, 1996 that it has entered
into a definitive merger agreement (the "Merger Agreement") with The Cross
Country Group, Inc. ("Cross Country"), pursuant to which Cross Country will
acquire all of the outstanding shares of the Company for $2.35 per share in
cash. The merger is subject to a number of conditions, including approval of the
transaction by the stockholders of the Company and by regulatory authorities.
The Board of Directors has approved the transaction and will recommend
ratification of the agreement at the Special Stockholders' meeting called to
consider the merger. The meeting and the closing are anticipated in late
September.
In connection with the Merger Agreement, the Company has reached a settlement
with Acceleration National Insurance Company, pursuant to which Cross Country
has agreed to satisfy the Acceleration judgment at the time of the closing of
the merger.
As a condition of the Merger Agreement, the Company will cancel the Engagement
Agreement with Gary D. Lipson, one of its directors, dated as of April 29, 1996.
The Company will also cancel certain Option Agreements dated April 26, 1996,
with Maple Avenue Enterprises, Inc. ("Maple"), the franchisee for the
Connecticut and Rhode Island territories, under which Maple had options to
purchase the Florida and Pennsylvania territories. Additionally, the Company
will cancel the Amendments to Affiliation Agreements dated April 26, 1996 that
were executed with Maple, Encore Marketing Services, Inc. ("Encore") and Buccell
Enterprises, Inc. (Buccell). As a result of these actions, the franchise
agreements will terminate on June 21, 1998. Diane M. Gruber, a director of the
Company, has an ownership interest in both Maple and Encore and Buccell is
managed by Ms. Gruber.
As a further condition to the Merger Agreement, Carl Buccellato, the Company's
President, Chief Executive Officer and Chairman of the Board will resign from
such positions at the effective time of the merger. In addition, his employment
agreement will be terminated and Mr. Buccellato will enter into a three year
consulting agreement, effective upon the consummation of the merger.
BUSINESS ENVIRONMENT
HMS MEMBERSHIP NETWORK
The Company, through its Homeowners Marketing Services, Inc. ("HMS") subsidiary,
has developed a national network of real estate brokers ("Members"), enrolled by
the Company's franchisees ("Affiliates") and the field sales force employed in
the Corporate Owned Regions ("COR"). The Company offers various types of
memberships including a "full membership," under which participating brokers
have access to all of the Company's products and services, and a "limited
membership," under which participating brokers have access to certain of the
Company's products and services.
Members generally pay an initial membership fee and annual renewal fees, in
order to retain the rights of membership. Full members participate in the
Company's Errors & Omissions insurance ("E&O") program and pay marketing or
placement fees to the Company for access to the program. Members also have the
right to use products and services provided by other vendors with which the
Company has made preferred arrangements.
8
<PAGE>
Membership provides access to home warranty contracts and the real estate
brokers E&O insurance, in addition to access to the following programs: a
membership-wide referral networking system (REFNET/Registered trademark/), the
HMS BuyerTrack/Registered trademark/ Follow-Up System, the HMS Consumer Reach
Program, a monthly real estate publication (HMS NETWORKING/Registered trademark/
Magazine), the HMS Risk Management System/Registered trademark/, and certain
advertising and public relations materials.
HOME WARRANTY CONTRACTS
The Company offers, through its Members, home warranty contracts for a fixed
fee, paid at the time of closing of residential sale transactions participated
in by HMS Members. The home warranty contract provides for the repair or
replacement, at the Company's discretion, of major mechanical systems and
certain appliances of a residence which malfunction as a result of normal wear
and tear during the term of the contract. The Company currently offers a home
warranty contract for sale in every state in which the Company operates, with
the exceptions of Connecticut and New Hampshire. The Company and the home
warranty contract offered are subject to insurance type regulations in 17 of the
states in which contracts are sold.
Funds received for the home warranty contracts are deferred upon receipt and
recognized as revenue over the contract term (generally one year) in proportion
to historical experience of home warranty repair costs incurred. The direct
costs of acquiring the contracts, which are generally a fixed portion of the
related revenue, are recorded in the same manner. Repair costs under home
warranty contracts, which are expensed as mechanical break-downs are reported to
and are authorized by the Company, represent the direct expense which typically
varies most with respect to related revenue. A significant portion of repair
costs generally relates to heating and air conditioning systems, water heaters
and plumbing. The frequency and severity of such repair costs vary with changing
weather patterns.
ERRORS & OMISSIONS AND OTHER INSURANCE PRODUCTS
The Company also markets real estate brokers' E&O liability insurance to its
Members, through its HOMS Insurance Agency, Inc. ("HOMS") subsidiary. This
insurance generally provides limits of between $100,000 and $1,000,000 per loss
and from $100,000 to $1,000,000 aggregate per policy year. The policies
generally provide coverage for wrongful acts which occur during the term of the
policy and are reported up to 60 days after expiration of the policy and all
claims after expiration for which notice of wrongful act is given prior to
expiration. The policy provides for a deductible per loss and covers the real
estate brokerage firm and all officers, partners, stockholders, employees,
salespersons and sales associates or independent contractor brokers of the
brokerage firm. The Company is not subject to reinsurance risk under the current
program.
SEASONALITY
Most of the Company's revenue is generated at the time of residential resale
closings. These closings generally follow a seasonal pattern. First quarter
volume is usually the lowest, third quarter the highest, and second and fourth
quarters are about equal. Claims under home warranty contracts are generally
higher in the summer and winter months, while general and administrative
expenses are usually incurred evenly from quarter to quarter. As a result, the
Company's operating results in the second half of a given year are generally
better than the results in the first half.
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO MARCH 31, 1995
Home Warranty Operations:
Home warranty revenue, totaling $9,035,000 and representing 87% of total
operating revenue for the three months ended March 31, 1996, decreased 0.4% from
the corresponding 1995 figure of $9,071,000, or 84% of total operating revenue.
Because of the Company's warranty revenue recognition policy under which
warranty revenue is recognized over the contract term, generally twelve months,
the revenue earned is impacted by warranty production in the preceding eleven
months, as well as current period production. Consequently, revenue recognition
generally lags behind production. Thus, the revenue decrease experienced in the
first quarter of 1996, as compared to the comparable 1995 period is due
primarily to the impact of lower warranty production in the last three quarters
of 1995, as compared to the corresponding period for 1994. Warranty contract
sales in the first quarter of 1996 were 14% higher than in the 1995 first
quarter, as a result of increased sales opportunities corresponding to increased
residential resale transactions during the first quarter of 1996. This trend is
consistent with industry experience. The impact of this increase in warranty
contract sales will affect warranty revenue recognition in future quarters, due
to the warranty revenue recognition method, as discussed previously. Renewal
warranty contract sales in the first quarter of 1996 were 49% higher than in the
1995 first quarter. The renewal success rate has improved to approximately 25%
as opposed to approximately 15% during the comparable period in 1995. There have
been no major pricing changes which would have significantly affected warranty
revenue.
Direct expenses of the warranty product, which consist primarily of claims
expenses and acquisition costs, as a percentage of related operating revenue,
increased to 79% in 1996 from 77% in 1995, primarily due to the impact of the
harsher winter weather in the first quarter of 1996 as compared to the first
quarter of 1995, and resulting claims expense incurred. Average severity
increased by 4% during the 1996 first quarter, while frequency increased 3% over
the 1995 levels.
The 1996 warranty acquisition cost ratio is 1% lower than the comparable 1995
ratio. As the volume of contract sales shifts between geographic regions, the
Company's overall acquisition cost ratio changes, as the Company's acquisition
costs vary in different locations. The acquisition cost ratio is expected to
remain relatively stable at its current level, assuming that the warranty
product mix and geographic distribution do not change significantly. Management,
does not expect a significant change to occur in the near future.
Membership and Other Operations:
Membership related revenue was 23% lower than in the comparable prior year
period, which reflects the continuing impact of the reduction in Full E&O
membership on the Company's membership revenue stream. Currently, only
approximately 34% of the Company's membership participates in the Company's E&O
program, as opposed to approximately 43% for the comparable period in 1995, and
these members generate the bulk of the Company's membership revenue. The
remaining 66% of the Company's membership does not pay the marketing/placement
fees associated with Full E&O membership. Additionally, these non E&O members
often pay a reduced annual membership or renewal fee, or these fees may even be
waived.
10
<PAGE>
Direct expenses of the membership operations declined only 10% and approximated
84% of related revenue for the first three months of 1996 and 72% of related
revenue for the comparable prior year period. The increasing cost ratio results
from the impact of certain fixed costs which do not decline with decreases in
revenue. Also, the Company currently operates three additional territories as
corporate owned regions.
E&O Brokerage Operations:
E&O brokerage revenue for the three months ended March 31, 1996, totaled
$215,000, a decrease of 22% from the 1995 first quarter revenue of $276,000. The
decrease relates to the continuing declines in the Company's Full E&O membership
base, as only 34% of the Company's membership currently participates in the E&O
program compared to approximately 43% at March 31, 1995.
Direct costs of the E&O brokerage operations increased from $104,000 or 38% of
related revenue in the 1995 first quarter to $197,000 or 92% of related revenue
in the comparable 1996 period. The Company pays 25% of the commission it earns
on the E&O premiums collected to the Affiliates generating the premium volume.
Also, there are certain related programs which are supported by components of
the E&O programs, such as the Company's Seller's E&O product. Certain policy
costs were incurred in the first quarter of 1996 relative to the Seller's E&O
program which were not incurred in the first quarter of 1995. The current
program, which is underwritten by Southeast Underwriting Group, was introduced
in May of 1995.
G&A Expense:
General and administrative expenses ("G&A") decreased from $2,611,000 in the
first quarter of 1995 to $2,464,000 in 1996, primarily due to decreases in rent
and insurance expenses. The Company was able to significantly reduce certain of
its insurance premiums for 1996. As a percentage of revenue, G&A fell from 24.1%
in the 1995 first quarter, to 23.7% in the 1996 first quarter.
Other Income (net):
Other income, net is comprised of net investment income in excess of interest
expense. Investment income is generated primarily from the trading securities
currently invested by the Company's regulated home warranty subsidiaries, as
well as from additional investments of funds generated through sales of warranty
products. Net investment income decreased from a net gain of $558,000 for the
three months ended 1995 to a net gain of $91,000 in the current year equivalent
period. This decrease is primarily due to market interest rate fluctuations,
which have caused the fair value of the Company's investment portfolio,
consisting mainly of
11
<PAGE>
mutual funds and debt instruments, to decline from the 1995 market values.
Approximately $343,000 of the 1995 income related to realized holding gains on
the Company's investment portfolio of trading securities, as compared to
realized holding losses of $85,000 in the 1996 first quarter. Interest expense
of approximately $68,000 relates primarily to the CNA obligation described
below. The Company's investment in a joint venture in an Internet access
provider generated losses of approximately $45,000 in the 1996 first quarter.
Income Taxes:
The Company's effective income tax rate on continuing operations for the current
three month period was a benefit of 36%, as compared to 39% in the comparable
1995 period. Management does not expect the effective income tax rate to change
substantially during the remainder of 1996, as there are no significant
permanent differences which would generate such a change.
LIQUIDITY AND CAPITAL RESOURCES
The Company generally receives payment for products and services before
disbursing funds for related direct expenses. Fees from Members and from sales
of home warranty contracts are received before related marketing commissions are
paid out and before claims are made under home warranty contracts. Consequently,
cash flow has been adequate to meet current obligations. As a result of
increases in home warranty production growth in 1996 as compared to 1995, cash
collected on warranty contracts in the first quarter of 1996 was approximately
$917,000 higher than in 1995. However, the Company incurred heavy claims in the
first quarter of 1996, and also experienced decreases in the membership and E&O
revenue as compared to the 1995 first quarter, which more than offset the
increased cash receipts from production growth.
As discussed previously, the Company's membership and related revenues continue
to be negatively affected by decreases in new and renewal Full E&O members, and
in the related fees generated by this type of the Company's membership. In 1996,
the Company has and will continue to provide various discounted membership
options in order to grow its membership base. The Company's Warranty Sales Only
memberships generally do not result in the collection of any membership related
fees, but has contributed to the growth in warranty production over 1995 levels.
While the Company anticipates that its cash flow from membership operations will
continue to be significantly negatively impacted by the discounted membership
options and the shift in membership composition, the Company expects that cash
flow generated from its warranty and other operations, in combination with the
impact from continued cost monitoring and management measures, will be
sufficient to meet its operating needs on an ongoing basis.
In the first quarter of 1996, net cash provided by operating activities totaled
$726,000, as compared to cash used in operations of $2,294,000 in the
corresponding 1995 period. This increase in net cash provided by operating
activities is primarily due to liquidation of certain investment balances, which
was necessary in mid-February to meet the extremely high claims demands
resulting from the severe winter weather during December, January and February,
and to offset the effects of decreasing membership revenues. During the first
quarter, the Company changed its vendor payment terms to more appropriately
match its operating cycle. This change moved the Company's payment cycle from
approximately 20 days to approximately 30 days. Also impacting operating cash
flows from operating activities are various payments for Affiliate and Member
commissions, which increase as production increases, and E&O premium
remittances. In the 1996 first quarter, the Company used $959,000 in investing
activities, as compared to $125,000 in the 1995 quarter,
12
<PAGE>
primarily due to increased expenditures for property and equipment, paired with
a transfer of securities from trading to available for sale, pursuant to a
consolidation of investment balances for one of the Company's regulated
subsidiaries, in an effort to maximize investment earnings potential. The
increases in property and equipment expenditures relate to investments in the
Company's processing environment technology, and also to leasehold improvements
made in the Company's new leased office building. Net cash used in financing
activities totaled $290,000 in the first quarter of 1996, as compared to net
cash provided by financing activities of $30,000 in the comparable 1995 period.
This change was primarily due to increasing debt repayments, primarily on the
Company's obligation to Continental Casualty Company ("CNA"), paired with the
lack of financing of any purchases in the 1996 period.
Cash paid for income taxes is generally expected to approximate the current
income tax provision in a given year. However, due to the losses incurred in
1993 and 1994, the Company has currently refundable income tax benefits
approximating $1,277,000. A portion of the prior year losses, and the current
year loss have generated NOL carryforwards that will be used to offset future
taxable income. Despite these NOL carry forwards, the Company will be required
to make estimated tax payments until certain of the losses generated for
financial statement purposes become deductible for tax purposes. The Company
intends to file for further refunds of taxes paid in prior years. The
application for refund filed by the Company in 1995, approximating $1,277,000 is
still pending. The refund has been pledged to Acceleration National Insurance
Company (" Acceleration") as security for the judgment rendered against one of
the Company's subsidiary in December 1995. If the refund is received prior to
the closing of the merger with Cross Country, the amount will be paid to
Acceleration in reduction of the amount payable at closing, under the settlement
agreement. In the 1996 first quarter, the Company made estimated state and
federal tax payments of approximately $129,000 for the 1995 tax year.
In consideration for CNA's assumption of certain reinsurance obligations of POMG
Insurance Company, Ltd ("POMG"), a wholly owned subsidiary of the Company, prior
to its May 1995 liquidation, the Company has agreed to pay CNA $5,000,000 out of
certain revenue sources, over a period estimated to be five years from the
commencement of the CNA E&O program toward the ultimate settlement of the
transferred losses and expenses. The agreements with CNA impose certain
restrictive covenants until the $5,000,000 CNA Obligation is satisfied. These
covenants include limits on dividends and on future borrowings. The funds due to
CNA are a senior obligation of the Company, secured by an interest in the common
stock of the Company's HOMS Insurance Agency, Inc. subsidiary and in the
Company's Member list. Through December 31, 1999, the Company and its Affiliates
must provide CNA/Schinnerer with right of first refusal on E&O insurance offered
to its membership. The Company forwards half of its commissions earned under the
CNA E&O program to CNA, to be applied as debt repayments on the obligation until
its satisfaction. In March 1996, the Company revised its repayment schedule for
the CNA obligation, due to the 1995 premium quota shortfalls. Accordingly,
through the remainder of 1996, a portion of the repayments made to CNA will be
at fixed amount, to make up for the repayment shortfall caused by the premium
volume shortfall in 1995. In addition to this fixed monthly repayment, the
Company will continue to remit 50% of the commission generated on premium volume
collections.
As of March 31, 1996, the net present value of the balance due to CNA under this
obligation was $3,530,000. During the first quarter of 1996 the Company made
principal repayments of approximately $72,000 against the obligation. In
addition to the assets transferred to CNA, the Company has guaranteed the
validity of a $5,000,000 reinsurance recoverable, one of the POMG assets
transferred. This guarantee is secured by $3,000,000 cash collateral posted by
the Company. The Company has agreed, if necessary, to pay an additional
$2,000,000 out of future commissions related to the guarantee. Should this
occur, the repayments on the $5,000,000 obligation will be delayed until the
$2,000,000 is paid. The Company will not be required to further reduce its
collected commission by more than 50% under these agreements. The Company has
not recorded a provision for this guarantee, based upon the advice of its
special insurance counsel, that the cover note relating to the reinsurance
contract is a binding agreement, enforceable in accordance with its terms, and
the objections voiced by the reinsurer do not support a material basis for it to
successfully deny coverage.
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<PAGE>
On December 16, 1995, a jury verdict in the amount of $5,156,022 was rendered in
favor of the Plaintiff and against Homeowners Marketing Services, Inc. ("HMS"),
a subsidiary of the Company, in the following matter: ACCELERATION NATIONAL
INSURANCE COMPANY, PLAINTIFF, VS. HOMEOWNERS MARKETING SERVICES, INC., ET AL.,
DEFENDANTS, in the Court of Common Pleas of Franklin County, Ohio. The judgment
is recorded in accrued and other expenses in the accompanying consolidated
balance sheets. Under the terms of the Merger Agreement, Cross Country will
satisfy the obligation of the Company to Acceleration, pursuant to the terms of
a settlement agreement, at the closing of the merger.
On April 8, 1996, the Company announced that an agreement with American
International Group, Inc. had been finalized, pursuant to which the Company's
warranty product will be insured by New Hampshire Insurance Company, a member
company of American International Group, Inc.
Seventeen of the states in which the Company's subsidiaries operate regulate the
home warranty business. As of March 31, 1996, approximately $9,300,000 of cash
and investments are needed to maintain the regulated subsidiaries' required
minimum reserve and surplus levels. Of this amount, approximately $1,200,000 of
cash and investments are held by the regulated states to assure the Company's
fulfillment of its obligations to contract holders. Increases in warranty
production, as seen thus far in the first quarter of 1996, result in increases
in the Company's required reserve and surplus levels in the regulated states. In
addition, state regulators generally seek reserve balances in excess of the
minimum standards. In certain states, withdrawal of any reserves in excess of
statutory minimums requires approval from the regulatory authorities. The
Company has been advised by certain authorities that such approval will not be
granted. Accordingly, the Company maintained reserves of approximately
$12,500,000 as of March 31, 1996. The Company is currently in compliance with
all applicable surplus requirements.
The Company is continuing its efforts to upgrade its current computer and
processing environments, in an attempt to increase operational efficiency,
improve management information, and allow for future growth in the Company's
business. This plan is currently expected to have an incremental cost of
approximately $600,000 in excess of the costs incurred to date and the costs of
maintaining, servicing and improving the existing system. Management expects
that sufficient funds will be available to cover the cost of the upgrade. If
such funds are not available, this project will be deferred.
14
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company incurs numerous lawsuits in the ordinary course of its home warranty
contract business, typically concerning whether claims under such home warranty
contracts are entitled to coverage. The Company does not believe any of these
suits are material to the Company's operations or financial results.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Index to Exhibits
3.4 Amendments to By-Laws
10.34 Second Amendment to Engagement Agreement with Gary D.
Lipson, dated May 14, 1996
10.35 Consulting Agreement with Gary D. Lipson, dated April
29, 1996
10.36 Amendments to Affiliation Agreements, dated April 26,
1996
10.37 Option Agreements with Maple Avenue Enterprise, Inc.,
dated April 26, 1996
11. Computation of Net Income per Common Share for the
three month periods ended March 31, 1996 and 1995.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
HOMEOWNERS GROUP, INC.
May 14, 1996 By: /s/ C. GREGORY MORRIS
----------------------
C. Gregory Morris
Vice President, Treasurer and
Chief Financial Officer
16
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
HOMEOWNERS GROUP, INC.
A DELAWARE CORPORATION
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
PAGE
ARTICLE 1 - DEFINITIONS........................................................................... 1
ARTICLE 2 - STOCKHOLDERS.......................................................................... 2
2.1 Place of Meetings............................................................ 2
2.2 Annual Meeting............................................................... 2
2.3 Special Meetings............................................................. 3
2.4 Fixing Record Date........................................................... 3
2.5 Notice of Meetings of Stockholders........................................... 4
2.6 Waivers of Notice............................................................ 5
2.7 List of Stockholders......................................................... 6
2.8 Quorum of Stockholders; Adjournment.......................................... 6
2.9 Voting Proxies............................................................... 6
2.10 Selection and Duties of Inspectors at Meetings of Stockholders............... 8
2.11 Organization................................................................. 8
2.12 Order of Business............................................................ 9
ARTICLE 3 - DIRECTORS............................................................................. 9
3.1 General Powers............................................................... 9
3.2 Nominations for Directors.................................................... 9
3.3 Number: Qualification: Term of Office........................................ 10
3.4 Election ................................................................... 10
3.5 Newly Created Directorships and Vacancies.................................... 10
3.6 Resignations................................................................. 11
3.7 Removal of Directors......................................................... 11
3.8 Compensation................................................................. 11
3.9 Place and Time of Meetings of the Board...................................... 12
3.10 Annual Meetings.............................................................. 12
3.11 Regular Meetings............................................................. 12
3.12 Special Meetings............................................................. 12
3.13 Adjourned Meetings........................................................... 13
3.14 Waiver of Notice............................................................. 13
3.15 Organization................................................................. 14
3.16 Quorum of Directors.......................................................... 14
3.17 Action by the Board.......................................................... 14
ARTICLE 4 - COMMITTEES OF THE BOARD............................................................... 15
ARTICLE 5 - OFFICERS.............................................................................. 16
5.1 Officers ................................................................... 16
5.2 Removal of Officers.......................................................... 17
5.3 Resignations................................................................. 17
5.4 Vacancies ................................................................... 17
5.5 Compensation................................................................. 17
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5.6 Chairman ................................................................... 17
5.7 President ................................................................... 18
5.8 Chief Executive Officer...................................................... 18
5.9 Chief Operating Officer...................................................... 19
5.10 Vice Presidents.............................................................. 19
5.11 Secretary ................................................................... 19
5.12 Treasurer ................................................................... 20
5.13 Assistant Secretaries and Assistant Treasurers............................... 21
ARTICLE 6 - CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC......................................... 21
6.1 Execution of Contracts....................................................... 21
6.2 Loans ................................................................... 22
6.3 Checks, Drafts, Etc.......................................................... 22
6.4 Deposits ................................................................... 22
ARTICLE 7 - STOCK AND DIVIDENDS................................................................... 23
7.1 Certificates Representing Shares............................................. 23
7.2 Transfer of Shares........................................................... 23
7.3 Transfer and Registry Agents................................................. 24
7.4 Lost, Destroyed, Stolen and Mutilated Certificates........................... 24
7.5 Regulations.................................................................. 25
7.6 Restriction on Transfer of Stock............................................. 25
7.7 Dividends, Surplus, Etc...................................................... 26
ARTICLE 8 - INDEMNIFICATION....................................................................... 26
8.1 Indemnification of Officers, Directors and Employees......................... 26
8.2 Advancement of Expenses...................................................... 27
8.3 Actions to Enforce Provisions................................................ 28
8.4 Nonexclusivity of Provisions................................................. 29
8.5 Insurance ................................................................... 29
8.6 Indemnification of Agents.................................................... 30
ARTICLE 9 - BOOKS AND RECORDS..................................................................... 30
9.1 Books and Records............................................................ 30
9.2 Form of Records.............................................................. 30
9.3 Inspection of Books and Records.............................................. 31
ARTICLE 10 - SEAL................................................................................. 31
ARTICLE 11 - FISCAL YEAR.......................................................................... 31
ARTICLE 12 - VOTING OF SHARES HELD................................................................ 31
ARTICLE 13 - NONAPPLICABILITY OF CERTAIN FLORIDA STATUTES......................................... 32
ARTICLE 14 - AMENDMENTS........................................................................... 33
</TABLE>
ii
<PAGE>
BY-LAWS
OF
HOMEOWNERS GROUP, INC.
(A DELAWARE CORPORATION)
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise
requires, the term:
1.1 "Assistant Secretary" means an Assistant
Secretary of the Corporation.
1.2 "Assistant Treasurer" means an Assistant
Treasurer of the Corporation.
1.3 "Board" means the Board of Directors of the
Corporation.
1.4 "By-laws" means the initial by-laws of the
Corporation, as amended from time to time.
1.5 "Certificate of Incorporation" means the initial
certificate of incorporation of the Corporation, as amended, supplemented or
restated from time to time.
1.6 "Chairman" means the Chairman of the Corporation.
1.7 "Chief Executive Officer" means the Chief
Executive Officer of the Corporation.
1.8 "Chief Operating Officer" means the Chief
Operating Officer of the Corporation.
1.9 "Corporation" means Homeowners Group, Inc., a
Delaware corporation.
1.10 "Directors" means directors of the Corporation.
<PAGE>
1.11 "General Corporation Law" means the General
Corporation Law of the State of Delaware, as amended from time to time.
1.12 "Office of the Corporation" means the executive
office of the Corporation, anything contained in Section 131 of the General
Corporation Law to the contrary notwithstanding.
1.13 "President" means the President of the
Corporation.
1.14 "Secretary" means the Secretary of the
Corporation.
1.15 "Stockholders" means stockholders of the
Corporation.
1.16 "Total number of directors" means the total
number of directors determined in accordance with Section 141(b) of the General
Corporation Law and Section 3.3 of the By-laws.
1.17 "Treasurer" means the Treasurer of the
Corporation.
1.18 "Vice President" means a Vice President of the
Corporation.
1.19 "Whole Board" means the total number of
directors of the Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 PLACE OF MEETINGS. Every meeting of
stockholders shall be held at the office of the Corporation or at
such other place within or without the State of Delaware as shall be specified
or fixed in the notice of such meeting or in the waiver of notice thereof.
2.2 ANNUAL MEETING. A meeting of stockholders shall
be held annually for the election of directors and the transaction of any other
business that may come before the
2
<PAGE>
meeting. The time and place of the meeting shall be as determined by the Board
and; designated in the notice of meeting.
2.3 SPECIAL MEETINGS. A special meeting of
stockholders, unless otherwise prescribed by statute, may be called at any time
by the Board, by the Chief Executive Officer or by the holders of not less than
ten percent of the outstanding shares entitled to vote in any meeting of the
stockholders. At any special meeting of stockholders only such business may be
transacted as is related to the purposes of such meeting set forth in the notice
thereof given pursuant to Section 2.5 of the By-laws or in any waiver of notice
thereof given pursuant to Section 2.6 of the By-laws.
2.4 FIXING RECORD DATE. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or for the purpose of determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a date as the record date for any such
determination of stockholders. Such date shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no such record date is fixed:
2.4.1 The record date for determining
stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if
notice is
3
<PAGE>
waived, at the close of business on the day next preceding the day on which the
meeting is held;
2.4.2 The record date for determining
stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action
by the Board is necessary, shall be the day on which the
first written consent is expressed;
2.4.3 The record date for determining
stockholders for any purpose other than those specified in
Sections 2.4.1 and 2.4.2 shall be at the close of business
on the day on which the Board adopts the resolution
relating thereto.
When a determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.4, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date for the adjourned meeting.
2.5 NOTICE OF MEETINGS OF STOCKHOLDERS. Except as
otherwise provided in Sections 2.4 and 2.6 of the By-laws, whenever under the
General Corporation Law or the Certificate of Incorporation or the By-laws,
stockholders are required or permitted to take any action at a meeting, written
notice shall be given stating the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. A copy of the notice of any meeting shall be given, personally or by
mail, not less than ten nor more than sixty days before the date of the meeting,
to each stockholder entitled to notice of or to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, with postage prepaid,
4
<PAGE>
directed to the stockholder at his address as it appears on the records of the
Corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the Corporation that the notice required by this Section 2.5
has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, and at the
adjourned meeting any business may be transacted that might have been transacted
at the meeting as originally called. If, however, the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.6 WAIVERS OF NOTICE. Whenever notice is required
to be given to any stockholder under any provision of the General Corporation
Law or the Certificate of Incorporation or the By-laws, a written waiver
thereof, signed by the stockholder entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
stockholder at a meeting shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
5
<PAGE>
2.7 LIST OF STOCKHOLDERS. The Secretary shall
prepare and make, or cause to be prepared and made, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to-the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to-be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
2.8 QUORUM OF STOCKHOLDERS; ADJOURNMENT. The holders
of one-third of the shares of stock entitled to vote at any meeting of
stockholders, present in person or represented by proxy, shall constitute a
quorum for the transaction of any business at such meeting. When a quorum is
once present to organize a meeting of stockholders, it is not broken by the
subsequent withdrawal of any stockholder or stockholders. The holders of a
majority of the shares of stock present in person or represented by proxy at any
meeting of stockholders, including an adjourned meeting, whether or not a quorum
is present, may adjourn such meeting to another time and place.
2.9 VOTING PROXIES. Unless otherwise provided in
the Certificate of Incorporation, every stockholder of record shall be entitled
at every meeting of stockholders to one vote for each share of capital stock
standing in his name on the record of
6
<PAGE>
stockholders determined in accordance with Section 2.4 of the By-laws. If the
Certificate of Incorporation provides for more or less than one vote for any
share, on any matter, every reference in the By-laws or the General Corporation
Law to a majority or other proportion of stock shall refer to such majority or
other proportion of the votes of such stock. The provisions of Sections 212 and
217 of the General Corporation Law shall apply in determining whether any shares
of capital stock may be voted and the persons, if any, entitled to vote such
shares, but the Corporation shall be protected in treating the persons in whose
names shares of capital stock stand on the record of stockholders as owners
thereof for all purposes. At any meeting of stockholders (at which a quorum was
present to organize the meeting), all matters, except as otherwise provided by
law or by the Certificate of Incorporation or by the By-laws, shall be decided
by a majority of the votes cast at such meeting by the holders of shares present
in person or represented by proxy and entitled to vote thereon, whether or not a
quorum is present when the vote is taken. All elections of directors shall be by
written ballot unless otherwise provided in the Certificate of Incorporation. In
voting on any other question on which a vote by ballot is required by law or is
demanded at the commencement of the meeting by any stockholder entitled to vote,
the voting shall be by ballot. Each ballot shall be signed by the stockholder
voting or by his proxy, and shall state the number of shares voted. On all other
questions, the voting shall be by voice vote. Every stockholder entitled to vote
at a meeting of stockholders may authorize another person or persons to act for
him by proxy. The validity and enforceability of any proxy shall be determined
in accordance with Section 212 of the General Corporation Law.
7
<PAGE>
2.10 SELECTION AND DUTIES OF INSPECTORS AT MEETINGS
OF STOCKHOLDERS. The-Board, in advance of any meeting of stockholders, may
appoint one or more inspectors to act at the meeting or any adjournment thereof.
If inspectors are not so appointed, the person presiding at such meeting may,
and on the request of any stockholder entitled to vote thereat shall, appoint
one or more inspectors. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the Board in advance of the meeting
or at the meeting by the person presiding thereat. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder entitled to vote thereat, the inspector or inspectors shall
take a report in writing of any challenge, question or matter determined by his
or them and execute a certificate of any fact found by him or them. Any report
or certificate made by the inspector or inspectors shall be prima facie evidence
of the facts stated and of the vote as certified by him or them.
2.11 ORGANIZATION. At every meeting of stockholders,
the Chief Executive Officer shall preside. In the absence of the Chief
Executive Officer, whichever of the
8
<PAGE>
Chairman or the President who is not the Chief Executive Officer, or in the
absence of both the Chairman and the President, any other person designated by
the Board shall act as chairman of the meting. The Secretary, or in his absence
one of the Assistant Secretaries, shall act as secretary of the meeting. In case
none of the officers above designated to act as chairman or secretary of the
meeting, respectively, shall be present, a chairman or a secretary of the
meeting, as the case may be, shall be chosen by a majority of the votes cast at
such meeting by the holders of shares of capital stock present in person or
represented by proxy and entitled to vote at the meeting.
2.12 ORDER OF BUSINESS. The order of business at all
meetings of stock- holders shall be as determined exclusively by the chairman
of the meeting.
ARTICLE 3
DIRECTORS
3.1 GENERAL POWERS. Except as otherwise provided in
the Certificate of Incorporation, the business and affairs of the Corporation
shall -be managed by or under the direction of the Board. The Board may adopt
such rules and regulations, not inconsistent with the Certificate of
Incorporation or the By-laws or applicable laws, as it may deem proper for the
conduct of its meetings and the management of the Corporation. In addition to
the powers expressly conferred by the By-laws, the Board may exercise all powers
and perform all acts which are not required, by the By-laws or the Certificate
of Incorporation or by law, to be exercised and performed by the stockholders.
3.2 NOMINATIONS FOR DIRECTORS. Nominations for
election to the Board may be made by the Board or by any holder of shares of
any outstanding class of capital stock
9
<PAGE>
of the Corporation entitled to vote for the election of directors. Nominations
other than those made by the Board shall be made by notification in writing
delivered to the Secretary not less than twenty nor more than fifty days prior
to any annual or special meeting of stockholders called for the election of
directors; provided, however that if less than twenty-eight days notice of such
meeting is given to stockholders, such nomination shall be delivered to the
Secretary not later than the close of business on the seventh day following the
day on which the notice of such meeting was mailed to stockholders.
3.3 NUMBER: QUALIFICATION: TERM OF OFFICE. The
Board shall consist of not less than one nor more than fifteen members. The;
total number of directors shall be fixed initially by the incorporator and may
thereafter be changed from time to time by the Board pursuant to a resolution
adopted by a majority of the Whole Board. Directors need not be stockholders.
Each director shall hold office until his successor is elected and qualified or
until his earlier death, resignation or removal.
3.4 ELECTION. Directors shall, except as otherwise
required by law or by the Certificate of Incorporation, be elected by a
plurality of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote in the election.
3.5 NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Unless otherwise provided in the Certificate of Incorporation, newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any other reason, including the removal of
directors, shall be filled by vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected to hold office for a term expiring at
the
10
<PAGE>
annual meeting of stockholders at which the term of the class of directors
to which he has been elected expires, or until his earlier death, resignation or
removal.
3.6 RESIGNATIONS. Any director may resign at any
time by written notice to the Corporation. Such resignation shall take effect at
the time therein specified, and, unless otherwise specified, the acceptance of
such resignation shall not be necessary to make it effective.
3.7 REMOVAL OF DIRECTORS. Any or all of the
directors may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least two-thirds of the voting
power of all of the shares of the Corporation entitled to vote for the election
of directors.
3.8 COMPENSATION. Each director, in consideration
of his service as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at directors' meetings, or both, as
the Board may from time to time determine, together with reimbursement for the
reasonable expenses incurred by him in connection with the performance of his
duties. Each director who shall serve as a member of any committee of directors
in consideration of his serving as such shall be entitled to such additional
amount per annum or such fees for attendance at committee meetings, or both, as
the Board may from time to time determine, together with reimbursement for the
reasonable expenses incurred by him in the performance of his duties. Nothing
contained in this section shall preclude any director from serving the
Corporation or its subsidiaries in any other capacity and receiving proper
compensation therefor.
11
<PAGE>
3.9 PLACE AND TIME OF MEETINGS OF THE BOARD.
Meetings of the Board, regular or special, may be held at any place within or
without the State of Delaware. The times and places for holding meetings of the
Board may be fixed from time to time by resolution of the Board or (unless
contrary to resolution of the Board) in the notice of the meeting.
3.10 ANNUAL MEETINGS. On the day when and at the
place where the annual meeting of stockholders for the election of directors is
held, and as soon as practicable thereafter, the Board may hold its annual
meeting, without notice of such meeting, for the purposes of organization, the
election of officers and the transaction of other business. The annual meeting
of the Board may be held at any other time and place specified in a notice given
as provided in Section 3.12 of the By-laws for special meetings of the Board or
in a waiver of notice thereof.
3.11 REGULAR MEETINGS. Regular meetings of the Board
may be held at such times and places as may be fixed from time to time by the
Board. Unless otherwise required by the Board, regular meetings of the Board may
be held without notice. If any day fixed for a regular meeting of the Board
shall be a Saturday or Sunday or a legal holiday at the place where such meeting
is to be held, then such meeting shall be held at the same hour at the same
place on the first business day thereafter which is not a Saturday, Sunday or
legal holiday.
3.12 SPECIAL MEETINGS. Special meetings of the Board
shall be held whenever called by the Chief Executive Officer or by any two or
more directors. Notice of each special meeting of the Board shall, if mailed,
be addressed to each director at the
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address designated by him for that purpose or, if none is designated, at his
last known address at least two days before the date on which the meeting is to
be held; or such notice shall be sent to each director at such address by
telegraph, cable, or wireless, or be delivered to him personally, not later than
the day before the date on which such meeting is to be held. Every such notice
shall state the time and place of the meeting but need not state the purposes of
the meeting, except to the extent required by law. If mailed, each notice shall
be deemed given when deposited, with postage thereon prepaid, in a post office
or official depository under the exclusive care and custody of the United States
post office department. Such mailing shall be by first class mail.
3.13 ADJOURNED MEETINGS. A majority of the directors
present at any meeting of the Board, including an adjourned meeting, whether or
not a quorum is present, may adjourn such meeting to another time and place.
Notice of any adjourned meeting of the Board need not be given to any director
whether or not present at the time of the adjournment. Any business may be
transacted at any adjourned meeting that might have been transacted at the
meeting as originally called.
3.14 WAIVER OF NOTICE. Whenever notice is required
to be given to any director or member of a committee of directors under any
provision of the General Corporation Law or of the Certificate of Incorporation
or By-laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business
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because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice.
3.15 ORGANIZATION. At each meeting of the Board, the
Chairman of the Corporation, or in the absence of the Chairman, a chairman
chosen by a majority of the directors present, shall preside. The Secretary
shall act as secretary at each meeting of the Board. In case the Secretary shall
be absent from any meeting of the Board, an Assistant Secretary shall perform
the duties of secretary at such meeting and in the absence from any such meeting
of the Secretary and all Assistant Secretaries, the person presiding at the
meeting may appoint any person to act as secretary of the meeting.
3.16 QUORUM OF DIRECTORS. One-third of the total
number of directors shall constitute a quorum for the transaction of business
or of any specified item of business at any meeting of the Board.
3.17 ACTION BY THE BOARD. All corporate action taken
by the Board or any committee thereof shall be taken at a meeting of the Board,
or of such committee, as the case may be, except that any action required or
permitted to be taken at any meeting of the Board, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. Members of the Board,
or any committee designated by the Board, may participate in a meeting of the
Board, or of such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the
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meeting can hear each other, and participation in a meeting pursuant to this
Section 3.17 shall constitute presence in person at such meeting. Except as
otherwise provided by tine Certificate of Incorporation or by law, the vote of a
majority of the directors present (including those who participate by means of
conference telephone or similar communications equipment) at the time of the
vote, if a quorum is present at such time, shall be the act of the Board.
ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a majority of the
Whole Board, designate one or more committees, each committee to consist of one
or more of the directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
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substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-laws of the Corporation; and, unless the resolution
designating it expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
ARTICLE 5
OFFICERS
5.1 OFFICERS. The Board shall elect as officers, a
Chairman, a President, a Secretary and a Treasurer, and may elect or appoint one
or more Vice Presidents and such other officers as it may determine. The Board
shall designate either the Chairman or the President to serve as the Chief
Executive Officer. In the event the Chairman is designated to serve as the Chief
Executive Officer, then the President shall serve as the Chief Operating
Officer. In the event the President is designated to serve as the Chief
Executive Officer, then the Board may designate a Vice President to serve as the
Chief Operating Officer. The Board may use descriptive words or phrases to
designate the standing, seniority or area of special competence of the Vice
Presidents elected or appointed by it. Each officer shall hold his office until
his successor is elected and qualified or until his earlier death, resignation
or removal in the manner provided in Section 5.2 of the By- laws. Any two or
more offices may be held by the same person. The Board may require any officer
to give a bond or other security for the faithful performance of his duties, in
such amount and with such sureties as the Board may determine. All officers as
between themselves and the Corporation shall have such authority and perform
such duties
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in the management of the Corporation as may be provided in the By-laws or as the
Board may from time to time determine.
5.2 REMOVAL OF OFFICERS. Any officer elected or
appointed by the Board may be removed by the Board with or without cause. The
removal of an officer without cause shall be without prejudice to his contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights.
5.3 RESIGNATIONS. Any officer may resign at any
time by so notifying the Board or the Chief Executive Officer in writing. Such
resignation shall take effect at the date of receipt of such notice or at such
later time as is therein specified, and, unless otherwise specified, the
acceptance of such resignation shall not be necessary to make it effective. The
resignation of an officer shall be without prejudice to the contract rights of
the Corporation, if any.
5.4 VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
for the unexpired portion of the term in the manner prescribed in the By-laws
for the regular election or appointment to such office.
5.5 COMPENSATION. Salaries or other compensation of
the officers may be fixed from time to time by the Board. No officer shall be
prevented from receiving a salary or other compensation by reason of the fact
that he is also a director.
5.6 CHAIRMAN. The Chairman shall preside at all
meetings of the Board. The Chairman shall prepare an agenda for each meeting of
the Board and shall be responsible for routine communications with the Board. He
may, with the Secretary or the
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Treasurer or an Assistant Secretary or an Assistant Treasurer, sign certificates
for shares of capital stock of the Corporation. He may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts and other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board or by the By-laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be signed or
executed; and in general, he shall perform all duties incident to the office of
Chairman and such other duties as from time to time may be assigned to him by
the Board or, if the Chairman is not also the Chief Executive Officer, by the
Chief Executive Officer.
5.7 PRESIDENT. The President may, with the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer,
sign certificates for shares of capital stock of the Corporation. He may sign
and execute in the name of the Corporation deeds, mortgages, bonds, contracts
and other instruments, except in cases where the signing and execution thereof
shall be expressly delegated by the Board or by the By-laws to some other
officer or agent of the Corporation, or shall be required by law otherwise to be
signed or executed; and, in general, he shall perform all duties incident to the
office of President and such other duties as from time to time may be assigned
to him by the Board or, if the President is not also the Chief Executive
Officer, by the Chief Executive Officer.
5.8 CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall have general supervision over, and responsibility for, the
business of the Corporation, subject, however, to the control of the Board and
of any duly authorized committee of directors. The Chief Executive Officer shall
prepare a table of organization, which may be revised
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from time to time, which sets forth the chain of command of the officers of the
Corporation and which provides for succession in the event of the absence of an
officer or the vacancy of an office until such time as the Board may elect or
designate a successor; and, in general, he shall perform all duties incident to
the office of Chief Executive Officer and such other duties as from time to time
may be assigned to him by the Board.
5.9 CHIEF OPERATING OFFICER. The Chief Operating
Officer shall have general supervision over, and responsibility for, the
day-to-day operations of the Corporation, subject, however, to the control of
the Chief Executive Officer; and, in general, he shall perform all duties
incident to the office of Chief Operating Officer and such other duties as from
time to time may be assigned to him by the Board or by the Chief Executive
Officer.
5.10 VICE PRESIDENTS. Any Vice President may, with
the Secretary or the Treasurer or an Assistant Secretary or an Assistant
Treasurer, sign certificates for shares of capital stock of the Corporation. Any
Vice President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments authorized by the Board, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board or by the By-laws to some other officer or agent of the Corporation,
or shall be required by law otherwise to be signed or executed. Each Vice
President shall perform such other duties as from time to time may be assigned
to him by the Board or by the Chief Executive Officer.
5.11 SECRETARY. The Secretary, if present, shall act
as secretary of all meetings of the stockholders and of the Board, and shall
keep the minutes thereof in the
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proper book or books to be provided for that purpose; he shall see that all
notices required to be given by the Corporation are duly given and served; he
may, with the Chairman, President or a Vice President, sign certificates for
shares of capital stock of the Corporation; he shall be custodian of the seal of
the Corporation and may seal with the seal of the Corporation, or a facsimile
thereof, all certificates for shares of capital stock of the Corporation and all
documents the execution of which on behalf of the Corporation under its
corporate seal is authorized in accordance with the provisions of the By-laws;
he shall have charge of the stock ledger and also of the other books, records
and papers of the Corporation relating to its organization and management as a
Corporation, and shall see that the reports, statements and other documents
required by law are properly kept and filed; and shall, in general, perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board or by the Chief Executive
Officer.
5.12 TREASURER. The Treasurer shall have charge and
custody of, and be responsible for, all funds, securities and notes of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever; deposit all such moneys in the name of
the Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with these By-laws; against proper vouchers, cause such
funds to be disbursed by checks or drafts on the authorized depositories of the
Corporation signed in such manner as shall be determined in accordance with any
provisions of the By-laws, and be responsible for the accuracy of the amounts of
all moneys so disbursed; regularly enter or cause to be entered in books to be
kept by him or under his
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direction full and adequate account of all moneys received or paid by him for
the account of the Corporation; have the right to require, from time to time,
reports or statements giving such information as he may desire with respect to
any and all financial transactions of the Corporation from the officers or
agents transacting the same; render to the Chief Executive Officer or the Board,
whenever the Chief Executive Officer or the Board, respectively, shall require
him so to do, an account of the financial condition of the Corporation and of
all his transactions as Treasurer; exhibit at all reasonable times his books of
account and other records to any of the directors upon application at the office
of the Corporation where such books and records are kept; and, in general,
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him by the Board or by the Chief
Executive Officer; and he may sign with the Chairman, the President or a Vice
President certificates for shares of capital stock of the Corporation.
5.13 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
Assistant Secretaries and Assistant Treasurers shall perform such duties as
shall be assigned to them by the Secretary or by the Treasurer, respectively, or
by the Board or by the Chief Executive Officer. Assistant Secretaries and
Assistant Treasurers may, with the Chairman, the President or a Vice President,
sign certificates for shares of capital stock of the Corporation.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 EXECUTION OF CONTRACTS. The Board may authorize
any officer, employee or agent, in the name and on behalf of the Corporation, to
enter into any contract
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or execute and satisfy any instrument, and any such authority may be general or
confined to specific instances, or otherwise limited.
6.2 LOANS. The Chief Executive Officer or any other
officer, employee or agent authorized by the By-laws or by the Board may effect
loans and advances at any time for the Corporation from any bank, trust company
or other institutions or from any firm, corporation or individual and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the Corporation, and, when
authorized by the Board so to do, may pledge and hypothecate or transfer any
securities or other property of the Corporation as security for any such loans
or advances. Such authority conferred by the Board may be general or confined to
specific instances or otherwise limited.
6.3 CHECKS, DRAFTS, ETC. All checks, drafts and
other orders for the payment of money out of the funds of the Corporation and
all notes or other evidences of indebtedness of the Corporation shall be signed
on behalf of the Corporation in such manner as shall from time to time be
determined by resolution of the Board.
6.4 DEPOSITS. The funds of the Corporation not
otherwise employed shall be deposited from time to time to the order of the
Corporation in such banks, trust companies or other depositories as the Board
may select or as may be selected by an officer, employee or agent of the
Corporation to whom such power may from time to time be delegated by the Board
or the Chief Executive Officer.
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ARTICLE 7
STOCK AND DIVIDENDS
7.1 CERTIFICATES REPRESENTING SHARES. The shares of
capital stock of the Corporation shall be represented by certificates in such
form (consistent with the provisions of Section 158 of the General Corporation
Law) as shall be approved by the Board. Such certificates shall be signed by the
Chairman, the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the
seal of the Corporation or a facsimile thereof. The signatures of the officers
upon a certificate may be facsimiles, if the certificate is countersigned by a
transfer agent or registrar other than the Corporation itself or its employee.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon any certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may, unless otherwise ordered by the Board, be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
7.2 TRANSFER OF SHARES. Transfers of shares of
capital stock of the Corporation shall be made only on the books of the
Corporation by the holder thereof or by his duly authorized attorney appointed
by a power of attorney duly executed and filed with the Secretary or a transfer
agent of the Corporation, and on surrender of the certificate or certificates
representing such shares of capital stock properly endorsed for transfer and
upon payment of all necessary transfer taxes. Every certificate exchanged,
returned or surrendered to the Corporation shall be marked "Cancelled," with the
date of cancellation,
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by the Secretary or an Assistant Secretary or the transfer agent of the
Corporation. A person in those name shares of capital stock shall stand on the
books of the Corporation shall be deemed the owner thereof to receive dividends,
to vote as such owner and for all other purposes as respects the Corporation. No
transfer of shares of capital stock shall be valid as against the Corporation,
its stockholders and creditors for any purpose, except to render the transferee
liable for the debts of the Corporation to the extent provided by law, until
such transfer shall have been entered on the books of the Corporation by an
entry showing from and to whom transferred.
7.3 TRANSFER AND REGISTRY AGENTS. The Corporation
may from time to time maintain one or more transfer offices or agents and
registry offices or agents at such place or places as may be determined from
time to time by the Board.
7.4 LOST, DESTROYED, STOLEN AND MUTILATED
CERTIFICATES. The holder of any shares of capital stock of the Corporation shall
immediately notify the Corporation of any loss, destruction, theft or mutilation
of the certificate representing such shares, and the Corporation may issue a new
certificate o replace the certificate alleged to have been lost, destroyed
stolen or mutilated. The Board may, in its discretion, as a condition to the
issue of any such new certificate, require the owner of the lost, destroyed,
stolen or mutilated certificate, or his legal representatives, to make proof
satisfactory to tine Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and
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registrars against any claim that may be made against any of them on account of
the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with the By-laws or with
the Certificate of Incorporation, concerning the issue, transfer and
registration of certificates representing shares of its capital stock.
7.6 RESTRICTION ON TRANSFER OF STOCK. A written
restriction on the transfer or registration of transfer of capital stock of the
Corporation, if permitted by Section 202 of the General Corporation Law and
noted conspicuously on the certificate representing such capital stock, may be
enforced against the holder of the restricted capital stock or any successor or
transferee of the holder including an executor, administrator, trustee, guardian
or other fiduciary entrusted with like responsibility for the person or estate
of the holder. Unless noted conspicuously on the certificate representing such
capital stock, a restriction, even though permitted by Section 202 of the
General Corporation Law, shall be ineffective except against a person with
actual knowledge of the restriction. A restriction on the transfer or
registration of transfer of capital stock of the Corporation may be imposed
either by the Certificate of Incorporation or by an agreement among any number
of stockholders or among such stockholders and the Corporation. No restriction
so imposed shall be binding with respect to capital stock issued prior to the
adoption of the restriction unless the holders of such capital stock are parties
to an agreement or voted in favor of the restriction.
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7.7 DIVIDENDS, SURPLUS, ETC. Subject to the
provisions of the Certificate of Incorporation and of law, the Board
7.7.1 May declare and pay dividends or
make other distributions on the outstanding shares of
capital stock in such amounts and at such time or times as,
in its discretion, the condition of the affairs of the
Corporation shall render advisable;
7.7.2 May use and apply, in its
discretion, any of the surplus of the Corporation in
purchasing or acquiring any shares of capital stock of the
Corporation, or purchase warrants therefor, in accordance
with law, or any of its bonds, debentures, notes, scrip or
other securities or evidences of indebtedness;
7.7.3 May set aside from time to time out
of such surplus or net profits such sum or sums as, in its
discretion, it may think proper, as a reserve fund to meet
contingencies, or for equalizing dividends or for the
purpose of maintaining or increasing the property or
business of the Corporation, or for any purpose it may
think conducive to the best interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION OF OFFICERS, DIRECTORS AND
EMPLOYEES. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he is or was a
director, officer or
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employee of the Corporation or is or was serving at the request of the
Corporation as a director, officer or employee of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act of 1974 excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith;
provided, however, that, except as provided in this Article 8 with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
8.2 ADVANCEMENT OF EXPENSES. The right to
indemnification conferred in this Article 8 shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the General Corporation Law requires, an advancement
of expenses incurred by an indemnitee in his capacity as a director
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or officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking, by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Article 8 or otherwise. The rights to indemnification and to the advancement of
expenses conferred in this Article 8 shall be contract rights and such rights
shall continue as to an indemnitee who has ceased to be a director, officer or
employee and shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
8.3 ACTIONS TO ENFORCE PROVISIONS. If a claim under
this Article 8 is not paid in full by the Corporation within 60 days after
written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be 20 days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be entitled to
recover such
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expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the General Corporation
Law. Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the indemnitee has not met such
applicable standard of conduct shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article 8 or otherwise shall be on the Corporation.
8.4 NONEXCLUSIVITY OF PROVISIONS. The rights to
indemnification and to the advancement of expenses conferred in this Article 8
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, the Corporation's Certificate of Incorporation,
By-laws, agreement, vote of stockholders or disinterested directors or
otherwise.
8.5 INSURANCE. The Corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Corporation or another
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corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law.
8.6 INDEMNIFICATION OF AGENTS. The Corporation may,
to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification, and rights to be paid by the Corporation the expenses
incurred in defending any proceeding in advance of its final disposition, to any
agent of the Corporation or to any agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including any employee
benefit plan, serving as such agent at the request of the Corporation, to the
fullest extent of the provisions of this Article 8 with respect to the
indemnification and advancement of expenses of directors, officers and employees
of the Corporation.
ARTICLE 9
BOOKS AND RECORDS
9.1 BOOKS AND RECORDS. The Corporation shall keep
correct and complete books and records of account and shall keep minutes of the
proceedings of the stockholders, the Board and any committee of the Board. The
Corporation shall keep at the office designated in the Certificate of
incorporation or at the office of the transfer agent or registrar of the
Corporation, a record containing the names and addresses of all stockholders,
the number and class of shares held by each and the dates when they respectively
became the owners of record thereof.
9.2 FORM OF RECORDS. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account, and minute
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books, may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, microphotographs, or any other information storage device, provided
that the records so kept can be converted into clearly legible written form
within a reasonable time. The Corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
9.3 INSPECTION OF BOOKS AND RECORDS. Except as
otherwise provided by law, the Board shall determine from time to time whether,
and, if allowed, when and under what conditions and regulations, the accounts,
books, minutes and other records of the Corporation, or any of them, shall be
open to the inspection of the stockholders.
ARTICLE 10
SEAL
The Board may adopt a corporate seal which shall be in the
form of a circle and shall bear the full name of the Corporation, the year of
its incorporation and the word "Delaware".
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be determined,
and may be changed, by resolution of the Board.
ARTICLE 12
VOTING OF SHARES HELD
Unless otherwise provided by resolution of the Board, the
Chief Executive Officer may, from time to time, appoint one or more attorneys or
agents of the
31
<PAGE>
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of stock or other securities of such
other corporation, or to consent in writing to any action by any such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as he
may deem necessary or proper in the premises; or the Chief Executive Officer may
himself attend any meeting of the holders of the stock or other securities of
any such other corporation and thereat vote or exercise any or all other powers
of the Corporation as the holder of such stock or other securities of such other
corporation.
ARTICLE 13
NONAPPLICABILITY OF CERTAIN FLORIDA STATUTES
The Corporation and its stockholders hereby expressly
elect not to be governed by the provisions of Sections 108 and 109 of the
Florida Statutes (1987) if and to the extent that such provisions are applicable
to them. If and to the extent that a court of competent jurisdiction may hold
that Section 108 of the Florida Statutes (1987) applies to the Corporation, then
the Corporation hereby expressly elects not to be governed by such provision. If
and to the extent that a court of competent jurisdiction may hold that Section
109 of the Florida Statutes (1987) applies to the Corporation and its
stockholders, then the Corporation and its stockholders hereby expressly provide
that such provision shall not
32
<PAGE>
apply to any "control-share acquisition" (as defined therein) of shares of
capital stock of the Corporation.
ARTICLE 14
AMENDMENTS
The By-laws may be altered, amended, supplemented or
repealed, or new By-laws may be so adopted, by vote of the holders of the shares
entitled to vote in the election of directors. The By-laws may be altered,
amended, supplemented or repealed, or new By-laws may be adopted, by the action
of a majority of the Whole Board. Any By-laws adopted, altered, amended,
supplemented by the Board may be altered, amended, or supplemented or repealed
by the stockholders entitled to vote thereon.
33
SECOND AMENDMENT TO ENGAGEMENT AGREEMENT
THIS SECOND AMENDMENT TO ENGAGEMENT AGREEMENT is entered into on May
14, 1996 by and between HOMEOWNERS GROUP, INC., a Delaware corporation (the
"Company"), and GARY D. LIPSON (the "Attorney");
WITNESSETH:
WHEREAS, each of the Company and the Attorney has previously entered
into a certain Engagement Agreement dated December 22, 1995 (the "Engagement
Agreement"), a certain Amendment to Engagement Agreement dated as of April 29,
1996 (the "Amendment"), and a certain Consulting Agreement dated as of April 29,
1996 (the "Consulting Agreement");
WHEREAS, each of the Company and the Attorney desires to modify the
arrangements between them set forth in the Engagement Agreement, the Amendment
and the Consulting Agreement, as is provided in this Second Amendment to
Engagement Agreement (the "Second Amendment");
WHEREAS, the Board of Directors of the Company has reviewed this second
Amendment with the advice of independent lega1 counsel;
WHEREAS, the Board of Directors of the Company believes this Second
Amendment to be reasonable in its terms;
WHEREAS, the Board of Directors of the Company believes that the
Company's entering into this Second Amendment is in the best interests of the
Company and its shareholders;
NOW, THEREFORE, in consideration of the premises, and the respective
covenants, agreements, acknowledgements and releases of each of the Company and
the Attorney contained in this Second Amendment, each of the Company and the
Attorney agrees as follows:
1. TERMINATION OF CERTAIN AGREEMENTS. The Amendments and the Consulting
Agreement are terminated and shall hereafter be of no force or effect.
2. ENGAGEMENT AGREEMENT. Notwithstanding the termination of the
Amendment and the Consulting Agreement pursuant to paragraph 1 above, all of the
provisions of the Engagement Agreement shall remain in full force and effect and
unaffected by the termination of the Amendment and the Consulting Agreement.
3. ACKNOWLEDGEMENT. THe Attorney acknowledges that he has been paid in
full for all services rendered by him and all out-of-pocket expenses incurred by
him for or on behalf of the Company and its subsidiary and affiliated
corporations through April 30, 1996.
<PAGE>
4. RELEASES.
(a) The Attorney remises, releases, acquits, satisfies, and
forever discharges the Company and each and every one of its subsidiary and
affiliated corporations, of and from all, and all manner of, action and actions,
cause and causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, executions,
claims and demands whatsoever, in law or in equity, which the Attorney ever
had, now has, or which any heir, executor, personal representative, legal
representative, successor or assign of the Attorney hereafter can, shall or may
have, against the Company or any of its subsidiary or affiliated corporations,
for, upon or by reason of any manner, cause or thing whatsoever, from the
beginning of time to the date of this Second Amendment, other than the
covenants, agreements and obligations of the Company set forth in the Engagement
Agreement.
(b) The Company, for itself and for each and every one of its
subsidiary and affiiliated corporations, remises, releases, acqists, satisfies,
and forever discharges the Attorney and his heirs, executors, personal
representatives, legal representatives, successors and assigns, of and from all,
and all manner of, action and actions, cause and causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, claims and demands whatsoever, in law or in equity, which
the Company or any of its subsidiary or affiliated corporations ever had, now
has, or which any heir, executor, personal representative, legal representative,
successor or assign of any of them hereafter can, shall or may have, against the
Attorney, for, upon or by reason of any matter, cause or thing whatsoever, from
the beginning of time to the date of this Second Amendment, other than the
covenants, agreements and obligations of the Attorney set forth in the
Engagement Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement on the date first written above.
HOMEOWNERS GROUP, INC.
By: /s/ CARL BUCCELLATO
------------------------------
Carl Buccellato, President
/s/ GARY D. LIPSON
----------------------------------
Gary D. Lipson
2
HOMEOWNERS/Registered Trademark/
GROUP
May 6, 1996
Mr. Gary D. Lipson
914 Matanzas Avenue
Coral Gables, Florida 33146
Dear Mr. Lipson:
Reference is made to (a) that certain Engagement Agreement dated
December 22, 1995 by and between Homeowners Group, Inc. and Gary D. Lipson, as
amended by that certain Amendment to Engagement Agreement dated as of April 29,
1996 by and between Homeowners Group, Inc. and Gary D. Lipson (collectively,
the "Engagement Agreement"), and (b) that certain Consulting Agreement dated as
of April 29, 1996 by and between Homeowners Group, Inc. and Gary D. Lipson (the
"Consulting Agreement").
Please be advised that the Engagement Agreement is terminated
effective immediately. We acknowledge that, as provided in the Engagement
Agreement, the Consulting Agreement becomes effective immediately.
Sincerely,
HOMEOWNERS GROUP, INC.
By /s/ CARL BUCCELLATO
- --------------------------
Carl Buccellato, President
<PAGE>
AMENDMENT TO ENGAGEMENT AGREEMENT
THIS AMENDMENT TO ENGAGEMENT AGREEMENT is entered into as of April
29, 1996 by and between HOMEOWNERS GROUP, INC., a Delaware corporation (the
"Company"), and GARY D. LIPSON (the "Attorney");
WITNESSETH:
WHEREAS, each of the Company and the Attorney has previously entered
into a certain Engagement Agreement dated December 22, 1995 (the "Engagement
Agreement"), pursuant to which the Attorney provides certain services to the
Company and its subsidiary and affiliated corporations;
WHEREAS, each of the Company and the Attorney desires to amend the
Engagement Agreement as is provided in this Amendment to Engagement Agreement
(the "Amendment");
WHEREAS, the Board of Directors of the Company has reviewed this
Amendment with the advice of independent legal counsel;
WHEREAS, the Board of Directors of the Company believes this
Amendment to be reasonable in its terms;
WHEREAS, the Board of Directors of the Company believes that the
Company's entering into this Amendment is in the best interests of the Company
and its shareholders;
NOW, THEREFORE, in consideration of the premises, and the respective
covenants and agreements of each of the Company and the Attorney contained in
this Amendment, each of the Company and the Attorney agrees as follows:
1. AMENDMENT OF CERTAIN PROVISIONS.
(a) Section 3.1 of the Engagement Agreement is deleted in its
entirety, and shall hereafter be of no further force or effect.
(b) Section 4.4(a) of the Engagement Agreement is deleted in its
entirety, and the following Section 4.4(a) is inserted in its place:
"(a) If the Company shall terminate this
Agreement and discharge the Attorney for any reason, then, simultaneously with
the termination of this Agreement, the Company shall pay to the Attorney, in
cash, all amounts which shall have become payable by the Company to him pursuant
to the provisions of Sections 3.4 and 3.5 of this Agreement."
<PAGE>
(c) Section 4.4(b) of the Engagement Agreement is deleted in its
entirety, and the following Section 4.4(b) is inserted in its place:
"(b) If the Attorney shall terminate this
Agreement and withdraw from providing legal services to the
Company for any reason, then, simultaneously with the
termination of this Agreement, the Company shall pay to the
Attorney, in cash, all amounts which shall have become
payable by the Company to him pursuant to the provisions of
Sections 3.4 and 3.5 of this Agreement."
2. CONSULTING AGREEMENT. Simultaneously with the execution and
delivery of this Amendment, the Company and the Attorney are entering into a
Consulting Agreement in the form attached hereto as Exhibit A. If the Engagement
Agreement is terminated by either of the parties for any reason, then the
Consulting Agreement shall automatically, and without further action of the
parties, become effective.
3. NO OTHER MODIFICATIONS. Except as otherwise specifically
set forth in this Amendment, all of the provisions of the Engagement Agreement
shall remain in full force and effect, and unaffected hereby.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
HOMEOWNERS GROUP, INC.
By /s/ CARL BUCCELLATO
------------------------
Carl Buccellato, President
/s/ GARY LIPSON
-----------------------------
Gary Lipson
2
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is entered into as of April 29, 1996, by
and between HOMEOWNERS GROUP, INC., a Delaware corporation (the "Company"), and
GARY D. LIPSON (the "Consultant").
WITNESSETH:
WHEREAS, the Consultant has provided substantial and valuable
services to the Company and its subsidiary corporations and affiliated entities
over a period of several years;
WHEREAS, in providing such services, the Consultant has consistently
demonstrated diligence, ability, skill, expertise and efficiency, all for the
benefit of the Company and its subsidiary corporations and affiliated entities;
WHEREAS, the business of the Company and its subsidiary corporations
and affiliated entities is very complex;
WHEREAS, many of the business and contractual relationships of the
Company and its subsidiary corporations and affiliated entities are novel,
complex and difficult;
WHEREAS, the Consultant is knowledgeable about the businesses in
which the Company and its subsidiary corporations and affiliated entities are
engaged and about the Company and its subsidiary and affiliated corporations and
their respective operations, contractual relationships and affairs;
WHEREAS, the Company desires to insure the Consultant's availability
to provide consulting services to the Company and its subsidiary corporations
and affiliated entities on a continuing basis;
WHEREAS, the Company desires to insure that the Consultant is bound
by certain restrictions as are set forth herein;
WHEREAS, each of the Company and the Consultant has previously
entered into a certain Engagement Agreement dated December 22, 1995 (the
"Engagement Agreement"), pursuant to which the Consultant provides certain
services to the Company and its subsidiary and affiliated corporations;
WHEREAS, each of the Company and the Consultant has entered into an
Amendment to Engagement Agreement dated as of April 29, 1996, which provides,
among other things, that this Consulting Agreement (the "Agreement") shall
become effective if the Engagement Agreement is terminated by either of the
parties for any reason;
<PAGE>
WHEREAS, the Board of Directors of the Company has reviewed this
Agreement with the advice of independent legal counsel;
WHEREAS, the Board of Directors of the Company believes this
Agreement to be reasonable in its terms;
WHEREAS, the Board of Directors of the Company believes that the
engagement of the Consultant, on the terms set forth in this Agreement, is in
the best interests of the Company and its shareholders;
NOW, THEREFORE, in consideration of the premises, and the respective
covenants and agreements of each of the Company and the Consultant contained in
this Agreement, each of the Company and the Consultant agrees as follows:
ARTICLE I
PREMISES
The parties acknowledge and agree that each and every one of the
premises set forth above is true and correct.
ARTICLE II
ENGAGEMENT AND SERVICES
2.1 ENGAGEMENT. The Company engages the Consultant to provide
consulting and advisory services to the Company and its management, and the
Consultant accepts such engagement.
2.2 PROVISION OF SERVICES.
(a) During the Term (as such term is hereinafter defined), the
Consultant shall consult with, and give advice to, the Company and its
management if and when so requested by the Company and its management. The
Company shall give the Consultant reasonable notice of where and when his
consulting and advisory services are requested to be provided, and the
Consultant shall utilize reasonable efforts to be available as requested.
(b) During the Term, the Consultant shall not be required to provide
services to the Company for more than sixteen hours in any calendar month.
Unused hours in any calendar month shall not accumulate and shall not be usable
in any subsequent calendar month.
2
<PAGE>
2.3 OTHER SERVICES. Nothing contained in this Agreement shall be
deemed to prohibit the Company or any of its subsidiary or affiliated
corporations from engaging the Consultant to provide legal or other services
outside of the scope of this Agreement.
ARTICLE III
TERM OF AGREEMENT
The term of this Agreement shall be for a period of two years,
commencing as of the date that the Engagement Agreement is terminated by either
of the parties for any reason and continuing for a period of two years from and
after the date of any such termination (the "Term").
ARTICLE IV
FEES AND EXPENSES
4.1 CONSULTING FEE. In consideration of the services to be rendered
by the Consultant to the Company pursuant to this Agreement and in consideration
of the restrictive covenants of the Consultant set forth in Section 5.1 of this
Agreement, the Company shall pay to the Consultant, as a consulting fee, the
amount of Two Hundred Thousand Dollars ($200,000) (the "Consulting Fee"). The
Consulting Fee shall be deemed to have been earned by the Consultant immediately
upon his execution and delivery of this Agreement, and payment of the Consulting
Fee to the Consultant shall be the absolute and unconditional obligation of the
Company.
4.2 PAYMENT OF CONSULTING FEE. The Consulting Fee shall be paid by
the Company to the Consultant in twenty-four equal installments of Eight
Thousand Three Hundred Thirty-Three and Thirty-Three One Hundredths Dollars
($8,333.33) each, in advance, on the date that the Engagement Agreement is
terminated by either of the parties for any reason and thereafter on the first
day of each of the succeeding twenty-three calendar months during the Term.
4.3 EXPENSES. The Company shall advance to the Consultant or
reimburse him for all out-of-pocket costs and expenses incurred by him on the
Company's behalf. Such out-of-pocket costs and expenses may include, but are not
limited to, long-distance telephone and facsimile charges, photocopy expenses,
filing and recording fees, delivery charges and travel expenses. If a
substantial amount is required to be paid by the Consultant to any party on the
Company's behalf, the Consultant reserves the right, in his discretion, to
require the Company to advance such amount to him prior to its payment by the
Consultant.
3
<PAGE>
4.4 PAYMENT OF EXPENSES. After the conclusion of each calendar month,
the Consultant shall invoice the Company for expenses incurred by him on behalf
of the Company during such month. Any such invoice sent to the Company by the
Consultant shall be paid in full by the Company within thirty days after its
receipt thereof.
4.5 INTEREST. Any amount which is not paid by the Company to the
Consultant when due hereunder shall bear simple interest from the date such
payment was due to the date actually paid by the Company to the Consultant at
the highest rate of interest permitted by the laws of the State of Florida.
4.6 ACCELERATION. If the Company shall fail for any reason to make
any payment to the Consultant when due, then, at the option of the Consultant,
all remaining installments of the Consulting Fee shall become immediately due
and payable.
ARTICLE V
CERTAIN RESTRICTIONS ON THE CONSULTANT
5.1 CERTAIN RESTRICTIONS. The Consultant covenants and agrees with
the Company as follows:
(a) He shall not at any time, directly or indirectly, for himself or
any other person, firm, corporation, partnership, association or other entity
(collectively, a "Person") which competes in any manner with the Company or any
of its subsidiaries or affiliates in the United States of America (the
"Territory"), employ, attempt to employ or enter into any contractual
arrangement for employment with, any employee or former employee of the Company
or any of its subsidiaries or affiliates, unless such former employee shall not
have been employed by the Company or any of its subsidiaries or affiliates for a
period of at least one year.
(b) He shall not, during the Term of this Agreement, directly or
indirectly, (i) acquire or own in any manner any interest in, or loan any amount
to, any Person which competes in any manner with the Company or any of its
subsidiaries or affiliates in the Territory, (ii) be employed by or serve as an
employee, agent, officer, or director of, or as a consultant to, any Person,
other than the Company and its subsidiaries and affiliates, which competes in
any manner with the Company or its subsidiaries or affiliates in the Territory,
or (iii) compete in any manner with the Company or its subsidiaries or
affiliates in the Territory; provided, however, that the provisions of this
Section 5.1 (b) shall not be construed to limit or restrict in any manner the
ability of the Consultant to practice law or to represent any client. The
foregoing provisions of this Section 5.1 (b) shall not prevent the
4
<PAGE>
Consultant from acquiring and owning not more than three percent (3%) of the
equity securities of any Person whose securities are listed for trading on a
national securities exchange or are regularly traded in the over-the-counter
securities market.
(c) In the course of the Consultant's engagement by the Company, the
Consultant will have access to confidential or proprietary information of the
Company and its subsidiaries and affiliates. The Consultant shall not at any
time divulge or communicate to any Person, or use to the detriment of the
Company or its subsidiaries or affiliates, any such confidential or proprietary
information. The term "confidential or proprietary information" shall mean
information not generally available to the public, including without limitation
personnel information, financial information, customer lists, supplier lists,
ownership information, marketing plans and analyses, trade secrets, know-how,
computer software, management agreements and procedures and techniques of
operating and managing the business of the Company and its subsidiaries and
affiliates. The Consultant acknowledges and agrees that all confidential or
proprietary information is and shall remain the property of the Company and its
subsidiaries and affiliates, and agrees to maintain all such confidential or
proprietary information in strictest confidence.
5.2 REMEDIES. It is recognized and acknowledged by each of the
Company and the Consultant that a breach or violation by the Consultant of any
or all of his covenants and agreements contained in Section 5.1 of this
Agreement will cause irreparable harm and damage to the Company and its
subsidiaries and affiliates in a monetary amount which would be virtually
impossible to ascertain and, therefore, will deprive the Company of an adequate
remedy at law. Accordingly, if the Consultant shall breach or violate any or all
of his covenants and agreements set forth in Section 5.1 hereof, then the
Company and its subsidiaries and affiliates shall have resort to all equitable
remedies, including without limitation the remedies of specific performance and
injunction, both permanent and temporary, as well as all other remedies which
may be available at law.
5.3 INTENT. It is the intent of the parties that the restrictions set
forth in Section 5.1 hereof shall be enforced to the fullest extent permissible
under the laws and public policies of the jurisdiction in which enforcement of
such restrictions may be sought. If any provision contained in Section 5.1
hereof shall be adjudicated by a court of competent jurisdiction to be invalid
or unenforceable because of its duration or geographic scope, then such
provision shall be reduced by such court in duration or geographic scope or both
to such extent as to make it valid and enforceable in the jurisdiction where
such court is located, and in all other respects shall remain in full force and
effect.
ARTICLE VI
INDEMNIFICATION
The Company shall indemnify and hold harmless the Consultant from,
against and in respect of the full amount of any and all costs, losses, damages,
claims, causes of action, lawsuits,
5
<PAGE>
judgements, executions, liabilities, assessments, deficiencies, taxes,
penalties, interest and expenses, including without limitation any and all
reasonable fees and disbursements of legal counsel, arising from, in connection
with, or incident to the Consultant's retention as a consultant hereunder or the
Consultant's performing consulting or advisory services hereunder, other than
those resulting from the Consultant's willful misconduct or gross negligence.
ARTICLE VII
CLAIMS AND DISPUTES
7.1 JURISDICTION AND VENUE. Any claim or dispute arising out of,
connected with, or in any way related to this Agreement which results in
litigation shall be instituted by the complaining party and adjudicated either
in the Federal District Court for the Southern District of Florida or in the
Circuit Court for Dade or Broward County, Florida, and each of the parties to
this Agreement consents to the personal jurisdiction of and venue in such
courts. In no event shall either party to this Agreement contest the
jurisdiction or venue of such courts with respect to any such litigation.
7.2 SERVICE OF PROCESS. Each of the Company and the Consultant agrees
that service of any process, summons, notice or document, by United States
registered or certified mail, to its or his address set forth in or as provided
in Section 8.2 below shall be effective service of such process, summons, notice
or document for any action, suit or proceeding brought against it or him by the
other party in the Federal District Court for the Southern District of Florida
or in the Circuit Court for Dade or Broward County, Florida.
7.3 WAIVER OF TRIAL BY JURY. In recognition of the fact that the
issues which would arise under this Agreement are of such a complex nature that
they could not be properly tried before a jury, each of the Company and the
Consultant waives trial by jury.
7.4 ATTORNEYS' FEES AND EXPENSES. In the event that any litigation
shall arise between the Company and the Consultant based, in whole or in part,
upon this Agreement or any or all of the provisions contained herein, then, in
any such event, the prevailing party in any such litigation shall be entitled to
recover from the non-prevailing party, and shall be awarded by a court of
competent jurisdiction, any and all reasonable fees and disbursements of trial
and appellate counsel paid, incurred or suffered by such prevailing party as the
result of, arising from, or in connection with, any such litigation.
6
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 GOVERNING LAW. This Agreement shall be governed by, and shall be
construed and interpreted in accordance, with the laws of the State of Florida,
without giving effect to the principles of conflicts of law thereof.
8.2 NOTICES. Any and all notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed to have been duly given when delivered by hand, or when delivered by
United States mail, by registered or certified mail, postage prepaid, return
receipt requested, to the respective parties at the following respective
addresses:
If to the Company: Homeowners Group, Inc.
400 Sawgrass Corporate Parkway
Sunrise, Florida 33325
Attention: President
with a copy to: Paul Berkowitz, Esq.
Greenberg, Traurig
122l Brickell Avenue
Miami, Florida 33l33
If to the Consultant: Gary D. Lipson
914 Matanzas Avenue
Coral Gables, Florida 33146
or to such other address as either party may from time to time give written
notice of to the other in accordance with the provisions of this Section 8.2.
8.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and the Consultant with respect to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
arrangements, both oral and written, between the Company and the Consultant with
respect to such subject matter.
8.4 AMENDMENTS. This Agreement may not be amended or modified in any
manner, except by a written instrument executed by each of the Company and the
Consultant.
8.5 BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of, and shall be binding upon, each of the Company and the Consultant and their
respective heirs, personal representatives, executors, legal representatives,
successors and assigns.
7
<PAGE>
8.6 INDEPENDENT CONTRACTOR STATUS. The relationship between the
Company and the Consultant shall be that of an independent contractor. The
Consultant shall not be deemed to be a partner, joint venturer, franchisee,
employee or agent of the Company. Any consultation or advice rendered by the
Consultant may be accepted or rejected, in whole or in part, by the Company and
its management. The Consultant shall not have the power or authority to manage
the business, affairs or operations of the Company, to execute contracts or
agreements on behalf of the Company or otherwise to commit or bind the Company
to any obligation.
8.7 NO WAIVERS. The waiver by either party of a breach or violation
of any provision of this Agreement by the other party shall not operate nor be
construed as a waiver of any subsequent breach or violation. The failure by
either party to exercise any right or remedy it or he may possess shall not
operate nor be construed as a bar to the exercise of such right or remedy by
such party upon the occurrence of any subsequent breach or violation.
8.8 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any or all of the provisions hereof.
8.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the separate parties in separate counterparts, each of which
shall be deemed to constitute an original and all of which shall be deemed to
constitute the one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
HOMEOWNERS GROUP, INC.
By /s/ CARL BUCCELLLATO
--------------------------
Carl Buccellato, President
/s/ GARY LIPSON
-----------------------------
Gary Lipson
8
EXHIBIT 10.36
AFFILIATION AGREEMENT AMENDMENT
THIS AMENDMENT made this 26 day of April, 1996, is made by and between
Buccell Enterprises, Inc., a New Jersey Corporation ("Buccell") and Homeowners
Marketing Services, International, Inc., a Florida corporation ("HMSI").
WHEREAS, the parties entered Affiliation Agreements for New Jersey and
New York, both on June 21, 1993; and
WHEREAS, the parties wish to amend and modify the Affiliation
Agreements and reflect said amendments and modifications in writing.
NOW THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. The foregoing recitals are true and correct and are
incorporated herein by this reference
2. The term of the respective Affiliation Agreements shall expire on
April 30, 2006, subject to renewal in accordance with the terms of each
respective Affiliation Agreement.
3. This Amendment may not be altered except by a subsequent
writing properly executed by the parties.
4. Except as amended or modified hereby, the Affiliation
Agreements remain in full force and effect
BUCCELL ENTERPRISES, INC.
By:\s\ RICHARD BUCCELLATO
HOMEOWNERS MARKETING SERVICES,
INTERNATIONAL, INC.
By:\s\ CARL BUCCELLATO
<PAGE>
AFFILIATION AGREEMENT AMENDMENT
THIS AMENDMENT made this 26 day of April 1996, is made by and between
Maple Avenue Enterprises, Inc. a New Jersey Corporation ("Maple") and Homeowners
Marketing Services, International, Inc., a Florida corporation ("HMSI").
WHEREAS, the parties entered Affiliation Agreements for Maine,
Massachusetts, Vermont and New Hampshire all on March 15, 1995; and
WHEREAS, the parties wish to amend and modify the Affiliation
Agreements and reflect said amendments and modifications in writing.
NOW THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. The foregoing recitals are true and correct and are
incorporated herein by this reference
2. The term of the respective Affiliation Agreements shall expire on
April 30, 2006, subject to renewal in accordance with the terms of each
respective Affiliation Agreement.
3. This Amendment may not be altered except by a subsequent
writing properly executed by the parties.
4. Exception as amended or modified hereby, the Affiliation
Agreements remain in full force and effect.
MAPLE AVENUE ENTERPRISES, INC.
By:\s\ DIANE GRUBER
HOMEOWNERS MARKETING SERVICES,
INTERNATIONAL, INC.
By:\s\ CARL BUCCELLATO
<PAGE>
AFFILIATION AGREEMENT AMENDMENT
THIS AMENDMENT made this 26 day of April 1996, is made by and between
Encore Marketing Services, Inc., a New Jersey Corporation ("Encore") and
Homeowners Marketing Services, International, Inc., a Florida corporation
("HMSI").
WHEREAS, the parties entered Affiliation Agreements for Connecticut and
Rhode Island, both on June 21, 1993; and
WHEREAS, the parties wish to amend and modify the Affiliation
Agreements and reflect said amendments and modifications in writing.
NOW THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. The foregoing recitals are true and correct and are
incorporated herein by this reference
2. The term of the respective Affiliation Agreements shall expire on
April 30, 2006, subject to renewal in accordance with the terms of each
respective Affiliation Agreement.
3. This Amendment may not be altered except by a subsequent
writing properly executed by the parties.
4. Exception as amended or modified hereby, the Affiliation
Agreements remain in full force and effect
ENCORE MARKETING SERVICES, INC.
By:\s\ RONALD E. GRUBER
HOMEOWNERS MARKETING SERVICES,
INTERNATIONAL, INC.
By:\s\ CARL BUCCELLATO
EXHIBIT 10.37
OPTION AGREEMENT
THIS AGREEMENT made this 26 day of April, 1996, is by and between Maple
Avenue Enterprises, Inc., a New Jersey corporation ("Maple") and Homeowners
Marketing Services International, Inc., a Florida corporation ("HMSI").
WHEREAS, Maple and HMS have agreed to the grant of a certain option
from HMSI to Maple.
WHEREAS, the parties wish to reflect said understanding in writing.
NOW THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows.
1. The foregoing recitals are true and correct and are
incorporated herein by this reference.
2. HMS hereby grants to Maple, an option to acquire the
exclusive license as an HMSI Affiliate in the state of Pennsylvania for
$175,000, subject to the following:
a. The option shall be exercisable by Maple in writing at any
time prior to April 30, 2006, provided, however, that if HMSI shall receive a
bona-fide third party offer for said exclusive license prior to April 30, 2006,
and Maple has not then yet exercised the above option, HMSI shall notify Maple
in writing of the third-party offer and Maple shall have 10 days from receipt if
said notice to exercise the option or failing same, Maple shall forfeit its
option rights.
b. Maple shall execute the then current HMSI Affiliation
Agreement, which shall provide, among other things, that fees from HMSI to Maple
with regard to the sale of limited home warranties for, Century-21 and other
companies, controlled by, under common control with or in control of HMSI,
except Homeowners Marketing Service, Inc. and Homeowners Association of America,
Inc., shall be $50 per warranty and for ERA, shall be $20 per warranty.
c. Maple will pay a down payment, in an amount equal
to ten percent (10%) of the initial affiliation fee. Such payment to
accompany the written exercise of the option.
d. The balance of the initial affiliation fee shall be paid in
monthly installments commencing on the fifteenth day of the month following
execution of the HMS Affiliation Agreement for the aforesaid exclusive license
and on the fifteenth (15) day of each month thereafter until the balance of the
purchase price is satisfied. The monthly amount shall be fifteen percent (15%)
of Maple's earned Affiliate fees, according to the schedule of Affiliate fees
appearing in the Affiliation Agreement, which amount shall be deducted by HMSI
from the aggregate earned Affiliate fees for the Territory prior to payment by
HMSI of said aggregate Affiliate fees to Maple, as Affiliate. Maple shall not be
charged interest on the installment payments of the initial affiliation fee.
e. That certain litigation captioned, NEMO
ASSOCIATES, INC. ET AL V. HOMEOWNERS MARKETING SERVICES, INTERNATIONAL,
INC., United States District Court, Eastern District of Pennsylvania,
Case NO. 96-CV1764, shall have been finally determined.
<PAGE>
3. In the event Maple exercises the foregoing option for the Affiliate
rights in Pennsylvania, HMS shall have the right, exercisable at any time within
1 year of the exercise of Maple's option, to reacquire said Affiliate rights for
an amount equal to the option price to Maple ($175,000), plus 15% thereof. Said
repurchase right is conditioned on HMSI offering to purchase Maple's Affiliate
rights in Maine, Massachusetts, New Hampshire and Vermont, at a price and on
terms acceptable to Maple.
4. This Agreement may not be altered except by a subsequent
writing properly executed by the parties.
MAPLE AVENUE ENTERPRISES, INC.
By:\s\ DIANE M. GRUBER
HOMEOWNERS MARKETING
INTERNATIONAL, INC.
By:\s\ CARL BUCCELLATO
<PAGE>
OPTION AGREEMENT
THIS AGREEMENT made this 26 day of April 1996, is by and between Maple
Avenue Enterprises, Inc., a New Jersey corporation ("Maple") and Homeowners
Marketing Services International, Inc., a Florida corporation ("HMSI").
WHEREAS, Maple and HMS have agreed to the grant of a certain option
from HMSI to Maple.
WHEREAS, the parties wish to reflect said understanding in writing.
NOW THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows.
1. The foregoing recitals are true and correct and are
incorporated herein by this reference.
2. HMS hereby grants to Maple, an option to acquire the
exclusive license as an HMS Affiliate in the state of Florida, subject to
the following:
a. The option shall be exercisable by Maple in writing at any
time prior to April 30, 2006, provided, however, that if HMSI shall receive a
bona-fide third party offer for said exclusive license prior to April 30, 2006,
and Maple has not then yet exercised the above option, HMSI shall notify Maple
in writing of the third-party offer and Maple shall have 10 days from receipt if
said notice to exercise the option or failing same, Maple shall forfeit its
option rights.
b. Maple will pay a down payment, in an amount equal
to ten percent (10%) of the initial affiliation fee. Such payment to
accompany the written exercise of the option.
c. The balance of the initial affiliation fee shall be paid in
monthly installments commencing on the fifteenth day of the month following
execution of the HMS Affiliation Agreement for the aforesaid exclusive license
and on the fifteenth (15) day of each month thereafter until the balance of the
purchase price is satisfied. The monthly amount shall be fifteen percent (15%)
of Maple's earned Affiliate fees, according to the schedule of Affiliate fees,
according to the schedule of Affiliate fees appearing in the Affiliation
Agreement, which amount shall be deducted by HMSI from the aggregate earned
Affiliate fees for the Territory prior to payment by HMSI of said aggregate
Affiliate fees to Maple, as Affiliate. Maple shall not be charged interest on
the installment payments of the initial affiliation fee.
d. Maple shall execute the then current HMSI Affiliation Agreement,
which shall provide, among other things, that fees from HMSI to Maple with
regard to the sale of limited home warranties for, Century 21 and other
companies controlled by, under common control with or in control of HMSI, except
Homeowners Marketing Services, Inc. and Homeowners Association of American,
Inc., shall be $50 per warranty and for ERA, shall be $20 per warranty.
<PAGE>
3. This Agreement may not be altered except by a subsequent
writing properly executed by the parties.
MAPLE AVENUE ENTERPRISES, INC.
By:\s\ DIANE M. GRUBER
HOMEOWNERS MARKETING
INTERNATIONAL, INC.
By:\s\ CARL BUCCELLATO
<PAGE>
OPTION AGREEMENT
AMENDMENT
THIS AGREEMENT made this 26th day of April 1996, is by and between
Maple Avenue Enterprises, Inc., a New Jersey corporation ("Maple") and
Homeowners Marketing Services International, Inc., a Florida corporation
("HMSI").
WHEREAS, Maple and HMSI agree to amend the Option Agreement dated,
April 26th, 1996 for the option to acquire the exclusive license as and HMSI
Affiliate in the state of Florida, as follows:
"HMSI shall, at its sole discretion, determine the purchase price of
the franchise for the State of Florida, at the time that Maple may elect to
purchase the franchise for the state of Florida".
MAPLE AVENUE ENTERPRISES, INC.
By:\s\ DIANE M. GRUBER
HOMEOWNERS MARKETING SERVICES,
INTERNATIONAL, INC.
BY:\S\ CARL BUCCELLATO
EXHIBIT 11
<TABLE>
<CAPTION>
HOMEOWNERS GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Net income (loss) ($244,841) $315,938
CALCULATION OF PRIMARY NET INCOME (LOSS) PER COMMON SHARE:
Weighted average common shares outstanding during the year 5,558,350 5,558,350
Weighted average additional common shares (options) - -
--------- ---------
Weighted average primary common shares outstanding 5,558,350 5,558,350
--------- ---------
Primary net income (loss) per common share ($0.04) $0.06
======= =====
CALCULATION OF AVERAGE FULLY DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Weighted average common shares outstanding during the year 5,558,350 5,558,350
Weighted average additional common shares (options) - -
--------- ---------
Weighted average fully diluted common shares outstanding 5,558,350 5,558,350
--------- ---------
Fully diluted net income (loss) per common share ($0.04) $0.06
======= =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,634,357
<SECURITIES> 8,155,430
<RECEIVABLES> 1,443,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,840,356
<PP&E> 4,024,661
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,999,774
<CURRENT-LIABILITIES> 28,305,264
<BONDS> 0
0
0
<COMMON> 55,584
<OTHER-SE> 6,252,068
<TOTAL-LIABILITY-AND-EQUITY> 36,999,774
<SALES> 0
<TOTAL-REVENUES> 10,385,309
<CGS> 0
<TOTAL-COSTS> 10,752,021
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (383,841)
<INCOME-TAX> 139,000
<INCOME-CONTINUING> (244,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244,841)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
