UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
------------
{X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURTIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
Commission File Number 0-22388
EIF HOLDINGS, INC.
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(Exact name of small business issuer as specified in its charter)
HAWAII 99-0273889
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15201 Pipeline Lane, Ste. B
Huntington Beach, California 92649
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(Address of principal executive offices)
(714) 897-9000
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(Issuer's telephone number)
Not applicable
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(Former name,former address and former fiscal year if changed since last report)
Check whether the issuer(1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 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 No X
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State the number of shares outstanding of each of the issuer's classes of common
equity, as the latest practicable date.
Class Outstanding at December 10, 1997
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Common stock, no par value 24,618,201
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
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<PAGE>
EIF HOLDINGS INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1997
and September 30, 1996........................................... 3
Consolidated Statements of Operations for the Three and Nine
Months Ended June 30, 1997 and 1996.. ........................... 4
Consolidated Statements of Cashflow for the Nine
Months Ended June 30, 1997 and 1996.............................. 5
Notes to Consolidated Interim Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 11
Item 5. Other Information.................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................... 12
Signatures......................................................... 13
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
EIF HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1997 1996
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash........................................... $ 137,166 $ 178,231
Accounts receivable, net....................... 2,576,823 7,299,059
Note Receivable................................ 2,500,000 --
Costs and estimated earnings on contracts
in progress in excess of billings............. 104,349 326,343
Supplies inventory............................. 271,892 478,370
Prepaid assets................................. 142,147 85,816
------------ ------------
Total current assets...................... 5,732,377 8,367,819
Machinery and equipment, net...................... 698,212 1,275,087
Other noncurrent assets:
Goodwill....................................... 766,070 881,680
Other assets................................... 26,846 50,917
------------ ------------
792,916 932,597
------------ ------------
Total assets................................... $ 7,223,505 $ 10,575,503
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses........... $ 2,551,308 $ 6,428,112
Notes payable................................... 3,278,385 1,856,751
Billings in excess of costs and estimated
earnings on contracts in progress.............. 21,022 737,476
Note payable due to shareholder................. 8,215,926 4,908,317
Reserve for contingencies....................... 1,349,000 --
Net Liabilities of Discontinued Operations...... 2,156,568 --
Current maturities of long-term debt............ -- 144,311
------------ ------------
Total current liabilities................. 17,572,209 14,074,967
Long term debt................................... -- 73,882
Stockholders' deficit
Common stock................................... 3,019,246 3,019,246
Additional paid-in capital..................... 804,696 804,696
Accumulated deficit............................ (14,172,646) (7,397,288)
------------ ------------
Total stockholders' deficit.............. (10,348,704) (3,573,346)
------------ ------------
Total liabilities and stockholders' deficit... $ 7,223,505 $ 10,575,503
============ ============
The balance sheet at September 30, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statement presentation.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
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<TABLE>
<CAPTION>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue........................................... $ 3,857,837 $ 7,863,783 $ 10,246,244 $ 19,160,454
Cost of services.................................. 2,275,368 5,886,902 6,025,219 13,606,949
------------ ------------ ------------ ------------
Gross profit..................................... 1,582,469 1,976,881 4,221,025 5,553,505
Selling, general and administrative expenses...... 1,670,694 2,684,248 6,322,318 7,919,916
------------ ------------ ------------ ------------
(88,225) (707,367) (2,101,293) (2,366,411)
Other:
Other (income)expense............................ 22,419 3,653 22,419 (47,378)
Interest Expense................................. 361,996 93,596 1,105,012 302,873
------------ ------------ ------------ ------------
Loss before income taxes.......................... (472,640) (804,616) (3,228,724) (2,621,906)
Income taxes...................................... -- -- -- --
------------ ------------ ------------ ------------
Loss from continuing operations.................. $ (472,640) $ (804,616) $ (3,228,724) $ (2,621,906)
Discontinued operations, net of income taxes:
Loss from operations............................. (88,614) -- (5,758,582) --
Loss on disposal of assets from
discontinued operations...................... (158,630) -- (158,630) --
Gain on sale of Kelar Controls, Inc.............. 2,370,580 -- 2,370,580 --
------------ ------------ ------------ ------------
2,123,336 -- (3,546,632) --
------------ ------------ ------------ ------------
Net income (loss)................................. $ 1,650,696 $ (804,616) $ (6,775,356) $ (2,621,906)
============ ============ ============ ============
Net income (loss) per share:
Continuing operations............................ $ (0.02) $ (0.03) $ (0.13) $ (0.13)
Discontinued operations:
From operations.................................. $ (0.00) $ -- $ (0.23) $ --
From disposition................................. $ 0.09 $ -- $ 0.09 $ --
------------ ------------ ------------ ------------
Net income (loss) per share....................... $ 0.07 $ (0.03) $ (0.27) $ (0.13)
============ ============ ============ ============
Weighted average number of common
shares outstanding.............................. 24,618,201 24,618,201 24,618,201 20,056,157
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASHFLOW
(UNAUDITED)
Nine Months ended
June 30,
----------------------------
1997 1996
------------ ------------
Net cash used in operating activities............. $ (6,798,727) $(3,362,602)
Cash flow from investing activities
Purchase of machinery and equipment........... (198,228) (165,308)
Net liabilities in discontinued operations.... 2,156,568 --
------------ ------------
Net cash provided by (used in) investing
activities...................................... 1,958,340 (165,308)
Cash flow from financing activities
Change in Cash Overdraft....................... -- 211,969
Net advances on notes payable.................. 685,595 905,942
Net advances on notes due to shareholder....... 4,187,609 --
Proceeds from sale of common stock............. -- 1,000,000
Net (payments) proceeds on long-term debt...... (73,882) 1,448,574
------------ ------------
Net cash provided by financing activities......... 4,799,322 3,566,485
------------ -----------
Net (decrease) increase in cash................... (41,065) 38,575
Cash, beginning of period......................... 178,231 70,775
------------ ------------
Cash, end of period............................... $ 137,166 $ 109,350
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
On June 30, 1997, the Company sold all of the issued and outstanding shares of
Kelar Controls to Regal Oak Properties, Inc. in return for a $2,500,000
Promissory Note.
During the nine months ended June 30, 1996, the Company acquired $150,512 of
machinery and equipment under capitalized leases.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE>
EIF HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared by EIF Holdings, Inc., (the "Company"), in accordance with generally
accepted accounting principles pursuant to Regulation SB of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in audited financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Accordingly,
these interim consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and related notes as
contained in Form 10-KSB for the year ended September 30, 1996. In the opinion
of management, the interim consolidated financial statements reflect all
adjustments, including normal recurring adjustments, necessary for fair
presentation of the interim periods presented. The results of operations for the
three month period ended are not necessarily indicative of results of operations
to be expected for the full year.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries; P.W. Stephens Services, Inc. and P.W.
Stephens Contractors, Inc. collectively referred to as "P.W. Stephens St. Louis
and P.W. Stephens Residential, Inc., (which was formerly combined with P.W.
Stephens Contractors, Inc. and QHI Stephens Inc. and referred to as "P.W.
Stephens"). The P.W. Stephens Contractors, Inc. and QHI Stephens Contractors,
Inc. subsidiaries were discontinued in May 1997 and have been accounted for as
discontinued operations for all current periods reported under this Form 10-QSB.
Kelar Controls, Inc. was divested on June 30, 1997, accordingly their operations
are reflected through that date on the interim financial statements.
Net Income (Loss) Per Share Information. The net loss per share amounts have
been computed by dividing net loss by the weighted-average number of common
shares outstanding during the respective periods.
In February 1997, The Financial Accounting Standards Board Issued Statement No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of statement 128 on the calculation
of fully diluted earnings per share is not expected to be material.
Reclassifications. Certain reclassifications have been made to prior year
financial statements to conform with the current year presentation.
NOTE 2 - DISCONTINUED OPERATIONS
Resulting from ongoing losses, and in keeping with the Company's focus on
specializing in industrial maintenance services, management made the decision in
May 1997 to discontinue the commercial asbestos abatement operations of P.W.
Stephens Contractors, Inc. and QHI Stephens, Inc. The discontinued operations
have been segregated from continuing operations in the current year interim
financial statements included on this Form 10-QSB.
Revenue from the discontinued operations for the nine months ended June 30, 1997
was $6,975,974 compared to $9,883,907 for the same period in the prior year. The
decline in revenue was the result of the Company's decision not to accept major
new jobs for several months while the commercial asbestos operations were
evaluated. The total net loss for the discontinued operations for the nine
months ended June 30, 1997 was $5,917,212 compared to $1,421,575 for the same
period in 1996. The increased loss was the combined result of ongoing losses on
several large jobs, an increase in reserves for accounts receivable and
contingencies relating to the decision to discontinue the operations.
Page 6
<PAGE>
The following table summarizes the net liabilities related to the discontinued
operations:
June 30,
1997
------------
Current assets................................ $ 2,295,975
Property and equipment, net................... 140,720
Current liabilites............................ (4,593,263)
------------
Net liabilities related to discontinued
operations................................. $ (2,156,568)
============
Included in the current liabilites at June 30, 1997 is a provision for loss on
discontinued operations of $300,000 which consists of estimated costs associated
with the disposal and operating losses expected through February 28, 1998, the
phase out period. During the current quarter, the Company sold certain property
and equipment with a net book value of $258,933 related to the discontinued
operations that could not be used in the existing businesses. The Company
received proceeds of $99,950 for the sale of those assets resulting in a loss on
disposition of assets in the amount of $158,983. The remaining property and
equipment consists of vehicles that will be utilized in the ongoing operations.
NOTE 3 - BUSINESS DIVESTITURE
As of June 30, 1997, the Company completed the sale of all of the issued and
outstanding shares of Kelar Controls, Inc. (Kelar) to Regal Oak Properties, Inc.
for $2,500,000. Pursuant to the Acquisition Agreement, the Company received a
Promissory Note for the full purchase price. The note is payable in one (1)
installment due June 30, 1998, accrues interest at 10% per annum and is secured
by performance bonds.
NOTE 4 - TRANSACTIONS WITH SHAREHOLDER
During the fiscal year ended September 30, 1996, the Company entered into a line
of credit with a major shareholder, American Eco Corporation (AEC). The original
line of credit carried a maximum borrowing amount of $5,250,000, interest at the
prime rate plus 2% per annum, was unsecured and matures on July 31, 1997.
Discussions are continuing regarding the potential exchange of the AEC credit
line for additional shares of the Company's common stock. In conjunction with
those discussions, AEC has proposed an extension and amendment to the credit
facility. Until an amendment is formalized, AEC has allowed the outstanding
borrowing amount to exceed the maximum borrowing amount under the original
credit facility. Prior to any exchange of part or all of the line of credit to
common stock, the terms of the exchange must be negotiated and the Company must
receive shareholder approval to increase its authorized number of outstanding
shares. There is no assurance that this can be achieved.
Pursuant to an agreement effective October 1, 1996 between AEC and the Company.
AEC has agreed to provide certain services to the Company in exchange for a
management fee to be paid on a quarterly basis. The services include providing
the Company with management guidance as well as guaranteeing certain of the
Company's obligations with its creditors, in order to allow the Company to
receive favorable terms with its creditors. The agreement provides for a
quarterly payment of $1,000,000. AEC stopped providing management services for
the Company upon the appointment of Frank Fradella as President and CEO of the
Company in May 1997. Therefore the management fee was pro-rated for the third
quarter and amounted to $300,000. For the nine month period ended June 30, 1997
total management fees amounted to $2,300,000. AEC continues to guarantee certain
of the Company's obligations.
NOTE 5 - NOTES PAYABLE
On December 1, 1996 the Company executed a certain Promissory Note (the
"Original Note") in the principal sum of $300,000 payable to a certain investor
group. The Original Note carried interest of 12% per annum with a maturity date
of March 13, 1997. On April 17, 1997 the Original Note was Renewed, Extended and
Enlarged which extended the maturity date to July 1, 1997 and allowed the
Company to borrow an aditional $100,000. All other terms under the Original Note
remained unchanged. In connection with the note and renewal and extension, the
Company committed to issue 350,000 warrants to purchase the common stock of the
Company subject to shareholder approval of an increase in the authorized number
of outstanding shares.
On September 30, 1996 the Company obtained a $1,300,000 line of credit facility
from an investor group. The terms of the revolving credit facility provide for
an interest rate of 10% per annum and matures on March 1, 1998. The outstanding
balance under the facility as of June 30, 1996 was $1,030,000.
NOTE 6 - RESERVE FOR CONTINGENCIES
See Part II, Item 1. Legal Proceedings.
Page 7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company has included on this Form 10-QSB certain forward-looking statements.
Forward-looking statements are statements relating to the Company's plans,
goals, objetives, strategies, future performance and events as well as any other
statement or representation other than those relating to historical data.
Forward-looking statements inherently possess risks and uncertainties. As a
result, although the Company's forward-looking statements are expressed in good
faith, the Company's actual results could differ materially.
The results of operations for the three and nine months ended June 30, 1997 are
not necessarily indicative of the Company's results for future periods. The
following discussion should be read in conjunction with the unaudited financial
statements and the notes included herein as well as the audited financial
statements and the notes thereto for the year ended September 30, 1996.
General
The Company has been engaged in the business of asbestos abatement, lead
abatement, soil and hazardous waste remediation and industrial cleaning. The
Company services commercial, industrial and residential customers primarily
located in the midwest and on the west coast of the United States. The Company's
objective is to become a full service industrial maintenance and remediation
provider to customers throughout the United States. The Company expects to
achieve its objective by expanding the service territories of its existing
operations and to obtain additional geographic presence through acquisitions.
In May 1997, Frank J. Fradella was named President and CEO of the Company.
Shortly after his appointment, Mr. Fradella and American Eco Corporation (AEC)
began implementing a plan to stablize the Company's operations and financial
position and to provide it with the resources necessary to allow management to
pursue its new strategic direction. Several steps of this plan were completed
during the third quarter. The first step taken was to discontinue the Company's
commercial asbestos operations (P.W. Stephens Contractors, Inc. and QHI
Stephens, Inc.) which conistently generated losses and had been a drain on
capital resources. The remaining operations then experienced a reduction in
administrative staffing levels and overhead costs of approximately 35% in order
to position those operations to generate positive cash flows. AEC has proposed
for an increase of $9,750,000 in the Company's Line of Credit to $15,000,000 in
order to allow the Company to meet certain of its existing obligations. In
conjunction with the proposed increase in the Line of Credit, AEC and the
Company are discussing the possibility of allowing AEC to convert its obligation
from the Company into common stock subject to shareholder approval of an
increase in the authorized shares of the Company's common stock. No assurance
can be made that the shareholders will approve such an increase. In line with
the Company's strategy to focus in the specialize maintenance services industry,
the Company sold all of the issued and outstanding common shares of Kelar
Controls, Inc. to Regal Oak. Pursuant to the Aquisition Agreement dated June 30,
1997, the Company sold its interest in Kelar for $2,500,000. In addition, the
Company secured new financial management to help stablize the Company's
financial reporting function which was being negatively impacted by a
computerized accounting system conversion which took approximately six months
longer than anticipated to complete.
Page 8
<PAGE>
Results of Operations
Revenue:
Revenue for the nine months ended June 30, 1997 increased 10.5% to $10,246,000
from $9,277,000 for the same period in 1996. The increase in revenue was the
combined result of an increase in revenue from Kelar of 65.0% to $1,088,000, a
12.3% increase in revenue from P.W. Stephens St.Louis to $4,564,258 and a
decrease in revenue of (8.0%) to $4,588,000 from P.W. Stephens Residential. The
increase in Kelar's revenue was primarily the result of an increase in the
current quarter from a large ongoing energy savings contract compared to the
same period in 1996. The decrease in revenue for P.W. Stephens Residential for
the nine month period was offset by a 20% increase in the current quarter. The
revenue for both the three and nine months ended June 30, 1997 were affected by
the normal fluctuations in being awarded new contracts and the timing of the
commencement of new work. The increase in revenue for P.W. Stephens St. Louis
was primarily due to an increased sales effort implemented over the nine month
period which has resulted in the awarding of new contracts in the current
quarter.
Gross Profit:
Gross Profit as a percentage of revenue for the three and nine month periods
ended June 30, 1997 was 41.0% and 41.2% respectively, compared to 37.0% and
40.0% for the same periods in 1996. P.W. Stephens St. Louis and Kelar both
experienced an increase in its gross profit margins compared to the same periods
in the prior year while P.W. Stephens Residential's gross pofit margin remained
consistent. The increase in Kelar's gross profit for the current nine month
period of 10% was due to an increase in revenue from shared energy savings
contracts. Once initial work is completed and expensed, these projects produce
ongoing revenue while incurring minimal costs. St. Louis has maintained an
increase in its gross profit margin of approximately 5% throughout the current
year compared to the prior year resulting from the recognition of operational
efficiencies implemented in the prior year.
Selling, general and administrative expenses:
Selling, general and administrative expenses (SG&A) for the three and nine
months ended June 30, 1997 were $1,471,000 and $6,122,000 respectively compared
to $1,578,000 and $4,657,000 for the same periods in the prior year. The
increase in SG&A expenses for the current quarter is primarily due to the
$300,000 of additional management fees incurred during the period. For the nine
month period ended June 30, 1997 the increase in SG&A was the result of the
$2,300,000 management fees incurred, an increase in litigation and contingency
reserves of $1,049,000 and an increase in the reserve for trade receivables of
$220,000. Without the impact of these items, the Company's SG&A as a percentage
of revenue has decreased 24.8% resulting from the cost containment initiatives
implemented during the current year.
Other Expenses
Interest expense during the three and nine months ended June 30, 1997 was
$362,000 and $1,105,000 respectively compared to $94,000 and $303,000 for the
same periods in 1996. The increase was primarily due to additional outstanding
borrowings under the line of credit from its shareholder, American Eco
Corporation and the utilization of certain factoring arrangements.
Net Loss
The net loss for the three months ended June 30, 1997 increased to ($1,759,000)
compared to a net loss of ($1,522,000) during the same period in 1996. Losses
during the current period reflect the combined result of an increase in interest
expense, the additional management fees incurred and the increase in
contingencies and trade receivable reserves recognized in the current year.
Page 9
<PAGE>
Discontinued Operations
Revenue from the discontinued operations for the nine months ended June 30, 1997
was $6,975,974 compared to $9,883,907. The decline in revenue was the result of
the Company's decision not to accept new jobs for several months while the
commercial asbestos operations were evaluated. The total net loss, including
loss on disposal of assets, for the discontinued operations for the nine months
ended June 30, 1997 was $6,217,212 compared to $1,421,575 for the same period in
1996. The increased loss was the combined result of ongoing losses on several
large jobs, an increase in reserves for accounts receivable and contingencies
relating to the decision to discontinue the operations.
Liquidity and Capital Resources:
- --------------------------------
Borrowings from American Eco Corporation (AEC) remained the Company's primary
source of funding. As of June 30, 1997 the balance due to AEC was $8,215,926, an
increase of $1,035,284 and $3,307,609 for the three and nine month periods ended
June 30, 1997 compared to the September 30, 1996 fiscal year end amount. The
original terms of the AEC facility carried a maximum borrowing amount of
$5,250,000, interest at the prime rate plus 2% per annum, was unsecured and
matured on July 31, 1997. There have been proposals regarding an extension and
amendment to the credit facility. Until an amendment agreement can be reached,
AEC has allowed the outstanding amount to exceed the maximum borrowing amount
under the original credit facility. Discussions are continuing regarding a
potential exchange of the AEC credit line for additional shares of the Company's
common stock. Prior to any exchange of part or all of the line of credit to
common stock, the terms of the exchange must be negotiated and the Company must
receive shareholder approval to increase its authorized number of outstanding
shares. There is no assurance that this can be achieved.
The Company continued to utilize factoring arrangements as a source of funds
during the quarter ended June 30, 1997. P.W. Stephens St. Louis factored
contract receivables during the period in the amount of $227,638. Under the
terms of the factoring arrangement, the Company receives 65% of the factored
receivables at an annual effective interest rate of approximately 58%.
Management does not intend to utilize factoring arrangements as a significant
source of funds on an ongoing basis.
The Company also received funds from an amendment and extension of an existing
Promissory Note with an investor group. The face value of the original note was
$300,000 with an interest rate of 12% and a maturity date of March 13, 1997.
During the quarter ended June 30, 1997, the note was extended to July 1, 1997
and amended to allow the Company to borrow an additional $100,000. As part of
the original note, amendment and extension, the Company also commited to issue
350,000 warrants to purchase the Company's common stock which are subject to
shareholder approval of an increase in the authorized number of outstanding
shares.
On June 30, 1997, the Company sold its interest in Kelar Controls for $2,500,000
to Regal Oak Properties, Inc. Regal Oak financed the transaction by issuing the
Company a Promissory Note with an interest rate of 10% which is due and payable
in one (1) installment on June 30, 1998. The payment is secured by performance
bonds.
Neither the Company nor any of its subsidiaries have a bank line of credit from
which to borrow. As part of the Company's strategic initiatives, and as stated
in the Management Agreement between AEC and the Company, AEC has agreed to
assist the Company in obtaining favorable financing, including but not limited
to providing any necessary guarantees. There is no assurance that financing can
be achieved. The Company believes, however, that the additional funds available
under the AEC line of credit, the proceeds from the sale of Kelar and the cash
flows resulting from the remaining operations will be sufficient to meet the
obligations from the discontinued operations and the Company's operating
requirements until such time as other sources of financing can be obtained.
Page 10
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature and scope of the Company's business operations bring it into regular
contact with the general public, a variety of businesses and government
agencies. These activities inherently subject the Company to the hazards of
litigation, which are defended in the normal course of business. The Company is
currently involved in several litigations and investigations including
regulatory compliance. Although the outcome of these claims is not clearly
determinable at the present time, Management believes that such proceedings are
either adequately covered by insurance, or if uninsured, by the estimated losses
it has recorded to date. The resolution of such claims, however, could have a
material effect on the Company's results of operations or cash flows. The
reserves for litigation and contingencies recorded by the Company as of June 30,
1997 total $1,349,400.
ITEM 5. OTHER INFORMATION
DISCONTINUED OPERATIONS
See Note 2 Discontinued Operations in PART I., Item 1. Financial Statements.
DIVESTITURE
See Note 3 Business Divestiture in PART I., Item 1. Financial Statements.
Page 11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
Exhibit 10.1 Acquisition Agreement by and between the Company and
Regal Oak Properties, Inc. dated June 30, 1997 for the
sale of Kelar Controls, Inc.
Exhibit 10.2 Secured Promissory Note between the Company and Regal Oak
Properties, Inc. dated June 30, 1997.
Exhibit 10.3 Security Agreement Pledge between the Company and Regal
Oak Properties, Inc. dated June 30, 1997.
Exhibit 10.4 Renewal, Extension and Enlargement Promissory Note
between the Company and Truman Harty dated April 4, 1997.
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
Page 12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
EIF HOLDINGS, INC.
------------------
Registrant
January 13, 1998 By: /S/ J. Drennan Lowell
-----------------------------
J. Drennan Lowell
Vice President, Chief Financial Officer,
Treasurer and Secretary
Page 13
<PAGE>
EIF HOLDINGS, INC.
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
Exhibit 10.1 Acquisition Agreement by and between the Company
and Regal Oak Properties, Inc. dated June 30, 1997
for the sale of Kelar Controls, Inc................. 15
Exhibit 10.2 Secured Promissory Note between the Company and
Regal Oak Properties, Inc. dated June 30, 1997...... 36
Exhibit 10.3 Security Agreement Pledge between the Company and
Regal Oak Properties, Inc. dated June 30, 1997...... 38
Exhibit 10.4 Renewal, Extension and Enlargement Promissory
Note between the Company and Truman Harty dated
April 4, 1997....................................... 45
Exhibit 27. Financial Data Schedule............................. 46
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THIS ACQUISITION AGREEMENT made as of the 30th day of June, 1997.
B E T W E E N:
EIF HOLDINGS, INC.
a corporation formed under the laws of Hawaii
(the "Shareholder")
OF THE FIRST PART
- and -
REGAL OAK PROPERTIES, INC.
a corporation formed under the laws of Delaware
("Buyer")
OF THE SECOND PART
WHEREAS the Shareholder is the owner of 100% of the issued and outstanding
shares in the capital of Kelar Controls, Inc., a California corporation
("Kelar") and the Shareholder seeks to sell Kelar Shares (as hereinafter
defined) for the consideration set forth hereinbelow and Buyer seeks to acquire
Kelar Shares from the Shareholder, all on and subject to the terms and
conditions of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants, agreements and premises herein contained and other good and valuable
consideration (the receipt and sufficiency whereof being hereby acknowledged by
each party), the parties hereto do hereby covenant and agree as follows:
1. DEFINITIONS AND SCHEDULES
1.1 Definitions. In this Agreement:
"Accounts Receivable" means all accounts receivable and other book
debts due or accruing to Kelar as at the Reference Date and the full
benefit of all security, if any, for such accounts or debts.
"Agreement", "this Agreement", "hereto" and "herein" means this
Agreement and all schedules attached hereto, as may be amended from
time to time.
"Best Knowledge" or "known" means actual knowledge or awareness of the
Party.
"Business Day" means a day other than a Saturday or a Sunday or any
other day which is a statutory holiday in the State of Texas.
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"Closing" means the consummation of the Transaction as herein
contemplated.
"Closing Date" means June 30, 1997 or such earlier or later date
as may be agreed to in writing by the Parties.
"Contract" means any agreement, indenture, contract, bond, debenture,
security agreement, lease, deed of trust, license, option, instrument
or other legally binding commitment, whether written or oral.
"Direct Claim" has the meaning ascribed thereto in section 6.3.
"Encumbrances" means any and all claims, liens, security interests,
mortgages, pledges, pre-emptive rights, charges, options, equity
interests, encumbrances, proxies, voting agreements, voting trusts,
leases, tenancies, easements or other interests of any nature or kind
whatsoever, howsoever created.
"Indemnified Party" has the meaning ascribed thereto in section 6.3.
"Indemnifying Party" has the meaning ascribed thereto in section 6.3.
"Indemnification Claim" has the meaning ascribed thereto in section
6.3.
"Intellectual Property" means all patents, copyrights, trademarks and
trade names, service marks and all software, data bases, trade secrets,
know how and other proprietary rights as at the Reference Date.
"Kelar" means Kelar Controls, Inc., a California corporation.
"Kelar Contracts" has the meaning ascribed thereto in section 4.1(aa).
"Kelar Shares" means 100% of the issued and outstanding shares of
capital stock of Kelar, registered in the name of the Shareholder, as
set forth on Schedule 4.2(f), hereto.
"Kelar Financial Statements" has the meaning attributed thereto in
section 4.1(p).
"Losses" means any and all claims, demands, debts, suits, actions,
obligations, proceedings, losses, damages, liabilities, deficiencies,
costs and expenses (including without limitation, all reasonable legal
and other professional fees and disbursements, interest, penalties and
amounts paid in settlement).
"Material Adverse Effect" means a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise),
operations or prospects of the Party in question or upon such Party's
ability to perform its obligations under this Agreement or to
consummate the Transaction.
"Parties" means collectively, the parties to this Agreement.
"Purchase Note" shall have the meaning ascribed to it in Section 2.2 of
this Agreement.
"Person" means any individual, partnership, company, corporation,
unincorporated association, joint venture, trust, the Crown or any
other agency or instrumentality thereof or any other judicial entity or
person, government or governmental agency, authority or entity
howsoever designated or constituted.
"Reference Date" means May 31, 1997.
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"Security Agreement - Pledge" shall have the meaning ascribed to it in
Section 2.2 of this Agreement.
"Security Documents" shall mean the Purchase Note and the Security
Agreement - Pledge, collectively.
"Survival Period" has the meaning ascribed thereto in section 5.1
"Taxes" means all income, profits, franchise, royalty, withholding,
payroll, excise, sales, value added, use, occupation and property taxes
and any liability, whether disputed or not, imposed by the U.S. or any
state, municipality, country or foreign government or subdivision or
agency thereof.
"Third Party" has the meaning ascribed thereto in section 6.3.
"Third Party Claim" has the meaning ascribed thereto in section 6.3.
"Time of Closing" means 11:00 a.m. (Houston time) on the Closing Date
or if the Transaction is not completed at such time, then such other
time on the Closing Date on which the Transaction is completed.
"Transaction" means the transfer and sale of Kelar Shares in exchange
for consideration as contemplated by this Agreement.
1.2 Disclosure. Any fact or circumstance or combination of facts and/or
circumstances disclosed in this Agreement or in any schedules hereto shall be
deemed to be disclosed for all purposes of this Agreement.
1.3 Act. Any reference in this Agreement to any act, by-law, rule or regulation
or to a provision thereof shall be deemed to include a reference to any act,
by-law, rule or regulation or provision enacted in substitution or amendment
thereof.
1.4 Houston Time. Except where otherwise expressly provided in this Agreement
any reference to time shall be deemed to be a reference to Houston, Texas time.
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1.5 Gender and Extended Meanings. In this Agreement words and personal pronouns
relating thereto shall be read and construed as the number and gender of the
party or parties referred to in each case require and the verb shall be
construed as agreeing with the required word and pronoun. For greater certainty
and without limitation, in this Agreement the word "shall" has the same meaning
as the word "will".
1.6 U.S. Dollars and Payment. All dollar amounts referred to in this
Agreement are in U.S. funds, unless otherwise expressly specified.
1.7 Section Headings. The division of this Agreement into sections is for
convenience of reference only and shall not effect the interpretation or
construction of this Agreement.
1.8 Business Day. In the event that the date for the taking of any action under
this Agreement falls on a day which is not a Business Day, then such action
shall be taken on the next following Business Day.
2. AGREEMENT TO PURCHASE
2.1 Purchase. Subject to the terms and conditions hereof, on the Closing Date at
the Time of Closing, the Shareholder shall transfer to Buyer and Buyer shall
accept from the Shareholder Kelar Shares and the Shareholder shall deliver to
Buyer certificates representing Kelar Shares, duly endorsed in blank for
transfer together with new certificates therefor.
2.2 Purchase Price. The purchase price for Kelar Shares shall be the aggregate
sum of U.S. $2,500,000 and shall be satisfied by the execution and delivery by
Buyer to Shareholder at closing of Buyer's one certain Secured Promissory Note
(the "Purchase Note"), in the original principal amount of the Purchase Price.
The Purchase Note shall be in the form of Schedule 2.2 attached hereto, and the
Purchase Note shall be secured by certain assets more fully described within
that certain Security Agreement - Pledge, which shall be in the form of Schedule
2.2 (a) attached hereto. The Purchase Note and the Security Agreement - Pledge
are hereinafter referred to as the "Security Documents".
2.3 Closing. Closing shall occur at the Time of Closing on the Closing Date at
the offices of EIF Holdings, Inc. in Houston, Texas, or at such other place or
other time and date as the Parties may agree.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Covenants, Representations and Warranties. Buyer hereby covenants,
represents and warrants to the Shareholder as follows and acknowledges and
confirms that the Shareholder is relying upon such covenants, representations
and warranties in connection with the Transaction and that unless otherwise
indicated herein, such covenants, representations and warranties shall be true
and correct as at the Closing Date:
(a) Organization. Buyer is duly incorporated and validly
subsisting under the laws of Delaware and has the corporate
power to own or lease its property and to carry on its
business as it is now being conducted and will have the
corporate power to execute, deliver and perform its
obligations under this Agreement.
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(b) Corporate Authority. On the Closing Date Buyer will have taken
all requisite corporate action to authorize the valid
execution, delivery and performance of this Agreement and the
consummation of the Transaction.
(c) Agreement Enforceable. This Agreement constitutes a valid and
legally binding obligation of Buyer enforceable against Buyer
in accordance with its terms.
(d) No Violations. The execution and delivery of this Agreement and
all other agreements contemplated herein by Buyer and the observance
and performance of the terms and provisions of this Agreement and any
such agreements; (i) does not and will not require Buyer to obtain or
make any consent, authorization, approval, filing or registration
under any law, by-law, rule, regulation, judgment, order, writ,
injunction or decree which is binding upon Buyer; (ii) does not and
will not constitute a violation or breach of the charter documents or
bylaws of Buyer; (iii) does not and will not constitute a violation or
breach of applicable law, any material provision of any Contract to
which Buyer is a party or by which Buyer is bound or any law, by-law,
rule, regulation, judgment, order, writ, injunction or decree
applicable to Buyer; and (iv) does not and will not constitute a
material default (nor would with the passage of time or the giving of
notice or both or otherwise, constitute a material default) under any
Contract, to which Buyer is a party or by which Buyer is bound.
(e) Brokers. Buyer shall be responsible for the payment of all
brokerage commissions, and finder's fees or other like payment
incurred by Buyer in connection with this transaction, and
Buyer will indemnify and save harmless the Shareholder of and
from any such claims.
(f) Release from Guarantees. Buyer shall use its best efforts to
have the Shareholder released from any and all outstanding
guarantees of indebtedness of Kelar with all such guarantees
being assumed by Buyer. In the event Buyer cannot obtain such
releases from the lenders of any such guaranteed indebtedness,
Buyer shall indemnify and save harmless the Shareholder of and
from any loss resulting from such guaranteed indebtedness.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
4.1 Covenants, Representations and Warranties. The Shareholder hereby covenants,
represents and warrants to Buyer as follows and acknowledges and confirms that
Buyer is relying upon such covenants, representations and warranties in
connection with the Transaction and that unless otherwise indicated herein, such
covenants, representations and warranties shall be true and correct as at the
Closing Date:
(a) Legal Capacity. The Shareholder has the legal capacity and
corporate power to execute, deliver and perform its
obligations under this Agreement.
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(b) Organization. The Shareholder is duly incorporated and validly
subsisting under the laws of Hawaii and has the corporate
power to own or lease its property and to carry on its
business as it is now being conducted and has the corporate
power to execute, deliver and perform its obligations under
this Agreement. Kelar is duly incorporated and validly
subsisting under the laws of California and has the corporate
power to own or lease its property and to carry on its
business as it is now being conducted, and it is qualified to
do business in those jurisdictions wherein the failure to so
qualify could have a Material Adverse Effect on Kelar.
(c) Corporate Authority. The Shareholder and Kelar have taken all
requisite corporate action to authorize the valid execution,
delivery and performance of this Agreement and the
consummation of the Transaction.
(d) No Violations. The execution and delivery of this Agreement and
all other agreements contemplated herein by the Shareholder and the
observance and performance of the terms and provisions of this
Agreement and any such agreements; (i) does not and will not require
the Shareholder or Kelar to obtain or make any consent, authorization,
approval, filing or registration under any law, by-law, rule,
regulation, judgment, order, writ, injunction or decree which is
binding upon the Shareholder or Kelar; (ii) does not and will not
constitute a violation or breach of the charter documents or bylaws of
Kelar; (iii) does not and will not constitute a violation or breach of
applicable law, any material provision of any Contract to which the
Shareholder or Kelar is a party or by which the Shareholder or Kelar
is bound or any law, by-law, rule, regulation, judgment, order, writ,
injunction or decree applicable to the Shareholder or Kelar; (iv) does
not and will not constitute a default (nor would with the passage of
time or the giving of notice or both or otherwise, constitute a
default) under any Contract, to which the Shareholder or Kelar is a
party or by which the Shareholder or Kelar is bound; and (v) does not
and will not result in the creation or imposition of any Encumbrance
on Kelar Shares or any property or assets of the Shareholder or Kelar.
(e) Issued Shares. All of the Kelar Shares have been duly
authorized, created and issued as fully paid and
non-assessable shares. There are outstanding no other shares,
warrants, rights or securities convertible into shares or any
other evidence whatsoever of an interest in Kelar.
(f) Owner of Kelar Shares. The Shareholder is the owner
beneficially and of record of Kelar Shares in the amounts and
proportions identified on Schedule 4.1(f), hereto, and has
good and marketable title thereto, free and clear of any
Encumbrances and/or pre-emptive rights. The Shareholder has
the exclusive right and full power to transfer Kelar Shares to
Buyer as herein contemplated, free and clear of any
Encumbrances.
(g) Subsidiaries. Kelar has no Subsidiaries nor owns any shares of
any other corporation or entity nor any rights, warrants or
other securities convertible into shares of any other
corporation or entity. Kelar is not bound by or a party to any
Contract which contemplates their amalgamation, merger,
consolidation or other acquisition with or by any other
entity.
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(h) Acts of Bankruptcy. Neither the Shareholder nor Kelar is
insolvent, has proposed a compromise or arrangement to its or
their creditors generally, has taken any proceeding with
respect to a compromise or arrangement, has taken any
proceeding to have itself declared bankrupt or wound-up, has
taken any proceeding to have a receiver appointed of any part
of their assets and at present, no encumbrancer or receiver
has taken possession of any of their property and no execution
or distress is enforceable or levied upon any of its property
and no petition for a receiving order in bankruptcy is filed
against them.
(i) Private Companies. Kelar does not distribute its securities
to the public.
(j) Residents. Kelar's principal place of business is within the
United States.
(k) Actions - Kelar Shares. There is not pending or, to the Best
Knowledge of the Shareholder, threatened or contemplated, any
suit, action, legal proceeding, litigation or governmental
investigation of any sort which would; (i) in any manner
restrain or prevent the Shareholder from effectually and
legally transferring Kelar Shares to Buyer in accordance with
this Agreement; (ii) cause an Encumbrance to attach to Kelar
Shares; (iii) divest title to Kelar Shares in any manner
whatsoever; or (iv) make Buyer liable for damages in
connection with the Transaction.
(l) Litigation. There is not pending, or, to the Best Knowledge of
the Shareholder, threatened or contemplated, any suit, action,
legal proceeding, litigation or governmental investigation of
any sort relating to the Shareholder, Kelar or the Transaction
nor is there any present state of facts or circumstances which
can be reasonably anticipated to be a basis for any such suit,
action, legal proceeding, litigation or governmental
investigation nor is there presently outstanding against the
Shareholder or Kelar any judgment, decree, injunction, rule or
order of any court, governmental department, commission,
agency, instrumentality or arbitrator.
(m) Minute Books. The minute books of Kelar contain accurate and
complete copies of their organizational documents together
with minutes of all meetings of directors, committees and
shareholders of Kelar. The articles and the bylaws of Kelar
are attached as Schedule 4.1(m). There are outstanding no
applications or filings which would alter in any way the
organizational documents or corporate status of Kelar. No
resolutions or bylaws have been passed, enacted, consented to
or adopted by the directors or shareholders of Kelar except as
are contained in the minute books of Kelar.
(n) Books of Account. The books of account and financial records
of Kelar fairly set out and disclose in all material respects,
the current financial position of Kelar. All material
transactions involving Kelar have been accurately recorded in
such books and records. All bonuses, commissions and other
payments relating to the employees of Kelar are reflected in
the books of Kelar in a manner consistent with past record
keeping practices and none of such payables are in arrears.
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(o) Permits and Licenses. Kelar has all necessary permits,
certificates, licenses, approvals, consents and other
authorizations required to carry on and conduct business and
to own, lease or operate their assets at the places and in the
manner in which such businesses are conducted.
(p) Financial Statements. A true copy of Kelar's most recently
audited financial statements, and its unaudited financial
statements as of May 31, 1997 (the "Kelar Financial
Statements"), are annexed hereto as Schedule 4.1(p). Kelar
Financial Statements:
(1) Have been prepared in accordance with U.S. generally
accepted accounting principles applied on a basis
consistent with those of the preceding fiscal period,
except for the elimination of applicable intercompany
accounts.
(2) Present fairly the assets, liabilities and financial
position of Kelar as of May 31, 1997, and the results
of operations for the periods then ended. Other than
the liabilities specified in the balance sheet
forming part of Kelar Financial Statements or
incurred since the Reference Date in the ordinary
course of business (all of which is consistent with
past practice) or otherwise noted or disclosed in
this Agreement, to the Best Knowledge of the
Shareholder, there are no known liabilities or
obligations of Kelar (whether absolute, contingent or
otherwise) including without limitation, any Tax
liabilities due or to become due or contingent losses
for unasserted claims which are capable of assertion.
(3) Are substantially in accordance with the books and
records of Kelar.
(4) Contain and reflect all necessary adjustments for a
fair presentation of the results of operations and
financial position of Kelar for the periods covered
thereby.
(5) Contain and reflect adequate provision or allowance
for all reasonably anticipated liabilities, expenses
and losses of Kelar.
(q) Guarantees. Kelar does not have any outstanding guarantees or
has any outstanding security for any liability, debt or
obligation of any Person.
(r) Bonds, Debentures. Kelar does not have any outstanding bonds,
debentures or other indebtedness and are not under any
agreement to create or issue any bonds, debentures or other
indebtedness.
(s) No Further Expenditures. No capital expenditures or leasehold
improvements have been made by Kelar since the dates of Kelar
Financial Statements, other than in the ordinary course of
business.
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(t) Related Parties. Since the Reference Date, Kelar has not made
any payment or loan to or borrowed any moneys from and is not
otherwise indebted to, any officer, director, employee,
shareholder or any other Person not dealing at arm's length
with Kelar. Kelar is not a party to any Contract with any
officer, director, employee, shareholder or any other Person
not dealing at arm's length with Kelar. No officer, director
or shareholder of Kelar and no entity that is an Affiliate or
Associate of one or more of such individuals:
(1) Owns, directly or indirectly, any interest in (except
for shares representing less than 2% of the
outstanding shares of any class of securities of any
publicly traded company) or is an officer, director,
employee or consultant of, any Person which is or is
engaged in business as a competitor of Kelar or a
lessor, lessee, client or supplier of Kelar.
(2) Owns, directly or indirectly, in whole or in part,
any property that Kelar uses in the operation of its
business.
(3) Has any cause of action or any other claims
whatsoever against or owes any amount to Kelar.
(u) Dividends or Distributions. No dividends or other
distributions on any of the shares in the capital of Kelar
have been authorized, declared or paid since the date of Kelar
Financial Statements and there has not been any direct or
indirect redemption, purchase or acquisition of any such
shares.
(v) No Changes. Since the Reference Date, Kelar has carried on
business and conducted its operations and affairs only in the
ordinary and normal course consistent with past practice and
there has not been:
(1) Any material adverse change in the condition
(financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of Kelar.
(2) Any damage, destruction or loss (whether or not
covered by insurance) affecting the property or
assets of Kelar or any failure to regularly maintain
and repair such property and assets in the ordinary
course of business.
(3) Any payment, discharge or satisfaction of any
Encumbrance, liability or obligation of Kelar
(whether absolute, accrued, contingent or otherwise
and whether due or to become due) greater than
$1,000.00 each, other than payment of accounts
payable and Tax liabilities incurred in the ordinary
course of business consistent with past practice.
(4) Any issuance or sale by Kelar or any Contract entered
into by Kelar for the issuance or sale by Kelar of
any shares in the capital of or securities
convertible into or exercisable into shares in the
capital of Kelar.
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(5) Any labor disturbances having a Material Adverse Affect on
Kelar.
(6) Any license, sale, assignment, transfer, disposition,
pledge, mortgage or granting of a security interest
or other Encumbrance on or over any property or
assets of Kelar other than in the ordinary course of
business.
(7) Any write-off as uncollectible of any Accounts
Receivable or any portion thereof Kelar in amounts
exceeding the allowance set out in Kelar Financial
Statements.
(8) Any cancellation of any other debts or claims or any
amendment, termination or waiver of any other rights
of value to Kelar in amounts exceeding $1,000.00 in
each instance or $5,000.00 in the aggregate.
(9) Any general increase in the compensation of employees
of Kelar (including without limitation, any increase
pursuant to any employee plan or commitment) or any
increase in any such compensation or bonus payable to
any officer, employee, consultant or agent thereof
(having an annual salary or remuneration in excess of
$30,000.00) or the making of any loan to or
engagement in any transaction with any employee,
officer or director thereof.
(10) Any material change in the accounting or tax
practices followed by Kelar.
(11) Any acquisition, transfer, assignment, sale or other
disposition of any of the assets shown in Kelar
Financial Statements other than in the ordinary
course of business.
(12) Any institution or settlement of any litigation,
action or proceeding before any court or governmental
body by or against Kelar.
(13) The creation of any debts and/or liabilities
whatsoever (whether accrued, absolute, contingent or
otherwise) than in the ordinary course of business.
(w) Taxes . Except as reserved for in the Kelar Financial
Statements:
(1) All returns, including reports of every kind with
respect to Taxes, which are due to have been filed by
Kelar in accordance with applicable law, have been
duly filed by the dates prescribed by law and are
complete and accurate.
(2) All Taxes, deposits or other payments for which Kelar
may have any liability arising prior to Closing have
been paid in full or accrued as liabilities for Taxes
on the books of Kelar.
(3) All installments for Taxes which Kelar may be
required to make have been made on a timely basis.
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(4) The amount so paid on or before the Reference Date
together with any amounts accrued as liabilities for
Taxes (whether accrued as currently payable or
deferred taxes) on the books and in the Kelar
Financial Statements will be adequate to satisfy all
liabilities for Taxes of Kelar in any jurisdiction in
respect of the periods covered.
(5) There are not now any extensions of time in effect
with respect to the dates on which any returns,
including elections, reports of Taxes were or are due
to be filed by Kelar and there are no outstanding
requests therefor.
(6) All assessments or reassessments of Taxes asserted as
a result of any examination of any return or report
of Taxes have been paid, have been accrued on the
books of Kelar and in the Kelar Financial Statements
or finally settled and no issue has been raised in
any such examination which, by application of the
same or similar principles, reasonably could be
expected to result in a proposed deficiency for any
other period not so examined.
(7) No payments are or will be required to be made by
Kelar pursuant to any tax indemnity, allocation or
sharing agreement and all such agreements will be
terminated with respect to Kelar as of the Reference
Date;
(8) No claims, proposals, assessments or reassessments
for any Taxes are being asserted or, to the Best
Knowledge of the Shareholder, proposed or threatened
and, to the Best Knowledge of the Shareholder, no
audit or investigation of any return or report of
Taxes is currently under way, pending or threatened.
(9) There are no outstanding waivers or agreements by
Kelar for the extension of time for the assessment or
reassessment of any Taxes or deficiency thereof nor
are there any requests for rulings, outstanding
subpoenas or requests for information, notice of
proposed reassessment of any property owned or leased
by Kelar or any other matter pending between Kelar
and any taxing authority.
(10) There are no liens for Taxes upon Kelar shares or
upon any property or assets of Kelar except liens for
current Taxes not yet due.
(11) To the Best Knowledge of the Shareholder there are no
facts which exist or have existed which would
constitute grounds for the assessment of any Taxes of
Kelar with respect to the periods which have not been
audited by the Internal Revenue Service or other
taxing authorities.
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(12) Kelar has withheld from each payment made to its
officers, directors and employees and former
officers, directors and employees, the amount of all
Taxes and other deductions required to be withheld
therefrom and has paid the same to the proper tax and
other receiving officers within the time required
under applicable legislation.
(13) Adequate provision, including provision in the
deferred tax account has been made for all deferred
and accrued Tax liabilities with respect to
operations of Kelar for the period ending on the
Reference Date.
(x) Assets. Kelar has good and marketable title to all of its
assets as reflected on the Kelar Financial Statements, free
and clear of all Encumbrances save and except for those assets
sold, assigned, transferred or disposed of in the ordinary
course of business and save and except for the encumbrances
identified in Schedule 4.1(x), hereto.
(y) Certain Contracts and Commitments. The enforceability of all
contracts, leases and licenses of Kelar (the "Kelar
Contracts") will not be affected in any manner by the
execution and delivery of this Agreement or the consummation
of the Transaction. Kelar is not in default and there does not
exist any event that, with notice or lapse of time or both,
would constitute an event of default by Kelar under any of
Kelar Contracts. A true and complete copy of each such Kelar
Contract has been delivered to Buyer or will be delivered to
Buyer prior to the Closing Date.
(z) No Other Contracts. Kelar is not a party to or bound by any
Contract which in any way has or could have a Material Adverse
Effect on Kelar. The Contracts set forth in the Schedules
hereto are not subject to renegotiation or cancellation
resulting from the Transaction. Except as described in the
Schedules, Kelar is not a party to or bound by:
(1) Any Contract for the purchase of materials, supplies,
equipment or services which involves the payment of
$1,000.00 or more.
(2) Any Contract for the sale, license or provision of
any assets or services which involve the receipt of
$1,000.00 or more.
(3) Any trust indenture, mortgage, promissory note, loan
agreement, guarantee or other Contract for the
borrowing of money or a leasing transaction of the
type required to be capitalized in accordance with
generally accepted accounting principles.
(4) Any Contract for charitable contributions in excess
of $500.00 in the aggregate.
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(5) Any Contract relating to a distributorship, sales
representative or sales agency agreement.
(6) Any Contract which involves the sharing of profits, a
joint venture, partnership, joint development or
bidding arrangement or any material advertising
contracts.
(7) Any Contract not made in the ordinary course of
business.
(8) Any Contract restricting in any manner the conduct
of Kelar or the ownership or use of the assets
thereof.
(9) Any material warranties relating to products
distributed or services provided by Kelar.
(10) Any Contract involving the payment or receipt of
$5,000.00 or more in any 12 month period.
(11) Any Contract required to be disclosed on a Schedule
to this Agreement that is not so disclosed.
(aa) Default of Contracts. Kelar has performed all of the
obligations required to be performed by it to the extent
performance is due and is entitled to all benefits under and
is not in default or alleged to be in default in respect of,
any Contract to which it is a party or by which it is bound.
No event, condition or occurrence exists that, after notice or
lapse of time or both, would constitute a default under any of
such Contracts. Kelar has the capacity, including the
necessary personnel, equipment and supplies, to materially
perform all its obligations under all such Contracts.
(ab) Compliance with Laws. Kelar has conducted and is now conducting
business in compliance with all statutes, regulations, bylaws, orders,
covenants, restrictions or plans of all federal, state or municipal
authorities, agencies or boards applicable to such business. Kelar is
not in default under any such statutes, regulations, bylaws, orders,
covenants, restrictions or plans applicable to it. Kelar nor any of
its directors, officers, agents, employees or other Persons acting on
behalf of Kelar has, directly or indirectly, used any corporate funds
of Kelar for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made any unlawful
payments on behalf of Kelar to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, knowingly made any false or fictitious
entry on the books or records of Kelar or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment on
behalf of Kelar.
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(ac) Leased Premises. The occupation and use to which the leased
premises of Kelar has been put by Kelar is not in breach of
any applicable statute, by-law, regulation, covenant or
restriction applicable to the leased premises. The zoning
bylaws applicable to the leased premises permit the operation
of business and the intended use to be made of the leased
premises. There are no outstanding work orders against the
leased premises of Kelar or any part thereof nor are there any
matters under discussion between Kelar and any governmental or
municipal authority which may give rise to work orders.
(ad) Environmental Matters. To the Best Knowledge of the Shareholder,
the buildings and premises at which Kelar carries on business does not
contain any material quantities of noxious substances including
without limitation, urea formaldehyde foam insulation, aluminum
wiring, asbestos, materials containing asbestos, polychlorinated
byphenyls or substances containing polychlorinated byphenyls or radon
at levels deemed unacceptable by any health, labor or environmental
authority or any federal, state or municipal government. The
operations of Kelar in all material respects comply with all
applicable environmental statutes, regulations and decrees, whether
federal, state or municipal. Kelar has not received any notices to the
effect that the business carried on by Kelar is not in compliance with
the requirements of applicable environmental statutes, regulations or
decrees or is subject to any remedial control or action or any
investigation or evaluation as to whether any remedial action is
required to respond to a release or threatened release of any
contaminant into the environment or into any facility or structure
which forms part of or is adjacent to the leased premises at which the
business is carried on.
(ae) Employee Plans and Arrangements. All of Kelar's employee
contracts, plans and arrangements are in good standing and Kelar has
made all payments required to be made by it in connection therewith.
All employee plans requiring funding on the part of Kelar are fully
funded. Keller does not have any employees receiving or claiming long
term disability benefits or workers' compensation benefits. No notice
has been received by Kelar of any complaints filed by any employees
claiming that Kelar has violated any applicable employee or human
rights or similar legislation in any other jurisdiction in which Kelar
carries on business or of any complaints or proceedings of any kind
involving Kelar or any employees of Kelar before any labor relations
board. There are no outstanding orders or charges against Kelar under
any applicable health and safety legislation in the jurisdictions in
which Kelar carries on business. All levies, assessments and penalties
made against Kelar pursuant to any applicable workers' compensation
legislation in any jurisdictions in which Kelar carries on business
has been paid by Kelar and Kelar has been reassessed under any such
legislation during the past 3 years. Kelar has not made any agreements
with any labor union or employee association or made commitments to or
conducted negotiations with any labor union or employee association
with respect to any future agreements and the Shareholder is not aware
of any current attempts to organize or establish any labor union or
employee association relating to Kelar. Kelar has not entered into any
agreement or made any arrangements with any employees an consultants
which would have the effect of depriving Kelar of the continued
services of any such employees and consultants following the Closing.
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<PAGE>
(af) No Brokers. All negotiations relating to this Agreement and
the Transaction have been carried on by the Shareholder
directly with Buyer without the intervention of any other
Person on behalf of the Shareholder in such manner as to give
rise to any valid claim against Buyer for a brokerage
commission, finder's fee or other like payment and the
Shareholder will indemnify and save harmless Buyer of and from
any such claim.
(ag) Omissions and Misrepresentations. None of the foregoing
covenants, representations and warranties knowingly contains
any untrue statement of material fact or knowingly omits to
state any material fact necessary to make any such covenant,
warranty or representation not misleading to a prospective
purchaser of Kelar Shares and the Assets seeking full
information as to Kelar.
5. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES
5.1 Survival. No investigations made by or on behalf of any Party at any time
shall have the effect of waiving, diminishing the scope of or otherwise
affecting any covenant, representation or warranty made by any Party. No waiver
by any Party of any condition, in whole or in part, shall operate as a waiver of
any other condition. The covenants, representations and warranties contained in
Article 3 and 4 respectively or in any certificate or other document delivered
in connection with the Closing shall survive the making of this Agreement and
the Closing for a period of 2 years and only 2 years. The period of survival
being herein referred to as the "Survival Period"); provided, however, that if a
claim for a breach of any such covenant, representation or warranty is brought
prior to the expiration of the Survival Period such covenant, representation or
warranty shall, for the purposes of such claim, survive the Survival Period
until such claim is finally resolved and all obligations with respect thereto
have been fully satisfied.
6. INDEMNITY
6.1 Indemnity by Buyer. Buyer agrees to indemnify and save harmless the
Shareholder from all Losses actually incurred by the Shareholder as a result of
any breach by Buyer or any inaccuracy of any covenant, representation or
warranty contained in this Agreement.
6.2 Indemnity by the Shareholder. The Shareholder agrees to indemnify and save
harmless Buyer from all Losses actually incurred by Buyer as a result of:
(a) Any breach by the Shareholder or any inaccuracy of any
covenant, representation or warranty contained in this
Agreement.
(b) All debts, liabilities and claims whatsoever (whether accrued,
absolute, contingent or otherwise) of Kelar as at the
Reference Date which are not disclosed on, provided for,
reserved for or included in the balance sheets forming part of
Kelar Financial Statements or which did not arise in the
ordinary course of business since the date of Kelar Financial
Statements up to the Time of Closing.
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(c) Any assessment or reassessment of Taxes, interest and/or
penalties for any period up to the Reference Date for which no
adequate reserve has been provided and disclosed in the Kelar
Financial Statement.
6.3 Notice of Claims
(a) In the event that a Party (the "Indemnified Party") shall become
aware of any Loss in respect of which another Party (the "Indemnifying
Party") agreed to indemnify the Indemnified Party pursuant to this
Agreement (the "Indemnification Claim"), the Indemnified Party shall
promptly give written notice thereof to the Indemnifying Party. Such
notice shall specify whether the Indemnification Claim arises as a
result of a claim by a Person against the Indemnified Party (a "Third
Party Claim") or whether the Loss does not so arise (a "Direct Claim")
and shall also specify with reasonable particularity (to the extent
that the information is available) the factual basis for the
Indemnification Claim and the amount of the Loss if known.
(b) If through the fault of the Indemnified Party the Indemnifying
Party does not receive notice of any Indemnification Claim in
time to contest effectively the determination of any liability
susceptible of being contested, the Indemnifying Party shall
be entitled to set off against the amount claimed by the
Indemnified Party the amount of any Losses incurred by the
Indemnifying Party resulting from the Indemnified Party's
failure to give such notice on a timely basis.
6.4 Investigation of Claims. With respect to any Direct Claim, following receipt
of notice from the Indemnified Party of the Indemnification Claim, the
Indemnifying Party shall have 60 days to make such investigation of the
Indemnification Claim as is considered necessary or desirable. For the purpose
of such investigation, the Indemnified Party shall make available to the
Indemnifying Party the information relied upon by the Indemnified Party to
substantiate the Indemnification Claim, together with all such other information
as the Indemnifying Party may reasonably request. If all Parties agree at or
prior to the expiration of such 60 day period (or any mutually agreed upon
extension thereof) to the validity and amount of such Indemnification Claim, the
Indemnifying Party shall immediately pay to the Indemnified Party the full
agreed upon amount of the Indemnification Claim, failing which the matter shall
be determined by a court of competent jurisdiction.
6.5 Supplemental Rights. The rights and benefits provided in this Article are
supplemental to and are without prejudice to any other rights, actions or causes
of action which may arise pursuant to any other section of this Agreement or
pursuant to applicable law.
7. PRE-CLOSING COVENANTS
7.1 Operations Before Closing. For greater certainty and without limitation,
without the prior written consent of Buyer during the period commencing on the
Reference Date and terminating at the close of business on the Closing Date, the
Shareholder: (i) shall not make nor shall the Shareholder permit to be made any
material change in the way that Kelar is being operated; and (ii) shall comply
with all laws in connection with the business of Kelar.
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8. CONDITIONS PRECEDENT TO SHAREHOLDER'S OBLIGATIONS AT CLOSING
8.1 Conditions Precedent. All obligations of Shareholder to deliver Kelar Shares
this Agreement are subject to the fulfillment (or waiver in writing by
Shareholder) prior to or at the Closing of each of the following conditions:
(a) Covenants, Representations and Warranties. The covenants,
representations and warranties made by the Buyer in or under
this Agreement shall be true in all material respects on and
as of the Closing Date and Shareholder shall have received
from the Buyer a certificate signed as of the Closing Date and
to such effect.
(b) Actions, Etc. All actions, proceedings, instruments and
documents required to carry out the Transaction including
without limitation the issue and delivery of the Security
Documents as contemplated in this Agreement and all other
related legal matters shall have been approved by the
Shareholder and the Shareholder shall have been furnished with
such certified copies of actions and proceedings and other
such instruments and documents as the Shareholder shall have
requested.
(c) Approvals. Buyer shall have received all requisite regulatory
approvals and board of director approvals in connection with
the Transaction.
(d) Compliance with Covenants. Buyer shall have complied with all
covenants and agreements herein agreed to be performed or
caused to be performed by Buyer.
(e) Approvals and Consents. At or before Closing there shall have
been obtained from all appropriate federal, state, provincial,
municipal or other governmental or administrative bodies all
such approvals and consents, if any, in form and on terms
satisfactory to the Shareholder as may be required in order to
permit the completion of the Transaction as provided in this
Agreement.
(f) Corporate Authorizations. Buyer shall have delivered to the
Shareholder evidence satisfactory to the Shareholder that all
necessary corporate authorizations by authorizing and
approving the Transaction have been obtained.
(g) No Orders. No order of any court or administrative agency
shall be in effect which restrains or prohibits the
Transaction and no suit, action, inquiry, investigation or
proceeding in which it will be or it is sought to restrain,
prohibit or change the terms of or obtain damages or other
relief in connection with the Transaction and which in the
reasonable judgment of the Shareholder makes it inadvisable to
proceed with the consummation of the Transaction shall have
been made, instituted or threatened by any Person.
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<PAGE>
In case any of the foregoing conditions cannot be fulfilled at or
before the Time of Closing to the reasonable satisfaction of the Shareholder,
the Shareholder may rescind this Agreement by notice to Buyer and in such event
all of the Parties shall be released from all obligations hereunder. Provided
however that any such conditions may be waived in whole or in part by the
Shareholder without prejudice to the Shareholder's rights of rescission in the
event of the non-fulfillment of any other condition or conditions, any such
waiver to be binding on the Shareholder only if the same is in writing.
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS AT CLOSING
9.1 Conditions Precedent. All obligations of Buyer to purchase Kelar Shares this
Agreement are subject to the fulfillment (or waiver in writing by Buyer) prior
to or at the Closing of each of the following conditions:
(a) Covenants, Representations and Warranties. The covenants,
representations and warranties made by the Shareholder in or
under this Agreement shall be true in all material respects on
and as of the Closing Date and Buyer shall have received from
the Shareholder a certificate signed as of the Closing Date
and to such effect.
(b) Actions, Etc. All actions, proceedings, instruments and
documents required to carry out the Transaction including
without limitation, the transfer of Kelar Shares and all other
related legal matters shall have been approved by Buyer and
Buyer shall have been furnished with such certified copies of
actions and proceedings and other such instruments and
documents as Buyer shall have requested.
(c) Approvals. Shareholder shall have received all requisite
regulatory approval including without limitation board of
director approvals in connection with the Transaction.
(d) Resignations. All of the directors and officers of Kelar shall
have resigned as directors and officers of Kelar in favor of
nominees of Buyer and the resigning directors and officers of
Kelar shall have delivered releases to Kelar and Buyer in form
and substance reasonably satisfactory to Buyer.
(e) Compliance with Covenants. The Shareholder shall have complied
with all covenants and agreements herein agreed to be
performed or caused to be performed by the Shareholder.
(f) Approvals and Consents. At or before Closing there shall have
been obtained from all appropriate federal, state, municipal
or other governmental or administrative bodies all such
approvals and consents, if any, in form and on terms
reasonably satisfactory to Buyer as may be required in order
to transfer Kelar Shares at Closing as herein provided.
Page 32
<PAGE>
(g) Permits and Licenses. Buyer shall have been furnished with
evidence that Kelar holds all valid permits and licenses as
may be requisite for carrying on business.
(h) Corporate Authorizations. Shareholder shall have delivered to
Buyer evidence satisfactory to Buyer that all necessary
corporate authorizations by the Shareholder and Kelar
authorizing and approving the Transaction have been obtained.
(i) No Orders. No order of any court or administrative agency
shall be in effect which restrains or prohibits the
Transaction and no suit, action inquiry, investigation or
proceeding in which it will be or it is sought to restrain,
prohibit or change the terms of or obtain damages or other
relief in connection with the Transaction and which in the
judgment of Buyer makes it inadvisable to proceed with the
consummation of the Transaction shall have been made,
instituted or threatened by any person.
In case any of the foregoing conditions cannot be fulfilled at or
before the Time of Closing to the satisfaction of Buyer, Buyer may rescind this
Agreement by notice to the Shareholder and in such event the Parties shall be
released from all obligations hereunder. Provided however that any such
conditions may be waived in whole or in part by Buyer without prejudice to
buyer's rights of rescission in the event of the non-fulfillment of any other
condition or conditions, any such waiver to be binding on Buyer only if the same
is in writing.
MISCELLANEOUS
10.1 Tender. Any tender of documents or money hereunder may be made upon the
Parties or under their respective solicitors as set forth herein.
10.2 Notice. All notices, requests, demands or other communications by the
Parties required or permitted to be given by one Party to another shall be given
in writing by personal delivery, telecopy or by registered or certified mail,
postage prepaid, addressed, telecopied or delivered to such other Party as
follows:
(a) if to the Shareholder, to:
EIF Holdings, Inc.
Attn: Frank J. Fradella
616 FM 1960 West
Suite 630
Houston, Texas 77090
(b) if to Buyer, to:
Regal Oak Properties, Inc.
11850 Jones Road
Houston, Texas 77070
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<PAGE>
Or at such other address or telecopier number as may be given by any of them to
the others in writing from time to time and such notices, requests, demands or
other communications shall be deemed to have been received when delivered, if
personally delivered, on the date telecopied (with receipt confirmed) if
telecopied and received at or prior to 5:00 p.m. local time and, if not, on the
next Business Day, and if mailed, on the date received as certified.
10.3 Further Assurances. The Parties shall sign such other papers, cause such
meetings to be held, resolutions passed and bylaws enacted and exercise their
vote and influence, do and perform and cause to be done and performed such
further and other acts and things as may be necessary or desirable in order to
give full effect to this Agreement and every part hereof.
10.4 Laws. This agreement shall be governed by the laws of Texas and the Parties
hereby irrevocably attorn to the Courts of Harris County, Texas.
10.5 Expenses. All out-of-pocket expenses (including legal and accounting
expenses) incurred in connection with the Transaction shall be borne by the
respective Parties.
10.6 Time of the Essence. Time shall be of the essence of this Agreement and of
every part hereof and no extension or variation of this Agreement shall operate
as a waiver of this provision.
10.7 Entire Agreement. This Agreement constitutes the entire agreement between
the Parties with respect to all of the matters herein. This Agreement supersedes
any and all agreements, understandings and representations made between the
Parties prior to the date hereof. This Agreement shall not be amended except by
a memorandum in writing signed by all of the Parties and any amendment hereof
shall be null and void and shall not be binding upon any Party which has not
given its consent as aforesaid.
10.8 Assignment. No Party may assign this Agreement or any part hereof without
the prior written consent of the other Parties which consent may be unreasonably
withheld. Subject to the foregoing, this Agreement shall enure to the benefit of
and be binding upon the Parties and their respective successors and permitted
assigns, but no other Person.
10.9 Invalidity. In the event that any of the covenants, representations and
warranties or any portion of them contained in this Agreement are unenforceable
or are declared invalid for any reason whatsoever, such unenforceability or
invalidity shall not affect the enforceability or validity of the remaining
terms or portions thereof contained in this Agreement and such unenforceable or
invalid, covenant, representation and warranty or covenant or portion thereof
shall be severable from the remainder of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF the Parties have duly executed this Agreement as of
the date and year first above written.
EIF HOLDINGS, INC.
By: /s/Frank J. Fradella
-----------------------------------
Name: Frank J, Fradella
---------------------------------
Title: President
--------------------------------
Date: June 30, 1997
---------------------------------
REGAL OAK PROPERTIES, INC.
By: /s/Tyrell Garth
-----------------------------------
Name: Tyrell Garth
---------------------------------
Title: Authorized Rep
--------------------------------
Date: June 30, 1997
---------------------------------
Page 35
SECURED PROMISSORY NOTE
$2,500,000 June 30, 1997 Houston, Texas
As hereinafter stipulated, for value received, without grace, the
undersigned ("Borrower"), promises to pay to the order of EIF Holdings, Inc., a
Hawaii corporation ("Lender"), at 616 FM 1960 West, Suite 630, Houston, Texas
77090, or at such address as Lender may designate in writing, (the term "Lender"
shall herein in every instance refer to any owner or holder of this Note), the
principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000), plus
simple interest at the rate of ten percent (10%) per annum on the principal
amount of the Note actually advanced prior to maturity as hereinafter set forth.
The principal indebtedness and accrued interest thereon shall bear interest
after maturity (whether by acceleration or otherwise) at the maximum nonusurious
rate provided by applicable law.
This Note shall be payable as follows:
The entire balance of principal and accrued interest shall be
due and payable in one (1) installment on June 30, 1998.
This Note is secured by all security agreements, pledge agreements,
financing statements and other security documents (collectively, the "Security
Documents") now or hereafter executed and delivered by Borrower to Lender or
other holder of this note.
If default be made in the payment, in whole or in part, of any sum due
hereunder, or if default be made under the terms and provisions of the Security
Documents securing this Note, the holder hereof shall have the right and option
to declare the unpaid balance of principal and accrued interest on this Note at
once due and payable without notice or demand and to foreclose all pledges and
liens securing payment of same. Failure to exercise this option upon any default
shall not constitute a waiver of the right to exercise it in the event of any
subsequent default.
Borrower hereby agrees to pay all expenses incurred, plus and including
reasonable attorney's fees in an amount of not less than ten percent (10%) of
the amount of the principal and interest then unpaid, all of which shall become
a part of the principal hereof if this Note is placed in the hands of an
attorney for collection, or if collected by suit or through any probate,
bankruptcy or other legal or judicial procedure, whether through formal probate
court, bankruptcy court or any informal proceedings related thereto.
Whether or not the maturity of this Note is accelerated, for any
reason, before the due date stated, interest (however denominated) shall never
include more than the maximum amount permitted by law. In the event it should be
held that the interest payable under this Note, or otherwise, is in excess of
the maximum amount permitted by law and any excess of said maximum amount
permitted by law shall be automatically null and void and shall be credited to
the principal amount of this Note, if any remains unpaid; otherwise, it shall be
refunded to Borrower if theretofore paid.
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<PAGE>
Borrower, all makers, assignors, sureties, endorsers and guarantors
hereof severally waive presentment for payment, protest, dishonor, notice of
protest, notice of intent to accelerate, and notice of acceleration of maturity
in the event of non-payment of this Note, and all defenses on the ground of any
extension of the time of this payment that may be given by the holder to them,
or any of them. Borrowers, if more than one, agree that the indebtedness
evidenced by this Note shall be and is the joint and several obligation of each
Borrower.
All questions of law and fact shall be governed by the laws of the
State of Texas.
In addition to the monthly installments hereinabove provided for,
Borrower shall have the right and option to pay all or any part of the unpaid
principal balance, plus accrued interest an any time before maturity, without
penalty; provided, however, no partial prepayment of principal shall have the
effect of delaying or deferring payment of the next succeeding installment on
this Note on the regularly scheduled due date thereon, and any such partial
prepayment of principal shall be applied to satisfaction, or partial
satisfaction, of the principal installment then last due on this Note.
BORROWER:
REGAL OAK PROPERTIES, INC.
Authorized Agent:
/s/Tyrell Garth
-----------------------------------
Page 37
SECURITY AGREEMENT - PLEDGE
Date: June 30, 1997
Debtor: Regal Oak Properties, Inc.
Debtor's Mailing Address (including county):
11850 Jones Road, Houston, Harris County, Texas 77070
Secured Party: EIF Holdings, Inc.
Secured Party's Mailing Address (including county):
616 FM 1960 West, Suite 630, Houston, Harris County, Texas 77090
Classification of Collateral: Instruments
Collateral (including all accessions):
100% of the issued and outstanding shares of common stock of Kelar
Controls, Inc., a corporation formed under the laws of California (the
"Corporation").
Obligation:
Note:
Date: June 30, 1997
Amount: $2,500,000
Maker: Regal Oak Properties, Inc.
Payee: EIF Holdings, Inc.
Final Maturity Date: June 30, 1998
Other Obligation: NONE
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<PAGE>
Debtor's Representation Concerning Location of Collateral:
Subject to the terms of this agreement, Debtor grants to Secured Party
a security interest in the Collateral and all its proceeds to secure payment and
performance of Debtor's obligation in this security agreement and all renewals
and extensions of any of the obligation.
Debtor's Warranties
1. Financing Statement. Except for that in favor of Secured
Party, no financing statement covering the Collateral is filed in any public
office.
2. Ownership. Debtor owns the Collateral and has the authority to grant
this security interest. Ownership is free from any setoff, claim, restriction,
lien, security interest, or encumbrance except this security interest and liens
for taxes not yet due.
3. Financial Statements. All information about Debtor's financial
condition provided to Secured Party was accurate when submitted, as will be any
information subsequently provided.
Debtor's Covenants
1. Protection of Collateral. Debtor will defend the Collateral against
all claims and demands adverse to Secured Party's interest in it and will keep
it free from all liens except those for taxes not yet due and from all security
interests except this one. The Collateral will remain in Secured Party's
possession or control at all times, except as otherwise provided in this
agreement. Debtor will maintain the Collateral in good condition and protect it
and the Corporation against misuse, abuse, waste, and deterioration. Debtor will
immediately deliver to Secured Party all Collateral in Debtor's possession. If
the Collateral is hereafter acquired, Debtor will deliver it to Secured Party
immediately following acquisition. When delivered to Secured Party, all
Collateral will either be endorsed to Secured Party's order or accompanied by
appropriate executed powers. If the Collateral is instruments not in possession
of Debtor or Secured Party, transfer of a security interest in the Collateral to
Secured party will occur on delivery of a copy of this agreement to the
financial intermediary on whose books Debtor's interest in the Collateral
appears or to any other person in possession of the Collateral. Delivery of the
copy of the agreement is also Debtor's instruction to deliver to Secured Party
certificates or other evidence of the Collateral when available. If the
Collateral is certificated securities not in possession of Debtor or Secured
Party, Debtor will issue appropriate instructions to register Secured Party as
owner or pledgee of the Collateral, according to Secured Party's demand. Debtor
agrees to do everything required by Secured Party to complete the transfer and
perfection of this security interest.
2. Secured Party's Costs. Debtor will pay all expenses incurred by
Secured Party in obtaining, preserving, perfecting, defending, and enforcing
this security interest or the Collateral and in collecting or enforcing the
Obligation. Expenses for which Debtor is liable include, but are not limited to,
taxes, assessments, reasonable attorney's fees, and other legal expenses. These
expenses will bear interest from the dates of payments at the highest rate
stated in notes that are part of the obligation, and Debtor will pay Secured
Party this interest on demand at a time and place reasonably specified by
Secured Party. These expenses and interest will be part of the obligation and
will be recoverable as such in all respects.
3. Additional Documents. Debtor will sign any papers that Secured Party
considers necessary to obtain, maintain, and perfect this security interest or
to comply with any relevant law.
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<PAGE>
4. Notice of Changes. Debtor will immediately notify Secured Party of
any material change in the Collateral; change in Debtor's name, address, or
location; change in any matter warranted or represented in this agreement;
change that may affect this security interest; and any event of default.
5. Sale. Debtor will not sell, transfer, or encumber any of
the Collateral without the prior written consent of Secured Party.
6. Information and Inspection. At the time and in the form specified by
Secured Party, Debtor will furnish Secured Party any requested information
related to the Collateral, which may include financial information regarding the
Corporation and any and all information necessary to identify or value any of
the Collateral. Debtor will also allow Secured Party to inspect the Collateral
at any time and place and to inspect and copy all records relating to the
Collateral and the obligation, as long as these are accomplished without breach
of the peace.
7. Modification of Collateral. Without the written consent of Secured
Party, Debtor will not agree to any modification of terms in any writing related
to the Collateral. Further, Debtor will not permit the Corporation to sell any
material portion of the assets of the Corporation outside of the ordinary course
of the business of the Corporation without the express written consent of
Secured Party. Debtor will not cause, or permit, the Corporation to issue any
additional common stock or any other form of security without the express
written consent of Secured Party.
8. Delivery of Receipts to Secured Party. On Secured Party's demand
Debtor will deposit all payments received as proceeds of Collateral in a special
bank account designated by Secured Party, who alone will have power of
withdrawal. Debtor will deposit the payments on receipt, in the form received,
and with any necessary endorsements as security for the obligation. Secured
Party may make any endorsements in Debtor's name and behalf. Between receiving
and depositing these payments, Debtor will not mingle them with any of Debtor's
other funds or property but will hold them separate and in an express trust for
Secured Party. Secured Party shall apply these funds against the obligation.
9. Records of Collateral. Debtor will maintain accurate books and
records covering the Collateral and the Corporation. Only undisputed and unpaid
amount will be shown as owed to Debtor on the book and any assignment schedule.
10. Disposition of Collateral. Debtor will not sell, lease, or
otherwise dispose of any Collateral without the prior written consent of Secured
Party.
11. Possession of Collateral. By delivering a copy of this agreement to
the broker, seller, or other person in possession of Collateral that is chattel
paper or documents, Secured Party will effectively notify that person of Secured
Party's interest in the Collateral. Delivery of the copy of the agreement will
also constitute Debtor's instruction to deliver to Secured Party certificates or
other evidence of the Collateral as soon as it is available. Debtor will
immediately deliver to Secured Party all chattel paper and documents that are
Collateral in Debtor's possession. If that Collateral is hereafter acquired,
Debtor will deliver it to Secured Party immediately following acquisition and
either endorse it to Secured Party's order or give Secured Party appropriate
executed powers.
12. Uncertificated Securities. If the Collateral is uncertificated
securities, Secured Party's delivery of a copy of this agreement to the
financial intermediary on whose books the Debtor's interest in the Collateral
appears will effectively notify the financial intermediary of Secured Party's
interest in the Collateral and will constitute Debtor's instruction that the
issuer of the securities register their pledge to Secured Party. Debtor agrees
to do everything required by Secured Party to complete the transfer and
perfection of this security interest.
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<PAGE>
13. Voting Rights. All voting rights with respect to the Collateral
shall remain with Debtors until an event of default occurs. Upon the occurrence
of an event of default, Secured Party alone shall have the sole and exclusive
right of voting and other corporate powers relating to the Collateral.
Rights and Remedies of Secured Party
Generally. Secured party may exercise the following rights and
remedies either before or after default:
a. take control of any proceeds of the Collateral;
b. release any Collateral in Secured Party's possession
to any debtor, temporarily or otherwise;
c. take control of any funds generated by the
Collateral, such as refunds from and proceeds of
insurance, and reduce any part of the obligation
accordingly or permit Debtor to use such funds to
repair or replace damaged or destroyed Collateral
covered by insurance;
d. demand, collect, convert, redeem, settle, compromise,
receipt for, realize on, adjust, sue for, and
foreclose on the Collateral either in Secured Party's
or Debtor's name, as Secured Party desires;
e. take control of all proceeds of Collateral or
payments on account of any Collateral and apply
them against the obligation; and
d. as Debtor's agent, endorse any documents that is
Collateral or that represents proceeds of
Collateral.
Events of Default
Each of the following conditions is an event of default:
1. if Debtor defaults in timely payment or performance of any
obligation, covenant, or liability in any written agreement between Debtor and
Secured Party or in any other transaction secured by this agreement;
2. if any warranty, covenant, or representation made
to Secured Party by or on behalf of Debtor proves to have been false in any
material respect when made;
3. if a receiver is appointed for Debtor or any of the
Collateral;
4. if the Collateral is assigned for the benefit of creditors
or, to the extent permitted by law, if bankruptcy or insolvency proceedings
commence against or by any of these parties: Debtor; any partnership of which
Debtor is a general partner; and any maker, drawer, acceptor, endorser,
guarantor, surety, accommodation party, or other person liable on or for any
part of the obligation;
5. if any financing statement regarding the Collateral
but not related to this security interest and not favoring Secured Party is
filed;
6. if any lien attaches to any of the Collateral;
7. if any of the Collateral is lost, stolen, damaged, or
destroyed, unless it is promptly replaced with Collateral of like quality or
restored to its former condition.
Page 41
<PAGE>
Remedies of Secured Party on Default
During the existence of any event of default, Secured Party may declare
the unpaid principal and earned interest of the obligation immediately due in
whole or part, enforce the obligation, and exercise any rights and remedies
granted by the Texas Uniform Commercial Code or by this agreement, including the
following:
1. require Debtor to deliver to Secured Party all books and
records relating to the Collateral;
2. require Debtor to assemble the Collateral and make it
available to Secured Party at a place reasonably convenient to both parties;
3. take possession of any of the Collateral and for this
purpose enter any premises where it is located if this can be done without
breach of the peace;
4. sell, lease, or otherwise dispose of any of the Collateral in accord
with the rights, remedies, and duties of a secured party under chapters 2 and 9
of the Texas Uniform Commercial Code after giving notice as required by those
chapters; unless the Collateral threatens to decline speedily in value, is
perishable, or would typically be sold on a recognized market, Secured Party
will give Debtor reasonable notice of any public sale of the Collateral or of a
time after which it may be otherwise disposed of without further notice to
Debtor; in this event, notice will be deemed reasonable if it is mailed, postage
prepaid, to Debtor at the address specified in this agreement at least ten days
before any public sale or ten days before the time when the Collateral may be
otherwise disposed of without further notice to Debtor;
5. surrender any insurance policies covering the Collateral and
receive the unearned premium;
6. apply any proceeds from disposition of the Collateral after
default in the manner specified in chapter
9 of the Texas Uniform Commercial Code, including payment of Secured Party's
reasonable attorney's fees and court expenses; and
7. if disposition of the Collateral leaves the obligation
unsatisfied, collect the deficiency from Debtor.
General Provisions
1. Parties Bound. Secured Party's rights under this agreement shall
inure to the benefit of its successors and assigns. Assignment of any part of
the obligation and delivery by Secured Party of any part of the Collateral will
fully discharge Secured Party from responsibility for that part of the
Collateral. If Debtor is more than one, all their representations, warranties,
and agreements are joint and several. Debtor's obligations under this agreement
shall bind Debtor's personal representatives, successors, and assigns.
2. Waiver. Neither delay in exercise nor partial exercise of any of
Secured Party's remedies or rights shall waive further exercise of those
remedies or rights. Secured Party's failure to exercise remedies or rights does
not waive subsequent exercise of those remedies or rights. Secured Party's
waiver of any default does not waive further default. Secured Party's waiver of
any right in this agreement or of any default is binding only if it is in
writing.
Secured Party may remedy any default without waiving it.
Page 42
<PAGE>
3. Reimbursement. If Debtor fails to perform any of Debtor's
obligations, Secured Party may perform those obligations and be reimbursed by
Debtor on demand at the place where the note is payable for any sums so paid,
including attorney's fees and other legal expenses, plus interest on those sums
from the dates of payment at the rate stated in the note for matured, unpaid
amounts. The sum to be reimbursed shall be secured by this security agreement.
4. Interest Rate. Interest included in the obligation shall not exceed
the maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charged, or received under law; any interest in excess of that maximum
amount shall be credited to the principal of the obligation or, if that has been
paid, refunded. On any acceleration or required or permitted prepayment of the
obligation, any such excess shall be canceled automatically as of the
acceleration or prepayment or, if already paid, credited on the principal amount
of the obligation, or if the principal amount has been paid, refunded. This
provision overrides other provisions in this and all other instruments
concerning the obligation. 5. Modifications. No provisions of this agreement
shall be modified or limited except by written agreement.
6. Severability. The unenforceability of any provision
of this agreement will not affect the enforceability or validity of any
other provision.
7. After-Acquired Consumer Goods. This security interest shall
attach to after-acquired consumer goods only to the extent permitted by law.
8. Applicable Law. This agreement will be construed according to
Texas laws.
9. Place of Performance. This agreement is to be performed
in the county of Secured Party's mailing address.
10. Financing Statement. A carbon, photographic, or other
reproduction of this agreement or any financing statement covering the
Collateral is sufficient as a financing statement.
11. Presumption of Truth and Validity. If the Collateral is sold after
default, recitals in the bill of sale or transfer will be prima facie evidence
of their truth, and all prerequisites to the sale specified by this agreement
and by the Texas Uniform Commercial Code will be presumed satisfied.
12. Singular and Plural. When the context requires, singular
nouns and pronouns include the plural.
13. Priority of Security Interest. This security interest
shall neither affect nor be affected by any
other security for any of the obligation. Neither extensions of any of the
obligation nor releases of any of the Collateral will affect the priority or
validity of this security interest with reference to any third person.
14. Cumulative Remedies. Foreclosure of this security interest by suit
does not limit Secured Party's remedies, including the right to sell the
Collateral under the terms of this agreement. All remedies of Secured Party may
be exercised at the same or different times, and no remedy shall be a defense to
any other. Secured Party's rights and remedies include all those granted by law
or otherwise, in addition to those specified in this agreement.
15. Agency. Debtor's appointment of Secured Party as Debtor's
agent is coupled with an interest and will survive any disability of Debtor.
* * * * *
Page 43
<PAGE>
DEBTOR:
REGAL OAK PROPERTIES, INC.
Authorized Agent:
/s/Tyrell Garth
- ------------------------------
SECURED PARTY:
EIF HOLDINGS, INC.
BY: /s/Frank J. Fradella
------------------------------
NAME: Frank J. Fradella
----------------------------
TITLE: President
---------------------------
Page 44
RENEWAL EXTENSION AND ENLARGEMENT PROMISSORY NOTE
-------------------------------------------------
US $400,000.00 Beaumont, Texas April 17, 1997
WHEREAS, on December 13, 1996, EIF Holding, Inc., a Hawaii corporation
("Borrower"), executed a certain Promissory Note ( the "Note") in the original
principal sum of $300,000.00, payable to the order of Truman Harty, Inc., a
Texas corporation (the "Lender") and on April 18, 1997 Borrower and Lender
executed a certain Renewal, Extension and Modification Agreement being herein
after collectively referred to as the "Original Note") and
WHEREAS, at the request of Borrower, Lender has arranged for the advance to
Borrower of an additional $100.000.00, which shall be added to the original
$300,000.00 principal amount of the Original Note, and in consideration of the
agreement by Lender to advance such additional funds to Borrower, Borrower has
agreed to execute the promissory note (the "Note"), which shall evidence the
advancement of said additional funds by Lender to Borrower and shall evidence
the renewal and extension of the unpaid principal balance of the Original Note
by Borrower to Lender, together with the renewal and extension of all security
interests and guarantees securing the repayment of the Original Note;
NOW, THEREFORE, for value received, in consideration of the sum of $10.00 and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged and confessed. Borrower, Guarantor and Lender agree as
follows:
1. Borrower promises to pay to the order of Lender at its offices at 350 Dowlen
Road, Suite 200. Beaumont, Texas 77706, or such other place or places as the
holder of the Note shall from time to time designate by written notice to
Borrower, the sum of $300,000.00, being the unpaid principal balance of the
Note, as of the date hereof, in legal and lawful money of the United States of
America, together with interest thereon from date hereof until July 1, 1997 at
the rate of 12% per annum. Interest shall be calculated on a per annum basis of
360 days.
3. This Note is due and payable as follows:
The principal amount hereof and all accrued and unpaid interest shall be due and
payable in full on July 1, 1997 ( the "Maturity Date"): and
4. All other terms and conditions of the Note are and shall remain in full force
and effect and fully binding upon the Borrower, except at herein modified.
5. This Note is given in renewal, extension, modification and enlargement of the
terms and provisions of the Original Note, all of which are carried forward and
continued in full force and effect within this Note, and none of the provisions
of the Original Note or the collateral securing payment of the Original Note
shall be deemed extinguished or mortified in any respect, except as set forth
herein.
EXECUTED THIS the 4th DAY OF April , 1997
------- -------------
BORROWER:
EIF HOLDINGS, INC.
/s/ David Norris
-------------------------------------------
DAVE NORRIS, ITS PRESIDENT
Page 45
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EIF HOLDINGS,
INC. FORM 10-QSB FOR THE PERIOD ENDED June 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Page 46
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 137,166
<SECURITIES> 0
<RECEIVABLES> 5,296,823
<ALLOWANCES> 220,000
<INVENTORY> 271,892
<CURRENT-ASSETS> 5,732,377
<PP&E> 2,028,892
<DEPRECIATION> 1,330,680
<TOTAL-ASSETS> 7,223,505
<CURRENT-LIABILITIES> 17,572,509
<BONDS> 0
0
0
<COMMON> 3,019,246
<OTHER-SE> (13,367,950)
<TOTAL-LIABILITY-AND-EQUITY> 7,223,505
<SALES> 10,246,244
<TOTAL-REVENUES> 10,246,244
<CGS> 6,025,219
<TOTAL-COSTS> 6,025,219
<OTHER-EXPENSES> 6,322,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,105,012
<INCOME-PRETAX> (3,228,724)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,228,724)
<DISCONTINUED> (3,546,632)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,775,356)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>