-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FtI4OKQe34H4nlXPktQdRkw6dWLQ//t7kw3QZYOZ2yIHtB/vsmpsocw8LYskB79r X5WFVceW8X9Ef97SkFCZCQ== 0000950134-96-000692.txt : 19960314 0000950134-96-000692.hdr.sgml : 19960314 ACCESSION NUMBER: 0000950134-96-000692 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960312 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMRE INC CENTRAL INDEX KEY: 0000809572 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 752041737 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09632 FILM NUMBER: 96533787 BUSINESS ADDRESS: STREET 1: 8585 N STEMMONS FRWY STREET 2: SOUTH TOWER CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2148197000 10-K405 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9632 AMRE, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 75-2041737 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) 8585 N. STEMMONS FREEWAY, SOUTH TOWER 75247 DALLAS, TEXAS (Zip Code) (Address of Principal Executive Offices) (214) 658-6300 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X - No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of February 23, 1996, was $261,207,079. At February 23, 1996, the Registrant had outstanding 14,126,341 shares of its Common Stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 15, 1996, are incorporated by reference into Part III of this Report. ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL AMRE, Inc. (the "Company") is a direct marketing, in-home sales and installation company providing quality home improvement products. The Company commenced business under the laws of Texas in 1980 and was reincorporated under the laws of Delaware in February 1987. All statements herein relating to the Company reflect such re-incorporation. As used in this report, the terms "Company" and "AMRE" refer to AMRE, Inc. and its subsidiary, American Remodeling, Inc., unless the context otherwise requires. The Company is engaged, through direct consumer marketing in the in-home sale and installation of siding and related exterior home improvement products, kitchen cabinet refacing and custom countertops, replacement windows, and in certain of its territories, exterior coating. At December 31, 1995, the Company had 61 branch offices located in 50 cities in 35 states, and one manufacturing facility. Management believes that AMRE is the largest company in the nation engaged in the direct marketing, in-home sale and installation of home improvements. The Company commenced its siding and related exterior home improvement business in 1980. In 1981, the Company became a Sears licensee and through 1995 generated virtually all of its revenues through direct consumer marketing and the in-home sale of certain home improvement products under an annually renewable license agreement (the "Sears License Agreement") with Sears, Roebuck and Co., ("Sears"). In October 1988, the Company began selling and installing kitchen cabinet refacing through the acquisition of a business which was also a Sears licensee. In 1991, the Company expanded its product offerings by acquiring a business engaged, under a license from Sears, in the sale and installation of exterior coating products. In June 1993, under a license from Sears, the Company began selling and installing replacement windows through its existing siding offices. The Company did not renew the Sears License Agreement when it expired on December 31, 1995. On October 17, 1995, the Company, and TM Acquisition Corporation and Century 21 Real Estate Corporation, subsidiaries of HFS Incorporated, entered into an agreement, effective January 1, 1996, pursuant to which the Company was granted an exclusive 20-year license to operate under the name "CENTURY 21 Home Improvements(SM) " in the marketing, sale, and installation of certain home improvement products in the United States, Canada, and Mexico (the "Century 21 License Agreement"). The Company also has the right to grant sublicenses under the Century 21 License Agreement. See "Item 1: Business - Century 21 License Agreement." On October 31, 1995, the Company and Facelifters Home Systems, Inc. ("Facelifters") entered into an agreement whereby a newly formed subsidiary of the Company shall be merged with and into Facelifters. Facelifters designs, manufactures, markets, sells and installs kitchen cabinet refacing products utilized in kitchen remodeling, directly to consumers in 26 markets, primarily markets in which the Company does not currently operate. The merger, which is subject to, among other things, stockholder approval, is expected to be consummated in the Company's second quarter of 1996. Regulatory approval of the merger under the Hart-Scott-Rodino Pre-Merger Notification Act has been obtained. In connection with the merger, approximately 3,557,268 shares of the Company's common stock, $0.01 par value ("AMRE Common Stock"), will be issued to the existing stockholders of Facelifters, and Facelifters will become a wholly owned subsidiary of the Company. On December 30, 1995, the Company and Congressional Construction Corporation ("Congressional") entered into an agreement whereby a newly formed subsidiary of the Company shall be merged with and into Congressional. Congressional markets, sells, furnishes and installs home improvement products, including vinyl and aluminum siding, fencing, wooden decks, replacement vinyl windows, roofing and patio enclosures directly to consumers in certain markets, primarily markets in which the Company does not currently operate. The obligations of the parties to consummate the merger are subject to several conditions, including, among other things, 2 3 stockholder approval, and the results of AMRE's due diligence review of Congressional being materially satisfactory to AMRE. If all the conditions to the merger are satisfied, the merger is expected to be consummated in the Company's second quarter of 1996. In connection with the merger, approximately 900,000 shares will be issued to the existing stockholders of Congressional, and Congressional shall become a wholly owned subsidiary of the Company. Both Facelifters and Congressional also previously operated under license agreements with Sears which expired on December 31, 1995. Effective January 1, 1996, Facelifters and Congressional began operating under sublicense agreements with the Company to use the CENTURY 21 Home Improvements name. DIRECT MARKETING AND SALES The Company's principal marketing activities have been conducted through direct mail, television, radio and newspaper advertising, telemarketing, and, prior to 1996, by Company employees who worked displays in Sears stores during peak hours to generate leads. In connection with entering into the Century 21 License Agreement, the "in-store" Sears program is currently being replaced with an "in mall" program in which Company employees staff professionally designed kiosks in shopping malls. The mall kiosk program requires a capital investment of approximately $750,000 and future annual operating lease rentals estimated at $2.0 million for the initial approximately 100 locations. The kiosks prominently display the Company's products and, the Company believes, will provide greater opportunity to reach prospective customers. The Company will periodically evaluate the "in-mall" program and may open additional locations during 1996. In addition, the Company plans to substantially increase its reliance on telemarketing and its presence at home shows in order to replace leads formerly generated in the Sears stores. The Company opened two outbound telemarketing centers in December, 1995 and January, 1996 in order to accomplish this objective. The Company also is working with Century 21 to develop a program of lead referrals from the Century 21 real estate broker network. See also "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook". The Company's marketing efforts are directed to homeowners whose demographic characteristics and homes fall within certain criteria, including income of the homeowner, home value, age of home and length of residency. To improve the effectiveness of its marketing efforts, the Company uses its internally developed computer software to monitor responses to determine which groups of homeowners, as well as marketing media sources, produce the highest percentages of scheduled appointments and sales and to compile information such as the average sales price per group. Lists of persons who respond to the Company's advertising and other marketing programs are compiled and maintained at the Company's corporate headquarters. Persons on these lists are contacted by telephone, usually within three days after their response is received, to schedule appointments for a personal visit from a Company salesperson, usually the following day. The scheduled appointments are sent from the Company's corporate headquarters to the branch offices on a daily basis. The Company typically schedules two appointments per salesperson per workday, and each salesperson is required to report the result of each appointment on a daily basis. This data provides the basis for the computer-generated management information upon which the Company evaluates each salesperson's performance in such areas as sales as a percentage of appointments, cancellation rate, average dollar amount of sales and amount of commission earned. AMRE conducts a variety of periodic consumer research. The Company's analysis of information from these external sources, as well as the aforementioned internally generated information, provides the basis for ongoing refinement of its marketing lists, media mix, and other marketing and sales efforts. 3 4 PURCHASING, MATERIAL AND INSTALLATION Siding and Related Products. The Company purchases its siding and related products from unaffiliated producers. The Company purchases virtually all of its siding requirements from Bird Vinyl Products Limited. The Company negotiates its purchase agreements on an annual basis and management believes its siding products are available from numerous suppliers at competitive prices. The Company's siding product offering includes Double 5 and Dutch Lap profiles which have a wood grain surface pattern. Inventories are maintained at each of the Company's warehouses. The Company passes through to its customers the warranty provided by its suppliers against defective material, and warrants the installation against defective workmanship for a period of three years. The siding and coverings for eaves and overhangs sold by the Company are primarily vinyl products. Complementary products to the vinyl siding sold and installed by the Company include insulated sheathing, exterior shutters and continuous gutters. Kitchen Cabinet Refacing and Custom Countertops. The Company manufactures all of its cabinet fronts and countertops in its plant at Chicago, Illinois. In 1995, the Company redesigned its cabinet product line and converted its manufacturing equipment and processes with the purchase of new state-of-the art equipment. Cabinet doors and drawer fronts are custom cut in a computer controlled process, then laminated through a heat vacuum press reaching 230 degrees Fahrenheit. AMRE cabinet refacing uses premium quality materials, including foil, vertical grade laminate, high density 45 lb. furniture core board, 3/4" warp-resistant doors, and self-closing hinges. AMRE laminate colors are created by Formica(R). Raw materials are purchased from several suppliers under agreements which are negotiated periodically. Management believes such materials are available from numerous suppliers at competitive prices. The Company provides a one year warranty against defective material and workmanship and extended limited warranties from one to twenty-one years on certain of its materials. Replacement Windows. The Company purchases its replacement windows from unaffiliated suppliers whose products meet the Company's high quality standards, and whose location and distribution system support the Company's geographically diverse needs. All windows purchased are custom made and carry a manufacturer's limited lifetime warranty. The Company warrants the installation against defective workmanship for a period of three years. Window products are typically double-pane glass and thermally insulated with argon gas fill, and include low-E surface coating to reduce heat transfer as well as a tilt-in feature for easy cleaning. In addition, the Company purchases from certain suppliers specially coated "easy-clean glass", as well as "Heat Mirror(TM)" windows that block passage of ultraviolet and infra-red light. The window products include double hung, sliders, casements, picture windows, bays, bows, storm windows and garden windows. The Company negotiates its purchase agreements periodically, and management believes such products are available from numerous suppliers at competitive prices. Exterior Coating. The Company purchases its exterior coating product from an unaffiliated supplier. The product is made from an elastomeric resin and is warranted by the supplier against chipping, peeling or flaking as long as the customers own their homes. Installations. Except for some employees in certain states, independent contractors perform all of the Company's installations. The contractors usually obtain work orders and materials from one of the Company's facilities. On average, installations are completed in five to ten days for siding, replacement windows and exterior coating, and one to five days for cabinets. Upon completion, the contractors obtain a certificate of satisfaction and completion from the customer and return all excess materials and completed documentation to the Company. The Company requires its independent contractors to correct defective workmanship at no charge to the Company. At December 31, 1995, the Company had 131 installation employees and working arrangements with approximately 800 independent contractor crews. CUSTOMER FINANCING The Company's customers pay for their home remodeling products upon completion of the work. Payments are made in cash, on Mastercard, Visa or Discover cards, or by third-party financing, primarily a revolving unsecured 4 5 line of credit arranged by the Company. In most third-party lender transactions, the customer executes a Revolving Credit Agreement with the lender and the lender pays the Company on completion of the installation upon receipt of a properly executed completion certificate. The Company assumes no recourse liability or credit risk in these transactions, except for normal representations and warranties regarding material and workmanship. In some instances, the Company provides direct financing to its customers. CENTURY 21 LICENSE AGREEMENT From 1981 through 1995, the Company conducted its direct consumer marketing under the Sears License Agreement. The Sears License Agreement covered specific territories and gave the Company the right to market, sell and install siding and related exterior home improvement products, kitchen cabinet refacing and countertops, replacement windows and exterior coating under the Sears brand name in those territories. The Sears License Agreement was renewable annually and could be terminated by either the Company or Sears, without cause, upon 60 days' written notice. In 1995, the Sears License Agreement provided for license fees to Sears of 12% of the Company's contract revenues from sales in the licensed territories. The Company did not renew the Sears License Agreement when it expired on December 31, 1995. In 1995 AMRE made a strategic decision to alter significantly the marketing and distribution focus of its home improvement services, and accordingly on October 17, 1995, the Company, TM Acquisition Corporation, and Century 21 Real Estate Corporation entered into the Century 21 License Agreement pursuant to which Century 21 granted to the Company an exclusive 20-year license to operate under the CENTURY 21 Home Improvements name for the marketing, sale and installation of certain home improvement products, and the right to grant sublicenses for such home improvement products. Under the terms of the Century 21 License Agreement, the Company will pay fees equal to the greater of 3% of the aggregate contract revenues of the Company and its sublicensees, or certain guaranteed annual minimums starting at $11 million in 1996 and increasing during the term of the Century 21 License Agreement. Additionally, the Century 21 License Agreement provides for a fee of an additional 10% of the contract revenue for each sale made pursuant to a customer referral from Century 21, payable to the respective Century 21 broker who originated the customer referral. The Century 21 License Agreement provides for immediate termination by either the Company or Century 21 if either party is negligent in the performance of its services, becomes insolvent or bankrupt, or fails to comply with any material provision of the Century 21 License Agreement. In the event Century 21 were to cancel the Century 21 License Agreement, the Company believes that its products could be independently marketed by the Company; however, the cancellation would likely have a material adverse effect on the business of the Company. See also "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook." EMPLOYEES At December 31, 1995, the Company employed 3,095 persons, including 923 sales representatives, 140 manufacturing employees, 131 installers, 610 administrative personnel, 792 (mostly part-time) in-store promoters and canvassers, and 499 telemarketing personnel of which 310 are part-time. COMPETITION The Company operates in an industry that is highly fragmented. Although the Company believes it is the largest company in the nation involved in the direct marketing, in-home sales and installation of home improvement products, the Company competes with numerous contractors in each of the territories in which it operates, with reputation, price, workmanship and service being the principal competitive factors. These contractors typically conduct operations in a single metropolitan area. In certain of the territories in which it operates, the Company also competes against retail stores which may have greater financial or other resources than the Company and which sell similar products in the stores as well as offering installation services and will compete with contractors that are Sears licensees. 5 6 GOVERNMENT REGULATION The Company's activities and the activities of its subcontractors are subject to various federal and state laws and regulations and municipal ordinances relating to, among other things, in-home sales, consumer financing, advertising, the licensing of home improvement contractors and zoning regulations. ITEM 2. PROPERTIES The Company's corporate headquarters are in Dallas, Texas, where it occupies seven floors (116,000 square feet) of an office building pursuant to a lease agreement with an unrelated party for a remaining term of approximately six years. At December 31, 1995, the Company leased 61 sales offices, including 35 with warehouse facilities. Sales offices range in size from 1,500 to 5,000 square feet, while those with warehouse facilities range in size from 8,000 to 12,000 square feet. The Company leases one manufacturing facility containing 30,000 square feet in which all of its cabinet door and drawer fronts, as well as countertops, are manufactured. The capacity of the manufacturing facility exceeds current sales levels. ITEM 3. LEGAL PROCEEDINGS The Company is a party to certain legal proceedings arising in the ordinary course of business, none of which is believed to be material to the financial position or results of operations of the Company. AMRE, Inc. has been named as a defendant in a proceeding filed in the Superior Court of California by a party who claims ownership of a registered service mark and trade name styled "21st Century Home Improvements." The plaintiff alleges, among other things, that the CENTURY 21 Home Improvements name is an infringement of the plaintiff's trade name and registered mark and constitutes an unfair business practice. AMRE has been advised by Century 21, the owner of the CENTURY 21 Home Improvements name, that it gave notice to counsel for the owner of the "21st Century Home Improvements" mark that the latter mark infringed on Century 21's federally registered mark. Century 21's federal registration predates the use of the "21st Century Home Improvements" mark, and at this time AMRE believes that it is legally entitled to use the CENTURY 21 Home Improvements name. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS The Company did not submit any matters to a vote of its security-holders during the last quarter of the period covered by this Report. 6 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the New York Stock Exchange under the symbol AMM. The following table sets forth for the periods indicated the range of prices for the Common Stock, as reported by the New York Stock Exchange.
1993 1994 1995 QUARTERS ----------------- -------------------- ------------------- CALENDAR HIGH LOW HIGH LOW HIGH LOW - -------- ----------------- -------------------- ------------------- First . . . . . $7 7/8 $6 $4 5/8 $3 1/2 $5 3/8 $4 1/8 Second . . . . . 6 7/8 5 3/8 4 1/8 3 1/8 4 7/8 3 7/8 Third . . . . . 6 3/8 2 7/8 4 1/2 3 1/8 4 1/2 3 1/8 Fourth . . . . . 4 5/8 2 1/2 5 7/8 4 15 4 1/4
The Company's authorized capital stock at December 31, 1995 consists of 20,000,000 shares of Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock, $.10 par value per share. As of February 23, 1996, the Company had issued and outstanding 14,126,341 shares of Common Stock and 300,000 shares of Senior Convertible Preferred Stock, 8% per annum, payable quarterly, and there were 295 record holders of Common Stock. The transfer agent and registrar of the Company's Common Stock is The Bank of New York - Houston, Texas. The Company's ability to pay dividends is restricted under the terms of its existing credit agreements. The Company had paid a quarterly dividend from December 18, 1987 until September 22, 1995, at which time the quarterly dividend was suspended. 7 8 ITEM 6. SELECTED FINANCIAL DATA The following table presents certain consolidated financial information. The selected financial data should be read in conjunction with the financial statements and accompanying notes beginning on page 25.
OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1991 1992 1993 1994 1995 ------------------------------------------------------ Contract revenues....................................... $294,716 $274,268 $260,692 $285,930 $271,337 Contract costs.......................................... 80,597 75,079 78,112 93,100 88,451 -------- -------- -------- -------- -------- Gross profit 214,119 199,189 182,580 192,830 182,886 -------- -------- -------- -------- -------- Branch operating expenses............................... 19,713 20,208 19,314 19,309 20,296 Marketing and selling expenses.......................... 100,401 113,663 112,362 117,383 123,339 Sears license fees...................................... 43,604 22,830 30,136 34,166 32,576 General and admnistrative expenses...................... 30,224 28,541 25,192 20,935 21,411 Nonrecurring charges.................................... - 1,500 - - 11,000 -------- -------- -------- -------- -------- Operating income (loss)................................. 20,177 12,447 (4,424) 1,037 (25,736) Other income and expenses, net.......................... 2,360 1,577 2,533 1,516 1,828 Provision for settlement of claims and litigation....... (9,388) - - - - Provision for office relocation......................... (2,200) - - - - -------- -------- -------- -------- -------- Income (loss) before income taxes....................... 10,949 14,024 (1,891) 2,553 (23,908) Income taxes............................................ 5,698 5,784 (2,747) 1,094 (1,523) -------- -------- -------- -------- -------- Net income (loss)....................................... $5,251 $8,240 $856 $1,459 ($22,385) ======== ======== ======== ======== ======== Net income (loss) per share............................. $0.37 $0.59 $0.07 $0.11 ($1.73) ======== ======== ======== ======== ======== Cash dividends declared per share....................... $0.12 $0.12 $0.12 $0.12 $0.06 ======== ======== ======== ======== ======== Weighted average shares outstanding..................... 13,879 13,928 13,120 13,031 12,903 ======== ======== ======== ======== ======== BALANCE SHEET DATA (IN THOUSANDS) AS OF DECEMBER 31, ------------------------------------------------------ 1991 1992 1993 1994 1995 ------------------------------------------------------ Working capital......................................... $3,849 $8,404 $9,556 $11,862 $189 Total assets............................................ 83,760 71,289 70,581 68,827 54,314 Long term debt.......................................... - - - - 241 Stockholders' equity.................................... 28,535 34,624 33,493 33,410 13,345
8 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company is engaged through direct consumer marketing, in the in-home sale and installation of siding and related exterior home improvement products, kitchen cabinet refacing and custom countertops, replacement windows, and in certain of its territories, exterior coating. The business of the Company is characterized by the need to continuously generate prospective customer leads, and in this respect, marketing and selling expenses constitute a substantial portion of the overall expense of the Company. To assist in understanding the Company's operating results, the following table indicates the percentage relationship of various income and expense items included in the Statement of Operations for each of the years ended December 31, 1993, 1994, and 1995.
PERCENTAGE OF CONTRACT REVENUES YEAR ENDED DECEMBER 31, ------------------------------------ 1993 1994 1995 ----- ----- ----- Contract revenues . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% Contract costs . . . . . . . . . . . . . . . . . . . . 30.0 32.6 32.6 ----- ----- ----- Gross profit . . . . . . . . . . . . . . . . . . . . . 70.0 67.4 67.4 ----- ----- ----- Branch operating expenses . . . . . . . . . . . . . . 7.4 6.8 7.5 Marketing expenses . . . . . . . . . . . . . . . . . . 24.9 23.8 27.2 Selling expenses . . . . . . . . . . . . . . . . . . . 18.1 17.2 18.2 Sears license fees . . . . . . . . . . . . . . . . . . 11.6 11.9 12.0 General and administrative expenses . . . . . . . . . . 9.7 7.3 7.9 Nonrecurring charges . . . . . . . . . . . . . . . . . - - 4.1 ----- ----- ----- Operating income (loss) . . . . . . . . . . . . . . . . (1.7) .4 (9.5) Other income and expense, net . . . . . . . . . . . . . 1.0 .5 .7 ----- ----- ----- Income (loss) before income taxes . . . . . . . . . . . (.7) .9 (8.8) Income taxes . . . . . . . . . . . . . . . . . . . . . (1.0) .4 (.6) ----- ----- ----- Net income (loss) . . . . . . . . . . . . . . . . . . . 0.3% 0.5% (8.2)% ===== ===== =====
9 10 RESULTS OF OPERATIONS Year ended December 31, 1995 compared with year ended December 31, 1994 On October 17, 1995, the Company, TM Acquisition Corporation and Century 21 Real Estate Corporation, subsidiaries of HFS Incorporated, entered into an agreement, effective January 1, 1996, pursuant to which the Company was granted an exclusive 20-year license to operate under the name CENTURY 21 Home Improvements in the marketing, sale, and installation of certain home improvement products in the United States, Canada, and Mexico. The Company also has the right to grant sub-licenses under the agreement. The Company did not renew its license agreement with Sears when it expired on December 31, 1995. On October 31, 1995, the Company and Facelifters Home Systems, Inc. ("Facelifters") entered into an agreement whereby a newly formed subsidiary of the Company shall be merged with and into Facelifters. Facelifters designs, manufactures, markets, sells and installs kitchen cabinet refacing products utilized in kitchen remodeling, directly to consumers in 26 markets, primarily markets in which the Company does not currently operate. The merger, which is subject to, among other things, stockholder approval, is expected to be consummated in the Company's second quarter of 1996. Regulatory approval of the merger under the Hart-Scott-Rodino Pre-Merger Notification Act has been obtained. In connection with the merger, approximately 3,557,268 shares of AMRE Common Stock will be issued to the existing stockholders of Facelifters, and Facelifters will become a wholly owned subsidiary of the Company. Beginning January 1, 1996, Facelifters and the Company have entered into a sublicense agreement pursuant to which the Company granted to Facelifters, under the terms of the Century 21 License Agreement, the right to market, sell and install certain home improvement products in specified markets under the name CENTURY 21 Home Improvements. The sublicense agreement provides for sublicense fees equal to 8% of the sublicense contract revenues subject to certain rebates. If the Facelifters merger is consummated, the sublicense agreement will be terminated. On December 30, 1995, the Company and Congressional Construction Corporation ("Congressional") entered into an agreement whereby a newly formed subsidiary of the Company shall be merged with and into Congressional. Congressional markets, sells, furnishes and installs home improvement products, including vinyl and aluminum siding, fencing, wooden decks, replacement vinyl windows, roofing and patio enclosures directly to consumers in certain markets, primarily markets in which the Company does not currently operate. The obligations of the parties to consummate the merger are subject to several conditions, including, among other things, stockholder approval, and the results of AMRE's due diligence review of Congressional being materially satisfactory to AMRE. If all the conditions to the merger are satisfied, the merger is expected to be consummated in the Company's second quarter of 1996. In connection with the merger, approximately 900,000 shares will be issued to the existing stockholders of Congressional, and Congressional shall become a wholly owned subsidiary of the Company. Beginning January 1, 1996, Congressional and the Company have entered into a sublicense agreement pursuant to which the Company has granted to Congressional, under the terms of the Century 21 License Agreement, the right to market, sell and install certain home improvement products in specified markets under the name CENTURY 21 Home Improvements. The sublicense agreement provides for sublicense fees equal to the greater of 8% of the sublicense contract revenues subject to certain rebates or certain guaranteed annual minimums. If the Congressional merger is consummated, the sublicense agreement will be terminated. The Company incurred a loss from operations of $25,736,000 for the year ended December 31, 1995. The loss included a fourth quarter nonrecurring charge of $11,000,000 and approximately $3,200,000 of transitional marketing costs as more fully described below. Excluding these items, the loss from operations was approximately $11,536,000 as compared to operating income of $1,037,000 in the prior year. The production backlog at December 31, 1995 was approximately $22,330,000, a decline of approximately 5% from the prior year end amount. 10 11 The Company's operating performance in 1995 was adversely impacted by a decline in contract revenues due to lower sales closing rates, increased marketing expenditures due to lower response rates to the Company's advertising, and higher costs in the Company's field branch and selling operations to accommodate an enhanced organization structure designed to better meet customer needs. In addition, operating results in the Company's fourth quarter were also adversely impacted by the disruption of its business caused by the focus of management on the transition from being a Sears licensee to using the CENTURY 21 Home Improvements name as well as the pending mergers. For the nine month period ended October 1, 1995, the Company's contract revenues were relatively unchanged from the prior year although the dollar amount of sales orders declined 6% resulting from lower sales closing rates. In the fourth quarter, contract revenues declined 21% as compared to the same period last year due to lower available production backlog at the beginning of the quarter and a decline in the number of appointments and sales orders in November and December as the Company began its transition to the CENTURY 21 Home Improvements name. The number of appointments declined approximately 12% in the fourth quarter of 1995 as compared to the same period last year. Pursuant to the Sears License Agreement, the Company was required to deliver to Sears, in January, 1996, all of the leads it generated under the Sears name through December 31, 1995 and was restricted from advertising under the CENTURY 21 Home Improvements name until late December. As a result, the Company reduced its lead generation marketing expenditures under the Sears name during the quarter but incurred approximately $3,200,000 to effect the transition to the CENTURY 21 Home Improvements name, including development of advertising materials and television commercials, as well as limited advertising to generate as many leads as possible for 1996. For the year 1995, consolidated contract revenues declined approximately 5% to $271,337,000 from $285,930,000 in the prior year. The dollar amount of sales orders was 7% lower than in the prior year due to lower sales closing rates and a 1% decline in the number of appointments. Siding and related exterior home improvement product revenues declined 8% from $152,061,000 in 1994 to $139,901,000 in 1995. The number of installations for these products declined 10% as compared to the prior year. Average selling price, which is affected not only by price levels, but by the mix and size of jobs installed, increased 2%. Contract revenues from kitchen cabinet refacing declined approximately 4% to $67,739,000 from $70,772,000 in the prior year. The number of installations declined approximately 14% from the prior year. Average selling price, which is affected not only by price levels, but by the mix and size of jobs installed, increased 10% compared to the prior year. Contract revenues from replacement windows increased approximately 12% to $54,859,000 from $49,172,000 in the prior year. While sales closing rates declined from the previous year, the Company generated more appointments and improved its installation rate, resulting in a 7% increase in the number of units installed. Average selling price, which is affected not only by price levels, but by the mix and size of jobs installed, increased 5%. Gross profit margin as a percentage of contract revenues was unchanged from the prior year. Contract costs increased primarily in the window product line and in the cabinet manufacturing operations. In 1995, the Company successfully executed the redesign of its cabinet product line and converted its manufacturing equipment and processes. While the conversion increased manufacturing costs in the current year, such costs are expected to decline in the future. The Company increased prices and took other actions, including programs which reduced its service and workers' compensation costs, all of which in the aggregate maintained margin at the prior year level. Branch operating expenses, which are primarily fixed in nature, increased from 6.8% of contract revenues in the prior year to 7.5% in 1995. Branch operating expenses in dollar terms increased approximately $987,000 largely due to higher staffing levels and telecommunication costs to accommodate an enhanced field organization structure designed to better meet customer needs. Marketing expenses increased from $68,095,000 or 24% of contract revenues to $73,825,000 or 27% of contract revenues. Marketing expense in 1995 includes approximately $3,200,000 for transitional costs to effect the 11 12 change to the CENTURY 21 Home Improvements name, including development of advertising materials and television commercials, as well as limited advertising to generate as many leads as possible for the first quarter of 1996. The remaining increase in marketing expenses in both dollar and percentage terms is largely due to lower sales closing rates and an increase in the cost per appointment resulting from lower response rates to the Company's advertisements. Selling expenses increased to 18.2% of contract revenues as compared to 17.2% in the prior year. Sales representative compensation declined slightly from 11.7% to 11.6% of contract revenues. Other selling expenses, primarily composed of sales manager salaries and training, insurance costs, recruiting and travel, increased from 5.5% of contract revenues in 1994 to 6.7% in 1995. The increase is principally due to additional management staffing to accommodate an enhanced organization structure designed to better meet customer needs. General and administrative expenses increased from $20,935,000 or 7.3% of contract revenues in the prior year period to $21,411,000 or 7.9% of contract revenues in the current year. General and administrative expenses increased by $476,000 largely due to a first quarter 1995 charge pursuant to a separation agreement between the Company and its former President and Chief Executive Officer. In connection with the Century 21 License Agreement, the Company recorded a nonrecurring charge of $5,115,000 consisting primarily of transaction fees and expenses and costs associated with the termination of the Sears License Agreement, including the write-off of certain assets and a provision for incremental warranty costs related to installations sold under the Sears brand name. In connection with the proposed Facelifters merger, the Company recorded a nonrecurring charge of $1,225,000 for transaction fees and expenses associated with combining operations. However, costs could increase if the Company and Facelifters encounter unexpected difficulties in the consummation of the merger or in the integration of their businesses. If all of the conditions to the merger are met, the Company expects to consummate the merger in the second quarter of 1996. In connection with the proposed Congressional merger, the Company recorded a nonrecurring charge of $745,000 for the transaction fees and expenses associated with combining operations. However, costs could increase if the Company and Congressional encounter unexpected difficulties in the consummation of the merger or in the integration of their businesses. If all of the conditions to the merger are met, the Company expects to consummate the merger in the second quarter of 1996. If the mergers are consummated, they will involve the integration of three companies that have previously operated independently. The Company intends to integrate certain aspects of the operations of the companies, including sales, marketing, finance, and administration. There can be no assurance that the Company will successfully integrate the operations of the companies or that any of the benefits expected will be realized. Any delays or unexpected costs incurred in connection with such integration could have an adverse effect on the combined company's business, results or financial condition in the short term. The Company recorded a nonrecurring, non-cash charge of $3,915,000 in connection with the settlement of, and pursuant to, employment and separation agreements between the Company and Mr. Ronald Wagner. On December 1, 1995, Mr. Wagner announced that he was resigning as Chairman of the Board of the Company. Under the terms of the agreements, the Company agreed to pay Mr. Wagner $500,000 and release him from his promissory note payable to the Company in exchange for his waiving termination amounts owed to him under his employment agreement and his agreement not to compete with the Company for a period of five years. The amount reported as income taxes on the Statement of Operations is based on the loss recognized for financial statement purposes and includes the effects of temporary differences between the financial statement loss and the loss recognized for income tax purposes. The Company has recorded as a receivable the amount of prior year taxes refundable to the Company under current laws. In addition, in accordance with SFAS 109, the Company has provided a valuation allowance against the net deferred tax asset arising from temporary differences between financial reporting 12 13 and tax reporting. Year ended December 31, 1994 compared with year ended December 31, 1993 In 1994, contract revenues increased 10% and operating income was $1,037,000 as compared to an operating loss of $4,424,000 in the prior year. The Company generated significantly more appointments than it had in the previous year, and the dollar amount of sales orders increased approximately 9%. The ending backlog of sales orders at December 31, 1994 was approximately $23,500,000, an increase of approximately 11% over the prior year end amount. The Company reduced its direct marketing cost per appointment by approximately 7% from the prior year through cost control and effective changes in its lead source mix. In addition, the Company continued to reduce its overhead cost through several programs which included a reduction in work force as well as improving the quality and efficiency of its internal processes. Contract revenues for 1994 increased approximately 10% to $285,930,000 compared to $260,692,000 for the same period last year. The increase in contract revenues primarily resulted from the growth of replacement window revenues, a product line that was introduced in June 1993. Contract revenues from replacement windows totalled $49,172,000 in 1994 and $9,840,000 in 1993. Siding and related exterior home improvement product revenues decreased approximately 10% from $169,114,000 in 1993 to $152,061,000 in 1994. The number of installations for these products decreased 18%, and average selling price, which is affected not only by price levels, but by the mix and size of jobs installed, increased 8%. While extreme weather conditions in the first quarter of the year, and installation crew shortages in the second quarter, prevented the Company from achieving the 1993 installation rate (the rate at which sales orders are installed and revenue recognized), the decline in siding contract revenues was principally due to a reduction in appointments and lower sales closing rates. This continued decline in siding revenues prompted the Company to conduct extensive consumer research in 1994, which led to a redesign of its siding product offering for 1995. Cabinet refacing contract revenues in 1994 increased approximately 4% from $67,801,000 in 1993 to $70,772,000 in 1994. While the Company generated more appointments than in 1993, lower sales closing rates resulted in a decline in the number of units installed of approximately 2% from the prior year. However, average selling price, which is affected not only by price levels but by the mix and size of jobs installed, increased approximately 6% over the prior year. Based on the aforementioned consumer research, the Company has redesigned its cabinet door and drawer front product for 1995. The redesign includes the consolidation of the Company's cabinet manufacturing operations in its Chicago facility, as well as a new manufacturing process which caused the Company to spend approximately $650,000 in 1994 for capital equipment. Gross profit margin as a percentage of contract revenues decreased from 70.0% to 67.4%. The decline in gross profit margin reflects increased installation, production and service costs in its siding and cabinet product lines, as well as the impact of the mix of products installed during the year. Replacement windows, which typically have lower selling prices and gross profit margins as compared to siding and kitchen cabinet refacing products, represented approximately 17% of the consolidated contract revenues in 1994 as compared to approximately 4% in 1993. The Company has increased prices on all of its product lines for 1995 and has made changes to its installer pay scales. In addition, programs are under way to improve the sales/installation process in order to reduce contract costs, including service costs, in 1995. Branch operating expenses, which are primarily fixed in nature, decreased from 7.4% of contract revenues in 1993 to 6.8% of revenues in 1994. Branch operating expenses in 1993 included a fourth quarter charge of approximately $600,000 for consolidation of certain branch facilities. Excluding the 1993 fourth quarter charge, branch operating expenses in dollar terms increased in 1994 by approximately the same amount due to higher telecommunication costs and employee relocation expenses. These cost increases in part related to a plan to reduce overall overhead expenses through restructuring and re-engineering of internal processes. 13 14 Marketing expenses decreased from 24.9% of contract revenues in 1993 to 23.8% of revenues in 1994. The Company generated significantly more leads than in the same period last year, and continued to change its lead mix, reducing its direct marketing cost per appointment by approximately 7% from 1993. The reduction was attributable to higher utilization of lower cost media sources, such as increased presence in Sears stores, and increased lead generation efforts through telemarketing. Selling expenses decreased to 17.2% of contract revenues in 1994 as compared to 18.1% in the prior year period. Sales representative compensation was unchanged from 1993 as a percent of contract revenues. Other selling expenses, primarily composed of insurance costs, sales managers salaries and training, recruiting and travel, decreased to 7% of contract revenues from 8% of contract revenues in the prior year. The decrease reflects higher training costs in 1993 principally associated with the introduction of the replacement window product, and ongoing cost reduction programs in 1994. Sears license fees were 11.9% of contract revenues in 1994 as compared to 11.6% in 1993. For the last four months of 1993, the license fee rate for certain branches and replacement windows was reduced to 8% of contract revenues. General and administrative expenses decreased in both dollar and percentage terms in 1994. The decrease reflected the continuation of cost reduction programs which included work force reductions related to re-engineering of the internal processes, as well as reduction of bad debt expense. Other income in the 1993 period included interest income received from the Internal Revenue Service resulting from the settlement of an audit of the Company's U.S. Federal Income Tax returns covering the fiscal years 1986 through 1990. The Company's effective tax benefit in 1993 was 145.3% of the pre-tax loss. The unusual rate was primarily due to the tax benefit associated with the write-off of the investment in the Company's Canadian subsidiary that ceased operations in 1993, and the refund of taxes associated with the aforementioned Internal Revenue Service audit. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its liquidity needs with internally generated funds. Net cash used in operations in 1995 was $9,510,000 principally due to the operating loss during the period. Of the $11,000,000 nonrecurring charges to operations, approximately $7,000,000 was either noncash or paid in 1995. The balance of approximately $4,000,000 will be paid during 1996. Net cash provided by operations in 1994 was $9,803,000 and included a refund from the Internal Revenue Service of approximately $3,200,000 resulting from the carryback of the 1993 income tax loss. The Company's customers pay for their home remodeling products upon completion. Payments are made in cash, on Mastercard, Visa or Discover Cards, or by third-party financing, primarily a revolving unsecured line of credit arranged by the Company. Approximately 7% in 1995 and 10% in 1994, of the Company's sales were financed through Sears, which normally remits payment to the Company within 10 to 14 days of the completion of installation, and approximately 53% and 51%, respectively, were financed through third party lending institutions, which normally remit payment within three days of completion. The remaining amounts of the Company's sales were primarily paid for upon completion in cash or by credit card. Capital expenditures for the year ended December 31, 1994 and 1995 were $1.4 million and $2.4 million, respectively. In both 1994 and 1995, capital expenditures primarily consisted of manufacturing equipment at the Company's cabinet manufacturing facility and telephone and computer equipment. In 1995, a portion of the manufacturing equipment acquired was financed through a note payable to a bank. Capital spending in 1996 is currently expected to be approximately $2.0 million, principally for additional manufacturing and computer equipment, as well 14 15 as for the initial approximately 100 kiosks used in shopping malls to generate leads. The Company will periodically evaluate the "in mall" program and may open additional locations during 1996. In December 1995 and January 1996, the Company opened two outbound telemarketing centers for which the Company has executed operating leases for equipment and facilities at an estimated aggregate cost of $3 million over the next 5 years. The Company may decide to open additional outbound telemarketing centers in 1996. Additionally, beginning in 1995 and continuing into 1996, the Company entered into short term facility leases at approximately 100 shopping malls across the country at an estimated aggregate annual cost of $2.0 million to operate its "in mall" program to generate prospective customer leads. Concurrent with entering into the Century 21 License Agreement, the Company and HFS entered into a credit agreement pursuant to which HFS provided the Company with a revolving credit facility in an amount up to $4 million. The agreement provides for a commitment fee of 1/2% of the unused portion of the facility and provides that loans made thereunder carry an interest rate of LIBOR plus 1 1/2%. Under the agreement, the Company is subject to certain covenants, including limitations on indebtedness and liens, limitations on asset dispositions, and restrictions on the payment of dividends. At December 31, 1995, no loans had been made under the credit facility. Concurrent with the execution of the Century 21 License Agreement, the Company and HFS entered into a Preferred Stock Purchase Agreement pursuant to which HFS purchased 300,000 shares of AMRE Senior Convertible Preferred Stock, par value $.10 per share, at $10 per share. The preferred stock will pay a quarterly dividend of 8% per annum, is convertible into common stock of the Company and is subject to mandatory redemption on January 1, 2001. From the period commencing January 1, 1999 and extending through December 31, 2000, the Company may redeem the Senior Convertible Preferred Stock at any time in whole, or from time to time in part, at the liquidation price plus accrued and unpaid dividends. In connection with the execution of the Century 21 License Agreement, the Company and a private investor entered into an agreement in which the investor would purchase up to 200,000 shares of common stock of the Company, $.01 par value, at $5 per share. At December 31, 1995, the Company had issued 162,000 shares of common stock under the terms of the agreement. The remaining 38,000 shares were purchased in February, 1996. OUTLOOK In connection with entering into the Century 21 License Agreement, the Company made a strategic decision to alter significantly the marketing and distribution focus of its home improvement services. The Company recognized that the Sears brand name is widely accepted in the home improvement industry and has significant brand name appeal to a wide variety of customers. However, the Company made the decision to not renew the Sears License Agreement and to enter into the Century 21 License Agreement believing that the latter agreement provides better opportunities for growth and profitability, including access to additional geographic markets, a greater array of home improvement products and the ability to grant sublicenses as well as the use of the CENTURY 21 Home Improvements name. Although the CENTURY 21 Home Improvements name was not used in the home improvement industry prior to 1996, the Company's management believes the name will also be well recognized. However, there can be no assurance that revenues under the CENTURY 21 Home Improvements name will be similar to or greater than those under the Sears brand name. If the CENTURY 21 Home Improvements name does not result in advertising response rates and sales rates equal to or better than those experienced under the Sears brand name, it will likely have an adverse effect on the business, operating results and financial condition of the Company. In addition, there is no way to estimate the time required to build brand awareness of the CENTURY 21 Home Improvements name in order to receive advertising response rates similar to those under the Sears brand name. While the Sears License Agreement was in effect in 1995, the Company received approximately 20% of its leads through Company employees working in the Sears retail stores (instore leads). This lead source will have to be replaced under the Century 21 License Agreement, and to this end the Company opened in 1996 approximately 100 free 15 16 standing kiosks in major shopping malls across the country and will increase its presence at home shows. The Company also plans to substantially increase its reliance on telemarketing as a lead source and opened two outbound telemarketing centers in December, 1995, and January, 1996, in order to accomplish this objective. In addition, the Company is working with Century 21 to develop a program of lead referrals from the Century 21 real estate broker network. However, there can be no assurance that the Company will be successful in replacing the instore leads and the failure to replace such leads would have an adverse impact on the operating results of the Company. Pursuant to the Sears License Agreement, the Company was required to deliver to Sears in January, 1996, all of the leads it generated under the Sears name through December 31, 1995. Thus, in January, 1996, the Company had to quickly generate as many leads as possible and had to do so without instore leads, a major 1995 lead source. The new outbound telemarketing centers, the in-mall program and the Century 21 lead referral program may not produce any significant amount of cost-effective leads for several months. Therefore, lead generation in early 1996 will emphasize quick response media, such as television and radio, as well as telemarketing leads purchased from a third party vendor which will increase lead generation costs. In addition, the Company will pay license fees to Sears at the 12% rate on installed revenue resulting from the installation of the December 31, 1995 production backlog of $22,330,000 which should occur in the 1996 first quarter. As a result of these factors, the Company expects to have a significant decline in installed revenues in the first quarter of 1996, as compared to the same period of 1995, and will incur a loss from operations. Furthermore, because of the uncertainties associated with the time and cost to build awareness of the CENTURY 21 Home Improvements name, the Company's ability to generate significant amounts of cost-effective leads and the integration of the companies resulting from the mergers, it is not possible to estimate when the Company will return to profitability. Cash and marketable securities totaled $19,142,000 at December 31, 1995. Management believes that existing cash and marketable securities, available capacity under the revolving line of credit with HFS and cash flow from operations will be sufficient to meet the Company's obligations. However, the conversion to the CENTURY 21 Home Improvements name, as well as the integration of the companies resulting from the mergers, will require substantial attention from management. In addition, there can be no assurance that the Company will successfully integrate the operations of the individual companies upon consummation of the mergers, or that any of the benefits expected will be realized. Any delays or unexpected costs incurred in connection with such integration could have an adverse effect on the combined company's business, operating results or financial condition in the short term. To ensure that adequate capital is available to complete the brand name transition and the mergers, the Company has engaged in discussions with several investment bankers regarding the possible sale of AMRE securities to raise additional capital. However, there can be no assurance that any additional sources of capital will be available to the Company. INFLATION The Company does not believe that inflation has had a material effect on its results of operations during the past three fiscal years. 16 17 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Generally, because of the holiday season and weather conditions, the Company's contract revenues and net income decline during the cold weather months (especially in the first quarter). The following table sets forth the Company's unaudited quarterly financial information:
QUARTER ENDED ---------------------------------------------------- MARCH 27 JUNE 26 SEPTEMBER 25 DECEMBER 31 -------- ------- ------------ ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1994 Contract revenues................................ $52,125 $77,589 $80,744 $75,472 Gross profit..................................... 35,241 53,493 54,441 49,655 Operating income (loss).......................... (5,232) 1,100 2,669 2,500 Net income (loss)................................ (2,984) 912 1,857 1,674 Net income (loss) per share...................... (0.23) 0.07 0.14 0.13 QUARTER ENDED -------------------------------------------------- APRIL 2 JULY 2 OCTOBER 1 DECEMBER 31 --------- ------ --------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1995 Contract revenues................................ $60,885 $73,737 $76,993 $59,722 Gross profit..................................... 40,360 50,026 52,745 39,755 Nonrecurring charges............................. - - - 11,000 Operating income (loss).......................... (6,695) (2,708) 947 (17,280) Net income (loss)................................ (3,895) (2,063) 944 (17,371) Net income (loss) per share...................... (0.29) (0.16) 0.07 (1.33)
17 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements are set forth herein beginning on page 25 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's independent accountants on any matter of accounting principles and practices, financial statement disclosure or auditing scope or procedure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 set forth under the captions "Election of Directors" and "Executive Officers of the Company" in the Company's proxy statement with respect to the annual meeting of stockholders to be held May 15, 1996, is incorporated herein by reference to the extent necessary to be responsive to the requirements of this Item. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 set forth under the caption "Executive Compensation and Other Matters" in the Company's proxy statement with respect to the annual meeting of stockholders to be held May 15, 1996, is incorporated herein by reference to the extent necessary to be responsive to the requirements of this Item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 set forth under the captions "Voting Securities Outstanding and Certain Stock Ownership," and "Election of Directors" in the Company's proxy statement with respect to the annual meeting of stockholders to be held May 15, 1996, is incorporated herein by reference to the extent necessary to be responsive to the requirements of this Item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 set forth under the caption "Executive Compensation and Other Matters" in the Company's proxy statement with respect to the annual meeting of stockholders to be held May 15, 1996, is incorporated herein by reference to the extent necessary to be responsive to the requirements of this Item. 18 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) & (2) Financial Statements and Financial Statement Schedules: The Consolidated Financial Statements are listed in the Index to Financial Statements on page 25, and are filed as part of this Report. (a)(3) Exhibits:
SEQUENTIAL PAGE NUMBER* ------- NUMBER AND DESCRIPTION OF EXHIBIT --------------------------------- 2.1 - Agreement and Plan of Merger dated as of December 30, 1995, among AMRE, Congressional and Merger Sub. 2.2 - Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, AMRE Acquisition, Inc., Facelifters and Facelifters Home Systems, Inc., a New York corporation (incorporated by reference to Exhibit 7.1 to AMRE's Current Report on Form 8-K dated October 31, 1995). 2.3 - Amendment No. 1 dated December 12, 1995, to Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, Facelifters Home systems, Inc., Facelifters and Facelifters Merger Sub. 3.1 - Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1989). 3.2 - By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 4.1 - Rights Agreement, dated as of November 13, 1992, by and between AMRE, Inc. and The Bank of New York, as successor Rights Agent to The Frost National Bank of San Antonio (incorporated by reference to Exhibit 1 to AMRE, Inc.'s Registration Statement, on Form 8-A, dated November 19, 1992). 10.1 - Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 10.1 to AMRE's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.2 - AMRE, Inc. Savings Investment Plan, dated September 30, 1990, restating and retitling the Profit Sharing Plan of the Company, as amended (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1990). 10.3 - Amendment No. 1 to AMRE, Inc. Savings Investment Plan, effective as of October 1, 1990 (incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.4 - Amendment No. 2 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1993 (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993).
19 20 (a)(3) Exhibits:
SEQUENTIAL PAGE NUMBER* ------- NUMBER AND DESCRIPTION OF EXHIBIT --------------------------------- 10.5 - Amendment No. 3 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994 (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.6 - Amendment No. 4 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 25, 1994). 10.7 - AMRE, Inc. Savings Investment Trust Agreement, dated September 30, 1990 (incorporated by reference to Exhibit 10.18 to Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1990). 10.8 - Welfare Benefits Plan for Employees of AMRE, Inc., dated April 24, 1990, as amended (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990). 10.9 - Amendment No. 1 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.10 - Amendment No. 2 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.19 to the Transition Report on Form 10-K for the transition period ended December 31, 1991). 10.11 - Amendment No. 3 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.12 - Amendment No. 4 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.13 - Welfare Benefits Trust for Employees of AMRE, Inc., dated April 24, 1990 as amended (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990). 10.14 - Amendment No. 1 to Welfare Benefits Trust for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.15 - AMRE, Inc. Flexible Benefits Plan, as restated effective January 1, 1993 (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990). 10.16 - Stock Option Agreement dated as of May 11, 1994, between the Company and Ronald I. Wagner (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended June 26, 1994).
20 21 (a)(3) Exhibits:
SEQUENTIAL PAGE NUMBER* ------- NUMBER AND DESCRIPTION OF EXHIBIT --------------------------------- 10.17 - Form of Stock Option Agreements dated as of May 11, 1994, between the Company and each of the outside Directors of the Company, which are identical except for the names of the Directors (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarterly period ended June 26, 1994). 10.18 - Form of Stock Option Agreements dated as of May 11, 1994, between the Company and the outside Directors of the Company, which are identical except for names, the dates of respective grants of options surrendered, the number of shares subject to the surrendered options and the number of shares subject to the respective options being granted (which information and exhibit are incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarterly period ended June 26, 1994). 10.19 - License Agreement dated as of January 1, 1995, between the Company and Sears, Roebuck and Co. for the sale and installation of siding, overhand and trim, kitchen cabinet refacing, exterior coating and replacement windows (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.20 - Form of Indemnification Agreements between the Company and the Directors of the Company, which are identical except for names and dates (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990). 10.21 - Management Incentive Plan for the Company (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.22 - Lease dated October 11, 1988, between Cabinet Magic, Inc. and Ronald I. Wagner (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.23 - Lease dated November 12, 1991, between the Company, as Tenant, and Twin Towers Investment Partnership, as Landlord, with respect to the Company's corporate headquarters in Dallas, Texas (incorporated by reference to Exhibit 10.18 to the Transition Report on Form 10-K for the transition period ended December 31, 1991). 10.24 - Promissory Note of Keith L. Abrams dated as of April 30, 1994, in the principal amount of $468,499.35, together with related Stock Pledge Agreement dated January 31, 1995 (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.25 - Description of options granted outside of the AMRE, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 10.26 - Form of Executive Severance Plan for Senior Management Positions between the Company and certain executives of the Company, including Keith Abrams, Robert E. Horton, Jr., and Curtis Everett, which agreements are identical except for names and dates (incorporated by reference to Exhibit 10.30 to the Annual Report on form 10-K for the fiscal year ended December 31, 1992).
21 22 (a)(3) Exhibits:
SEQUENTIAL PAGE NUMBER* ------- NUMBER AND DESCRIPTION OF EXHIBIT --------------------------------- 10.27 - Merchant Agreement dated as of July 27, 1993, between the Company and Household Bank (Illinois), N.A. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10- Q for the quarterly period ended September 26, 1993). 10.28 - Merchant Agreement between the Company and American General Financial Center, effective July 1, 1993, as amended January 25, 1994, (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.29 - License Agreement, dated October 17, 1995, among TM Acquisition Corp. and Century 21 Real Estate Corporate and ARI (incorporated by reference to Exhibit 7.1 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.30 - Preferred Stock Purchase Agreement, dated October 17, 1995, between AMRE and HFS (incorporated by reference to Exhibit 7.2 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.31 - Credit Agreement, dated October 17, 1995, between AMRE and HFS (incorporated by reference to Exhibit 7.3 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.32 - Letter Agreement, dated October 17, 1995, between AMRE and David Moore (incorporated by reference to Exhibit 7.4 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.33 - $5.00 Stock Option Agreement, dated October 17, 1995, between AMRE and David Moore (incorporated by reference to Exhibit 7.5 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.34 - $5.50 Stock Option Agreement, dated October 17, 1995, between AMRE and David Moore (incorporated by reference to Exhibit 7.6 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.35 - Stock Purchase Agreement between David Moore or his designees and AMRE (incorporated by reference to Exhibit 7.7 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.36 - Amendment No. 1 to the AMRE, Inc. Savings Investment Trust (incorporated by reference to Exhibit 10.1 to AMRE's Quarterly Report on Form 10-Q for the quarterly period ended July 2, 1995). 10.37 - Amended and Restated Merchant Agreement between Household Bank (Illinois), N.A. and AMRE dated April 24, 1995 (incorporated by reference to Exhibit 10.2 to AMRE's Quarterly Report on Form 10-Q for the quarterly period ended July 2, 1995). 10.38 - Separation Agreement dated December 1, 1995, between AMRE and Ronald Wagner. 10.39 - Amendment No. 1 to Stockholder Agreement between AMRE and the shareholders of Facelifters signatory thereto. 10.40 - Employment Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz (incorporated by reference to Exhibit 10.1 to AMRE's Current Report on Form 8-K dated June 19, 1995).
22 23 (a)(3) Exhibits:
SEQUENTIAL PAGE NUMBER* ------- NUMBER AND DESCRIPTION OF EXHIBIT --------------------------------- 10.41 - Stock Option Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz (incorporated by reference to Exhibit 10.2 to AMRE's Current Report on Form 8-K dated June 19, 1995). 11 - Statement re computation of per share earnings. 21 - Subsidiaries of the Company (incorporated by reference to Exhibit 22 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 27 - Financial Data Schedule 99.1 - Stipulation of Settlement among plaintiffs in the Litigation and AMRE, Inc., Steven D. Bedowitz, Robert Levin and Dennie D. Brown (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K filed February 4, 1993). 99.2 - Final judgment and order approving settlement of the Litigation (incorporated by reference to Exhibit 2 to the Current Report on Form 8-K filed February 4, 1993). 99.3 - Press Release dated June 19, 1995, announcing the election of Mr. Robert M. Swartz as President and a member of the Board of Directors of AMRE, Inc. (incorporated by reference to Exhibit 99.1 to AMRE's Current Report on Form 8-K dated June 19, 1995).
________________________________ * This information appears only in the manually signed, original, sequentially numbered copy of this report. (b) Reports on Form 8-K: Reports on Form 8-K were filed by the Company on October 17, 1995, and October 31, 1995, during the quarter ending December 31, 1995. 23 24 SIGNATURES Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMRE, Inc. Date: March 12, 1996 By: /s/ ROBERT M. SWARTZ ---------------------------------- Robert M. Swartz President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ JOHN D. SNODGRASS Chairman of the Board March 12, 1996 - ------------------------- and Director John D. Snodgrass /s/ ROBERT M. SWARTZ President, Chief Executive March 12, 1996 - ------------------------- Officer and Director Robert M. Swartz (Principal Executive Officer) /s/ RONALD L. BLIWAS Director March 12, 1996 - ------------------------- Ronald L. Bliwas /s/ DENNIS S. BOOKSHESTER Director March 12, 1996 - ------------------------- Dennis S. Bookshester /s/ ARTHUR P. FRIGO Director March 12, 1996 - ------------------------- Arthur P. Frigo /s/ SHELDON I. STEIN Director March 12, 1996 - ------------------------- Sheldon I. Stein /s/ JACK L. MCDONALD Director March 12, 1996 - ------------------------- Jack L. McDonald /s/ DAVID L. MOORE Director March 12, 1996 - ------------------------- David L. Moore /s/ STEPHEN P. HOLMES Director March 12, 1996 - ------------------------- Stephen P. Holmes /s/ ROBERT W. PITTMAN Director March 12, 1996 - ------------------------- Robert W. Pittman /s/ JOHN S. VANECKO Vice President and March 12, 1996 - ------------------------- Chief Financial John S. Vanecko Officer (Principal Financial and Accounting Officer)
24 25 INDEX TO FINANCIAL STATEMENTS
PAGE ---- (a) Financial Statements: Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Consolidated Balance Sheet at December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 27 Consolidated Statement of Operations for the Years Ended December 31, 1993, 1994, and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Consolidated Statement of Cash Flows for the Years Ended December 31, 1993, 1994, and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1993, 1994, and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 25 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of AMRE, Inc.: We have audited the accompanying consolidated balance sheets of AMRE, Inc. (a Delaware Corporation) and subsidiary as of December 31, 1994 and 1995, and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the three years ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AMRE, Inc. and subsidiary as of December 31, 1994 and 1995, and the results of their operations and their cash flows for the three years ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas February 27, 1996 26 27 AMRE, INC. CONDOLIDATED BALANCE SHEET (In thousands, except share amounts) ASSETS
December 31, -------------------------- 1994 1995 ------- -------- Current assets: Cash and cash equivalents...................................................................... $7,927 $10,658 Marketable securities, including restricted securities of $1,250 and $0........................ 19,370 8,484 Accounts receivable - Trade, net of allowance for doubtful accounts of $1,098 and $690............................ 6,792 5,384 Other....................................................................................... 612 871 Income taxes................................................................................ 575 3,987 Inventories.................................................................................... 5,538 5,612 Deferred income taxes.......................................................................... 1,767 - Prepaid expenses............................................................................... 4,698 2,921 ------- -------- Total current assets..................................................................... 47,279 37,917 Property, plant and equipment, net................................................................ 6,251 5,630 Goodwill, less accumulated amortization of $1,597 and $1,869...................................... 9,308 9,036 Notes receivable - related parties................................................................ 4,217 469 Other assets...................................................................................... 1,772 1,262 ------- -------- $68,827 $54,314 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................................... $18,645 $14,147 Wages, commissions and bonuses................................................................. 4,098 4,712 Accrued workers' compensation.................................................................. 2,021 2,059 Current portion - long term debt............................................................... - 50 Other accrued liabilities...................................................................... 10,653 16,760 ------- -------- Total current liabilities................................................................ 35,417 37,728 ------- -------- Long term debt.................................................................................... - 241 ------- -------- Total liabilities........................................................................ 35,417 37,969 ------- -------- Commitments and contingencies Senior Convertible Redeemable Preferred stock - $.10 par value; 300,000 shares issued and outstanding; liquidation value of $10 per share.......................................................... - 3,000 Stockholders' equity: Preferred stock - $.10 par value, 1,000,000 shares authorized; 300,000 Senior Convertible shares outstanding............................................... - - Common stock - $.01 par value, 20,000,000 shares authorized, 14,072,000, and 14,573,493, shares issued; 12,849,822 and 13,351,295 shares outstanding............................................................... 141 146 Additional paid-in capital..................................................................... 22,400 25,486 Retained earnings (deficit).................................................................... 21,170 (1,986) ------- -------- 43,711 23,646 Less: Treasury stock, at cost (1,222,198 and 1,222,198 shares)................................. (10,301) (10,301) ------- -------- Total stockholders' equity............................................................... 33,410 13,345 ------- -------- $68,827 $54,314 ======= ========
See accompanying notes to consolidated financial statements. 27 28 AMRE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts)
Year Ended December 31, ---------------------------------------------- 1993 1994 1995 -------- -------- -------- Contract revenues......................... $260,692 $285,930 $271,337 Contract costs............................ 78,112 93,100 88,451 -------- -------- -------- Gross profit.............................. 182,580 192,830 182,886 -------- -------- -------- Branch operating expenses................. 19,314 19,309 20,296 Marketing expenses........................ 65,013 68,095 73,825 Selling expenses.......................... 47,349 49,288 49,514 Sears license fees........................ 30,136 34,166 32,576 General and administrative expenses....... 25,192 20,935 21,411 Nonrecurring charges...................... - - 11,000 -------- -------- -------- 187,004 191,793 208,622 -------- -------- -------- Operating income (loss)................... (4,424) 1,037 (25,736) Investment income......................... 1,292 1,173 1,024 Other income (expense), net............... 1,241 343 804 -------- -------- -------- Income (loss) before income taxes......... (1,891) 2,553 (23,908) Income taxes.............................. (2,747) 1,094 (1,523) -------- -------- -------- Net income (loss)......................... $856 $1,459 ($22,385) ======== ======== ======== Net income (loss) per share............... $0.07 $0.11 ($1.73) ======== ======== ======== Weighted average shares outstanding....... 13,120 13,031 12,903 ======== ======== ========
See accompanying notes to consolidated financial statements. 28 29 AMRE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands, except per share amounts)
Year Ended December 31, -------------------------------------------- 1993 1994 1995 ------- ------- -------- Cash flows from operating activities: Net income (loss).......................................... $856 $1,459 ($22,385) ------- ------- -------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: Income taxes............................................... (2,747) 1,094 (1,523) Depreciation and amortization.............................. 3,557 3,160 3,027 Provision for doubtful accounts............................ 1,595 1,103 789 Other non-cash items....................................... 242 290 6,037 Cash receipts of (payments for) income taxes............... 2,356 3,096 (140) Changes in assets and liabilities: Accounts receivable and other........................... 1,485 2,649 3 Inventories............................................. (265) (104) (74) Prepaid expenses and other assets....................... (53) (1,143) 3,087 Accounts payable......................................... 1,327 1,141 (4,498) Other liabilities....................................... (2,589) (2,942) 6,167 ------- ------- -------- Total adjustments.................................... 4,908 8,344 12,875 ------- ------- -------- Net cash provided by (used in) operations..................... 5,764 9,803 (9,510) ------- ------- -------- Cash flows from investing activities: Sale of marketable securities.............................. 16,352 13,992 28,414 Purchase of marketable securities.......................... (23,867) (14,248) (17,735) Capital expenditures....................................... (911) (1,377) (2,045) Notes receivable........................................... (270) (94) - Other...................................................... 36 60 13 ------- ------- -------- Net cash provided by (used in) investing activities........... (8,660) (1,667) 8,647 ------- ------- -------- Cash flows from financing activities: Payments on long term debt................................. - - (26) Purchase of treasury shares................................ (961) - - Issuance of common and preferred stock..................... 517 - 4,391 Dividends paid............................................. (1,556) (1,542) (771) ------- ------- -------- Net cash provided by (used in) financing activities........... (2,000) (1,542) 3,594 ------- ------- -------- Net increase (decrease) in cash and cash equivalents.......... (4,896) 6,594 2,731 Cash and cash equivalents at beginning of period.............. 6,229 1,333 7,927 ------- ------- -------- Cash and cash equivalents at end of period.................... $1,333 $7,927 $10,658 ======= ======= ========
See accompanying notes to consolidated financial statements. 29 30 AMRE, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands)
Common Stock Additional Retained ---------------------- Paid-in Earnings Shares Amount Capital (Deficit) ------- ------ ---------- ---------- Balance, December 31, 1992...................... 14,072 141 22,793 21,940 Net income................................... - - - 856 Exercise of options.......................... - - (393) - Cash dividends ($.12 per share).............. - - - (1,543) Purchase of treasury stock................... - - - - ------ ----- -------- ---------- Balance, December 31, 1993...................... 14,072 141 22,400 21,253 Net income.................................... - - - 1,459 Cash dividends ($.12 per share)............... - - - (1,542) ------ ----- -------- ---------- Balance, December 31, 1994...................... 14,072 141 22,400 21,170 Net loss..................................... - - - (22,385) Exercise of options.......................... 139 1 580 - Issuance of stock............................ 362 4 1,806 - Cash dividends ($.06 per share).............. - - - (771) Stock options granted to non-employee........ - - 700 - ------ ----- -------- ---------- Balance, December 31, 1995...................... 14,573 $146 $25,486 ($1,986) ====== ===== ======== ==========
Treasury Stock ----------------------------- Shares Amount ------- --------- Balance, December 31, 1992...................... (1,239) (10,250) Net income................................... - - Exercise of options.......................... 112 910 Cash dividends ($.12 per share).............. - - Purchase of treasury stock................... (95) (961) ------- --------- Balance, December 31, 1993...................... (1,222) (10,301) Net income.................................... - - Cash dividends ($.12 per share)............... - - ------- --------- Balance, December 31, 1994...................... (1,222) (10,301) Net loss..................................... - - Exercise of options.......................... - - Issuance of stock............................ - - Cash dividends ($.06 per share).............. - - Stock options granted to non-employee........ - - ------- --------- Balance, December 31, 1995...................... (1,222) ($10,301) ======= =========
See accompanying notes to consolidated financial statements. 30 31 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in tables in thousands) NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION The Company is engaged, through direct consumer marketing, in the in-home sale and installation of siding and related exterior home improvement products, kitchen cabinet refacing and custom countertops, replacement windows, and in certain of its territories, exterior coating. The Company currently conducts its business in the United States. The consolidated financial statements include the accounts of AMRE, Inc. and its subsidiary, American Remodeling, Inc. (herein referred to as the "Company"). All significant intercompany accounts and transactions are eliminated in consolidation. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of estimates in financial statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates. Cash equivalents - Cash equivalents are short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and present an insignificant risk of change in value because of changes in interest rate. Marketable securities - The Company classifies its investments as available for sale because it does not acquire the securities for the purpose of selling them in the near term to generate profits on short-term differences in price, or, with the intent of holding them to maturity. The Company uses the specific identification method of determining cost in computing realized gains and losses. Accounts receivable - The Company's accounts receivable consist of amounts due from individuals, credit card sponsors and financial institutions. Certain of the amounts due from individuals are secured by second mortgages. Inventories - Inventories (consisting principally of materials) are carried at the lower of cost (first-in, first- out) or market. Property, plant and equipment - Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed over the estimated useful lives of the related assets by using the straight-line method of depreciation for financial reporting purposes. Maintenance and repair expenditures are charged to operations; renewals and betterments are capitalized. Goodwill - Goodwill represents the excess of cost over the fair value of net tangible assets acquired and is amortized on a straight-line basis over 40 years. Long-lived assets - The Company periodically evaluates whether the remaining useful life of long-lived assets, including goodwill, may require revision or the remaining unamortized balance may not be recoverable. When factors indicate the asset should be evaluated for possible impairment, the Company uses an estimate of the specific asset's cash flow in evaluating such asset's fair value. Accrued workers' compensation - The Company accrues workers' compensation costs based on the amount of estimated total losses to be incurred for the period. These estimates are based on the total payroll, using assumptions relating to the Company's loss experience as well as future expected losses. Revenue recognition - The Company recognizes its revenue upon completion of each home improvement contract. Contract costs - Contract costs represent the costs of direct material and direct labor associated with installations and manufacturing overhead associated with the production of cabinet fronts and countertops. Advertising Expense - The Company expenses advertising costs as incurred. Income taxes - Deferred income taxes are provided for temporary differences between the tax basis of assets and liabilities and their financial reporting amounts. Deferred taxes are recorded based upon enacted tax rates anticipated to be in effect when the temporary differences are expected to reverse. A valuation allowance is provided when required. 31 32 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Earnings per share - Net income (loss) per common share is based on net income (loss) after preferred stock dividend requirements and the weighted average number of common shares outstanding after giving effect to stock options considered to be dilutive common stock equivalents. Fully diluted net income (loss) per common share is based on the weighted average number of common shares outstanding after giving effect to dilutive common stock equivalents, and adjusted for the incremental dilutive shares attributed to convertible preferred stock. NOTE 3 - MARKETABLE SECURITIES Marketable securities, reported at fair value, which approximates cost, consist primarily of state and city municipal bonds, with contractual maturity dates ranging from January 1, 1996 to January 1, 1997. For the years ended December 31, 1994 and 1995, the Company had no material gains or losses from the sale of securities. NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Depreciation Lives December 31, ------------------ ------------ 1994 1995 ---- ---- Machinery and equipment 5 years $10,085 $11,829 Software development cost 5 years 3,496 3,814 Furniture and fixtures 5 years 3,192 3,350 Leasehold improvements 3-10 years 957 1,142 Land 171 171 ------- -------- 18,621 20,306 Less accumulated depreciation and amortization (12,370) (14,676) ------- ------- $ 6,251 $ 5,630 ======= =======
NOTE 5 - LICENSE AGREEMENT Since 1981 substantially all of the Company's contracts have been sold under a license agreement with Sears. The license agreement was a one-year renewable agreement, cancelable by either party with 60 days written notice. The fee is generally paid after the Company has completed the contract and collected the contract amount. In April 1993, the Company and Sears agreed to a license fee rate effective January 1, 1993 of 12%. However, the license fee rate for replacement windows was established at 8% beginning September 1, 1993 and ending December 31, 1993. The license fee rate for certain branches was 8% beginning September 1, 1993 and ending December 31, 1993. License fees were 12% in 1994 and 1995. On October 17, 1995, American Remodeling, Inc., ("ARI"), a wholly owned subsidiary of AMRE, and TM Acquisition Corporation and Century 21 Real Estate Corporation (collectively referred to as "Century 21"), subsidiaries of HFS Incorporated ("HFS"), entered into an agreement pursuant to which Century 21 granted to ARI an exclusive 20 year license to operate under the name CENTURY 21 Home Improvements for the marketing, sale, and installation of certain home improvement products in the United States, Canada, and Mexico ("Century 21 License Agreement"), and the right to grant sublicenses under the agreement. ARI, and thereby AMRE, did not renew its license agreement with Sears when it expired on December 31, 1995. Under the Century 21 License Agreement, the Company will pay fees equal to the greater of 3% of the aggregate contract revenues of the Company and its sublicensees, or certain guaranteed annual minimums starting at $11 million in 1996 and increasing during the term of the 20 year agreement. The agreement provides for a fee of an additional 10% of the contract revenue for each sale made pursuant to a customer referral from Century 21, payable to the respective Century 21 broker who originated the customer referral. The Century 21 License Agreement provides for immediate 32 33 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) termination by either the Company or Century 21 if either party is negligent in the performance of its services, becomes insolvent or bankrupt, or fails to comply with any material provision of the Century 21 License Agreement, including the payment of license fees as stipulated. NOTE 6 - NONRECURRING CHARGES In connection with the Century 21 License Agreement (see Note 5), the Company recorded a nonrecurring charge of $5,115,000 consisting primarily of transaction fees and expenses and costs associated with the termination of the Sears License Agreement, including the write-off of certain assets and a provision for incremental warranty costs related to installations sold under the Sears brand name. In connection with the proposed Facelifters merger (see Note 14), the Company recorded a nonrecurring charge of $1,225,000 for transaction fees and expenses associated with combining operations. However, costs could increase if the Company and Facelifters encounter unexpected difficulties in the consummation of the merger or in the integration of their businesses. The Company expects to consummate the merger in the Company's second quarter of 1996. In connection with the proposed Congressional merger (see Note 14), the Company recorded a nonrecurring charge of $745,000 for transaction fees and expenses associated with combining operations. However, costs could increase if the Company and Congressional encounter unexpected difficulties in the consummation of the merger or in the integration of their businesses. The Company expects to consummate the merger in the Company's second quarter of 1996. The Company recorded a nonrecurring, non-cash charge of $3,915,000 in connection with the settlement of, and pursuant to, employment and separation agreements between the Company and Mr. Ronald Wagner (see Note 9). On December 1, 1995, Mr. Wagner announced that he was resigning as Chairman of the Board of the Company. Under the terms of the agreements, the Company agreed to pay Mr. Wagner $500,000 and release him from his promissory note payable to the Company in exchange for his waiving termination amounts owed to him under his employment agreement and his agreement not to compete with the Company for a period of five years. NOTE 7 - SUPPLEMENTAL NON-CASH ACTIVITIES For the years ended December 31, 1993, 1994 and 1995, the Company recorded non-cash operating items as follows:
DECEMBER 31, ------------------------------------------------------- 1993 1994 1995 ---- ---- ---- Amortization of investment premium and discounts $194 $216 $207 Separation agreement --- --- 3,915 Common stock and common stock options granted for services rendered --- --- 1,700 Other 48 74 215 ---- ---- ------ $242 $290 $6,037 ===== ===== ======
During the year ended December 31, 1995 the Company acquired $317,000 of capital equipment financed with long term debt. 33 34 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 8 - Income taxes Income taxes consisted of the following:
Year Ended December 31, --------------------------------------------- 1993 1994 1995 -------- ------- -------- Current: Federal ($4,116) ($556) ($3,370) State 5 126 80 Deferred: Federal 1,181 1,323 2,047 State 183 201 (280) -------- ------- -------- Total ($2,747) $1,094 ($1,523) ======== ======= ========
The effective income tax rate differs from the statutory federal income tax rate for the following reasons:
Year Ended December 31, --------------------------------------------- 1993 1994 1995 -------- ------ ------- Statutory rate (34.0%) 34.0% (34.0%) State taxes, net of federal benefit 9.9 11.1 (0.9) Municipal bond income (15.6) (11.0) (1.2) Valuation allowance - - 24.8 Write-off of foreign subsidiary (60.2) - - Goodwill amortization 4.9 3.6 0.4 Federal income tax refund (52.9) - - Other 2.6 5.1 4.5 -------- ------ ------- Effective rate (145.3%) 42.8% (6.4%) ======== ====== =======
34 35 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The components of, and changes in, the net deferred tax asset are as follows:
December 31, Deferred December 31, 1994 Income Taxes 1995 ------------ ------------ ------------ Workers' compensation.............. $791 $14 $805 Nonrecurring charges............... - 1,066 1,066 Health insurance................... 403 (3) 400 Allowance for doubtful accounts.... 473 27 500 Net operating loss carryforward.... - 2,036 2,036 Other.............................. 100 1,029 1,129 ------- ------- -------- Total.............................. 1,767 4,169 5,936 Valuation allowance................ - (5,936) (5,936) ------- ------- -------- Total deferred taxes............... $1,767 ($1,767) $ - ======= ======= ========
The Company incurred a tax loss in 1995 and has recorded a tax benefit in the amount refundable from taxes paid in prior years. The Company has a net operating loss carryforward of approximately $6 million that will expire in 2010 if not utilized earlier. Because of the net operating loss carryforward and management's inability to predict future taxable income with certainty, a 100% valuation allowance has been provided against the deferred tax asset. 35 36 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 9 - COMMITMENTS AND CONTINGENCIES The Company is a party to certain legal proceedings arising in the ordinary course of business, none of which is believed to be material to the financial position or results of operations of the Company. Leases The Company operates in leased facilities and also leases certain equipment. In most cases, management expects that leases currently in effect will be renewed or replaced by other leases of a similar nature and term. Escalation charges and restrictions imposed by lease agreements are not significant. Rental expense under operating leases was $3,748,000, $3,535,000 and $3,859,000 for the years ended December 31, 1993, 1994, and 1995, respectively. Commitments for future minimum rental payments required under operating leases with terms in excess of one year for the years ending December 31, are as follows: 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,608 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,331 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,673 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,927 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,229 Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,564 ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,332 =======
In 1993, the Company began to consolidate certain branches where more than one leased facility existed in the same local geographic market. In December 1993, the Company expensed approximately $600,000 for estimated costs of moving as well as the remaining lease obligations on certain of these leased branch facilities. Employment and Other Agreements The Company has an Employment Agreement with Robert M. Swartz, Chief Executive Officer, for a term of two years expiring on July 4, 1997. The agreement provides for an annual salary of $300,000. In addition, Mr. Swartz is eligible for an annual cash bonus opportunity of at least 100% of his annual salary. In addition, the agreement provided for a guaranteed bonus of $100,000 with respect to the fiscal year ended December 31, 1995. The Company had an Employment Agreement with Ronald I. Wagner, its former Chairman. Salaries paid to Mr. Wagner under his agreement were $439,499, $426,942 and $461,538 during 1993, 1994 and 1995 and no bonuses were paid during these periods. On December 1, 1995, AMRE and Mr. Wagner entered into a Separation Agreement (the "Wagner Separation Agreement"), pursuant to which Mr. Wagner resigned from all positions that he held as a director, officer or employee of AMRE. In connection with the Wagner Separation Agreement, AMRE and Mr. Wagner agreed, among other things, as follows: 1. Mr. Wagner will not compete with AMRE in any of its products and services under the Century 21 License Agreement anywhere in North America for a period of five years; 2. Mr. Wagner waived and released AMRE from amounts owed him of approximately $3,375,000 pursuant to the termination provisions of his employment agreement with AMRE; 3. In exchange for 1 and 2 above, (a) AMRE shall pay Mr. Wagner the sum of $500,000, payable in two equal installments in 1997 and 1999; (b) AMRE released Mr. Wagner from his payment obligation under an outstanding promissory note payable (due April 1997), plus interest, in the amount of $4,101,824; and (c) AMRE granted demand and piggy-back registration rights to Mr. Wagner with respect to 550,000 shares of AMRE Common Stock covered by currently exercisable options held by Mr. Wagner; and 4. Mr. Wagner and AMRE agreed to terminate the current lease under which AMRE leases from Mr. Wagner certain of its facilities and enter into a new lease commencing January 1, 1996 for a term of ten years at an annual rent beginning at $180,000 for the first two years. 36 37 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In connection with the Wagner Separation Agreement, the Company recorded a nonrecurring charge of $3,915,000. Prior to his resignation, the Company had an Employment Agreement with V. James Sardo, its former Chief Executive Officer. Salaries and bonuses paid to Mr. Sardo under his agreement were $231,231 and $193,750 during 1994 and 1995. The Company has Indemnification Agreements with the members of its Board of Directors. The Indemnification Agreements are for an unspecified period of time and are intended to indemnify and hold harmless each director to the fullest extent permitted or authorized by applicable law and the By-Laws of the Company. The Company has an agreement with a financial institution which makes financing available to the Company's customers. The customer executes a Revolving Credit Agreement with the lender and the lender pays the Company on completion of the installation. The agreement provides the financial institution with right of first refusal on substantially all of the Company's customer credit applications, and provides for the Company a minimum acceptance rate of customer credit applications based on specified criteria. The Company's credit risk is limited to its normal warranties and representations regarding materials and workmanship. Prior to 1995, the Company assumed some recourse liability or credit risk in certain customer financing agreements. On approximately $13 million of contracts financed under such agreements the Company has agreed to indemnify the financial institution for losses if customer defaults exceed specified levels. The Company has provided a reserve for estimated losses under this recourse liability. However, customer defaults may differ from the estimated amount and therefore the reserve may be adjusted in future periods. NOTE 10 - REVOLVING CREDIT FACILITY Concurrent with entering into the Century 21 License Agreement, the Company and HFS entered into a revolving credit facility in an amount up to $4 million. The agreement provides for a commitment fee of 1/2% of the unused portion of the facility and provides that loans made thereunder carry an interest rate of LIBOR plus 1 1/2%. Under the agreement, the Company is subject to certain covenants, including limitations on indebtedness and liens, limitations on asset dispositions, and restrictions on the payment of dividends. The revolving credit facility matures on December 29, 1998. At December 31, 1995, no loans had been made under the credit facility. NOTE 11 - SAVINGS INVESTMENT AND STOCK OPTION PLANS The Savings Investment Plan is a defined contribution plan under which qualified employees may elect to defer up to 10% of their salary and provides for a matching Company contribution of 25% of the amount withheld up to 6% of salary. Withheld amounts and Company contributions are invested in certain investment options at the employee's direction. For the years ended December 31, 1993, 1994, and 1995, Company contributions were $315,000, $365,000, and $363,000, respectively. The Company has no defined benefit pension plan nor any other post-retirement or post-employment benefit plan. The Company has a Stock Option Plan (the "Plan") for the benefit of its key employees. The Plan authorizes grants, at the then current market price, of nonqualified options to purchase up to 2,600,000 shares of Common Stock, and, in certain instances, authorizes the award of limited stock appreciation rights. The options and stock appreciation rights vest within three years of the date of the grant and expire 10 years from the date of grant. At December 31, 1995, options for 188,169 shares were exercisable under the Plan, 1,304,913 shares were available for grant and no stock appreciation rights were outstanding. 37 38 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Options granted to certain employees to purchase common stock pursuant to the Company's Plan were as follows:
Options Exercise Price --------- -------------- Balance, December 31, 1992 1,119,178 $3.00 - $8.88 Granted 45,000 5.00 - 5.00 Canceled (172,998) 4.25 - 8.88 Exercised (111,763) 3.00 - 6.75 Redemptions (255,007) 3.00 - 8.88 --------- -------------- Balance, December 31, 1993 624,410 3.00 - 8.88 Granted 476,697 3.50 - 5.38 Canceled (43,604) 3.50 - 6.75 Surrendered (324,697) 4.25 - 8.88 --------- -------------- Balance, December 31, 1994 732,806 $3.00 - $8.50 Granted 179,399 3.50 - 8.10 Canceled (136,506) 3.50 - 6.80 Exercised (139,473) 3.00 - 8.40 --------- -------------- Balance, December 31, 1995 636,226 $3.50 - $8.50 ========= ==============
38 39 AMRE, INC. NOTES TO CONSOLIDAED FINANCIAL STATEMENTS - (Continued) In addition to the options granted under the Plan, the Board has granted options outside the Plan to certain employees and Board members. Options granted outside the Plan vest in various periods, ranging from immediately to four years from the date of the grant. Non-Plan options at December 31, 1995, of which 1,142,500 were vested, are as follows:
NUMBER OF SHARES EXERCISE PRICE ----------- ------------------------- Ronald I. Wagner . . . . . . . . . . . . . . . . . . . . 550,000 $ 3.50 Robert M. Swartz . . . . . . . . . . . . . . . . . . . . 500,000 4.13 Directors . . . . . . . . . . . . . . . . . . . . . . . . 212,500 3.50 - 4.50 Others . . . . . . . . . . . . . . . . . . . . . . . . . 480,000 4.25 - 7.88 --------- ------------------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,742,500 $ 3.50 - $ 7.88 ========= ========================
On November 15, 1993, the Board of Directors authorized the holders of all options to surrender their options for a redemption price of $0.50 per share. The offer remained open until December 20, 1993. Options for 255,007 shares under the Plan, and 41,250 shares outside the Plan were redeemed for a total of approximately $148,000. On May 11, 1994, the Board of Directors authorized the holders of all options with an exercise price in excess of $3.50 per share under the Plan, and certain holders of options outside of the Plan, to surrender their options for new options with an exercise price of $3.50 per share which would vest based upon the new grant date of May 11, 1994. Options for 324,697 shares, at prices ranging from $4.25 to $8.88 per share, granted under the Plan, and for 1,012,500 shares, at prices ranging from $3.63 to $7.63 per share, granted outside of the Plan, were canceled and reissued in connection with this offer. On October 17, 1995, in exchange for services rendered in connection with the Century 21 License Agreement, the Company granted stock options of 200,000 shares at $5.00 per share and 200,000 shares at $5.50 per share, to a private investor. These options were exercisable upon issuance, and are included in the above table. Included in nonrecurring charges in the results of operations for the year ended December 31, 1995 is $700,000 related to these options. NOTE 12 - RELATED PARTIES The Company leases its kitchen cabinet refacing manufacturing facility in Chicago, Illinois from Ronald I. Wagner, former Chairman of the Board. The Company paid Mr. Wagner $165,000 for each of the three years ended December 31, 1993, 1994, and 1995. In December 1995, the Company and Mr. Wagner entered into a new lease agreement which provides for a term of 10 years commencing January 1, 1996, and for lease payments of $180,000 for each of the first two years, which payments are adjusted in subsequent years for changes in the consumer price index. The Company has the option to terminate the lease at any time for a lump sum cash payment equal to the following 36 monthly installments under the terms of the agreement. The Company had made loans pursuant to promissory notes to certain executive officers. At December 31, 1995, one note for $469,000 was outstanding. This note was paid in full in February, 1996. One of the Company's directors is chief executive officer and a director of a direct advertising agency. The Company has retained this agency for direct response television advertising since 1985. Payments made by the Company to this agency, including payments for purchased television time and development of television commercials for the years ended December 31, 1993, 1994, and 1995 were $6,480,000, $5,294,000, and $5,933,000, respectively. In connection with the Century 21 License Agreement, the Company added three members to its Board of Directors from Century 21 and HFS. The Company also added another member to its Board from a company with which it has entered into a sublicense agreement. NOTE 13 - CAPITALIZATION The Company has a Stockholder Rights Plan under which preferred stock purchase rights ("Rights") were distributed as a dividend at the rate of one Right for each share of common stock held. The Rights will expire on 39 40 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) November 23, 2002. Under the plan, each Right entitles holders of the Company's common stock to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $25.00. The Rights are exercisable only if a person or group, as defined, acquires beneficial ownership of 25% or more of the Company's common stock or a person or group commences a tender or exchange offer upon consummation of which that person or group would beneficially own 25% or more of the common stock. Generally, based on the occurrence of certain events, the holder of a Right may either purchase shares of the Company's common stock (or other consideration in certain circumstances) having a calculated value of twice the Right's exercise price or purchase such person's or group's shares of common stock having a calculated value of twice the Right's exercise price. Additionally, based on the occurrence of certain events, the Company's Board of Directors may exchange all or part, as defined, of the Rights for shares of the Company's common stock on a one-for-one basis. Notwithstanding the foregoing, the Company will generally be entitled to redeem the Rights at $.01 each within ten days following a public announcement that such person or group acquires beneficial ownership of 25% or more of the Company's common stock. Concurrent with the execution of the Century 21 License Agreement, the Company and HFS entered into a preferred stock purchase agreement pursuant to which HFS purchased 300,000 shares of AMRE Senior Convertible Preferred Stock, par value $.10 , at $10 per share. Under the terms of the agreement, dividends are payable quarterly at a rate of 8% per annum, are fully cumulative and accrue whether or not earned or declared. The agreement provides that no dividends shall be declared or paid on common, or any other class of preferred stock of the Company, unless full cumulative dividends have been paid on the Senior Convertible Preferred Stock. The Senior Convertible Preferred Stock is convertible into common stock of the Company at $5.90 per share subject to adjustment as specified in the agreement. It is also subject to optional redemption beginning January 1, 1999, and mandatory redemption on January 1, 2001, both preceded by payment in full of any accrued dividends. Also concurrent with the execution of the Century 21 License Agreement, the Company and a private investor entered into an agreement pursuant to which the investor would purchase up to 200,000 shares of common stock of the Company, $.01 par value, at $5 per share. At December 31, 1995, the Company had issued 162,000 shares of common stock under the terms of the agreement. The remaining 38,000 shares were purchased in February, 1996. The Company granted 200,000 shares of the Company's common stock to the investor for services provided in connection with the negotiation of the Century 21 License Agreement and related transactions. Included in nonrecurring charges in the results of operations for the year ended December 31, 1995 is $1,000,000 relating to the grant of the common shares. In 1993, the Company purchased 94,905 shares from a former officer. NOTE 14 - PENDING MERGERS Facelifters - On October 31, 1995, the Company and Facelifters Home Systems, Inc. entered into an agreement whereby a newly formed subsidiary of the Company shall be merged with and into Facelifters. The merger is expected to be accounted for as a pooling of interests. Facelifters designs, manufactures, markets, sells and installs kitchen cabinet refacing products utilized in kitchen remodeling, directly to consumers in 26 markets, primarily markets in which the Company does not currently operate. The merger, which is subject to, among other things, stockholder approval, is expected to be consummated in the Company's second quarter of 1996. Regulatory approval of the merger under the Hart-Scott-Rodino Pre Merger Notification Act has been obtained. In connection with the merger, approximately 3,557,268 shares of the Company's common stock will be issued to the existing stockholders of Facelifters, and Facelifters will become a wholly owned subsidiary of the Company. Beginning in January 1996, Facelifters and the Company have entered into a sublicense agreement pursuant to which the Company granted to Facelifters, under the terms of the Century 21 License Agreement, the right to market, sell and install certain home improvement products in specified markets under the name CENTURY 21 Home Improvements. The sublicense agreement provides for sublicense fees equal to 8% of the sublicense contract revenues subject to certain rebates. If the Facelifters merger is consummated, the sublicense agreement will be terminated. Congressional - On December 30, 1995, the Company and Congressional Construction Corporation ("Congressional") entered into an agreement whereby a newly formed subsidiary of the Company shall be merged with and into Congressional. The merger is expected to be accounted for as a pooling of interests. Congressional markets, sells, furnishes and installs home improvement products, including vinyl and aluminum siding, fencing, wooden decks, replacement vinyl windows, roofing and patio enclosures directly to consumers in certain markets, primarily markets in which the Company does not currently operate. The obligations of the parties to consummate the merger are subject to several conditions, including, among other things, stockholder approval, and the results of AMRE's due diligence review of Congressional being materially satisfactory to AMRE. If all the conditions to the merger are satisfied, the merger is expected to be consummated in the Company's second quarter of 1996. In connection with the merger, approximately 900,000 shares will be issued to the existing stockholders of Congressional, and Congressional shall become a wholly owned subsidiary of the Company. 40 41 AMRE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Beginning in January 1996, Congressional and the Company have entered into a sublicense agreement pursuant to which the Company has granted to Congressional, under the terms of the Century 21 License Agreement, the right to market, sell and install certain home improvement products in specified markets under the name CENTURY 21 Home Improvements. The sublicense agreement provides for sublicense fees equal to the greater of 8% of the sublicensee contract revenues subject to certain rebates or certain guaranteed minimums. If the Congressional merger is consummated, the sublicense agreement will be terminated. In connection with the proposed mergers, the Company will require an amendment to its Certificate of Incorporation to increase the number of authorized shares of the Company from 20 million to 40 million in order to permit issuance of additional shares of AMRE common stock to the former holders of Facelifters common stock and Congressional common and preferred stock, and other general corporate purposes. 41 42 INDEX TO EXHIBITS
Exhibit No. DESCRIPTION - ----------- ----------- 2.1 - Agreement and Plan of Merger dated as of December 30, 1995, among AMRE, Congressional and Merger Sub. 2.2 - Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, AMRE Acquisition, Inc., Facelifters and Facelifters Home Systems, Inc., a New York corporation (incorporated by reference to Exhibit 7.1 to AMRE's Current Report on Form 8-K dated October 31, 1995). 2.3 - Amendment No. 1 dated December 12, 1995, to Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, Facelifters Home systems, Inc., Facelifters and Facelifters Merger Sub. 3.1 - Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1989). 3.2 - By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 4.1 - Rights Agreement, dated as of November 13, 1992, by and between AMRE, Inc. and The Bank of New York, as successor Rights Agent to The Frost National Bank of San Antonio (incorporated by reference to Exhibit 1 to AMRE, Inc.'s Registration Statement, on Form 8-A, dated November 19, 1992). 10.1 - Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 10.1 to AMRE's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.2 - AMRE, Inc. Savings Investment Plan, dated September 30, 1990, restating and retitling the Profit Sharing Plan of the Company, as amended (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1990). 10.3 - Amendment No. 1 to AMRE, Inc. Savings Investment Plan, effective as of October 1, 1990 (incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.4 - Amendment No. 2 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1993 (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.5 - Amendment No. 3 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994 (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.6 - Amendment No. 4 to AMRE, Inc. Savings Investment Plan, effective as of January 1, 1994 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 25, 1994). 10.7 - AMRE, Inc. Savings Investment Trust Agreement, dated September 30, 1990 (incorporated by reference to Exhibit 10.18 to Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1990). 10.8 - Welfare Benefits Plan for Employees of AMRE, Inc., dated April 24, 1990, as amended (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990). 10.9 - Amendment No. 1 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.10 - Amendment No. 2 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.19 to the Transition Report on Form 10-K for the transition period ended December 31, 1991). 10.11 - Amendment No. 3 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.12 - Amendment No. 4 to Welfare Benefits Plan for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.13 - Welfare Benefits Trust for Employees of AMRE, Inc., dated April 24, 1990 as amended (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990). 10.14 - Amendment No. 1 to Welfare Benefits Trust for Employees of AMRE, Inc. (incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.15 - AMRE, Inc. Flexible Benefits Plan, as restated effective January 1, 1993 (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990). 10.16 - Stock Option Agreement dated as of May 11, 1994, between the Company and Ronald I. Wagner (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended June 26, 1994). 10.17 - Form of Stock Option Agreements dated as of May 11, 1994, between the Company and each of the outside Directors of the Company, which are identical except for the names of the Directors (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarterly period ended June 26, 1994). 10.18 - Form of Stock Option Agreements dated as of May 11, 1994, between the Company and the outside Directors of the Company, which are identical except for names, the dates of respective grants of options surrendered, the number of shares subject to the surrendered options and the number of shares subject to the respective options being granted (which information and exhibit are incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarterly period ended June 26, 1994). 10.19 - License Agreement dated as of January 1, 1995, between the Company and Sears, Roebuck and Co. for the sale and installation of siding, overhand and trim, kitchen cabinet refacing, exterior coating and replacement windows (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.20 - Form of Indemnification Agreements between the Company and the Directors of the Company, which are identical except for names and dates (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1990).
43
Exhibit No. DESCRIPTION - ----------- ----------- 10.21 - Management Incentive Plan for the Company (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.22 - Lease dated October 11, 1988, between Cabinet Magic, Inc. and Ronald I. Wagner (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended April 30, 1991). 10.23 - Lease dated November 12, 1991, between the Company, as Tenant, and Twin Towers Investment Partnership, as Landlord, with respect to the Company's corporate headquarters in Dallas, Texas (incorporated by reference to Exhibit 10.18 to the Transition Report on Form 10-K for the transition period ended December 31, 1991). 10.24 - Promissory Note of Keith L. Abrams dated as of April 30, 1994, in the principal amount of $468,499.35, together with related Stock Pledge Agreement dated January 31, 1995 (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.25 - Description of options granted outside of the AMRE, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 10.26 - Form of Executive Severance Plan for Senior Management Positions between the Company and certain executives of the Company, including Keith Abrams, Robert E. Horton, Jr., and Curtis Everett, which agreements are identical except for names and dates (incorporated by reference to Exhibit 10.30 to the Annual Report on form 10-K for the fiscal year ended December 31, 1992). 10.27 - Merchant Agreement dated as of July 27, 1993, between the Company and Household Bank (Illinois), N.A. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10- Q for the quarterly period ended September 26, 1993). 10.28 - Merchant Agreement between the Company and American General Financial Center, effective July 1, 1993, as amended January 25, 1994, (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.29 - License Agreement, dated October 17, 1995, among TM Acquisition Corp. and Century 21 Real Estate Corporate and ARI (incorporated by reference to Exhibit 7.1 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.30 - Preferred Stock Purchase Agreement, dated October 17, 1995, between AMRE and HFS (incorporated by reference to Exhibit 7.2 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.31 - Credit Agreement, dated October 17, 1995, between AMRE and HFS (incorporated by reference to Exhibit 7.3 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.32 - Letter Agreement, dated October 17, 1995, between AMRE and David Moore (incorporated by reference to Exhibit 7.4 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.33 - $5.00 Stock Option Agreement, dated October 17, 1995, between AMRE and David Moore (incorporated by reference to Exhibit 7.5 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.34 - $5.50 Stock Option Agreement, dated October 17, 1995, between AMRE and David Moore (incorporated by reference to Exhibit 7.6 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.35 - Stock Purchase Agreement between David Moore or his designees and AMRE (incorporated by reference to Exhibit 7.7 to AMRE's Current Report on Form 8-K dated October 17, 1995). 10.36 - Amendment No. 1 to the AMRE, Inc. Savings Investment Trust (incorporated by reference to Exhibit 10.1 to AMRE's Quarterly Report on Form 10-Q for the quarterly period ended July 2, 1995). 10.37 - Amended and Restated Merchant Agreement between Household Bank (Illinois), N.A. and AMRE dated April 24, 1995 (incorporated by reference to Exhibit 10.2 to AMRE's Quarterly Report on Form 10-Q for the quarterly period ended July 2, 1995). 10.38 - Separation Agreement dated December 1, 1995, between AMRE and Ronald Wagner. 10.39 - Amendment No. 1 to Stockholder Agreement between AMRE and the shareholders of Facelifters signatory thereto. 10.40 - Employment Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz (incorporated by reference to Exhibit 10.1 to AMRE's Current Report on Form 8-K dated June 19, 1995). 10.41 - Stock Option Agreement dated as of June 1, 1995, between AMRE, Inc. and Robert M. Swartz (incorporated by reference to Exhibit 10.2 to AMRE's Current Report on Form 8-K dated June 19, 1995). 11 - Statement re computation of per share earnings. 21 - Subsidiaries of the Company (incorporated by reference to Exhibit 22 to the Annual Report on Form 10-K for the physical year ended December 31, 1993). 27 - Financial Data Schedule 99.1 - Stipulation of Settlement among plaintiffs in the Litigation and AMRE, Inc., Steven D. Bedowitz, Robert Levin and Dennie D. Brown (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K filed February 4, 1993). 99.2 - Final judgment and order approving settlement of the Litigation (incorporated by reference to Exhibit 2 to the Current Report on Form 8-K filed February 4, 1993). 99.3 - Press Release dated June 19, 1995, announcing the election of Mr. Robert M. Swartz as President and a member of the Board of Directors of AMRE, Inc. (incorporated by reference to Exhibit 99.1 to AMRE's Current Report on Form 8-K dated June 19, 1995).
EX-2.1 2 AGREEMENT AND PLAN OF MERGER DATED 12-30-95 1 Exhibit 2.1 EXECUTION COPY AGREEMENT AND PLAN OF MERGER dated as of December 30, 1995, among AMRE, Inc. AMRE-Congressional Acquisition, Inc. Congressional Construction Corporation and, for the limited purposes set forth herein, the Shareholders that are signatories hereto. 2 TABLE OF CONTENTS
Page AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 1 THE MERGER, EFFECTIVE TIME, EXCHANGE AMOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Articles of Incorporation; Bylaws; Directors and Officers . . . . . . . . . . . . . . . . . . . . . 2 1.5 Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.6 Exchange of Certificates Representing Company Stock . . . . . . . . . . . . . . . . . . . . . . . . 4 1.7 Adjustment of Exchange Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF AMRE AND MERGER SUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.3 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4 Consents; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.8 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.9 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.10 Ownership, Quality and Location of Material Assets . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.11 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.12 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1 Organization, Qualification and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.2 Authorized Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.3 HSR Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.4 Owned Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.5 Consents; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.10 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.11 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.13 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.15 Patents, Trademarks, Franchises, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3 3.16 Loans, Notes, Accounts Receivable and Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 22 3.17 Corporate Documents, Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.18 Absence of Sensitive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.20 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.22 Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.23 Directors and Officers; Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.24 Ownership, Quality and Location of Material Assets . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.25 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.26 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.27 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.28 Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.29 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.30 Dividend Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 4 CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1 Conduct of Business by the Company Pending the Merger. . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 5 ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.1 Registration Statement and Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.2 Letter to the Company's Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.3 Company Board Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.4 Consent of Shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.6 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.7 No Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.8 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.9 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.10 Information for Other Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.11 Sub-License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.12 Affiliate Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.13 Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.14 Listing Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.15 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.16 Operation of the Company's Business Following the Effective Date . . . . . . . . . . . . . . . . . . 34 ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.1 Conditions to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . . . . . . 35 6.2 Additional Conditions to the Obligation of the Company . . . . . . . . . . . . . . . . . . . . . . . 36 6.3 Additional Conditions to the Obligations of AMRE and Merger Sub. . . . . . . . . . . . . . . . . . . 38 ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4 ARTICLE 8 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.2 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.6 CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.7 Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.9 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.10 Binding Effect; Benefit; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.11 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.12 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
EXHIBITS A. Articles of Incorporation of the Company B. Bylaws of the Company C. Form of Sub-License Agreement D Form of Affiliate Letter E. Form of Employment Agreement SCHEDULES 1.4 Directors and Officers of Merger Sub 2.4 Conflicts with AMRE Material Agreements 2.5 Other AMRE Liabilities 2.6 Absence of AMRE Changes 2.7 Unfiled AMRE Tax Returns 2.8 AMRE Legal Proceedings 2.10 Material Assets 3.2 Options, Warrants, Etc. 3.5 Acceleration 3.6(d) Other Company Liabilities 3.7 Absence of Company Changes 3.8 Unfiled Company Tax Returns 3.9 Real Property 3.11 Personal Property 3.12 Contracts 3.13 Legal Proceedings 3.14 Labor Matters 3.15 Intellectual Property 3.19 Insurance 3.20 Payroll Register and Employment Contracts 3.21 Company Benefit Plans 3.22 Affiliated Party Transactions 3.23 Directors, Officers and Bank Accounts 3.24 Material Assets 3.27 Permits 3.30 Dividends 5 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of December 30, 1995, by and among AMRE, Inc., a Delaware corporation ("AMRE"), AMRE- Congressional Acquisition, Inc., a Delaware corporation and a newly formed, wholly owned subsidiary of AMRE ("MERGER SUB"), Congressional Construction Corporation, a Virginia corporation (the "COMPANY") and, for the limited purposes of Article 3, Article 5, and Article 8, the shareholders of the Company that are signatories hereto (the "SHAREHOLDERS"). The Company and Merger Sub are hereinafter collectively referred to as the "CONSTITUENT CORPORATIONS." PRELIMINARY STATEMENTS A. AMRE, as the sole stockholder of Merger Sub, and the respective Boards of Directors of Merger Sub and the Company, have each approved the execution of this Agreement which provides for, among other things, the merger of Merger Sub into the Company in accordance with the Virginia Stock Corporation Act (the "VIRGINIA LAW"), Delaware General Corporation Law (the "DELAWARE LAW"), and the provisions of this Agreement. The Board of Directors of the Company has directed that the Merger, as hereinafter defined, be submitted for approval by the Company's shareholders. B. It is intended that for federal income tax purposes the Merger provided for herein shall qualify as a reorganization within the meaning of Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "CODE"). The parties expect that the Merger will further certain of their business objectives. C. It is intended that the Merger be treated as a "pooling of interests" for accounting purposes. D. It is understood and agreed that following the Merger and in connection with the implementation of employee benefits for employees of the Surviving Corporation (as defined below), it is the intention of AMRE to terminate, or cause to be terminated, the Congressional Construction Corporation Employee Stock Ownership Plan and Trust (the "ESOP"). NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good, valid and binding consideration, the receipt and sufficiency of which are hereby acknowledged, AMRE, Merger Sub, the Company and, for the limited purposes of Article 3, Article 5, and Article 8, the Shareholders, intending to be legally bound, hereby agree as follows: 6 STATEMENT OF AGREEMENT ARTICLE 1 THE MERGER, EFFECTIVE TIME, EXCHANGE AMOUNT 1.1 The Merger. At the Effective Time (as defined in Section 1.3 hereof), in accordance with this Agreement, the Virginia Law and the Delaware Law, Merger Sub shall be merged (such merger being herein referred to as the "MERGER") with and into the Company, the separate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation. The Company hereinafter sometimes is referred to as the "SURVIVING CORPORATION." 1.2 Effect of the Merger. When the Merger has been effected, the Surviving Corporation shall thereupon and thereafter possess all of the public and private rights, privileges, powers and franchises and be subject to all the restrictions, disabilities and duties of each of the Constituent Corporations; all and each of the rights, privileges, powers and franchises of each of the Constituent Corporations and all property, real, personal and mixed, and all debts due to either of the Constituent Corporations on whatever account. All other things belonging to each of such corporations shall be vested in the Surviving Corporation and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually as possible the property of the Surviving Corporation. Title to any real estate vested by deed or otherwise, in either Constituent Corporation, shall not revert or be in any way impaired by reason of the Merger. All rights of creditors and all liens upon any property of any of the Constituent Corporations shall be preserved unimpaired. All debts, liabilities and duties of the respective Constituent Corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. 1.3 Consummation of the Merger. As soon as is practicable after the satisfaction or waiver of the conditions set forth in Article 6 hereof and provided that this Agreement shall not have been terminated as provided in Article 7, the parties hereto will cause the Merger to be consummated by filing with the State Corporation Commission of Virginia (the "VIRGINIA COMMISSION") articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Virginia Law and by filing with the Secretary of State of Delaware a certificate of merger in such form as required by, and executed in accordance with, the relevant provisions of the Delaware Law (the latest of (i) the later of the time of such filings, (ii) the issuance of a certificate of merger by the Virginia Commission and (iii) the effective time set forth in such filings being the "EFFECTIVE TIME" and the date of the Effective Time being the "EFFECTIVE DATE"). 1.4 Articles of Incorporation; Bylaws; Directors and Officers. The Articles of Incorporation and bylaws of the Surviving Corporation shall be the Articles of Incorporation and bylaws of the Company as in effect immediately prior to the Effective Time. Such documents shall be amended and restated immediately after the Effective Time as approved by the sole shareholder of the Surviving Corporation. The directors of Merger Sub immediately prior to the Effective Time will be the initial directors of the Surviving Corporation and shall serve until their successors have been duly elected or appointed and qualified or until their earlier death, 2 7 resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and bylaws (as so amended) and the Virginia Law. The officers of Merger Sub immediately prior to the Effective Time will be the initial officers of the Surviving Corporation and shall serve until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and bylaws and the Virginia Law. It is the current intention of AMRE and Merger Sub that the directors and officers of Merger Sub immediately prior to the Effective Time shall be those persons identified on Schedule 1.4 hereto. 1.5 Conversion of Company Stock. At the Effective Time, by virtue of the Merger and without any action on the part of AMRE, Merger Sub, the Company, the holders of any of the shares (the "COMMON SHARES") of common stock, par value $1.00 per share of the Company (the "COMPANY COMMON STOCK"), or the holders of any of the shares (the "PREFERRED SHARES" and together with the Common Shares, the "SHARES") of convertible preferred stock, without par value, of the Company (the "COMPANY PREFERRED STOCK" and together with the Company Common Stock, the "COMPANY STOCK"): (a) Each Common Share issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares, as hereinafter defined, and Common Shares held in the treasury of the Company) shall be canceled and retired and be converted into 601.20 (the "COMMON STOCK EXCHANGE AMOUNT") validly issued, fully paid and non-assessable shares of $0.01 par value common stock of AMRE ("AMRE COMMON STOCK"). (b) Each Preferred Share issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and Preferred Shares held in the Treasury of the Company) shall be canceled and retired and be converted into 857.14 (the "PREFERRED STOCK EXCHANGE AMOUNT") validly issued, fully paid and non-assessable shares of $.01 par value AMRE Common Stock. (c) Each Share which is issued and outstanding immediately prior to the Effective Time and which is held in the treasury of the Company shall be canceled and retired, and no payment shall be made with respect thereto. (d) No fractional shares of AMRE Common Stock shall be issued in connection with the Merger. In lieu thereof, one additional share of AMRE Common Stock will be issued for any fractional share that would have otherwise been issued. (e) Notwithstanding anything in this Agreement to the contrary, Shares which are outstanding immediately prior to the Effective Time and which are held by shareholders of the Company who shall (i) not have consented to the adoption of this Agreement and the approval of the Merger, (ii) have delivered a written notice of intent to demand payment for such Shares in the manner provided in Section 13.1-733 of the Virginia Law ("DISSENTING SHARES") and (iii) have complied with the provisions of Section 13.1-735 of the Virginia Law shall not be converted into or be exchangeable for the right to receive the payment to be paid for each Share converted pursuant to 3 8 Section 1.5(a) or Section 1.5(b) hereof, as applicable, but the holders thereof shall be entitled to payment of the fair value of such shares in accordance with the provisions of Article 15 of the Virginia Law; provided, however, that (i) if any holder of Dissenting Shares withdraws the demand for an appraisal and the Surviving Corporation accepts such withdrawal, (ii) if the Merger is abandoned, or (iii) if no demand or petition for an appraisal by a court is made or filed within the statutory time periods, or (iv) if a court determines the holder is not entitled to payment, such holder or holders (as the case may be) shall forfeit the right to appraisal of such shares, and such shares shall thereupon be deemed to have become exchangeable for, as of the Effective Time, the right to receive the payment to be paid for each Share converted pursuant to Section 1.5(a) or Section 1.5(b) hereof, as applicable; except that, in the case of (ii) directly above, holders of such dissenting shares shall have no rights whatsoever under this Agreement. The Surviving Corporation shall assume the obligation, if any, to pay the fair value of any Shares as to which the holders thereof have perfected dissenters rights under Article 15 of the Virginia Law. (f) As a result of the Merger and without action on the part of the holder thereof, all Shares shall cease to be outstanding and shall be canceled and returned and shall cease to exist, and each holder of a certificate formerly representing any Shares of Company Stock (a "CERTIFICATE") shall thereafter cease to have any rights with respect to such Shares except the right to receive, without interest, certificates representing AMRE Common Stock or cash pursuant to Section 1.5(e) upon the surrender of such Certificates, and each ESOP Plan participant with an allocation of any Preferred Shares shall thereafter cease to have any rights with respect to such Preferred Shares except whatever rights such participants shall have in the shares of AMRE Common Stock issued in exchange therefor by virtue of being participants in the ESOP. 1.6 Exchange of Certificates Representing Company Stock. (a) As of the Effective Time, AMRE shall deposit, or shall cause to be deposited with AMRE's Transfer Agent (the "EXCHANGE AGENT") for the benefit of the holders of the Shares of Company Stock, for exchange in accordance with this Article 1, certificates representing the shares of AMRE's Common Stock to be issued in exchange for the Shares of Company Stock. AMRE shall pay all charges and expenses of the Exchange Agent. (b) Promptly after the Effective Time, AMRE shall cause the Exchange Agent to mail to each holder of record of Shares of Company Stock (i) a letter of transmittal which shall specify that delivery shall be effective, and risk of loss and title to such Shares shall pass, only upon delivery of the Certificates to the Exchange Agent and which shall be in such form and have such other provisions as AMRE or the Exchange Agent may reasonably specify and (ii) instructions for use in affecting the surrender of such Certificates in exchange for certificates representing shares of AMRE Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, duly executed and completed, in accordance with the instructions thereto, the holder of the Shares of Company Stock represented by such Certificate shall be entitled to receive in exchange therefor a certificate representing that 4 9 number of shares of AMRE Common Stock determined pursuant to Section 1.5(a), 1.5(b) or 1.5(d) above, as applicable, and the Certificate so surrendered shall be canceled. In the event of a transfer of ownership of Company Stock which is not registered in the transfer records of the Company, a certificate representing the proper number of shares of AMRE Common Stock may be issued to such a transferee if the Certificate representing such Company Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (c) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared after the Effective Time on AMRE Common Stock shall be paid with respect to any of the Shares of Company Stock until such Certificate representing those Shares is surrendered for exchange as provided herein. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the certificates representing shares of AMRE Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such shares of AMRE Common Stock and not paid, less the amount of any withholding taxes which may be required thereon, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and with a payment date subsequent to surrender payable with respect to such shares of AMRE Common Stock, less the amount of any withholding taxes which may be required thereon. (d) At or after the Effective Time, there shall be no transfers on the stock transfer books of the Company of the Shares of Company Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Company, such Certificates shall be canceled and exchanged for certificates of shares of AMRE Common Stock deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 1.6. Certificates surrendered for exchange by any person constituting an "affiliate" of the Company for purposes of Rule 145(c) under the Securities Act of 1933, as amended (the "SECURITIES ACT"), shall not be exchanged until AMRE has received the executed letter from such person as provided in Section 5.12 below. (e) None of AMRE, the Company, the Exchange Agent or any other person shall be liable to any former holder of Shares of Company Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (f) In the event any Certificate representing Shares of Company Stock shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by AMRE, the posting by such person of a bond in such reasonable amount as AMRE may direct as indemnity against any claim that may be made against it with respect to such certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of AMRE Common Stock and unpaid dividends and distributions 5 10 on shares of AMRE Common Stock deliverable in respect thereof pursuant to this Agreement. 1.7 Adjustment of Exchange Amount. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, the outstanding shares of AMRE Common Stock, Company Preferred Stock or Company Common Stock, respectively, shall have been changed into a different number of shares or a different class as a result of a stock split, reverse stock split, stock dividend, subdivision, reclassification, split, combination, exchange, recapitalization or other similar transaction, the Common Stock Exchange Amount and/or the Preferred Stock Exchange Amount, as applicable, shall be appropriately adjusted. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF AMRE AND MERGER SUB AMRE and Merger Sub jointly and severally represent and warrant to the Company and the Shareholders the following: 2.1 Organization and Qualification. Each of AMRE and Merger Sub is a Delaware corporation duly organized, validly existing and in good standing under Delaware law and has the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted. AMRE is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary. However, the failure to be so qualified or in good standing in any given jurisdiction will not be deemed to be a breach of this Section 2.1 unless the failure of AMRE to be in good standing in any such jurisdiction individually or in all such jurisdictions collectively has or is likely to have a material adverse effect upon the business operations, assets, liabilities or financial condition of (a "MATERIAL ADVERSE EFFECT") AMRE or on the transactions contemplated herein. 2.2 Authority. Each of AMRE and Merger Sub has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by AMRE and Merger Sub and the consummation by AMRE and Merger Sub of the transactions contemplated hereby have been duly authorized by the Boards of Directors of AMRE and Merger Sub and by AMRE as the sole stockholder of Merger Sub as of the date of this Agreement, and no other corporate proceedings on the part of AMRE or Merger Sub are necessary to authorize this Agreement and the transactions contemplated hereby, except for any corporate action or proceedings which may be necessary to amend the Certificate of Incorporation of AMRE to authorize the issuance of additional shares of AMRE Common Stock and the approval of this Agreement and the transactions contemplated hereby by the holders of a majority of the outstanding AMRE Common Stock. This Agreement has been duly executed and delivered by AMRE and Merger Sub and (assuming that it has been duly executed and delivered by the Company and the Shareholders) constitutes a legal, valid and binding obligation of each such company, enforceable against each such company in accordance with its terms except as enforcement thereof may be limited by liquidation, conservatorship, bankruptcy, 6 11 insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally from time to time in effect and except that equitable remedies are subject to judicial discretion. 2.3 No Brokers. AMRE and Merger Sub represent and warrant that no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger based upon arrangements made by or on behalf of AMRE or Merger Sub. 2.4 Consents; Effect of Agreement. Other than in connection with or in compliance with (i) the provisions of the Delaware Law, (ii) the filing with the Securities and Exchange Commission (the "SEC") of such reports as may be required under Section 13 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the Securities Act and (iii) "Blue Sky" approvals and permits, no notice to, filing with, or authorization, consent or approval of, any third party, judicial, governmental or other public body or authority is necessary for the consummation by AMRE or Merger Sub of the transactions contemplated by this Agreement which will not have been obtained prior to the Effective Time, except where failures to give such notices, make such filings, or obtain authorizations, consents or approvals would, in the aggregate, not have a Material Adverse Effect on AMRE, Merger Sub or the transactions contemplated herein. Except as set forth in Schedule 2.4, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will conflict with, violate or result in a breach of (i) any material agreement to which either AMRE or Merger Sub is a party; (ii) any provision of the charter documents or bylaws of AMRE or Merger Sub; or (iii) any material law, rule, regulation or ordinance applicable to AMRE or Merger Sub. 2.5 Financial Statements. (a) AMRE and Merger Sub have delivered to the Company and the Shareholders or their representatives audited consolidated financial statements of AMRE as of December 31, 1994, and for the year then ended, including, without limitation, a statement of operations and changes in stockholders' equity, balance sheet, statement of cash flows, and all notes relating thereto (the "1994 AMRE FINANCIAL STATEMENTS") which have been audited by Arthur Andersen LLP, the independent public accountants of AMRE. (b) AMRE has also delivered to the Company and the Shareholders or their representatives unaudited consolidated financial statements of AMRE as of October 1, 1995, and for the 9-month period then ended, consisting of a balance sheet and statement of operations (the "AMRE INTERIM FINANCIAL STATEMENTS"), certified by the chief financial officer of AMRE. (c) The 1994 AMRE Financial Statements and the AMRE Interim Financial Statements, which are collectively referred to herein as "AMRE FINANCIAL STATEMENTS" (which statements may be in Quarterly Reports on Form 10-Q or Annual Reports on Form 10-K, as appropriate), (i) are in accordance with the books and records of AMRE; and (ii) except as set forth therein (including the notes thereto), fairly present in accordance with generally accepted accounting principles, the financial position and 7 12 results of operations of AMRE as of and for the periods indicated, except for the lack of notes to the AMRE Interim Financial Statements, consistently applied throughout the periods involved. (d) There are no liabilities of the kind required by generally accepted accounting principles to be reflected, noted or reserved against on the balance sheets of AMRE as of December 31, 1994 and October 1, 1995, except those which have been reflected, noted or reserved against in the AMRE Financial Statements. Except as set forth in the preliminary proxy materials filed pursuant to Section 14(a) of the Exchange Act by AMRE on December 22, 1995 with the SEC and the AMRE SEC filings incorporated therein by reference (collectively, the "PROXY STATEMENT") or as incurred in the ordinary course of business since October 1, 1995, AMRE has no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on or reserved against, in a balance sheet of AMRE or in the notes thereto prepared in accordance with generally accepted accounting principles consistently applied. Except as set forth in Schedule 2.5, all liabilities of AMRE can be prepaid without penalty at any time. 2.6 Absence of Certain Changes or Events. Except as disclosed in the Proxy Statement or on Schedule 2.6, since September 30, 1995, AMRE has conducted its business only in the ordinary course of business and: (a) There has not been any Material Adverse Effect on AMRE; (b) There has not been any damage, destruction or loss to any material asset of AMRE, whether or not covered by insurance; and (c) There has not been any material change in the operation of the business of or any material transactions entered into, except such changes and transactions occurring in the ordinary course of business and not otherwise required to be disclosed pursuant to this section, or those occurring in contemplation of this Agreement and the effectuation thereof. 2.7 Taxes. Except as disclosed in the Proxy Statement or in Schedule 2.7 hereto, AMRE has timely filed or caused to be timely filed (including allowable extensions) all federal, state, local, foreign and other tax returns for income taxes, sales taxes, withholding taxes, employment taxes, property taxes, franchise taxes and all other taxes of every kind whatsoever which are required by law to have been filed. All of the tax returns that have been filed accurately reflect in all material respects the facts regarding the income, deduction, credits, assets, operations, activities and all other matters and information required to be shown thereon. AMRE has paid or caused to be paid all taxes, assessments, fees, penalties and other governmental charges which were shown to be due pursuant to said returns. All other material taxes and related assessments, fees, penalties and other governmental charges which have become due and payable have been paid. The provisions for income and other taxes reflected in the balance sheet included in the AMRE Financial Statements make adequate provision for all accrued and unpaid taxes of AMRE, whether or not disputed, and AMRE has made and will continue to make adequate provision for such taxes on its books and records, including any taxes 8 13 arising from the transactions contemplated by this Agreement; provided however, no provision has been made or will be made in the AMRE Financial Statements or the Subsequent Company Financials for any taxes resulting from any tax election made by the Surviving Corporation subsequent to the Effective Time. Except as set forth in Schedule 2.7, AMRE is not party to any action or proceeding pending or, to the best knowledge of AMRE, threatened by any governmental authority for assessment or collection of taxes; no unresolved claim for assessment or collection of such taxes has been asserted against AMRE, and, to the best knowledge of AMRE, no audit or investigation by state or local government authorities is under way that would have a Material Adverse Effect on AMRE. 2.8 Legal Proceedings. Except as disclosed in the Proxy Statement or set forth in Schedule 2.8, there are no claims, actions, suits, arbitrations, grievances, proceedings or investigations pending or, to the best knowledge of AMRE, threatened against AMRE or its subsidiaries, at law, in equity, or before any federal, state, municipal or other governmental or nongovernmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and there are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which AMRE is a party, which involve the transactions contemplated herein or which, if adversely decided, would have a Material Adverse Effect upon AMRE. AMRE is not in violation of or in default with respect to any applicable judgment, order, writ, injunction or decree, the violation of which would have a Material Adverse Effect on AMRE. 2.9 Environmental. (a) Except as disclosed in the Proxy Statement, to the best of AMRE'S knowledge, AMRE has not used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials (as defined hereafter) on, under, at, from, or in any way affecting any of the owned, leased or operated properties or assets of AMRE, or otherwise, in any manner which violated any applicable Environmental Law (as defined hereafter). (b) Except as disclosed in the Proxy Statement, there have been no Releases (as defined hereafter) of any Hazardous Material by AMRE on, under, at, from or in any way affecting any property owned, leased or operated by AMRE. (c) Except as disclosed in the Proxy Statement, to the best of AMRE'S knowledge, AMRE is in material compliance with all applicable Environmental Laws, and AMRE has not received any communication, written or oral, that alleges that AMRE is not in compliance with applicable Environmental Laws. (d) To the best of AMRE'S knowledge, AMRE does not have any material liabilities, assessed and, no pending claims have been received by AMRE and at present no outstanding citations or notices have been received by AMRE which in the case of any of the foregoing have been or are imposed by reason of or based upon any provision of any applicable Environmental Laws, including, but not limited to, any such liabilities relating to or arising out of or attributable, in whole or in part, to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, presence or handling of any Hazardous Materials by AMRE. 9 14 (e) There are no proceedings by any governmental authority or third party pending regarding pollution or protection of human health or the environment to which AMRE is a party, nor are there any decrees, or orders, or other administrative or judicial requirements, outstanding under any Environmental Law with respect to AMRE. (f) To the best of AMRE's knowledge the real property currently used, owned or leased by AMRE contains no underground storage tanks, or underground piping associated with underground storage tanks. (g) To the best of AMRE'S knowledge, AMRE has obtained and is in material compliance with all permits, licenses and other authorizations and has made all registrations and given all notifications that are required under Environmental Laws, and is in compliance with all terms and conditions of such permits, licenses and other authorizations. No notice to, approval of or authorization or consent from any governmental authority is necessary for the transfer of or modification to any such permit, and the consummation of the transaction contemplated by this Agreement will not violate, alter, impair or invalidate, in any respect, any such permit. (h) To the best of AMRE'S knowledge, except as previously disclosed, there are no environmental reports, audits, investigations or assessments of AMRE or any real or personal property or operations which are now or have been previously owned, leased, operated or managed by AMRE. (i) AMRE has disclosed to the Company all relevant material facts of which it has knowledge regarding potential or actual environmental liabilities of AMRE. (j) Definitions: (1) as used herein, the term "HAZARDOUS MATERIALS" means those chemicals, materials or substances which are defined as or included in the definition of "hazardous substances," "hazardous wastes," "toxic pollutants," "pollutants," "contaminants," or words of similar import under any Environmental Law; (2) the term "ENVIRONMENTAL LAWS" means all federal, state and local laws, rules and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws and regulations relating to Releases or threatened Releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use treatment, storage, disposal, transport or handling of Hazardous Materials; and (3) the term "RELEASES" means any release, spill, emission, leaking, injection, deposit, disposal, discharge, dispersal, leaching or migration into the atmosphere, soil surface water, groundwater or property. 10 15 2.10 Ownership, Quality and Location of Material Assets. AMRE does not utilize in its business any assets not reflected in the Financial Statements or disclosed in the Proxy Statement except for assets which have been fully amortized or depreciated and which are owned or leased by AMRE and franchises, licenses, trademarks and tradenames. Except as set forth in Schedule 2.10, all properties and assets of AMRE are in the possession and control of AMRE. As of the date hereof, except as set forth in Schedule 2.10, no physical assets of any value are on the premises at the locations operated by AMRE which do not belong to or are not leased by AMRE. 2.11 Full Disclosure. No material information furnished, or to be furnished, by AMRE to the Company or its representatives in connection with this Agreement (including, but not limited to, the Financial Statements and all information in the Schedules hereto) is, or will be, false or misleading, and such information includes all facts required to be stated therein or necessary to make the statements therein not misleading. No representation or warranty by or on behalf of AMRE contained in this Agreement, and no statement contained in any certificate, list, exhibit, or other instrument furnished or to be furnished to AMRE pursuant hereto contains or will contain any untrue statement of a material fact, or omits or will omit to state any material facts which are necessary in order to make the statement contained herein or therein, in light of the circumstances under which they are made, not misleading. The breach of this Section 2.11 will not result in a breach of this Agreement or any condition or covenant herein except where such breach would have a Material Adverse Effect on AMRE. 2.12 Continuity of Business Enterprise. AMRE and Merger Sub will continue to operate at least one historic business line, or to use at least a significant portion of the Company's historic business assets in a business, in each case within the meaning of Treasury Regulation Section 1.368-1(d). ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS The Company and each of the Shareholders jointly and severally represent and warrant to AMRE and Merger Sub as follows: 3.1 Organization, Qualification and Authority. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia, and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary. However, the failure to be so qualified or in good standing in any jurisdictions will not be deemed to be a breach of this Section 3.1(a) unless the failure of the Company to be in good standing in any such jurisdiction individually or in all such 11 16 jurisdictions collectively has or is likely to have a Material Adverse Effect upon the Company or on the transactions contemplated herein. (b) The Company has the requisite corporate and other power and authority to enter into this Agreement and, subject to obtaining any necessary shareholder approval of the Merger as required by the Virginia Law or the ESOP plan document, ERISA or the Code, to perform its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company, and no other corporate proceedings on the part of the Company are necessary for the execution and delivery of this Agreement by the Company, and, subject to obtaining any necessary shareholder approval of the Merger as required by Virginia Law, ERISA (as defined herein), the ESOP plan document, and the Code, the consummation by the Company of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and the Shareholders (assuming that it has been duly executed and delivered by AMRE and Merger Sub) and, subject to obtaining any necessary shareholder approval of the Merger, constitutes a legal, valid and binding obligation of the Company and the Shareholders, enforceable against the Company and the Shareholders in accordance with its terms except as enforcement thereof may be limited by ERISA, the ESOP, the Code, liquidation, conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally from time to time in effect and except that equitable remedies are subject to judicial discretion. 3.2 Authorized Capitalization of the Company. The authorized capital stock of the Company consists of 1,000 Shares of Company Common Stock, and 700 Shares of Company Preferred Stock. As of December 29, 1995, there were 499 Shares Company of Common Stock and 700 Shares of Company Preferred Stock issued and outstanding. The Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of the Company on any matter. All issued and outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive or rescission rights. Except as disclosed on Schedule 3.2, (i) there are no outstanding or authorized subscriptions, options, warrants, calls, rights (including any preemptive rights), commitments, or other agreements of any character whatsoever which obligate or may obligate the Company to issue or sell any additional shares of its capital stock or any securities convertible into or evidencing the right to subscribe for any shares of its capital stock or securities convertible into or exchangeable for such shares; (ii) there are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar plans or contracts or rights with respect to the Company or any of its subsidiaries which are effective as of the date hereof or which have been executed or agreed to as of the date hereof with an effective date after the date hereof; and (iii) there are no shareholders' agreements, voting trusts, proxies or other agreements or understandings with respect to the voting of the capital stock of the Company to which the Company or any of the Shareholders is or are a party which are presently effective or have been executed or agreed to as of the date hereof and provide for an effective date after the date hereof or to which any officer or director of the Company or any stockholder 12 17 owned or controlled by such officer or director is or will be a party in accordance with the terms hereof. 3.3 HSR Applicability. The Company does not meet the applicable "size of person" test established under the Hart Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"). 3.4 Owned Interests. The Company does not own, directly or indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity other than investments in short term investment securities. 3.5 Consents; Effect of Agreement. The execution, delivery and performance of this Agreement by the Company and the Shareholders and the consummation by the Company of the transactions contemplated hereby will not require any notice to, filing with, or the consent, approval or authorization of any person or governmental authority, except for filings required under the Virginia Law. Except as set forth in Schedule 3.5, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in the acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which the Company is a party or is bound or to which any of its assets are subject, (ii) conflict with, violate or result in a breach of any provision of the charter documents or bylaws of the Company, (iii) or to the best knowledge of the Company and the Shareholders, conflict with or violate any law, rule, regulation, ordinance, order, writ, injunction or decree applicable to the Company or by which any of its properties or assets is bound or affected or (iv) conflict with or result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in the creation of any lien, charge or encumbrance on any of the properties or assets of the Company pursuant to any of the terms, conditions or provisions of any indenture, contract, lease, sublease, loan agreement, note, permit, license, franchise, agreement or other instrument, obligation or liability to which the Company or any Shareholder is a party or by which the Company or any of its assets is bound or affected. 3.6 Financial Statements. (a) The Company has delivered to AMRE and Merger Sub or their representatives audited consolidated financial statements of the Company as of December 31, 1994, and for the year then ended, including, without limitation, a statement of operations and changes in stockholders' equity (deficit), balance sheet, statement of operations and changes in stockholders' equity, balance sheet, statement of cash flows, and all notes relating thereto (the "1994 FINANCIAL STATEMENTS") which have been audited by Deloitte & Touche LLP, the independent public accountants of the Company. (b) The Company has also delivered to AMRE and Merger Sub or their representatives unaudited consolidated financial statements of the Company as of September 30, 1995, and for the 9-month period then ended, consisting of a balance 13 18 sheet and statement of operations, (the "INTERIM FINANCIAL STATEMENTS") certified by the President of the Company . (c) The 1994 Financial Statements and the Interim Financial Statements (collectively, the "FINANCIAL STATEMENTS") (i) are in accordance with the books and records of the Company, and (ii) except as set forth therein (including the notes thereto), fairly present in accordance with generally accepted accounting principles, the financial position and results of operations or the Company as of and for the periods indicated except for the lack of notes to the Interim Financial Statements, consistently applied throughout the periods involved. (d) There are no liabilities of the kind required by generally accepted accounting principles to be reflected, noted or reserved against on the balance sheets of the Company as of December 31, 1994 and September 30, 1995, except those which have been reflected, noted or reserved against in the Financial Statements or except as are disclosed in Schedule 3.6(d). Except as set forth in Schedule 3.6(d), or as incurred in the ordinary course of business, the Company has no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on or reserved against, in a balance sheet of the Company or in the notes thereto prepared in accordance with generally accepted accounting principles consistently applied. Except as set forth in Schedule 3.6(d), all liabilities of the Company can be prepaid without penalty at any time. (e) Except for the reserves applicable thereto, the notes and accounts receivable of the Company included on the Interim Financial Statements, other than those collected prior to the Effective Time, will, as of the Effective Time, constitute valid and collectible receivables and are not subject to any defense or setoff. 3.7 Absence of Certain Changes or Events. Except as disclosed in Schedule 3.7, since September 30, 1995, the Company has conducted its business only in the ordinary course of business, and: (a) the Company has not incurred any obligation or liability in excess of $20,000 (contingent or otherwise), except current liabilities incurred in the ordinary course of business; (b) the Company has not discharged or satisfied any lien or encumbrance or paid any obligation or liability (contingent or otherwise) in excess of $20,000, except current liabilities outstanding on the applicable date set forth above, current liabilities incurred since such date in the ordinary course of business and obligations and liabilities under contracts listed in Schedule 3.12 hereto; (c) the Company has not mortgaged, pledged or subjected to lien, charge, security interest or other encumbrance any of its assets or properties, except in the ordinary course of business; 14 19 (d) the Company has not sold, transferred, leased or otherwise disposed of any of its assets or properties, except in the ordinary course of business and for a fair consideration; (e) the Company has not canceled or compromised any debt owed to it or claimed by it, except in the ordinary course of business; (f) the Company has not knowingly and expressly waived or released any rights of substantial value; (g) the Company has not sold, assigned, transferred or granted any rights under any licenses, franchises, patents, inventions, trademarks, service marks, trade names, or copyrights or rights with respect to any know-how or other intangible assets, which sale, assignment, transfer or grant would have a Material Adverse Effect on the Company; (h) the Company has not amended or terminated any contract, franchise, agreement or license to which it is a party, which amendment or termination would have a Material Adverse Effect on the Company; (i) the Company has not knowingly disposed of or permitted to lapse any rights for the use of any patent, trademark, service mark, trade name or copyright or knowingly disposed of or disclosed to any person not an employee, supplier, broker, distributor or customer any trade secret, process or know-how not theretofore a matter of public knowledge, which dispositions or disclosures would have a material adverse effect on its operations; (j) the Company has not terminated the employment of any department head or officer of the Company or entered into (i) any written employment agreement not terminable without penalty by any party thereto upon 60 days' notice, or (ii) any oral employment agreement not terminable without penalty by any party thereto upon 60 days' notice; (k) the Company has not increased the rate of compensation or bonus payments payable or to become payable to any of its officers or directors (including, without limitation, any payment of or promise to pay any bonus or special compensation) other than in the ordinary course of business; (l) the Company has not declared any dividend or made any payment or distribution to its shareholders; (m) the Company has not purchased, redeemed, issued, sold or otherwise acquired or disposed of any of its shares of capital stock or other equity securities, or agreed to do so, or granted any options, warrants or other rights to purchase or convert any obligation into any shares of its capital stock or any evidence of indebtedness or other securities; 15 20 (n) the Company has not entered into any other transaction, contract or commitment other than in the ordinary course of business; (o) the Company has not agreed to do any of the things described in the preceding clauses (a) through (n); (p) there has not been any Material Adverse Effect on the Company; and (q) there has not been any damage, destruction or loss of or to any material asset of the Company, whether or not covered by insurance. 3.8 Taxes. (a) Except as disclosed in Schedule 3.8 hereto, the Company has timely filed or caused to be timely filed (including allowable extensions) all federal, state, local, foreign and other tax returns for income taxes, sales taxes, withholding taxes, employment taxes, property taxes, franchise taxes and all other taxes of every kind whatsoever which are required by law to have been filed. All of the tax returns that have been filed accurately reflect in all material respects the facts regarding the income, deductions, credits, assets, operations, activities and all other matters and information required to be shown thereon. The Company has paid or caused to be paid all taxes, assessments, fees, penalties and other governmental charges which were shown to be due pursuant to said returns. All other material taxes and related assessments, fees, penalties and other governmental charges which have become due and payable have been paid or are being contested in good faith. The Company has not filed or entered into any election, consent or extension agreement that extends the applicable statute of limitations with respect to its liability for taxes, except as set forth in Schedule 3.8 hereto. The provisions for income and other taxes reflected in the balance sheet included in the Financial Statements make adequate provision for all accrued and unpaid taxes of the Company, whether or not disputed, and the Company has made and will continue to make adequate provision for such taxes on its books and records until the Effective Time, including any taxes arising from the transactions contemplated by this Agreement; provided however, no provision has been made or will be made in the Financial Statements or the Subsequent Company Financials for any taxes resulting from any tax election made by the Surviving Corporation subsequent to the Effective Time. Except as set forth in Schedule 3.8, the Company is not party to any action or proceeding pending or, to the best knowledge of the Company and the Shareholders, threatened by any governmental authority for assessment or collection of taxes; no unresolved claim for assessment or collection of such taxes has been asserted against the Company, and, to the best knowledge of the Company and the Shareholders, no audit or investigation by state or local government authorities is under way that would have a Material Adverse Effect on the Company. (b) The Company has not filed and will not file prior to the Effective Time any consent agreement under Section 341(f) of the Code or agree to have Section 341(f)(2) of the Code apply to any disposition of a "subsection (f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by the Company. 16 21 (c) The Company is not a party to any tax-sharing or allocation agreement. In addition, the Company does not owe any amounts under any tax-sharing or allocation agreement. (d) The Company has made no payments, is not obligated to make any payments, and is not a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible by reason of Section 280G of the Code. (e) Since June 1993 (prior to which time the Company filed consolidated returns with its parent company, Kenwood Financial, Inc.), the Company has not been a member of an affiliated group within the meaning of Section 1502 of the Code during any part of any consolidated return year and has not had, and to the best knowledge of the Company and the Shareholders, does not currently have any liability for unpaid taxes because it once was a member of an affiliated group. (f) The Company is not and has not been a United States real property holding corporation within the meaning of Section 897(c)(2) during the applicable period specified in Section 897(c)(1)(A)(ii). 3.9 Real Property. (a) Schedule 3.9 contains a complete and accurate list of as of November 30, 1995 of all real property owned or leased by the Company (the "SCHEDULE 3.9 PROPERTY"). Except as otherwise disclosed in Schedule 3.9 and except for liens for taxes not yet due and payable and title defects which could not reasonably be expected to have any material adverse effect on the Schedule 3.9 property or the use thereof, the Schedule 3.9 property owned by the Company is free and clear of all liens, mortgages, pledges, security interests, conditional sales agreements, charges, encumbrances and other adverse claims or interests of any nature whatsoever. All improvements on the Schedule 3.9 property are in good condition and repair, reasonable wear and tear excepted. (b) Except as disclosed in Schedule 3.9, there are no existing leases, subleases, tenancies, licenses and other material contracts or agreements relating to the Schedule 3.9 property to which the Company is a party (the "LEASES"). (c) Except as disclosed in Schedule 3.9, (i) each of the Leases is valid, and neither the Company nor, to the knowledge of the Company or the Shareholders, any other party thereto is in default thereunder, nor is there any event which with notice or lapse of time, or both, would constitute a default thereunder by the Company or, to the knowledge of the Company or the Shareholders, any other party thereto (other than with respect to immaterial matters of noncompliance) and (ii) the Company has not received notice that any party to any Lease intends to cancel, terminate or refuse to renew the same or to exercise or decline to exercise any option or other right thereunder. 17 22 (d) None of the Schedule 3.9 property has ever been used by the Company or, to the best knowledge of the Company or the Shareholders, by any previous owners and/or operators to generate, manufacture, refine, produce, store, handle, transfer, process or transport any hazardous wastes or substances and the Company has not used in the past any of the Schedule 3.9 property for the principal or primary purpose of generating, manufacturing, refining, producing, storing, handling, transferring, processing or transporting of hazardous wastes or substances. (e) The Company has all easements of ingress and egress necessary for all operations conducted by it from the real properties referred to in Schedule 3.9; and none of such properties has been condemned, requisitioned or otherwise taken by any public authority, and to the knowledge of the Company or the Shareholders, no such action is threatened or contemplated. 3.10 Environmental. (a) To the best knowledge of the Company and the Shareholders, the Company has not used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials on, under, at, from, or in any way affecting any of the owned, leased or operated properties or assets described in Schedules 3.9 and 3.11, or otherwise, in any manner which violated any applicable Environmental Law. (b) There have been no Releases by the Company of any Hazardous Material on, under, at, from or in any way affecting any of the owned, leased or operated properties or assets described in Schedules 3.9 and 3.11 or otherwise. (c) To the best knowledge of the Company and the Shareholders, the Company is in material compliance with all applicable Environmental Laws, and the Company has not received any communication, written or oral, that alleges that the Company is not in compliance with applicable Environmental Laws. (d) The Company does not have any liabilities, assessed or to the best knowledge of the Company and the Shareholders, unassessed, no pending claims have been received by the Company and at present no outstanding citations or notices have been received by the Company, which in the case of any of the foregoing have been or are imposed by reason of or based upon any provision of any applicable Environmental Laws, including, but not limited to, any such liabilities relating to or arising out of or attributable, in whole or in part, to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, presence or handling of any Hazardous Materials by the Company at any of the Schedule 3.9 property or otherwise. (e) There are no proceedings by any governmental authority or third party pending regarding pollution or protection of human health or the environment to which the Company is a party, nor are there any decrees, or orders, or other administrative or judicial requirements, outstanding under any Environmental Law with respect to the Company. 18 23 (f) To the best knowledge of the Company and the Shareholders, the real property currently used, owned or leased by the Company contains no underground storage tanks, or underground piping associated with underground storage tanks. (g) To the best knowledge of the Company and the Shareholders, the Company has obtained and is in material compliance with all permits, licenses and other authorizations and has made all registrations and given all notifications that are required under Environmental Laws, and is in compliance with all terms and conditions of such permits, licenses and other authorizations. No notice to, approval of or authorization or consent from any governmental authority is necessary for the transfer of or modification to any such permit, and the consummation of the transaction contemplated by this Agreement will not violate, alter, impair or invalidate, in any respect, any such permit. (h) To the best knowledge of the Company and the Shareholders, except as previously disclosed, there are no environmental reports, audits, investigations or assessments of the Company or any real or personal property or operations which are now or have been previously owned, leased, operated or managed by the Company. (i) The Company has disclosed to AMRE and Merger Sub all relevant material facts of which it or the Shareholders has knowledge regarding potential or actual environmental liabilities of the Company. 3.11 Personal Property. (a) Schedule 3.11 contains a complete and accurate list as of November 30, 1995, of all personal property owned by the Company and all personal property whether owned or subject to any (i) lease, (ii) license, (iii) rental agreement, (iv) contract of sale or (v) other agreement to which the Company is a party. The personal property set forth on Schedule 3.11, other than personal property disposed of in the ordinary course of business since November 30, 1995, all other personal property acquired by the Company since November 30, 1995 and all personal property subjected, subsequent to November 30, 1995, to any of the agreements described in (i) through (v) of the preceding sentence is hereafter referred to as the "SCHEDULE 3.11 PROPERTY". (b) Except as otherwise described in Schedule 3.11 or as may be disclosed in the Financial Statements, the Schedule 3.11 property is (i) free and clear of all liens, other than liens for taxes not yet due and payable, mortgages, pledges, security interests, conditional sales agreements, charges, encumbrances and other adverse claims or interests of any nature whatsoever (other than any immaterial items), and (ii) is in good operating condition and repair, reasonable wear and tear excepted. The Schedule 3.11 property, taken as a whole, is fit and usable for the purposes for which it is being used, sufficient for all current operations and business of the Company and conforms with all applicable ordinances, regulations and laws. Each lease, license, rental agreement, contract of sale or other agreement to which any Schedule 3.11 property is subject is valid and neither the Company nor, to the best knowledge of the Company or the Shareholders, any other party thereto is in default thereunder, nor is there any event which with notice or lapse of time, or both, would constitute a default thereunder by the 19 24 Company or, to the best knowledge of the Company or the Shareholders, any other party thereto. The Company has not received notice that any party to any such lease, license, rental agreement, contract of sale or other agreement intends to cancel, terminate or refuse to renew the same or to exercise or decline to exercise any option or other right thereunder. (c) The inventory of the Company as reflected by the Company Financials and the inventory as the same shall exist on the date hereof, consisted and will consist of items which were and will be of the usual quality and quantity necessary for the normal conduct of the business of the Company and is reasonably expected to be usable or saleable within a reasonable period of time in the ordinary course of the business of the Company. With respect to inventory in the hands of suppliers for which the Company is committed as of the date hereof, such inventory is reasonably expected to be usable within 90 days in the ordinary course of the business of the Company as presently being conducted. 3.12 Contracts. Schedule 3.12 contains a complete and accurate list of each of the following to which the Company is a party or by which it or its assets is bound: (a) material oral contracts; (b) mortgages, security agreements, chattel mortgages or conditional sales agreements or any similar instruments or agreements, involving a present or future obligation of an amount in excess of $10,000; (c) agreements, commitments, notes, indentures or other instruments relating to the borrowing of money, or the guaranty of any such obligations for the borrowing of money; (d) joint venture or other agreements with any person, firm, corporation or unincorporated association doing business either within or outside the United States relating to sharing of present or future commissions, fees or other income or profits; (e) leases of personal property to the Company, involving a present or future obligation of an amount in excess of $10,000; (f) franchise agreements; (g) non-competition agreements relating to independent contractors and employees other than non- competition agreements which are identical in all material respects to the standard Company non-competition agreement; (h) broker or distributorship contracts; (i) advertising, marketing and promotional agreements (including, but not limited to, any agreements providing for discounts and/or rebates), involving a present or future obligation of an amount in excess of $10,000; or 20 25 (j) agreements with suppliers, involving a present or future obligation of an amount in excess of $10,000. Except as disclosed in Schedule 3.12, each of the above is valid and enforceable, to the best knowledge of the Company and the Shareholders, the Company has performed all obligations imposed upon them thereunder, and neither the Company nor, to the best knowledge of the Company or the Shareholders, any other party thereto (other than immaterial defaults, with respect to such third parties) is in default thereunder, nor is there any event which with notice or lapse of time, or both, would constitute a default thereunder by the Company or, to the best knowledge of the Company or the Shareholders, any other party thereto. 3.13 Legal Proceedings. Except as set forth in Schedule 3.13, there are no claims, actions, suits, arbitrations, grievances, proceedings or investigations pending or, to the best knowledge of the Company or the Shareholders, threatened against the Company, at law, in equity, or before any federal, state, municipal or other governmental or nongovernmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and there are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which the Company is a party, which involve the transactions contemplated herein or which, if adversely decided, would have a Material Adverse Effect upon the Company. Except as set forth in Schedule 3.13, the Company is not currently engaged in or contemplating any legal action to recover moneys due or damages sustained. The Company is not in violation of or in default with respect to any applicable judgment, order, writ, injunction or decree the violation of which would have a Material Adverse Effect on the Company. 3.14 Labor Matters. Except as set forth on Schedule 3.14 attached hereto, the Company is not a party to, nor bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the best knowledge of the Company, threatened against the Company relating to its business. To the best knowledge of the Company and the Shareholders, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of Company. 3.15 Patents, Trademarks, Franchises, etc. A true and complete list of (i) all patents, patent applications, patent agreements, license arrangements relating to patents, consulting agreements relating to patents, trademark registrations and applications therefor, trade names, service marks and copyright registrations and applications therefor, and franchises and franchise agreements to which the Company is a party or which are used in its businesses and are owned by or licensed to the Company and (ii) any interference actions or adverse claims made or, to the best knowledge of the Company or the Shareholders, threatened in respect thereof and any claims made or, to the best knowledge of the Company or the Shareholders, threatened for alleged infringement thereof, is set forth in Schedule 3.15. All patents and trademarks listed on Schedule 3.15 as being owned by the Company and registered in the U.S. Patent and Trademark Office have been duly issued or registered therein, all such registrations have been validly issued and all are in full force and effect. The Company in its operations does not to the best knowledge of the Company and the Shareholder infringe any valid patent, trademark, trade name, service mark or copyright of any other person or entity. All agreements listed in Schedule 3.15 are valid and enforceable, the Company has currently performed all obligations 21 26 imposed upon it thereunder, and the Company nor, to the best knowledge of the Company or the Shareholders, any other party thereto is in default thereunder, nor is there any event which with notice or lapse of time, or both, would constitute a default thereunder by the Company or, to the best knowledge of the Company or the Shareholders, any other party thereto. The Company has not received notice that any party to any such agreement intends to cancel, terminate or refuse to renew the same or to exercise or decline to exercise any option or other right thereunder. 3.16 Loans, Notes, Accounts Receivable and Accounts Payable. To the best knowledge of the Company and the Shareholders, the loans, notes and accounts receivable reflected in the Financial Statements and all such loans, notes and accounts receivable arising after the applicable dates of such Financial Statements arose, and have arisen, from bona fide transactions of the Company. Accounts payable of the Company reflected in such Financial Statements and all accounts payable arising after the applicable dates of such Financial Statements arose, and have arisen, from bona fide transactions. 3.17 Corporate Documents, Books and Records. Each of (i) the Articles of Incorporation and bylaws of the Company, attached hereto as Exhibit A and Exhibit B, respectively, including all amendments thereto; (ii) the minute books of the Company; and (iii) the stock transfer book of the Company, are true, correct and complete in all material respects. 3.18 Absence of Sensitive Payment. The Company has not made or maintained (i) any contributions, payments or gifts of its funds or property to any governmental official, employee or agent where either the payment or the purpose of such contribution, payment or gift was or is illegal under the laws of the United States or any state thereof, or any other jurisdiction (foreign or domestic); or (ii) any contribution, or reimbursement of any political gift or contribution made by any other person, to candidates for public office, whether federal, state, local or foreign, where such contributions by the Company were or would be a violation of applicable law. 3.19 Insurance. The properties and employees of the Company are insured by the insurers or through the funds and with the types and amounts of insurance (including, but not limited to, property, professional liability, automobile, workers compensation, business interruption and excess indemnity insurance) set forth in Schedule 3.19 (the "COMPANY INSURANCE COVERAGE"). Since January 1, 1993, the Company has not failed or does not currently fail to maintain any insurance coverage which may be required by the laws of the states in which the Company does business. The premiums due on the insurance which covers calendar year 1995 have been paid in full (or are not delinquent) and the premiums due for the period from January 1, 1996 to the Effective Time have been or will be paid in full as and when due. All such insurance complies in all material respects with the terms of each of its leases and each of the mortgages, deeds of trust, service agreements with third parties and/or loan agreements to which Company is a party. 22 27 3.20 Employees. Except as disclosed in Schedule 3.20, the Company is not a party to any: (a) management, employment or other contract providing for the employment or rendition of executive services; (b) contract for the employment of any employee which is not terminable by the Company on 60 days' notice; (c) material bonus, incentive, deferred compensation, severance pay, pension, profit-sharing, retirement, stock purchase, stock option, employee benefit or similar plan, agreement or arrangement; or (d) any other current employment contract or other compensation agreement or arrangement affecting or relating to current or former employees of the Company. 3.21 Employee Benefit Plans. (a) All employee benefit plans, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), all arrangements providing compensation, severance or other benefits to any employee or director or former employee or director of the Company or of any ERISA Affiliate of the Company (the "COMPANY BENEFIT PLANS") are listed in Schedule 3.21. Unless otherwise disclosed in Schedule 3.21, to the extent applicable, any Company Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service (the "IRS") to be so qualified and no such Company Benefit Plan has been amended in any way that would alter its qualified status. Neither the Company nor any ERISA Affiliate of the Company (during the period of its affiliated status and prior thereto, to its knowledge) maintains, contributes to or has in the past maintained or contributed to any benefit plan which is covered by Title IV of ERISA or Section 412 of the Code. No Company Benefit Plan nor the Company nor any fiduciary has had imposed any liability or penalty under Section 4975 of the Code or Section 502(i) or 409 of ERISA. To the best knowledge of the Company and the Shareholders after diligent inquiry, each Company Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. There are no pending or anticipated claims against or otherwise involving any of the Company Benefit Plans and no suit, action or other liability (excluding claims for benefits incurred in the ordinary course of Company Benefit Plan activities) has been brought against or with respect to any such Company Benefit Plan, except for any of the foregoing which could not reasonably be expected to have a Material Adverse Effect on the Company. All contributions required to be made as of the date hereof to Company Benefit Plans have been timely made or provided for. All required payments of principal and interest under any loan to a Company Benefit Plan that is an employee stock ownership plan have been timely made and no default has occurred under any such loan other than defaults that have been waived by the applicable lender or remedied, written evidence of which reasonably satisfactory to AMRE shall have been provided to AMRE prior to the Effective Date. Neither the Company nor any ERISA Affiliate of the Company has contributed to, or been required to 23 28 contribute to, any "multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA). Except for benefits as may be required to be provided under applicable provisions of federal or state law, there are no plans or arrangements which provide or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment. The only severance agreements or severance policies applicable to the Company are the agreements and policies specifically referred to in Schedule 3.20 (and, in the case of such agreements, the form of which is attached to Schedule 3.20). (b) True and correct copies of the following documents relating to Company Benefit Plans will be made available to AMRE or its representatives including, without limitation, the following: (i) any and all plan documents, ancillary documents, trust instruments and insurance contracts, together with amendments or other agreements relating to rights or obligations thereunder, (ii) any or all of the most recent summary plan descriptions, summary of material modifications, memoranda to employees, forms or other written description or disclosure to participants with respect to each plan, (iii) any and all filings and correspondence within the last two years, and the most recent determination letters, written rulings, interpretations or other pronouncements with or from any governmental agency, including the IRS and the Department of Labor, or any Company Benefit Plan of the Company or any ERISA Affiliate of the Company or any of their trustees, representatives or fiduciaries, (iv) copies of any complaint or other action initiating a lawsuit or any written claims and correspondence threatening or which would reasonably be expected to result in a lawsuit filed with any court with respect to any such lawsuit, and (v) loan documents and stock purchase documents relating to any employee stock ownership plan. For purposes of this Agreement "ERISA AFFILIATE" means any business or entity which is a member of the same "controlled group of corporations," is under "common control" or is a member of an "affiliated service group" with an entity within the meanings of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with the entity under Section 414(o) of the Code, or is under "common control" with the entity, within the meaning of Section 4001(b) of ERISA, or any regulations promulgated or proposed under any of the foregoing Sections. 3.22 Transactions with Related Parties. Except for transactions disclosed in Schedule 3.22, there have been no loans or other transactions between the Company and any officer, director or shareholder of the Company. Except as disclosed in Schedule 3.22, neither the Company, any officer or director of the Company nor any spouse or relative of any such person owns or has any interest in, directly or indirectly, any real or personal property owned by or leased to the Company or any copyrights, patents, trademarks, service marks, trade names or trade secrets licensed by the Company. 3.23 Directors and Officers; Banks. Schedule 3.23 contains a true and complete list showing (i) the names of all the officers and directors of the Company; (ii) the name of each bank in which the Company has an account or a safety deposit box and the names of the persons authorized to draw thereon or having access thereto; and (iii) the name of each 24 29 person holding a general or limited power of attorney from the Company and the extent of such power. 3.24 Ownership, Quality and Location of Material Assets. The Company does not utilize in its business any assets not reflected in the Financial Statements except for assets which have been fully amortized or depreciated and which are owned or leased by the Company and franchises, licenses, trademarks and tradenames. Except as set forth in Schedule 3.24, all properties and assets of the Company are in the possession and control of the Company. As of the date hereof, except as set forth in Schedule 3.24, no physical assets of any value are on the premises at the locations operated by the Company which do not belong to or are not leased by the Company. 3.25 Absence of Undisclosed Liabilities. The Company does not have liabilities of any nature, whether accrued, absolute, contingent or otherwise, not disclosed elsewhere herein or in the Schedules hereto or adequately reflected or reserved against in the Financial Statements, other than current liabilities incurred in the ordinary course of business since November 30, 1995. 3.26 No Brokers. Neither the Company nor the Shareholders has retained any broker or finder in connection with the transactions contemplated by this Agreement. If any other broker or finder asserts a claim for a fee as a result of such transactions, based upon a contract, written or oral, with either the Company or any of the Shareholders, such claim shall be payable by the Shareholders. 3.27 Permits. Except as specifically set forth in Schedule 3.27, to the best knowledge of the Company and the Shareholders, (a) the Company has all material licenses, clearances, permits, franchises, grants, authorizations, easements, consents, certificates and orders necessary to conduct its business and to operate its properties and assets, and such licenses, clearances, permits, franchises, grants, authorizations, easements, consents, certificates and orders are in full force and effect; (b) no material violations exist in respect of any license, clearance, permit, franchise, grant, authorization, easement, consent, certificate or order of the Company; (c) no proceeding is pending or threatened looking toward the revocation or limitation of any such license, clearance, permit, franchise, grant, authorization, easement, consent, certificate or order and there is no basis or ground for any such revocation or limitation except as specifically set forth in Schedule 3.27. Except as specifically set forth in Schedule 3.27, the Company has complied with all laws, rules, regulations, ordinances, codes, licenses, clearances, permits, franchises, grants, authorizations, easements, consents, certificates and orders relating to any of its properties or applicable to its business, including, but not limited to, labor, equal employment opportunity, occupational safety and health, consumer protection, environmental, securities and antitrust laws and regulations. The Company is not in violation of any applicable zoning, building or environmental regulation, ordinance or other law, order, regulation, restriction or requirement relating to its operations or properties, whether such properties are owned or leased, and no governmental body or other person has claimed that any such violation exists, or called attention to the need for any work, repairs, construction, alterations or installation on or in connection with the properties of the Company. Neither the Company nor the Shareholders has any knowledge of any pending or threatened action or proceeding which 25 30 could result in a modification or termination of the zoning laws which modification or termination would adversely affect the Company or any of its property. The breach of this Section 3.27 will not result in a breach of this Agreement or any condition or covenant herein except where such breach would have a Material Adverse Effect on the Company. 3.28 Shareholder Information. None of the information to be distributed to shareholders of the Company in connection with the Merger nor any amendments or supplements of or to any of the foregoing (collectively, the "SHAREHOLDER INFORMATION"), between the date the Shareholder Information is first mailed to shareholders and the Effective Time, will contain any material statement which, at such time and in light of the circumstances under which it is made, will be false or misleading with respect to any material fact, or will omit to state any fact necessary in order to make the statements therein not false or misleading, provided however, that the Company and the Shareholders make no representation or warranty with respect to any information that AMRE or Merger Sub will independently supply for use in the Shareholder Information. 3.29 Full Disclosure. No material information furnished, or to be furnished, by either the Company or any of the Shareholders to AMRE or Merger Sub or their representatives in connection with this Agreement (including, but not limited to, the Financial Statements and all information in the Schedules hereto) is, or will be, false or misleading, and such information includes all facts required to be stated therein or necessary to make the statements therein not misleading. No representation or warranty by or on behalf of the Company contained in this Agreement, and no statement contained in any certificate, list, exhibit, or other instrument furnished or to be furnished to AMRE pursuant hereto contains or will contain any untrue statement of a material fact, or omits or will omit to state any material facts which are necessary in order to make the statement contained herein or therein, in light of the circumstances under which they are made, not misleading. The breach of this Section 3.29 will not result in a breach of this Agreement or any condition or covenant herein except where such breach would have a Material Adverse Effect on the Company. 3.30 Dividend Payments. Except as set forth in Schedule 3.30 hereto, as of December 29, 1995, the Company has timely paid or made all dividends and other distributions on the Company Preferred Stock. ARTICLE 4 CONDUCT OF BUSINESS PENDING THE MERGER 4.1 Conduct of Business by the Company Pending the Merger. The Company covenants and agrees that, prior to the Effective Time, unless AMRE and Merger Sub shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business, and the Company shall use commercially reasonable efforts to maintain and preserve its 26 31 business organization, assets, prospects, employees and advantageous business relationships; (b) The Company shall not, directly or indirectly, do any of the following: (i) authorize for issuance, issue, sell, pledge, deliver, or agree or commit to issue, sell, pledge or deliver (whether through the issuance or grant of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any capital stock of the Company or securities or rights convertible into or exchangeable for, shares of capital stock or securities convertible into or exchangeable for such shares; (ii) pledge, dispose of or encumber, except in the ordinary course of business, any assets of the Company (including any indebtedness owed to it or any claims held by it); (iii) amend or propose to amend its Articles of Incorporation or bylaws or similar organizational documents, except as may be necessary in the opinion of the Board of Directors of the Company, counsel to the Company and, to the extent applicable, the ESOP Trustee and its ESOP counsel in order to effectuate the transactions contemplated herein; (iv) split, combine or reclassify any shares of its capital stock or declare, set aside or pay any dividend or distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, except as in the ordinary course of the operation of the ESOP; (v) redeem, purchase or otherwise acquire or offer to redeem, purchase or otherwise acquire any capital stock of the Company; (vi) transfer any assets or liabilities to any affiliate; or (vii) authorize or propose any of the foregoing or enter into any contract, agreement, commitment or arrangement to do any of the foregoing; (c) The Company shall not, directly or indirectly, (i) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or make any investment either by purchase of stock or securities, contributions to capital, property transfer or purchase of any amount of property or assets of any other individual or entity; (ii) acquire any assets for a value in excess of $10,000 other than in the ordinary course of business; (iii) dispose of any assets with a value in excess of $10,000 other than in the ordinary course of business; (iv) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee, endorse or otherwise as an accommodation become responsible for, the obligations of any other individual or entity, make any loans or advances or enter into any other transaction, except in the ordinary course of business and consistent with past practice; (v) authorize, recommend or propose any change in its capitalization or any release or relinquishment of any contract right; or (vi) authorize or propose any of the foregoing or enter into or modify any contract, agreement, commitment or arrangement with respect to any of the foregoing; (d) The Company shall not enter into or adopt any new, or amend any existing, severance or termination benefit arrangements, consulting agreements, any employment benefit plans, or arrangement, other than in the ordinary course of business; (e) Without the prior written consent of AMRE, which consent shall not be unreasonably withheld, the Company (except for routine salary increases or other 27 32 adjustments to employee benefit arrangements in the ordinary course of business) shall not adopt or amend any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, plan, fund or other arrangement for the benefit or welfare of any employee or increase or pay any benefit not required by any existing plan and arrangement, including without limitation any Company Benefit Plan as defined in Section 3.21 hereof; (f) The Company shall not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company's Financial Statements or incurred in the ordinary course of business; (g) The Company shall not waive, release, grant or transfer any franchises, franchise agreements, patents, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights or know-how or modify or change in any respect any existing license, lease, contract franchise, franchise agreement or other document, other than in the ordinary course of business; (h) The Company shall use commercially reasonable efforts to preserve its business organization intact, to keep available the services of its current officers and key employees and to maintain satisfactory relationships with licensors, licensees, suppliers, contractors, distributors, customers and others having significant business relationships with the Company; (i) The Company shall not make capital expenditures in the aggregate in excess of $20,000. ARTICLE 5 ADDITIONAL COVENANTS 5.1 Registration Statement and Proxies. AMRE and the Company shall cooperate and promptly prepare and AMRE shall file with the SEC as soon as practicable following receipt of SEC comments to the Proxy Statement a Proxy Statement/Registration Statement on Form S-4 (the "FORM S-4") with respect to the AMRE Common Stock issuable in the Merger, a portion of which Form S-4 shall serve as the proxy statement with respect to the meeting of the shareholders of the Company in connection with the Merger (the "JOINT PROXY STATEMENT/PROSPECTUS"). The respective parties will cause the Joint Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. AMRE shall use commercially reasonable efforts, and the Company will cooperate with AMRE, to have the Form S-4 declared effective by the SEC as promptly as practicable. AMRE shall use commercially reasonable efforts to obtain, prior to the effective date of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident 28 33 thereto. AMRE agrees that the Joint Proxy Statement/Prospectus and each amendment or supplement thereto at the time of mailing thereof and at the time of the meeting of shareholders of the Company, or, in the case of the Form S-4 and each amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a material fact was made by AMRE in reliance upon and in conformity with information concerning the Company or the Shareholders furnished to AMRE by the Company or the Shareholders in writing specifically for use in the Joint Proxy Statement/Prospectus. The Company agrees that the written information concerning the Company provided by it for inclusion in the Joint Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the meetings of the stockholders of AMRE and the Company, or, in the case of written information concerning the Company provided by the Company for inclusion in the Form S-4 or any amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. No amendment or supplement to the Joint Proxy Statement/Prospectus or the Form S-4 nor any request for acceleration thereof will be made by AMRE or the Company without the approval of the other party, except as required by law. AMRE will advise the Company, promptly after it receives notice, of the time when the Form S-4 or any post effective supplement or amendment thereto has become effective, the issuance of any stop order, the suspension of the qualification of the AMRE Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, any request by the SEC for amendment of the Joint Proxy Statement/Prospectus or the Form S-4 or requests by the SEC for additional information and will promptly provide the Company with copies of any responses filed by AMRE to SEC comments on the Form S-4. 5.2 Letter to the Company's Accountants. The Company shall use its best efforts to cause to be delivered to AMRE a letter from Deloitte & Touche LLP, the Company's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and addressed to AMRE and the Company, in form and substance reasonably satisfactory to AMRE and customary in scope and substance of letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. 5.3 Company Board Action. The Joint Proxy Statement/Prospectus shall state, among other things, that the Board of Directors of the Company has approved by unanimous vote the Merger Agreement and the Merger. 5.4 Consent of Shareholders of the Company. The Company shall use its best efforts to take all action necessary, in accordance with the Virginia Law and its Articles of Incorporation and bylaws, to transmit the Joint Proxy Statement/Prospectus to its shareholders and obtain its shareholders' approval of the Merger as promptly as reasonably practicable. Upon approval of the Merger by the shareholders of the Company in accordance 29 34 with the Virginia Law, the Company shall send to each of its shareholders, at each shareholder's address as it appears on the Company's records, by certified or registered mail, return receipt requested, notice in accordance with Section 13.1-734 of the Virginia Law (the "APPRAISAL RIGHTS NOTICE") as to the Effective Date and the availability of appraisal rights under Article 15 of the Virginia Law. 5.5 Expenses. All expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses whether or not the Merger is consummated. 5.6 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to (i) use all commercially reasonable efforts to take, or cause to be taken, all action and (ii) use all commercially reasonable efforts to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and to cooperate with each other in connection with the foregoing, (iii) use all commercially reasonable efforts to obtain all necessary waivers, consents and approvals from other parties to material loan agreements, leases and other contracts and to notify each of the other parties hereto of any request for prepayment with respect thereto; provided however, all commercially reasonable efforts with respect to obtaining waivers, consents and approvals under loan agreements does not obligate the parties hereto to make any prepayment on any such loan, (iv) use all commercially reasonable efforts to obtain all necessary consents, approvals and authorizations as are required to be obtained under any federal, state, local or foreign law or regulations, (v) use commercially reasonable efforts to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby, (vi) use all commercially reasonable efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby, (vii) use all commercially reasonable efforts to effect all necessary registrations and filings and submissions of information required or requested by governmental authorities, (viii) use all commercially reasonable efforts to cause the Merger to be treated as a "pooling of interests" for accounting purposes, and (ix) use all commercially reasonable efforts to cause the Merger to be treated as a Section 368 tax-free reverse triangular merger for federal income tax purposes. 5.7 No Shopping. Subject to fiduciary duties under applicable law as advised in writing by legal counsel, the Company shall not, directly or indirectly, through any officer, director, agent, representative or otherwise, (i) solicit, initiate or encourage submission of proposals or offers from any person (other than AMRE and Merger Sub), relating to any acquisition or purchase of all or substantially all of the assets of, or any equity interest in, the Company or any merger, consolidation, or business combination with the Company, or (ii) participate in any discussions or negotiations regarding, or furnish to any person (other than AMRE and Merger Sub) any information with respect to, any of the foregoing, or (iii) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other person to do or seek any of the foregoing. The Company shall promptly notify AMRE and Merger Sub in writing as provided herein if it receives any such proposal or offer or any inquiry or contact with respect thereto. 30 35 5.8 Notification of Certain Matters. Each party will promptly give written notice as provided herein to the other parties upon becoming aware of the occurrence or failure to occur, or impending or threatened occurrence or failure to occur, of any event that would cause or constitute, or would be likely to cause or constitute, a breach of any of its representations, warranties or covenants contained in this Agreement and will use all reasonable efforts to prevent or promptly remedy the occurrence or failure. No such notification shall limit or affect the representations, warranties, covenants or conditions or remedies of the parties hereunder. 5.9 Access to Information. (a) The Company and the Company's officers, directors, employees and agents shall afford the officers, employees and agents of AMRE and Merger Sub complete access at all reasonable times to its officers, employees, agents, properties, facilities, books, records and contracts and shall furnish AMRE and Merger Sub all financial, operating and other data and information as AMRE and Merger Sub through their officers, employees or agents, may reasonably request. AMRE and Merger Sub will hold and will cause their respective representatives to hold in strict confidence all documents and information concerning the Company furnished to AMRE or Merger Sub in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by AMRE or Merger Sub (or their respective affiliates) prior to its disclosure to AMRE or Merger Sub by the Company, (ii) in the public domain through no fault of AMRE or Merger Sub or (iii) later lawfully acquired by AMRE or Merger Sub (or their respective affiliates) from other sources), and will not release or disclose such information to any other person, except in connection with this Agreement to their respective auditors, attorneys, financial advisors and other consultants or advisors or responsible financial institutions and individuals after AMRE or Merger Sub, as the case may be, has caused such financial institutions and individuals to agree to be bound by the provisions of this Section 5.9 as if the reference to AMRE or Merger Sub herein were to them (it being understood that such persons shall be informed by AMRE or Merger Sub of the confidential nature of such information and shall be directed by AMRE or Merger Sub to treat such information confidentially); provided that AMRE, Merger Sub and their respective representatives may provide such documents and information in connection with its SEC filings or in response to judicial or administrative process or applicable governmental laws, rules, regulations, orders or ordinances, but only that portion of the documents or information which, on the advice of counsel, is legally required to be furnished, and provided that AMRE or Merger Sub, as the case may be, notifies the Company of its obligation to provide such information prior to such disclosure and fully cooperates with the Company to protect the confidentiality of such documents and information under applicable law. If the transactions contemplated by this Agreement are not consummated, and AMRE or Merger Sub will destroy or return to the Company all copies of written information furnished by the Company to AMRE, Merger Sub or their respective affiliates, agents, representatives or advisers. 31 36 (b) Each of AMRE and Merger Sub shall, and shall cause its subsidiaries, officers, directors, employees and agents to, provide the officers, employees and agents of the Company and the ESOP Trustees with such information concerning AMRE and Merger Sub as may be necessary for the Company to ascertain the accuracy and completeness of the information supplied by AMRE and Merger Sub for inclusion in the Shareholder Information, or in any other document filed with any other governmental agency or authority and to verify the performance of and compliance with their representations, warranties, covenants and conditions herein contained. Subject to the requirements of law, the Company and the Shareholders shall hold in confidence all such information, and, upon the termination of this Agreement, the Company and the Shareholders will deliver to AMRE all documents, work papers and other material (including copies) obtained by the Company or the Shareholders, or on their behalf, from AMRE or Merger Sub, as a result of this Agreement or in connection herewith, whether so obtained before or after the execution hereof. (c) No investigation pursuant to this Section 5.9 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. (d) Any schedule which is not attached hereto at the time that AMRE and Merger Sub execute this Agreement or which is subsequently updated shall not be binding upon AMRE or Merger Sub unless such schedule or update is accepted in writing by AMRE and Merger Sub. If such schedule or update is not so accepted, then any disclosure contained therein shall not be deemed to have been made for purposes hereunder, including but not limited to for purposes of modifying the representations and warranties made hereunder. (e) Any schedule which is not attached hereto at the time that the Company and the Shareholders execute this Agreement or which is subsequently updated shall not be binding upon the Company or the Shareholders unless such schedule or update is accepted in writing by the Company or the Shareholders, as the case may be. If such schedule or update is not so accepted, then any disclosure contained therein shall not be deemed to have been made for purposes hereunder, including but not limited to for purposes of modifying the representations and warranties made hereunder. 5.10 Information for Other Filings. The parties represent to each other that the information provided and to be provided by AMRE, Merger Sub and the Company, respectively, for use in any document to be filed with any governmental agency or authority in connection with the transactions contemplated hereby shall, at the respective times such documents are filed with the governmental agency or authority and on the Effective Date be true and correct in all material respects and shall not omit to state any material fact required to be stated therein or necessary in order to make such information not false or misleading, and the Company, AMRE and Merger Sub each agree to so correct any such information provided by it for use in such documents that shall have become false or misleading. 32 37 5.11 Sub-License Agreement. No later than December 31, 1995, AMRE and the Company shall have entered into a Sub-License Agreement, in substantially the form of Exhibit C hereto. 5.12 Affiliate Letters. Prior to the Effective Time, the Company shall deliver to AMRE a list (the "COMPANY AFFILIATE LIST") of names and addresses of those persons who, as of the date of this Agreement, were "affiliates" (each such person, an "AFFILIATE OF THE COMPANY") of the Company within the meaning of Rule 145 of the rules and regulations promulgated under the Securities Act and under the SEC guidelines and interpretations applicable to "poolings of interests." The Company Affiliate List will be updated as appropriate from time to time, up to and including the Effective Time. The Company shall provide AMRE such information and documents as AMRE shall reasonably request for purposes of reviewing such list. The Company shall use its best efforts to deliver or cause to be delivered to AMRE, concurrently with the Effective Time, from each Affiliate of the Company identified in the Company Affiliate List, an Affiliate Letter substantially in the form attached hereto as Exhibit D (the "COMPANY AFFILIATE LETTER"). AMRE shall be entitled to place legends as specified in such Affiliate Letters on the certificates evidencing any AMRE Common Stock to be received by each Affiliate of the Company, pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the AMRE Common Stock, consistent with the terms of such Company Affiliate Letters. 5.13 Pooling. From and after the date hereof and until the expiration of the Restricted Period (as defined below), none of AMRE, Merger Sub, the Shareholders or the Company shall or shall knowingly permit any of its or their "affiliates" (as referred to in Section 5.12) to take any action, or fail to take any action, that would jeopardize the treatment of the Merger as a "pooling of interests" for accounting purposes. For purposes hereof, the term "RESTRICTED PERIOD" shall mean the period commencing on the date hereof and terminating on the date on which 30 days of combined operations are publicly announced by AMRE. 5.14 Listing Application. AMRE shall prepare and submit to the NYSE a listing application covering AMRE Common Stock to be issued in connection with the Merger and shall use its reasonable efforts to obtain, prior to the Effective Time, approval for the listing of such AMRE Common Stock upon official notice of issuance. 5.15 Public Announcements. AMRE, Merger Sub and their affiliates, on the one hand, and the Company, the Shareholders and their affiliates, on the other hand, will consult with and receive the consent of each other before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation; provided, however, that (i) each party shall be permitted to make such disclosures to the public or to governmental agencies as its counsel shall deem necessary to maintain compliance with and to prevent violations of applicable federal or state laws, provided it first notifies the other parties in writing and furnishes it with a copy of any such proposed disclosure; and (ii) each party may make necessary disclosures to its employees or to certain other parties whose consent or approval may be required in 33 38 connection with the Merger, and such disclosures may be made without any prior written consent. 5.16 Operation of the Company's Business Following the Effective Date. (i) AMRE and Merger Sub agree that John B. Nunez, current President of the Company, will maintain responsibility for the normal course-of-business hiring and firing and the material employee decisions for the former employees of the Company, subject in all respects to the reasonable discretion of the Chief Executive Officer of AMRE and consistent with AMRE's human resource policies; (ii) AMRE and Merger Sub agree to provide a benefit package to the former employees of the Company which is substantially equivalent to the benefits afforded to the employees of AMRE prior to the Effective Date, in the event that the current benefit package available to the Company's employees is terminated or restructured as a result of the transactions contemplated herein; (iii) AMRE and Merger Sub agree to continue any current insurance policies which cover the Board of Directors or the ESOP trustees in full force and effect until (x) the complete termination of the ESOP or (y) the receipt of a favorable determination letter from the IRS on the qualified status of the ESOP at termination and distribution of all assets from the ESOP, whichever of (x) and (y) is later; (iv) AMRE will cause the Surviving Corporation to observe any indemnification provisions now existing in the articles of incorporation or bylaws of the Company or the ESOP Plan for the benefit of any individual who served as a director or officer of the Company at any time prior to the Effective Time, and will cause the Surviving Corporation to indemnify each individual who served as a director or officer or Trustee of the Company or the ESOP at any time prior to the Effective Time from and against any and all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses and fees, including all court costs and reasonable attorneys' fees and expenses, resulting from, arising out of, relating to, in the nature of, or caused by this Agreement or any of the transactions contemplated herein; and (v) AMRE agrees to cause Surviving Corporation to expressly assume all obligations of the Company as such obligations arise under the following agreements to which the Company is a party: (A) that certain ESOP Loan and Security Agreement and ESOP Term Note of June 30, 1993, as modified on June 30, 1995, by and between the Company and NationsBank, N.A., as successor in interest to Maryland National Bank; and (B) that certain ESOP Mirror Loan and Pledge Agreement of June 30, 1993, by and between the Company and the ESOP (the "ESOP Mirror Loan"); (vi) AMRE will make or cause the Surviving Corporation to make cash contributions and to issue cash dividends to the ESOP in such amounts and at such times which will enable the ESOP to pay when due all amounts owing by the ESOP under or with respect to the ESOP Mirror Loan and/or that certain Secured Promissory Note dated June 30, 1993 (the "Secured Note") from the ESOP, whether for principal or interest. A cash contribution or dividend by AMRE or the Surviving Corporation to the ESOP to enable the ESOP to make any given payment on the Secured Note shall be made sufficiently prior to the date such payment is due to provide for timely payment under the ESOP Mirror Loan and the Secured Note and shall be in immediately available funds. AMRE's obligation under this Section 5.16(vi) shall continue until such time as all amounts owed by the ESOP pursuant to the ESOP Mirror Loan and the Secured Note have been satisfied through the payment of contributions or dividends to the ESOP or through other means that are permissible under the ESOP plan document, the Code and 34 39 ERISA; provided, however, that AMRE will not cause allocated stock to be sold to repay the ESOP Mirror Loan; (vii) it is the present intent of AMRE to cause the Surviving Corporation to terminate the ESOP (and distribute its assets (e.g., allocated AMRE Common Stock) to its participants following the giving of all applicable notices and the receipt and conclusion of all appropriate and/or required (a) IRS determination letters, (b) consents, (c) allocations and (d) accountings) following consummation of the Merger; (viii) AMRE will not permit any previously unallocated shares of stock held in the ESOP to be allocated after the Effective Time to individuals other than those who are participants in the ESOP as of the Effective Time; and (ix) AMRE will not take any action or cause the Surviving Corporation or the fiduciary of the ESOP to take any action in connection with the termination of the ESOP that does not comply in all material respects with the ESOP plan document, ERISA and the Code. ARTICLE 6 CONDITIONS 6.1 Conditions to Obligation of Each Party to Effect the Merger. The obligations of each of AMRE, Merger Sub and the Company to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) the Merger shall have been approved and adopted by the requisite consent of the shareholders of the Company required by applicable law and the applicable regulations of any stock exchange; (b) the Form S-4 shall have been declared effective and shall be effective at the Effective Time, and no stop order suspending effectiveness of the Form S-4 shall have been issued; (c) no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission nor any statute, rule, regulation or executive order promulgated or enacted by any governmental authority shall be in effect that would make the acquisition or holding directly or indirectly by AMRE of the shares of Common Stock of the Surviving Corporation illegal or otherwise prevent the consummation of the Merger. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted or order reversed; (d) all consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board or other regulatory body required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filings in connection with the Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, 35 40 order, approval, filing or registration would not have a Material Adverse Effect on either the Company or AMRE; (e) the AMRE Common Stock to be issued to Company shareholders in connection with the Merger shall have been approved for listing on the NYSE, subject only to official notice of issuance; (f) no action shall be pending which has been filed by any state or federal authority or any other party seeking to enjoin consummation of the transactions contemplated by this Agreement, including, but not limited to, the Merger and no injunction shall have been issued and shall be effective or enforceable or under appeal if the effectiveness or enforceability thereof has been lifted or stayed by a court or other authority of competent jurisdiction, preventing the Merger, or imposing conditions on, the Merger which are materially adverse to AMRE, Merger Sub, the Company or any of their shareholders; (g) AMRE shall have duly completed all corporate actions and proceedings to amend and shall have amended its Certificate of Incorporation to authorize the issuance of additional shares of AMRE Common Stock if necessary to consummate the transactions contemplated hereby; and (h) Kenwood Financial, Inc. and Norman R. Rales shall have been released by NationsBank, N.A. from all liability in connection with the ESOP Loan and Security Agreement and ESOP Term Note by and between NationsBank, N.A. and the Company and any collateral security agreements related thereto. 6.2 Additional Conditions to the Obligation of the Company. The obligation of the Company to effect the Merger is also subject to the fulfillment at or prior to the Effective Time of the following conditions (unless waived) or except as otherwise contemplated or permitted by this Agreement: (a) each of AMRE and Merger Sub shall in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it hereunder on or prior to the Effective Time; (b) the representations and warranties of AMRE and Merger Sub in this Agreement shall be true and correct in all material respects when made and at the Effective Time with the same force and effect as though made at such time, except as affected by the transactions contemplated hereby; (c) AMRE and Merger Sub shall have furnished to the Company a certificate, dated the Effective Date, signed by a responsible officer of each of AMRE and Merger Sub, to the effect that to the best of their knowledge, all conditions set forth in Section 6.2(a) and (b) have been satisfied; provided however, such officer shall have no personal liability therefore unless such officer knew the certificate to be false at the time such certificate was executed; 36 41 (d) AMRE and Merger Sub shall have provided or made available to the Company or its designated representatives the information and documents as specified in Section 5.9(b) for review by the Company and its agents and representatives and the results of the due diligence review undertaken by or on behalf of the Company, including, without limitation, the financial condition of AMRE, shall be deemed materially satisfactory by the Company; (e) AMRE shall have entered into an employment agreement with John Nunez substantially in the form attached hereto as Exhibit F (the "EMPLOYMENT AGREEMENT"); (f) The Company shall have received the opinion of Ernst & Young LLP dated on or about the Effective Date to the effect that (i) the Merger will constitute a reorganization within the meaning of Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) of the Code; (ii) AMRE, Merger Sub, and the Company will each be a party to the reorganization within the meaning of Section 368(b) of the Code; (iii) the Merger will result in the recognition of no gain or loss to AMRE, Merger Sub, the Company, or the shareholders of each, except for any cash paid in connection with the exercise of dissenters' rights; (iv) the adjusted basis of each former shareholder of the Company in the AMRE Common Stock received in the Merger will be the same as the adjusted basis of the Company stock surrendered in exchange therefor; (v) the holding period of the AMRE Common Stock received by shareholders of the Company will include the holding period of the Company stock surrendered in exchange therefor; and (vi) effectuation of the intended termination of the ESOP, any sale of the unallocated shares, and distribution of the allocated shares to the ESOP participants will not invalidate the tax-free status of the reorganization; and (g) The ESOP shall have received the opinion of Barry Goodman, Ltd. or such other qualified independent appraiser (as defined in Section 401(a)(28)(C) of the Code) at the Effective Time that (i) the exchange of the Preferred Shares for AMRE Common Stock by the ESOP was for adequate consideration (as defined in Section 3(18) of ERISA and the proposed regulations thereunder), and (ii) the transactions contemplated by the Agreement (including such exchange) are fair to the ESOP from a financial point of view. (h) The Company shall have received copies of the resolutions of the Board of Directors of AMRE and the Board of Directors of Merger Sub authorizing the execution, delivery and performance of the Agreement and the consummation of the transactions contemplated hereby and a copy of the resolutions or other consent of the shareholder of Merger Sub approving the Merger, all certified by the Secretary of AMRE or the Secretary of Merger Sub, as the case may be, on the Effective Date. Such certificates shall state that the resolutions set forth therein have not been amended, modified, revoked or rescinded as of the date of such certificates; (i) The Company shall have received certificates of the Secretary of AMRE and the Secretary of Merger Sub dated the Effective Date, as to the 37 42 incumbency and signature of the officers of AMRE and Merger Sub executing this Agreement and any certificate, agreement or other documents to be delivered pursuant hereto, together with evidence of the incumbency of each such Secretary; 6.3 Additional Conditions to the Obligations of AMRE and Merger Sub. The obligations of AMRE and Merger Sub to effect the Merger are also subject to the fulfillment at or prior to the Effective Time of the following conditions (unless waived) or except as otherwise contemplated or permitted by this Agreement: (a) the Company shall in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it hereunder on or prior to the Effective Time; (b) the representations and warranties of the Company and the Shareholders in this Agreement shall be true and correct in all material respects when made and at the Effective Time with the same force and effect as though made at such time, except as affected by the transactions contemplated hereby; (c) the Company shall have furnished to AMRE and Merger Sub a certificate, dated the Effective Date, signed by a responsible officer of the Company, to the effect that to the best of his knowledge, all conditions set forth in Section 6.3(a) and (b) have been satisfied; provided, however, no such officer shall have no personal liability therefor unless such officer knew the certificate to be false at the time such certificate was executed; (d) the Company shall have provided or made available to AMRE and Merger Sub or their designated representatives the information and documents as specified in Section 5.9(a) for review by AMRE and its agents and representatives, and the results of the due diligence review undertaken by or on behalf of AMRE, including, without limitation, the financial condition of the Company, shall be deemed materially satisfactory by AMRE; (e) all of the members of the Company's Board of Directors shall have irrevocably tendered their resignations effective as of the Effective Time and the Company shall have accepted such resignations; (f) AMRE and Merger Sub shall have received an opinion dated the Effective Date of Griffin, Berenson & Murphy, counsel to the Company, which opinion shall be reasonably satisfactory to counsel for AMRE and Merger Sub; (g) AMRE and the Company shall have received the written consent of NationsBank, N.A. to the Merger and the other transactions contemplated hereby, which consent will contain a waiver of any event of default or acceleration which would result from the execution of this Agreement or the consummation of the transactions contemplated hereby; 38 43 (h) AMRE and Merger Sub shall have received a copy of the resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of the Agreement and the consummation of the transactions contemplated hereby and a copy of the resolutions or other consent of the shareholders of the Company approving the Merger, all certified by the Secretary of the Company on the Effective Date. Such certificates shall state that the resolutions set forth therein have not been amended, modified, revoked or rescinded as of the date of such certificates; (i) AMRE and Merger Sub shall have received a certificate of the Secretary of the Company dated the Effective Date, as to the incumbency and signature of the officers of the Company executing this Agreement and any certificate, agreement or other documents to be delivered pursuant hereto, together with evidence of the incumbency of such Secretary; (j) The Company shall have delivered to AMRE and Merger Sub all material consents, waivers, authorizations and approvals; (k) AMRE shall have received a letter from Arthur Andersen LLP that the Merger will be treated as a pooling of interests for accounting purposes and the Company shall have delivered to AMRE a letter from Deloitte and Touche LLP that the Company is a poolable entity; and (l) Holders of not more than 10% of any class of Shares shall have exercised and properly perfected dissenter's rights under Article 15 of the Virginia Law. ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time whether before or after approval of the Merger by the Shareholders : (a) by mutual written consent of the Boards of Directors of AMRE, Merger Sub and the Company; (b) by either of the Boards of Directors of Merger Sub or the Company if the Effective Time shall not have occurred on or before April 30, 1996; provided, however, that the right to terminate under this Section 7.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; (c) if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action (which order, decree or ruling the parties hereto shall use all reasonable efforts to lift), in each case permanently restraining, enjoining or otherwise 39 44 prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and nonappealable; (d) by the Company in the event a third party makes a bona fide offer to acquire substantially all of the assets of the Company, merge, consolidate or otherwise enter into a combination of interests with the Company. The date on which this Agreement is terminated pursuant to any of the foregoing subsections of this Section 7.1 is herein referred to as the "TERMINATION DATE." 7.2 Effect of Termination. Except as set forth in Sections 5.5, 5.9(a), 5.9(b), and 7.3 upon the termination of this Agreement pursuant to Section 7.1, this Agreement shall forthwith become null and void, except that nothing herein shall relieve any party from liability for any breach of this Agreement prior to such termination. 7.3 Fees and Expenses. (a) In the event the Company terminates this Agreement pursuant to Section 7.1(d), the Company shall pay AMRE a fee equal to $500,000 (the "TERMINATION FEE") at the earlier of the Termination Date or the acceptance of the bona fide offer. Sections 7.3(a) and 7.3(b) are intended to be mutually exclusive with respect to any Termination Fee imposed upon the Company so that no more than one Termination Fee may be imposed; and (b) In the event (i) the Agreement is terminated pursuant to Section 7.1(b) or (ii) in the event the Effective Time shall not have occurred on or before April 30, 1996 and either (i) or (ii) occur for any reason other than the failure to meet the conditions under Sections 6.1 and 6.3, AMRE shall pay the Company an amount equal to the Termination Fee. ARTICLE 8 GENERAL PROVISIONS 8.1 Notices. All notices and other communications hereunder shall be in writing and, except where notice is specifically required to be given by telecopier or facsimile shall be deemed to have been duly given if delivered personally, mailed by certified mail (return receipt requested) or sent by cable, telegram, telecopier or telex to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice: 40 45 (a) if to AMRE or Merger Sub, a copy of each of the President and the General Counsel at: AMRE, Inc. 8586 N. Stemmons Freeway South Tower, Suite 102 Dallas, TX 75247 Fax No. (214) 658-6101 with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue, Suite 4100 Dallas, TX 75201 Fax No. (214) 969-4343 Attn: Gary M. Lawrence, P.C. (b) if to the Company: Congressional Construction Corporation 11216 Waples Mill Road Suite 101 Fairfax, Virginia 22030 Fax No. (703) 934-1009 Attn: John B. Nunez with copies to: Griffin, Berenson & Murphy 1912 Sunderland Place, N.W. Washington, DC 20036-1608 Fax No. (703) 442-4831 Attn: D.S. Berenson (c) if to the ESOP: Griffin, Berenson & Murphy 1912 Sunderland Place, N.W. Washington, D.C. 20036-1608 Fax No. (703) 442-4831 Attn: D.S. Berenson, Esq. 41 46 with a copy to: David R. Johanson, Esq. Graham & James One Maritime Plaza, Suite 300 San Francisco, California 94111 Fax No. (415) 391-2493 (d) if to the Shareholders: John B. Nunez 11216 Waples Mill Road, Suite 101 Fairfax, Virginia 22030 Fax No. (703) 934-1009 and Kenwood Financial, Inc. 4000 N. Federal Highway Suite 204 Boca Raton, FL 33431 Fax No. (407) 750-6900 Attn: Norman R. Rales Notice shall be given by telecopy followed by overnight delivery and notice so given shall be deemed to be given and received on the date of actual transmission. 8.2 Representations and Warranties. The representations and warranties contained in: (i) Sections 2.5, 2.9, 2.11, 3.6, 3.10, 3.21 and 3.29 shall survive until the distribution of the assets from the ESOP contemplated by Section 5.16(vii), and (ii) Section 2.12 shall survive until the expiration of one year from the Effective Time. All other representations and warranties of AMRE, Merger Sub, the Company and the Shareholders shall expire on the Effective Date. 8.3 Closing. The Closing of the transactions contemplated by this Agreement shall take place at Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201-4618, or such other place as the parties may agree, as soon as practicable after the satisfaction or waiver of the conditions set forth in Article 6. 8.4 Severability. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable under any applicable law, then such contravention or invalidity shall not invalidate the entire Agreement. Such provision shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modification shall render it legal, valid and enforceable, then this Agreement shall be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties shall be construed and enforced accordingly. 42 47 8.5 Headings. The headings of the Articles, Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 8.6 CHOICE OF LAW. EXCEPT TO THE EXTENT ASPECTS OF THE MERGER ARE SPECIFICALLY GOVERNED BY DELAWARE LAW OR VIRGINIA LAW, THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS. 8.7 Jurisdiction and Venue. Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of Texas or of the United States for the Northern District of Texas, and, by execution and delivery of this Agreement, the parties hereby irrevocably accept for themselves and in respect of their property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the courts referred to above and hereby further irrevocably waive and agree not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 8.8 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 8.9 Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 8.10 Binding Effect; Benefit; Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns, and the ESOP shall be deemed a third party beneficiary of this Agreement, which Agreement shall inure to the benefit of the ESOP, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by of the parties hereto or the ESOP without the prior written consent of the other parties. 8.11 Amendment. This Agreement may be amended by the Boards of Directors of the Company, Merger Sub and AMRE at any time before or after approval of the Merger by the shareholders of the Company, but, after any such approval, no amendment shall be made that changes the form or reduces the amount of consideration to be paid to the shareholders of the Company or that in any other way materially adversely affects the rights of such shareholders (other than a termination of this Agreement in accordance with the provisions hereof) without the further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 43 48 8.12 Waiver. At any time prior to the Effective Time, any term, provision or condition of this Agreement may be waived in writing (or the time for performance of any of the obligations or other acts of the parties hereto may be extended) by the party that is entitled to the benefits thereof. 44 49 AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE IN WITNESS WHEREOF, AMRE, Merger Sub, the Company and for the limited purposes set forth herein, the Shareholders have caused this Agreement to be executed as of the date first written above. AMRE, INC. By: /s/ Robert M. Swartz -------------------------------------------- Printed Name: Robert M. Swartz ---------------------------------- Title: President and Chief Executive Officer ----------------------------------------- AMRE - CONGRESSIONAL ACQUISITION, INC. By: /s/ Robert M. Swartz -------------------------------------------- Printed Name: Robert M. Swartz ---------------------------------- Title: President and Chief Executive Officer ----------------------------------------- CONGRESSIONAL CONSTRUCTION CORPORATION By: /s/ John B. Nunez ----------------------------- Printed Name: John B. Nunez ------------------- Title: /s/ President -------------------------- For the limited purposes of Article 3, Article 5 and Article 8: SHAREHOLDERS /s/ John B. Nunez -------------------------------- John Nunez S-1 50 KENWOOD FINANCIAL, INC. By: /s/ Norman R. Rales ------------------------------------------ Printed Name: Norman R. Rales ---------------------------- Title: President, Kenwood Financial, Inc. ----------------------------------- S-2 EX-2.3 3 AMENDMENT NO.1 TO AGREEMENT DATED 10-31-95 1 AMENDMENT NO. 1 TO MERGER AGREEMENT This Amendment No. 1 (the "AMENDMENT"), made and entered into this 12th day of December 1995, is by and among AMRE, Inc., a Delaware corporation ("AMRE"), AMRE Acquisition, Inc., a Delaware corporation and a newly formed, wholly owned subsidiary of AMRE ("MERGER SUB"), Facelifters Home Systems, Inc., a New York corporation (the "COMPANY"), and Facelifters Home Systems, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("COMPANY SUB"), and amends that certain Agreement and Plan of Merger, made and entered into the 31st day of October 1995, by and among AMRE, Merger Sub, the Company and Company Sub (the "MERGER AGREEMENT"). Capitalized terms used and not defined herein shall have the meanings assigned to them in the Merger Agreement. PRELIMINARY STATEMENTS AMRE, Merger Sub, the Company and Company Sub desire to amend the Merger Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: STATEMENT OF AMENDMENT 1. Amendatory Provisions. a. Section 1.5(a)(ii) to the Merger Agreement is amended and restated in its entirety to read as follows: (ii) If the Average Price of the AMRE Common Stock is more than $9.50, except as provided below, then each of the Shares shall be converted into that number of shares of AMRE Common Stock determined by multiplying by the following formula: 11.28 ------------------------------- 8.00 + (N - 9.50) Where: N = the Average Price of the ----- AMRE Common Stock Notwithstanding any other provision hereof, in no event shall each Share be converted into less than one (1) share of AMRE Common Stock, regardless of the Average Price of the AMRE Common Stock as specified in the above formula. 2 b. Section 1.5(e) to the Merger Agreement is amended and restated in its entirety to read as follows: (e) At the Effective Time, all options (individually a "Company Option" or collectively, the "Company Options") then outstanding under the Company's stock option plans (collectively, the "Company Stock Option Plans") shall remain outstanding following the Effective Time and shall remain exercisable pursuant to the terms of such plans. At the Effective Time, such Company Options shall, by virtue of the Merger and without any further action on the part of the Company or the holder of any such Company Options, be assumed by AMRE in such manner that AMRE (i) is a corporation "assuming a stock option in a transaction to which Section 424(a) applies" within the meaning of Section 424 of the Code, or (ii) to the extent that Section 424(a) of the Code does not apply to any such Company Option, would be such a corporation were Section 424(a) applicable to such option. Each Company Option assumed by AMRE shall be exercisable upon the same terms and conditions as under the applicable Company Stock Option Plan and the applicable option agreement issued thereunder, except that (A) each such Company Option shall be exercisable for that whole number of shares of AMRE Common Stock (to the nearer whole share) into which the number of Shares subject to such Option immediately prior to the Effective Time would be converted under this Section 1.5, and (B) the option exercise price per share of AMRE Common Stock shall be an amount equal to the option price per Share subject to such Company Option in effect prior to the Effective Time divided by the Exchange Ratio (the price per share, as so determined, being rounded upward to the nearest full cent). 2. Existing Agreement. Except as expressly amended hereby, all of the terms, covenants and conditions of the Merger Agreement (i) are ratified and confirmed, (ii) shall remain unamended and not waived and (iii) shall continue in full force and effect. 3. Governing Law. This Amendment shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Delaware without giving effect to the principles of conflict of laws thereof. 4. Counterparts. This Amendment may be executed in one or more counterparts. 5. Enforceability. If any provision of this Amendment shall be held to be illegal, invalid or unenforceable under any applicable law, then such contravention or invalidity shall not invalidate the entire Amendment or the Merger Agreement. Such provision shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modification shall render it legal, valid and enforceable, then this Amendment and the Merger Agreement shall be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties shall be construed and enforced accordingly. 2 3 IN WITNESS WHEREOF, AMRE, Merger Sub, the Company and Company Sub have caused this Amendment to be executed as of the date first written above. AMRE, INC. By: /s/ Robert M. Swartz -------------------------------- Name: Robert M. Swartz --------------------------- Title: President & C.E.O. -------------------------- AMRE ACQUISITION, INC. By: /s/ Robert M. Swartz -------------------------------- Name: Robert M. Swartz --------------------------- Title: President & C.E.O. -------------------------- FACELIFTERS HOME SYSTEMS, INC., a New York corporation By: /s/ Murray H. Gross -------------------------------- Name: Murray H. Gross --------------------------- Title: President -------------------------- FACELIFTERS HOME SYSTEMS, INC., a Delaware corporation By: /s/ Murray H. Gross -------------------------------- Name: Murray H. Gross --------------------------- Title: President -------------------------- 3 EX-10.38 4 SEPARATION AGREEMENT DATED DECEMBER 1, 1995 1 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT (the "Agreement"), dated as of December 1,1995, is by and between Ronald I. Wagner ("Wagner") and AMRE, Inc., a Delaware corporation (the "Company"). RECITALS A. Wagner is currently employed by the Company, and Wagner and the Company desire to document their agreement regarding Wagner's separation from employment with the Company and Wagner's resignation from any director or officer positions with the Company or its affiliates, effective December 1, 1995 (the "Effective Date"). B. Wagner and the Company entered into an Employment Agreement, dated as of June 1, 1991, as amended by Amendment Number 1 to Employment Agreement, dated as of August 10, 1993, and by Amendment Number 2 to Employment Agreement, dated as of April 25, 1994 (as amended, the "Employment Agreement"). C. Wagner executed a promissory note, dated May 1, 1980, payable to the Company. Such note has been modified, extended, renewed and replaced at various times, most recently by a note, dated as of April 30, 1994 and due and payable in full on April 30, 1997 (all such notes collectively referred to as the "Note"), pursuant to which Wagner agreed to pay to the order of the Company the original principal amount of $3,200,000, together with interest as set forth in the Note. As of the Effective Date, Wagner owed the Company $3,200,000 of principal and $905,824.10 of interest, for a balance of $4,105,824.10. In full satisfaction of the prepayment of the Note, the Company has agreed to waive a portion of the interest due on the Note and to retire the remaining balance of the Note in lieu of the payment to Wagner required of the Company under Section 4(b)(i) of the Employment Agreement. D. Wagner and the Company entered into a Stock Pledge Agreement, dated as of January 31, 1995 (the "Pledge Agreement"). E. Wagner and the Company entered into a Stock Option Agreement, dated as of May 11, 1994 (the "Option Agreement"), pursuant to which Wagner received options to purchase 550,000 shares of the Company's common stock, which options are fully vested and shall not lapse or terminate as a result of this Agreement or the transactions contemplated hereby. F. The parties acknowledge the costs, hazards, and risks of leaving any uncertainty as to their relationships and, in part, desire to provide for an orderly termination of the employment relationship between the Company and Wagner and to settle in the manner set forth in this Agreement any claims or controversies which might arise between Wagner and the Company with respect to Wagner's employment with the Company, Wagner's separation from employment with the Company, any claims pursuant to Section 4(b)(i) of the Employment Agreement, any claims pursuant to the Note and any claims pursuant to the Pledge Agreement. Page 1 2 IT IS THEREFORE AGREED: 1. CONSIDERATION. The parties acknowledge the receipt and adequacy of the consideration as expressed by the recitations and mutual covenants in this Agreement, and other good and valuable consideration. 2. RESIGNATION. Wagner hereby resigns from all positions that he holds as a director, officer or employee with the Company or its affiliates effective as of 10 a.m. on the Effective Date. 3. NONCOMPETITION. Wagner hereby agrees that, for a period of five years after the Effective Date, he will not, directly or indirectly, on his own behalf or as an employee or other agent of or an investor in another individual, partnership, corporation or other entity (a "Person"), except by ownership of less than five percent of the equity securities of a Person or as a sublicensee of the Company as set forth below: (a) engage in the in-home direct marketing, sale and installation of siding and related exterior home improvement products, kitchen cabinet refacing and custom countertops, replacement windows, exterior coating and all other products which the Company and its affiliates are currently licensed to sell (collectively, the "Business") in North America (the "Territory"); provided, that Wagner may engage in the Business as a sublicensee of the Company subject to entering into a sublicense agreement in the Company's sole discretion; (b) directly or indirectly influence or attempt to influence any customer or potential customer of the Company that is located in the Territory to purchase goods or services related to the Business from any Person other than the Company; or (c) employ or attempt to employ or solicit for any employment competitive with the Company any individuals who are employees of the Company at the Effective Time or influence or seek to influence any such employees to leave the Company's employment. In consideration of the foregoing covenants, the Company shall pay to Wagner $500,000, payable in two equal installments of $250,000 on each of December 1, 1997 and December 1, 1999. 4. NONDISCLOSURE. Wagner acknowledges and agrees that all customer, prospect and marketing lists, sales data, intellectual property, proprietary information, trade secrets and manufacturing techniques of the Company (collectively, but excluding any such items already or hereafter in the public domain other than as a result of a breach of this provision, the "Confidential Information") are valuable, special and unique assets and are owned exclusively by Company. As a consequence of Wagner's activities as an employee of the Company, Wagner has had access to and knowledge of the Confidentiality Information. In light of the competitive nature of the Business, Wagner agrees, so long as the provisions of Section 3 are in effect, that the Confidential Information will be treated as confidential and Wagner will not disclose any Page 2 3 Confidential Information to any Person or make use of any Confidential Information for his own purposes or for the benefit of any other Person (other than the Company). 5. AGREEMENTS WITH RESPECT TO CERTAIN OBLIGATIONS. Wagner and the Company agree as follows: (a) In full satisfaction of Wagner's obligations to the Company under the Note, as reduced for prepayment, Wagner hereby agrees to waive the Company's payment of its obligations in the amount of $3,375,000 to Wagner under Section 4(b)(i) of the Employment Agreement, and Wagner hereby releases the Company from, and the Company shall have no further obligations with respect to such payment. (b) In full satisfaction of the Company's obligation to Wagner under Section 4(b)(i) of the Employment Agreement, the Company hereby agrees to waive payment by Wagner of the balance, as reduced for prepayment, of the Note, and the Company acknowledges the full and complete payment in satisfaction of the Note, and the Company hereby releases Wagner from any and all indebtedness owed by Wagner to the Company pursuant to the Note. The Company agrees that such indebtedness owed by Wagner to the Company pursuant to the Note. The Company agrees that such indebtedness has been paid in full and canceled and Wagner is hereby released and discharged from all claims or causes of action of any kind, contingent or otherwise, relating to or arising out of such indebtedness. (c) The terms and conditions of Section 4(b)(ii) of the Employment Agreement shall remain in full force and effect to the extent permitted or the Company will pay or reimburse the costs of maintaining such benefits for the period provided therein. (d) The Company and Wagner hereby terminate the Pledge Agreement, acknowledge that the Pledge Agreement shall be of no further force or effect and acknowledge that they shall have no further rights or obligations pursuant to the Pledge Agreement. (e) The Company and Wagner hereby agree to terminate that certain Lease, dated October 11, 1988, between Wagner and Cabinet Magic, Inc. The parties agree to enter into a new lease to provide for a term of 10 years commencing January 1, 1996 and for lease payments of $15,000 per month for the first two years with adjustments equal to changes in the consumer price index in subsequent years. The Company will have the option to terminate such lease for a lump sum cash payment equal to the next 36 monthly installments. (f) The Company will indemnify and hold harmless Wagner in respect of acts or omissions as a director or officer occurring up to and including the Effective Date to the extent provided under the Company's certificate of incorporation and bylaws in effect on the Effective Date, and will indemnify and hold harmless Wagner in respect of any claims, liabilities, obligations or expenses in respect of or relating to this Agreement and the transactions contemplated hereby. The Company has advised Wagner that its Page 3 4 directors' and officers' liability insurance policies are on a claims incurred basis and that Wagner is a named insured. 6. RELEASES. Wagner and the Company agree as follows: (a) Wagner hereby releases, discharges and acquits the Company from any causes of action, claims, demands, debts, liability, expense or costs of court of any and every character and nature whatsoever, whether or not previously asserted, whether known or unknown, either in or arising out of the law of contracts, torts, property rights, statutes or ordinances as to all wrongful discharge claims, all tort, intentional tort, negligence, employee benefit claims and contract claims, any claim for attorneys' fees, costs, or expenses or any claim arising from any federal, state or local civil rights and/or employment law (including but not limited to, Title VII of the Civil Rights Act of 1964, the Texas Commission on Human Rights Act, The Age Discrimination in Employment Act, and the Americans With Disabilities Act) and/or wages, bonuses, commissions, at law or in equity, arising out of any matter at any time up to and including the date of execution of this Agreement; and any other matter whatsoever, it being the parties' intention that the scope and breadth of this release be as broad and extensive as lawfully possible in order to lay to rest forever any potential controversies concerning any matters existing or occurring prior to the execution of this Agreement; provided, however, that Wagner does not intend by this Agreement to release any rights that he may have arising from the express terms of this Agreement. (b) The Company hereby releases, discharges and acquits Wagner from any causes of action, claims, demands, debts, liability, expense or costs of court of any and every character and nature whatsoever, whether or not previously asserted, whether known or unknown, either in or arising out of the law of contracts, torts, property rights, statutes or ordinances, all tort, intentional tort, negligence, reimbursement claims, employee benefit claims and contract claims, any claim for attorneys' fees, costs, or expenses, at law or in equity, arising out of any matter at any time up to and including the date of execution of this Agreement; and any other matter whatsoever, it being the parties' intention that the scope and breadth of this release be as broad and extensive as lawfully possible in order to lay to rest forever any potential controversies concerning any matters existing or occurring prior to the execution of this Agreement; provided, however, that the Company does not intend by this Agreement to release any rights that it may have arising from the express terms of this Agreement. 7. REGISTRATION RIGHTS. (a) At any time after the Effective Date, Wagner may make a written request to the Company requesting that the Company effect the registration of the shares of common stock issuable upon exercise of Wagner's options under the stock Option Agreement, dated May 11, 1994, between the Company and Wagner (the "Registrable Securities") by filing a registration statement under the Securities Act of 1933, as amended (the "Securities Act"). After receipt of such a request, and subject to any previously granted registration rights, the Company will, as soon as practicable, use its best efforts to effect the registration of all Registrable Securities that the Company has Page 4 5 been so requested to register by Wagner for offer or sale on such appropriate registration form as will be selected by the Company and will permit the disposition of such Registrable Securities in accordance with the intended method of disposition thereof. Notwithstanding anything herein to the contrary the Company may, in its sole discretion and without the consent of Wagner, postpone the filing of such a registration statement for any reason for a period of up to 90 days from the date of its receipt of a request. (b) If the Company at any time after the Effective Date proposes to file on its behalf or on behalf of any of its security holders a registration statement under the Securities Act on any form (other than a registration statement on Form S-4 or any successor form unless such form is being used in lieu of, or as the functional equivalent of, registration rights) for any Common Stock, the Company will, at each such time, give written notice setting forth the terms of the proposed offering and such other information as Wagner may reasonably request to Wagner at least 30 days before the anticipated initial filing with the Securities and Exchange Commission (the "Commission") of such registration statement, and offer to include in such filing such Registrable Securities as Wagner may request. If Wagner desires to have Registrable Securities registered under this Section, he will advise the Company in writing within 15 days after the date of receipt of such notice from the Company, setting forth the number of such Registrable Securities for which registration is requested. The Company will thereupon include in such filing the number of Registrable Securities for which registration is so requested, and will use its best efforts to effect registration under the Securities Act of such Registrable Securities. Notwithstanding anything to the contrary in the prior sentence, if the managing underwriter or underwriters, if any, of such offering deliver a written opinion to the Company, with a copy to Wagner, that the success of the offering would be materially and adversely affected by the inclusion of the Registrable Securities requested to be included, then the amount of securities to be offered for the account of Wagner will be reduced to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter or underwriters; provided, however, that if securities are being offered for the account of other persons as well as the Company and Wagner, then, with respect to the Registrable Securities intended to be offered for the account of Wagner, the proportion by which the amount of Common Stock intended to be offered for the account of Wagner is reduced will not exceed the proportion by which the amount of Common Stock intended to be offered by such other persons (other than the Company) is reduced. The Company shall bear the costs and expenses of any such registrations, other than underwriting commissions or broker's fees. 8. PRESS RELEASES. Wagner and the Company agree to issue the attached press release and to consult with each other before issuing any additional press releases with respect to this Agreement and the transactions contemplated by this Agreement and agree not to issue any such additional press releases prior to such consultation except as may be required by applicable law or any listing agreement with any national securities exchange. 9. NOTICES. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of Page 5 6 service if served personally on the party to whom notice is to be given, or on the third day after mailing if mailed to the party to whom notice is to be given properly addressed, certified mail, return receipt requested, postage prepaid, as follows: if to the Company, to AMRE, Inc., 8585 N. Stemmons Freeway, South Tower, Dallas, Texas 75247: Attention: General Counsel; if to Wagner, at 45 Masland, Dallas, Texas 75230. 10. SEVERABILITY. In the event that any provision of this Agreement shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of this Agreement, but this Agreement shall be construed and enforced as if the illegal or invalid provision had never been inserted. 11. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Texas. 12. ATTORNEYS' FEES. The Company shall pay Wagner's reasonable attorneys' fees in connection with this Agreement and the transactions contemplated by this Agreement. In the event of any arbitration or litigation arising out of this Agreement, the prevailing party in such arbitration or litigation shall be entitled to recover reasonable costs and expenses incurred in connection with such arbitration or litigation, including, but not limited to, attorneys' fees. 13. ENTIRE AGREEMENT. Except as set forth herein, this Agreement constitutes the entire Agreement among the parties with respect to the transactions contemplated in this Agreement and there are no understandings or agreements relating to this Agreement that are not fully expressed in this Agreement. 14. WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded, canceled, renewed, or modified, and the terms hereof may be waived, only by a written instrument signed by the parties, or in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising the right, power or privilege hereunder shall authorize a waiver thereof. 15. BINDING EFFECT: NO ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties and the respective successors and permitted assigns and legal representatives. Neither this Agreement nor any other rights, interest, or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. 16. ARBITRATION. The parties agree to negotiate in good faith with respect to any dispute with respect to this Agreement or the transactions contemplated hereby. If the parties are not successful in resolving the dispute through such negotiations, then the parties agree that the dispute shall be settled by arbitration in accordance with the provisions of the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. 17. COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Page 6 7 18. HEADINGS. The headings in this Agreement are for reference only, and shall not effect the interpretation of this Agreement. 19. AUTHORIZATION. The Company represents and warrants that the person executing this Agreement on behalf of the Company is duly authorized to act for and on behalf of the Company to execute and deliver this Agreement and that this Agreement is a valid, binding and enforceable agreement of the Company. In witness whereof, the parties have signed this Agreement as of December 1, 1995. /s/ Ronald I. Wagner --------------------------- Ronald I. Wagner AMRE, Inc. By:/s/ Robert M. Swartz ------------------------ Name: Robert M. Swartz ---------------------- Title: President & C.E.O. --------------------- Page 7 EX-10.39 5 AMENDMENT NO.1 TO STOCKHOLDER AGREEMENT 1 AMENDMENT NO. 1 TO STOCKHOLDER AGREEMENT This Amendment No. 1 (the "AMENDMENT"), made and entered into this 12th day of December 1995, is by and among AMRE, Inc., a Delaware corporation ("AMRE"), and the undersigned stockholders of Facelifters Home Systems, Inc., a New York corporation (the "COMPANY") (each such stockholder a "STOCKHOLDER"), and amends that certain Stockholder Agreement, made and entered into the 31st day of October 1995, by and among AMRE and the Stockholders (the "STOCKHOLDER AGREEMENT"). Capitalized terms used and not defined herein shall have the meanings assigned to them in the Stockholder Agreement. PRELIMINARY STATEMENTS AMRE and the Stockholders desire to amend the Stockholder Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: STATEMENT OF AMENDMENT 1. Amendatory Provision. Section 13 to the Stockholder Agreement is hereby deleted in its entirety and the section headings subsequent to such former Section 13 are hereby renumbered to reflect such deletion. 2. Existing Agreement. Except as expressly amended hereby, all of the terms, covenants and conditions of the Stockholder Agreement (i) are ratified and confirmed, (ii) shall remain unamended and not waived and (iii) shall continue in full force and effect. 3. Governing Law. This Amendment shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Delaware without giving effect to the principles of conflict of laws thereof. 4. Counterparts. This Amendment may be executed in one or more counterparts. 5. Enforceability. If any provision of this Amendment shall be held to be illegal, invalid or unenforceable under any applicable law, then such contravention or invalidity shall not invalidate the entire Amendment or the Stockholder Agreement. Such provision shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modification shall render it legal, valid and enforceable, then this Amendment and the Stockholder Agreement shall be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties shall be construed and enforced accordingly. 2 IN WITNESS WHEREOF, AMRE has caused this Amendment to be executed by its duly authorized officer and the Stockholder has executed this Amendment as of the date and year first above written. AMRE, INC. By: /s/ Robert M. Swartz -------------------------------------- Name: Robert M. Swartz ------------------------------------ Title: Pres. & C.E.O. ----------------------------------- STOCKHOLDERS NUMBER OF SHARES Mark Honigsfeld 478,714 plus 122,500 option shares - ----------------------------------------- ------------------------------------------- Printed Name /s/ Mark Honigsfeld - ----------------------------------------- Signature 800 Snediker Ave. - ----------------------------------------- Address Brooklyn, NY 11207 - ----------------------------------------- Murray Gross 137,625 plus 235,000 option shares - ----------------------------------------- ------------------------------------------- Printed Name /s/ Murray Gross - ----------------------------------------- Signature 121 NW 53rd St. Suite 450 - ----------------------------------------- Address Boca Raton, FL 33496 - ----------------------------------------- Deedee Honigsfeld 158,606 plus 0 option shares - ----------------------------------------- ------------------------------------------- Printed Name /s/ Deedee Honigsfeld - ----------------------------------------- Signature 800 Snediker Ave. - ----------------------------------------- Address Brooklyn, NY 11207 - -----------------------------------------
2 EX-11 6 STATEMENT RE:COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 AMRE, INC. COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING (IN THOUSANDS)
Year Ended December 31, -------------------------------- 1993 1994 1995 ---- ---- ---- Common stock outstanding . . . . . . . . . . . . . . . 13,280 12,850 12,850 Effect of purchase of treasury shares . . . . . . . . . (476) - - Effect of stock issued on exercise of stock options . . . . . . . . . . . . . . . . . . . 84 - 53 Common stock equivalents . . . . . . . . . . . . . . . 232 181 - -------- -------- -------- Weighted average number of shares outstanding . . . . . 13,120 13,031 12,903 ======== ======== ========
EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 DEC-31-1995 10,658 8,484 7,445 690 6,080 37,917 20,306 14,676 54,314 37,728 241 146 3,000 0 13,199 54,314 271,337 271,337 88,451 88,451 0 789 14 (23,383) (1,523) (22,383) 0 0 0 (22,385) (1.73) (1.73)
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