-----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, LnwQiSHS0J8c3xVD+B++lR4LXyjYw5fkPLdxjCO+nZxa0PvYR9TI2kgq4ExZZYNG WwbEeBOpNtFdofzCKKFAUw== 0000891092-97-000238.txt : 19970625 0000891092-97-000238.hdr.sgml : 19970625 ACCESSION NUMBER: 0000891092-97-000238 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19970624 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JANUS INDUSTRIES INC CENTRAL INDEX KEY: 0001020359 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 132572712 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-22745 FILM NUMBER: 97629071 BUSINESS ADDRESS: STREET 1: C/O CRUMMY DEL DEO DOLAN GRIFFINGER & VE STREET 2: ONE RIVERFRONT PLAZA CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 9089645883 MAIL ADDRESS: STREET 1: C/O CRUMMY DELDEO DOLAN GRIFFINGER & VEC STREET 2: ONE RIVERFRONT PLAZA CITY: NEWARK STATE: NJ ZIP: 07102 10SB12G 1 FORM 10-SB As filed with the Securities and Exchange Commission on June 24, 1997 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 ------------- FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR 12(G) of THE SECURITIES EXCHANGE ACT OF 1934 ------------- JANUS INDUSTRIES, INC. (Name of Small Business Issuer) Delaware 13-2572712 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) One Riverfront Plaza P.O. Box 200114 Newark, New Jersey 07102-0302 (Address of Principal Executive Offices) (Zip Code) (973) 596-4916 (Issuer's Telephone Number) Securities to be registered under Section 12(b) of this Act Title of each class Name of exchange on which to be so registered each class is to be registered ------------------- ------------------------------ __________________________ ______________________________________ __________________________ ______________________________________ Securities to be registered under Section 12(g) of the Act: Common Stock, $.01 par value ----------------------------------------------------------- (Title of Class) ___________________________________________________________ (Title of Class) ================================================================================ PART I ITEM 1. DESCRIPTION OF BUSINESS Background of the Company Janus Industries, Inc. (the "Company" or "Janus") is the successor to United States Lines, Inc. ("U.S. Lines") which once was one of the largest containerized cargo shipping companies in the world. On November 24, 1986, McLean Industries, Inc., First Colony Farms, Inc. and their subsidiaries U.S. Lines and United States Lines (S.A.), Inc. ("U.S. Lines (S.A.)") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Soon thereafter, the shipping operations of U.S. Lines and U.S. Lines (S.A.) ceased. U.S. Lines and U.S. Lines (S.A.) emerged from bankruptcy in 1990 under the terms of the First Amended and Restated Joint Plan of Reorganization dated February 23, 1989 (the "Plan"). The names of U.S. Lines and U.S. Lines (S.A.) were changed to Janus Industries, Inc. and JI Subsidiary, Inc. ("JI Subsidiary"), respectively. Since emerging from bankruptcy, the Company and JI Subsidiary were engaged in attempting to find a suitable acquisition or acquisitions. The Company has completed two acquisitions, which are described below. JI Subsidiary has not completed any acquisitions and currently has no business activities. The Company and JI Subsidiary are incorporated under the laws of the State of Delaware. See "History of the Company's Reorganization." On April 24, 1997, the Company acquired, from affiliates of Louis S. Beck ("Beck") and Harry Yeaggy ("Yeaggy"), certain assets relating to the hospitality business comprised of (i) six hotels and an 85% partnership interest in a partnership which owns a hotel (collectively, the "Owned Hotels"), (ii) a hotel management company, with 21 hotels under management inclusive of the Owned Hotels (hereinafter the hotels which are managed, but not owned by the Company, are referred to as the "Managed Hotels" and the Owned Hotels and the Managed Hotels are collectively referred to as the "Hotels"), (iii) a management fee sharing arrangement with Summit Hotel Management Company ("Summit") and (iv) two loans, one of which is secured by a first mortgage on a hotel and the other of which is secured by a first mortgage on a campground and both of which are personally guaranteed by Messrs. Beck and Yeaggy (the acquired businesses and assets are collectively the "Beck-Yeaggy Group"). See "Certain Relationships and Related Transactions." In consideration therefor, Messrs. Beck and Yeaggy and an affiliated entity received shares of the Company's common stock, par value $.01 per share (the "Common Stock"), representing approximately 43% of the total outstanding shares of Common Stock and shares of the Series B preferred stock of the Company, par value $.01 per share, (the "Series B Preferred Stock"). Messrs. Beck and Yeaggy have been engaged in the hospitality business since 1972. After giving effect to the transactions with the Company, Messrs. Beck and Yeaggy continue to hold controlling equity interests in 12 hotel properties, seven of which are now managed by the Company (such seven hotels are the "Beck Yeaggy Affiliates") and, through another entity, continue to manage an additional two hotel properties. With the exception of these existing businesses, they have agreed not to engage in any business which competes with the business of the Company. See "Executive Compensation - Employment Agreements." In July 1996, the Company acquired substantially all of the assets of Pre-Tek Wireline Service Company, Inc. ("Wireline"), an oil and gas engineering services and wireline logging company based in Bakersfield, California. Wireline was founded in 1989 to provide customers in the oil and gas industry with integrated well testing and production logging services. The Company uses precision downhole data acquisition systems, and also uses advanced computer software to provide a complete analysis 2 service including well test design and interpretation and simulation. KFE Wireline, Inc. ("KFE" and collectively with Wireline, "Pre-Tek"), a wholly-owned subsidiary of Wireline which is also engaged in the oil and gas engineering services business, was acquired by Wireline in February 1996 and became a wholly-owned subsidiary of the Company upon the acquisition of the business of Wireline by the Company. The Hospitality Business General The Company's primary business is the ownership and management of hospitality properties. Owned Hotels The Owned Hotels are located in four states and operate under franchise agreements which provide for the use of the brand names Days Inn, Best Western and Knights Inn. One of the Owned Hotels is located at the Kings Dominion amusement park near Richmond, Virginia and has been designated as the host facility hotel for the amusement park. The remaining Owned Hotels are located either near office parks, interstate highways or airports in Ohio, Indiana and North Carolina. The Owned Hotels generally offer remote control cable television and pool facilities, and in some cases, restaurants. Most do not have meeting facilities nor do they offer in-room food service. They are designed to appeal primarily to business travelers and vacationers seeking lower cost hotel accommodations. The Owned Hotels are owned in fee, either directly or through consolidated entities. With the exception of the Hotel located at the Kings Dominion amusement park in which Messrs. Beck and Yeaggy have a 15% minority interest, the properties are wholly-owned by the Company. See "Certain Relationships and Related Transactions - Interest of Messrs. Beck and Yeaggy in Best Western, Kings Quarters." The following chart presents a summary of the operations at the Owned Hotels for calendar years ended December 31, 1995 and 1996. 1995 - -------------------------------------------------------------------------------- HOTEL AND LOCATION RMS AVAIL.(1) OCC%(2) ADR(3) RevPAR(4) - -------------------------------------------------------------------------------- DAYS INN, SHARONVILLE, OHIO 52,195 64% $44.28 $28.34 BEST WESTERN KINGS QUARTERS, 90,768 52% $54.32 $28.32 DOSWELL, VIRGINIA KNIGHTS INN, WESTERVILLE, OHIO 39,785 72% $32.95 $23.87 KNIGHTS INN, LAFAYETTE, INDIANA 40,880 82% $36.39 $29.71 KNIGHTS INN, MICHIGAN CITY, INDIANA 37,595 53% $34.66 $18.28 DAYS INN CRABTREE, 44,251 70% $45.37 $31.74 RALEIGH, NORTH CAROLINA DAYS INN RTP, 40,108 83% $55.60 $46.26 RALEIGH, NORTH CAROLINA - ----------------- (1) Calculation is based on number of hotel rooms multiplied by number of days in a year. (2) Total number of rooms sold during a year divided by total number of rooms available in such year. (3) Average Daily Rate equals total room revenue (exclusive of taxes) during a year divided by rooms sold. (4) Revenue Per Available Room equals total room revenues (exclusive of taxes) during a year, divided by rooms available for sale during such year. 3 1996 - -------------------------------------------------------------------------------- HOTEL AND LOCATION RMS AVAIL. OCC% ADR RevPAR - -------------------------------------------------------------------------------- DAYS INN, SHARONVILLE, OHIO 52,338 59% $45.10 $26.50 BEST WESTERN KINGS QUARTERS, 91,016 52% $53.86 $27.86 DOSWELL, VIRGINIA KNIGHTS INN, WESTERVILLE, OHIO 39,894 72% $34.24 $24.80 KNIGHTS INN, LAFAYETTE, INDIANA 40,942 75% $35.88 $26.98 KNIGHTS INN, MICHIGAN CITY, INDIANA 37,633 59% $58.93 $20.47 DAYS INN CRABTREE, 44,652 71% $50.03 $33.62 RALEIGH, NORTH CAROLINA DAYS INN RTP, 40,260 97% $60.33 $57.12 RALEIGH, NORTH CAROLINA The following is a description of each of the Owned Hotels: Days Inn Hotel, Raleigh, North Carolina. Built in 1979, the 122 room hotel is located on 2.79 acres on the south side of Glenwood Avenue in the Crabtree area of Raleigh. Glenwood Avenue is a major roadway through the area and connects the Raleigh-Durham airport (approximately 11 miles northwest of the property) and Interstate Highway 440 (one mile southeast). The hotel is well located relative to the area's universities and freeways. The improvements consist of two two-story, concrete block buildings with brick and glass exteriors, an outdoor swimming pool and a one-story building consisting of the hotel lobby and a 65 seat restaurant.. Access to the guest rooms is from exterior corridors. In 1996, approximately $37,000 was spent on capital improvements and upgrading the property. The hotel is subject to a first mortgage with a balance of approximately $2,829,000 as of March 31, 1997, which amount is to be amortized on a monthly basis through its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of 8.875% per annum. At March 31, 1997, the loan was in its third loan year. Under the terms of the mortgage, the loan may not be prepaid prior to the eighth loan year. Prepayment in loan years 8 through 14 is subject to a prepayment penalty of 7% in year 8 decreasing by 1% each year thereafter. In 1997 the Company intends to spend approximately $110,000 on capital improvements. Such improvements are expected to be paid from working capital and existing replacement reserves. The replacement reserve balance was $169,215 as of March 31, 1997. Best Western Kings Quarters, Doswell, Virginia. Built in 1977, the 248 room hotel is located on 10.5 acres on the eastern side of Interstate Highway 95 and the south side of Route 30 in Hanover County (Doswell), Virginia, 20 miles north of Richmond, Virginia. The hotel is the "Host Facility" for the adjacent Paramount Kings Dominion theme park. The improvements consist of two-story, brick hotel buildings with exterior corridors and pitched roofs. The hotel's lobby is attached to one of the guest buildings. The adjacent 140 seat Denny's restaurant is owned by the partnership which owns the hotel. The amenities also include an outdoor swimming pool, two tennis courts, a putting green, shuffleboard, volleyball, ping-pong, horseshoes, children's playground, video arcade, guest laundry, meeting room, lounge, exterior lighting and a paved parking lot for 360 cars. 4 The hotel is subject to a first mortgage with a balance of approximately $5,119,000 as of March 31, 1997, which amount is to be amortized on a monthly basis through its maturity date of January 1, 2016. The mortgage carries a fixed interest rate of 9.75% per annum. At March 31, 1997, the loan was in its second loan year. Under the terms of the mortgage, the loan may not be prepaid prior to the eighth loan year. Prepayment in loan years 8 through 14 is subject to a prepayment penalty of 7% in year 8 decreasing by 1% each year thereafter. The Company expects to spend approximately $50,000 for improvements to the property in 1997. Additionally, the hotel is scheduled for a design review in 1997. It is anticipated that the design review will result in additional improvements approximating $350,000 over a two to three year period beginning January 1998. Improvements are expected to be financed from working capital and existing replacement reserves. The replacement reserve balance as of March 31, 1997 was $415,385. Days Inn, Sharonville, Ohio. Built in 1974, the 142 room hotel is located along the southwest quadrant of the Interstate Highway Loop 275/State Road 42 intersection. The property's visibility from the two major highways is considered to be excellent. Improvements consist of three two story concrete buildings. The buildings have both interior and exterior corridors. The lobby/reception area is part of one of the guest buildings. Additionally, there is a one-story restaurant located on the property. The restaurant is leased to and is operated by an unrelated third party. The hotel is subject to a first mortgage with a balance of approximately $2,762,000 as of March 31, 1997. The mortgage requires monthly payments and matures on September 1, 2002 with a remaining balance, assuming no prepayment, of approximately $2,134,000.. The mortgage carries an interest rate of 9.50% per annum subject to adjustment on September 1, 1999 to a rate equal to 300 basis points above the weekly average yield on United States Treasury Securities adjusted to a constant maturity of three years. Under the terms of the mortgage, the loan has a "marked to market" prepayment penalty. In 1995, the Company, in concert with Days Inn of America, Inc., prepared a two year product improvement plan. Phase I was completed in 1996 and Phase II will be completed in the fourth quarter of 1997. Phase II is expected to cost approximately $115,000 and will be financed through internally generated cash flow. Days Inn (Research Triangle), Morrisville, North Carolina. Built in 1987, the 110 room hotel is located on approximately 3.47 acres on Airport Blvd., south of Interstate Highway 40 and the Raleigh-Durham Airport. The three-story concrete block building is faced with a brick and glass facade and is well located relative to area universities, research facilities and freeways. The building has interior corridors and a port cochere for convenient loading and unloading of guests, and which provides a protected entry into the hotel's lobby. Amenities include a fitness room, two meeting rooms, an outdoor swimming pool and two airport shuttle vans. The hotel is subject to a first mortgage with a balance of approximately $2,901,000 as of March 31, 1997, which amount is to be amortized on a monthly basis through its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of 8.875% per annum. At March 31, 1997, the loan was in its third loan year. Under the terms of the mortgage, the loan may not be prepaid prior to the eighth loan year. Prepayment in loan years 8 through 14 is subject to a prepayment penalty of 7% in year 8 decreasing by 1% in each year thereafter. 5 The Company intends to spend approximately $110,000 for capital improvements in 1997. Capital expenditures are expected to be financed from working capital and replacement reserves. As of March 31, 1997, the balance in the replacement reserve account was $124,728. Knights Inn, Westerville, Ohio. Built in 1985, the 109 room hotel is located on approximately 2.85 acres at the northern line of Heather Down Road, approximately 155 feet west of State Highway 10. Improvements consist of four one-story modular buildings with wood trimmed stone and stucco exteriors and an outdoor pool. The buildings have exterior corridors. The lobby consists of a reception area and an office. The hotel is subject to a first mortgage with a balance of approximately $1,058,000 as of March 31, 1997. The mortgage matures at August 1, 2001 with a remaining balance, assuming no prepayment, of approximately $867,000. The mortgage carries a fixed interest rate of 8.91% per annum. Under the terms of the mortgage, the loan may be prepaid in whole or part at any time without penalty. The Company intends to spend approximately $33,000 for capital improvements in 1997. Capital expenditures will be financed from working capital. Knights Inn, Michigan City, Indiana. Built in 1987, the 103 room hotel is located on approximately 3.45 acres on the north side of Kieffer Road approximately 1/4 mile west of U.S. Highway 421. The property is highly visible from U.S. Highway 421. Improvements consist of 5 one-story modular buildings with wood trimmed stone and stucco exteriors. The buildings have exterior corridors. The lobby consists of a reception area and an office. The hotel is subject to a first mortgage with a balance of approximately $1,646,000 as of March 31, 1997. The mortgage requires monthly payments and matures at April 1, 2006 with a remaining balance, assuming no prepayment, of approximately $1,097,000. The mortgage carries an interest rate of 9.5% per annum subject to adjustment every three years to a rate 100 basis points above the original lending bank's prime rate. The interest rate on the mortgage was last adjusted April 1, 1997. Under the terms of the mortgage, the loan may be prepaid in whole or in part at any time without penalty. The Company intends to spend approximately $60,000 for capital improvement in 1997. The scheduled capital improvements are expected to be financed from working capital. Knights Inn, Lafayette, Indiana. Built in 1987, the 112 room hotel is located on approximately 3.24 acres on the north side of State Road 26 approximately 1/2 mile west of Interstate Highway 65. The property is not visible from the interstate highway, but is visible from State Road 26. Improvements consist of four one-story modular buildings with wood trimmed stone and stucco exteriors and an outdoor swimming pool. The buildings have exterior corridors. The lobby consists of a reception area and an office. The hotel is subject to a mortgage with a balance of approximately $2,181,000 as of March 31, 1997. The mortgage matures at April 1, 2006 with a remaining balance, assuming no prepayment, of approximately $1,453,000. The mortgage carries an interest rate of 9.50% per annum subject to adjustment every three years to a rate 100 basis points above the original lending bank's prime rate. The interest rate on the mortgage was last adjusted April 1, 1997. Under the terms of the mortgage, the loan may be prepaid in whole or in part at any time without penalty. 6 The Company intends to spend approximately $65,000 for capital improvements in 1997. Capital improvements are expected to be financed from working capital. The Managed Hotels The Company operates Managed Hotels pursuant to management agreements (the "Management Agreements") with the owners of such Managed Hotels. Eleven of the Managed Hotels are operated under nationally-recognized brand names and three are non-franchised properties. The brand names of the Managed Hotels include Best Western, Days Inn, Knights Inn, Comfort Suites, Howard Johnson and Holiday Inn. The Management Agreements have remaining terms ranging from one year to 10 years. Substantially all of the Management Agreements permit the owners of the Managed Hotels to terminate such agreements prior to the stated expiration dates if the applicable hotel is sold, and several of the Management Agreements permit the owners of the Managed Hotels to terminate such agreements prior to the stated expiration date without cause or by reason of the failure of the applicable hotel to obtain specified levels of performance. No single Management Agreement accounted for more than 5% of the total annual revenue of the Beck-Yeaggy Group for the year ended December 31, 1996. Under the terms of the Management Agreements, management fees are based on a fixed percentage of a property's total revenues and/or incentive payments based upon net operating income. Additional fees are also generated from the rendering of accounting services. There are three categories of properties from which the Company derives management fees: (i) the Beck-Yeaggy Affiliates managed by the Company; (ii) third party owned properties managed by the Company; and (iii) third party owned properties managed by the Company's marketing partner, Summit. Each of the Management Agreements with respect to the Beck-Yeaggy Affiliates has fixed management fees of 5% of total revenues of the Managed Hotel and has a term expiring in the year 2007. The Management Agreements with the Beck-Yeaggy Affiliates may be terminated in the event of a sale of the underlying hotels, but in such event the Company is entitled to a termination payment equal to the present value of the average of total fees for the prior three years (or such shorter period that the Management Agreement was in effect) times the number of years remaining on the term of the Management Agreement. Messrs. Beck and Yeaggy, together with Summit, organized the Beck-Summit Hotel Management Group, a Florida general partnership ("Beck-Summit"), in 1992. The Company has succeeded to the 50% partnership interest in Beck-Summit previously beneficially owned by Messrs. Beck and Yeaggy. The purpose of the partnership is to market management services jointly and divide the management fees resulting therefrom. Under the terms of the agreement between the parties, the party which identifies a management opportunity acts as the manager for the applicable property and receives 80% of the management fees payable by the property owner. The remaining 20% of the management fees are retained by Beck-Summit. Funds retained by the partnership that are in excess of its cash requirements, are distributed to the Company and Summit equally. Upon termination of the partnership, each party retains the management rights to the properties it originally identified. The Beck-Yeaggy Group earned approximately $691,000 during the calendar year 1996 through its relationship with Beck-Summit. Operations The Company operates each Hotel according to a business plan specifically tailored to the characteristics of the Hotel and its market and employs centralized management, accounting and 7 purchasing systems to enhance hotel operations, reduce the costs of goods purchased for the Hotel and increase operating margins. Computerized Reporting Systems. The Company has a service agreement dated April 23, 1997 for a hotel property management information system with Computel Computer Systems, Inc. ("Computel"), a corporation wholly-owned by Messrs. Beck and Yeaggy. This agreement provides a computerized system which tracks all services provided by most of the Hotels and enables the Company to monitor a broad spectrum of the operations of each Hotel covered by the system, including the occupancy and revenues of the Hotels. The agreement with Computel has a term of one year and automatically renews for successive terms of one year, unless one party notifies the other to the contrary at least three months prior to the termination date. Computel is paid a monthly fee of $275 per hotel for its basic property management software package and one computer terminal. Additional monthly fees are charged for additional terminals and add-on software for services such as guest messaging, call accounting interface, franchise central reservation interface and movie interface. On each annual renewal of the agreement, Computel is entitled to adjust its fees to the Company commensurate with the fees charged to other customers. See "Certain Relationships and Related Transactions - Interest of Messrs. Beck and Yeaggy in Service Providers to the Company." Hotel Personnel. Personnel at the Hotels are provided by Hospitality Employee Leasing Program, Inc. ("HELP"), a corporation wholly-owned by Messrs. Beck and Yeaggy, pursuant to an agreement dated April 23, 1997. The agreement has a term of one year and automatically renews for successive terms of one year, unless one party notifies the other to the contrary at least three months prior to the termination date. The Company pays HELP the actual costs of the personnel provided to it to operate the Hotels plus an administrative fee of $8.15 per bi-monthly pay period per person provided. See "Certain Relationships and Related Transactions - Interest of Messrs. Beck and Yeaggy in Service Providers to the Company." Franchise Agreements The Company has entered into non-exclusive multi-year franchise, licensing or membership agreements, which allow the Company to utilize the franchise or brand name of the franchiser or licensor. The Company believes that its relationships with nationally recognized franchisers provides significant benefits for its existing Owned Hotels. The franchise agreements require the Company to pay annual fees, to maintain certain standards and to implement certain programs which require additional expenditures by the Company such as remodeling or redecorating. The payment of annual fees, which typically total from 8% to 12% of room revenues, covers royalties and the costs of marketing and reservation services provided by the franchisers. Franchise agreements, at their inception, generally provide for an initial fee in addition to annual fees payable to the franchiser. The Company currently has franchise or membership relationships with Days Inn, Knights Inn and Best Western, and through the Managed Hotels, relationships with Howard Johnson, Comfort Suites and Holiday Inn. Franchise agreements may be terminated if, among other reasons, the Company breaches its obligations under the agreement, the hotel is not operated in the ordinary course of business or the Company becomes financially unstable. There can be no assurance that a desirable replacement could be available if any of the franchise agreements were to be terminated. Upon such termination, the Company would incur the costs of signage removal and other expenses, possible lost revenues and the costs incidental to establishing new associations. 8 Employment and Other Government Regulation The lodging industry is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and beverages (such as health and liquor license laws) and building and zoning requirements. Also, the Company and HELP are subject to laws governing relationships with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. The failure to obtain or retain liquor licenses or an increase in overall wage rates, employee benefit costs or other costs associated with employees, could adversely affect the Company. Under the Americans with Disabilities Act of 1990 (the "ADA") all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. While the Company believes its hotels are substantially in compliance with these requirements, a determination that the Company is not in compliance with the ADA could result in the imposition of fines or an award of damages to private litigants. These and other such initiatives could adversely affect the Company. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with the ownership or operation of the Hotels, the Company may be potentially liable for any such costs. Although the Company is not currently aware of any material environmental claims pending or threatened against it, no assurance can be given that a material environmental claim will not be asserted against the Company or against the Company and the Hotels. The cost of defending against claims of liability or of remediating a contaminated property could have a material adverse effect on the results of operations of the Company. Competition The lodging industry is highly competitive. Several of the Company's competitors are larger than the Company and have greater financial and other resources and better access to the capital markets than the Company. Performance of the hotel industry has been cyclical and is affected by general economic conditions and by the local economy where each hotel is located. In addition, to remain competitive, hotels must be periodically renovated and modernized in order to compete with newer or more recently renovated facilities. Furthermore, shifts in demographics or other local market changes can reduce the economic returns from a hotel. Employees As of June 1, 1997, four full-time employees and four part-time employees of the Company were engaged in management, business operations and administration of its hospitality business. In addition, at that date approximately 817 individuals employed by HELP provided services at the Hotels under a service agreement between HELP and the Company. See "The Hospitality Business - Operations." Growth Strategy Management of the Company intends to pursue a program of expanding its business of the acquisition and/or management of hospitality (including hotels), recreation, health care, entertainment or other related properties through the marketing of its services to properties not owned by the Company or by affiliates of Messrs. Beck and Yeaggy and through the acquisition of properties either by itself or with 9 others. There can be no assurance that the Company will be successful in pursuing this growth strategy due to the highly competitive nature of the market and current limitations on the Company's ability to raise capital through the issuance of Common Stock and certain types of preferred stock. See "Risk Factors - -Competition"; and - "Possible Need for Additional Financing" and "Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources." Investment Policies Generally. The Company's core business is the acquisition and/or management of hospitality (including hotels), recreation, health care, entertainment or other related properties which the Company believes may benefit from the Company's management expertise. Investments in Real Estate or Interests in Real Estate. Investments in properties may include the acquisition and redevelopment of existing properties, the acquisition of existing properties in concert with a third party, acquisition of existing or new management contracts related to hospitality, recreation, health care or entertainment properties or, in circumstances the Company deems potentially advantageous, the acquisition of unimproved property and the subsequent development or sale of such property. There is no limitation on the percentage of the Company's assets which may be invested in any one investment or in any one type of investment, including the geographic location or distribution of such investments. The Company's investment policy may be changed without a vote of the Company's security holders. The primary purpose of the Company's acquisition and investment policy is to acquire assets which will provide income to the Company. Capital gains related to the disposition of assets held by the Company is a secondary consideration. While the Company is unrestricted in terms of the type of properties in which it may invest, the Company intends to focus its real estate investments on hospitality or entertainment-related properties without specific geographic limitations. Financing for any acquisitions undertaken by the Company is expected to be provided through a combination of cash on hand, internally generated cash, capital stock transactions (to the extent such capital stock transactions can be accomplished without jeopardizing the Company's net operating loss carryforwards) and through borrowings. There can be no assurance that the enumerated sources of financing will be available to the Company on a timely basis nor that borrowings by the Company will be available on terms the Company deems acceptable, or at all. There is no limitation as to the amount of indebtedness the Company may incur nor the amount or number of mortgages which the Company may place on any one piece of property. Investments in Real Estate Mortgages. The Company does not, within its core business, intend to invest in real estate mortgages, except as ancillary to the acquisition of other assets. It is not the Company's intention to service or to warehouse real estate mortgages, nor is it the Company's intention to invest in real estate mortgages as a passive investor in such instruments. Securities of or Interests in Persons Primarily Engaged in Real Estate Activities. The Company does not intend to invest in securities of persons primarily engaged in real estate activities, except where such investment may be ancillary or incidental to transactions involving hospitality, recreation or entertainment-related properties or management agreements to be acquired by the Company. In this respect, the Company may acquire positions in corporate common stock, real estate investment trusts, partnerships or limited liability companies. 10 The Energy Service Business General In July 1996 the Company acquired the assets and liabilities of Pre-Tek Wireline Service Company, Inc. ("Wireline"), an oil and gas engineering services and wireline logging company based in Bakersfield, California, and all of the stock of its wholly-owned subsidiary, KFE Wireline, Inc. ("KFE", and collectively with Wireline, "Pre-Tek"), which engages in the same type of businesses as Wireline. Wireline was founded in 1989 to provide customers in the oil and gas industry with integrated well testing and production logging services. The company provides precision downhole data acquisition systems, and also uses advanced computer software to provide a complete analysis service including well test design and interpretation and simulation. Pre-Tek's operations are primarily in California. Its major customers include Mobil Oil Corp., Chevron U.S.A., Inc., Texaco E & P Inc., Unocal Corporation, Shell Western E&P and Southern California Gas Company. Wireline acquired KFE in February 1996. Wireline logging services are required in order to evaluate downhole conditions at various stages of the well drilling and production process. Such services are typically provided with a truck-mounted winch unit equipped with an armored cable to which a variety of tools may be attached. The cable, which contains one or more electrical conductors, is used to lower instruments and tools into a well to perform a variety of services and tests. The winch unit's instrument cab compartment contains both computerized and electronic equipment to supply power to downhole instruments, to receive and record data from these instruments in order to produce the logs which define specific characteristics of each formation, the flow of product from the well and to display the data received from the well. These services are performed at various times, from the time a well is first drilled until it is depleted and abandoned. Open hole logging is performed after the drilling of the well. Cased hole logging is performed after the casing is set in the well and cemented into place, and from time-to-time thereafter, during the life of the well. Cased hole services include radioactive and acoustic logging which are used to evaluate downhole conditions such as lithology, porosity, production patterns and the cement bonding effectiveness between the casing and the formation. Other cased hole services include perforating, which opens up the casing to allow production from the formations, and free-point and back-off, which locates and releases pipes that have become lodged in the well. Cased hole services are used in the initial completion of the well and in virtually all subsequent workover and stimulation projects throughout the life of the well. Pre-Tek performs these services at the well site for well operators and owners. Competition Pre-Tek's services are sold in highly competitive markets. Competition is based upon a combination of price, service (including the ability to deliver services on "as needed, where needed basis") and technical proficiency. Pre-Tek's major competitors often service many geographic areas and some conduct their operations worldwide. Several of Pre-Tek's competitors are larger and have greater resources than Pre-Tek. 11 Government Regulation Pre-Tek is subject to various environmental laws and regulations in connection with its energy service business. Compliance with such requirements has historically neither substantially increased capital expenditures nor adversely affected the Pre-Tek's competitive position. There can be no assurance that this condition will continue in the future. Employees Pre-Tek has 13 full time employees and retains part-time employees on an as needed basis. History of the Company's Reorganization Under the terms of the Plan, (i) The United States Lines, Inc. and United States Lines (S.A.), Inc. Reorganization Trust (the "Reorganization Trust") was created for the benefit of unsecured creditors of U.S. Lines and U.S. Lines (S.A.); (ii) certain assets and liabilities of U.S. Lines and U.S. Lines (S.A.) were transferred to the Reorganization Trust; and (iii) U.S. Lines and U.S. Lines (S.A.) were discharged of all liabilities. The agreement establishing the Reorganization Trust (the "Trust Agreement") provided for shares of stock of Janus and JI Subsidiary to be distributed to the unsecured creditors as their claims were allowed. See "The Reorganization Trust." The Plan provided for the unsecured creditors to hold a majority of the outstanding stock of the reorganized companies through the Reorganization Trust and further provided for a sale of stock to an investor who would identify investment opportunities for the reorganized companies. A principal objective of the Plan revealed in the Second Amended and Restated Disclosure Statement of McLean Industries, Inc., First Colony Farms, Inc., United States Lines and United States Lines (S.A.), Inc. dated February 23, 1989 (the "Disclosure Statement") was the preservation and maximization of substantial net operating loss carryforwards ("NOLs") of U.S. Lines and U.S. Lines (S.A.) for Federal income tax purposes. The Plan designed the Company's post-reorganization capital structure in order to comply with the net operating loss provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and to ensure that at least one half of the common stock of Janus was owned by creditors whose claims were "old and cold". Indebtedness of creditors was deemed "old and cold" by the Reorganization Trust if the indebtedness (i) was held by a particular creditor for at least 18 months before the date of the filing of the Chapter 11 case or (ii) arose in the ordinary course of the trade or business of the old loss corporation and was held by the person who at all times held a beneficial interest in that debt. Common Stock was issued to creditors with "old and cold" indebtedness and a class of 4,000 shares of 12% preferred stock, having a liquidation value of $100 per share (the "Series A Preferred Stock"), was created for distribution to those creditors whose claims did not meet the "old and cold" criteria. The Company redeemed the outstanding shares of Series A Preferred Stock in December 1996. Under the terms of the Plan, reorganized U.S. Lines (S.A.) remained a separate entity under the name JI Subsidiary. Approximately ninety percent (90%) of the outstanding common stock of JI Subsidiary is owned by Janus. As another means of preserving the Federal income tax attributes of both U.S. Lines and U.S. Lines (S.A.), the Reorganization Trust was issued both common stock of JI Subsidiary and a class of preferred stock of JI Subsidiary (the "JIS Series A Preferred Stock") for the 12 benefit of the separate former unsecured creditors of U.S. Lines (S.A.). JI Subsidiary redeemed the outstanding shares of JIS Series A Preferred Stock in December 1996. The Dyson-Kissner-Moran Corporation, through a subsidiary ("DKM"), was the investor which acquired stock of Janus as part of the Plan. DKM purchased 36% of the stock of Janus for $3,000,000 and received a warrant to buy an additional 9% of the stock. In addition, DKM purchased shares of the common stock of JI Subsidiary and shares of JIS Series A Preferred Stock. Under the Plan, DKM controlled the board of directors of Janus and provided managerial services. Three representatives of the unsecured creditors of U.S. Lines also served on the board. The combination of an initial cash investment from the unsecured creditors, an initial cash investment from DKM, estimated available NOLs of at least $500 million and DKM's experience in acquisitions, investments and management were to have resulted in Janus' acquisition of one or more operating companies, the goal of which was to enhance the value of the Janus stock to be distributed to the former creditors from the Reorganization Trust. After five years, DKM was unable to make an acquisition for Janus or JI Subsidiary. DKM's stock in Janus and JI Subsidiary was redeemed effective May 15, 1995 for less than half of DKM's original investment. Effective upon the redemption, the representatives of the former creditors of U.S. Lines on the Janus Board of Directors assumed responsibility for the management of the Company and JI Subsidiary. The Board thereafter retained James E. Bishop, an individual with experience in mergers, acquisitions and investment banking as a senior officer and charged him with the responsibility of carrying out the Company's and JI Subsidiary's acquisition objectives. The Reorganization Trust The Reorganization Trust was created by the Plan for the purpose of resolving the disputed claims of former unsecured creditors of U.S. Lines and U.S. Lines (S.A.), marshalling the remaining assets of U.S. Lines and U.S. Lines (S.A.), such as claims against third parties, and acting as the disbursing agent for distributions to the former creditors. The Trustee of the Reorganization Trust is John T. Paulyson, who has been employed by the Reorganization Trust since its inception. The Reorganization Trust was issued stock by both Janus and JI Subsidiary which was intended by the Plan to be distributed to the former creditors of U.S. Lines and U.S. Lines (S.A.) as their claims were resolved. 5,000,000 shares of the Company's Common Stock was originally issued to the Reorganization Trust, all ultimately to be distributed to allowed creditors of U.S. Lines. As of June 9, 1997, 3,943,025 of such shares have been distributed by the Reorganization Trust to former creditors. The balance of 1,056,975 shares, inclusive of a fixed reserve of 352,850 shares of Common Stock established by order of the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") for the benefit of asbestos-related and other late-manifesting claimants, is to be distributed to former creditors of U.S. Lines. The former creditors of U.S. Lines whose claims have yet to be resolved include, in addition to approximately 900 non-asbestos related claimants, more than 10,800 individuals who have asserted asbestos and other late-manifesting personal injury claims. The resolution of these claims (and any future late-manifesting asbestos and other personal injury claims) is delayed, in part, by a dispute between the Reorganization Trust and the insurance carriers of U.S. Lines over certain aspects of insurance coverage. 13 The Trust Agreement provides for the Reorganization Trust to make contributions of cash to Janus and JI Subsidiary from time to time of cash on hand which exceeds its projected liabilities and administrative requirements. Such contributions are to be made ninety percent (90%) to Janus and ten percent (10%) to JI Subsidiary. In accordance with this provision, the Reorganization Trust transferred an aggregate of $7,621,980 to Janus and JI Subsidiary during 1996. An additional $755,000 was transferred on April 25, 1997. Management of the Company believes that more monies may ultimately be available for contribution to it by the Reorganization Trust. However, no assurance can be given, nor is any assurance intended, that additional cash will become available to the Company from the Reorganization Trust or the amount of such additional cash. Among the assets of the Reorganization Trust are its claims in a pending litigation. Pursuant to the United States Bankruptcy Code, the Reorganization Trust seeks the turnover of approximately $13 million that is subject to an alleged preferential security interest received by the United States Maritime Administration ("MARAD") from U. S. Lines (S.A.). The Reorganization Trust commenced an adversary proceeding (the "Adversary Proceeding") on September 18, 1989 to, among other things, disallow MARAD's claims against U.S. Lines (S.A.) until MARAD relinquishes the funds subject to MARAD's alleged preferential security interest. The matter currently is on appeal by MARAD to the United States Court of Appeals for the Second Circuit (the "Second Circuit"). A summary of the facts of the Adversary Proceeding, based on findings by the trial courts, is as follows: 1. In 1964 and 1965, U.S. Lines (S.A.), through a predecessor company, built three ships. Construction was financed in part by MARAD subsidies. Later, bonds were issued totaling $11,526,000, secured by a first preferred mortgage on each vessel, dated June 7, 1967 (the "1967 Ship Mortgage"), and insured by MARAD. 2. In 1983, the three ships were modified and enlarged. The work was financed by borrowings (bonds) of $25.7 million guaranteed by MARAD and secured by a second preferred mortgage (the "1983 Fleet Mortgage"). 3. In 1986, U.S. Lines (S.A.) asked the bondholders and MARAD to defer a $2,450,000 payment due June 30, 1986 on the 1983 Fleet Mortgage. They agreed, in return to an amendment dated July 31, 1986 to the 1983 Fleet Mortgage, including a covenant against bareboat chartering of the vessels without MARAD's consent. 4. On September 24, 1986, U.S. Lines (S.A.) entered into an agreement with Lykes Bros. Steamship Company ("Lykes") for a three-year bareboat charter of the vessels, subject to the approval of MARAD. 5. In return for its approval of the charter, MARAD required, among other things, an assignment of the charter and charter hire as additional security. On November 4, 1986, the parties signed: (a) Charter Agreements (the "Charters") between U.S. Lines (S.A.) and Lykes; 14 (b) a Charter Assignment and Agreement among U.S. Lines (S.A.), Lykes and MARAD (the "Assignment");(1) and (c) a Depository Agreement between MARAD and Chemical Bank (the "Depository Agreement"). 6. The Charters provided for payment to be made to Chemical Bank pursuant to the Assignment, which together with the Depository Agreement, directed Chemical Bank to transfer the payments to U.S. Lines (S.A.), unless MARAD notified Chemical Bank of a demand upon MARAD's guarantees. After such notice, Chemical Bank was to hold the payments subject to MARAD's instructions. 7. On November 24, 1986 (the "Petition Date"), and within the avoidable preference period under bankruptcy law, U.S. Lines (S.A.) filed its Chapter 11 petition. 8. On February 26, 1987, MARAD received the first demand upon its guarantees and instructed Chemical Bank to hold the charter payments. Chemical Bank stopped transferring the payments to U.S. Lines (S.A.) but refused, when requested, to transfer the deposits to MARAD without a court order. 9. On December 31, 1987, MARAD filed a proof of claim which included the approximately $2.4 million then held by Chemical Bank under the Depository Agreement. 10. U.S. Lines (S.A.)'s Plan was confirmed on May 16, 1989. Under the Plan, U.S. Lines (S.A.) assumed the Charters. 11. U.S. Lines (S.A.) commenced the Adversary Proceeding against MARAD in September, 1989. 12. The balance in the depository account at Chemical Bank, which is interest-bearing, as of April 30, 1990 was over $9.7 million. In an opinion dated September 17, 1991, the Bankruptcy Court granted summary judgment in favor of U.S. Lines (S.A.) to the effect that the Assignment was a voidable preference. The United States District Court for the Southern District of New York (the "District Court"), affirmed on appeal the judgment of the Bankruptcy Court. However, on July 28, 1994, the Second Circuit reversed on the ground that while the appeal was pending in that court, it had decided in a separate matter that a preference action was barred if not commenced by a debtor-in-possession within two years of the filing of its Chapter 11 petition. Therefore, noting that the Adversary Proceeding was commenced two years and ten months after the Petition Date, the Second Circuit reversed the preference judgment and remanded the case for the limited purpose of considering U.S. Lines (S.A.)'s alternative argument that under section 502(d) of the Bankruptcy Code MARAD's claims should be disallowed until MARAD relinquished any benefit from the preferential transfer of the security interest in the charter payments. - --------------- (1) This is the alleged preference. 15 On remand, in an opinion dated June 9, 1995, the Bankruptcy Court again granted summary judgment in favor of U.S. Lines (S.A.) disallowing MARAD's claims and finding that pursuant to section 502(d) MARAD's liens are void under section 506(d) of the Bankruptcy Code until MARAD relinquishes its preferentially transferred security interest. The Bankruptcy Court held that the two-year limitation period for commencing a preference suit did not apply to the causes of action under section 502(d). MARAD appealed the June 1995 judgment to the District Court. On June 6, 1996, the District Court affirmed the decision of the Bankruptcy Court in favor of the Reorganization Trust regarding sections 502(d) and 506(d) of the Bankruptcy Code. MARAD appealed to the Second Circuit. Oral arguments were heard on March 11, 1997 and a decision has not been rendered. Not only is the outcome of this litigation uncertain, the date that any decision will become final is also uncertain. The Reorganization Trust, in consultation with the Company, is presently engaged in settlement discussions with MARAD. There can be no assurance that these discussions will result in a final, binding agreement between the parties. In the absence of a settlement, there can be no assurance that the Reorganization Trust will receive any funds as a result of this litigation, or if any funds are received by the Reorganization Trust, when, or if, those funds would be contributed to the Company by the Reorganization Trust. The balance in the depository account at March 31, 1997 was approximately $13 million. The Net Operating Loss Carryforwards The following description of the NOLs is based upon management's analysis of the application of the relevant sections of the Code to the historical NOLs of U.S. Lines and U.S. Lines (S.A.). There can be no assurance that the Internal Revenue Service or the courts will agree with management's analysis. There are substantial risks associated the Company's utilization of its NOLs. See "Risk Factors - Net Operating Loss Carryforwards." In the Disclosure Statement, it was estimated that the NOLs available to U.S. Lines and U.S. Lines (S.A.) (collectively, the "US Lines Group") were in the range of $900 million to $1.15 billion dollars. As a result of the reorganization of the US Lines Group pursuant to the Plan, as described in more detail below, management believes the NOLs are at least $500 million, although no assurance can be given that the Company will be able to utilize these NOLs. Minor amounts of these NOLs will expire before 1999 and material amounts of these NOLs will expire beginning in 1999. Under Code ss.172(b), unused NOLs expire after fifteen taxable years from the taxable year of a loss. The NOLs of the Company may be affected by Internal Revenue Service audits, subsequent changes in the ownership of the Company, the application of Code Sections 269, 382 and 384, and the consolidated return regulations under Code Section 1502, which are described below. Cancellation of Debt Income. Under the Plan, as described in the Disclosure Statement, unsecured indebtedness of the US Lines Group with an aggregate face amount of approximately $1 billion to $1.35 billion was canceled. Generally, the Code provides that a debtor whose indebtedness is canceled must include the amount of canceled indebtedness in gross income to the extent the indebtedness canceled exceeds any consideration given for the cancellation. The Code further provides, however, that if a taxpayer is the subject of a bankruptcy case and the cancellation of indebtedness ("COD") is pursuant to a plan approved by the Bankruptcy Court, the amount canceled is not required to be included in gross income. Instead, if the creditors receive cash or property other than stock of the 16 debtor, any amounts so excluded from gross income reduce prescribed tax attributes of the debtor, including NOLs and the bases of the assets of the debtor, in a specified order of priority beginning with NOLs. As described in the Disclosure Statement, since it was expected that creditors would receive some stock of the debtor (discussed in the following paragraphs), it was anticipated that the amount of NOLs that would be reduced pursuant to these provisions would be relatively small. Provided two "de minimis" requirements were satisfied, if a debtor in bankruptcy satisfied its debt by issuing its own stock prior to the effective date of the Revenue Reconciliation Act of 1993, the debtor generally did not recognize COD income nor did it suffer NOL reduction. To satisfy these two de minimis requirements former Code ss.108(e)(8) required that (i) a creditor must have received more than nominal or token shares, and (ii) with respect to any unsecured creditor, the ratio of the value of the stock received by the unsecured creditor to the amount of its indebtedness canceled or exchanged for the stock must not have been less than 50% of a similar ratio computed for all unsecured creditors participating in the restructuring. For purposes of this ratio, secured creditors were treated as unsecured to the extent they were under-secured. It had been hoped that the US Lines Group could meet the two de minimis tests by issuing stock of U.S. Lines to the creditors of both U.S. Lines and U.S. Lines (S.A.). U.S. Lines requested a private letter ruling from the Internal Revenue Service asking it to rule that the US Lines Group could be considered a single entity both in applying the stock for debt exception to COD and in applying Code ss.382 (discussed below). A favorable ruling on this issue, however, could not be obtained. Therefore, both U.S. Lines and U.S. Lines (S.A.) issued stock to their respective unsecured creditors to minimize any COD. Because the Reorganization Trust represented and acted on behalf of the creditors of both U.S. Lines and U.S. Lines (S.A.), stock of both entities was issued to the Reorganization Trust in order to settle claims of creditors of both entities. The Plan was confirmed in 1989. Pursuant to the Plan, the then outstanding common stock of U.S. Lines was canceled. Sixty-four percent (64%) of the issued shares of Common Stock (55% after dilution for the warrant issued to DKM) and 2,200 shares of the Series A Preferred Stock, was distributed to the Reorganization Trust for the benefit of creditors of U.S. Lines in exchange for the cancellation of their debt and a $3 million cash capital contribution. DKM contributed $3 million dollars in exchange for 36% of the issued Common Stock, 1,800 shares of the Series A Preferred Stock, that qualified under Code ss.1504(a)(4), which is discussed below, and a warrant to acquire an additional 9% of the Common Stock at a nominal exercise price (the "Warrant"). All of the interests of DKM in Janus and JI Subsidiary were redeemed effective May 15, 1995. Code ss.382 In General. If a corporation undergoes an "ownership change", Code ss.382 limits the corporation's right to use its NOLs each year to an annual percentage (based on the federal tax exempt rate) of the fair market value of the corporation at the time of the ownership change (the "Section 382 Limitation"). If an ownership change under Code ss.382 is triggered, a corporation may also be restricted from utilizing certain built-in losses and built-in deductions recognized during a five-year recognition period after the ownership change. The Section 382 Limitation is zero for any post-change year if the new loss corporation does not either continue the old loss corporation's historic business or use a significant portion of the old loss corporation's historic business assets in a business at all times during the 2-year period beginning on the change date. A corporation is considered to undergo "an ownership change" if, as a result of changes in the stock ownership by "5-percent shareholders" or as a result of certain reorganizations, the percentage of the corporation's stock owned by those 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock owned by those shareholders at any time during a prescribed prior three-year testing period. Five-percent shareholders 17 are persons who hold 5% or more of the stock of a corporation at any time during the testing period as well as groups of shareholders who are not individually 5-percent shareholders. Stock ("Section 1504(a)(4) stock") that is limited and preferred as to dividends, does not participate in corporate growth to any significant extent, has redemption and liquidation rights that do not significantly exceed the issue price of the stock, is not convertible into another class of stock and is not entitled to a vote (except as a result of dividend arrearages) is not considered stock for this purpose. Application of ss.382 Under the Chapter 11 Reorganization. Management does not believe that the US Lines Group was subject to the ss.382 Limitation because although a 50% ownership change was expected to occur as a result of the transfer of stock of Janus and JI Subsidiary to the Reorganization Trust for the benefit of the former unsecured creditors, an exception under Code ss.382(l)(5) is believed to have applied. ss.382(l)(5) provides that the ss.382 Limitation will not apply to a loss corporation if (1) the corporation, immediately before the ownership change, is under the jurisdiction of a court in a United States Code Title 11 or similar case, and (2) the shareholders and creditors of the old corporation own at least 50% of the total voting power and value of the stock of the corporation after the "ownership change" as a result of being shareholders and creditors before the change. Stock transferred to such creditors counts only if it is transferred with respect to "old and cold" indebtedness (as defined above). The debtor companies U.S. Lines and U.S. Lines (S.A.) requested a private letter ruling from the Internal Revenue Service to the effect that if a corporation or other entity held indebtedness of U.S. Lines or U.S. Lines (S.A.) that was otherwise "old and cold", the indebtedness would not lose its characterization as "old and cold" as a result of changes in ownership of the corporation or entity. Such a ruling was issued on December 22, 1989 (the "IRS Ruling"). The IRS Ruling also held that the ownership change of U.S. Lines was covered by Code ss.382(l)(5) and therefore the general Code ss.382 Limitation was not triggered as a result of the owner shift associated with the reorganization. The Company believes that ss.382(l)(5) applied to the transfer of Janus stock to the U.S. Lines creditors and JI Subsidiary's stock to the U.S. Lines (S.A.) creditors. Under ss.382(l)(5), although the ss.382 Limitation does not apply, the gross NOLs originally available to the US Lines Group must nevertheless be reduced by Janus and JI Subsidiary to the extent of 50% of the COD income not taken into account by virtue of the stock for debt exception of Code ss.108(e)(10)(B). Under ss.382(l)(5)(B), the gross NOLs originally available to the US Lines Group must also be reduced by Janus and JI Subsidiary to the extent of the amount of interest accrued with respect to such canceled debt during the three taxable years prior to the taxable year of the "ownership change" and during the taxable year of the "ownership change" (up to the change date.) It is principally because of these reductions to the NOLs that management of the Company believes that the Company's NOLs are at least 500 million. Redemption of DKM. Management of the Company believes that the redemption of stock held by DKM did not cause an ownership change under Code ss.382. DKM held 36% of the stock of Janus, based on a determination that the Warrant would not be deemed exercised pursuant to the option attribution rules under Internal Revenue Service regulations. At least one former creditor, Daewoo Corporation, became a 5-percent shareholder of the Company based upon its claims against U.S. Lines as settled by the Reorganization Trust. The remaining beneficiaries of the Reorganization Trust, which individually were not 5-percent shareholders through the Reorganization Trust, were collectively a "public group" 5-percent shareholder for purposes of ss.382. The interests of the Daewoo Corporation and the public group increased by a total of 36 percentage ownership points as a result of the redemption of the Common Stock held by DKM. This was less than the 50% necessary for an ownership change under ss.382. 18 The redemption of the interests of DKM also gave rise to the emergence of several new 5-percent shareholders based upon their respective interests in the Reorganization Trust. As a result of restrictions contained in the Company's Restated Certificate of Incorporation, as amended, Daewoo Corporation and these 5-percent shareholders are presently precluded from acquiring additional shares of Common Stock. See "Description of Securities - Preservation of Income Tax Attributes." ss.382 and Subsequent Events and Investors. After the issuance of Common Stock in the acquisitions recently completed by the Company, management of the Company believes that the Company's current cumulative ownership shift under ss.382 is only a few percentage points short of a 50 percentage point ownership change. It will be necessary for Janus to monitor, and Janus has taken certain steps to so monitor, any further transfers of Common Stock by its 5-percent shareholders and further issuances or redemptions of Common Stock. See "Description of Securities - Preservation of Income Tax Attributes". Because ss.382 tests whether a 50 percentage point ownership change has occurred over a three-year testing period, Janus' capacity to issue more Common Stock during the three years subsequent to these recent transactions will be severely curtailed. If the Company issues stock in connection with acquisitions or to raise cash, the new shareholders generally will be treated as either new 5-percent shareholders or a new public group under ss.382. Certain Transferability Restrictions. In accordance with authority granted by the Company's Restated Certificate of Incorporation, as amended, the Company has imposed certain transferability restrictions upon Daewoo Corporation, Mitsubishi Corporation, General Electric Capital Corporation and The Prudential Insurance Company of America, each of whom is presently a 5-percent shareholder for purposes of Code ss.382. These restrictions provide that until April 24, 2001, the specified shareholders shall be prohibited from transferring, in any manner, any shares of Common Stock, without the consent of the Company's Board of Directors. The Company shall have no obligation to consent to a transfer unless it shall have received an opinion of legal counsel acceptable to the Company to the effect that the transfer does not give rise to an "ownership change" under Code ss.382 or otherwise affect the availability to the Company of its NOLs and any other applicable tax attributes for Federal income tax purposes. In addition to such imposed transferability restrictions, Messrs. Beck and Yeaggy have agreed to equivalent transferability restrictions. See "Certain Relationships and Related Transactions Transferability Restrictions on Stock Owned by Messrs. Beck and Yeaggy and Registration Rights." In the event that the Company's Board of Directors is willing to consent to a transfer of Common Stock by any one shareholder subject to transferability restrictions, the other shareholders subject to equivalent restrictions, including Messrs. Beck and Yeaggy, will be offered the opportunity to engage in a transfer on a ratable basis. Impact of Consolidated Return Regulations. Under the consolidated return regulations pursuant to the Code, the consolidated return change of ownership ("CRCO") rule may limit the carryover of NOLs from a consolidated return year ending before the year of a CRCO ownership change. The Company believes that the changes to the US Lines Group former consolidated group's capital structure caused a CRCO ownership change on or about December 30, 1988 when U.S. Lines left its former consolidated group. To the extent the CRCO rule applies, Janus and JI Subsidiary may carry over NOLs incurred in tax years prior to the CRCO change of ownership only to the extent of the consolidated taxable income of Janus and JI Subsidiary in the particular year after the CRCO ownership change. The CRCO rule should not adversely affect the use of NOLs against the income of a business acquired directly by Janus through merger or the purchase of the acquired entities assets. The CRCO rule may prevent the Janus consolidated group from utilizing its pre-CRCO NOLs against income generated by a 19 newly acquired business that is held in a subsidiary other than JI Subsidiary. Even with a CRCO ownership change in 1988, the CRCO rule should not prevent the Janus consolidated group from utilizing its NOLs that were generated in 1988 or in later years against income of a new subsidiary. Effect of Code ss.384. Congress adopted Code ss.384 in 1987 to prevent a loss corporation from using its pre-acquisition NOLs and net built-in losses against any net built-in gains of a corporation the control of which (utilizing an 80% test of Code ss.1504(a)(2)) is acquired by the loss corporation or whose assets are acquired by the loss corporation in certain types of reorganizations. The limitation of Code ss.384 applies to built-in gains recognized within the five-year recognition period after the acquisition date. Code ss.384 will prevent Janus from utilizing its NOLs against built-in gains recognized by any acquired companies (assuming the control test is met) within five years of the acquisition date, including Janus' recent entry into the hospitality business. Any future acquisitions by Janus will need to be analyzed for the impact that ss.384 may have on the utilization of Janus' NOLs against any recognized built-in gains. The interaction of the five-year rule of ss.384 with the impending expiration of most of the NOLs of Janus under the general rule of ss.172 reduces the possible tax benefit Janus can expect from its NOLs. Effect of Code ss.269. Code ss.269(a) provides that if: (1) any person or persons acquire ... directly or indirectly, control of a corporation, or (2) any corporation acquires ..., directly or indirectly, property of another corporation, ... the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation, and the principal purpose of such acquisition was the evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then the Internal Revenue Service may disallow such deduction, credit, or other allowance. Control is defined to mean the ownership of stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote or at least 50% of the total value of shares of all classes of stock of the corporation. Under Treas. Reg. ss. 1.269-3(a), the determination of the purpose for which an acquisition was made requires a scrutiny of the entire circumstances in which the transaction or course of conduct occurred, in connection with the tax result claimed to arise therefrom. The Disclosure Statement states that Code ss.269 should not apply to the transactions provided for under the Plan. The Disclosure Statement points out that the creditors' receipt of Common Stock of the Company was a direct consequence of their having extended credit to the debtor U.S. Lines. This credit was not extended to achieve control of the debtor in bankruptcy and thus avoid or evade federal income tax. Presumably, because of the 50% control test, Code ss.269 would not have applied to the DKM transaction. It is uncertain whether the Internal Revenue Service would attempt to apply Code ss.269 to any acquisition by Janus that met the 50% control test because, in part, of the difficulty in determining whether the principal purpose for which an acquisition was made was evasion or avoidance of federal income tax. 20 Risk Factors The Common Stock of the Company is speculative in nature and involves a high degree of risk. The risk factors below are not listed in order of importance. Possible Need for Additional Financing The Company has been substantially dependent upon mortgage loans for the financing of its real estate activities and internal cash flow for its working capital requirements. The Company anticipates that in the absence of further acquisitions and based on currently proposed plans and assumptions relating to its operations, that available resources, including its current cash balances, will be sufficient to satisfy the Company's contemplated cash requirements for at least the next 24 months. In the event that the Company's plans change, or its assumptions change or prove to be inaccurate, the Company could be required to seek additional financing or curtail its activities. The Company has no current arrangements with respect to, or sources of, additional financing. Any equity financing may involve substantial dilution to the interest of the Company's stockholders, and any debt financing could result in operational or financial restrictions on the Company. There can be no assurance that any additional financing will be available to the Company on acceptable terms or at all. There are also restrictions on the Company's ability to issue Common Stock and certain kinds of preferred stock if the Company wishes to preserve its NOLs. See "Description of Business - The Net Operating Loss Carryforwards" and "Management's Discussion and Analysis - Janus Industries, Inc. and Subsidiaries." Conflicts of Interest Messrs. Beck and Yeaggy continue to own and/or manage hotel properties independent of the Company which are located in markets in which the Company is operating. While under the terms of their employment agreements with the Company, Messrs. Beck and Yeaggy are prohibited from acquiring additional interests in hotels or hotel management companies while they serve as officers of the Company, their present independent businesses give rise to the possibility of conflicts of interest in common markets. The Company relies upon Computel and HELP, which are wholly-owned by Messrs. Beck and Yeaggy, for administrative and personnel services at the Hotels. The Company also has management agreements covering seven hotels which are owned by affiliates of the Messrs. Beck and Yeaggy which accounted for $407,346 or 30.3% of the management fee revenues of the Beck-Yeaggy Group on a pro forma basis for the year ended December 31, 1996. See "Pro Forma Condensed Financial Statements." Loss of these contracts would be materially adverse to the Company. Conflicts may arise between the Company and Messrs. Beck and Yeaggy in connection with the exercise of any rights or the conduct of any negotiations to extend, renew, terminate or amend the agreements between each of Computel and HELP and the Company or any of the management agreements between the Company and affiliates of Messrs. Beck and Yeaggy. Conflicts may also arise between the Company and Messrs. Beck and Yeaggy in connection with certain mortgage indebtedness of the Company which is personally guaranteed by Messrs. Beck and Yeaggy, or in connection with the exercise by the Company of its rights with respect to two mortgage notes and related mortgages which were among the assets acquired from the Beck Yeaggy Group. There can be no assurance that any such 21 conflicts will be resolved in favor of the Company. "See Management -- Employment Agreements" and "Certain Relationships and Related Transactions." Seasonality; Quarterly Fluctuations The lodging industry is seasonal in nature. Generally, hotel revenues are greater in the second and third quarters than in the first and fourth quarters. This seasonality can be expected to cause quarterly fluctuations in the revenues of the Company. Quarterly earnings may also be adversely affected by events beyond the Company's control, such as extreme weather conditions, economic factors and other considerations affecting travel. Operating Risks The Company's business is subject to all of the risks inherent in the lodging industry. These risks include, among other things, adverse effects of general and local economic conditions, changes in local market conditions, cyclical overbuilding of hotel space, a reduction in local demand for hotel rooms, changes in travel patterns, the recurring need for renovations, refurbishment and improvements of hotel properties, changes in interest rates and the other terms and availability of credit. Changes in demographics or other changes in a hotel's local market could impact the convenience or desirability of a hotel, which, in turn, could affect the economic returns from the operation of a hotel. The operational expenses of a hotel cannot be reduced when circumstances result in a reduction of revenue. Competition The lodging industry is highly competitive. Several of the Company's competitors are larger than it and possess greater financial, operational and managerial resources. There can be no assurance that in the markets in which the Company's Hotels operate, competing hotels will not pose greater competition for guests than presently exists, or that new hotels will not be constructed in such locales. New or existing competitors could significantly lower rates or offer greater conveniences, services or amenities, or significantly expand, improve or introduce new facilities in markets in which the Hotels compete, thereby adversely affecting the Company's operations. See "Description of Business - The Hospitality Business - Competition." Geographic Concentration of Hotels Many of the Company's Hotels are located in Florida and Ohio. Such geographic concentration exposes the Company's operating results to events or conditions which specifically affect those areas, such as local and regional economic, weather and other conditions. Adverse developments which specifically affect those areas may have a material adverse effect on the results of operations of the Company. Relationships with Franchisers The Company enters into non-exclusive agreements with certain franchisers for the franchise or license of brand names, which allows the Company to benefit from franchise name recognition and loyalty. The Company believes that its relationships with nationally recognized franchisers provides significant benefits for its existing Owned Hotels and acquisitions it may make in the future. While the Company believes that it currently enjoys good relationships with its franchisers, there can be no assurance that a desirable replacement would be available if any of the franchise agreements were to be 22 terminated. Upon termination of any franchise agreement, the Company would incur the costs of signage removal and other costs, possible lost revenues and the costs incidental to establishing new associations. Compliance with Government Regulation The lodging industry is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and beverages (such as health and liquor license laws) and building and zoning requirements. Also, the Company is subject to laws governing its relationships with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. The failure to obtain or retain liquor licenses or an increase in the minimum wage rate, employee benefit costs or other costs associated with employees, could adversely affect the Company. Under the Americans with Disabilities Act of 1990 (the "ADA") all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. While the Company believes that the Hotels are substantially in compliance with these requirements, a determination that the Company is not in compliance with the ADA could result in the imposition of fines or an award of damages to private litigants. These and other initiatives could adversely affect the Company. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with the ownership or operation of the Hotels, the Company may be potentially liable for any such costs. Although the Company is not currently aware of any material environmental claims pending or threatened against it, no assurance can be given that a material environmental claim will not be asserted against the Company or against the Company and the Hotels. The cost of defending against claims of liability or of remediating a contaminated property could have a material adverse effect on the results of operations of the Company. Litigation The Company's Hotels are visited by thousands of invitees each year. Injuries incurred by any invitees on the hotel premises may result in litigation against the Company. While the Company maintains general liability insurance, there can be no assurance that a claim will be covered by such insurance or that claims made against insurers by the Company will not result in increased premiums or cancellation of insurance coverage. Ownership of Hotel Real Estate The Company currently owns seven hotels. Accordingly, the Company is subject to the risks associated with the ownership of real estate. These risks include, among others, changes in national, regional and local economies, changes in real estate market conditions, changes in the costs, terms and availability of credit, the potential for uninsured casualty or other losses and changes in or enactment of new laws or regulations affecting real estate. Many of these risks are beyond the control of the Company. Real estate is generally illiquid which could result in limitations on the ability of the Company to sell any one or more Owned Hotels if business conditions so required. 23 Hotel Renovation Risks The renovation of hotels involves risks associated with construction and renovation of real property, including the possibility of construction, cost overruns and delays due to various factors (including the inability to obtain regulatory approvals, inclement weather, labor or material shortages and the unavailability of construction or permanent financing) and market or site deterioration after acquisition or renovation. Any unanticipated delays or expenses in connection with the renovation of hotels could have an adverse effect on the results of operations and financial condition of the Company. No Limits on Indebtedness Neither the Company's Restated Certificate of Incorporation, as amended, nor its by-laws limit the amount of indebtedness that the Company may incur. Subject to limitations it may agree to in debt instruments, the Company expects to incur additional debt in the future to finance acquisitions and renovations. The Company's continuing substantial indebtedness could increase its vulnerability to general economic and lodging industry conditions (including increases in interest rates) and could impair the Company's ability to obtain additional financing in the future and to take advantage of significant business opportunities that may arise. The Company's indebtedness is, and will likely continue to be, secured by mortgages on all of the Owned Hotels. There can be no assurance that the Company will be able to meet its debt service obligations and, to the extent that it cannot, the Company risks the loss of some or all of its assets, including the Owned Hotels, to foreclosure. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, if the Company is in need of capital to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in hotels at times which may not permit realization of the maximum return on such investments. See "Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources." Control of the Company by Principal Officers Messrs. Beck and Yeaggy beneficially own approximately 43% of the outstanding shares of the Common Stock. As a result, such persons, acting together, have the ability to exercise significant influence over all matters requiring stockholder approval. Messrs. Beck and Yeaggy are also directors and executive officers of the Company. The concentration of ownership could delay or prevent a change in control of the Company. See "Security Ownership of Certain Beneficial Owners and Management" and "Directors, Executive Officers, Promoters and Control Persons." 24 No Public Trading Market; Possible Volatility of Stock Price; No Listing of Securities on an Exchange; Potential Effects of "Penny Stock" Rules There is no public market for the Company's securities, and there can be no assurance that a public market for the Company's securities will develop or be sustained if developed. In addition, although the Company intends to apply for quotation of the Common Stock on the Nasdaq National Market System or the Nasdaq SmallCap Market, the Company's securities are not listed on any such exchange and there can be no assurance that they will be so listed. In order to qualify for such quotation, the Company must satisfy initially and continue to satisfy certain criteria for listing. The failure to meet and maintain such criteria may result in the Common Stock being ineligible for quotation on Nasdaq. As a result of no public market for the Company's securities, an investor may find it difficult to dispose of or to obtain accurate quotations as to the market value of the Company's securities. In addition, if the Common Stock has a trading price of less than $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser's written consent to the transaction prior to sale. The additional burdens imposed upon broker-dealers by such requirements may discourage them from effecting transactions in the Common Stock, which could severely limit the liquidity of the Common Stock. The offering prices of the Company's securities and other terms of the sales of the Company's securities within the last ten months were established by negotiation between the Company and the acquirers thereof or their representatives and may not be indicative of prices that will prevail in the trading market. In the absence of an active trading market, purchasers of the Company's securities may experience substantial difficulty in selling their securities. The trading price of the Company's securities is expected to be subject to significant fluctuations in response to variations in quarterly operating results, changes in estimates of earnings and other factors often unrelated to operating performance. See "Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters." 25 Irregular Trading Market If a public market for the Common Stock develops, the actual "float" of shares available for sale in the market will be approximately 36.3% of the 8,881,836.181 shares outstanding as of June 1, 1997. Approximately 5,658,060 shares, comprised of 3,799,999 shares held by Messrs. Beck and Yeaggy and their affiliate and 1,858,061 shares held by five percent shareholders for purposes of the NOL preservation rules, are subject to transferability restrictions until April 24, 2001. See "Description of Business - "The Net Operating Loss Carryforwards - Certain Transferability Restrictions." In addition, 1,056,975 shares are still held by the Reorganization Trust for the benefit of former unsecured creditors of U.S. Lines. See "Description of Business - The Reorganization Trust." Moreover, among the approximately 3,690 holders of record of the Common Stock there are numerous holders of very small numbers of shares. When the transferability restrictions expire, and as a result of certain registration rights which have been granted to Messrs. Beck and Yeaggy, sales of substantial amounts of Common Stock, or the perception that such sales could occur, would adversely affect prevailing market prices for the Common Stock. See "Certain Relationships and Related Transactions - Transferability Restrictions on Stock Owned by Messrs. Beck and Yeaggy and Registration Rights." Dependence on Key Personnel The Company believes that its success will depend to a significant extent on the efforts and abilities of certain of its senior management, particularly those of its Chairman of the Board, Louis S. Beck, its Vice Chairman, Harry Yeaggy, its President, James E. Bishop and its President of Hotel Operations, Michael Nanosky. Although the Company has entered into an employment agreement with each of Messrs. Beck, Yeaggy, Bishop and Nanosky, the loss of any one of them or other key management or operations employees could have a material adverse effect on the Company's operating results and financial condition. There is strong competition for qualified management personnel, and the loss of key personnel or an inability on the Company's part to attract, retain and motivate key personnel could adversely affect the Company's business, operating results and financial condition. There can be no assurance that the Company will be able to retain its existing key personnel or attract additional qualified personnel. See "Directors, Executive Officers, Promoters and Control Persons." Potential Adverse Effects of Preferred Stock Issuance The Board of Directors has the authority, without further stockholder approval, to issue up to 5,000,000 shares of preferred stock, in one or more series, and to fix the number of shares and the rights, preferences and privileges of any such series. The issuance of preferred stock by the Board of Directors could affect the rights of the holders of the Common Stock. For example, such an issuance could result in a class of securities outstanding that would have dividend, liquidation, or other rights superior to those of the Common Stock or could make a takeover of the Company or the removal of management of the Company more difficult. See "Description of Securities - Preferred Stock." Dividends Unlikely Since reorganization, the Company has never declared or paid dividends on the Common Stock and currently does not intend to pay dividends in the foreseeable future. The payment of dividends in the future will be at the discretion of the Board of Directors. In addition, the Company may not pay any dividends on the Common Stock unless dividends on the outstanding preferred stock are current. The 26 Company presently has 10,451.88 shares of preferred stock outstanding with an annual dividend expense of $783,891. See "Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters." Net Operating Loss Carryforwards While management believes that the Company's NOLs are at least $500 million, there are risks associated with the Company's use of its NOLs to reduce Federal income tax payments, including the possibility that the Internal Revenue Service may seek to challenge such use, that the Company may be unable to produce significant levels of taxable income prior to the expiration of the NOLs and that a "change in ownership" of the Company may occur which would cause the Company to lose a substantial portion of the NOLs. Although the Company has taken steps to restrict transfers of Common Stock in order to avoid a "change in ownership," there can be no assurance that these steps will be successful. See "Description of Business - The Net Operating Loss Carryforwards" and Consolidated Financial Statements. Forward Looking Statements When used in this and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements made with the approval of an authorized executive officer of the Company, the words or phrases "will likely result," "expects," "plans," "will continue," "is anticipated," "estimated," "project" or "outlook" or similar expressions (including confirmations by an authorized executive officer of the Company of any such expressions made by a third party with respect to the Company) are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Such risks and other aspects of the Company's business and operations are described in "Description of the Business" and "Management's Discussion and Analysis or Plan of Operation." The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Management's Discussion and Analysis of the Historical Results of Operations and Financial Condition of Janus and its Subsidiaries General. For purposes of the following discussion the "Company" means Janus collectively with its subsidiaries, JI Subsidiary, Wireline and KFE. The following discussion of the Company's historical results of operations and liquidity and capital resources should be read in conjunction with the historical audited and unaudited consolidated financial statements of Janus Industries, Inc. and Subsidiaries and the notes thereto included in this Registration Statement. The discussion of liquidity and capital resources is based upon the condition of the Company after its acquisition of the Beck-Yeaggy Group and should be read in conjunction with the Unaudited Pro Forma Condensed Combined Financial Statements of Janus Industries, Inc. and Subsidiaries and the notes thereto included in this Registration 27 Statement. References to the operations of Pre-Tek in this discussion are to the combined operations of Wireline and KFE. Janus Industries Inc. and JI Subsidiary are the successors to U.S. Lines and U.S. Lines (S.A). which emerged from a Chapter 11 bankruptcy in 1990. The Plan which was approved by the creditors of U.S. Lines and U.S. Lines (S.A.) and the Bankruptcy Court, contemplated that Janus and JI Subsidiary would seek out acquisition opportunities for each of the reorganized companies in order to utilize their respective NOLs. See "Description of Business - History of the Company's Reorganization," and "- The Reorganization Trust." The Company's current management is committed to the Plan's objectives and, as a result, the Company acquired Pre-Tek in July 1996 and the Beck-Yeaggy Group in April 1997. Management is diligently pursuing a program for additional acquisitions through the use of a combination of cash, capital stock and, when necessary, borrowing. Net Operating Loss Carryforwards. Management believes that Janus possesses net operating loss carryforwards ("NOLs") of at least $500 million for Federal income tax purposes. See "Note 5 of the Notes to the consolidated financial statements of Janus Industries, Inc. and Subsidiaries." Janus intends to use its NOLs to minimize the payment of U.S. Federal income taxes by the Company. There are risks with respect to the availability and utilization of the NOLs. See "Description of Business - The Net Operating Loss Carryforwards" and "Risk Factors - Net Operating Loss Carryforwards." Year Ended December 31, 1996 Compared with the Year Ended December 31, 1995 Historical Results of Operations From the date of its reorganization until July 15, 1996, when the Company acquired Pre-Tek, the Company's revenues were derived solely from earnings on cash invested in short-term certificates of deposit of banking institutions and in government obligations. The acquisition of Pre-Tek was accounted for as a purchase; therefore the results of Pre-Tek's operations have only been consolidated with those of the rest of the Company subsequent to the date of acquisition on July 15, 1996. Accordingly, the Company's results of operations for 1996 are not directly comparable with those of 1995 as further explained below. The net loss of the Company was $1,193,981 for 1996 compared to a net loss of $660,036 during 1995. The principal reasons for the increase in net loss were the inclusion of the net loss generated by the operations of Pre-Tek only in 1996 and increases in compensation expenses incurred by Janus in 1996. The magnitude of the increase in net loss from 1995 to 1996 was in part reduced through an increase in interest income in 1996 derived primarily from the temporary investment of cash received by the Company as a capital contribution from the Reorganization Trust. Sales of $381,055 and operating costs of $363,162 in 1996 were derived from the operations of Pre-Tek; there were no comparable amounts in 1995. Selling, general and administrative expenses increased by $591,907 from $728,084 for 1995 to $1,319,991 for 1996 of which $203,769 was attributable to the operations of Pre-Tek and the balance predominantly due to increased compensation expenses at Janus. Increases in depreciation of property and equipment from $3,881 in 1995 to $61,434 in 1996 and amortization of intangible assets from $7,560 in 1995 to $30,375 in 1996 were also a result of the Pre-Tek acquisition. As a result of the factors described above, total costs and expenses increased from $739,525 for 1995 to $1,774,962 for 1996. 28 Interest income for 1996 was $247,516 compared to $140,307 for 1995. The increase was primarily due to an increase in the amount of funds invested in 1996. The charge to operations for minority interest decreased from $60,818 for 1995 to $50,490 for 1996 as a result of the reduction in the number of outstanding shares of Series A Preferred Stock of JI Subsidiary attributable to the redemption of DKM's shares of such stock. The decline in preferred stock dividend requirements from $31,800 for 1995 to $24,712 for 1996 resulted from the redemption by Janus of its Series A Preferred Stock during 1996, and the repurchase by Janus of DKM's Series A Preferred Stock of Janus in 1995. Historical Changes in Liquidity and Capital Resources Total assets increased from $2,109,303 at December 31, 1995 to $9,047,317 at December 31, 1996. Total current assets of the Company increased from $2,088,632 at December 31, 1995 to $7,521,870 at December 31, 1996 for the following reasons: Cash and cash equivalents increased from $2,053,437 at December 31, 1995 to $6,580,836 at December 31, 1996 as a result of contributions of $7,621,980 to the Company by the Reorganization Trust. The Company received $101,631 of cash as part of the consideration for Pre-Tek. Cash restricted for payments to redeem preferred stock of subsidiary increased from $0 at December 31, 1995 to $673,200 at December 31, 1996 and represents cash held by Janus and owed to holders of Series A Preferred Stock of JI Subsidiary as a result of JI Subsidiary's redemption of such shares. Accounts receivable increased from $0 at December 31, 1995 to $83,100 at December 31, 1996 which increase resulted from operations of Pre-Tek. Other current assets increased from $35,195 at December 31, 1995 to $184,734 at December 31, 1996, which increase consists primarily of accrued interest receivable and prepaid directors fees of Janus and prepaid insurance premiums and supply inventories of Pre-Tek. Property and equipment, net of accumulated depreciation, increased by $575,418 from $7,275 at December 31, 1995 to $582,693 at December 31, 1996. This increase resulted primarily from the acquisition of Pre-Tek. Goodwill was $0 at December 31, 1995 and increased to $860,966 at December 31, 1996 as a result of the acquisition of Pre-Tek in 1996. Deferred costs of proposed acquisition increased from $0 at December 31, 1995 to $74,692 at December 31, 1996 as a result of expenses incurred in 1996 related to the acquisition of the Beck-Yeaggy Group. Liabilities and stockholders' equity increased from $2,109,303 at December 31, 1995 to $9,047,317 at December 31, 1996. Current liabilities increased from $239,737 at December 31, 1995 to $981,875 at December 31, 1996 as follows: Payable for redemption of preferred stock of subsidiary increased from $0 at December 31, 1995 to $673,200 at December 31, 1996 as a result of Janus holding funds for payment to holders of Series A Preferred Stock of JI Subsidiary which stock was redeemed in 1996. Accounts payable increased from $0 at December 31, 1995 to $149,020 at December 31, 1996 as a result of the operations of Pre-Tek. Accrued expenses rose from $134,137 at December 31, 1995 to $159,655 at December 31, 1996 principally as a result of the operation of Pre-Tek. Dividends payable were reduced from $105,600 at the end of 1995 to $0 at the end of 1996. The reduction is attributable to the redemption by Janus of the Series A Preferred Stock of Janus. 29 Minority interest decreased from $622,710 at December 31, 1995 to $43,837 at December 31, 1996. The decrease was the result of capital contributions made to JI Subsidiary in 1996 and the redemption of Series A Preferred Stock of JI Subsidiary in 1996 which resulted in the reclassification of the liquidation preference and accrued dividends on such stock which were included in minority interest to "payable for redemption of preferred stock of subsidiary." See "Minority Interest," in Note 2 to the Consolidated Financial Statements of Janus Industries, Inc. and Subsidiaries. Total stockholders' equity increased from $1,246,856 at December 31, 1995 to $8,021,605 at December 31, 1996. The increase was attributable primarily to the contributions to capital made by the Reorganization Trust of $7,578,143 during 1996, and the issuance of Common Stock with a value of $738,012 as part of the consideration for Pre-Tek which were offset in part by the redemption of Janus' Series A Preferred Stock and the increase in accumulated deficit. The accumulated deficit increased $1,218,693 from $3,027,037 at December 31, 1995 to $4,245,730 at December 31, 1996. This increase was primarily attributable to the operating losses in 1996 described above. Three Months Ended March 31, 1997 Compared With Three Months Ended March 31, 1996 Historical Results of Operations During the three month period ended March 31, 1997, Janus was engaged in operating the business of Pre-Tek and negotiating the acquisition of the Beck-Yeaggy Group. During the three month period ended March 31 1996, Janus had no operating business and was pursuing acquisition opportunities. The net loss of the Company was $70,605 for the three months ended March 31, 1997 as compared to a net loss of $262,733 during the same period in 1996. The reduced loss was primarily the result of decreases in compensation expenses and professional fees at Janus, an increase in other income and state tax refunds from prior years which were received during 1997. Sales of $401,029 and operating costs of $306,105 in 1997 were derived from the operations of Pre-Tek; there were no comparable amounts in the first three months of 1996. Selling, general and administrative expenses increased by $4,293 from $262,633 for 1996 to $266,926 for 1997 primarily as a result of the offset of an increase in expenses attributable to the acquisition of Pre-Tek of $100,488 and by a reduction in compensation expense and professional fees at Janus. Increases in depreciation of property and equipment from $1,123 in 1996 to $30,815 in 1997 and amortization of intangible assets from $1,575 in 1996 to $14,884 in 1997 were also a result of the Pre-Tek acquisition. As a result of the factors described above, total costs and expenses increased from $265,331 for 1996 to $618,730 for 1997. Interest income for 1997 was $64,596 compared to $21,822 for 1996. The increase was primarily due to an increase in the amount of funds invested in 1997. Other income and other expenses were not material in 1997 and 1996. The charges to operations for minority interest were not material in 1997 and 1996. The decline in preferred stock dividend requirements from $6,600 for 1996 to $0 for 1997 resulted from the redemption of Janus' Series A Preferred Stock during 1996. Historical Changes in Liquidity and Capital Resources Total Assets decreased from $9,047,317 at December 31, 1996 to $8,256,355 at March 31, 1997. The decrease in assets was the result of a decrease in cash and cash equivalents from $6,580,836 at December 31, 1996 to $6,214,071 at March 31, 1997 primarily as a result of repurchases of Common Stock and covenants to purchase Common Stock issued in the Pre-Tek acquisition and payment of operating expenses; the payments to holders of Series A Preferred Stock of JI Subsidiary which reduced cash restricted for payments to redeem preferred stock of subsidiary from $673,200 at December 31, 1996 to $105,015 at March 31, 1997 and the decrease in other current assets from $184,734 at December 31, 1996 to $95,065 at March 31, 1997 which was primarily the result of the amortization of prepaid expenses and a 30 decline in supply inventories at Pre-Tek. Such decreases were offset by increases in deferred costs of a proposed acquisition from $74,692 at December 31, 1996 to $298,551 at March 31, 1997 primarily related to expenses incurred to consummate the acquisition of the Beck-Yeaggy Group and an increase in accounts receivable from $83,100 at December 31, 1996 to $130,104 at March 31, 1997 which resulted from operations of Pre-Tek. Total liabilities and stockholders' equity declined from $9,047,317 at December 31, 1996 to $8,256,355 at March 31, 1997. The decrease was the result of the decrease in payable for redemption of preferred stock of subsidiary to $105,015 at March 31, 1997 from $673,200 at December 31, 1996 due to payments to redeem the Series A Preferred Stock of JI Subsidiary and an increase in the accumulated deficit due to the net loss incurred for the three months ended March 31, 1997 of $70,605 and the repurchase by the Company of shares of Common Stock and warrants to acquire Common Stock issued in the acquisition of Pre-Tek. Liquidity and Capital Resources The following discussion reflects the liquidity and capital resources of the Company after the acquisition of the Beck-Yeaggy Group by the Company. The Company's principal sources of liquidity are cash on hand (including escrow deposits and replacement reserve), cash from operations, earnings on invested cash and, when required, principally in connection with acquisitions, borrowings (consisting primarily of loans secured by mortgages on real property owned or to be acquired by the Company). The Company's continuing operations are funded through cash generated from its hotel operations. Acquisitions of hotels are expected to be financed through a combination of cash on hand, internally generated cash, issuance of equity securities of Janus and borrowings, some of which is likely to be secured by assets of the Company. The Company has no committed lines of credit and there can be no assurance that credit will be available to the Company or if available that such credit will be available on terms and in amounts satisfactory to the Company. The ability of the Company to issue its common or preferred stock is materially restricted by the requirements of the Code if the Company wishes to preserve its NOLs. See "Description of Business - The Net Operating Loss Carryforwards" and "Risk Factors - Net Operating Loss Carryforwards." At March 31, 1997, on a pro forma basis reflecting the acquisition of the Beck-Yeaggy Group, the Company had $5,299,460 in cash and cash equivalents. During the three months ended March 31, 1997, the Beck-Yeaggy Group invested $166,452 in capital improvements in connection with the Owned Hotels. The Company plans to spend an additional $795,000 on such capital improvements over the nine month period ending December 31, 1997. Capital for improvements to Owned Hotels has been and is expected to be provided by a combination of internally generated cash and, if necessary and available, borrowings. The Company expects to spend annually approximately 4% to 5% of revenues from Owned Hotels for ongoing capital expenditures in each year. The Company believes, based on its operating experience, that these types of capital investments will enhance the competitive position of the Owned Hotels and thereby enhance the Company's competitive position. Changes in the competitive environment for a specific Owned Hotel may dictate higher or lower capital expenditures. The Company maintains a number of commercial banking relationships but does not currently have any committed lines of credit, but it is in active negotiations with lending institutions which might extend credit facilities to the Company for capital purposes including capital that might be required for 31 the acquisition of additional hotels or management contracts. There can be no assurance such negotiations will be successful. The Company anticipates that it will be able to secure the capital required to pursue its acquisition program through a combination of borrowing, internally generated cash and utilization of its common and/or preferred stock to the extent such utilization does not jeopardize the Company's NOLs. See "Description of Business - The Net Operating Loss Carryforwards" and "Risk Factors - Net Operating Loss Carryforwards." There can be no assurance however that the Company will be able to negotiate sufficient borrowings to accomplish its acquisition program on terms and conditions acceptable to the Company, or at all. Further, any such borrowings may contain covenants that impose limitations on the Company which could constrain or prohibit the Company from making additional acquisitions as well as its ability to pay dividends or to make other distributions, incur additional indebtedness or obligations or to enter into other transactions which the Company may deem beneficial. Additionally, factors outside of the Company's control could affect its ability to secure additional funds on terms acceptable to the Company. Those factors include, without limitation, any increase in the rate of inflation and/or interest rates, localized or general economic dislocations, an economic down-turn and regulatory changes constricting the availability of credit. The Company has benefited and continues to benefit as the recipient of moneys disbursed by the Reorganization Trust as the Reorganization Trust accumulates moneys in excess of its reasonably required reserves and projected operating expenses. During 1996 the Company received $7,621,980 in contributions from the Reorganization Trust. Management of the Company believes that there may be additional contributions of excess moneys from the Reorganization Trust but no assurance can be given as to the amount or timing of such contributions if in fact there are any additional contributions from the Reorganization Trust. The Company's pro forma long-term debt at March 31,1997 totals $20,376,464. Mortgage debt totals $20,172,605, which consists of $10,851,567 in fixed rate, fully self-amortizing mortgage loans and $9,321,038 in adjustable rate (3-5 year adjustment period) mortgage loans. Such adjustable rate loans have maturity dates ranging from March 1998 to April 2006. Interest rates on mortgage debt range from 8.875% to 9.75% with a weighted average interest rate of 9.3% effective at April 1, 1997. The approximate scheduled repayments of principal on the long-term debt of the Company are from April 1, 1997 through December 31, 1997 -- $435,000; 1998 -- $2,115,000; 1999 - $591,000; 2000 -- $627,000. Management of the Company currently believes that the cash flow from the Company's hotel operations will be sufficient to make the required amortization payments. Balloon payments required to be made at the maturity of the non-self-amortizing loans are expected to be made from cash on hand at the time or from the proceeds of refinancing. There can be no assurance that the Company will be able to obtain financing, or financing on terms satisfactory to it. Demand at many of the hotels is affected by seasonal patterns. Demand for hotel rooms in the industry generally tends to be lower during the first and fourth quarters and higher in the second and third quarters. Accordingly, the Company's revenues reflect this seasonality. Inflation Although inflation has been relatively stable over the past two years and has not had any discernible effect on the Company's operations, an increase in the inflation rate and related higher 32 interest rates could have a negative effect on the Company's ability to secure additional capital under terms and conditions acceptable to the Company or refinance indebtedness secured by the Owned Hotels. Increase in the rate of inflation and interest rates could materially adversely affect the ability of the Company to expand its operations through the acquisition of Owned Hotels. Management's Discussion and Analysis of the Historical Results of Operations and Financial Condition of Beck-Yeaggy Group General. The following discussion of the Beck-Yeaggy Group's historical results of operations and liquidity and capital resources should be read in conjunction with the combined financial statements of the Beck-Yeaggy Group and notes thereto included in this Registration Statement. In addition to the Beck-Yeaggy Group, Messrs. Beck and Yeaggy also controlled, operated and/or managed other hotel properties that are not part of the Beck-Yeaggy Group. Management of the Beck-Yeaggy Group believes that the historical financial statements include all charges applicable to the Beck-Yeaggy Group and that all related allocations and estimates are based on assumptions that are reasonably based on historical operations. However, such financial statements are not necessarily indicative of the financial position that would have existed or the results that would have been obtained from operations had the Beck-Yeaggy Group operated as an unaffiliated entity. In addition, as a result of purchase accounting adjustments arising from the acquisition of the Beck-Yeaggy Group by Janus, these financial statements will not be directly comparable to those applicable to periods subsequent to such acquisition. The Beck-Yeaggy Group's revenues are derived principally from a combination of room revenues, food and beverage sales and management fees. Factors which affect the Beck-Yeaggy Group's operating results include occupancy levels and room rates which may vary by brand, time of year and local demand. The ability to provide high quality services to its hotel guests while carefully managing operating expenses is crucial to the Beck-Yeaggy Group's profitability. Identifying growth potential, competitive factors and securing adequate capital to take advantage of new opportunities, particularly in under-served markets or with regard to under-performing properties which may be acquired on advantageous terms is important to the Beck-Yeaggy Group's future growth. Year Ended December 31, 1996 Compared with the Year Ended December 31, 1995 Historical Results of Operations Net income rose from $2,033,176 for the year ended December 31, 1995 to $2,215,184 for the year ended December 31, 1996. Revenues increased from $13,992,532 for the year ended December 31, 1995 to $14,420,581 for the year ended December 31, 1996 for the following reasons. Revenues related to the sale of available rooms at Owned Hotels increased from $10,429,089 for the year ended December 31, 1995 to $10,927,443 for the year ended December 31, 1996. The 4.77% increase was attributable primarily to increased income per occupied room and increased overall occupancy. For the year ended December 31, 1996, the average daily rate at the Owned Hotels increased $1.69 (3.7%) from $44.81 per occupied room in 1995 to $46.50 in 1996. Overall occupancy in the Owned Hotels was 65.7% in 1995, increasing to 66.1% in 1996. The increase in average daily rate and occupancy was accomplished through a program of continuous market analysis and management of room rates. Food and beverage revenues are a function of the number of guests who stay at each hotel property, local walk-in business and catering sales. The $102,520 decrease in food and beverage revenues is primarily related to a reduction in local walk-in business and a reduction in catered affairs at Owned Hotels. Management fee 33 income decreased by $33,520 from $1,662,812 for the year ended December 31, 1995 to $1,629,562 for the year ended December 31, 1996. The reduction in management fee income was related to a decrease, by one, of hotels under management and the restructuring of the calculation of management fees for certain of the Company's managed properties. Certain expiring management contracts were replaced with contracts which provided for lower fees based on the percentage of gross revenues combined with a participation in any increase in the specific property's net operating income. Other revenues increased from $180,336 for the year ended December 31, 1995 to $245,801 for the year ended December 31, 1996. The increase in other revenues was primarily due to revenue generated from amusement park discount packages. Costs and expenses increased from $10,529,476 for the year ended December 31, 1995 to $10,744,403 for the year ended December 31, 1996 for the following reasons: Direct hotel operating expenses decreased from $4,505,159 for the year ended December 31, 1995 to $4,403,814 for the year ended December 31, 1996. The 2.25% decrease in direct hotel operating expenses is attributable to reductions of food and beverage costs resulting from the decrease in sales of food and beverages and reductions in direct selling expenses as underperforming advertising programs were discontinued. The decrease in direct hotel operating expenses was off-set to some degree by increased labor costs from tight labor conditions in some geographic areas. Occupancy and other operating expenses increased to $1,842,254 for the year ended December 31, 1996 from $1,671,648 for the year ended December 31, 1995. The $170,606 increase was related to increased energy costs in the form of higher incremental demand charges and repairs and maintenance increases, reflecting management's commitment to continued property improvements. General and administrative expenses increased $109,216 to $3,624,674 for the year ended December 31, 1996 from $3,515,458 for the year ended December 31, 1995. The change is attributable to increases in professional fees incurred primarily in connection with proposed transactions and increased development activity. Interest expense was reduced from $2,002,637 for the year ended December 31, 1995 to $1,935,877 for the year ended December 31, 1996. The 3.33% reduction in interest expense was related to the scheduled principal reduction of long-term debt. In 1995, the Company sold approximately 4.8 acres of unimproved land resulting in a gain on sale of property of $104,003. No property was sold in 1996 and the Beck-Yeaggy Group presently owns no unimproved land. Historical Changes in Liquidity and Capital Resources Total assets decreased from $20,690,585 at December 31, 1995 to $20,466,314 at December 31, 1996. Current assets increased from $872,471 at December 31, 1995 to $1,147,433 at December 31, 1996 for the following reasons: Cash totaled $146,901 at December 31, 1996 compared to $46,475 at December 31, 1995. The $100,426 difference is attributable to increased cash flow from operations. Accounts receivable increased $156,492 from $160,299 at December 31, 1995 to $316,791 at December 31, 1996. The increase in accounts receivable was related to an increase in direct bill accounts at two of the Owned Hotels. Current portion of mortgage notes receivable increased to $204,864 at December 31, 1996 compared to $189,897 at December 31, 1995. The increase was attributable to a scheduled increase in amortization of the mortgage notes receivable. Escrow deposits increased from $297,357 at December 31, 1995 to $363,841 at December 31, 1996 as a result of deposits in excess of withdrawals from the debt service reserve. Other current assets decreased from $178,443 at December 31, 1995 to $115,036 at 34 December 31, 1996. The change of $63,407 was primarily due to the collection of a miscellaneous receivable. Property and equipment, net of accumulated depreciation and amortization, declined from $12,978,776 at December 31, 1995 to $12,503,176 at December 31, 1996 due to normal scheduled depreciation of assets and the acquisition of personal property and equipment of $398,071. Reserve for replacement increased from $418,964 at December 31, 1995 to $628,271 at December 31, 1996. The increase of $209,307 was a result of deposits to the replacement reserve in excess of withdrawals from the reserve. Liabilities and owners' capital deficiency decreased from $20,690,585 at December 31, 1995 to $20,466,314 at December 31, 1996. Current liabilities decreased from $1,713,175 at December 31, 1995 to $1,629,209 at December 31, 1996 for the following reasons: The current portion of long-term debt increased from $509,699 at December 31, 1995 to $536,215 at December 31, 1996 due to scheduled increases of the amortization of principal of long-term debt. Accounts payable decreased from $560,309 at December 31, 1995 to $400,199 at December 31, 1996. The decrease of $160,110 was attributable to a timing difference in the payment of accrued invoices in December 1995 and in December 1996. Accrued liabilities, primarily consisting of salaries and wages, taxes and interest payable increased to $692,795 at December 31, 1996 compared to $643,167 at December 31, 1995. The increase of $49,628 was related to property taxes and accrued interest, as interest was paid through December 31, 1995 at the closing of the refinancing in 1995 of the Best Western, Kings Quarters hotel. Long-term debt, net of current portion, decreased from $21,793,585 at December 31, 1995 to $19,814,561 at December 31, 1996. The reduction of $1,979,024 is attributable to principal payments on mortgage indebtedness. Owners' capital deficiency decreased from $2,816,175 at December 31, 1995 to $977,456 at December 31, 1996. The $1,838,719 reduction was primarily due to the net income of $2,215,184 for 1996. Three Months Ended March 31, 1997 Compared With Three Months Ended March 31, 1996 Historical Results of Operations Net loss for the three months ended March 31, 1997 was $102,213 as compared to $185,032 for the three months ended March 31, 1996. Revenues related to the sale of available rooms increased from $ 1,872,022 for the three month period ended March 31, 1996 to $ 1,919,698 for the three month period ended March 31, 1997. The 2.54% increase was attributable primarily to an increase in room rates in Owned Hotels located in Michigan City, Indiana and Raleigh, North Carolina. Food and beverage revenues are principally a function of the number of guests who stay at each Owned Hotel, local walk in business and catering sales. The $22,067 decrease in food and beverage revenues from $316,846 in the three month period ended March 31, 1996 to $294,779 for the three 35 month period ended March 31, 1997 is primarily related to a reduction in occupancy at the Owned Hotel Best Western, Kings Quarters. Other revenues decreased from $47,213 for the quarter ended March 31, 1996 to $34,066 for the quarter ended March 31, 1997. The decrease was attributed primarily to a lease assigned to a related party. Direct hotel operating expenses decreased from $943,937 for the quarter ended March 31, 1996 to $907,918 for the period ended March 31, 1997. Room and related services remained stable as revenue increased. Food and beverage expense decreased as a result of a decrease in related revenues. Occupancy and other operating expenses decreased to $415,173 for the three month period ended March 31, 1997 from $456,002 for the three month period ended March 31, 1996. The $40,829 decrease was related to a decrease in the cost of repairs and maintenance expenses as a result of the 1996 capital improvement program and the sublease of rented space. General and administrative expenses decreased $58,579 to $774,162 for the three month period ended March 31, 1997 from $832,741 for the three month period ended March 31, 1996. The change is primarily a result of professional fees related to an abandoned acquisition. Interest expense decreased from $484,834 for the quarter ended March 31, 1996 to $451,666 for the quarter ended March 31, 1997. The decrease in interest expense was related to a decrease in long-term debt. Historical Changes in Liquidity and Capital Resources Total assets decreased from $20,466,314 at December 31, 1996 to $20,181,231 at March 31, 1997. The principal reasons for the decrease were as follows: Accounts receivable decreased from $316,791 at December 31, 1996 to $193,620 at March 31, 1997 due to a reduction of outstanding direct bill accounts at two of the Owned Hotels. Escrow deposits declined from $363,841 at December 31, 1996 to $178,642 at March 31, 1997 primarily due to payments of indebtedness from the debt service reserve. Property and equipment, net of accumulated depreciation and amortization declined from $12,503,176 at December 31, 1996 to $12,454,801 at March 31, 1997 due to normal scheduled depreciation of assets and the acquisition of $166,452 of personal property and equipment. Liabilities and owners' capital deficiency declined from $20,466,314 at December 31, 1996 to $20,181,231 at March 31, 1997. The decline was principally the result of the borrowing by the Beck-Yeaggy Group of $793,803 during the first quarter of 1997 from Messrs. Beck and Yeaggy and an increase in owners' capital deficiency from $977,456 at December 31, 1996 to $2,207,503 at March 31, 1997 as a result of net distributions to or on behalf of the owners and the net loss incurred during the quarter. ITEM 3. DESCRIPTION OF PROPERTY The Company conducts its corporate and business operations activities from offices in Newark, New Jersey, Cincinnati, Ohio and Boca Raton, Florida. The Company presently subleases office space in Newark, New Jersey on a month-to-month basis. The Company occupies 4,300 square feet of office space in Cincinnati, Ohio under a three-year sublease which terminates in February 2000 and occupies 2,200 square feet of office space Boca Raton, Florida under two-year sublease which terminates in April, 1999. 36 Pre-Tek occupies 9,100 square feet of office space in Bakersfield, California. The premises also includes a 163,850 square foot yard. See "Business Description - The Hospitality Business" for a description of the properties that are owned and operated by the Company; and "Certain Relationships and Related Transactions - Interest of Messrs. Beck and Yeaggy in Premises Occupied by the Company." ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of the capital stock of the Company as of the date of June 20, 1997 for (i) each person who is known by the Company to beneficially own more than 5% of any class the capital stock, (ii) each named executive officer listed in the Summary Compensation Table, (iii) each director of the Company, and (iv) all directors and executive officers of the Company as a group.
Amount and Amount and Nature Of Nature of Percent of Percent of Beneficial Beneficial Class of Class of Name and Address of Ownership of Ownership of Common Preferred Beneficial Owner (1) Common Stock Preferred Stock Stock Stock - -------------------- ------------ --------------- ---------- ---------- Louis S. Beck (2) 2,927,499 8,113.91 33% 78% Harry G. Yeaggy (3) 1,182,500 2,337.97 13% 33% Vincent W. Hatala, Jr. (4) 4,000 0 * 0% Anthony J. Pacchia (5) 6,000 0 * 0% Arthur Lubell (6) 6,000 0 * 0% Richard P. Lerner 0 0 0% 0% James E. Bishop (7) 4,000 0 * 0% C. Scott Bartlett, Jr. 0 0 0% 0% Lucille Hart-Brown 0 0 0% 0% Richard A. Tonges 0 0 0% 0% Michael M. Nanosky 0 0 0% 0% Paul Tipps 0 0 0% 0% Peter G. Aylward 0 0 0% 0% The United States Lines, Inc. 1,056,975 0 12% 0% and United States Lines (S.A.), Inc. Reorganization Trust, John Paulyson, Trustee (8) 184-186 North Avenue East Cranford, N.J. 07016 Beck Hospitality, Inc. III 310,000 1,100 3% 11%
37 8534 E. Kemper Road Cincinnati, Ohio 45249 Daewoo Corporation 623,911 0 7% 0% c/o Lubell & Koven 350 Fifth Avenue New York, New York 10118 All directors and executive 4,129,999 16,451.88 46% 100% officers as a group (13 persons)
* Less than 1%. - ------------ (1) Unless otherwise noted, the address of each of the listed persons is c/o the Company at One Riverfront Plaza, P.O. Box 200114, Newark, New Jersey 07102-0302. (2) Includes 310,000 shares of Common Stock and 1,100 shares of preferred stock held by Beck Hospitality Inc. III. Mr. Beck is an officer, director and controlling shareholder of Beck Hospitality, Inc. III. (3) Includes 310,000 shares of Common Stock and 1,100 shares of preferred stock held by Beck Hospitality Inc. III. Mr. Yeaggy is an officer and director of Beck Hospitality, Inc. III. (4) Includes options to purchase 4,000 shares of Common Stock which are currently exercisable. (5) Includes options to purchase 6,000 shares of Common Stock which are currently exercisable. (6) Includes options to purchase 6,000 shares of Common Stock which are currently exercisable. (7) Includes options to purchase 4,000 shares of Common Stock which are currently exercisable. (8) The Reorganization Trust is the record owner of 1,056,975 shares of Common Stock for the benefit of former unsecured creditors of U.S. Lines whose claims have not been resolved. In accordance with an order of the United States Bankruptcy Court for the Southern District of New York (In re United States Lines, Inc., Case No. 86B 12240), the Trustee of the Reorganization Trust votes such shares, on each proposal before shareholders, in the same proportion "for" or "against" (or "withhold" in the case of director elections) such proposal as shareholders (other than the Trust) who actually vote in person or by proxy, but disregarding for this purpose (i) shareholders who do not vote or who vote "abstain" and (ii) shares of Common Stock issued after March 16, 1997. At present, the 3,799,999 shares held by Messrs. Beck, Yeaggy and their affiliate are the shares issued after March 16, 1997. 38 ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS Directors and Executive Officers The directors, executive officers and significant employees of the Company, and a consultant who is expected to make a significant contribution to the Company, are as follows: Name Age Position - ---- --- -------- Louis S. Beck 51 Chairman of the Board Harry G. Yeaggy 51 Vice Chairman of the Board James E. Bishop 45 Director and President Michael M. Nanosky 38 Director and President of Hotel Operations Vincent W. Hatala, Jr. 66 Director Anthony J. Pacchia 41 Director Arthur Lubell 83 Director Richard P. Lerner 58 Director C. Scott Bartlett, Jr. 64 Director Lucille Hart-Brown 48 Director Paul Tipps 60 Director Peter G. Aylward 55 Director Richard A. Tonges 41 Treasurer and Vice President of Finance Charles W. Thornton 54 Corporate Counsel Louis S. Beck has been a director and Chairman of the Board of the Company since April 24, 1997. He has been a principal stockholder and chief executive officer of Beck Hospitality Inc. III and predecessor companies engaged in the hotel management business since 1972. He has also been a principal stockholder and Chairman of the Board of Union Savings Bank in Cincinnati, Ohio since 1986. Union Savings Bank is a wholly owned subsidiary of U.S. Bancorp., a savings and loan holding company of which Mr. Beck is a director and President. In addition, since 1992 he has served as Chairman of the Board of Guardian Savings Bank in Cincinnati, Ohio and serves as a director and President of its holding company, Guardian Bancorp, Inc. Mr. Beck's term as a director of the Company expires at the Company's 1997 Annual Meeting of Stockholders ("Annual Meeting"). Harry G. Yeaggy has been a Director and Vice Chairman of the Company since April 24, 1997. He has been a principal stockholder and chief operating officer of Beck Hospitality Inc. III and predecessor companies engaged in the hotel management business since 1986. He has also been a director and President of Union Savings Bank in Cincinnati, Ohio since 1986. Union Savings Bank is a wholly owned subsidiary of U.S. Bancorp., a savings and loan holding company of which Mr. Yeaggy is a director and Vice President and Secretary. Mr. Yeaggy's term as a director of the Company expires at the Company's 1999 Annual Meeting. James E. Bishop has served as President and a director of the Company since August 1996. Mr. Bishop was Chief Executive of the Company from August 1996 until April 24, 1997. Mr. Bishop joined the Company in September 1995 as its Executive Vice President and was charged with the responsibility for carrying out the Company's acquisition objectives. From 1993 to 1995 he was Senior Vice President of Gates Capital Corp., an 39 investment banking firm. For the seventeen years prior thereto he was an investment banker and senior manager for various public and private entities. Mr. Bishop's term as a director expires at the Company's 1999 Annual Meeting. Michael M. Nanosky has been a director and President of Hotel Operations of the Company since April 24, 1997. Prior to joining the Company, since March, 1990 he was President of Beck Group Management Corp., a company engaged in the hotel management business. Mr. Nanosky's term as a director expires at the Company's 1999 Annual Meeting. Vincent W. Hatala, Jr. was designated a creditor representative member of the Board of Directors pursuant to the Plan in May 1990 and was President of the Company following the redemption of the interests of DKM on May 15, 1995 until August 28, 1996, and Chairman until April 24, 1997. Mr. Hatala operated an independent financial consulting business from 1971 until his retirement from that business in 1990. He was a member of the U.S. Lines Creditors Committee from its inception and served as a co-trustee of the Reorganization Trust from 1990 to 1993. Mr. Hatala's term as a director expires at the Company's 1999 Annual Meeting. Anthony J. Pacchia was designated a creditor representative member of the Board of Directors in the Plan in May 1990 and was Secretary of the Company following the redemption of the interests of DKM on May 15, 1995 until April 24, 1997. He had been a member of the U.S. Lines Creditors Committee from inception in 1986 until conclusion of the Chapter 11 proceeding. Since 1994 he has operated an independent financial consulting business and engaged in the private practice of law. Prior to 1994 he was a Group Vice President of First Fidelity Bank, N.A., New Jersey and responsible for special situation loan workouts. Mr. Pacchia's term as a director expires at the Company's 1998 Annual Meeting. Arthur Lubell was designated a creditor representative member of the Board of Directors pursuant to the Plan in May 1990 and was Treasurer of the Company following the redemption of the interests of DKM on May 15, 1995 until April 24, 1997. Mr. Lubell has been a member of the law firm Lubell & Koven, New York City, since 1960, and is counsel to Daewoo International (America) Corp., a subsidiary of Daewoo Corporation, a former major unsecured creditor of U.S. Lines and a current stockholder of the Company. On November 23, 1994, pursuant to a plea agreement, Mr. Lubell pled guilty to a federal misdemeanor offense charging that he offered compensation to an agent of the Internal Revenue Service. Mr. Lubell was fined $5,000 and given six months of unsupervised probation. Mr. Lubell's term as a director expires at the Company's 1998 Annual Meeting. Richard P. Lerner has been a director of the Company since August 1996. Mr. Lerner has been a partner with the law firm of Lambos & Junge, New York since 1996. Mr. Lerner was a partner with the law firm of Lambos & Giardino, New York from 1978 to 1996. Mr. Lerner was a member of the U.S. Lines Creditors Committee from inception in 1986 until conclusion of Chapter 11 proceeding. Mr. Lerner's term as a director expires at the Company's 1997 Annual Meeting. C. Scott Bartlett, Jr. has been a director of the Company since August 1996. Mr. Bartlett has served as independent financial consultant advising financial institutions in matters involving credit policy, loan approval and loan workout since 1990. Mr. Bartlett served as Senior Vice President and Chief Credit Officer of MTB Bank from 1992 until 1994. Mr. Bartlett served as Executive Vice President, Senior Lending Officer and Chairman, Credit Policy Committee for National Westminster Bank USA from 1984 until 1990. Mr. Bartlett presently serves as a director of the following corporations: Harvard Industries, Inc. (Chairman, Audit Committee; Compensation Committee); NVR, Inc. (Audit Committee, Nominating Committee); The Western Transmedia Co., Inc. (Compensation Committee); Darling International, Inc. 40 (Chairman, Compensation Committee; Audit Committee); Triangle Wire & Cable, Inc. (Audit Committee); Bucyrus International, Inc. (Compensation Committee). Mr. Bartlett's term as a director expires at the Company's 1997 Annual Meeting. Lucille Hart-Brown has been a director since August 1996. Ms. Hart-Brown has served as President of Benefit Services, Inc. since June 1996. Ms. Hart-Brown served as Administrator of Marine Engineers' Beneficial Association from 1982 until 1996. Ms. Hart-Brown was a member of the Creditors Committee from inception in 1986 until conclusion of Chapter 11 proceeding. Ms. Hart-Brown's term as a director expires at the Company's 1997 Annual Meeting. Paul Tipps has been a director of the Company since April 24, 1997. Mr. Tipps has been president of Public Policy Consultants, Inc., a government affairs consulting firm, since 1983. Since January 1997 he has been a director of the Federal Home Loan Bank - Cincinnati. Mr. Tipp's term as a director expires at the Company's 1998 Annual Meeting. Peter G. Aylward has been a director of the Company since April 24, 1997. Mr. Aylward has been President of Strategic Property Advisers, Inc., an investment advisory company, since 1992 and has operated his own law firm, specializing in tax and securities law, since 1993. Mr. Alyward's term as a director expires at the Company's 1998 meeting. Richard A. Tonges has been Vice President-Finance and Treasurer of the Company since April 24, 1997. Prior to joining the Company, Mr. Tonges was Chief Financial Officer of Beck Group Management Corp. since September 1978. Mr. Tonges is a certified public accountant. Charles W. Thornton has been Corporate Counsel of the Company since April 24, 1997. Prior to joining the Company, Mr. Thornton was General Counsel to Beck Group Management Corp. since 1989. Committees of the Board of Directors The Board of Directors of the Company has appointed three committees: the Audit Committee, Compensation Committee and Operating Committee. The members of the Audit Committee are Peter Aylward, Anthony J. Pacchia, Paul Tipps, Richard P. Lerner and Arthur Lubell. The Audit Committee periodically reviews the Company's auditing practices and procedures and makes recommendations to management or to the Board of Directors as to any changes to such practices and procedures deemed necessary from time to time to comply with applicable auditing rules, regulations and practices, and recommends independent auditors for the Company to be elected by the stockholders. The members of the Compensation Committee are C. Scott Bartlett, Jr., Lucille Hart-Brown, Paul Tipps and Richard P. Lerner. The Compensation Committee meets periodically to make recommendations to the Board of Directors concerning the compensation and benefits payable to the Company's executive officers and other senior executives. The members of the Operating Committee are Louis S. Beck, James E. Bishop. C. Scott Bartlett, Jr., Lucille Hart-Brown, and Peter Aylward. The Operating Committee advises and makes recommendations to the full Board of Directors with respect to matters of policy relating to the general conduct of the business of the Company. Staggered Board of Directors The Company's Restated Certificate of Incorporation, as amended, provides for a staggered Board of Directors having three classes: Class A, Class B and Class C. The number of directors in each 41 class shall consist, as nearly as may be possible, of one-third of the authorized number of directors. The authorized number of directors shall be determined from time to time by a majority of the directors in office. A classified Board of Directors may have the effect of making it more difficult to remove incumbent directors, providing such directors with enhanced ability to retain their positions. A classified Board of Directors may also make the acquisition of control of the Company by a third party by means of a proxy contest more difficult. In addition, the classification may make it more difficult to change the majority of directors for business reasons unrelated to a change of control. The Certificate provides that the above provisions regarding classification of the Board of Directors may not be amended, altered, changed or repealed except by the affirmative vote of at least 66-2/3% of the shares of Common Stock entitled to vote at a meeting of the stockholders called for the consideration of such amendment, alteration, change or repeal, unless such proposal shall have been proposed by a majority of the Board of Directors. There are no family relationships among any of the directors and executive officers of the Company. ITEM 6. EXECUTIVE COMPENSATION Director Compensation During calendar year 1996, the Company's non-employee directors and the non-salaried employee directors received an annual retainer of $15,000 and $1,000 per meeting attended of the Board of Directors or any committee thereof. The arrangements for director compensation have remained the same for calendar year 1997. Executive Compensation The following table sets forth the compensation paid or accrued by the Company for services rendered in all capacities for executive officers of the Company who received compensation in excess of $100,000 during the period January 1, 1996 to December 31, 1996. Summary Compensation Table
Annual Compensation Long Term Compensation Awards Name and Principal Position Year Salary ($) Bonus($) Securities Underlying Options(#) - --------------------------- ---- ---------- -------- -------------------------------- James E. Bishop, President 1996 $119,500 $25,000 4,000 Vincent W. Hatala, Jr., Chairman 1996 $358,200 $0 4,000(1)
- ------------ (1) See "Stock Options below for a description of the special provisions applicable to Mr. Hatala's options. 42 Employment Agreements The Company has entered into written employment agreements with Louis S. Beck, Harry G. Yeaggy, Michael M. Nanosky, James E. Bishop and Vincent W. Hatala, Jr.. The agreement with Mr. Beck is for a term of three years which ends on April 23, 2000. He is paid an annual salary of $275,000, which may be increased from time to time at the discretion of the Board of Directors. He may also be paid a bonus in an amount determined by the Board of Director in its discretion and is entitled to such benefits as the Board of Directors shall adopt. In the agreement the Company has acknowledged that Mr. Beck is the owner, an officer and director of other businesses that engage in the same business as the Company and that, in certain instances, such businesses may be considered to be in competition with the Company. Mr. Beck has agreed not to engage in any business that competes with the Company other than the existing businesses. The agreement with Mr. Yeaggy is for a term of three years which ends on April 23, 2000. He is paid an annual salary of $175,000, which may be increased from time to time at the discretion of the Board of Directors. His agreement is otherwise substantially similar to the agreement between Mr. Beck and the Company. The agreement with Mr. Bishop is for a term of three years which ends on April 23, 2000. He is employed as President of the Company with general supervisory authority of the business of the Company and its subsidiaries and charged with the responsibility of preparing and implementing a strategic plan and seeking out and consummating acquisitions, under the supervision of and in accordance with policies set by the Chairman of the Board and the Board of Directors. Mr. Bishop is paid an annual salary of $200,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus in an amount to be determined in accordance with the Company's then current bonus or incentive compensation plan. Mr. Bishop is also entitled to a comprehensive medical indemnity policy for himself and his family, an annual allowance of $2,000 for additional out-of-pocket medical payments, an annual allowance of $2,000 for dental expenses, an annual payment of $10,000 for the purchase of annuity, grossed up for the income tax cost, term life insurance coverage in the amount of $1,000,000 to the extent the same is available at normal market rates, long term disability insurance coverage and such other benefits as the Board of Directors shall adopt and approve for him. If the Company re-locates its principal place of business out of New Jersey, Mr. Bishop is entitled to reimbursement for reasonable moving expenses up to $85,000 and a loan from the Company of up to $500,000 to purchase a new residence for a term ending the earlier of 18 months from the date of the loan or six months after the sale of his residence in New Jersey. In the event of a change in control of the Company, Mr. Bishop is entitled to a lump sum payment of $300,000. The agreement with Mr. Nanosky is for a term of three years which ends on April 23, 2000. He is employed as President - Hotel Operations of the Company and charged with the responsibilities typical of a division president. He is paid an annual salary of $100,000, which may be increased from time to time at the discretion of the Board of Directors. He is also entitled to an annual bonus of up to $100,000 based upon the Company's success in achieving budgeted goals for the Company's hotel properties and operations. Mr. Nanosky is also entitled to a comprehensive medical indemnity policy for himself and his family, "split dollar" life insurance coverage in the amount of $480,000, long term disability insurance coverage and such other benefits as the Board of Directors shall adopt and approve for him. Mr. Hatala's employment agreement with the Company which was in effect during the year 1996 provided for an annual base salary of $75,000 plus $200 per hour for each hour devoted to the business 43 of the Company in excess of 500 hours per annum. Effective January 1, 1997 his prior agreement was replaced with a new agreement for a one year term which expires December 31, 1997. Under this agreement, Mr. Hatala is paid an annual salary of $75,000 in consideration of his services as Chairman of the Board (which position he resigned from effective April 24, 1997) and such other executive duties as are assigned to him by the Board of Directors from time to time. He may also be paid a bonus by the Board of Directors in its discretion. He has agreed to make himself available to the Company for at least 500 hours on an annual basis. Mr. Hatala is also entitled to an annual allowance of $2,000 on account of dental expenses, reimbursement for medical insurance premium payments and up to an additional $2,000 on account of out-of-pocket medical expenses and such other benefits as the Board of Directors shall adopt and lawfully approve for him. Stock Options In August, 1996, the Board of Directors and stockholders of the Company adopted the 1996 Stock Option Plan ("Plan") and reserved 300,000 shares of Common Stock for issuance thereunder. The Plan provides for the granting to employees (including employee directors and officers) of options intended to qualify as incentive stock options within the meaning of Code ss.422, and for the granting of nonstatutory stock options to employees and consultants. The Plan is currently administered by the Company's Compensation Committee. The exercise price per share of incentive stock options granted under the Plan must be at least equal to the fair market value of the Common Stock on the date of grant. In addition, in accordance with the Underwriting Agreement relating to this Offering, the Company has agreed not to grant any options under the Plan with an exercise price per share less than the initial public offering price of the Common Stock. With respect to any participant who owns stock representing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any incentive or nonstatutory stock option must be equal to at least 110% of the fair market value on the grant date, and the maximum term of the option must not exceed five years. The terms of all other options granted under the Plan may not exceed ten years. Options granted under the Plan typically vest over a four-year period at the rate of one-fourth on the first anniversary of the vesting commencement date and 1/48 per month thereafter. Upon a merger of the Company, the options outstanding under the Plan will terminate unless assumed or substituted by the successor corporation. Messrs. Hatala and Bishop have been granted incentive stock options to acquire 4,000 shares of Common Stock at $2.75 per share, and Messrs. Lubell and Pacchia have been granted nonstatutory options to acquire 6,000 shares of Common Stock at $2.75 per share. Mr. Hatala has also been granted a tandem nonstatutory stock option to acquire 6,000 shares of Common Stock at $2.75 per share. The two options granted to Mr. Hatala are mutually exclusive. The nonstatutory stock option will not be exercisable as long as the incentive stock option remains exercisable. To the extent that the incentive stock option is exercised in part, the number of shares subject to the nonstatutory stock option will be reduced by .667 shares for each share issued pursuant to the exercise of the incentive stock option. The foregoing options were granted pursuant to the Company's Plan. Stock Appreciation Rights The Company granted a stock appreciation right to James E. Bishop, the President of the Company, in connection with his employment agreement with respect to 100,000 shares of Common Stock at an exercise price of $3.25 per share, which vests 20,000 shares per year over a period of five years, commencing April 23, 1997, subject to accelerated vesting under certain circumstances. Messrs. 44 Hatala, Lubell, Pacchia, Bartlett, Lerner, Aylward and Tipps and Ms. Hart-Brown have been granted stock appreciation rights with respect to 5,000 shares at an exercise price of $3.25 per share (collectively, the "Director SARs"). Subject to approval of such grants by the Company's stockholders at the 1997 Annual Meeting, the Director SARs may be exercised during the period October 25, 1997 through April 23, 2003. In no event may the appreciated value per share paid in respect of the Director SARs exceed $7.00 per share. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Interest of Messrs. Beck and Yeaggy in Hotels Under Management by the Company The Company has agreements to manage 14 Managed Hotels which are not owned directly or indirectly by the Company. Seven of these Managed Hotels are owned by corporations or partnerships owned by Messrs. Beck and Yeaggy. The management agreements with the Beck/Yeaggy - affiliated hotels provides for the payment to the Company of an annual management fee equal to 5% of gross revenues and have an initial term expiring in 2007. In the event of a sale of a hotel subject to a management agreement, the Company is entitled to receive a payment equivalent to the discounted present value of the anticipated management fees over the remainder of the initial term. Interest of Messrs. Beck and Yeaggy in Properties Subject to Mortgages held by the Company The Company has financial participations in the form of promissory notes secured by mortgages on a hotel property in Juno Beach, Florida (the "Juno Note") and on a KOA Campground in the vicinity of Orlando, Florida (the "KOA Note"), both of which are owned by affiliates of Messrs. Beck and Yeaggy. The principal balances of the Juno Note and the KOA Note as of April 30, 1997 are $2,212,958 and $3,545,324 respectively. The Juno Note is subject to a prior lien in favor of The Provident Bank as security for indebtedness of the Company in the remaining principal amount of $1,631,000 as of April 30, 1997. Both the Juno Note and KOA Note provide for monthly principal payments based upon a twenty year amortization. Both notes mature on May 1, 2000, but their respective maturity dates may be extended for an additional three years if the notes are not in default on the original maturity date. The Juno Note bears interest at a floating rate equal to the prime rate plus 1%, but in no event less than 7.75% per annum. The KOA Note bears interest at a fixed rate of 8% per annum. Messrs. Beck and Yeaggy have jointly and severally guaranteed the payment of the notes. Interest of Messrs. Beck and Yeaggy in Service Providers to the Company The Company has a service agreement dated April 23, 1997 for a hotel property management system with Computel Computer Systems, Inc. ("Computel"), a corporation wholly-owned by Messrs. Beck and Yeaggy. The agreement has a term of one year and automatically renews for successive terms of one year, unless one party notifies the other to the contrary at least three months prior to the termination date. Computel is paid a monthly fee of $275 per hotel location for its basic property management software package plus one computer terminal. For each additional terminal at a hotel location there is an additional charge of $75 per month. Additional monthly fees are charged for add-on software for such services as guest messaging, call accounting interface, franchise central reservation interface and movie interface. The Company believes that these are market-rate fees. Based on the Company's present operations, the Company projects aggregate payments to Computel of $43,650 during 1997. On each annual renewal of the agreement, Computel is entitled to increase its fees commensurate with the fees charged to other customers. 45 Personnel at the hotels owned and managed by the Company are provided by Hospitality Employee Leasing Program, Inc. ("HELP"), a corporation also wholly-owned by Messrs. Beck and Yeaggy, pursuant to an agreement dated April 23, 1997. The Agreement has a term of one year and automatically renews for successive terms of one year, unless one party notifies the other to the contrary at least three months prior to the termination date. The Company pays HELP an administrative fee of $8.15 per bi-monthly pay period per employee. The Company believes that this is a market-rate fee. Based on the Company's present operations, the Company projects aggregate fees of $39,120 to HELP during 1997. Interest of Messrs. Beck and Yeaggy in Premises Occupied by the Company The Company subleases office space in Cincinnati, Ohio and Boca Raton, Florida from affiliates of Messrs. Beck and Yeaggy. The Sublease agreements are on a triple-net basis and provide for annual rental payments of $25,248 and $18,240 respectively. The Company believes that these are market rate rentals. Interest of Messrs. Beck and Yeaggy in Best Western, Kings Quarters The Company has an 85% general partnership interest in Kings Dominion Lodge, a Virginia general partnership, the sole asset of which is the hotel known as the Best Western, Kings Quarters, which is adjacent to the Kings Dominion Amusement Park near Richmond, Virginia. The remaining 15% general partnership interest is held by Elbe Properties, an Ohio general partnership whose partners are Messrs. Beck and Yeaggy. Independent Hospitality Business Maintained by Messrs. Beck and Yeaggy In addition to their ownership of seven of the Managed Hotels, Messrs. Beck and Yeaggy own five additional hotel properties which are managed by their affiliate Beck Hospitality Inc. III. In their respective employment agreements with the Company, Messrs. Beck and Yeaggy have agreed with the Company that, in some instances, these existing businesses may be competitive with the hospitality business of the Company and, with the exception of these existing businesses, they have agreed not to engage in any business that competes with the Company. Guarantees by Messrs. Beck and Yeaggy of Indebtedness of the Company Messrs. Beck and Yeaggy have personally guaranteed the obligations of Envoy Inns of Morrisville, L.L.C., a Delaware limited liability company, of which the Company is the sole member, and Kings Dominion Lodge, a Virginia general partnership, of which the Company owns an 85% interest, in connection with three loans secured by mortgages on three Owned Hotels from State Street Bank and Trust Company, as Trustee under a Pooling and Servicing Agreement dated s of January 1, 1997 for J.P. Morgan Commercial Mortgage Finance Corporation. The obligations of Messrs. Beck and Yeaggy pursuant to their guarantees in connection with these loans are limited to payment of the outstanding debt in the event of fraud or material misrepresentation by the borrowing entities, and indemnification in connection with certain specific liability and costs for the lender, such as environmental liability and liability caused by the gross negligence or willful misconduct of the borrowing entity, the failure to pay property taxes when due, the misapplication of insurance and condemnation proceeds, damage or 46 waste to the property subject to lender's mortgage, and costs incurred by the Lender as a result of certain actions taken by the borrowing entity after an event of default. In addition, Messrs. Beck and Yeaggy have personally guaranteed the obligations of the Company in connection with two loans from Star Bank, N.A., which obligations were assumed by the Company on April 24, 1997 from affiliates of Messrs. Beck and Yeaggy and are secured by mortgages on two Owned Hotels. The guarantees of Messrs. Beck and Yeaggy pursuant to these loans are limited to an aggregate total of $209,250, plus liability incurred by the lender in connection with events such as fraud or intentional misrepresentation by the Company or its predecessor and misapplication of insurance or condemnation proceeds. Messrs. Beck and Yeaggy are also personally obligated in connection with loans from The Huntington National Bank in the original principal amount of $3,260,000, and from 1st National Bank, located in Warren County, Ohio, in the original principal amount of $50,000 each of which was assumed by the Company on April 24, 1997 and are secured by mortgages on one Owned Hotel. Transferability Restrictions on Stock Owned by Messrs. Beck and Yeaggy and Registration Rights Messrs. Beck and Yeaggy, in the aggregate, directly and indirectly own approximately 43% of the outstanding shares of the Company's Common Stock. They have agreed that until April 23, 2001, they will not transfer, in any manner, any shares of the Common Stock, without the consent of the Company's Board of Directors. The Company shall have no obligation to consent to a transfer unless it shall have received an opinion of counsel to the effect that the transfer does not give rise to an "ownership change" under Code ss. 382 or otherwise affect the availability to the Company of its NOLs and any other applicable tax attributes for Federal income tax purposes. See "Description of Business - The Net Operating Loss Carryforwards." In addition to the foregoing transferability restrictions which have been consented to by Messrs. Beck and Yeaggy, the Company has imposed equivalent transferability restrictions upon certain other "5-percent shareholders" for purposes of Code ss. 382. See "Description of Business - The Net Operating Loss Carryforwards - Certain Transferability Restrictions." Messrs. Beck and Yeaggy have been granted certain registration rights with respect to the Company's securities owned by them. On a one-time basis they may demand registration, at the Company's expense, of shares of preferred stock owned by them. In addition, if the Company proposes to register any of its securities in connection with a public offering of such securities (other than in connection with certain limited purpose registrations), Messrs. Beck and Yeaggy may request that the preferred stock be registered incidental thereto. Following the termination of the transferability restrictions referred to above, on a one-time basis, Messrs. Beck and Yeaggy may also demand registration, at the Company's expense, of their shares of Common Stock. In addition, if following the termination of the transferability restrictions referred to above, the Company proposes to register any of its securities in connection with a public offering of such securities (other than in connection with certain limited purpose registrations), Messrs. Beck and Yeaggy may request that their Common Stock be registered incidental thereto. 47 ITEM 8. DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 15,000,000 shares of Common Stock, par value $.01 per share and 5,000,000 shares of Preferred Stock, par value $.01 per share. Preferred Stock The Company is authorized to issue Preferred Stock in classes or series having such designations, preferences and relative participating, optional or other special rights, qualifications, limitations or restrictions, as shall be stated and expressed in the resolutions of the Board of Directors providing for the issuance of such stock. The Preferred Stock shall not have voting rights except as required by law or as expressed in the resolutions of the Board of Directors providing for the issuance of such shares. The Company's Restated Certificate of Incorporation, as amended, provides for a series of 12,000 shares of Preferred Stock, par value $.01 per share, Series B (the "Series B Preferred Stock"), of which 10,451.88 shares are outstanding. The Series B Preferred Stock has a redemption price of $1,000 per share. Each holder of a share of Series B Preferred Stock is entitled to cumulative dividends at the annual rate of $75 per share payable on the last day of each March, June, September and December. There are currently no accrued and unpaid dividends on the Series B Preferred Stock. The shares of Series B Preferred Stock are not convertible into any other security. Generally, the Series B Preferred Stock is non-voting. However, if accrued and unpaid dividends have accumulated in an amount equal to the sum of four quarterly dividends, under the Company's Restated Certificate of Incorporation, the holders of Series B Preferred Stock are entitled to 0.01 of a vote per share. Common Stock As of June 9, 1997, there were 8,881,836.181 shares of Common Stock outstanding (including 150,000 held in escrow). Each holder of Common Stock is entitled to one vote for each share held. The holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. As long as there are accrued unpaid dividends on the Preferred Stock, no dividends may be declared and paid on the Common Stock until such dividends have been paid or until provision has been made for such payment. In the event of a liquidation, dissolution or winding up of the company, holders of Common Stock would be entitled to share in the Company's assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock. The shares of Common Stock are not convertible into any other security. Warrants The Company has outstanding Warrants to purchase 223,600 shares of the Company's Common Stock. The Warrants are currently exercisable and have a term of five years expiring in July 2001. Beginning in May 1999, the Company shall have the right, upon at least thirty days notice to the holders of the Warrants, to call the same for redemption if the market price of Common Stock shall have exceeded $10.00 per share for a period of ten consecutive trading days. The redemption price would be $0.25 per share. 48 The Warrants would not be exercisable if at the time of exercise or after giving effect thereto, the holder would be directly, indirectly or by attribution, a holder of five percent of more of the issued and outstanding capital stock of the Company or the votes represented by the shares of the capital stock of the Company entitled to vote for the election of directors. The Warrants were issued in denominations divisible by four, and are exercisable for two shares of the Common Stock at $3.00 per share, for one share at $4.00 per share and for one share at $5.00 per share. The exercise price of the Warrants is subject to adjustment in the event of stock dividends or stock splits. In the event of a reorganization, consolidation or merger, transfer of substantially all the assets or dissolution involving the Company, the Company is required to make adequate provision for the rights of the holders of the Warrants and the holders shall receive, upon exercise of the Warrants, in lieu of Common Stock, the same kind and amount of any share, securities or assets as may be issuable, distributable or payable on any such sale, transfer, merger, reorganization, dissolution or winding up with respect to each share of Common Stock that the holder would have received upon exercise of the Warrant. The Delaware Business Combination Act Section 203 of the Delaware General Corporation Law (the "Delaware Business Combination Act") imposes a three-year moratorium on business combinations between a Delaware corporation whose stock generally is publicly traded or held of record by more than 2,000 stockholders and an "interested stockholder" (in general, a stockholder owning 15% or more of a corporation's outstanding voting stock) or an affiliate or associate thereof unless (a) prior to an interested stockholder becoming such, the board of directors of the corporation approved either the business combination or the transaction resulting in the interested stockholder becoming such, (b) upon consummation of the transaction resulting in the interested stockholder becoming such, the interested stockholder owns 85% of the voting stock outstanding at the time the transaction commenced (excluding, from the calculation of outstanding shares, shares beneficially owned by directors who are also officers and certain employee stock plans) or (c) on or after an interested stockholder becomes such, the business combination is approved by (i) the board of directors and (ii) holders of at least 66-2/3% of the outstanding shares (other than those shares beneficially owned by the interested stockholder) at a meeting of stockholders. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an "interested stockholder" involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an "interested stockholder's" percentage ownership of stock. The Delaware Business Combination Act applies to certain corporations incorporated in the State of Delaware unless the corporation expressly elects not to be governed by such legislation and sets forth such election in (a) the corporation's original certificate of incorporation, (b) an amendment to the corporation's by-laws as adopted by the corporation's board of directors within 90 days of the effective date of such legislation or (c) an amendment to the corporation's certificate of incorporation or by-laws is approved by (in addition to any other vote required by law) a majority of the shares entitled to vote (however, such amendment would not be effective until 12 months after the date of its adoption and would not apply to any business combination between the corporation and any person who became an interested stockholder on or prior to such adoption of such amendment). The Company has not made such an election and is subject to the Delaware Business Combination Act since it has over 2,000 shareholders of record. However, while they own more than 15% of the Company's outstanding voting 49 stock, Messrs. Beck and Yeaggy are not "interested stockholders" because the Company's Board of Directors approved the transactions resulting in their Stock ownership. Accordingly, the restrictions of Section 203 will not apply to transactions, if any, between the Company and either Mr. Beck or Mr. Yeaggy. Director Liability Provisions As permitted by the Delaware General Corporation Law, the Company's Restated Certificate of Incorporation, as amended, contains a provision which eliminates under certain circumstances the personal liability of directors (only in their capacities as directors of the Company) to the Company or its stockholders for monetary damages for a breach of fiduciary duty as directors. The provision in the Certificate does not change a director's duty of care, but it does authorize the Company to eliminate monetary liability for certain violations of the duty, including violations based on grossly negligent business decisions which may include decisions relating to attempts to change control of the Company. The provision does not affect the availability of equitable remedies for a breach of duty of care, such as an action to enjoin or rescind a transaction involving a breach of fiduciary duty; however, in certain circumstances equitable remedies may not be available as a practical matter. The provision in the Certificate in no way affects a director's liability under the federal securities laws. The Company's By-Laws contain similar provisions. Preservation of Income Tax Attributes The Company's Restated Certificate of Incorporation contains several provisions which are intended to preserve the availability of the Company's net operating losses. See "Description of Business - The Net Operating Loss Carryforwards." Except if a transaction is approved by resolution of the Board of Directors by a vote of two-thirds of the directors then in office, the affirmative vote of the holders of two-thirds of the outstanding shares of Common Stock is required to approve (i) the issuance during any 24-month period of shares of the capital stock or other securities of the Company convertible into capital stock, which shares would entitle the holders thereof to exercise five percent (5%) or more of the voting power of the Company for the election of directors immediately after the issuance of such shares, (ii) any merger, consolidation or other reorganization of the Company, (iii) any dissolution or liquidation of the Company of (iv) any sale or disposition of any substantial portion of the assets of the Company. No person or entity may acquire shares of the capital stock of the Company if, after giving affect to any acquisition, such person or entity would have record or beneficial ownership directly or by attribution, of five percent (5%) or more of the issued and outstanding capital stock of the Company determined on the basis of the fair market value of the capital stock of the Company or the votes represented by the shares of the capital stock of the Company entitled to vote for the election of directors. There is an exception to the foregoing restriction for any person or entity which originally received shares of the capital stock of the Company pursuant to the Plan, but no such person or entity may acquire additional capital stock. The Board of Directors of the Company is empowered to adopt such procedures and to impose such further limitations on the transferability of the Company's capital stock as the Board deems desirable to preserve and maintain the Federal income tax attributes of the Company. Moreover, the Board of Directors is empowered to waive any transferability restrictions if it determines that a proposed acquisition of shares of the Company's capital stock would not be adverse to the interests of the Company and its stockholders, taking into account the likely effect of a transaction upon the Federal 50 income tax attributes of the Company. See "Description of Business - The Net Operating Loss Carryforwards" and "Risk Factors - Irregular Trading Market." Transfer Agent and Registrar Chase Mellon Shareholder Services, Inc. acts as the Company's transfer agent and registrar. 51 PART II ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS As of June 20, 1997, there were approximately 3,690 holders of record of the Company's Common Stock. The Company has never declared or paid dividends on its Common Stock and currently does not intend to pay dividends in the foreseeable future. The payment of dividends in the future will be at the discretion of the Board of Directors. There has been no prior market for the Company's Common Stock and there can be no assurance that a public market for the Common Stock will develop or be sustained in the future. The Company intends to apply for quotation of the Common Stock on the Nasdaq National Market System or the Nasdaq SmallCap Market. In order to qualify for such quotation, the Company must satisfy certain maintenance criteria. The failure to meet and maintain such maintenance criteria will result in the Common Stock being ineligible for quotation on Nasdaq and trading, if any, of the Common Stock. As a result of no public market for the Company's securities, an investor may find it difficult to dispose of or to obtain accurate quotations as to the market value of the Company's securities. In addition, if the Common Stock has a trading price of less than $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser's written consent to the transaction prior to sale. The additional burdens imposed upon broker-dealers by such requirements may discourage them from effecting transactions in the Common Stock, which could severely limit the liquidity of the Common Stock. The offering prices of the Company's securities and other terms of the sales of the Company's securities within the last ten months were established by negotiation between the Company and the acquirers thereof and may not be indicative of prices that will prevail in the trading market. In the absence of an active trading market, purchasers of the Company's securities may experience substantial difficulty in selling their securities. The trading price of the Company's securities is expected to be subject to significant fluctuations in response to variations in quarterly operating results, changes in estimates of earnings and other factors often unrelated to operating performance. ITEM 2. LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS In November 1996, the Company engaged J.H. Cohn LLP ("J.H. Cohn") as independent auditors to perform the audit of the Company's annual financial statements as successor to Arthur Andersen LLP 52 ("Arthur Andersen"). In October, 1996, Arthur Andersen decided to no longer serve as the Company's auditors. Arthur Andersen informed the Company that it was not aware of any disputes between its firm and the Company in the context of its audits and tax return services performed for the years ended December 31, 1994 and 1995. From the effective date of the Plan in 1990 until the date hereof, there have been no disagreements between the Company and prior certified public accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of such prior accountants, would have caused them to make reference in connection with their report to the subject matter of the disagreements. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES The following table sets forth all sales of unregistered securities by the Company within the past three years.
Nature of Aggregate Price Transaction and Date Class of Purchasers Securities Sold Offering Price Per Share - -------------------- ------------------- --------------- -------------- --------- Private placement pursuant to 21 former debt or equity 418,368 shares of $1,150,512 $2.75 asset purchase agreement in July investors in Pre-Tek Common Stock 1996 Wireline Service Company, (including 150,000 Inc., a California shares held in corporation of which four escrow) and 500,000 were accredited investors Warrants Private placement pursuant to Three accredited investors 3,799,999 shares of $12,349,997 $3.25 agreement and plan of merger and Common Stock and asset purchase agreement in April 1997 10,451.88 shares of $10,451,880 $1,000 Preferred Stock, Series B
The Company relied on Section 4(2) of the Securities Act and Rule 506 promulgated thereunder for each issuance. No underwriters were involved nor any commissions paid in connection with any of the above transactions. ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Restated Certificate of Incorporation, as amended, limits the liability of directors to the maximum extent permitted by Delaware law. The Company's By-Laws provide that the Company shall indemnify its directors and executive officers and may indemnify its other officers, employees, agents and other agents to the fullest extent permitted by law. The Company's By-Laws also permit the Company to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the By-Laws would permit indemnification. 53 INDEX TO FINANCIAL STATEMENTS PAGE JANUS INDUSTRIES, INC. AND SUBSIDIARIES: REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS F-3/4 CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 F-5 CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995 F-6 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996 AND 1995 F-7 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9/23 CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1997 (Unaudited) F-24 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) F-25 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) F-26 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) F-27 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) F-28 THE BECK/YEAGGY GROUP: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-29 COMBINED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 F-30 COMBINED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996 AND 1995 F-31 COMBINED STATEMENTS OF OWNERS' CAPITAL DEFICIENCY YEARS ENDED DECEMBER 31, 1996 AND 1995 F-32 COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 F-33 NOTES TO COMBINED FINANCIAL STATEMENTS F-34/41 F-1 INDEX TO FINANCIAL STATEMENTS (Concluded) PAGE THE BECK/YEAGGY GROUP (Concluded): CONDENSED COMBINED BALANCE SHEET MARCH 31, 1997 (Unaudited) F-42 CONDENSED COMBINED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) F-43 CONDENSED COMBINED STATEMENTS OF OWNERS' CAPITAL DEFICIENCY THREE MONTHS ENDED MARCH 31, 1997 (Unaudited) F-44 CONDENSED COMBINED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) F-45 NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited) F-46/47 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-48 CONSOLIDATED STATEMENTS OF OPERATIONS PERIOD FROM APRIL 1, 1996 THROUGH JULY 15, 1996 AND YEARS ENDED MARCH 31, 1996 AND 1995 F-49 CONSOLIDATED STATEMENTS OF CASH FLOWS PERIOD FROM APRIL 1, 1996 THROUGH JULY 15, 1996 AND YEARS ENDED MARCH 31, 1996 AND 1995 F-50/51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-52/64 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS: INTRODUCTION TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS F-65 PRO FORMA CONDENSED COMBINED BALANCE SHEET MARCH 31, 1997 AND DECEMBER 31, 1996 (Unaudited) F-66 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (Unaudited) F-67 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 (Unaudited) F-68 PRO FORMA NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited) F-69/70 F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Janus Industries, Inc. We have audited the accompanying consolidated balance sheet of JANUS INDUSTRIES, INC. AND SUBSIDIARIES as of December 31, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Janus Industries, Inc. and Subsidiaries as of December 31, 1996, and their results of operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. J.H. COHN LLP Roseland, New Jersey March 7, 1997, except for Note 9 as to which the date is April 24, 1997 F-3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Janus Industries, Inc. (formerly United States Lines, Inc.) We have audited the accompanying consolidated balance sheet of Janus Industries, Inc. (a Delaware corporation) and subsidiary as of December 31, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides 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 Janus Industries, Inc. and subsidiary as of December 31, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP New York, New York April 18, 1996 F-4 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 ------------ ------------ Current assets: Cash and cash equivalents $ 6,580,836 $ 2,053,437 Cash restricted for payments to redeem preferred stock of subsidiary 673,200 Accounts receivable 83,100 Other current assets 184,734 35,195 ------------ ------------ Total current assets 7,521,870 2,088,632 Property and equipment, net of accumulated depreciation of $86,105 and $25,888 582,693 7,275 Goodwill, net of accumulated amortization of $30,375 860,966 Deferred costs of proposed acquisition 74,692 Other assets 7,096 13,396 ------------ ------------ Totals $ 9,047,317 $ 2,109,303 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Payable for redemption of preferred stock of subsidiary $ 673,200 Accounts payable 149,020 Accrued expenses 159,655 $ 134,137 Dividends payable 105,600 ------------ ------------ Total current liabilities 981,875 239,737 ------------ ------------ Minority interest 43,837 622,710 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share; 5,000,000 shares authorized; 2,200 shares issued and outstanding in 1995; $220,000 liquidation preference 22 Common stock, par value $.01 per share; 15,000,000 shares authorized; 8,080,868 and 7,812,500 shares issued 80,809 78,125 Additional paid-in capital 13,061,256 4,967,763 Accumulated deficit (4,245,730) (3,027,037) Treasury stock - 2,849,850 and 2,812,500 shares, at cost (874,730) (772,017) ------------ ------------ Total stockholders' equity 8,021,605 1,246,856 ------------ ------------ Totals $ 9,047,317 $ 2,109,303 ============ ============ See Notes to Consolidated Financial Statements. F-5 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ----------- ----------- Sales $ 381,055 ----------- Costs and expenses: Operating costs 363,162 Selling, general and administrative expenses 1,319,991 $ 728,084 Depreciation of property and equipment 61,434 3,881 Amortization of intangible assets 30,375 7,560 ----------- ----------- Totals 1,774,962 739,525 ----------- ----------- Operating loss (1,393,907) (739,525) Other income (expense): Interest income 247,516 140,307 Other income 4,376 Interest expense (1,476) ----------- ----------- Loss before minority interest (1,143,491) (599,218) Minority interest 50,490 60,818 ----------- ----------- Net loss (1,193,981) (660,036) Preferred dividend requirements 24,712 31,800 ----------- ----------- Net loss applicable to common stock $(1,218,693) $ (691,836) =========== =========== Net loss per common share $ (.24) $ (.11) =========== =========== Weighted average common shares outstanding 5,119,634 6,040,240 =========== =========== See Notes to Consolidated Financial Statements. F-6 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996 AND 1995
Preferred Stock Common Stock Treasury Stock --------------- ---------------- ---------------- Number Number Additional Number of of Paid-in Accumulated of Shares Amount Shares Amount Capital Deficit Shares Amount Total ------ ------ ------ ------ ------- ------- ------ ------ ----- Balance, January 1, 1995 4,000 $ 40 7,812,500 $78,125 $ 5,147,745 $(2,405,401) $2,820,509 Net loss (660,036) (660,036) Redemption of preferred stock (1,800) (18) (179,982) (180,000) Repurchase of common stock 2,812,500 $(772,017) (772,017) Release from certain pre- ferred stock dividend obligations 70,200 70,200 Preferred stock dividends (31,800) (31,800) ----- ---- --------- ------- ----------- ----------- --------- --------- ---------- Balance, December 31, 1995 2,200 22 7,812,500 78,125 4,967,763 (3,027,037) 2,812,500 (772,017) 1,246,856 Net loss (1,193,981) (1,193,981) Contributions to capital from United States Lines, Inc. and United States Lines (S.A.), Inc. Reorganization Trust 7,578,143 7,578,143 Shares and warrants issued to acquire oil and gas services business 268,368 2,684 735,328 738,012 Shares returned as a result of post-closing adjustments in connec- tion with acquisition of oil and gas services business 37,350 (102,713) (102,713) Redemption of preferred stock (2,200) (22) (219,978) (220,000) Preferred stock dividends (24,712) (24,712) ----- ---- --------- ------- ----------- ----------- --------- --------- ---------- Balance, December 31, 1996 -- $ -- 8,080,868 $80,809 $13,061,256 $(4,245,730) 2,849,850 $(874,730) $8,021,605 ===== ==== ========= ======= =========== =========== ========= ========= ==========
See Notes to Consolidated Financial Statements. F-7 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ----------- ----------- Operating activities: Net loss $(1,193,981) $ (660,036) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 91,809 11,441 Minority interest 50,490 60,818 Changes in operating assets and liabili- ties, net of effects of acquisition of oil and gas service business: Accounts receivable 17,229 Other current assets (89,393) (1,952) Other assets 7,547 Accounts payable and accrued expenses (85,593) 116,959 ----------- ----------- Net cash used in operating activities (1,201,892) (472,770) ----------- ----------- Investing activities: Acquisition of oil and gas services business, net of noncash consideration and cash acquired (701,631) Purchases of equipment (101,854) (5,827) Proceeds from sale of equipment 9,000 Costs of proposed acquisition (74,692) ----------- ----------- Net cash used in investing activities (869,177) (5,827) ----------- ----------- Financing activities: Reduction of minority interest through redemption of preferred stock of subsidiary (478,508) Redemption of preferred stock (220,000) (180,000) Increase in restricted cash (673,200) Repurchase of common stock (772,017) Preferred stock dividends (130,312) Contributions to capital from United States Lines, Inc. and United States Lines (S.A.), Inc. Reorganization Trust, including $43,837 attributable to minority interest 7,621,980 ----------- ----------- Net cash provided by (used in) financing activities 6,598,468 (1,430,525) ----------- ----------- Increase (decrease) in cash and cash equiva- lents 4,527,399 (1,909,122) Cash and cash equivalents, beginning of year 2,053,437 3,962,559 ----------- ----------- Cash and cash equivalents, end of year $ 6,580,836 $ 2,053,437 =========== =========== Supplemental disclosure of cash flow data: Interest paid $ 1,476 =========== See Notes to Consolidated Financial Statements. F-8 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization: In November 1986, United States Lines, Inc. ("USL") and United States Lines (S.A.) Inc. ("USL-SA"), together with two related companies, filed petitions under Chapter 11 of the United States Bankruptcy Code. On May 16, 1989, the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") confirmed a plan of reorganization with respect to such companies, which was later amended and modified pursuant to an order of the Bankruptcy Court entered on February 6, 1990 (the "Plan"). Pursuant to the Plan and the order of the Bankruptcy Court confirming the Plan: a. USL and USL-SA changed their names to Janus Industries, Inc. ("Janus") and JI Subsidiary, Inc. ("JIS"), respectively (Janus, JIS and the other subsidiaries subsequently formed or acquired by Janus are referred to collectively herein as the "Company"); b. The United States Lines, Inc. and United States Lines (S.A.) Inc. Reorganization Trust (the "Reorganization Trust") was established for the purpose of administering the Plan and liquidating and paying claims of former creditors of USL and USL-SA; it will also make contributions of cash to Janus and JIS from time to time of amounts in excess of its projected liabilities and administrative requirements; c. All claims of former creditors of USL and USL-SA were discharged; as a result, such former creditors may look only to the Reorganization Trust (and not Janus or JIS) for payment of amounts in respect of their discharged claims; d. The interests of all holders of shares of the capital stock of USL and USL-SA were extinguished and the former creditors of USL and USL-SA became entitled to receive all of the shares of capital stock issuable by Janus and JIS, except for shares issuable to Janus and a subsidiary of Dyson-Kissner-Moran ("DKM"), a new investor; shares of capital stock issuable to such former creditors were initially issued to the Reorganization Trust as recordholder for reissuance to such creditors; and e. The Reorganization Trust contributed $3,000,000 of USL and USL-SA cash to initially capitalize Janus and JIS on February 23, 1990 and provided Janus and JIS with certain books and records, and all tax attributes and tax benefits, of USL and USL-SA; it also made a cash contribution of approximately $7,622,000 to the capital of Janus and JIS in 1996. F-9 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization (concluded): At the time the Plan was approved, Janus and JIS had no commercial operations. However, they had substantial Federal net operating loss carryforwards (see Note 5). Under the Plan, DKM purchased approximately 36% of the Company's common stock and a warrant to purchase an additional 9% of the Company's common stock for $3,000,000. In addition, DKM was to control the Board of Directors of Janus and was required to seek and assist the Company in the consummation of the acquisition of one or more operating businesses while preserving the Federal income tax attributes of Janus and JIS. However, DKM was not able to assist the Company in consummating any acquisitions and, as a result, the Company repurchased and redeemed all of DKM's interests in Janus and JIS and obtained new management during 1995. Until July 15, 1996, the Company did not actively engage in any trade or business. Income consisted primarily of interest on temporary investments. Expenses consisted primarily of professional fees and other costs incurred in connection with the Company's efforts to acquire businesses, and record retention and other administrative expenses incurred to satisfy existing financial reporting requirements. On July 15, 1996, as further explained in Note 3, the Company acquired certain assets and liabilities of Pre-Tek Wireline Service Company, Inc. ("PTWSC") and its wholly-owned subsidiary, K.F.E. Wireline, Inc. ("KFE"), for consideration comprised of cash, common stock and warrants. PTWSC and KFE (which are referred to collectively herein as "Pre-Tek") provide engineering and wireline logging services to companies in the oil and gas industry that are located primarily in California. On April 24, 1997, the Company entered the hospitality business by issuing preferred and common stock to acquire seven hotels, a hotel management company and certain other assets (see Note 9). Note 2 - Summary of significant accounting policies: Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F-10 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (continued): Fresh start accounting: The Company adopted fresh-start accounting as of February 23, 1990, the date of its reorganization (see Note 1). The Company's opening balance sheet consisted of $6,000,000 in cash and capital stock. Accordingly, the reorganization value of the Company approximated book value. Principles of consolidation: The consolidated financial statements include the accounts of Janus and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Cash equivalents: Cash equivalents generally consist of highly liquid investments with maturities of three months or less when acquired. Property and equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over an estimated useful life of five years. Intangible assets: Goodwill, which represents the excess of the costs of acquiring the oil and gas services business over the fair value of the net assets at the date of acquisition, is being amortized using the straight-line method over an estimated useful life of 15 years. Organization costs, consisting primarily of professional fees and other costs associated with the formation of the Company, were amortized using the straight-line method over an estimated useful life of five years. Such costs totaled $37,800 and were included in other assets at December 31, 1995, net of accumulated amortization of $31,500, and became fully amortized in 1996. Impairment of long-lived assets: Effective as of January 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Under SFAS 121, impairment losses on long-lived assets are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts. The adoption of SFAS 121 had no material effect on the Company's 1996 consolidated financial statements. F-11 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (continued): Minority interest: Of the $6,000,000 initially contributed to capitalize Janus and JIS by the Reorganization Trust and DKM under the Plan (see Notes 1 and 6), an aggregate of $815,000 was allocated to the capital of JIS, of which $765,000 was allocated based on the total liquidation preference attributable to the JIS Series A preferred stock and $50,000 was allocated based on the total stated value of the JIS common stock (of which $5,000 was attributable to the minority stockholders of JIS and the balance was attributable to the shares held by Janus). At December 31, 1995, the minority interest of $622,710 reflected in the accompanying consolidated balance sheet represented the total liquidation preference of, and accrued dividends on, the shares of JIS Series A preferred stock that remained outstanding. The minority interest attributable to the JIS preferred stock was eliminated as a result of the redemption of those shares during 1996. As a result of cumulative losses that exceeded the stated capital initially attributable to minority stockholders of JIS common stock, the balance of the minority interest in the JIS common stock had been eliminated as of December 31, 1995. Since the minority stockholders do not incur any obligations as a result of losses in excess of their capital contributions or contributions made on their behalf, such excess was charged against the majority interest in the JIS common stock held by Janus. As a result of additional capital contributions made to JIS during 1996, the excess of losses over stated capital previously charged against the majority interest in the JIS common stock held by Janus was eliminated and the excess of $43,837 of stated capital over cumulative losses attributable to the 11% minority interest in the JIS common stock is reflected as minority interest in the accompanying 1996 consolidated balance sheet. The charge for minority interest reflected in the accompanying consolidated statement of operations represents the accrued dividends applicable to the JIS Series A preferred stock. F-12 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (continued): Income taxes: The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. As explained in Note 1, the assets and liabilities of USL and USL-SA were initially transferred to the Reorganization Trust in February 1990. The Reorganization Trust is considered to be a grantor trust for income tax purposes. Accordingly, any taxable income or loss associated with the disposition of assets and the settlement of liabilities by the Reorganization Trust are recorded in the Federal and state income tax returns of the Company; however, such assets and liabilities are not presented in these consolidated financial statements. Stock options: In accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," the Company will recognize compensation costs as a result of the issuance of stock options based on the excess, if any, of the fair value of the underlying stock at the date of grant or award (or at an appropriate subsequent measurement date) over the amount the employee must pay to acquire the stock. Therefore, the Company will not be required to recognize compensation expense as a result of any grants of stock options at an exercise price that is equivalent to or greater than fair value. The Company will also make pro forma disclosures, as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), of net income or loss as if a fair value based method of accounting for stock options had been applied instead if such amounts differ materially from the historical amounts. F-13 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (concluded): Net loss per common share: Net loss per common share was computed based on the net income or loss for each period adjusted for dividend requirements on outstanding shares of preferred stock and the weighted average number of common shares outstanding. The effects of the assumed exercise of outstanding options have not been included in the computations because such effects were anti-dilutive. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS 128") which replaces the presentation of primary earnings per share required under previously promulgated accounting standards with a presentation of basic earnings per share. It also requires dual presentation of basic and diluted earnings per share on the face of the statement of income for all entities with complex capital structures and provides guidance on other computational changes. SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. The Company does not expect the adoption of SFAS 128 to have a material impact on its results of operations or computations of net income or loss per share. Reclassifications: Certain accounts in the 1995 consolidated financial statements have been reclassified to conform with 1996 presentations. Note 3 - Acquisition of oil and gas services business: As explained in Note 1, on July 15, 1996, the Company acquired the oil and gas services business and certain assets of Pre-Tek (including 100% of the capital stock of KFE) and assumed certain of its liabilities. The consideration exchanged by the Company for such assets and liabilities and the other direct acquisition costs was comprised as follows: Cash payments to certain creditors and former stockholders of Pre-Tek $ 605,413 Issuance of 268,368 shares of Janus common stock, with a fair value of $2.75 per share, and 500,000 warrants to purchase Janus common stock, to stockholders and former stockholders of Pre-Tek 738,012 Return of 37,350 shares of Janus common stock as a result of post-closing adjustments (102,713) Other acquisition costs 182,092 ---------- Total $1,422,804 ========== F-14 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Acquisition of oil and gas services business (continued): The Company also agreed to issue up to 150,000 additional shares of common stock to the sellers based contingent upon Pre-Tek's sales exceeding certain specified levels during the year ending July 15, 1997. The acquisition was accounted for as a purchase and, accordingly, the results of Pre-Tek's operations have been included in the accompanying consolidated statements of operations from July 15, 1996, the effective date of the acquisition. In addition, total acquisition costs were allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition, with the excess of cost over such fair values allocated to goodwill, as shown below: Cash $ 85,874 Accounts receivable 100,329 Inventory 34,814 Other current assets 25,332 Equipment 543,995 Other assets 1,250 Goodwill 891,341 Accounts payable and other current liabilities (260,131) ---------- Cost of acquisition $1,422,804 ========== The fair value of any additional shares issued to the sellers based on Pre-Tek's sales volume will also be allocated to goodwill. The following unaudited pro forma information shows the results of operations for 1996 and 1995 as though Pre-Tek had been acquired at the beginning of 1995: 1996 1995 ---------- --------- Sales $ 928,000 $ 743,000 Net loss (1,634,000) (1,339,000) Net loss applicable to common stock (1,659,000) (1,115,000) Net loss per common share (.32) (.18) Weighted average common shares outstanding 5,231,000 6,271,000 In addition to combining the historical results of operations of the Company and Pre-Tek, the pro forma results include adjustments to reflect depreciation and amortization based on the fair values of assets acquired, a reduction of interest earned on cash paid as part of the consideration for the acquisition and the issuance of shares of common stock (net of shares returned) as part of the consideration for the acquisition. F-15 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Acquisition of oil and gas services business (concluded): The issuance and return of Janus common shares in connection with the acquisition were noncash transactions that are not reflected in the accompanying 1996 consolidated statement of cash flows. Note 4 - Property and equipment: Property and equipment consists of the following: 1996 1995 -------- ------- Equipment $367,357 $14,282 Vehicles 275,551 Office equipment, furniture and fixtures 20,797 13,488 Leasehold improvements 5,093 5,093 -------- ------- 668,798 32,863 Less accumulated depreciation 86,105 25,588 -------- ------- Totals $582,693 $ 7,275 ======== ======= Note 5 - Income taxes: Management believes that as of December 31, 1996, Janus had, after giving effect to the Plan and transactions contemplated thereunder, estimated available adjusted net operating loss carryforwards for Federal income tax and alternative minimum tax purposes of at least $500,000,000 that were generated primarily during 1985 through 1987. These loss carryforwards, which expire primarily during 1999 through 2001, may also be used to offset future taxable income, if any, of Janus as well as the Reorganization Trust, subject to certain limitations. All of the net operating loss carryforwards referred to above are subject to review and possible adjustment by the Internal Revenue Service. Management believes the Company also has net operating loss carryforwards in several states in which it operated prior to the implementation of the Plan. The amount, expiration and opportunity to use these losses vary from state to state. For financial statement purposes, no provision for Federal income taxes was recorded in 1996 and 1995 as a result of the operating losses incurred by the Company during those years. All of the tax loss attributes referred to above have been fully reserved through a valuation allowance rather than reflected as deferred tax assets due to the lack of a taxable income stream and the uncertainties referred to above. Future benefits, if any, to be realized from the utilization of the net operating loss carryforwards generated prior to February 8, 1990 will be reported as additional paid-in capital. F-16 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Income taxes (concluded): Additionally, Section 382 of the Internal Revenue Code limits the amounts of net operating loss carryforwards usable by a corporation following a change of more than 50% in the ownership of the corporation during a three year period. As of December 31, 1996, management believes that such a change in ownership has not occurred. Note 6 - Stockholders' equity: Capital stock: Information regarding the capital stock of Janus follows: -- Preferred stock, par value $.01 per share; 5,000,000 shares authorized at December 31, 1996 and 1995, respectively, of which 4,000 shares were designated as "Series A" (the "Janus Series A preferred stock"); 2,200 shares of Series A preferred stock issued and outstanding at December 31, 1995, all of which were redeemed during 1996; and -- Common stock, par value $.01 per share; 15,000,000 shares authorized; 8,080,868 and 7,812,500 shares issued at December 31, 1996 and 1995, respectively (the 150,000 shares of Janus common stock contingently issuable based on the post-acquisition sales volume of Pre-Tek are not included in shares outstanding for financial accounting purposes); 2,849,850 and 2,812,500 shares held in treasury at December 31, 1996 and 1995. At December 31, 1996, the Reorganization Trust held approximately 1,702,000 shares of Janus common stock for possible future distribution under the Plan which the Reorganization Trust was required to vote in proportion to the votes cast by the Company's other stockholders (see Note 9). Information regarding the capital stock of JIS follows: -- Preferred stock, par value $.01 per share; 5,000,000 shares authorized at December 31, 1996 and 1995, respectively, of which 7,650 shares were designated as "Series A" (the "JIS Series A preferred stock"); 4,207 shares of Series A preferred stock issued and outstanding at December 31, 1995, all of which were redeemed during 1996; and -- Common stock, par value $.01 per share; 15,000,000 shares authorized; 5,000,000 shares issued at December 31, 1996 and 1995; 409,000 shares held in treasury at December 31, 1996 and 1995. F-17 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Stockholders' equity (continued): Capital stock (continued): At December 31, 1995, accrued but undeclared dividends on the Janus Series A preferred stock and the JIS Series A preferred stock amounted to $105,600 and $201,960, respectively. The capitalization of Janus and JIS upon confirmation of the Plan was determined pursuant to the Stock Purchase Agreement dated May 16, 1989, as amended pursuant to the Supplemental Agreement dated as of February 23, 1990 (the "Stock Purchase Agreement"), among the subsidiary of DKM, USL and USL-SA. The Stock Purchase Agreement was an integral part of the Plan. On May 15, 1995, the Company repurchased and redeemed from DKM, all of its interests in Janus and JIS (comprised of 1,800 shares of Janus Series A preferred stock, 2,812,500 shares of Janus common stock and 3,443 shares of JIS Series A preferred stock) for total consideration of $1,430,525 and DKM's waiver of its right to any unpaid dividends. Additionally, DKM and its affiliates were released from all of their obligations under the Stock Purchase Agreement. The shares of Janus and JIS common stock and Series A preferred stock acquired by the Reorganization Trust were acquired for the benefit of former holders of claims against USL and USL-SA. Such shares will be distributed by the Reorganization Trust from time to time to such former creditors as their claims are liquidated. However, shares of Janus or JIS common stock will be issued by the Reorganization Trust only to creditors in a manner designed to preserve the Company's net operating losses in accordance with the requirements of the Internal Revenue Code. The restated Certificate of Incorporation of each of Janus and JIS contain restrictions on the "transfer" (as defined) of shares of the Janus and JIS capital stock which are intended to preserve and maintain the Federal income tax attributes of Janus and JIS. The restated Certificates of Incorporation of each of Janus and JIS prohibit the acquisition of any shares of the capital stock or securities of Janus or JIS if, at the date of such acquisition, such purchaser would be a holder of 5% or more of the issued and outstanding capital stock of Janus or JIS, determined based on the fair market value of the capital stock of Janus or JIS or the votes represented by the shares of the capital stock of Janus or JIS entitled to vote for the election of directors. However, such transfers and issuances can be made if approved by the Board of Directors. F-18 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Stockholders' equity (continued): Capital stock (concluded): The Janus Series A preferred stock and the JIS Series A preferred stock were substantially identical in their terms. The Janus and JIS Series A preferred stock entitled the holders thereof to cash dividends, payable on the last day of each June and December, at an annual rate equal to 12% of the liquidation preference value of the Janus or JIS Series A preferred stock. Shares of the Janus and JIS Series A preferred stock were redeemable at a price of $100 per share. Holders of the Janus and JIS Series A preferred stock were not entitled to vote except as required by law. In December 1996, the remaining 2,200 shares of Janus Series A preferred stock then outstanding were redeemed through the payment of the aggregate redemption price of $220,000 and the aggregate balance of accrued and unpaid dividends of $130,312. In December 1996, the Company notified the holders of the remaining 4,207 shares of JIS Series A preferred stock then outstanding that such shares were being redeemed. Those shares were effectively redeemed through the transfer of the aggregate redemption price of $420,750 and the aggregate balance of accrued and unpaid dividends of $252,450 to a restricted cash account which can only be used for such redemption payments. The restricted cash and corresponding liability of $673,200 are reflected separately in the accompanying consolidated balance sheet as of December 31, 1996. During 1996, the Reorganization Trust transferred cash in excess of its projected liabilities and administrative requirements totaling $7,621,980 to the Company, of which $6,859,784 (90%) was deemed a capital contribution to Janus and $762,196 (10%) was deemed a capital contribution to JIS (including $43,837 attributable to the minority interest in the JIS common stock). In July 1996, the Company issued 268,368 shares of Janus common stock with a fair value of 738,012, as part of the consideration for the acquisition of Pre-Tek (see Note 3) and deposited 150,000 shares in escrow, issuance of which is contingent upon Pre-Tek's sales reaching certain levels. A total of 37,350 shares were subsequently returned to the Company as a result of post-closing adjustments to the purchase price. F-19 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Stockholders' equity (concluded): Warrants: In July 1996, the Company also issued warrants to purchase 500,000 shares of Janus common stock, which were deemed to have a nominal fair value, as part of the consideration for the acquisition of Pre-Tek. All of the warrants will expire on July 15, 2001. At December 31, 1996, warrants to purchase 250,006 shares were exercisable at $3.00 per share; warrants to purchase 125,000 shares were exercisable at $4.00 per share; and warrants to purchase 124,994 shares were exercisable at $5.00 per share. However, the warrants, or the shares issuable upon the exercise of the warrants, may only be sold pursuant to an effective registration statement under the Securities Act of 1933 or an appropriate exemption from such registration. Commencing in May 1999, the warrants become subject to redemption by the Company at $.25 per warrant on 30 days' prior written notice if the market price of the Janus common stock equals or exceeds $10.00 per share for 10 consecutive trading days. Note 7 - Stock options: During 1996, the stockholders of the Company approved the adoption of the Janus Industries, Inc. 1996 Stock Option Plan (the "1996 Plan") and approved the adoption and termination of the Janus Industries, Inc. Directors' Stock Option Plans (the "Directors' Plan"). The 1996 Plan provides for grants of incentive stock options ("ISOs") and nonstatutory stock options ( "NSOs"). ISOs may be issued to any key employee or officer of the Company; NSOs may be issued to any key employee or officer of the Company or any of the Company's independent contractors, agents or consultants other than nonemployee directors. A committee of at least two directors (the "Committee") will determine the dates on which options become exercisable and terminate (provided that options may not expire more than ten years after the date of grant). All outstanding options will become immediately exercisable in the event of a "change in control" (as defined) of the Company. The exercise price of any ISO must be at least 100% of the fair market value on the date of grant (110% for an optionee that holds more than ten percent of the combined voting power of all classes of stock of the Company). NSOs may be granted at any exercise price determined by the Committee. The Company has reserved 300,000 shares of common stock for issuance under the 1996 Plan. F-20 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Stock options (concluded): The 1996 Plan permits the Committee to grant stock appreciation rights ("SARs") in connection with any option granted under the 1996 Plan. SARs enable an optionee to surrender an option and to receive a payment in cash or common stock, as determined by the Committee, with a value equal to the difference between the fair market value of the common stock on the date of surrender of the related option and the option price. The Company granted options for the purchase of 20,000 shares of common stock at an exercise price of $2.75 per share during 1996, all of which remained outstanding and exercisable at December 31, 1996. The pro forma net loss and net loss per share determined using a fair value based method of accounting for the stock options granted in 1996, as required by SFAS 123, do not differ materially from the corresponding historical amounts. The Directors' Plan provided for annual grants of a specified number stock options to each nonemployee director beginning in 1997 at an exercise price equal to the fair market value of the common stock on the date of grant. No options were granted under the Directors' Plan prior to its termination. Note 8 - Commitments and contingencies: Leases: The Company leases certain office and warehouse facilities and equipment under operating leases that expire at various dates through March 1999. A lease for one of the facilities requires the Company to pay real estate taxes and maintenance costs in addition to base rentals. Rent expense was $52,629 and $34,694, net of reimbursements by the Reorganization Trust of $18,111 and $14,869, in 1996 and 1995, respectively. Future minimum rental payments required by noncancelable leases at December 31, 1996 aggregated approximately $70,000, substantially all of which is payable during 1997. Concentration of credit risk: The Company maintains its cash balances in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation coverage limits thereby exposing the Company to credit risk. The Company reduces its exposure to credit risk by maintaining such deposits with high quality financial institutions. F-21 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Commitments and contingencies (concluded): Concentration of credit risk (concluded): Pre-Tek's trade accounts receivable are due from a limited number of customers that operate in a single industry and in the same general geographical area. Accordingly, these financial instruments also expose the Company to a concentration of credit risk. Generally, such exposure is mitigated by maintaining strong customer relationships; by ongoing customer credit evaluations; and by maintaining an allowance for doubtful accounts that management believes will adequately provide for credit losses. Agreement to repurchase common stock: The former stockholders of KFE hold an option whereby they can require the Company to repurchase all of the 36,364 shares of Janus common stock they acquired as a result of the Company's acquisition of Pre-Tek at an aggregate repurchase price of $100,000 (or $2.75 per share). The option may be exercised at any time within a specified two month period during 1998. If the option is exercised, certain former directors of Pre-Tek are required to make a payment to the Company in cash or shares of Janus common stock based on a percentage of the difference between the repurchase price and the market value of the shares of Janus common stock repurchased by the Company. Note 9 - Subsequent events: Acquisition of hospitality business: On April 24, 1997, the Company entered the hospitality business by acquiring the following from affiliates of Louis S. Beck and Harry Yeaggy (the "Sellers"): (i) seven hotels (of which six are wholly-owned and one is 85%- owned), (ii) a hotel management company and (iii) financial participations in the form of mortgages on one additional hotel and a campground. The consideration paid by the Company for the hospitality business consisted of 10,451.88 shares of Series B preferred stock and 3,799,999 shares of Janus common stock (approximately 43% of the Janus common stock outstanding after such issuance). The acquisition will be accounted for as a purchase and, accordingly, the results of operations of the hospitality business will be included in the Company's consolidated financial statements from the date of acquisition. The Series B preferred stock has a par value of $.01 per share and a liquidating and redemption price of $1,000 per share. Holders of the Series B preferred stock are entitled to cumulative dividends at the annual rate of $75 per share. Unless dividends remain unpaid for a specified period, holders will not derive any voting rights from the Series B preferred stock. F-22 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Subsequent events (concluded): Acquisition of hospitality business (concluded): Based on the provisions of Janus' corporate charter and a separate agreement between Janus and the Sellers, the Sellers are prohibited from purchasing additional shares of Janus common stock without the prior approval of the Board of Directors. Repurchases of common stock and warrants: During the period from January 1, 1997 through April 24, 1997, the Company repurchased 299,181 shares of Janus common stock for $388,935 and warrants to purchase 276,400 shares of Janus common stock for $102,268. Employment agreements: During the period from January 1, 1997 through April 24, 1997, the Company entered into employment agreements whereby it will be obligated to pay minimum salaries to four of its executive officers aggregating $750,000 during each of the three years in the period ending April 23, 1997. Change in method of voting for shares held by the Reorganization Trust: On April 14, 1997, the Bankruptcy Court issued an order modifying the terms under which the Reorganization Trust votes the shares of Janus common stock it holds. The Reorganization Trust is now required to vote the shares of Janus common stock it holds in proportion to the votes cast by other stockholders who acquired their shares prior to March 17, 1997 (see Note 6). Issuances of SARs: During the period from January 1, 1997 through April 24, 1997, the Company granted SARs with respect to 100,000 shares of Janus common stock to an executive officer at an exercise price of $3.25 per share which will vest at the rate of 20,000 shares per year commencing on April 23, 1997. It also granted, subject to stockholder approval, SARs with respect to a total of 40,000 shares of Janus common stock to directors at an exercise price of $3.25 per share which will be exercisable at any time during the period from October 25, 1997 through April 23, 2003; however, the appreciated value paid with respect to the SARs issued to the directors will be limited to $7.00 per share. The SARs issued in 1997 were not issued in conjunction with the 1996 Plan (see Note 7). * * * F-23 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1997 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,214,071 Cash restricted for payments to redeem preferred stock of subsidiary 105,015 Accounts receivable 130,104 Other current assets 95,065 ------------ Total current assets 6,544,255 Property and equipment, net of accumulated depreciation of $116,920 560,371 Goodwill, net of accumulated amortization of $45,259 846,082 Deferred costs of proposed acquisition 298,551 Other assets 7,096 ------------ Total $ 8,256,355 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Payable for redemption of preferred stock of subsidiary $ 105,015 Accounts payable 112,469 Accrued expenses 157,470 ------------ Total current liabilities 374,954 ------------ Minority interest 42,604 ------------ Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share; 5,000,000 shares authorized; none issued -- Common stock, par value $.01 per share; 15,000,000 shares authorized; 8,080,868 shares issued 80,809 Additional paid-in capital 12,958,618 Accumulated deficit (4,316,335) Treasury stock - 2,857,208 shares, at cost (884,295) ------------ Total stockholders' equity 7,838,797 ------------ Total $ 8,256,355 ============ See Notes to Condensed Consolidated Financial Statements. F-24 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) 1997 1996 ----------- ------------ Sales $ 401,029 ----------- Costs and expenses: Operating costs 306,105 Selling, general and administrative expenses 266,926 $ 262,633 Depreciation of property and equipment 30,815 1,123 Amortization of intangible assets 14,884 1,575 ----------- ----------- Totals 618,730 265,331 ----------- ----------- Operating loss (217,701) (265,331) Other income (expense): Interest income 64,596 21,822 Other income 5,973 Other expense (12,624) ----------- ----------- Loss before state income taxes (147,132) (256,133) Credit for prior year state income tax refunds (76,527) ----------- ----------- Net loss (70,605) (256,133) Preferred dividend requirements 6,600 ----------- ----------- Net loss applicable to common stock $ (70,605) $ (262,733) =========== =========== Net loss per common share $ (.01) $ (.05) =========== =========== Weighted average common shares outstanding 5,230,609 5,000,000 =========== =========== See Notes to Condensed Consolidated Financial Statements. F-25 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1997 (Unaudited)
Common Stock Treasury Stock ----------------- ------------------ Number Additional Number of Paid-in Accumulated of Shares Amount Capital Deficit Shares Amount Total ------ ------ ------- ------- ------ ------ ----- Balance, January 1, 1997 8,080,868 $80,809 $13,061,256 $(4,245,730) 2,849,850 $(874,730) $8,021,605 Net loss (70,605) (70,605) Repurchase of 276,400 warrants (102,638) (102,638) Repurchase of common stock 7,358 (9,565) (9,565) --------- ------- ----------- ----------- --------- --------- ---------- Balance, March 31, 1997 8,080,868 $80,809 $12,958,618 $(4,316,335) 2,857,208 $(884,295) $7,838,797 ========= ======= =========== =========== ========= ========= ==========
See Notes to Condensed Consolidated Financial Statements. F-26 JANUS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) 1997 1996 ----------- ------------ Operating activities: Net loss $ (70,605) $ (256,133) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 45,699 2,698 Other (1,233) 12,624 Changes in operating assets and liabilities: Accounts receivable (47,004) Other current assets 89,669 23,701 Accounts payable (36,551) Accrued expenses (2,185) (116,295) ----------- ----------- Net cash used in operating activities (22,210) (333,405) ----------- ----------- Investing activities: Purchases of equipment (8,493) (1,686) Costs of proposed acquisition (223,859) ----------- ----------- Net cash used in investing activities (232,352) (1,686) ----------- ----------- Financing activities: Decrease in restricted cash 568,185 Repurchase of common stock (9,565) Repurchase of warrants (102,638) Reduction of payable for redemption of preferred stock of subsidiary (568,185) Contributions to capital from United States Lines, Inc. and United States Lines (S.A.), Inc. Reorganization Trust 4,300,000 ----------- ----------- Net cash provided by (used in) financing activities (112,203) 4,300,000 ----------- ----------- Increase (decrease) in cash and cash equivalents (366,765) 3,964,909 Cash and cash equivalents, beginning of period 6,580,836 2,053,434 ----------- ----------- Cash and cash equivalents, end of period $ 6,214,071 $ 6,018,343 =========== =========== Supplemental disclosure of cash flow data: Interest paid $ (787) $ -- =========== =========== See Notes to Condensed Consolidated Financial Statements. F-27 JANUS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Unaudited interim financial statements: In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of Janus Industries, Inc. and Subsidiaries (the "Company") as of March 31, 1997, and its results of operations and cash flows for the three months ended March 31, 1997 and 1996 and its changes in stockholders' equity for the three months ended March 31, 1997. Certain terms used herein are defined in the audited consolidated financial statements of the Company as of December 31, 1996 and 1995 and for the years then ended (the "Audited Janus Financial Statements") also included in this Form 10-SB. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Audited Janus Financial Statements and the other financial statements included herein. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results of operations for the full year ending December 31, 1997. Note 2 - Pro forma effects of acquisition of oil and gas services business: As further explained in Note 1 of the Notes to the Audited Janus Financial Statements, on July 15, 1996, the Company acquired the oil and gas services business and certain assets of Pre-Tek Wireline Service Company, Inc. ("Pre-Tek") and assumed certain of its liabilities. The following unaudited pro forma information shows the results of operations for the three months ended March 31, 1996 based on the assumption that Pre-Tek had been acquired at the beginning of that period and the other assumptions described in Note 1 of the notes to the Audited Janus Financial Statements: Sales $ 229,184 Net loss (441,167) Net loss applicable to common stock (447,767) Net loss per common share (.09) Weighted average common shares outstanding 5,231,018 * * * F-28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Owners of the Beck-Yeaggy Group We have audited the accompanying combined balance sheets of THE BECK-YEAGGY GROUP as of December 31, 1996 and 1995, and the related combined statements of income, owners' capital deficiency and cash flows for the years then ended. 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 combined financial statements referred to above present fairly, in all material respects, the financial position of The Beck-Yeaggy Group as of December 31, 1996 and 1995, and its results of operations and cash flows for the then years ended, in conformity with generally accepted accounting principles. J. H. COHN LLP Roseland, New Jersey February 21, 1997, except for Notes 1 and 3 as to which the date is April 24, 1997 F-29 THE BECK-YEAGGY GROUP COMBINED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 ------------ ------------ Current assets: Cash $ 146,901 $ 46,475 Accounts receivable 316,791 160,299 Current portion of mortgage notes receivable 204,864 189,897 Escrow deposits 363,841 297,357 Other current assets 115,036 178,443 ------------ ------------ Total current assets 1,147,433 872,471 Property and equipment, net of accumulated depreciation and amortization 12,503,176 12,978,766 Mortgage notes receivable, net of current portion 5,619,757 5,824,852 Replacement reserves 628,271 418,964 Deferred loan costs 367,855 389,993 Other assets 199,822 205,539 ------------ ------------ Totals $ 20,466,314 $ 20,690,585 ============ ============ LIABILITIES AND OWNERS' CAPITAL DEFICIENCY Current liabilities: Current portion of long-term debt $ 536,215 $ 509,699 Accounts payable 400,199 560,309 Accrued liabilities 692,795 643,167 ------------ ------------ Total current liabilities 1,629,209 1,713,175 Long-term debt, net of current portion 19,814,561 21,793,585 ------------ ------------ Total liabilities 21,443,770 23,506,760 Commitments and contingencies Owners' capital deficiency (977,456) (2,816,175) ------------ ------------ Totals $ 20,466,314 $ 20,690,585 ============ ============ See Notes to Combined Financial Statements. F-30 THE BECK-YEAGGY GROUP COMBINED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ----------- ------------ Revenues: Room and related services $ 10,927,443 $ 10,429,089 Food and beverage 1,617,775 1,720,295 Management fees 1,629,562 1,662,812 Other 245,801 180,336 ------------ ------------ Totals 14,420,581 13,992,532 ------------ ------------ Costs and expenses: Direct hotel operating expenses: Room and related services 2,461,716 2,390,574 Food and beverage 1,412,193 1,455,776 Selling and general expenses 529,905 658,809 Occupancy and other operating expenses 1,842,254 1,671,648 General and administrative expenses 3,624,674 3,515,458 Depreciation and amortization 873,661 837,211 ------------ ------------ Totals 10,744,403 10,529,476 ------------ ------------ Operating income 3,676,178 3,463,056 Other income (expense): Interest income 474,883 468,754 Interest expense (1,935,877) (2,002,637) Gain on sale of property 104,003 ------------ ------------ Net income $ 2,215,184 $ 2,033,176 ============ ============ See Notes to Combined Financial Statements. F-31 THE BECK-YEAGGY GROUP COMBINED STATEMENTS OF OWNERS' CAPITAL DEFICIENCY YEARS ENDED DECEMBER 31, 1996 AND 1995 Balance, January 1, 1995 $(1,563,452) Net income 2,033,176 Distributions to or on behalf of owners, net of contributions (3,285,899) ----------- Balance, December 31, 1995 (2,816,175) Net income 2,215,184 Distributions to or on behalf of owners, net of contributions (376,465) ----------- Balance, December 31, 1996 $ (977,456) =========== See Notes to Combined Financial Statements. F-32 THE BECK-YEAGGY GROUP COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ---------- ----------- Operating activities: Net income $ 2,215,184 $ 2,033,176 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 873,661 837,211 Gain on sale of property (104,003) Amortization of deferred costs 22,138 36,665 Changes in operating assets and liabilities: Accounts receivable (156,492) (25,290) Escrow deposits (66,484) (184,514) Other current assets 63,407 90,406 Replacement reserves (209,307) (418,964) Other assets 5,717 6,057 Accounts payable (160,110) 503,950 Accrued liabilities 49,628 44,266 ----------- ----------- Net cash provided by operating activities 2,637,342 2,818,960 ----------- ----------- Investing activities: Purchases of property and equipment (398,071) (412,348) Proceeds from sale of property and equipment 267,309 Collections of notes receivable 190,128 176,026 ----------- ----------- Net cash provided by (used in) investing activities (207,943) 30,987 ----------- ----------- Financing activities: Proceeds from long-term borrowings 39,660 1,275,188 Repayments of long-term borrowings (1,992,168) (661,350) Increase in deferred loan costs (371,002) Distributions to or on behalf of owners, net of contributions (376,465) (3,285,899) ----------- ----------- Net cash used in financing activities (2,328,973) (3,043,063) ----------- ----------- Increase (decrease) in cash 100,426 (193,116) Cash, beginning of year 46,475 239,591 ----------- ----------- Cash, end of year $ 146,901 $ 46,475 =========== =========== Supplemental disclosure of cash flow data: Interest paid $ 1,861,898 $ 2,100,726 =========== =========== See Notes to Combined Financial Statements. F-33 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 - Organization and summary of significant accounting policies: Organization and basis of combination: The combined financial statements of the Beck-Yeaggy Group (the "Hotel Group") include the financial statements of seven hotels (the "Hotels") and a hotel management company (the "Management Company") together with the accounts related to financial participations in the form of mortgages (the "Mortgages") on one additional hotel and a campground, all of which were owned by corporations and partnerships that were, effectively, wholly-owned or controlled by Louis S. Beck and Harry Yeaggy (the "Sellers") during 1996 and 1995. The Sellers also own controlling interests in other hotels, certain of which are managed by the Management Company. On April 24, 1997, Janus Industries, Inc. ("Janus") acquired from the Sellers a 100% equity interest in six of the Hotels and an 85% equity interest in the seventh Hotel; a 100% equity interest in the Management Company and substantially all of the assets thereof other than seven management contracts; and 100% interests in the Mortgages. The financial statements of the Hotels and the Management Company and the accounts related to the Mortgages have been combined on the basis of their common control and their acquisition by Janus. All material accounts and transactions have been eliminated in combination. The Hotel Group's primary business is the ownership and management of limited service hotels that are designed to appeal primarily to business travelers and vacationers on limited budgets. Additional information with respect to each of the Hotels included in the combined financial statements and their ownership during 1996 and 1995 follows: Days Inn, Sharonville, Ohio, a 142 room hotel, was owned by the Sellers through a division of a partnership. Best Western Kings Quarters, Doswell, Virginia, a 248 room hotel, was owned by the Sellers through a partnership. Knights Inn, Westerville, Ohio, a 109 room hotel, was owned by the Sellers through a corporation. Knights Inn, Lafayette, Indiana, a 112 room hotel, and Knights Inn, Michigan City, Indiana, a 103 room hotel, were controlled by the Sellers through a division of a partnership during 1996 (the Sellers reacquired a 100% equity interest in the partnership prior to the sale of the Hotel Group to Janus) and owned by the Sellers through a corporation during 1995. F-34 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 - Organization and summary of significant accounting policies (continued): Organization and basis of combination (continued): Days Inn Crabtree, Raleigh, North Carolina, a 122 room hotel, that was owned by the Sellers through a corporation. Days Inn RTP, Raleigh, North Carolina, a 110 room hotel, was owned by the Sellers through a partnership. In addition to operating the Hotels included in the combined financial statements, the Management Company, which was owned by the Sellers through a division of a corporation, operated 21 hotels in 1996 and 22 hotels in 1995 under management contracts, including 12 hotels in 1996 and 13 hotels in 1995 that were owned or controlled by the Sellers. Pursuant to a marketing agreement, the Management Company also receives a portion of the management fees from hotels managed by a marketing partner and shares a portion of the management fees it earns from certain of the hotels it manages with the marketing partner. The managed hotels are located primarily in the Midwestern and Southeastern parts of the United States. The corporations that own or owned the Knights Inn, Westerville, Ohio, the Knights Inn, Lafayette, Indiana, the Knights Inn, Michigan City, Indiana and the Management Company have elected to be taxed as "S Corporations" pursuant to the Internal Revenue Code and certain state and local tax regulations. As explained above, certain of the Hotels and the Management Company operated as divisions of corporations or partnerships controlled by the Sellers and the Sellers had controlling interests in other hotels. The management of the Hotel Group believes that the accompanying combined statements of income include all charges applicable to the Hotel Group and that all related allocations and estimates are based on assumptions that are reasonable. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Property and equipment: Property and equipment is stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets. F-35 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 - Organization and summary of significant accounting policies (concluded): Deferred loan costs: Costs incurred to obtain long-term financing are deferred and amortized using the straight-line method (which approximates the interest method) over the terms of the loans. Impairment of long-lived assets: Effective as of January 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Under SFAS 121, impairment losses on long-lived assets are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts. The adoption of SFAS 121 had no material effect on the Company's 1996 consolidated financial statements. Advertising costs: The costs of advertising and promotions are expensed as incurred. Advertising costs charged to operations were $248,000 and $276,000 in 1996 and 1995, respectively. Income taxes: The Hotel Group accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. The combined financial statements do not include any provisions or credits for Federal, state and local income taxes for the combined entities that are owned by partnerships or corporations that have elected to be taxed as S Corporations since such taxes are the liability of their respective partners and stockholders. F-36 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 - Mortgage notes receivable: The Mortgages held by the Hotel Group are secured by a hotel property in Juno Beach, Florida and a campground in the vicinity of Orlando, Florida, both of which are owned by entities controlled by the Sellers. The balances receivable at December 31, 1996 and 1995 consisted of the following: 1996 1995 ---------- ---------- Note secured by hotel property $2,238,311 $2,311,520 Note secured by campground 3,586,310 3,703,229 ---------- ---------- Total long-term debt 5,824,621 6,014,749 Less current portion 204,864 189,897 ---------- ---------- Long-term portion, net of current portion $5,619,757 $5,824,852 ========== ========== The Mortgages mature in June 2012. Principal and interest payments on the Mortgages were receivable in aggregate monthly installments of $53,423 as of December 31, 1996, including interest at a rate that is 1.75% above the weekly average rate for three-year U.S. Treasury securities, as adjusted every three years (the effective rate was 7.6% as of December 31, 1996). The Hotel Group derived interest income of $451,190 and $465,063 from the Mortgages in 1996 and 1995, respectively. The Sellers agreed to personally guarantee the Mortgages in connection with their sale to Janus on April 24, 1997. Note 3 - Property and equipment: Property and equipment at December 31, 1996 and 1995 consisted of the following: Years of Useful Life 1996 1995 -------- --------- ----------- Land $ 2,695,941 $ 2,695,941 Land improvements 15 206,164 206,164 Hotels 15 to 40 14,616,612 14,616,612 Furniture and fixtures 5 to 7 4,441,167 4,053,833 Equipment and vehicles 5 to 7 1,099,989 1,060,329 ----------- ----------- 23,059,873 22,632,879 Less accumulated depreciation and amortization 10,556,697 9,654,113 ----------- ----------- Totals $12,503,176 $12,978,766 =========== =========== F-37 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 - Long-term debt:
Long-term debt at December 31, 1996 and 1995 consisted of the following: 1996 1995 ------------ ----------- Fixed rate mortgage notes payable in monthly installments, including interest at rates ranging from 8.875% to 10%; the mortgage notes mature from August 2000 through January 2016 $10,954,449 $11,163,207 Variable rate mortgage notes payable in monthly installments, including interest at rates varying with the prime commercial lending rate, rates on U.S. Treasury securities and other defined indexes (the effective rates at December 31, 1996 ranged from 7.25% to 9.5%); the mortgage notes mature from March 1998 through April 2006 9,338,842 11,102,184 Equipment notes with various maturities through June 2001 and interest at rates ranging from 7% to 15% 57,485 37,893 ----------- ----------- Total long-term debt 20,350,776 22,303,284 Less current portion 536,215 509,699 ----------- ----------- Long-term debt, net of current portion $19,814,561 $21,793,585 =========== =========== Principal payments in years subsequent to December 31, 1996 are as follows: Year Ending December 31, Amount ------------ ------ 1997 $ 536,215 1998 2,091,016 1999 567,155 2000 602,713 2001 1,485,471
Long-term debt is secured by the Mortgages held by the Hotel Group and substantially all of its property and equipment. F-38 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 - Long-term debt (concluded): During 1995, the Hotel Group refinanced mortgage notes payable, which had principal balances aggregating approximately $9,880,000, with new lenders (these were noncash transactions and, accordingly, are not reflected in the accompanying combined statement of cash flows). Note 5 - Commitments and contingencies: Concentrations of credit risk: Financial instruments that potentially subject the Hotel Group to concentrations of credit risk consist principally of cash, accounts receivable and the Mortgages. The Hotel Group maintains its cash balances in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation coverage limits thereby exposing the Hotel Group to credit risk. The Hotel Group reduces its exposure to credit risk by maintaining such deposits with high quality financial institutions. Exposure to credit risk with respect to trade receivables is limited by the short payment terms and, generally, the low balances applicable to such instruments and the Hotel Group's routine assessment of the financial strength of its customers. Exposure to credit risk with respect to the Mortgages is limited because they are secured by real estate. Litigation: Certain of the combined entities are parties to various legal proceedings. In the opinion of the management of the Hotel Group, these actions are routine in nature and will not have any material adverse effects on the Company's combined financial statements in subsequent years. Note 6 - Operating leases: The Hotel Group leases office facilities and certain equipment from related and unrelated parties under month-to-month leases. Rental expense for all such operating leases for 1996 and 1995 were comprised as follows: 1996 1995 -------- -------- Related parties $143,222 $153,965 Other 34,461 45,181 -------- -------- Totals $177,683 $199,146 ======== ======== F-39 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 7 - Other related party transactions: The Hotel Group engages in various transactions with other entities in which Mr. Beck and/or Mr. Yeaggy have an interest. In addition to interest derived from the Mortgages (see Note 2) and rent expense attributable to leases of office facilities and equipment (see Note 6), results of operations in 1996 and 1995 include revenues and expenses derived from related party transactions as follows: 1996 1995 -------- ------ Management fee income (a) $917,560 $961,398 Personnel leasing fees (b) 11,136 10,545 Management systems fees (c) 38,332 37,276 (a) The Management Company managed 12 hotels in 1996 and 13 hotels in 1995 for entities controlled by Messrs. Beck and Yeaggy. (b) The Hotel Group pays administrative fees to Hospitality Employee Leasing Program, Inc. ("HELP"), a corporation wholly-owned by Messrs. Beck and Yeaggy, which provides the Hotel Group with personnel for the hotels it owns and manages. In addition, the Hotel Group reimburses HELP for the actual payments it makes to or on behalf of such employees. (c) The Hotel Group pays management systems fees for the use of a hotel property management system and related computer hardware and software under an agreement with Computel Computer Systems, Inc., a corporation wholly-owned by Messrs. Beck and Yeaggy. The Hotel Group also derived management fee income of $691,335 in 1996 and $666,459 in 1995 pursuant to the agreement with its marketing partner. Note 8 - Historical and unaudited pro forma income taxes: Historical income taxes: As explained in Note 1, the combined financial statements do not include any provisions or credits for Federal, state and local income taxes for the combined entities that are owned by partnerships or S Corporations. As a result, only one of the corporations included in the Hotel Group was subject to Federal and state income taxes at statutory rates during 1996 and 1995. However, the combined financial statements do not include any provisions for Federal and state income taxes for that corporation as a result of benefits of approximately $335,000 and $234,000 derived from the utilization of its net operating loss carryforwards during 1996 and 1995, respectively. As of December 31, 1996, substantially all of the net operating loss carryforwards had been utilized. F-40 THE BECK-YEAGGY GROUP NOTES TO COMBINED FINANCIAL STATEMENTS Note 8 - Historical and unaudited pro forma income taxes (concluded): Pro forma unaudited income taxes: The following unaudited pro forma information shows the results of operations for 1996 and 1995 as though all of the partnerships and corporations included in the Hotel Group had been subject to income taxes: 1996 1995 ---------- ----------- Historical income before income taxes $2,215,184 $2,033,176 Pro forma provision for income taxes 886,000 813,000 ---------- ---------- Pro forma net income $1,329,184 $1,220,176 ========== ========== Note 9 - Fair value of financial instruments: Cash, accounts receivable and accounts payable were financial instruments of the Hotel Group that, in the opinion of its management, had fair values that approximated their carrying values at December 31, 1996 and 1995 because of their short-term maturities. Mortgage notes receivable and mortgage and equipment notes payable were the other financial instruments of the Hotel Group that, in the opinion of its management, had fair values that approximated their carrying values at December 31, 1996 and 1995 because they had interest rates equivalent to those currently prevailing for financial instruments with similar characteristics. * * * F-41 THE BECK-YEAGGY GROUP CONDENSED COMBINED BALANCE SHEET MARCH 31, 1997 (Unaudited) ASSETS Current assets: Cash $ 129,192 Accounts receivable 193,620 Current portion of mortgage notes receivable 208,787 Escrow deposits 178,642 Other current assets 125,773 ------------ Total current assets 836,014 Property and equipment, net of accumulated depreciation and amortization 12,454,801 Mortgage notes receivable, net of current portion 5,555,949 Replacement reserves 709,328 Deferred loan costs, net 361,491 Other assets 263,648 ------------ Total $ 20,181,231 ============ LIABILITIES AND OWNERS' CAPITAL DEFICIENCY Current liabilities: Current portion of long-term debt $ 535,602 Loans payable to owners 793,803 Accounts payable 452,770 Accrued liabilities 729,997 ------------ Total current liabilities 2,512,172 Long-term debt, net of current portion 19,840,862 Deferred tax liabilities 35,700 ------------ Total liabilities 22,388,734 Commitments and contingencies Owners' capital deficiency (2,207,503) ------------ Total $ 20,181,231 ============ See Notes to Condensed Combined Financial Statements. F-42 THE BECK-YEAGGY GROUP CONDENSED COMBINED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) 1997 1996 ----------- ------------ Revenues: Room and related services $ 1,919,698 $ 1,872,022 Food and beverage 294,779 316,846 Management fees 382,147 381,988 Other 34,066 47,213 ----------- ----------- Totals 2,630,690 2,618,069 ----------- ----------- Costs and expenses: Direct hotel operating expenses: Room and related services 522,118 516,831 Food and beverage 249,221 282,120 Selling and general expenses 136,579 144,986 Occupancy and other operating expenses 415,173 456,002 General and administrative expenses 774,162 832,741 Depreciation and amortization 214,827 207,360 ----------- ----------- Totals 2,312,080 2,440,040 ----------- ----------- Operating income 318,610 178,029 Other income (expense): Interest income 113,143 121,773 Interest expense (451,666) (484,834) ----------- ----------- Loss before provision for taxes (19,913) (185,032) Provision for income taxes 82,300 ----------- ----------- Net loss $ (102,213) $ (185,032) =========== =========== See Notes to Condensed Combined Financial Statements. F-43 THE BECK-YEAGGY GROUP CONDENSED COMBINED STATEMENT OF OWNERS' CAPITAL DEFICIENCY THREE MONTHS ENDED MARCH 31, 1997 (Unaudited) Balance, January 1, 1997 $ (977,456) Net loss (102,213) Distributions to or on behalf of owners, net of contributions (1,127,834) ----------- Balance, March 31, 1997 $(2,207,503) =========== See Notes to Condensed Combined Financial Statements. F-44 THE BECK-YEAGGY GROUP CONDENSED COMBINED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited)
1997 1996 ---------- ------------ Operating activities: Net loss $ (102,213) $ (185,032) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 214,827 207,360 Deferred income taxes 35,700 Amortization of deferred costs 6,364 8,218 Changes in operating assets and liabilities: Accounts receivable 123,171 (50,377) Escrow deposits 185,199 (151,013) Other current assets (10,737) 25,462 Replacement reserves (81,057) (142,498) Other assets (63,826) 9,493 Accounts payable 52,571 128,078 Accrued liabilities 37,202 156,084 ----------- ----------- Net cash provided by operating activities 397,201 5,775 ----------- ----------- Investing activities: Purchases of property and equipment (166,452) (247,735) Collections of notes receivable 59,885 38,957 ----------- ----------- Net cash used in investing activities (106,567) (208,778) ----------- ----------- Financing activities: Proceeds from loans payable to owners 793,803 Proceeds from long-term borrowings 148,631 Repayments of long-term borrowings (122,943) (1,627,694) Contributions from (distributions to or on behalf of) owners, net (1,127,834) 1,995,865 ----------- ----------- Net cash provided by (used in) financing activities (308,343) 368,171 ----------- ----------- Increase (decrease) in cash (17,709) 165,168 Cash, beginning of period 146,901 46,475 ----------- ----------- Cash, end of period $ 129,192 $ 211,643 =========== =========== Supplemental disclosure of cash flow data: Interest paid $ 1,984,278 $ 449,939 =========== ===========
See Notes to Condensed Combined Financial Statements. F-45 THE BECK-YEAGGY GROUP NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited) Note 1 - Unaudited interim financial statements: In the opinion of management, the accompanying unaudited condensed combined financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of The Beck/Yeaggy Group (the "Hotel Group") as of March 31, 1997, and its results of operations and cash flows for the three months ended March 31, 1997 and 1996 and its changes in owners' capital deficiency for the three months ended March 31, 1997. Certain terms used herein are defined in the audited consolidated financial statements of the Hotel Group as of December 31, 1996 and 1995 and for the years then ended (the "Audited Hotel Group Financial Statements") also included in this Form 10-SB. Accordingly, these unaudited condensed combined financial statements should be read in conjunction with the Audited Hotel Group Financial Statements and the other financial statements included herein. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results of operations for the full year ending December 31, 1997. Note 2 - Historical and unaudited pro forma income taxes: Historical income taxes: As explained in Note 1 to the Audited Hotel Group Financial Statements, the combined financial statements do not include any provisions or credits for Federal, state and local income taxes for the combined entities that are owned by partnerships or S Corporations. As a result, only one of the corporations included in the Hotel Group was subject to Federal and state income taxes at statutory rates during the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995. However, the combined financial statements do not include any provision for Federal and state income taxes for that corporation for the three months ended March 31, 1996 as a result of benefits derived from the utilization of its net operating loss carryforwards during that period. As of December 31, 1996, substantially all of the net operating loss carryforwards had been utilized. F-46 THE BECK-YEAGGY GROUP NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited) Note 2 - Historical and unaudited pro forma income taxes (concluded): Pro forma unaudited income taxes: The following unaudited pro forma information shows the results of operations for the three months ended March 31, 1997 and 1996 as though all of the partnerships and corporations included in the Hotel Group had been subject to income taxes: 1997 1996 -------- ------ Historical loss before income taxes $(19,913) $(185,032) Pro forma credit for income taxes (8,000) (74,000) -------- --------- Pro forma net loss $(11,913) $(111,032) ======== ========= * * * F-47 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Pre-Tek Wireline Service Company, Inc. We have audited the accompanying consolidated statements of operations and cash flows of PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY for the period from April 1, 1996 through July 15, 1996 and the years ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Pre-Tek Wireline Service Company, Inc. and Subsidiary for the period from April 1, 1996 through July 15, 1996 and the years ended March 31, 1996 and 1995, in conformity with generally accepted accounting principles. J. H. COHN LLP Roseland, New Jersey April 25, 1997 F-48 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS PERIOD FROM APRIL 1, 1996 THROUGH JULY 15, 1996 AND YEARS ENDED MARCH 31, 1996 AND 1995 April 1, 1996 Through Years Ended March 31, July ----------------------- 15, 1996 1996 1995 --------- ---------- ---------- Sales $ 317,555 $ 742,832 $1,362,273 --------- ---------- ---------- Costs and expenses: Operating costs 240,871 462,653 722,392 Selling, general and administrative expenses 232,823 465,257 477,752 Depreciation of property and equipment 80,901 237,287 233,700 Amortization of intangible assets 26,513 209,115 25,000 --------- ---------- ---------- Totals 581,108 1,374,312 1,458,844 --------- ---------- ---------- Operating loss (263,553) (631,480) (96,571) Other income (expense): Other income 24,593 38,457 17,589 Interest expense (40,718) (86,135) (45,357) Litigation settlement (14,939) --------- ---------- ---------- Loss before income taxes (294,617) (679,158) (124,339) Credit for income taxes (24,000) (26,300) (12,000) --------- ---------- ---------- Net loss $(270,617) $ (652,858) $ (112,339) ========= ========== ========== See Notes to Consolidated Financial Statements. F-49 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS PERIOD FROM APRIL 1, 1996 THROUGH JULY 15, 1996 AND YEARS ENDED MARCH 31, 1996 AND 1995 April 1, 1996 Through Years Ended March 31, July ---------------------- 15, 1996 1996 1995 ---------- ---------- ---------- Operating activities: Net loss $(270,617) $(652,858) $(112,339) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 107,414 446,402 258,700 Deferred income taxes (24,000) (29,200) 34,900 Other 50,952 (5,909) (8,080) Changes in operating assets and liabilities, net of effects of purchase of subsidiary: Accounts receivable 87,857 (26,841) 23,473 Income tax refunds receivable 38,373 19,856 (54,507) Other current assets 24,882 40,294 (1,122) Other assets 18,303 (40,207) Accounts payable 71,360 59,697 (31,317) Accrued expenses (34,426) 38,623 48,162 --------- --------- --------- Net cash provided by (used in) operating activities 70,098 (150,143) 157,870 --------- --------- --------- Investing activities: Proceeds from sale of equipment 21,451 9,500 Purchases of property and equipment (52,768) (40,983) (302,184) Cash paid for purchase of subsidiary, net of cash acquired of $10,334 (135,711) --------- --------- --------- Net cash used in investing activities (52,768) (155,243) (292,684) --------- --------- --------- Financing activities: Net proceeds from short-term borrowings (32,398) 233,866 Proceeds from long-term borrowings 38,300 212,903 Repayments of long-term borrowings (12,550) (69,308) (82,016) Proceeds from issuance of preferred stock 81,500 81,500 Proceeds from issuance of warrants 50,000 Other (7,500) --------- --------- --------- Net cash provided by financing activities 36,552 276,858 180,887 --------- --------- --------- F-50 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS PERIOD FROM APRIL 1, 1996 THROUGH JULY 15, 1996 AND YEARS ENDED MARCH 31, 1996 AND 1995 April 1, 1996 Through Years Ended March 31, July 15, 1996 1996 1995 --------- --------- --------- Net increase (decrease) in cash and cash equivalents $ 53,882 $ (28,528) $ 46,073 Cash and cash equivalents, beginning of period 31,992 60,520 14,447 --------- --------- --------- Cash and cash equivalents, end of period $ 85,874 $ 31,992 $ 60,520 ========= ========= ========= Supplemental disclosure of cash flow data: Interest paid $ 18,686 $ 16,102 $ 7,388 ========= ========= ========= Income taxes paid $ 800 $ 16,350 ========= ========= Supplemental schedule of noncash investing and financing activities: Purchase of subsidiary: Issuance of common stock $ 100,000 ========= Assumption of notes payable $ 17,336 ========= Issuance of notes payable for: Covenant not-to-compete $ 200,000 ========= Purchase of equipment $ 12,210 ========= Conversion of preferred stock to common stock $ 162,500 ========= See Notes to Consolidated Financial Statements. F-51 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and summary of significant accounting policies: Description of business: Pre-Tek Wireline Service Company, Inc. ("Pre-Tek"), which was incorporated in California in 1990, and its wholly- owned subsidiary, K.F.E. Wireline, Inc. ("KFE"), provide engineering and wireline logging services to companies in the oil and gas industry that are located primarily in California. Pre-Tek and KFE are referred to together herein as (the "Company"). KFE was purchased by Pre-Tek effective February 15, 1996. The business and certain assets of the Company were acquired by Janus Industries, Inc. ("Janus"), effective July 15, 1996. Basis of presentation: The consolidated financial statements present the results of operations and cash flows of the Company for the years ended March 31, 1996 and 1995 and for the period from April 1, 1996 through July 15, 1996, immediately prior to the acquisition of the business and certain assets of the Company by Janus. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Principles of consolidation: The consolidated financial statements include the accounts of Pre-Tek and KFE. All material significant intercompany balances and transactions have been eliminated in consolidation. Cash equivalents: Cash equivalents generally consist of highly liquid investments with maturities of three months or less when acquired. Property and equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over an estimated useful life of five years. Intangible assets: Covenants not-to-compete are being amortized using the straight-line method over the terms of the related agreements which range from one to five years. Goodwill, which represents the excess of the costs of acquiring the oil and gas services business of KFE over the fair value of its net assets at the date of acquisition, is being amortized using the straight-line method over an estimated useful life of 20 years. F-52 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business and summary of significant accounting policies (concluded): Income taxes: The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Note 2 - Acquisition of KFE: In February 1996, Pre-Tek acquired 100% of the outstanding common stock of KFE, which is also in the oil and gas service business, for consideration comprised as follows: Cash payments to certain creditors and former stockholders of KFE $146,045 Issuance of 500 shares of Pre-Tek common stock, with an estimated fair value of $200 per share 100,000 -------- Total $246,045 ======== In addition, Pre-Tek granted the former stockholders of KFE an option to "put" the Pre-Tek shares they received back to the Company during 1998 (see Note 7). The acquisition was accounted for as a purchase and, accordingly, the results of KFE's operations have been included in the accompanying consolidated statements of operations from February 15, 1996, the effective date of the acquisition. In addition, total acquisition costs were allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition, with the excess of cost over such fair values allocated to goodwill, as shown below: Cash $ 10,334 Accounts receivable 100,469 Other current assets 95,305 Property and equipment 232,600 Goodwill 50,147 Accounts payable and other current liabilities (192,613) Other liabilities (50,197) -------- Cost of acquisition $246,045 ======== F-53 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Acquisition of KFE (concluded): Pre-Tek also received covenants not to compete from the selling stockholders which were deemed to have an insignificant fair value. Note 3 - Income taxes: At July 15, 1996, the Company had net operating loss carryforwards of approximately $512,000 for Federal income tax purposes which expire through 2011 and $256,000 for state income tax purposes which expire through 2001. The provision (credit) for income taxes consists of the following: April 1, 1996 Years Ended Through March 31, July 15, ----------------------- 1996 1996 1995 --------- -------- --------- Current: Federal $ 1,300 $(47,700) State 1,600 800 -------- -------- Totals 2,900 (46,900) -------- -------- Deferred: Federal $(104,100) (225,800) 6,000 State (3,800) (43,300) 4,700 --------- -------- -------- Totals (107,900) (269,100) 10,700 --------- -------- -------- Totals (107,900) (266,200) (36,200) Effect of valuation allowance 83,900 239,900 24,200 --------- -------- -------- Totals $ (24,000) $(26,300) $(12,000) ========= ======== ======== F-54 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Income taxes (continued): The difference between the actual credits for Federal income tax and the credits computed by applying the statutory Federal income tax rate of 34% to losses before tax benefits is attributable to the following: April 1, 1996 Years Ended Through March 31, July ---------------------- 15, 1996 1996 1995 ---------- ---------- --------- Tax credit computed at Federal statutory tax rate $(100,200) $(230,000) $(42,300) State taxes, net of Federal income tax effects (2,500) (28,600) 3,400 Increase in valuation allowance 83,900 239,900 24,200 Other (5,200) (7,600) 2,700 --------- --------- -------- Totals $ (24,000) $ (26,300) $(12,000) ========= ========= ======== Aggregate deferred tax assets and liabilities consist of the following: March 31, July 15, -------------------- 1996 1996 1995 -------- -------- --------- Deferred tax assets $499,000 $408,100 $ 71,200 Valuation allowance (348,000) (264,100) (24,200) Deferred tax liabilities (151,000) (168,000) (71,600) -------- -------- -------- Net deferred tax liabilities $ -- $(24,000) $(24,600) ======== ======== ======== Deferred tax assets resulted primarily from temporary differences attributable to the utilization of the cash basis of accounting for income tax purposes and net operating loss carryforwards. Deferred tax liabilities resulted primarily from temporary differences attributable to methods of depreciating property and equipment and amortizing intangible assets and the tax benefits of state deferred tax assets. The Company offsets its net deferred tax assets by valuation allowances due to the uncertainties related to the extent and timing of its future taxable income. All of the tax loss attributes referred to above have been fully reserved through a valuation allowance rather than reflected as deferred tax assets due to the lack of a taxable income stream and the uncertainties referred to above. F-55 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - Line of credit: On February 22, 1996, the Company obtained a $250,000 line of credit from United Credit Corporation ("United") which expires on February 16, 1998. Amounts available under the line are limited to 75% of the net security value of outstanding accounts receivable of the Company and consist of the following: July March 15, 1996 31, 1996 -------- -------- Installment loan in the original amount of $125,000, accrues interest at 18% per annum; weekly principal payments of $692 beginning in August 1996 $125,000 $125,000 Revolving loan remaining balance of line available on a revolving basis, accrues interest at highest New York City prime rate plus 10%, but not less than 18%, payable monthly; outstanding principal balance required to be paid upon expiration of the credit line 76,468 108,866 -------- -------- Totals $201,468 $233,866 ======== ======== The line of credit requires payment of a commitment fee of $2,500 per month against which the monthly interest is first credited. The line is secured by all accounts receivable, intangibles, inventory and equipment of Pre-Tek. In addition, Pre-Tek was required to make a deposit of $40,000 with United in February 1996 as additional security. Under a separate pledge agreement dated February 22, 1996, Pre-Tek also pledged all of the issued and outstanding capital stock of KFE as collateral for the line of credit. The line of credit was settled in connection with the sale of the business to Janus (see Note 9). F-56 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Long-term debt: Long-term debt consists of the following: March 31, July 15, -------------- 1996 1996 1995 ---- ---- ---- Payable to third parties: Notes bearing interest at 2% above the prime rate of Chase Manhattan Bank were due on April 30, 1996 and are in default. The notes and accrued interest thereon, were settled with cash, common stock of Janus and warrants to purchase common stock of Janus in connection with the sale of the business to Janus (see Note 9) $170,000 $170,000 $170,000 Advances outstanding under a $100,000 one year non-revolving line of credit with Wells Fargo Bank. Secured by the Company's inventory, receivables, equipment and intangibles. Advances require monthly payments of principal and interest (ranging from 10.35% to 12.65%) and are due at various dates through February 5, 1999. This liability was settled with cash in connection with the sale of the business to Janus (see Note 9) 35,848 45,630 41,548 Other 17,709 23,411 -------- -------- -------- Total - third party notes payable 223,557 239,041 211,548 -------- -------- -------- F-57 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Long-term debt (continued): March 31, July 15, -------------- 1996 1996 1995 ---- ---- ---- Payable to current and former stockholders: Promissory note payable dated April 20, 1995 to a former officer and stockholder in exchange for a noncompete agreement in connection with a stock purchase agreement dated April 13, 1995. Principal and accrued interest at 12% per annum becomes due and payable upon occurrence of the earlier of: the close of an initial public offering of the Company or one year from the date of note. The note, which is secured by a first lien on certain Pre-Tek equipment, was released as part of a settlement agreement with the former officer and stockholder. The note was written down to the amount required to be paid in the settlement agreement (see Note 7) $192,500 $200,000 F-58 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Long-term debt (continued): March 31, July 15, -------------- 1996 1996 1995 ---- ---- ---- Payable to current and former stockholders (continued): Subordinated debt to Texas A & G Systems, L.P. ("Texas A & G"), a stockholder, issued in connection with a Stock Purchase Agreement dated June 30, 1993 (see Note 6) with interest due quarterly. Commencing at the end of the first quarter of the second twelve-month period, principal payments are due quarterly, in equal installments, together with interest maturing on June 30, 1996. Interest accrues at the Federal Reserve prime interest rate (7.75% as of March 31, 1996) plus 2% and subject to a minimum rate of 8%. These notes were settled in warrants to purchase 18,000 shares of common stock of Janus in connection with the sale of business to Janus (see Note 9) $165,000 $165,000 $165,000 F-59 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Long-term debt (concluded): March 31, July 15, -------------- 1996 1996 1995 ---- ---- ---- Payable to current and former stockholders (concluded): Promissory note payable to former officer and stockholder issued in connection with the Stock Purchase Agreement dated June 30, 1993 (see Note 6) with interest due quarterly. Commencing at the end of the first quarter of the second twelve-month period, principal payments are due quarterly, in equal installments, together with interest over the remaining twenty-four months, with the promissory note maturing on June 30, 1996. Interest accrues at the Federal reserve prime interest rate (7.75% as of March 31, 1996) plus 2%. The note was released as part of a settlement agreement with the former officer and stockholder (see Note 7) $ 75,512 $ 75,512 $ 92,139 -------- -------- -------- Total related party notes payable 433,012 440,512 257,139 -------- -------- -------- Total long-term debt $656,569 $679,553 $468,687 ======== ======== ======== F-60 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Stockholders' equity (deficiency): Equity activity: In November 1995, the Company issued 815 shares of 10% cumulative convertible Series I preferred stock and a six-month option to acquire 815 shares of 10% cumulative convertible Series II preferred stock at $100 per share for $81,500 to a trust. Certain anti-dilution provisions in such preferred stock provide that the holder would receive a fully diluted percentage of the common stock. On May 5, 1996, the trust converted the 815 shares of Series I preferred stock to 2,684 shares of common stock. On June 7, 1996, the Trust exercised its option to acquire 815 shares of 10% cumulative convertible Series II preferred stock and immediately converted it into 2,491 shares of common stock. Outstanding options, warrants and subscriptions: On January 17, 1995, the Company issued a warrant to West End Energy Associates ("West End"), an affiliate of certain principal stockholders of Pre-Tek, for $50,000. Pursuant to the terms of this warrant, West End is entitled to purchase, at any time within three years from the date of the warrant, shares of Pre-Tek's common stock in an amount equal to an aggregate 7% of the issued and outstanding common stock for the exercise price of $.01 per share. The warrant contains certain anti-dilution provisions. West End has waived the right to exercise this warrant in consideration of shares issued to its partners. In connection with common shares issued under a June 30, 1993 Stock Purchase Agreement, warrants exercisable into an additional 10% of the common stock outstanding of the Company were granted to Texas A & G. These warrants are exercisable at any time subsequent to, and initial public offering of, the Company's stock and thereafter for a period of two years. The exercise price will equal 25% of the initial offering price of the Company's common stock. Attached to the private debt offering of $170,000 (see Note 5) were warrants for an aggregate of 297.5 shares of common stock of the Company. The warrants are exercisable for the price of $100 per share for a term of thirty-six months. In addition, the secured promissory notes may be converted into additional shares of common stock in the event of a public offering of the shares (the "Conversion Option"). The Conversion Option is exercisable from the eleventh month of the term of the secured promissory notes through the twenty-fourth month of the term. Pursuant to the Conversion Option, the outstanding principal balance of the secured promissory notes may be converted into common stock at a price equal to 110% of the initial public offering price of the common stock. F-61 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and contingencies: Leases: The Company's leasing activities consist principally of leasing office space, vehicles and equipment. The Company leased certain office space under an operating lease which commenced in March 1992 at which time the lessors were stockholders of the Company. This lease was disputed and was terminated in connection with the settlement of litigation (see Note 9). Lease expense incurred for the period from April 1, 1996 through July 15, 1996 and the years ended March 31, 1996 and 1995 is as follows: Period from Years Ended April 1, 1996 March 31, Through July ------------------- 15, 1996 1996 1995 ------------ ------- ------- Related party $ 7,600 $40,100 $45,400 Nonrelated party 13,300 4,000 30,100 ------- ------- ------- Totals $20,900 $44,100 $75,500 ======= ======= ======= The following is a schedule by years of future minimum rental payments required under the nonrelated party operating leases in years subsequent to July 15, 1996: Years Ending July 15, Amount ------------ ------ 1997 $48,300 1998 23,100 1999 3,400 ------- Total $74,800 ======= Concentration of credit risk: The Company maintains its cash balances in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation coverage limits thereby exposing the Company to credit risk. The Company reduces its exposure to credit risk by maintaining such deposits with high quality financial institutions. The Company's trade accounts receivable are due from a limited number of customers that operate in a single industry and in the same general geographical area. Accordingly, these financial instruments also expose the Company to a concentration of credit risk. Generally, such exposure is mitigated by maintaining strong customer relationships; by ongoing customer credit evaluations; and by maintaining an allowance for doubtful accounts that management believes will adequately provide for credit losses. F-62 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and contingencies (continued): Repurchase agreement: In the acquisition of its subsidiary, Pre-Tek issued 500 shares of its common stock and gave the former stockholders of KFE a "put" option at a price of $200 per share. The "put" option is exercisable any time after the 24th month from the closing of the purchase of KFE (see Note 2). Guarantees of indebtedness: The Company has guaranteed two loans with an aggregate balance at July 15, 1996 of approximately $2,000,000 (see Note 9). Litigation: Former stockholders had instituted litigation against the Company in connection with a lease agreement and certain other agreements which arose when these stockholders sold their equity interests in the Company. In July 1996, such litigation was settled. The settlement agreements require the Company to pay to the former stockholders (or certain creditors of the former stockholders) an aggregate of $289,500, and deliver certain equipment to one of the former stockholders. Cash of $282,500 was paid by Janus on behalf of the Company in connection with the sale of the business on July 15, 1996. In exchange for the total consideration, the Company was released from all liabilities to these former stockholders. Accordingly, for the period from April 1, 1996 through July 15, 1996, the Company has recorded a loss on settlement of litigation of $14,939 which is comprised as follows: Required cash payments $289,500 Book value of equipment 50,238 -------- Subtotal 339,738 Notes payable and accrued interest to the former stockholders previously recorded (see Note 5) 324,799 -------- Loss on settlement of litigation $ 14,939 ======== Note 8 - Fair value of financial instruments: The carrying amounts of the Company's financial instruments approximate fair value. Fair value was estimated using discounted cash flow analysis, based on the Company's incremental borrowing rate for similar borrowings. F-63 PRE-TEK WIRELINE SERVICE COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Sale of assets and dissolution: On July 15, 1996, the Company executed an agreement to sell its business and certain assets (including 100% of the capital stock of KFE) to and have certain of its liabilities assumed by Janus. Effective July 15, 1996, the Company executed a Plan of Dissolution (the "Plan"). Pursuant to the Plan, any liabilities not assumed or discharged by Janus were to be paid by two stockholders of the Company. Subsequent to the payment of liabilities, the shares of Janus common stock acquired by the Company and any other assets which are available for distribution were to be distributed to the Company's stockholders in accordance with a formula defined by the Plan. The consideration exchanged by Janus for the business, assets and liabilities was comprised as follows: Cash payments to certain creditors (including former stockholders) of the Company (see Notes 4, 5 and 7) $ 605,413 Issuance of 268,368 shares of Janus common stock, with a fair value of $2.75 per share (see Note 5), and 500,000 warrants to purchase Janus common stock to Pre-Tek and former stockholders of Pre-Tek (see Note 7) 738,012 Return of 37,350 shares of Janus common stock as a result of post-closing adjust- ments (102,713) ---------- Total $1,240,712 ========== In addition, Janus pledged a $20,000 certificate of deposit with a bank in order to secure the release of a guaranty of a loan by Pre-Tek. Janus will issue 10,000 shares of Janus common stock to each of two of the Company's stockholders in consideration for their indemnification of Janus from liability from the "put" described in Note 2 which Janus assumed. Subject to the shares of Janus common stock held by Janus, as provided in the Asset Purchase Agreement, the remaining 423,000 shares of Janus common stock and 200,000 warrants will be disposed of pursuant to the Plan together with any other assets which are available for distribution by Pre-Tek. Janus also agreed to issue up to 150,000 additional shares of its common stock contingent upon Pre-Tek's sales exceeding certain specified levels during the year ending July 15, 1997. * * * F-64 JANUS INDUSTRIES, INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS On April 24, 1997, Janus Industries Inc. ("Janus") consummated the acquisition of a 100% equity interest in six hotels and an 85% equity interest in a seventh hotel (the "Hotels"), a 100% equity interest in a hotel management company (the "Management Company") and substantially all of the assets thereof other than seven management contracts and 100% interests in mortgages (the "Mortgages") on one additional hotel and a campground, all of which were owned by corporations and partnerships that were, effectively, wholly-owned or controlled by Louis S. Beck and Harry Yeaggy (the "Sellers") during the year ended December 31, 1996 and the period from January 1, 1997 through the date of acquisition. The Hotels, the Management Company and the Mortgages are referred to herein as the "Beck-Yeaggy Group." On July 15, 1996, the Company acquired the oil and gas industry services business of Pre-Tek Wireline Service Company, Inc. and its wholly-owned subsidiary ("Pre-Tek"). Janus will account for the acquisition of the Beck-Yeaggy Group pursuant to the purchase method of accounting in its historical financial statements effective as of April 24, 1997 and has accounted for the acquisition of Pre-Tek pursuant to the purchase method of accounting in its historical financial statements effective as of July 15, 1996. The accompanying unaudited pro forma condensed balance sheet combines the historical consolidated balance sheet of Janus and its subsidiaries (including Pre-Tek) as of March 31, 1997 and the historical combined balance sheet of the Beck-Yeaggy Group as of March 31, 1997 as if the acquisition had been consummated on March 31, 1997. The accompanying unaudited pro forma condensed statement of operations for the year ended December 31, 1996 combines the historical consolidated statement of operations of Janus and its subsidiaries for the year ended December 31, 1996 (including Pre-Tek for the period from July 16, 1996 to December 31, 1996), the historical consolidated statement of operations of Pre-Tek for the period from January 1, 1996 to July 15, 1996 and the historical combined statement of operations of the Beck-Yeaggy Group for the year ended December 31, 1996 as if the acquisitions of Pre-Tek and the BeckYeaggy Group had been consummated as of January 1, 1996. The accompanying unaudited pro forma condensed statement of operations for the three months ended March 31, 1997 combines the historical consolidated statement of operations of Janus and its subsidiaries for the three months ended March 31, 1997 (including Pre-Tek for the entire period) and the historical combined statement of operations of the Beck-Yeaggy Group for the three months ended March 31, 1997 as if the acquisition of the BeckYeaggy Group had been consummated as of January 1, 1996. The accompanying unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments described in the accompanying notes which management believes are reasonable. The unaudited pro forma condensed combined financial statements do not purport to represent what the combined financial position and results of operations actually would have been if the acquisitions referred to above had occurred as of the dates indicated instead of the actual dates of consummation or what the financial position and results of operations would be for any future periods. The unaudited pro forma condensed combined financial statements and the accompanying notes should be read in conjunction with the audited and unaudited historical financial statements of Janus and its subsidiaries, the Beck-Yeaggy Group and Pre-Tek included elsewhere herein. F-65 JANUS INDUSTRIES, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET MARCH 31, 1997
Historical -------------------------- Janus The and Sub- Beck-Yeaggy Pro Forma Pro Forma ASSETS sidiaries Group Adjustments Combined --------- ----- ----------- -------- Current assets: Cash and cash equivalents $ 6,214,071 $ 129,192 $ (1,043,803)(1) $ 5,299,460 Accounts receivable 130,104 193,620 323,724 Current portion of mortgage notes receivable 208,787 208,787 Other current assets 200,080 304,415 504,495 ------------ ------------ ------------ ------------ Total current assets 6,544,255 836,014 (1,043,803) 6,336,466 Property and equipment, net of accumulated depreciation 560,371 12,454,801 21,945,199(2) 34,960,371 Goodwill, net of accumulated amortization 846,082 5,413,628(3) 6,259,710 Mortgage notes receivable, net of current portion 5,555,949 5,555,949 Deferred costs of proposed acquisition 298,551 (298,551)(1) Other assets 7,096 1,334,467 1,341,563 ------------ ------------ ------------ ------------ Total assets $ 8,256,355 $ 20,181,231 $ 26,016,473 $ 54,454,059 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 535,602 $ 535,602 Loans payable to owners 793,803 $ (793,803)(1) Accounts payable and accrued expenses $ 374,954 1,182,767 (115,404)(4) 1,442,317 ------------ ------------ ------------ ------------ Total current liabilities 374,954 2,512,172 (909,207) 1,977,919 Long-term debt, net of current portion 19,840,862 19,840,862 Deferred tax liabilities 35,700 376,300(5) 412,000 ------------ ------------ ------------ ------------ Total liabilities 374,954 22,388,734 (532,907) 22,230,781 ------------ ------------ ------------ ------------ Minority interest 42,604 1,540,000(6) 1,582,604 ------------ ------------ ------------ Stockholders' equity: Preferred stock - none outstanding; 10,451.88 Series B shares to be outstanding 105(7) 105 Common stock - 8,080,868 shares outstanding; 11,880,867 shares to be outstanding 80,809 38,000(7) 118,809 Additional paid-in capital 12,958,618 22,763,772(7) 35,722,390 Owners' capital deficiency (2,207,503) 2,207,503(7) Accumulated deficit (4,316,335) (4,316,335) Treasury stock, 2,857,208 shares at cost (884,295) (884,295) ------------ ------------ ------------ ------------ Total stockholders' equity (deficiency) 7,838,797 (2,207,503) 25,009,380 30,640,674 ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity $ 8,256,355 $ 20,181,231 $ 26,016,473 $ 54,454,059 ============ ============ ============ ============
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. F-66 JANUS INDUSTRIES, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
Historical ------------------------ Pre-Tek and The Beck- Subsidiary Janus Yeaggy Janus and (1/1/96 to Pro Forma Pro Forma Group Pro Forma Pro Forma Subsidiaries 7/15/96) Adjustments Combined Historical Adjustments Combined ------------ -------- ----------- -------- ---------- ----------- -------- Revenues: Hotel revenues $12,545,218 $12,545,218 Management fees 1,629,562 $ (592,158)(B) 1,037,404 Other hotel related revenues 245,801 245,801 Sales $ 381,055 $ 546,741 $ 927,796 927,796 ----------- --------- ----------- ----------- ----------- ----------- Total revenues 381,055 546,741 927,796 14,420,581 (592,158) 14,756,219 ----------- --------- ----------- ----------- ----------- ----------- Costs and expenses: Direct hotel operating expenses 4,403,814 30,722 (C) 4,434,536 Occupancy and other oper- ating expenses 363,162 349,759 712,921 1,842,254 (91,550)(D) 2,463,625 Selling, general and ad- ministrative expenses 1,319,991 410,725 1,730,716 3,624,674 145,476 (D) 5,500,866 Depreciation and amorti- zation 61,434 234,899 $(132,088)(A) 164,245 873,661 309,006 (E) 1,346,912 Amortization of intang- ible assets 30,375 30,375 135,341 (F) 165,716 ----------- --------- --------- ----------- ----------- ----------- ----------- Total costs and expenses 1,774,962 995,383 (132,088) 2,638,257 10,744,403 528,995 13,911,655 ----------- --------- --------- ----------- ----------- ----------- ----------- Operating income (loss) (1,393,907) (448,642) 132,088 (1,710,461) 3,676,178 (1,121,153) 844,564 Other income (expense): Interest and other income 251,892 251,892 474,883 726,775 Interest expense (1,476) (85,411) (86,887) (1,935,877) (2,022,764) Other expense (38,086) (38,086) (38,086) ----------- --------- --------- ----------- ----------- ----------- ----------- Income (loss) before income taxes and minority interest (1,143,491) (572,139) 132,088 (1,583,542) 2,215,184 (1,121,153) (489,511) Provision for income taxes 138,000 (G) 138,000 ----------- --------- --------- ----------- ----------- ----------- ----------- Income (loss) before minority interest (1,143,491) (572,139) 132,088 (1,583,542) 2,215,184 (1,259,153) (627,511) Minority interest 50,490 50,490 28,321 (H) 78,811 ----------- --------- --------- ----------- ----------- ----------- ----------- Net income (loss) (1,193,981) (572,139) 132,088 (1,634,032) 2,215,184 (1,287,474) (706,322) Less preferred dividend requirements 24,712 24,712 783,891 (I) 808,603 ----------- --------- --------- ----------- ----------- ----------- ----------- Net income (loss) applic- able to common stock $(1,218,693) $(572,139) $ 132,088 $(1,658,744) $ 2,215,184 $(2,071,365) $(1,514,925) =========== ========= ========= =========== =========== =========== =========== Net income (loss) per common share $(.24) $(.32) $(.17) ===== ===== ===== Weighted average number of shares outstanding 5,119,634 5,231,000 9,030,999 ========= ========= =========
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. F-67 JANUS INDUSTRIES, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997
Historical -------------------------- Janus and The Subsid- Beck-Yeaggy Pro Forma Pro Forma iaries Group Adjustments Combined ------ ----- ----------- -------- Revenues: Hotel revenues $2,214,477 $2,214,477 Management fees 382,147 $(107,838)(B) 274,309 Other hotel related revenues 34,066 34,066 Sales $ 401,029 401,029 --------- ---------- --------- ---------- Total revenues 401,029 2,630,690 (107,838) 2,923,881 --------- ---------- --------- ---------- Costs and expenses: Direct hotel operating expenses 907,918 9,805 (C) 917,723 Occupancy and other operating expenses 306,105 415,173 (4,184)(D) 717,094 Selling, general and administrative expenses 266,926 774,162 30,477 (D) 1,071,565 Depreciation and amortization 30,815 214,827 80,840 (E) 326,482 Amortization of intangible assets 14,884 33,835 (F) 48,719 --------- ---------- --------- ---------- Total costs and expenses 618,730 2,312,080 150,773 3,081,583 --------- ---------- --------- ---------- Operating income (loss) (217,701) 318,610 (258,611) (157,702) Other income (expense): Interest and other income 70,569 113,143 183,712 Interest expense (451,666) (451,666) --------- ---------- --------- ---------- Loss before income taxes and minority interest (147,132) (19,913) (258,611) (425,656) Provision (credit) for income taxes (76,527) 82,300 (5,773)(G) --------- ---------- --------- ---------- Loss before minority interest (70,605) (102,213) (252,838) (425,656) Minority interest (36,810)(H) (36,810) --------- ---------- --------- ---------- Net loss (70,605) (102,213) (216,028) (388,846) Less preferred dividend requirements 195,973 (I) 195,973 --------- ---------- --------- ---------- Net loss applicable to common stock $ (70,605) $ (102,213) $(412,001) $ (584,819) ========= ========== ========= ========== Net loss per common share $(.01) $(.06) ===== ===== Weighted average number of shares outstanding 5,230,609 9,030,608 ========= =========
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. F-68 JANUS INDUSTRIES, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS Purchases of the Beck-Yeaggy Group and Pre-Tek: Information with respect to the estimated cost incurred by Janus to purchase the Beck-Yeaggy Group on April 24, 1997 and the expected allocation of such estimated costs in accordance with the purchase method of accounting follows: Issuance of: 10,451.88 shares of Series B preferred stock with a liquidating and estimated fair value of $1,000 per share $10,451,880 3,799,999 shares of common stock with an estimated fair value of $3.25 per share 12,349,997 ----------- Total value of shares issued 22,801,877 Cash paid to the Sellers to repay short-term loans 793,803 Estimated legal, accounting and other costs related to the purchase, including $298,551 prepaid as of March 31, 1997 548,551 ----------- Total purchase price to be allocated $24,144,231 =========== Historical carrying value of net liabilities acquired $(1,298,296) Adjustment of property and equipment to fair value 21,945,199 Adjustment of deferred tax liabilities (376,300) Minority interest in the 85%-owned hotel (1,540,000) Excess of purchase price over fair value of net assets acquired 5,413,628 ----------- Total purchase price allocated $24,144,231 =========== For information with respect to the cost incurred by Janus to purchase Pre-Tek on July 15, 1996 and the allocation of such costs is set forth in Note 3 of the notes to the audited consolidated financial statements of Janus included elsewhere herein. Pro Forma Adjustments to the Unaudited Condensed Combined Balance Sheet as of March 31, 1997: (1) To record the repayments of the short-term loans payable by the Beck-Yeaggy Group to the Sellers and the payments of estimated legal, accounting and other costs related to the purchase. (2) To state property and equipment at estimated fair values. (3) To allocate the excess of the purchase price over the fair value of the net assets acquired to goodwill which will be written off over 40 years. (4) To eliminate liabilities not assumed by Janus. F-69 JANUS INDUSTRIES, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (5) To record deferred income tax liabilities attributable to the acquisition. (6) To record the 15% minority interest in the 85%-owned hotel. (7) To record the issuance of the Series B preferred stock and the common stock to the Sellers and the elimination of the historical equity accounts of the Beck-Yeaggy Group. Pro Forma Adjustments to the Unaudited Condensed Combined Statements of Operations for the Year Ended December 31, 1996 and the three months ended March 31, 1997: (A) To record the effects arising from the allocation of the purchase price for the acquisition of Pre-Tek on July 15, 1996 on depreciation and amortization of property and equipment and the amortization of goodwill for the period from January 1, 1996 to July 15, 1996. (B) To eliminate the net revenues derived from management contracts of the Beck-Yeaggy Group that were not acquired by Janus. (C) To record the additional cost to be incurred as a result of the revisions to the agreement with Hospitality Employee Leasing Program, Inc. that became effective upon the consummation of the acquisition of the Beck-Yeaggy Group. (D) To record the net effects of changes to compensation and related expenses based on revised employment and lease agreements that became effective upon the consummation of the acquisition of the Beck-Yeaggy Group and the elimination of the costs of consultants who will no longer be employed and certain other nonrecurring costs. (E) To record the effects arising from the allocation of the purchase price for the acquisition of the Beck-Yeaggy Group on April 24, 1997 on depreciation and amortization of property and equipment. (F) To record the effects arising from the allocation of the purchase price for the acquisition of the Beck-Yeaggy Group on April 24, 1997 on amortization of goodwill. (G) To record state income tax provisions (credits). No credits for Federal income taxes have been recorded on the pro forma net loss before income taxes based on the availability of net operating loss carryforwards due to the uncertainties related to their future use (see Note 5 of the notes to the audited financial statements of Janus Industries, Inc. and Subsidiaries). (H) To record the minority interest in the net income (loss) of the 85%-owned hotel. (I) To record the dividends attributable to the shares of Series B preferred stock issued as part of the consideration paid to the Sellers. F-70 PART III ITEM 1. INDEX TO EXHIBITS Exhibit Number Description ------- ----------- 3.1 Restated Certificate of Incorporation 3.2 By-Laws 5.1 Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione 10.1 Employment Agreement with James E. Bishop 10.2 Employment Agreement with Vincent W. Hatala, Jr. 10.3 Employment Agreement with Louis S. Beck 10.4 Employment Agreement with Harry G. Yeaggy 10.5 Employment Agreement with Michael M. Nanosky 10.6 1996 Stock Option Plan 10.7 Form of Stock Option Agreement 10.8 Form of Stock Appreciation Right Certificate 10.9 Form of Registration Rights Agreement 10.10 Form of Investor Agreement 10.11 Form of Management Agreement 10.12 Form of Client Service Agreement between Hospitality Employee Leasing Program, Inc. and Janus Industries, Inc. 10.13 Form of Product Lease and Service Agreement between Computel Systems, Inc. and Janus Industries, Inc. 10.14 Sublease Agreement between Beck Hospitality Inc. III and Janus Industries, Inc. (Cincinnati premises) 10.15 Sublease Agreement between Beck Hospitality Inc. III and Janus Industries, Inc. (Boca Raton premises) 10.16 Partnership Agreement of Beck Summit Hotel Management Group, as amended 10.17 Partnership Agreement of Kings Dominion Lodge, G.P. 16.1 Letter on Change in Certifying Accountant 24.1 Power of Attorney 27.1 Financial Data Schedule 55 SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. JANUS INDUSTRIES, INC. By:/s/ James E. Bishop --------------------- James E. Bishop President In accordance with the requirements of the Securities Exchange Act of 1934, this Registration Statement has been signed by the following persons in the capacities and on the dates stated. Name Title Date ---- ----- ---- /s/ James E. Bishop - ---------------------- James E. Bishop President and Director June 24, 1997 /s/ Richard A. Tonges - ---------------------- Richard A. Tonges Treasurer and Vice President of June 24, 1997 Finance (Principal Financial and Accounting Officer) * Chairman June 24, 1997 - ---------------------- Louis S. Beck * Vice Chairman June 24, 1997 - ---------------------- Harry G. Yeaggy * Director June 24, 1997 - ---------------------- Arthur Lubell * Director June 24, 1997 - ---------------------- Richard P. Lerner * Director June 24, 1997 - ---------------------- Vincent W. Hatala, Jr. 56 * Director June 24, 1997 - ---------------------- Lucille Hart-Brown * Director June 24, 1997 - ---------------------- Anthony Pacchia * Director June 24, 1997 - ---------------------- C. Scott Bartlett, Jr. * Director June 24, 1997 - ---------------------- Richard A. Tonges * President of Hotel Operations June 24, 1997 - ---------------------- and Director Michael M. Nanosky * Director June 24, 1997 - ---------------------- Paul Tipps * Director June 24, 1997 - ---------------------- Peter G. Aylward /s/ James E. Bishop ----------------------- James E. Bishop Attorney-in-Fact 57 EX-3.1 2 ARTICLES OF INCORPORATION State of Delaware PAGE 1 Office of the Secretary of State I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "UNITED STATES LINES, INC.", CHANGING ITS NAME FROM "UNITED STATES LINES, INC." TO "JANUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY OF FEBRUARY, A.D. 1990, AT 9 O'CLOCK A.M. /s/ Edward J. Freel [SEAL] ------------------------------ Edward J. Freel, Secretary of State AUTHENTICATION: 8419545 DATE: 04-14-97 0642316 8100 971119933 FILED FEB 23 1990 9 A.M. /s/ [ILLEGIBLE] SECRETARY OF STATE RESTATED CERTIFICATE OF INCORPORATION OF UNITED STATES LINES, INC. The undersigned, a corporation organized and existing under and by virtue of the General corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY AS FOLLOWS: 1. The Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on June 10, 1966. 2. In the manner prescribed by ss.303 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation was duly authorized and adopted pursuant to (i) the First Amended and Restated Joint Plan of Reorganization of the Corporation and certain affiliated debtors; (such plan of reorganization as subsequently modified being herein referred to as the "Plan") under Chapter 11 of the United States Bankruptcy code of 1978, as amended (the "Bankruptcy Code"), and (ii) the order dated May 16, 1989 entered on that date by the United States Bankruptcy Court for the Southern District of New York (Case Nos. 86 B 12238 through 86 B 12241 (HCB), inclusive), which order confirmed the Plan under chapter 11 of the Bankruptcy Code; and the order issued February 6, 1990 by the United States Bankruptcy Court for the Southern District of New York, which order confirmed certain modifications to the Plan. 3. The text of the Certificate of Incorporation of the Corporation, as heretofore amended and as amended, supplemented and restated hereby, is amended and restated in its entirety as follows to read as hereinafter set forth in full: * * * First: The name of the corporation (which is hereinafter referred to as the "Corporation") is Janus Industries, Inc. SECOND: The registered office of the Corporation is to be located at 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at that address is The Corporation Trust Company. 2 THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: (1) The total number of shares of all classes of stock which the Corporation is authorized to issue is 20 Million (20,000,000) shares, consisting of (i) 15 Million (15,000,000) shares of Common Stock, par value one cent ($0.0l) per share, and (ii) 5 Million (5,000,000) shares of Preferred Stock, par value one cent ($0.01) per share. The amount of the authorized capital stock or the Corporation of any class or classes may be increased or decreased by the affirmative vote of the holders of a majority of the capital stock of the Corporation entitled to vote. (2) The holders of the Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors of the Corporation and shall participate in any and all dividend distributions on an equal per share basis. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or any reduction of the capital stock of the Corporation resulting in the distribution of any of its assets to its stockholders, the holders of the Common Stock shall be entitled to receive the net assets of the Corporation, after the Corporation shall have satisfied or made provision for its debts and obligations and for the payment to the holders of shares of the Preferred Stock any preferential rights to receive distributions of the net assets of the Corporation, and shall participate in any and all the distributions on an equal per share basis. (3) Except as may be expressly provided in resolutions adopted by the Board of Directors of the Corporation pursuant to paragraph (4) of this Article FOURTH with respect to the Preferred Stock, the holders or the Common Stock shall have the exclusive right to vote for (or to consent with respect to) the election of directors and, except as otherwise may be required by law, on all other matters requiring action by the stockholders or submitted to the stockholders for action. Each holder of a share of the Common Stock shall be entitled to one vote for each share of the Common stock standing in his name on the books of the Corporation. 3 (4) The Preferred Stock may be issued from time to time in classes or series and shall have such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolutions of the Board or Directors providing for the issuance of such stock. The holders of the Preferred Stock shall have no voting rights except as required by law or as expressed in the resolutions of the Board of Directors providing for the issuance of such shares. (5) The Corporation shall not issue any non-voting equity securities; provided, however, that this provision, included in this Restated Certificate of Incorporation in compliance with ss.1123(a)(6) of the United States Bankruptcy Code of 1978, as amended, shall have no force and effect beyond that required by such ss.1123(a)(6) and shall be effective only for so long as such ss.ll23(a)(6) is in effect and applicable to the Corporation. * * * DIVISION A Designations. Preferences and Rights of Preferred Stock, Series A (1) Designations of Series. The series of Preferred Stock, par value $0.01 per share, shall be designated and known as the "Preferred Stock, par value $0.01 per share, Series A" (hereinafter referred to as the "Series A"). The Series A shall be deemed designated pursuant to the provisions of Paragraph (4) of Article IV hereof, and any amendment of the terms of the Series A shall be effective without the necessity of any vote of the stockholders of the Corporation of any class or series other than the Series A. (2) Number or Shares. The number of shares in the Series A shall be 4,000 shares. Shares of the Series A redeemed, purchased or otherwise acquired by the Corporation shall be canceled and shall revert to authorized but unissued Preferred Stock, par value $0.01 per share undesignated as to series and subject to reissuance by the Corporation as shares of the Preferred Stock, par value $0.01 per share, of any one or more series. The Corporation shall be authorized to issue certificates for fractional shares. (3) Dividends. (a) Each holder of a share of the Series A shall be entitled to receive out of the assets of the Corporation legally available for the payment of dividends, as and when declared by the Board of Directors of the Corporation, cash dividends at an annual rate (the "Dividend Rate") equal to 12% of the Redemption Price (as defined in and adjusted pursuant 4 to Paragraph (5) of this Division A) of the Series A share, and no more, during the period from and including the date such share is issued (or is deemed to have been issued) and payable, in arrears (calculated on the basis of a 360 day year), on the last day of each June and December (or the next following business day if such day is a Saturday, Sunday or legal holiday on which banks are authorized by law to close in the State of New York) (each such date being herein referred to as a "Dividend Payment Date", and all such dates being herein referred to as the "Dividend Payment Dates") in each year to holders of record on the June 15 and December 15 immediately preceding the Dividend Payment date; the first such Dividend Payment Date to be June 30, l990. Dividends shall cumulate on a daily basis during the periods ending with each Dividend Payment Date and whether or not declared. (b) If at any time the Corporation shall pay less than the total amount of dividends then payable on the shares or the Series A, the aggregate payment to all holders of shares of the Series A shall be distributed among such holders so that an equal amount shall be paid with respect to each outstanding share of the Series A. (4) Voting Rights. The holders of shares of the Series A shall have no voting rights with respect to any matter presented to or voted upon by the stockholders of the Corporation (including without limitation any election or removal of directors of the Corporation), except as otherwise may be required by law. However, if accrued and unpaid dividends on the Series A have accumulated in an amount equal to the sum of six semi-annual dividends on the Series A (a "Series A Voting Event"), then the holders of the Series A shall be entitled to 0.01 of a vote for each whole share of the Series A upon all matters presented to the stockholders; and, except as otherwise may be required by law entitling the holders of the Series A to vote as a class, the holders of the Common Stock and the holders of Series A (together with the holders of any other shares of the Preferred Stock of any class designated by the Board of Directors of the corporation, or designated by the express terms of such Preferred Stock, to vote together as one class with the holders of the Common stock) shall vote together as one class on all matters. Upon the occurrence of a Series A Voting Event, the special voting rights provided in the preceding sentence shall continue unless and until such accumulated and unpaid dividends on the Series A are paid or declared so that accrued and unpaid dividends in arrears on the Series A are in an amount less than an amount equal to the sum of six semi-annual dividends on the Series A, from and after which time (a "Series A Voting Termination Event") the holders of the Series A shall be divested of the special voting rights provided in this Paragraph (4). 5 (5) Redemption Payments. (a) The "Redemption Price" per share of the Series A shall be $100.00 (subject to reduction as hereinafter provided). (b) After December 31, 1994, the Corporation may, from time to time in whole or in part, redeem shares of the Series A by making payments in respect of the Redemption Price. Redemption payments shall be accompanied by the payment of all accumulated and unpaid dividends on the amount being paid. (c) Upon payment to any holder of a Series A share of the remaining Redemption Price with respect to any Series A share, together with all accumulated and unpaid dividends thereon, such Series A share shall be deemed to have been redeemed and shall automatically be canceled. The Corporation may, at its option, upon notice to the holders of Series A shares, impose as a condition of their entitlement to the final payment of the retaining Redemption Price of their shares the requirement that they surrender their certificates representing their Series A shares to the Corporation; however, the payment to the holder of any Series A share of the full Redemption Price with respect to a Series A share, together with all accumulated and unpaid dividends thereon, shall, as provided by the immediately preceding sentence, automatically effect the redemption and cancellation of the share regardless of whether the Corporation shall have required the surrender of the certificate therefor in order for the holder of the share to receive payment of the remaining Redemption Price. (d) In the event that the Corporation shall effect any payment in respect of the Redemption Price of the Series A shares, the amount to be paid on account of each whole Series A share shall be determined by dividing the amount of such payment by 4,000 shares. Simultaneously with the delivery to the paying agent (designated by the Corporation for the purpose of effecting any payment in respect of the Redemption Price) of the amount to be paid in respect of the Redemption Price of the Series A shares, the Corporation shall deliver to the paying agent a list, as of the close of business on the record date for determining holders of the Series A entitled to receive redemption payments, of the holders of record of the Series A shares for use by the paying agent in making payments on account of the Redemption Price of shares, and the Corporation shall mail notice thereof to the holders of the Series A shares at their last addresses as they appear on the records of the Corporation. Such notice shall specify the amount per whole share to be paid to holders of the Series A shares, the amount of accumulated and unpaid dividends being paid therewith, and the remaining unpaid Redemption Price of such shares after reflecting such payments. The Corporation shall maintain a record of the redemption and dividend payments made with respect to each Series A share and the remaining unpaid Redemption Price of each Series A share, and each transferee of 6 the Series A share shall be deemed to have notice of, and shall take such share subject to, the payment of such amounts. (e) Any and all payments to the holders of shares of the Series A in respect thereof shall be applied as follows: (i) first, to the payment of all dividends that have accumulated and remain unpaid; and (ii) second, to the payment of the Redemption Price of such shares. (6) Liquidation, Dissolution and Winding-Up. (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation resulting in the distribution of any of its assets to its stockholders, or of any reduction of its capital stock resulting in the distribution of any of its assets to its stockholders, each holder of a share of the Series A shall be entitled, before any distribution or payment is made upon any Junior Security, to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to the remaining Redemption Price with respect to such share of the Series A, plus an amount equal to any accumulated and unpaid dividends thereon to the date of distribution. After payment to a holder of a Series A share of the amount as aforesaid, such holder of a Series A share as such shall have no right or claim to any of the remaining assets of the Corporation. (b) The merger or consolidation of the Corporation into or with any other corporation or the merger of any other corporation into the Corporation, or the lease or conveyance of all or substantially all of the property or business of the Corporation, shall not be deemed to be a dissolution, liquidation or a winding-up of the Corporation. (7) The Series A shares are issued pursuant to the First Amended and Restated Joint Plan or Reorganization, as modified, of McLean Industries, Inc., First Colony Farms, Inc., the Corporation and JI Subsidiary, Inc. (formerly known as United States Lines (S.A.) Inc.) confirmed on May 16, 1989 and February 6, 1990 by the United States Bankruptcy Court for the Southern District of New York under Chapter 11 of the United States Bankruptcy Code of 1978, as amended. Accordingly, the shares of the Series A and the holders thereof shall be subject to the provisions and restrictions contained in Article Ninth (as well as the other provisions) of the Restated Certificate of Incorporation of the Corporation (as the Restated Certificate of Incorporation may be amended from time to time). (8) Restrictions on Dividends, Distributions and Redemptions. So long as any shares of the Series A shall be outstanding, and without the prior written consent or approval of 7 the holders of more than two-thirds (2/3rds) of the then outstanding shares of the Series A, no dividends or other distributions (other than dividends or distributions payable exclusively in shares of the Common Stock or any Junior Security or in rights, options or warrants to acquire shares of the Common Stock or any Junior Security), whether in cash or property, shall be paid or declared on the Common Stock or on any Junior Security, nor shall any shares of the Common Stock or any Junior Security be redeemed, purchased or otherwise acquired for value by the Corporation or any Subsidiary. (9) Additional Preferred Stock. The Corporation may authorize, create or issue from time to time additional shares of the Preferred Stock of any class or series to the full extent permitted by Article FOURTH of the Restated Certificate of Incorporation of the Corporation (as the Restated Certificate of Incorporation may be further amended from time to time), and such shares shall not be deemed to rank junior to the Series A shares with respect to any rights, powers or preferences, including without limitation as to dividends, redemption and distributions upon liquidation, dissolution or winding up of the Corporation, unless the express terms of such other shares of the Preferred Stock shall expressly state that such shares shall rank junior to the Series A shares. Unless any such additional Preferred Stock shall by its terms be made junior to the series A shares, the Series A shares shall rank junior to such additional Preferred Stock with respect to all rights, powers and preferences, including without limitation as to dividends, redemption and distributions upon liquidation, dissolution or winding up of the Corporation. (10) Definitions. For purposes hereof, the following terms shall have the following meanings: (a) "Common Stock" shall mean the authorized Common Stock of the Corporation on the date of issuance of the shares of the Series A. (b) "Junior Security" shall mean the Common Stock and any other equity security which by its terms states that it is a Junior Security for purposes of the terms of the Series A. (c) "Subsidiary" shall mean any corporation of which more than 50% of the outstanding stock having ordinary voting power to elect a majority of the board of directors of such corporation, irrespective of whether at the time stock of any other class or classes of stock of such corporation shall have or might have voting power by reason of the happening of any contingency, is, at the time as of which any determination is made, owned directly or indirectly by the Corporation. 8 * * * FIFTH: (1) The Board of Directors of the Corporation shall consist of nine directors. (2) The Board of Directors shall consist of three classes: Class A, Class B and Class C. The number of directors in each class (each of which classes shall have not less than three directors) shall be the whole number contained in the quotient arrived at by dividing the authorized number of directors by three, and if a fraction is also contained in such quotient, then if such fraction is one-third, the extra director shall be a member of Class C, and if such fraction is two-thirds, one of the extra directors shall be a member of Class C and the other shall be a member of Class B. (3) Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected; provided, however, that the directors first elected to Class A shall serve for a text ending on the date of the annual meeting of stockholders next following the end of calendar year 1990, the directors first elected to Class B shall serve for a term ending on the date of the annual meeting of stockholders next following the end of calendar year 1991, and the directors first elected to Class C shall serve for a term ending on the date of the annual meeting of stockholders next following the end of calendar year 1992. Notwithstanding the foregoing, in the event that, as a result of any change in the authorized number of directors, the number of directors in any class would differ from the number allocated to that class pursuant to Paragraph (2) of this Article FIFTH immediately prior to such change, the following rules shall apply: (i) Each director shall nevertheless continue as a director of the class of which he is a member until the earlier of the expiration of his current text or his earlier death, resignation or removal; (ii) At each subsequent election of directors, if the number of directors in the class whose term of office then expires is less than the number then allowed to that class, the number of directors then elected for membership in that class shall not be greater than the number of directors in that class whose term of office then expires, unless and to the extent that the aggregate number of directors then elected plus the number of directors in all classes then duly continuing in office does not exceed the then authorized number of directors of the Corporation; 9 (iii) At each subsequent election of directors, if the number of directors in the class whose term of office then expires exceeds the number then allocated to that class, the Board of Directors shall designate one or more of the directorships then being elected as directorships of another class or classes in which the number of directors than serving is less than the number then allocated to such other class or classes; (iv) In the event or the death, resignation or removal of any director who is a member of a class in which the number or directors serving immediately preceding the creation of such vacancy exceeds the number then allocated to that class, the Board or Directors shall designate the vacancy thus created as a vacancy in another class in which the number of directors then serving is less than the number then allocated to such other class; (v) In the event of any increase in the authorized number of directors, the new directorships resulting from such increase shall be apportioned by the Board of Directors to such class or classes as shall, so far as possible, bring the composition of each of the classes into conformity with the provisions of Paragraph (2) of this Article FIFTH, as such provisions apply to the number of directors authorized immediately following such increase; and (vi) Designations of directorships or vacancies into other classes and apportionments of newly created directorships to classes by the Board of Directors under clauses (iii), (iv) and (v) of this Paragraph (3) shall, so far as possible, be effected so that the class whose term of office is due to expire next following such designation or apportionment shall contain the full number of directors then allocated to such class. (4) Notwithstanding the provisions of this Article FIFTH, each director shall serve until his successor is elected and qualified or until his death, resignation or removal. No director may be removed at any time prior to his death or resignation or the expiration of his term of office without the affirmative vote of the holders of two-thirds (2/3rds) of the outstanding shares of the Common Stock of the Corporation entitled to vote and voting separately as a class. (5) Elections of directors need not be by ballot unless the by-laws of the Corporation so provide. SIXTH: No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders. 10 SEVENTH: The affirmative vote of the holders of two-thirds (2/3rds) of the outstanding shares of the Common Stock of the Corporation entitled to vote and voting separately as a class shall be required to approve (i) the issuance during any 24-month period of shares of the capital stock or other securities of the Corporation (other than securities issuable pursuant to or as contemplated by the Plan (as defined in Article NINTH hereof) or securities convertible into or exchangeable for shares of its capital stock, or the grant of rights or options to subscribe for or to purchase shares of its capital stock or convertible or exchangeable securities, which shares would entitle the holders thereof to exercise five percent (5%) or more of the voting power of the Corporation in the election of directors immediately after the issuance at such shares, (ii) any merger, consolidation or other reorganization of the Corporation (whether for cash, securities or other property), (iii) any dissolution, liquidation or winding up of the Corporation, or (iv) any sale or disposition of any substantial portion of the assets of the Corporation; provided, however, that the foregoing provisions shall not apply to (x) any such transaction which is approved by resolution of the Board of Directors by a vote of two-thirds (2/3rds) of the directors then in office, or (y) any such transaction between the Corporation and any of the following: The Dyson-Kissner-Moran Corporation, a Delaware corporation; DKM, Ltd., a Delaware corporation; DKM-MLP Limited Partnership, a Delaware limited partnership; any corporation, partnership or other entity or any person or persons (or group of persons) controlling, controlled by or under common control with The Dyson-Kissner-Moran Corporation, DKM, Ltd. or DKM-MLP Limited Partnership; or any corporation, partnership or other entity the stockholders, partners or beneficial owners owning a majority in interest of which are persons who are then stockholders, directors, officers or employees of The Dyson-Kissner-Moran corporation, DKM, Ltd., DKM-MLP Limited Partnership or any such other corporation, partnership or other entity. 11 The stockholder vote, if any, required for any transaction of the type described in clauses (x) and (y) of the preceding sentence or any transaction not of the type described in this Article SEVENTH shall be such as may be required by applicable law. For purposes of this Restated Certificate of Incorporation, "control" with respect to any person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract or otherwise. EIGHTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered, without the assent or vote of the stockholders, to make, alter, amend and repeal the by-laws of the Corporation, in any manner not inconsistent with the laws of the State of Delaware or this Restated Certificate of Incorporation. NINTH: (1) Except for any person or entity which originally received shares of the capital stock or securities of the Corporation (provided that any such person or entity does not purchase or acquire, or contract or agree to purchase or acquire, in any manner whatsoever whether voluntarily or involuntarily, by operation of law or otherwise, any additional capital stock or securities) issued pursuant to (i) the First Amended and Restated Joint Plan of Reorganization, as modified, of the Corporation and certain affiliated debtors (the "Plan") under Chapter 11 of the United States Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), and (ii) the order dated May 16, 1999 entered on such date by the United States Bankruptcy Court for the Southern District of New York (Case Nos. 86 B 12238 through 86 B 12241 (HCB), inclusive), which order confirmed the Plan under Chapter 11 of the Bankruptcy Code; and the order issued February 6, 1990 by the United States Bankruptcy Court for the Southern District of New York, which order confirmed certain modifications to the Plan, no person or entity may purchase or acquire, or contract or agree to purchase or acquire, in any manner whatsoever whether voluntarily or involuntarily, by operation of law or otherwise, record or beneficial ownership of, or any beneficial or other interest in, any shares of the capital stock or securities of the Corporation if, at the date of such acquisition, such person or entity is, or would be after giving effect to any such proposed purchase or acquisition, directly, indirectly or by attribution, a holder of five percent (5%) or more of the issued and outstanding capital stock of the Corporation, determined based on the fair market value of the capital stock of the Corporation or 12 the votes represented by the shares of the capital stock of the Corporation entitled to vote for the election or directors. The Corporation is authorized to give to the stock transfer agent of the capital stock and other securities of the Corporation instructions prohibiting the transfer of such capital stock and securities in violation of this Paragraph (1) and to place on all certificates for the capital stock and other securities of the Corporation the following legend: "The Restated Certificate of Incorporation of the Corporation prohibits, the purchase or acquisition of record or beneficial ownership of, or any beneficial or other interest in, any shares of the capital stock or securities of the Corporation if, at the date of such purchase or acquisition, such person or entity is, or would be after giving effect to any such proposed purchase or acquisition, directly, indirectly or by attribution, a holder of five percent (5%) or more of the issued and outstanding capital stock of the Corporation, determined based on the fair market value of the capital stock of the Corporation or the votes represented by the shares of the capital stock of the Corporation entitled to vote for the election of directors. A copy of the Restated Certificate of Incorporation of the Corporation is available for inspection and copying at the principal offices of the Corporation, and a copy of the provisions of the Restated Certificate of Incorporation of the Corporation setting forth such restrictions will be furnished to the record holder of this certificate without charge upon written request to the Corporation." The provisions of this Paragraph (1) shall not prohibit, and shall not be construed to prohibit, the acquisition of shares of the capital stock of the Corporation by any person pursuant to warrants granted or issued pursuant to the Plan or any transfer of any of such warrants. (2) Until March 1, 1993, no person or entity receiving pursuant to the Plan shares of the capital stock of the Corporation representing as of February 23, 1990 five percent (5%) or more of the issued and outstanding capital stock of the Corporation, determined based on the fair market value of the capital stock of the Corporation or the votes represented by the shares of the capital stock of the Corporation entitled to vote for the election of directors, shall be permitted to sell or contract to sell, exchange, assign, bequeath, pledge, mortgage, alienate, grant an option to purchase, hypothecate or otherwise in any manner whatsoever (voluntarily or involuntarily, by operation of law or otherwise) transfer or encumber (any such disposition being hereinafter referred to as a "transfer") record or beneficial ownership of any shares of the capital stock of the Corporation received by such person or entity. The Corporation is authorized to give to the stock transfer agent of the capital 13 stock and other securities of the Corporation instructions prohibiting the transfer of such capital stock and securities in violation of this Paragraph (2) and to place on any and all certificates for the capital stock and other securities of the Corporation which are subject to the provisions of this Paragraph (2) the following legend: "The securities represented by this certificate have been issued pursuant to the First Amended and Restated Joint Plan of Reorganization, as modified, of the Corporation and certain affiliated debtors (the "Plan") under Chapter 11 of the United States Bankruptcy Code of 1978, as amended, as confirmed by the United States Bankruptcy Court for the Southern District of New York on May 16, 1989 and February 6, 1990. The Plan and the Restated Certificate of Incorporation of the Corporation prohibit, until March 1, 1993, the transferability of the securities represented by this certificate except in accordance with the provisions of the Restated Certificate of Incorporation of the Corporation. A copy of the Plan and the Restated Certificate of Incorporation of the Corporation are available for inspection and copying at the principal offices of the Corporation, and a copy of the Plan and the provisions of the Restated Certificate of Incorporation of the Corporation setting forth such restrictions will be furnished to the record holder of this certificate without charge upon written request to the Corporation." The provisions of this Paragraph (2) shall not prohibit, and shall not be construed to prohibit, the acquisition of shares of the capital stock of the Corporation by any person pursuant to warrants granted or issued pursuant to the Plan or any transfer of any of such warrants. (3) No shares (or any beneficial interest therein) of the Common Stock of the Corporation originally issued to the trustee of the trust established pursuant to the United States Lines, Inc. and United States Lines (S.A), Inc. Reorganization Trust Agreement dated as of February 23, 1990, as such trust agreement may be amended from time to time, may be transferred or issued to any person who does not, with respect to the claim against the Corporation held by such person, satisfy the requirements of ss.382(l)(5) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, as such statute, rules and regulations shall have been in effect as of May 16, 1989 and February 23, 1990 or shall be in effect from time to time and as construed and enforced by the United States Department of the Treasury or the United States Internal Revenue Service, unless and until persons who do meet such requirements of ss.382(l)(5), in the sole judgment of the Board of Directors of the Corporation, have received such number of shares of the Common Stock of the Corporation as may be necessary to 14 satisfy the requirements of ss.382(l)(5). The Corporation is authorized to give to the stock transfer agent of the Common Stock of the Corporation instructions prohibiting the transfer of such Common Stock in violation of this Paragraph (3). (4) For purposes of this Article NINTH, the term "capital stock" of the Corporation shall include, without limitation, shares of stock, options to purchase or acquire stock, warrants, rights to purchase or acquire stock and rights to convert other instruments into capital stock of the Corporation. (5) The restrictions contained in this Article NINTH are for the purpose of reducing the risk that any change in the stock ownership of the Corporation may result in the disallowance or limitation of the Corporation's Federal income tax attributes. In connection therewith, and to provide for the effective policing of these provisions, unless otherwise directed by the Board of Directors of the Corporation, the Corporation's transfer agent shall be required, prior to registering any transfer on the books and records of the Corporation, to receive from the prospective transferor and transferee, or only the transferee if the stock or security is being purchased or acquired from the Corporation, a certificate stating the number of shares of stock or securities of the Corporation owned either directly or indirectly or by attribution by the transferor and transferee both before and after the transfer. In the absence of the receipt of such certification, the Corporation's transfer agent shall not be authorized to enter the transfer upon the stock records of the Corporation and such transfer shall not be effective as to the Corporation. Moreover, any transfer or acquisition of stock or securities of the Corporation which has been effected in violation of the restrictions set forth in this Article NINTH shall be null and void and shall have no force and effect, and the transferee thereof shall have no rights as a stockholder of the Corporation. Any holder of the capital stock or securities of the Corporation shall upon demand by an officer of the Corporation disclose to the Corporation in writing such information with respect to direct and indirect legal and beneficial ownership of such shares as the Corporation, through such officer, deems necessary or appropriate. (6) The Board of Directors is expressly empowered to adopt such procedures with respect to and to impose such further limitations on the transferability of the capital stock and securities of the Corporation as the Board of Directors in good faith shall deem desirable to preserve and maintain the Federal income tax attributes of the Corporation. 15 (7) The provisions, or portions thereof, of this Article NINTH shall terminate upon the adoption by the Board of Directors, at any time on or after March 1, 1993, of a resolution authorizing the termination of the effectiveness of such provisions of this Article NINTH as the Board of Directors shall, in its sole discretion, determine. The Board of Directors may (but shall not be obligated to) at any tine and from time to time prior to the adoption of any such resolution suspend or waive the application of the provisions of this Article NINTH to one or more acquisitions or transfers of capital stock or securities of the Corporation, provided the Board or Directors determines in good faith in each such instance that such acquisition(s) would not be adverse to the best interests of the Corporation and its stockholders. In making such determination, the Board of Directors shall consider, among such other factors as it deems relevant, the likely effect of such transaction upon the Federal income tax attributes of the Corporation. (8) For purposes of this Article NINTH, "beneficial ownership" of or with respect to any share of the capital stock or other security of the Corporation shall mean (x) the power to vote or to direct the voting of such capital stock or security, or investment power with respect to (including the power to dispose or to direct the disposition of) such capital stock or security, within the meaning of ss.13(d) of the Securities Exchange Act or 1934, as amended, and the rules and regulations promulgated thereunder, as such statute, rules and regulations shall be in effect from time to time and as construed and enforced by the United States Securities and Exchange Commission, (y) the right to purchase or acquire, including without limitation the right to purchase or acquire pursuant to any warrant, option or conversion privilege, regardless of any condition or restriction (which restrictions and conditions shall be disregarded) on the exercise of any such right, warrant, option or conversion privilege, or (z) the right to receive, or any interest in, the economic benefits of ownership of such capital stock or security, regardless of any condition or restriction (which restrictions and conditions shall be disregarded) on the right to receive, purchase or acquire any such interest. In addition, any person or entity shall be deemed to be the beneficial owner of a share of the capital stock or security whether such share is registered in such person's or entity's name or is held by any bank, broker, dealer or nominee for the account of such person, or would otherwise be deemed owned by such person pursuant to the attribution rules sat forth in ss.382 of the Internal Revenue Code of 1986, as amended, and the rules 16 and regulations promulgated thereunder, as such statute, rules and regulations shall have been in effect as of May 16, 1989 and February 23, 1990 or shall be in effect from time to time and as construed and enforced by the United States Department of the Treasury or the United States Internal Revenue Service. TENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of ss.291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of ss.279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation. ELEVENTH: From time to time any of the provisions of this Restated Certificate or Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at that time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Restated Certificate of Incorporation are granted subject to the provisions of said laws; however, the provisions of Articles FIFTH, SIXTH, SEVENTH and NINTH (but, in the case of Article NINTH, subject to the authority granted to the Board of Directors pursuant to Paragraphs (3), (5), (6) and (7) of Article NINTH), and the provisions of this Article ELEVENTH may not be amended, altered or repealed without the affirmative vote of the holders of record of two-thirds (2/3rds) of the outstanding Common Stock of the Corporation entitled to vote and voting separately as a class. TWELFTH: The Corporation shall, to the full extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time, indemnify all persons 17 whom it has the power to indemnify pursuant thereto. THIRTEENTH: No director of the Corporation shall have personal liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not eliminate or limit the liability of any director (1) for any breach of such director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under ss.174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit. * * * IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this Restated Certificate of Incorporation to be signed by its officers thereunto duly authorized as of the 22nd day of February, 1990. UNITED STATES LINES, INC. By: /s/ Hobart G. Truesdell II ------------------------------ Hobart G. Truesdell II President Attest: /s/ Daniel M. Conaton - --------------------------- Daniel M. Conaton Secretary State of Delaware Office of the Secretary of State PAGE 1 -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RETIREMENT OF "JANUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY OF MAY, A.D. 1995, AT 12:20 O'CLOCK P.M. [SECRETARY OF STATE OF DELAWARE SEAL] /s/ Edward J. Freel ------------------- Edward J. Freel, Secretary of State 0642316 8100 AUTHENTICATION: 8419546 971119933 DATE: 04-14-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 12:20 PM O5/23/1995 950113826 - 642316 CERTIFICATE OF RETIREMENT JANUS INDUSTRIES, INC. JANUS INDUSTRIES, INC., a corporation organized and existing under The General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Janus Industries, Inc. a resolution was duly adopted which identified shares of the capital stock of said corporation, which, to the extent hereinafter set forth, had the status of retired shares, and which retired shares had capital applied in connection with their acquisition. SECOND: The shares of capital stock of the corporation, which are retired, are identified as being 1,800 shares of Preferred Stock, par value $0.01 per share, Series A. THIRD: That the Restated Certificate of Incorporation of the corporation prohibits the reissue of the shares of Preferred Stock, Series A when so retired and provides that such shares shall revert to authorized but unissued Preferred Stock, par value $0.01 per share undesignated as to series and subject to reissuance as shares of any one or more series; and pursuant to the provisions of Section 243 of the General Corporation Law of the State of Delaware, upon the effective date of the filing of this certificate as therein provided the Restated Certificate of Incorporation of said corporation shall be amended so as to effect a reduction in the authorized number of shares of the Preferred Stock, Series A to the extent of 1,800 shares, being the total number of shares retired. IN WITNESS WHEREOF, said Janus Industries, Inc. has caused this certificate to be signed by Vincent W. Hatala, Jr., its President and attested by Anthony J. Pacchia, its Secretary, this 15 day of May, 1995. JANUS INDUSTRIES, INC. ATTEST: By: /s/ Vincent W. Hatala, Jr. -------------------------- President /s/ Anthony J. Pacchia ------------------ Secretary State of Delaware Office of the Secretary of State PAGE 1 -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "JANUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE TWENTY-FIRST DAY OF JULY, A.D. 1995, AT 12:30 O'CLOCK P.M. [SECRETARY OF STATE OF DELAWARE SEAL] /s/ Edward J. Freel ------------------- Edward J. Freel, Secretary of State 0642316 8100 AUTHENTICATION: 8419547 971119933 DATE: 04-14-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 12:30 PM O7/21/1995 950163768 - 642316 CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF JANUS INDUSTRIES, INC. Janus Industries, Inc., a corporation organized and existing under and by virtue of Section 242 of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: 1. On June 22, 1995, resolutions were duly adopted by the Board of Directors of the Corporation setting forth proposed amendments of the Restated Certificate of Incorporation of the Corporation filed on February 23, 1990 with the Delaware Department of State (the "Restated Certificate"), declaring said amendments to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof pursuant to Section 222 of the General Corporation Law of the State of Delaware. 2. At a special meeting of the stockholders of the Corporation held on July 12, 1995, resolutions to amend the Restated Certificate were proposed and duly adopted by a sufficient number of shares entitled to vote as required by Delaware law. The resolutions setting forth the proposed amendments are as follows: "RESOLVED, that the Corporation's Restated Certificate of Incorporation shall be amended as follows: (i) Article FOURTH, paragraph (3), is amended and restated in its entirety as follows: "(3) Except as may be expressly provided in resolutions adopted by the Board of Directors of the Corporation pursuant to Paragraph (4) of this Article FOURTH with respect to the Preferred Stock, the holders of the Common Stock shall have the exclusive right to vote for the election of directors and, except as otherwise may be required by law, on all other matters requiring action by the stockholders or law, on all other matters requiring action by the stockholders or submitted to the stockholders for action. Each holder of a share of the Common Stock shall be entitled to one vote for each share of the Common Stock standing in his name on the books of the Corporation." (ii) Article FOURTH, Division A, Designations, Preferences and Rights of Preferred Stock Series, paragraph (5)(d) is amended so that the first sentence thereof provides as follows: "(d) In the event that the Corporation shall effect any payment in respect of the Redemption Price of the Series A shares, the amount to be paid on account of each whole Series A share shall be determined by dividing the amount of such payment by the number of outstanding Series A shares". (iii) Article FIFTH is amended and restated in its entirety as follows: "FIFTH: (1) The Board of Directors of the Corporation shall consist of such number of directors as is determined pursuant to the by-laws of the corporation fixed from time to time by a vote of the majority of the directors then in office (such number is hereafter, "the authorized number"). "(2) The Board of Directors shall consist of three classes: Class A, Class B and Class C. The number of directors in each class (each of which classes shall have not less than one director) shall consist as nearly as may be possible, of one-third of the authorized number of directors. "(3) At the first annual meeting of stockholders following the adoption of this Article FIFTH as amended, Class A directors shall be elected for a one-year term, Class B directors for a two-year term and Class C directors for a three-year term. At each succeeding annual meeting of stockholders, successors to the class of Directors whose term expires at that annual meeting shall be elected for a three-year term. Notwithstanding the foregoing, in the event that, as a result of any change in the authorized number of directors, the number of directors in any class would differ from the number allocated to that class pursuant to Paragraph (2) of this Article FIFTH immediately prior to such change, the following rules shall apply: "(i) Each director shall nevertheless continue as a director of the class of which he is a member until the earlier of the expiration of his current term or his earlier death, resignation or removal; "(ii) At each subsequent election of directors, if the number of directors in the class whose term of office then expires is less than the number then allowed to that class, the number of directors then elected for membership in that class shall not be greater than the number of directors in that class whose term of office then expires, unless and to the extent that the aggregate number of directors then elected plus the number of directors in all classes then duly continuing in office does not exceed the then authorized number of directors of the Corporation; "(iii) At each subsequent election of directors, if the number of directors in the class whose term of office then expires exceeds the number then allocated to that class, the Board of Directors shall designate one or more of the directorships then being elected as directorships of another class or classes in which the number of directors then serving is less than the number then allocated to such other class or classes; "(iv) In the event of the death, resignation or removal of any director who is a member of a class in which the number of directors serving immediately preceding the creation of such vacancy exceeds the number then allocated to that class, the Board of Directors shall designate the vacancy thus created as a vacancy in another class in which the number of directors then serving is less than the number then allocated to such other class; (v) In the event of any increase in the authorized number of directors, the new directorships resulting from such increase shall be apportioned by the Board of Directors to such class or classes as shall, so far as possible, bring the composition of each of the classes into conformity with the provisions of Paragraph (2) of this Article FIFTH, as such provisions apply to the number of directors authorized immediately following such increase; and (vi) Designations of directorships or vacancies into other classes and apportionments of newly created directorships to classes by the Board of Directors under clauses (iii), (iv) and (v) of this Paragraph (3) shall, so far as possible, be effected so that the class whose term of office is due to expire next following such designation or apportionment shall contain the full number of directors then allocated to such class. "(4) Notwithstanding the provisions of this Article FIFTH, each director shall serve until his successor is elected and qualified or until his death, resignation or removal. No director may be removed at any time prior to his death or resignation or the expiration of his term of office without the affirmative vote of the holders of two-thirds (2/3rds) of the outstanding shares of the Common Stock of the Corporation entitled to vote and voting separately as a class. "(5) Elections of directors need not be by ballot unless the by-laws of the Corporation so provide." (iv) Article SIXTH is amended and restated in its entirety as follows: "SIXTH: No action shall be taken by the stockholder of the Corporation except at an annual or special meeting of stockholders; provided that the stockholders may act by written consent when express provision is made therefor in this Restated Certificate of Incorporation." 3. The following votes were cast in connection with each of the aforementioned amendments: (i) 4,730,212.233 votes in favor 2,520.362 votes against 1,048.016 votes abstained (ii) 2,198.505 votes in favor 0 votes against 0 votes abstained (iii) 4,730,212.233 votes in favor 3,466.197 votes against 1,022.024 votes abstained (iv) 4,730,212.233 votes in favor 1,348.521 votes against 1,023.653 votes abstained 4. The amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by Vincent W. Hatala, Jr., its President this 20 day of July, 1995. JANUS INDUSTRIES, INC. /s/ Vincent W. Hatala, Jr. ---------------------- Vincent W. Hatala, Jr., President PAGE 1 State of Delaware Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RETIREMENT OF "JANUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE TWENTY-FOURTH DAY OF DECEMBER, A.D. 1996, AT 9 O'CLOCK A.M. /s/ Edward J. Freel [SEAL] -------------------------------------- Edward J. Freel, Secretary of State 0642316 8100 AUTHENTICATION: 8419548 971119933 DATE: 04-14-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 12/24/1996 960383709 - 0642316 CERTIFICATE OF RETIREMENT JANUS INDUSTRIES, INC. JANUS INDUSTRIES, INC., a corporation organized and existing under The General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Janus Industries, Inc., a resolution was duly adopted which identified shares of the capital stock of said corporation, which, to the extent hereinafter set forth, had the status of retired shares, and which retired shares had capital applied in connection with their acquisition. SECOND: The shares of capital stock of the corporation, which are retired, are identified as being 2,200 shares of Preferred Stock, par value $0.01 per share, Series A. THIRD: That the Restated Certificate of Incorporation of the corporation prohibits the reissue of the shares of Preferred Stock, Series A when so retired and provides that such shares shall revert to authorized but unissued Preferred Stock, par value $0.01 per share undesignated as to series and subject to reissuance as shares of any one or more series; and pursuant to the provisions of Section 243 of the General Corporation Law of the State of Delaware, upon the effective date of the filing of this certificate as therein provided the Restated Certificate of Incorporation of said corporation shall be amended so as to effect a reduction in the authorized number of shares of the Preferred Stock, Series A to the extent of 2,200 shares, being the total remaining authorized number of shares of the Preferred Stock, Series A. Accordingly, all references in the Restated Certificate of Incorporation to the Preferred Stock, Series A shall be deemed eliminated. IN WITNESS WHEREOF, said Janus Industries, Inc. has caused this certificate to be signed by James E. Bishop its President and Chief Executive Officer and attested by Vincent W. Hatala, Jr., its Assistant Secretary, this 16 day of December, 1996. JANUS INDUSTRIES, INC. By: /s/ James E. Bishop --------------------------------------------- Name: James E. Bishop Title: President and Chief Executive Officer ATTEST: /s/ Vincent W. Hatala, Jr. - -------------------------- Vincent W. Hatala, Jr. Assistant Secretary PAGE 1 State of Delaware Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "JANUS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE FOURTEENTH DAY OF APRIL, A.D. 1997, AT 9 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. /s/ Edward J. Freel [SEAL] -------------------------------------- Edward J. Freel, Secretary of State 0642316 8100 AUTHENTICATION: 8418873 971119742 DATE: 04-14-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 4/14/1997 971119742 - 0642316 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE SERIES B PREFERRED STOCK OF JANUS INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware, Janus Industries, Inc., a Delaware corporation (the "Corporation") certifies that, pursuant to the authority contained in paragraph (4) of Article FOURTH of its Restated Certificate of Incorporation, as amended, and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, its Board of Directors has adopted the following resolution creating a series of its Preferred Stock, par value $.01 per share, designated as the "Preferred Stock, par value $0.01 per share, Series B": RESOLVED, that in accordance with the provisions of paragraph (4) of Article FOURTH of the Corporation's Restated Certificate of Incorporation, as amended, the Board of Directors of the Corporation hereby provides for the issuance of a series of Preferred Stock of the Corporation, known as Series B, having the following designations, preferences and rights: Designations, Preferences and Rights of Preferred Stock, Series B (1) Designation of Series. The series of Preferred Stock, par value $0.01 per share, shall be designated and known as the "Preferred Stock, par value $0.01 per share, Series B" (hereinafter referred to as the "Series B"). The Series B is designated pursuant to the provisions of Paragraph (4) of Article FOURTH of the Restated Certificate of Incorporation of the Corporation, as amended, and any amendment of the terms of the Series B shall be effective without the necessity of any vote of the stockholders of the Corporation of any class or series other than the Series B. (2) Number of Shares. The number of shares in the Series B shall be 12,000 shares. Shares of the Series B redeemed, purchased or otherwise acquired by the Corporation shall be canceled and shall revert to authorized but unissued Preferred Stock, par value $0.01 per share undesignated as to series and subject to reissuance by the Corporation as shares of the Preferred Stock, par value $0.01 per share, of any one or more series. The Corporation shall be authorized to issue certificates for fractional shares. (3) Dividends. (a) Each holder of a share of the Series B shall be entitled to receive out of the assets of the Corporation legally available for the payment of dividends, as and when declared by the Board of Directors of the Corporation, cash dividends at an annual rate (the "Dividend Rate") equal to 7.5% of the Redemption Price (as defined in and adjusted pursuant to Paragraph (5)(d)) of a Series B share, and no more, during the period from and including the date such share is issued (or is deemed to have been issued) and payable, in arrears (calculated on the basis of a 360 day year), on the last day of each March, June, September and December (or the next following business day if such day is a Saturday, Sunday or legal holiday on which banks are authorized by law to close in the state of the Corporation's executive office) (each such date being herein referred to as a "Dividend Payment Date") in each year to holders of record on the March 15, June 15, September 15 or December 15 immediately preceding the Dividend Payment Date; the first such Dividend Payment Date to be June 30, 1997. Dividends shall cumulate on a daily basis during the periods ending with each Dividend Payment Date and whether or not declared. (b) If at any time the Corporation shall pay less than the total amount of dividends then payable on the shares of the Series B, the aggregate payment to all holders of shares of the Series B shall be distributed among such holders so that an equal amount shall be paid with respect to each outstanding share of the Series B. (4) Voting Rights. The holders of shares of the Series B shall have no voting rights with respect to any matter presented to or voted upon by the stockholders of the Corporation (including without limitation any election or removal of directors of the Corporation), except as otherwise may be required by law. However, if accrued and unpaid dividends on the Series B have accumulated in an amount equal to the sum of four quarterly dividends on the Series B (a "Series B Voting Event"), then the holders of the Series B shall be entitled to 0.01 of a vote for each whole share of the Series B upon all matters presented to the stockholders; and, except as otherwise may be required by law entitling the holders of the Series B to vote as a class, the holders of the Common Stock and the holders of Series B (together with the holders of any other shares of the Preferred Stock of any class designated by the Board of Directors of the Corporation, or designated by the express terms of such Preferred Stock, to vote together as one class with the holders of the Common Stock) shall vote together as one class on all matters. Upon the occurrence of a Series B Voting Event, the special voting rights provided in the preceding sentence shall continue unless and until such accumulated and unpaid dividends on the Series B are paid or declared so that accrued and unpaid dividends in arrears on the Series B are in an amount less than an amount equal to the sum of four quarterly dividends on the Series B, from and after which time (a "Series B Voting Termination Event") the holders of the Series B shall be divested of the special voting rights provided in this Paragraph (4). 2 (5) Redemption Payments. (a) The "Redemption Price" per share of the Series B shall be $1000.00 (subject to reduction as hereinafter provided). (b) After December 31, 1998, the Corporation may, from time to time in whole or in part, redeem shares of the Series B by making payments in respect of the Redemption Price. Redemption payments shall be accompanied by the payment of all accumulated and unpaid dividends on the amount being paid. (c) Upon payment to any holder of a Series B share of the remaining Redemption Price with respect to any Series B share, such Series B share shall be deemed to have been redeemed and shall automatically be canceled. The Corporation may, at its option, upon notice to the holders of Series B shares, impose as a condition of their entitlement to the final payment of the remaining Redemption Price of their shares the requirement that they surrender their certificates representing their Series B shares to the Corporation; however, the payment to the holder of any Series B share of the full Redemption Price with respect to a Series B share, shall, as provided by the immediately preceding sentence, automatically effect the redemption and cancellation of the share regardless of whether the Corporation shall have required the surrender of the certificate therefor in order for the holder of the share to receive payment of the remaining Redemption Price. (d) In the event that the Corporation shall make a partial redemption of the Series B, the payments shall be distributed pro rata to the holders of the Series B shares based upon the number of shares held by each such holder. Simultaneously with the delivery to a paying agent (if one is designated by the Corporation for the purpose of affecting any payment in respect of the Redemption Price) of the amount to be paid in respect of the Redemption Price of the Series B shares, the Corporation shall deliver to such paying agent a list, as of the close of business on the record date for determining holders of the Series B entitled to receive redemption payments, of the holders of record of the Series B shares for use by such paying agent in making payments on account of the Redemption Price of shares, and the Corporation shall mail notice thereof to the holder of the Series B shares at their last addresses as they appear on the records of the Corporation. Such notice shall specify the amount per whole share to be paid to holders of the Series B shares, and the remaining unpaid Redemption Price of such shares after reflecting such payments. The Corporation shall maintain a record of the redemption made with respect to each Series B share and the remaining unpaid Redemption Price of each Series B share, and each transferee of the Series B share shall be deemed to have notice of, and shall take such share subject to, the payment of such amounts. 3 (6) Liquidation, Dissolution and Winding-Up. (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation resulting in the distribution of any of its assets to its stockholders, or of any reduction of its capital stock resulting in the distribution of any of its assets to its stockholders, each holder of a share of the Series B shall be entitled, before any distribution or payment is made upon any Junior Security, to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to the remaining Redemption Price with respect to such share of the Series B plus any accumulated and unpaid dividends. After payment to a holder of a Series B share of the amount as aforesaid, such holder of a Series B share as such shall have no right or claim to any of the remaining assets of the Corporation. (b) The merger or consolidation of the Corporation into or with any other corporation or the merger of any other corporation into the Corporation, or the lease or conveyance of all or substantially all of the property or business of the Corporation, shall not be deemed to be a dissolution, liquidation or a winding-up of the Corporation. (7) Restrictions on Dividends, Distributions and Redemptions. So long as any shares of the Series B shall be outstanding, and without the prior written consent or approval of the holders of more than two-thirds (2/3rds) of the then outstanding shares of the Series B, no dividends or other distributions (other than dividends or distributions payable exclusively in shares of the Common Stock or any Junior Security or in rights, options or warrants to acquire shares of the Common Stock or any Junior Security), whether in cash or property, shall be paid or declared on the Common Stock or on any Junior Security, nor shall any shares of the Common Stock or any Junior Security be redeemed, purchased or otherwise acquired for value by the Corporation or any Subsidiary; provided, however, the Corporation may pay cash dividends on the Common Stock or any other Junior Security without the written consent or approval of the holders of the then outstanding shares of the Series B if the dividends thereon provided for under Paragraph (3) are current and not in arrears. (8) Additional Preferred Stock. The Corporation may authorize, create or issue from time to time additional shares of the Preferred Stock of any class or series to the full extent permitted by Article FOURTH of the Restated Certificate of Incorporation of the Corporation, as amended (as the Restated Certificate of Incorporation may be further amended from time to time), provided, however, such shares shall not be deemed to rank senior or pari passu to the Series B shares with respect to any rights, powers or preferences, including without limitation as to dividends, redemption and distributions upon liquidation, dissolution or winding up of the Corporation, without the prior written consent or approval of the holders of more than two-thirds (2/3rds) of the then outstanding shares of the Series B. 4 (9) Definitions. For purposes hereof, the following terms shall have the following meanings: (a) "Common Stock" shall mean the authorized Common Stock of the Corporation on the date of issuance of the shares of the Series B. (b) "Junior Security" shall mean the Common Stock and any other equity security of the Corporation, unless the holders of more than two-thirds (2/3rds) of the then outstanding shares of the Series B have consented in writing to or otherwise approved, the designation of such equity security as senior or pari passu to the Series B. (c) "Subsidiary" shall mean any corporation of which more than 50% of the outstanding stock have ordinary voting power to elect a majority of the board of directors of such corporation, irrespective of whether at the time stock of any other class or classes of stock of such corporation shall have or might have voting power by reason of the happening of any contingency, is, at the time as of which any determination is made, owned directly or indirectly by the Corporation. and it is further RESOLVED, the proper officers of the Corporation are hereby authorized, empowered and directed to take all such further action and to execute, deliver, certify and file all instruments and documents in the name of and on behalf of this Corporation as such officers executing same shall approve as necessary or advisable to effectuate and accomplish the purpose of the foregoing resolution and the transactions contemplated thereby, the taking of such action and the execution, delivery, certification and filing of such documents to be conclusive evidence of such approval. IN WITNESS WHEREOF, said Janus Industries, Inc. has caused this Certificate to be duly executed by its President and Chief Executive Officer and attested to by its Assistant Secretary this 8th day of April, 1997. Attest: JANUS INDUSTRIES, INC. By: /s/ Vincent W. Hatala, Jr. By: /s/ James E. Bishop ---------------------------- ---------------------------- Name: Vincent W. Hatala, Jr. Name: James E. Bishop Title: Assistant Secretary Title: President and Chief Executive Officer 5 State of Delaware PAGE 1 Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF MERGER, WHICH MERGES: "ENVOY INNS OF AMERICA, INC.", A DELAWARE CORPORATION, WITH AND INTO "JANUS INDUSTRIES, INC." UNDER THE NAME OF "JANUS INDUSTRIES, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-FOURTH DAY OF APRIL, A.D. 1997, AT 12:10 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. /s/ Edward J. Freel [SEAL] -------------------------------------- Edward J. Freel, Secretary of State 0642316 8100M AUTHENTICATION: 8435065 971132897 DATE: 04-24-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 12:10 PM 4/24/1997 971132897 - 0642316 CERTIFICATE OF MERGER OF ENVOY INNS OF AMERICA, INC. a Delaware corporation INTO JANUS INDUSTRIES, INC. a Delaware corporation - -------------------------------------------------------------------------------- Under Section 251 of the Delaware General Corporation Law - -------------------------------------------------------------------------------- Pursuant to the provisions of Section 251 of the Delaware General Corporation Law, the undersigned does hereby certify: FIRST: The name and state of incorporation of each of the constituent corporations is ENVOY INNS OF AMERICA, INC. ("Envoy"), a Delaware corporation and JANUS INDUSTRIES, INC. ("Janus"), a Delaware corporation. SECOND: Pursuant to an Agreement and Plan of Merger dated as of April 23, 1997 (the "Merger Agreement"), Envoy shall be merged with and into Janus (the "Merger"). THIRD: The Merger Agreement has been adopted, approved, certified, executed and acknowledged by Envoy and Janus in accordance with Section 251 of the Delaware General Corporation Law. FOURTH: Envoy shall be merged into Janus and Janus shall be the "Surviving Corporation." FIFTH: The name of the Surviving Corporation shall be "JANUS INDUSTRIES, INC." and the certificate of incorporation of Janus shall be the certificate of incorporation of the Surviving Corporation. SIXTH: The Merger Agreement is on file at the principal place of business of Janus which is located at 2300 Corporate Boulevard, N.W., Boca Raton, Florida 33431. FIFTH: A copy of the Merger Agreement will be furnished by Janus on request and without cost to any stockholder of any constituent corporation. EIGHTH: The merger shall be effective as of the date of filing this Certificate of Merger. IN WITNESS WHEREOF, each of the corporations hereto has caused this Certificate of Merger to be executed on its behalf this 23rd day of April, 1997. ENVOY INNS OF AMERICA, INC. an Delaware corporation By: /s/ Louis S. Beck ------------------------ Name: Louis S. Beck Title: President JANUS INDUSTRIES, INC. a Delaware corporation By: /s/ James E. Bishop ------------------------ Name: James E. Bishop Title: President and Chief Executive Officer 2 PAGE 1 State of Delaware Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF MERGER, WHICH MERGES: "BECK GROUP MANAGEMENT CORP.", A OHIO CORPORATION, WITH AND INTO "JANUS INDUSTRIES, INC." UNDER THE NAME OF "JANUS INDUSTRIES, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-FOURTH DAY OF APRIL, A.D. 1997, AT 12:12 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. /s/ Edward J. Freel [SEAL] -------------------------------------- Edward J. Freel, Secretary of State 0642316 8100M AUTHENTICATION: 8435075 971132918 DATE: 04-24-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 12:12 PM 4/24/1997 971132918 - 0642316 CERTIFICATE OF MERGER OF BECK GROUP MANAGEMENT CORP. an Ohio corporation INTO JANUS INDUSTRIES, INC. a Delaware corporation - -------------------------------------------------------------------------------- Under Section 252 of the Delaware General Corporation Law - -------------------------------------------------------------------------------- Pursuant to the provisions of Section 252 of the Delaware General Corporation Law, the undersigned does hereby certify: FIRST: The name and state of incorporation of each of the constituent corporations is BECK GROUP MANAGEMENT CORP. ("Beck Group"), an Ohio corporation and JANUS INDUSTRIES, INC. ("Janus"), a Delaware corporation. SECOND: Pursuant to an Agreement and Plan of Merger dated as of April 23, 1997 (the "Merger Agreement"), Beck Group shall be merged with and into Janus (the "Merger"). THIRD: The Merger Agreement has been adopted, approved, certified, executed and acknowledged by Beck Group and Janus in accordance with Section 252(c) of the Delaware General Corporation Law and sets forth that: (A) Beck Group shall be merged into Janus and Janus shall be the "Surviving Corporation." (B) The name of the Surviving Corporation shall be "JANUS INDUSTRIES, INC." and the certificate of incorporation of Janus shall be the certificate of incorporation of the Surviving Corporation. (C) Janus shall assume all assets and liabilities of Beck Group. (D) As of the date of the filing of this Certificate of Merger (the "Effective Date"), by virtue of the Merger and without any action on the part of Janus or Beck Group, all Beck Group common stock shall be canceled and shall cease to be outstanding. 2 FOURTH: The Merger Agreement is on file at the principal place of business of Janus which is located at 2300 Corporate Boulevard, N.W., Boca Raton, Florida 33431. FIFTH: A copy of the Merger Agreement will be furnished by Janus on request and without cost to any stockholder of any constituent corporation. SIXTH: The authorized capital stock of Beck Group consists of one series of common stock totaling 200 shares without par value. The designation and number of issued and outstanding shares or stock of Beck Group are: Number of Shares Issued and Outstanding Designation of Shares --------------- --------------------- 200 Common Stock The number of shares of Beck Group entitled to vote on the plan of merger is 200 shares of Common Stock and all of such shares were voted in favor of the Merger. SEVENTH: The authorized capital stock of Janus is twenty million (20,000,000) shares, divided into two classes consisting of fifteen million (15,000,000) shares of Common Stock, $.O1 par value per share, and five million (5,000,000) shares of Preferred Stock, $.0l par value per share. By virtue of the applicability of Section 251(f) of the Delaware General Corporation Law and the satisfaction of all the conditions of the first sentence of Section 251(f), including but not limited to (a) the certificate of incorporation of Janus does not require the vote of the stockholders of Janus to authorize a merger, (b) the Merger Agreement does not amend the certificate of incorporation of Janus, (c) each share of stock of Janus outstanding immediately prior to the Effective Date will be an identical outstanding share of Janus after the Effective Date, and (d) the authorized unissued shares or the treasury shares of common stock of Janus to be issued or delivered under the Merger Agreement plus those initially issuable upon conversion of any other shares, securities or obligations to be issued under the Merger Agreement do not exceed 20% of the shares of common stock of Janus outstanding immediately prior to the effective date of the Merger, no vote of the stockholders of Janus is necessary to authorize the Merger pursuant to this Certificate of Merger. EIGHTH: The Merger shall be effective as of the date of filing this Certificate of Merger. 2 IN WITNESS WHEREOF, each of the corporations hereto has caused this Certificate of Merger to be executed on its behalf this 23rd day of April, 1997. BECK GROUP MANAGEMENT CORP. an Ohio corporation By: /s/ Louis S. Beck ------------------------ Name: Louis S. Beck Title: President JANUS INDUSTRIES, INC. a Delaware corporation By: /s/ James E. Bishop ------------------------ Name: James E. Bishop Title: President and Chief Executive Officer 3 EX-3.2 3 BY-LAWS ================================================================================ BY-LAWS OF JANUS INDUSTRIES, INC. As amended through April 24, 1997 ================================================================================ TABLE OF CONTENTS Page ---- Article I - Stockholders .....................................................1 Section 1.01. Annual Meetings ............................................1 Section 1.02. Special Meetings ...........................................1 Section 1.03. Notice of Meetings .........................................1 Section 1.04. Quorum .....................................................1 Section 1.05. Adjournment ................................................1 Section 1.06. Organization ...............................................2 Section 1.07. Voting .....................................................2 Section 1.08. Stockholders List ..........................................2 Section 1.09. Addresses of Stockholders...................................2 Section 1.10. Inspectors of Election .....................................2 Article II - Board of Directors ..............................................3 Section 2.01. General Powers .............................................3 Section 2.02. Number, Qualification and Term of Office ...................3 Section 2.03. Quorum and Manner of Action ................................3 Section 2.04. Place of Meeting, Etc. ....................................3 Section 2.05. Regular Meetings ...........................................4 Section 2.06. Special Meetings ...........................................4 Section 2.07. Action by Consent ..........................................4 Section 2.08. Organization ...............................................4 Section 2.09. Resignations ...............................................4 Section 2.10. Removal of Directors .......................................4 Section 2.11. Vacancies ..................................................4 Section 2.12. Compensation of Directors...................................5 Section 2.13. Committees .................................................5 Section 2.14. Participation in Meetings ..................................5 Article III - Officers .......................................................5 Section 3.01. Number .....................................................5 Section 3.02. Election, Term of Office and Qualifications ................6 Section 3.03. Subordinate Officers .......................................6 Section 3.04. Removal ....................................................6 Section 3.05. Resignations ...............................................6 Section 3.06. Vacancies ..................................................6 Section 3.07. Chairman of the Board ......................................6 Section 3.08. President ..................................................6 Section 3.09. Vice Presidents ............................................7 Section 3.10. Secretary ..................................................7 Section 3.11. Assistant Secretaries ......................................7 Section 3.12. Treasurer ..................................................7 Section 3.13. Assistant Treasurers .......................................8 Article IV - Contracts, Checks, Drafts, Bank Accounts, Etc. .................8 Section 4.01. Contracts, Etc., How Executed ..............................8 Section 4.02. Checks, Drafts, Etc. ......................................8 Section 4.03. Deposits ...................................................8 Section 4.04. General and Special Bank Accounts ..........................8 Section 4.05. Proxies ....................................................9 Article V - Shares and Their Transfer ........................................9 Section 5.01. Certificates of Stock ......................................9 Section 5.02. Transfer of Stock ..........................................9 Section 5.03. Lost, Destroyed and Mutilated Certificates ................10 Section 5.04. Transfer Agent and Registrar: Regulations .................10 Section 5.05. Fixing Date for Determination of Stockholders of Record ..................................10 Article VI - Seal ...........................................................11 Section 6.01. General ...................................................11 Article VII - Miscellaneous Provisions ......................................11 Section 7.01. Fiscal Year ...............................................11 Section 7.02. Waivers of Notice .........................................11 Section 7.03. Qualifying in Foreign Jurisdictions .......................11 Section 7.04. Indemnification ...........................................11 Article VIII - Amendments ...................................................11 Section 8.01. General ...................................................11 -2- BY-LAWS OF JANUS INDUSTRIES, INC.(1) ARTICLE I Stockholders 1.01. Annual Meetings. Subject to change by resolution of the Board of Directors, the annual meeting of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other business as may be brought before the meeting shall be held on the fourth Tuesday in April of each year, if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday. The meeting may be held at such time and such place within or without the State of Delaware as shall be fixed by the Board of Directors and stated in the notice of the meeting. 1.02. Special Meetings. Special meetings of the stockholders may be called at any time by the Board of Directors or the Chairman of the Board. Special meetings shall be held on the date and at the time and place either within or without the State of Delaware as specified in the notice thereof. 1.03. Notice of Meetings. Except as otherwise expressly required by law or the Certificate of Incorporation of the Corporation, written notice stating the place and time of the meeting and, in the case of a special meeting, the purpose or purposes of such meeting, shall be given by the Secretary to each stockholder entitled to vote thereat at his address as it appears on the records of the Corporation not less than ten nor more than sixty days prior to the meeting. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy; and if any stockholder shall, in person or by attorney thereunto duly authorized, waive notice of any meeting, in writing or by telegraph, cable or wireless, whether before or after such meeting be held, the notice thereof need not be given to him. The attendance of any stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Notice of any adjourned meeting of stockholders need not be given except as provided in Section 5 of this Article I. 1.04. Quorum. Subject to the provisions of law in respect of the vote that shall be required for a specific action, the number of shares the holders of which shall be present or represented by proxy at any meeting of stockholders in order to constitute a quorum for the transaction of any business shall be at least fifty percent of all the shares issued and outstanding and entitled to vote at such meeting. 1.05. Adjournment. At any meeting of stockholders, whether or not there shall be a quorum present, the holders of a majority of shares voting at the meeting, whether present in person at the meeting or represented by proxy at the meeting, may adjourn the meeting from time to time. Except as provided by law, notice of such adjourned meeting need not be given otherwise than by announcement of the time and place of such adjourned meeting at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. - -------- (1) As adopted pursuant to the First Amended and Restated Plan of Reorganization of the Corporation (formerly known as United States Lines, Inc.) and Certain Affiliated Debtors confirmed on May 16, 1989 and February 6, 1990 by the United States Bankruptcy Court for the Southern District of New York and subsequently amended. 1.06. Organization. The Chairman of the Board or, in his absence or non-election, the President or, in the absence of both the foregoing officers, a Vice President shall call meetings of the stockholders to order and shall act as Chairman of such meetings. In the absence of the Chairman of the Board, the holders of a majority in number of the shares of the capital stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall elect a Chairman, who may be the Secretary of the Corporation. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders; but in the absence of the Secretary, the Chairman may appoint any person to act as secretary of the meeting. 1.07. Voting. Each stockholder shall, except as otherwise provided by law or by the Certificate of Incorporation, at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of capital stock entitled to vote held by such stockholder, but no proxy shall be voted on after three years from its date, unless said proxy provides for a longer period. Upon the demand of any stockholder, the vote for directors and the vote upon any matter before the meeting shall be by ballot. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, all elections for directors shall be decided by plurality vote; all other matters shall be decided by a majority of the votes cast thereon. 1.08. Stockholders List. A complete list of the stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order with the address of each and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole thereof and may be inspected by any stockholder who is present. 1.09. Addresses of Stockholders. Each stockholder shall designate to the Secretary of the Corporation an address at which notices of meetings and all other corporate notices may be served upon or mailed to him, and if any stockholder shall fail to designate such address, corporate notices may be served upon him by mail directed to him at his last known post office address. 1.10. Inspectors of Election. The Board of Directors may at any time appoint one or more persons to serve as Inspectors of Election at the next succeeding annual meeting of stockholders or at any other meeting or meetings and the Board of Directors may at any time fill any vacancy in the office of Inspector. If the Board of Directors fails to appoint Inspectors, or if any Inspector appointed be absent or refuse to act, or if his office becomes vacant and be not filled by the Board of Directors, the Chairman of any meeting of the stockholders may appoint one or more temporary Inspectors for such meeting. All proxies shall be filed with the Inspectors of Election of the meeting before being voted upon. -2- ARTICLE II Board of Directors 2.01. General Powers. The property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors. 2.02. Number, Qualification and Term of Office. (a) The number of directors shall be such as the Board of Directors may by resolution direct consistent with the provisions of the Restated Certificate of Incorporation of the Corporation. Directors need not be stockholders. Each director shall hold office for the term for which he is appointed or elected and until his successor shall have been elected and shall qualify, or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Directors need not be elected by ballot, except upon demand of any stockholder. The Chairman of the Board, if one be elected, shall be chosen from among the directors. (b) Any stockholder desiring to nominate a person as a Director of the Corporation shall cause the proposed nomination to be received at the Corporation's principal executive offices (i) no later than February 1, 1997, in the case of a person to be proposed as a nominee for election at the 1997 annual meeting of stockholders and (ii) no later than 120 days in advance of the anniversary of the date of the Corporation's proxy statement released to stockholders in connection with the previous year's annual meeting, in the case of a person to be proposed as a nominee for election at the 1998 annual meeting of stockholders and thereafter. Any Director nominee proposal, as a condition for consideration by the Board of Directors, shall be accompanied by (i) a statement signed by the proposed nominee that he consents to be nominated and agrees to serve if elected as a Director and (ii) biographical information about the proposed nominee that would be required to be disclosed by the Corporation in filings made with the United States Securities and Exchange Commission in accordance with the rules and regulations under the Securities Exchange Act of 1934, as amended, whether or not the Corporation is subject to such reporting requirements. 2.03. Quorum and Manner of Action. No less than three members of the directors shall constitute a quorum which in no case shall be less than 1/3 of the total number of directors. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors unless the Restated and Amended Certificate of Incorporation of the Corporation shall require a vote of a greater number. 2.04. Place of Meeting, Etc. The Board of Directors may hold its meetings, have one or more offices and keep the books and records of the Corporation at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. -3- 2.05. Regular Meetings. A regular meeting of the Board of Directors shall be held for the election of officers and the transaction of other business as soon as practicable after each annual meeting of stockholders, and other regular meetings of said Board shall be held at such times and places as said Board shall direct. No notice shall be required for any regular meeting of the Board of Directors but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every director at least three days before the first meeting held in pursuance thereof. 2.06. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or any three Directors. The Secretary or any Assistant Secretary shall give notice of the time and place of each special meeting by mailing a written notice of the same to each director at his last known post office address at least two days before the meeting or by causing the same to be delivered personally or to be transmitted by telegraph, cable, wireless, telephone or orally at least twenty-four hours before the meeting to each director. 2.07. Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. 2.08. Organization. At each meeting of the Board of Directors, the Chairman of the Board or, in his absence or non-election, a director chosen by a majority of the directors present shall act as Chairman. The Secretary or, in his absence, an Assistant Secretary or, in the absence of both the Secretary and an Assistant Secretary, any person appointed by the Chairman shall act as secretary of the meeting. 2.09. Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 2.10. Removal of Directors. Except as otherwise provided by law or the Certificate of Incorporation and subject to the provisions thereof, any director may be removed, either with or without cause, at any time at an annual meeting or at a special meeting of the stockholders called for the purpose; and the vacancy in the Board caused by any such removal may be filled by the stockholders at such meeting or by the Board of Directors in the manner provided in Section 11 of this Article II. 2.11. Vacancies. Any vacancy in the Board of Directors caused by death, resignation, removal (whether or not for cause), disqualification, an increase in the number of directors or any other cause may be filled by the majority vote of the remaining directors of the Corporation at the next annual meeting, any regular meeting or any special meeting called for the purpose. Each director so elected shall hold office for the unexpired term or for such lesser term as may be designated and until his successor shall be duly elected and qualified, or until his death or until he shall resign or shall have been removed in the manner herein provided. In case all the directors shall die or resign or be removed or disqualified, any stockholder having voting powers may call a special meeting of the stockholders, upon notice given as herein provided for meetings of the stockholders, at which directors may be elected for the unexpired term. -4- 2.12. Compensation of Directors. Directors may receive such sums for their services and expenses as may be directed by resolution of the Board; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for their services and expenses. 2.13. Committees. By resolution or resolutions passed by a majority of the whole Board at any meeting of the Board of Directors, the directors may designate one or more committees, each committee to consist of three or more directors. To the extent provided in said resolution or resolutions, unless otherwise provided by law, such committee or committees shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, including the power and authority to authorize the seal of the Corporation to be affixed to all papers which may require it, to declare dividends and to authorize the issuance of shares of capital stock of the Corporation. A committee may make such rules for the conduct of its business and may appoint such committees and assistance as it shall from time to time deem necessary. Unless otherwise provided in resolutions of the Board of Directors creating the committee, a majority of the members of the committee shall constitute a quorum for the transaction of business of such committee. Regular meetings of a committee shall be held at such times as such committee shall from time to time by resolution determine. No notice shall be required for any regular meeting of a committee but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every member of such committee at least three days before the first meeting held in pursuance thereof. Special meetings of a committee may be called by the chairman of such committee or the secretary of such committee, or any two members thereof. The secretary of the Corporation or the secretary of such committee shall give notice of the time and place of each special meeting by mail at least two days before such meeting or by telegraph, telecopy, cable, wireless, telephone or orally at least twenty-four hours before the meeting to each member of such committee. 2.14. Participation in Meetings. Members of the Board of Directors or of any committee may participate in any meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. ARTICLE III Officers 3.01. Number. The officers of the Corporation shall be a Chairman of the Board, a President, a Treasurer and a Secretary. In addition, the Board may elect one or more Vice Presidents and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article III. Any number of offices may be held by the same person, except that the offices of President and Secretary may not be held by the same person. -5- 3.02. Election, Term of Office and Qualification. The officers shall be elected annually by the Board of Directors at their first meeting after each annual meeting of the stockholders of the Corporation. Each officer, except such officers as may be appointed in accordance with the provisions of Section 3 of this Article, shall hold office until his successor shall have been duly elected and qualified, or until his death or until he shall have resigned or shall have become disqualified or shall have been removed in the manner hereinafter provided. 3.03. Subordinate Officers. The Board of Directors or the President may from time to time appoint such other officers, including one or more Assistant Treasurers and one or more Assistant Secretaries, and such agents and employees of the Corporation as may be deemed necessary or desirable. Such officers, agents and employees shall hold office for such period and upon such terms and conditions, have such authority and perform such duties as in these By-laws provided or as the Board of Directors, the Chairman of the Board or the President may from time to time prescribe. The Board of Directors, the Chairman of the Board or the President may from time to time authorize any officer to appoint and remove agents and employees and to prescribe the powers and duties thereof. 3.04. Removal. Any officer may be removed, either with or without cause, by the vote of a majority of the whole Board of Directors or, except in case of any officer elected by the Board of Directors, by any committee or superior officer upon whom the power of removal may be conferred by the Board of Directors or by these By-laws. 3.05. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 3.06. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in these By-laws for regular election or appointment to such office. 3.07. Chairman of the Board. The Chairman of the Board shall preside, if present, at all meetings of the stockholders and at all meetings of the Board of Directors and he shall perform such other duties and have such other powers as from time to time may be assigned to him by the Board of Directors or prescribed by these By-laws. 3.08. President. The President shall be the chief operating officer of the Corporation and shall have general direction of the affairs of the Corporation and general supervision over its several officers, subject, however, to the control of the Board of Directors and the Chairman of the Board. The President may sign with the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary any or all certificates of stock of the Corporation, may sign and execute in the name of the Corporation all contracts or other instruments authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated or permitted by the Board or by these By-laws to some other officer or agent of the Corporation, and in general shall perform such duties and, subject the other provisions of these By-laws and to the control of the Board of Directors and the Chairman of the Board, have such powers incident to the office of President and perform such other duties and have such other powers as from time to time may be assigned to him by the Board of Directors or the Chairman of the Board or prescribed by these By-laws. -6- 3.09. Vice-Presidents. A Vice President may sign with the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary certificates of stock of the Corporation and shall have such other powers and shall perform such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board or the President or prescribed by these By-laws. 3.10. Secretary. The Secretary shall keep or cause to be kept, in books provided for the purpose, the minutes of the meetings of the stockholders, the Board of Directors and any committee when so required, shall see that all notices are duly given in accordance with the provisions of these By-laws and as required by law, shall be custodian of the records and the seal of the Corporation and see that the seal is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these By-laws, shall keep or cause to be kept a register of the post office address of each stockholder, may sign with the Chairman of the Board, the President or any Vice President certificates of stock of the Corporation, and in general shall perform such duties and have such powers incident to the office of Secretary and shall perform such other duties and have such other powers as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board or the President or prescribed by these By-laws. 3.11. Assistant Secretaries. Any Assistant Secretary shall, at the request of the Secretary or in his absence or disability, perform the duties of the Secretary and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Secretary and shall perform such other duties and have such other powers as from time to time may be assigned to him by the Chairman of the Board, the President, the Secretary or the Board of Directors or prescribed by these By-laws. 3.12. Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, and deposit all such funds in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of these By-laws, shall at all reasonable times exhibit his books of account and records, and cause to be exhibited the books of account and records of any corporation controlled by the Corporation to any of the directors of the Corporation upon application during business hours at the office of the Corporation, or such other corporation, where such books and records are kept, shall render a statement of the condition of the finances of the Corporation at all regular meetings of the Board of Directors and a full financial report at the annual meeting of the stockholders, shall, if called upon to do so, receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, may sign with the Chairman of the Board, the President or any Vice President certificates of stock of the Corporation, and in general shall perform such duties and have such powers incident to the office of Treasurer and such other duties and have such other powers as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board or the President or prescribed by these By-laws. -7- 3.13. Assistant Treasurer. Any Assistant Treasurer shall, at the request of the Treasurer or in his absence or disability, perform the duties of the Treasurer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Treasurer and shall perform such duties and have such other powers as from time to time may be assigned to him by the Chairman of the Board, the President, the Treasurer or the Board of Directors or prescribed by these By-laws. 3.14. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors. No officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE IV Contracts, Checks, Drafts, Bank Accounts, Etc. 4.01. Contracts, Etc., How Executed. Except as otherwise provided in these By-laws, the Board of Directors may authorize any officer or officers, employee or employees or agent or agents of the Corporation to enter into any contract or execute and deliver any instrument, on behalf and in the name of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors or by a committee appointed in accordance with the provisions of these By-laws or otherwise by these By-laws, no officer, employee or agent shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or render it liable pecuniarily for any purpose or amount. 4.02. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, employee or employees or agent or agents of the Corporation as shall from time to time be determined by resolution of the Board of Directors. 4.03. Deposits. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or committee appointed by the Board of Directors may designate from time to time or as may be designated from time to time by any officer or officers, employee or employees or agent or agents of the Corporation to whom such power may be delegated by the Board of Directors; and for the purpose of such deposit, any officer or officers, employee or employees or agent or agents of the Corporation as from time to time shall be determined by resolution of the Board of Directors or committee appointed by the Board of Directors may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. 4.04. General and Special Bank Accounts. The Board of Directors or committee appointed by the Board of Directors may authorize from time to time the opening and keeping with such banks, trust companies or other depositaries as it may designate of general and special bank accounts and may make such special rules and regulations with respect thereto, not inconsistent with the provisions of these By-laws, as it may deem expedient. -8- 4.05. Proxies. Except as otherwise provided in these By-laws or in the Certificate of Incorporation of the Corporation, and unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board may appoint from time to time an attorney or attorneys, or agent or agents, of the Corporation, on behalf and in the name of the Corporation, to cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing to any action by such other corporation, any may instruct the person or persons 60 appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf and in the name of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. ARTICLE V Shares and Their Transfer 5.01. Certification of Stock. Certificates for shares of the capital stock of the Corporation shall be in such form not inconsistent with law as shall be approved by the Board of Directors. They shall be numbered in order of their issue and shall be signed by the Chairman of the Board, the President or any Vice President and the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary of the Corporation, and the seal of the Corporation shall be affixed thereto. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed upon any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature shall have been used thereon had not ceased to be such officer or officers of the Corporation. 5.02. Transfer of Stock. Transfer of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by his attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary of the Corporation, or a transfer agent of the Corporation, if any, on surrender of the certificate or certificates for such shares properly endorsed. A person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware; provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the Secretary or to said transfer agent, shall be so expressed in the entry of transfer. -9- 5.03. Lost, Destroyed and Mutilated Certificates. The holder of any stock issued by the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor or the failure to receive a certificate of stock issued by the Corporation, and the Board of Directors or the Secretary of the Corporation may, in its or his discretion, cause to be issued to such holder a new certificate or certificates of stock, upon compliance with such rules, regulations and/or procedures as may be prescribed or have been prescribed by the Board of Directors with respect to the issuance of new certificates in lieu of such lost, destroyed or mutilated certificate or certificates of stock issued by the Corporation which are not received, including the posting with the Corporation of a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. 5.04. Transfer Agent and Registrar; Regulations. The Corporation shall, if and whenever the Board of Directors shall so determine, maintain one or more transfer offices or agencies, each in the charge of a transfer agent designated by the Board of Directors, where the shares of the capital stock of the Corporation shall be directly transferable, and also one or more registry offices, each in the charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered, and no certificate for shares of the capital stock of the Corporation, in respect of which a Registrar and/or Transfer Agent shall have been designated, shall be valid unless countersigned by such Transfer Agent and registered by such Registrar, if any. The Board of Directors shall also make such additional rules and regulation as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Corporation. 5.05. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, to express consent to corporate action in writing without a meeting, to receive payment of any dividend or other distribution or allotment of any rights, to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action, and only such stockholders as shall be stockholders of record of the date so fixed shall be entitled to such notice of and to vote at such meeting and any adjournment thereof, to express consent to any such corporate action, to receive payment of such dividend or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. If the stock transfer books are to be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting in the case of a merger or consolidation, the books shall be closed at least twenty days before such meeting. ARTICLE VI Seal 6.01. General. The Board of Directors shall provide a suitable seal containing the name of the Corporation, which seal shall be in the charge of the Secretary and which may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. If and when so directed by the Board of Directors, a duplicate of the seal may be kept and be used by an officer of the Corporation designated by the Board. -10- ARTICLE VII Miscellaneous Provisions 7.01. Fiscal Year. The fiscal year of the Corporation shall end on such date of each year as shall be determined by the Board of Directors of the Corporation. 7.02. Waivers of Notice. Whenever any notice of any nature is required by law, the provisions of the Certificate of Incorporation or these By-laws to be given, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 7.03. Qualifying in Foreign Jurisdiction. The Board of Directors shall have the power at any time and from time to time to take or cause to be taken any and all measures which they may deem necessary for qualification to do business as a foreign corporation in any one or more foreign jurisdictions and for withdrawal therefrom. 7.04. Indemnification. The Corporation shall, to the full extent permitted by the laws of the State of Delaware, as amended from time to time, indemnify all directors and officers whom it has the power to indemnify pursuant thereto. ARTICLE VIII Amendments 8.01. General. These By-laws shall be subject to amendment, alteration or repeal, and new By-laws not inconsistent with any provision of the Certificate of Incorporation of the Corporation or any provision of law, may be made, either by (i) the affirmative vote of the holders of record of a majority of the outstanding shares of the Common Stock of the Corporation entitled to vote in respect thereof, given at an annual meeting or at any special meeting, provided that notice of the proposed alteration or repeal or of the proposed new By-laws be included in the notice of such meeting, or (ii) the affirmative vote of a majority of the members of the Board of Directors at any regular or special meeting. -11- EX-5 4 EXHIBIT 5.1 June 24, 1997 Janus Industries, Inc. One Riverfront Plaza P.O. Box 200114 Newark, New Jersey 07102-0302 Gentlemen: You have requested our opinion with respect to the registration of the shares of common stock (the "Common Stock") of Janus Industries, Inc., a Delaware corporation (the "Company"), pursuant to a Registration Statement on Form 10-SB (the "Registration Statement") under the Securities and Exchange Act of 1934, as amended. We have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents and corporate and public records as we deem necessary as a basis for the opinion hereinafter expressed. With respect to such examination, we have assumed the genuineness of all signatures appearing on all documents presented to us as originals, and the conformity to the originals of all documents presented to us as conformed or reproduced copies. Where factual matters relevant to such opinion were not independently established, we have relied upon certificates of appropriate state and local officials, and upon certificates of executive officers and responsible employees and agents of the Company. Based upon the foregoing, it is our opinion that the Common Stock has been duly and validly issued, fully paid and nonassessable. We express no opinion, however, as to any matters relating to the filing, in 1986, of a petition for relief under Chapter 11 of the United States Bankruptcy Code by United States Line, Inc. (the name of which was subsequently changed to Janus Industries, Inc.), or the subsequent approval and adoption of a plan of reorganization in such proceeding. We have assumed that the approval and adoption of the plan of reorganization satisfied the requirements of applicable law. We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement. Very truly yours, /s/ Crummy, Del Deo, Dolan, Griffinger & Vecchione CRUMMY, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE A Professional Corporation EX-10.1 5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT dated as of April 4, 1997 by and between JANUS INDUSTRIES, INC., a Delaware corporation, with its principal offices located at One Riverfront Plaza, Newark, New Jersey 07102 (the "Company"), and JAMES BISHOP, with an address at 4 South Brookwood Drive, Montclair, New Jersey 07042 ("Employee"); R E C I T A L S: WHEREAS, the Company currently has had limited operations and is seeking potential acquisition candidates as contemplated by the Amended and Restated Plan of Reorganization (the "Plan") of United States Lines, Inc. ("US Lines") and United States Lines (S.A.), Inc., approved by the United States Bankruptcy Court for the Southern District of New York; and WHEREAS, the Company proposes to acquire certain hotel properties, hotel management contracts and certain other assets pursuant to certain transactions with Louis S. Beck, Harry Yeaggy and certain of their affiliates (the "Acquisition"); and WHEREAS, the Company desires to continue to employ Employee after the Acquisition and Employee is desirous of and wishes to continue such an employment arrangement, on the terms and conditions hereinafter set forth; NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation which, directly or indirectly, controls, is controlled by or is under common control with the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the Voting Stock of the corporation in question. 1.2 "Basic Salary" shall have the meaning assigned to that term in Section 6.1 of this Agreement. 1.3 "Board" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "Business" shall mean the business conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, the ownership and operation of hotel properties. 1.5 "Cause" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of the Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "Change of Control" shall mean: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, which becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (B) 33-1/3% of the Board of Directors consists of individuals other than the members of the Board of Directors on the date hereof (the "Incumbent Directors"); provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was approved by at least two-thirds of the directors who at the time of such election or nomination comprised the Incumbent Directors shall for purposes of this definition be considered an Incumbent Director; (C) the shareholders of the Company approve, or if no shareholder approval is required or obtained, the Company completes a merger, consolidation or similar transaction of the Company with or into any other corporation, or a binding share exchange involving the Company's securities occurs, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction; or 2 (D) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. A Change of Control shall not occur as a result of the Acquisition. 1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.8 "Commencement Date" shall be the day prior to the day of the consummation of the Acquisition. 1.9 "Confidential Information" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.10 "Date of Termination" shall mean the Term Date, or any date upon which this Agreement shall terminate pursuant to Section 8 hereof. 1.11 "Disability" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his substantive duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to the Employee or his agent. 1.12 "Duties" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.13 "Employment Year" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of the subsequent calendar year and each consecutive 12 month period thereafter. 3 1.14 "Good Reason" shall have the meaning given such term in Section 8.6. 1.15 "Normal Retirement Date" shall mean the month in which the Employee turns age 62 or such earlier date as the Employee may elect to retire under the retirement plan(s) of the Company without the consent of the Company. 1.16 "Panel" shall have the meaning given such terms in Section 9. 1.17 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.18 "Subsidiary" shall mean a corporation of which more than 50% of the Voting Stock is owned, directly or indirectly, by the Company, including, but not limited to JI Subsidiary, Inc. 1.19 "Term" shall mean the term of employment of Employee under this Agreement. 1.20 "Term Date" shall have the meaning assigned to that term in Section 3 of this Agreement. 1.21 "Voting Stock" shall mean capital stock of a corporation which gives the holder the right to vote in the election of directors for such corporation in the ordinary course of business and not as the result of, or contingent upon, the happening of any event. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 Employment; Title; Duties. The Company hereby employs Employee, and Employee hereby accepts appointment, as President of the Company. The duties of Employee shall be to have general supervisory authority over the business of the Company and its Subsidiaries, to prepare and implement a strategic plan for the Company, including the seeking out and consummation of acquisitions for the Company, to perform due diligence on acquisition proposals, to pursue the objectives of the Business, to perform generally those responsibilities assigned to him by the Board or the Chairman of the Board, and to render services as are necessary and desirable to protect and to advance the best interests of the Company and its Subsidiaries (collectively, the "Duties"), acting, in all instances, under the supervision of and in accordance with the policies set by the Board or the Chairman of the Board. 4 2.2 Performance of Duties. Employee shall devote substantially all his working time to perform the Duties as an executive of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the Board or the Chairman of the Board. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Subsidiaries, without the prior written consent of the Board or the Chairman of the Board, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Subsidiaries, without such written consent, which, in both instances, may be given or withheld by the Board in its absolute discretion. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement commenced as of the Commencement Date and shall end three years thereafter, unless sooner terminated pursuant to Section 8 (the "Term Date"). 4. TERMINATION OF EMPLOYMENT AGREEMENT Upon the Commencement Date, the Employment Agreement dated as of September 1, 1995 between the Company and Employee, shall terminate without further liability of the Company except any obligation to issue stock or stock options and except to pay amounts accrued and unpaid prior to the Commencement Date and except that the bonus due under Section 6.2 thereof with respect to the year ended December 31, 1997 will be paid pursuant to Section 6.2 of this Agreement with respect to the portion of that year prior to the Commencement Date. 5. COMPENSATION AND BENEFITS The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 6 and 7, inclusive, of this Agreement; provided, however, that no compensation shall be paid to Employee under this Agreement for any period subsequent to the termination of employment of Employee for any reason whatsoever, except as provided in Section 8. 6. BASIC SALARY/BONUS 6.1 Basic Salary. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $200,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5 6.2 Bonus. Employee will be awarded and, unless deferred by Employee, paid a cash bonus (the "Bonus") for each Employment Year within ninety days after the close of the fiscal year of the Company ending within such Employment Year in an amount determined in accordance with the Company's then-current bonus or incentive compensation plan in an amount appropriate for the President of the Company. The Committee in consultation with Employee shall establish in advance of each fiscal year of the Company during the Term goals and levels of the Bonus for such fiscal year which shall be related to the estimated budget for the Company for such fiscal year. 6.3 Equity Participation. The Company hereby grants to Employee a stock appreciation right in the form attached as Exhibit A hereto for 100,000 shares of common stock of the Company at an exercise price of $3.25 per share vesting as to 20,000 shares on the Commencement Date and as to 20,000 shares on each anniversary of the Commencement Date thereafter subject to earlier vesting as provided in Exhibit A. 7. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 7.1 Additional Benefits. The Company shall provide the following additional benefits to Employee during the Term: (i) an annual allowance of $2,000 on account of dental expenses incurred by Employee and his spouse and family against the presentation of bills for same; (ii) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to Employee and his family on the day prior to the Commencement Date and up to $2,000 in additional out-of-pocket medical payments; (iii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iv) fifteen working days of paid vacation; 6 (v) an annual payment of $10,000 for the purchase of an annuity for the Employee; such annual payment to be grossed up for income taxes thereon and, income taxes on such gross up in each case at Employee's highest marginal rate; (vi) term life insurance coverage in the amount of $1,000,000 to the extent the same is available at normal market rates; and (vii) long term disability insurance coverage to the extent customarily available from the insurance market place at normal commercial rates at the level of 60% of Employee's Basic Salary less payments from social security or other governmental programs, but to the extent such insurance coverage is less than 60% of Employee's Basic Salary less payments from social security and other governmental programs, the Company will pay such shortfall in the event of a Disability of Employee. 7.2 Reimbursement for Expenses. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any travel expenses in accordance with this Section 7.2. 7.3 Relocation. If Employee relocates his residence to the place of the principal office of the Company (located in northern New Jersey as of the Commencement Date) should it be moved more than 50 miles from his then current principal residence, then in the event of any such relocation of Employee the Company shall pay (or reimburse Employee for) all reasonable moving expenses incurred by Employee relating to a change of principal residence in connection with such relocation up to a maximum of $85,000. In connection with moving expenses incurred hereunder, the Company shall pay Employee such additional amounts respecting taxes imposed on such moving expenses and taxes on such taxes such that such moving expenses are received by Employee free of any income tax. Moving expenses for purposes hereof include real estate commissions, legal fees, and closing costs with respect to the sale of Employee's former residence, the cost of moving household goods and automobiles, three trips by Employee and his family to the new location, up to six months of temporary housing for Employee and his family and closing costs and legal fees connected with purchasing a new residence. In addition, the Company will extend a loan of up to $500,000 to Employee to purchase a new residence for a term ending the earlier of eighteen months from the date of the loan or six months after the sale of his residence in northern New Jersey; provided, however that Employee shall apply excess proceeds to such loan immediately after such sale to the extent such proceeds exceed amounts due on loans secured by mortgages on such former residence to the payment of the loan . The interest rate on the loan shall be at the lowest applicable federal rate and accrued interest shall be payable at maturity of the loan. The Company may secure the loan by a mortgage on Employee's new residence and by a subordinate mortgage on his old residence which will be discharged upon sale of such old residence and application of proceeds of sale as aforesaid. Employee shall provide the Company with information regarding the value of his residence and mortgage loans thereon. 7 8. TERMINATION OF EMPLOYMENT 8.1 Death. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death, provide welfare benefits to his family for the balance of the stated Term as if Employee had not died and provide for the payment of the life insurance benefit provided for in Section 7.1. 8.2 Disability. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of the termination of his employment and provide welfare benefits to his family for the balance of the stated Term, as if Employee had not been terminated for Disability and pay or provide for the payment of the disability benefit provided for in Section 7.1, until Employee reaches age 65. 8.3 Voluntary Termination. This Agreement may be terminated by Employee at any time with or without cause upon sixty (60) days prior written notice to the Company. After such sixty day period, the Company shall have no further liability to make payments hereunder except those required by law or which were accrued and unpaid at the end of the Term. 8.4 Termination for Cause. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. Upon such termination Employee shall not have any right to receive any further payments hereunder except for amounts accrued and unpaid hereunder prior thereto and provide welfare benefits as required by law and except as provided in Section 8.8. 8.5 Termination Without Cause. If this Agreement is terminated by the Company without Cause, Employee shall be entitled to a lump sum payment equal to $300,000 payable upon the Date of Termination and provide the benefits described in Section 7.1 (except clauses (iii) and (iv)) for the balance of the then stated Term as if this Agreement had not been terminated. 8.6. Termination for Good Reason. In the event this Agreement is terminated by Employee for Good Reason, Employee shall be entitled to a lump sum payment equal to $300,000 payable on the Date of Termination and provide for the benefits described in Section 7.1 (except clauses (iii), (iv) and (vii)c) for the balance of the then stated Term as if this Agreement had not been terminated. For purposes of this Agreement, Good Reason shall mean: 8 (a) (i) The assignment by the Company to Employee of duties which are materially different than those of the President of the Company as described in the by-laws of the Company as of the date of this Agreement, (ii) the removal of Employee from, or any failure to reappoint or reelect Employee to, the highest title held by Employee, except in connection with a termination of Employee's employment by the Company for Cause, or by reason of Employee's death or Disability, or (iii) the failure of Employee to be nominated or elected a director of the Company, except in connection with a termination of Employee's employment by the Company for Cause, or by reason of Employee's death or Disability; (b) A reduction or non-payment of Employee's Basic Salary or failure to review Employee's Basic Salary as required in this Agreement; (c) A breach by the Company of this Agreement which is not cured within thirty (30) days after written notice thereof to the Board by Employee; (d) Requiring Employee to be based anywhere other than the Company's then current principal executive offices except for required travel on the Company's business, or in the event of any relocation of Employee, the failure of the Company to comply with Section 7.3; (e) The failure by the Company to continue to provide Employee with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amend), any prerequisites, including participation on a comparable basis in retirement plans, stock option plans, stock award plans, and other plans in which executives of the Company of comparable title and salary participate, or with a package of welfare benefits and prerequisites, that, though one or more of such benefits or prerequisites may vary from those, including participation on a comparable basis in such retirement plans, stock option plans and stock award plans, is substantially comparable in all material respects to such welfare benefits and prerequisites, including participation on a comparable basis in the Company's retirement plans, stock option plans and stock award plans, taken as a whole; (f) The failure of the Company to award or pay Employee the Bonus as provided in this Agreement or the failure of the Company to provide Employee with the benefits provided for in Section 6.3 or 7 of this Agreement; (g) The failure of the Company to obtain the express written assumption of and agreement to perform this Agreement by any successor as contemplated in Section 14 hereof; or (h) A Change of Control shall occur. 8.7 Notice of Termination. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause, or by Employee for Good Reason shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by Employee or the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 9 8.8 Date of Termination. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a Dispute exists (a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be cancelled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in Section 8 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 9. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any Dispute or any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 9. Within seven (7) days of either party's written notice to the other of his or its desire to submit any Dispute or arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. 10 Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 10 of this Agreement. If the rules of the CPR differ from those of this Section 9, the provisions of this Section 9 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 10. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 10.1 Acknowledgment of Confidentiality. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within two years after the Date of Termination (the "Restricted Period"), (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. 11 The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 10). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 10.2 Delivery of Material. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company, its Subsidiaries and its Affiliates, and all property associated therewith, which he may then possess or have under his control. 11. SURVIVAL The provisions of Sections 8, 9, 10, 11 and 15 shall survive termination of this Agreement and remain enforceable according to their terms. 12. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 13. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company: Janus Industries, Inc. One Riverfront Plaza Newark, New Jersey 07102 Attn: Chairman of the Board with a copy to: Crummy, Del Deo, Dolan, Griffinger & Vecchione One Riverfront Plaza Newark, New Jersey 07102-5497 Attn: Frank E. Lawatsch, Jr. If to Employee: James Bishop 4 South Brookwood Drive Montclair, New Jersey 07042 12 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 14. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company, including, without limitation, to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment, without the written consent of Employee. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof and the Company shall require as a condition thereof that such corporation assume this Agreement in form and substance satisfactory to Employee. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 15. LIMITATION ON PAYMENTS In the event that any payment or benefit received or to be received by Employee in connection with the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) (collectively with the payments and benefits hereunder, "Total Payments") would not be deductible (in whole or part) as a result of section 280G of the Code by the Company, an affiliate or other person making such payment or providing such benefit, the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible, or the payments and benefits hereunder are reduced to zero. At Employee's request, such reduction may be effected by extending the date the payment would otherwise be due by not more than five years or by decreasing the amount of the payment or benefit otherwise due and payable. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by Employee and acceptable to the Company's independent auditors, is not likely to constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be reduced only to the extent necessary so that, in the opinion of the tax counsel referred to in clause (ii), the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety are likely to constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance as deductions; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. 13 16. ENTIRE AGREEMENT, WAIVER AND OTHER 16.1. Integration. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 16.2. No Waiver. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 17. MISCELLANEOUS 17.1 Governing Law. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. 14 17.2 Headings. The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 17.3 Severability. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 17.4 Obligations of Company. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 8.7 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 17.5 Rights of Beneficiaries of Employee. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. JANUS INDUSTRIES, INC. By:___________________________________ Name: Vincent Hatala Title: Chairman of the Board __________________________________ James Bishop 15 JANUS INDUSTRIES, INC. Stock Appreciation Right Terms and Conditions 1. Stock Appreciation Right. This Stock Appreciation Right ("SAR") is issued by Janus Industries, Inc. (the "Company"). The Committee of the Company as provided for in the Janus Industries, Inc. 1996 Stock Option Plan ("Plan") shall administer this SAR and its determinations regarding this SAR are final and binding. Capitalized terms used and not otherwise defined in this certificate have the meanings given to them in the Plan. 2. Exercisability Schedule. The SAR may be exercised at any time and from time to time and in accordance with the exercisability schedule set forth on the face of this certificate, provided, however, that the exercise of the SAR may not be made prior to six months after the date of grant of the SAR. The SAR shall be exercisable only to the extent the SAR has a positive value and may not be exercised after the Expiration Date. 3. Method of Exercise of the SAR. To exercise this SAR, the grantee shall deliver written notice of exercise to the Chairman of the Board of the Company specifying the number of shares with respect to which the SAR is being exercised. Promptly following such notice, the Company will deliver to the grantee the payment set forth herein. 4. SAR Payment. Upon tender of this SAR, the grantee shall be entitled to receive payment of an amount determined by multiplying the number of shares with respect to which the SAR is being exercised by the difference obtained by subtracting the exercise price per share of the SAR from the Fair Market Value of a share of Stock on the Date of Exercise of the SAR (the "Payment"). The Payment shall be made in cash. 6. Rights as a Stockholder or Employee. The grantee shall not have any rights to continued employment by the Company or any Subsidiary by virtue of the grant of the SAR and grantee shall not have any rights as a stockholder of the Company by virtue of being a holder of the SAR. 7. Recapitalization, Mergers, Etc. In the event of certain corporate transactions affecting the Company's outstanding Common Stock, the Committee shall equitably adjust the number and kind of shares subject to the SAR and the exercise price of the SAR. If such transaction involves a consolidation or merger of the Company with another entity, the sale or exchange of all or substantially all of the assets of the Company or a reorganization or liquidation of the Company, then in lieu of the foregoing, the Committee may upon written notice to the grantee provide that the SAR shall terminate on a date not less than 20 days after the date of such notice unless theretofore exercised. In connection with such notice, the Committee may in its discretion accelerate or waive any deferred exercise period. 8. SAR Not Transferable. The SAR is not transferable by the grantee otherwise than by will or the laws of descent and distribution, and is exercisable, during the grantee's lifetime, only by the grantee. Any attempted assignment, transfer, pledge, hypothecation or other disposition shall be void and of no effect. 9. Acceleration of Vesting. The vesting of the SAR shall immediately accelerate upon the termination of the employment of grantee with the Company as a result of death or disability of grantee as provided for in the employment agreement by and between the Company and grantee (the "Employment Agreement"). The vesting of the SAR shall also immediately accelerate upon the termination of the employment of grantee with the Company for "Good Reason" by grantee or without "Cause" by the Company as defined and provided for in the Employment Agreement or upon the termination of the Employment Agreement for any reason (including, but not limited to, a failure to extend the Employment Agreement) other than termination for Cause as provided for in the Employment Agreement. 10. Payment of Taxes. The grantee shall pay to the Company, or make provision satisfactory to the Company for payment of, any taxes required by law to be withheld pursuant to the Payment. The Company and its Subsidiaries may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the grantee. 11. Governing Law. This SAR shall be construed and enforced in accordance with the laws of the State of Delaware (without regard to the legislative or judicial conflict of laws rules of any state), except to the extent superseded by federal law. SAR - 1 100,000 Stock Appreciation Rights JANUS INDUSTRIES, INC. Stock Appreciation Right Certificate Janus Industries, Inc. (the "Company"), a Delaware corporation, hereby grants to the person named below a Stock Appreciation Right ("SAR") with respect to the shares of Common Stock, par value $0.01 per share, of the Company exercisable on the following terms and conditions and those set forth on the reverse side of this certificate: Name of Grantee: James E. Bishop Address: South Brookwood Drive Montclair, NJ 07042 Social Security No.: ###-##-#### Number of SAR's: 100,000 Price: $3.25 Date of Grant: April , 1997 Exercisability Schedule Exercise Period --------------- Commencement Number of SAR's Date Expiration Date - --------------- ---- --------------- 20,000 April 23, 1997 April 23, 2003 20,000 April 23, 1998 April 23, 2004 20,000 April 23, 1999 April 23, 2005 20,000 April 23, 2000 April 23, 2006 20,000 April 23, 2001 April 23, 2007 By acceptance of this SAR, the grantee agrees to the terms and conditions hereof. JANUS INDUSTRIES, INC. Dated: April __, 1997 By:____________________________________ Name: Lucille Hart Brown Title: Chairman of the Compensation Committee ACCEPTED: __________________________ James E. Bishop EX-10.2 6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT dated as of January 1, 1997 by and between JANUS INDUSTRIES, INC., a Delaware corporation, with its principal offices located at 685 Liberty Avenue, P.O. Box 1551, Union, New Jersey 07083 (the "Company"), and VINCENT W. HATALA, JR., with an address at 419 Hory Street, Roselle, New Jersey 07203, ("Employee"); R E C I T A L S: WHEREAS, Employee has been employed by the Company as a senior officer since May 15, 1995 and is presently serving as Chairman of the Board of the Company; and WHEREAS, both the Company and the Employee wish to continue their employment relationship, on modified terms, as hereinafter set forth. NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation which, directly or indirectly, controls, is controlled by or is under common control with the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the Voting Stock of the corporation in question. 1.2 "Associates" shall have the meaning assigned to that term in Section 11.3 of this Agreement. 1.2 "Basic Salary" shall have the meaning assigned to that term in Section 6.1 of this Agreement. 1.3 "Board" shall mean the Board of Directors of the Company as duly constituted from time to time. 1.4 "Business" shall mean the business to be conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, the identification of acquisition candidates and the consummation of acquisition transactions. 1.5 "Cause" shall mean any of the following: (a) If Employee engages in (i) fraud, (ii) embezzlement, (iii) any other crime involving moral turpitude, or (iv) such conduct as results or as is likely to result in substantial damages to the reputation of the Company or a Subsidiary; or (b) The commission by Employee of a material breach of any of the provisions of this Agreement, on his part to be performed (including material breach of the representation and warranty of Section 10); or (c) The continuing willful failure of Employee to perform the duties of such Employee to the Company or a Subsidiary (other than any such failure resulting from Employee's incapacity due to Disability) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board; or (d) If Employee declines to follow any significant instruction formally adopted by the Board and formally communicated to Employee, and if Employee adheres to such persistent refusal or neglect to follow such instructions or policy. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. -2- 1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.7 "Commencement Date" shall be January 1, 1997. 1.8 "Confidential Information" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.9 "Date of Termination" shall mean the Term Date or the successive Term Date, as applicable, or any date upon which this Agreement shall terminate pursuant to Section 9 hereof. 1.10 "Disability" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by appropriate medical experts selected by the Board. -3- 1.11 "Duties" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.12 "Employment Year" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of any subsequent calendar year, the first such subsequent Employment Year being the twelve-month period which will begin on the first anniversary of the Commencement Date. 1.13 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.14 "Subsidiary" shall mean a corporation of which more than 50% of the Voting Stock is owned, directly or indirectly, by the Company. 1.15 "Term" shall mean the term of employment of Employee under this Agreement. 1.16 "Term Date" shall have the meaning assigned to that term in Section 3 of this Agreement. 1.17 "Voting Stock" shall mean capital stock of a corporation which gives the holder the right to vote in the election of directors for such corporation in the ordinary course of business and not as the result of, or contingent upon, the happening of any event. -4- Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 Employment; Title; Duties. The Company hereby employs Employee, and Employee hereby accepts appointment, as Chairman of the Board of the Company. The duties of Employee shall be to pursue the objectives of the Business in cooperation with the Company's President and Chief Executive Officer, to perform generally those responsibilities typical of a chairman of the board and to render services as are necessary and desirable to protect and to advance the best interests of the Company and its Subsidiaries (collectively, the "Duties"), acting, in all instances, in accordance with the policies set by the Board. Without further compensation, Employee shall attend meetings of the Board and committees of the Board, as applicable, and serve as an officer and/or director of any Subsidiary; provided, however, if other senior executives of the Company are paid director's fees for service as a director, Employee will be paid such fees on a consistent basis. 2.2 Performance of Duties. Employee shall devote such time as is reasonably necessary to perform the Duties as Chairman of the Board of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the Board and agrees to make himself available at least 500 hours on an annualized basis. During the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company and its Subsidiaries, without the prior written consent of the Board, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company and its Subsidiaries, without such written consent, which, in both instances, may be given or withheld by the Board in its absolute discretion. -5- 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement commenced as of the Commencement Date and shall end one year thereafter (the "Term Date"), unless sooner terminated pursuant to Section 9. 4. [Intentionally Omitted] 5. COMPENSATION AND BENEFITS The Company and/or its Subsidiaries shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 6 and 7, inclusive, of this Agreement; provided, however, that no compensation shall be paid to the Employee under this Agreement for any period subsequent to the termination of employment of the Employee for any reason whatsoever. 6. BASIC SALARY/BONUS 6.1 Basic Salary. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $75,000 per Employment Year (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company or a Subsidiary to Employee and such other deductions or amounts, if any, as are authorized by Employee. -6- 6.2 Bonus. At the discretion of the Board, the Company may pay Employee a cash bonus in the event that during the Term the Company successfully carries out the objectives of the Business and the Employee's services are determined as having contributed to same. 7. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 7.1 Additional Benefits. The Company shall provide the following additional benefits to Employee during the Term: (i) participation by Employee in a stock award and stock option plan for senior management of the Company on a basis determined by the committee of the Board administering the Company's stock award and stock option plans, if any; (ii) an annual allowance of $2,000 on account of dental expenses incurred by Employee and his spouse against the presentation of bills for same; (iii) reimbursement for all premium payments made by Employee to Blue Cross and Blue Shield of New York (or another health insurance company) for health insurance benefits and up to $2,000 in additional out-of-pocket medical payments; and (iv) such other benefits as the Board shall lawfully adopt and approve. 7.2 Reimbursement for Expenses. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any travel expenses in accordance with this Section 7.2. -7- 8. [Intentionally Omitted] 9. TERMINATION OF EMPLOYMENT 9.1 Death. If Employee dies during the Term, the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death. 9.2 Disability. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of the termination of his employment. 9.3 Voluntary Termination. The Agreement may be terminated by Employee at any time without Cause upon sixty (60) days prior written notice to the Company. 9.4 Termination for Cause. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. 10. REPRESENTATION AND WARRANTY BY EMPLOYEE Employee hereby represents and warrants to the Company, the same being part of the essence of this Agreement that, as of the Commencement Date, he is not a party to any agreement, contract or understanding, and that no facts or circumstances exist, which would in any way restrict or prohibit him in any material way from undertaking or performing any of his obligations under this Agreement. The foregoing representation and warranty shall remain in effect throughout the Term. -8- 11. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 11.1 Acknowledgment of Confidentiality. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not, either during the Term or at any time within one year after the Date of Termination, (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 11). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 11.2 Delivery of Material. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company and the Affiliates, and all property associated therewith, which he may then possess or have under his control. -9- 12. SURVIVAL The provisions of Sections 8, 9.1 and 9.2 and this Section 12 shall survive termination of this Agreement and remain enforceable according to their terms. 13. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 14. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company: Janus Industries, Inc. 685 Liberty Avenue P.O. Box 1551 Union, New Jersey 07083 Attn: James E. Bishop, President and Chief Executive Officer If to Employee: Vincent W. Hatala, Jr. 419 Hory Street Roselle, New Jersey 07203 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. -10- 15. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company, including, without limitation, to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the time of such assignment, without the consent of Employee. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 16. LIMITATION OF LIABILITY; INDEMNIFICATION 16.1 Limitation of Liability. Employee shall not be liable to the Company or to any creditor, creditor's committee, director, officer, employee, affiliate, stockholder, consultant or subcontractor, of the Company or to any Person controlling the Company for any cost, damage, expense or loss, including without limitation any special, indirect, consequential or punitive damages, of the Company or any such creditor, creditor's committee, officer, director, employee, stockholder, affiliate, consultant, subcontractor or controlling Person alleging arising out of (i) Employee's performance, failure to perform or misperformance under this Agreement, or (ii) the Company's or such creditor's, creditor's committees', officer's director's, employee's, stockholder's, affiliate's, consultant's, subcontractor's or controlling Person's reliance on any Duties or advice that Employee may provide to pursuant to this Agreement. 16.2. Indemnification. The Company shall indemnify and hold harmless Employee against any damage, loss, cost or expense (including court costs and reasonable attorneys' fees) which Employee may sustain or incur by reason of any claim, demand, suit or recovery by any Person arising in connection with this Agreement or out of Employee's performance of obligations under this Agreement, provided, however, that no such indemnification shall extend to any claims to the extent that such claims arise out of the gross negligence or willful misconduct of Employee. -11- 16.3. Procedure. If a claim is made against Employee as to which Employee may seek indemnity against the Company under this Section 16, Employee shall notify the Company promptly after any written assertion of such claim threatening to institute an action or proceeding with respect thereto and shall notify the Company promptly of any action commenced against Employee within a reasonable time after Employee shall have been served with a summons or other first legal process giving information as to the nature and basis of the claim. Failure so to notify shall not, however, relieve the Company from any liability which it may have on account of the indemnity under this Section 16. Employee shall be entitled to participate at its own expense in the defense of any such litigation or proceeding, if it so elects, provided that such defense shall be conducted by counsel chosen by Employee and reasonably satisfactory to the Company. Notwithstanding anything to the contrary herein, if the resolution of any claim for which Employee is indemnified hereunder will or is reasonably expected to have a direct and significant adverse effect on Employee's business operations or reputation then Employee shall be entitled to control such resolution, including without limitation to take control of the defense and investigation of such lawsuit or act, to employ and engage attorneys of its own choice to handle and defend the same, and to compromise and settle such claims, at the Company's cost, risk and expense. 17. ENTIRE AGREEMENT, WAIVER AND OTHER 17.1. Integration. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. -12- 17.2. No Waiver. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 18. GOVERNING LAW This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New Jersey. -13- 19. HEADINGS The Section and Subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. JANUS INDUSTRIES, INC. By:_____________________________ Name: James E. Bishop Title: President and Chief Executive Officer ________________________________ Vincent W. Hatala, Jr. -14- EX-10.3 7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT dated as of April 24, 1997 by and between JANUS INDUSTRIES, INC., a Delaware corporation, with its principal offices located at One Riverfront Plaza, Newark, New Jersey 07102 (the "Company"), and LOUIS S. BECK, with an address at 2300 Corporate Blvd., N.W., Suite 232 Boca Raton, Florida 33431-8596 ("Employee"); RECITALS: WHEREAS, the Company wishes to employ Employee as a senior officer; and WHEREAS, the Employee wishes to be employed by the Company pursuant to the terms as hereinafter set forth. NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation which, directly or indirectly, controls, is controlled by or is under common control with the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the Voting Stock of the corporation in question. 1.2 "Basic Salary" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "Board" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "Business" shall mean the business to be conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, the ownership and operation of hotel properties. 1.5 "Cause" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended and the rules, regulations and interpretations issued thereunder. 1.7 "Commencement Date" shall be April 24, 1997. 1.8 "Confidential Information" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.9 "Date of Termination" shall mean the Term Date or any date upon which this Agreement shall terminate pursuant to Section 7 hereof. 2 1.10 "Disability" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to Employee or his agent. 1.11 "Duties" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.12 "Employment Year" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of any subsequent calendar year and each consecutive 12 month period thereafter. 1.13 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.14 "Subsidiary" shall mean a corporation of which more than 50% of the Voting Stock is owned, directly or indirectly, by the Company. 1.15 "Term" shall mean the term of employment of Employee under this Agreement. 1.16 "Term Date" shall have the meaning assigned to that term in Section 3 of this Agreement. 1.17 "Voting Stock" shall mean capital stock of a corporation which gives the holder the right to vote in the election of directors for such corporation in the ordinary course of business and not as the result of, or contingent upon, the happening of any event. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 3 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 Employment; Title; Duties. The Company hereby employs Employee, and Employee hereby accepts appointment, as Chairman of the Board of the Company. The duties of Employee shall be to pursue the objectives of the Business, to perform generally those responsibilities typical of a chairman of the board and to render services as are necessary and desirable to protect and to advance the best interests of the Company and its Subsidiaries (collectively, the "Duties"), acting, in all instances, in accordance with the policies set by the Board. Without further compensation, Employee shall attend meetings of the Board and committees of the Board, as applicable, and serve as an officer and/or director of any Subsidiary. 2.2 Performance of Duties. Employee shall devote such time as in his reasonable discretion he believes necessary to perform the Duties as Chairman of the Board of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the Board. The Company acknowledges that Employee is (i) currently the owner of the other business ventures (conducted through corporations, general partnerships, limited partnerships, limited liability companies and otherwise) that are engaged in the same business as the Company, and (ii) serving as an officer, director or partner of such businesses. The Company further acknowledges that in certain instances such businesses may be considered to be in competition with the business of the Company. The Company agrees that Employee may continue to engage in such business ventures as such ventures are presently conducted or as reorganized or recapitalized. Employee agrees that he shall not engage in any business that competes with the business of the Company other than those presently engaged in as described above without the prior written consent of the Board which may be given or withheld by the Board in its absolute discretion. During the Term, Employee shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement commenced as of the Commencement Date and shall end three years thereafter, unless sooner terminated pursuant to Section 7 (the "Term Date"). 4. COMPENSATION AND BENEFITS The Company and/or its Subsidiaries shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term and the Restricted Period, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to the Employee under this Agreement for any period subsequent to the termination of employment of the Employee for any reason whatsoever, except as provided in Section 7. 4 5. BASIC SALARY/BONUS 5.1 Basic Salary. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $275,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company or a Subsidiary to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 Bonus. At the discretion of the Board, the Company may pay Employee a cash bonus in the event that during the Term the Company successfully carries out the objectives of the Business and the Employee's services are determined as having contributed to same. The bonus shall be established by the Committee based on goals established in advance for each fiscal year of the Company and shall be related to the estimated budget for the Company for such fiscal year. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 Additional Benefits. The Company shall provide such benefits as the Board shall lawfully adopt and approve. 6.2 Reimbursement for Expenses. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any travel expenses in accordance with this Section 6.2. 5 7. TERMINATION OF EMPLOYMENT 7.1 Death. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death. 7.2 Disability. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of termination of his employment. 7.3 Voluntary Termination. The Agreement may be terminated by Employee at any time with or without cause upon sixty (60) days prior written notice to the Company. 7.4 Termination for Cause. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. 7.5 Notice of Termination. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause shall be communicated by written Notice of Termination to Employee by the Company. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 7.6 Date of Termination. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, Employee notifies the Company that a Dispute exists (a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued 6 participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be cancelled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any Dispute or any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any Dispute or arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. 7 This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 Acknowledgment of Confidentiality. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not during the Term or at any time within two years after the Date of Termination (the "Restricted Period") (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 8 9.2 Delivery of Material. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company and the Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. SURVIVAL The provisions of Section 7, 8, 9, and this Section 10 shall survive termination of this Agreement and remain enforceable according to their terms. 11. SEVERABILITY The invalidity of unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 12. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company Janus Industries, Inc. One Riverfront Plaza Newark, New Jersey 07102 Attn: James E. Bishop, President If to Employee: Louis S. Beck 2300 Corporate Blvd., N.W. Suite 232 Boca Raton, Florida 33431-8596 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 9 13. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company, including, without limitation, to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the tie of such assignment, without the consent of Employee. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof and the Company shall require as a condition thereof that such corporation assume this Agreement in form and substance satisfactory to Employee. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 14. ENTIRE AGREEMENT, WAIVER AND OTHER 14.1 Integration. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 14.2 No Waiver. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing an signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 10 15. GOVERNING LAW 15.1 Miscellaneous. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of Florida. 15.2 Headings. The Section and Subsection heading contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 15.3 Severability. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 15.4 Obligations of Company. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.6 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 15.5 Rights of Beneficiaries of Employee. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. JANUS INDUSTRIES, INC. By:_________________________________________ Name: Lucille Hart Brown Title: Chairman of the Compensation Committee _______________________________________ Louis S. Beck 11 EX-10.4 8 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT dated as of April 24, 1997 by and between JANUS INDUSTRIES, INC., a Delaware corporation, with its principal offices located at One Riverfront Plaza, Newark, New Jersey 07102 (the "Company"), and HARRY G. YEAGGY, with an address at 8534 East Kemper Road, Cincinnati, Ohio 45249 ("Employee"); RECITALS: WHEREAS, the Company wishes to employ Employee as a senior officer; and WHEREAS, the Employee wishes to be employed by the Company pursuant to the terms as hereinafter set forth. NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation which, directly or indirectly, controls, is controlled by or is under common control with the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the Voting Stock of the corporation in question. 1.2 "Basic Salary" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "Board" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "Business" shall mean the business to be conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, the ownership and operation of hotel properties. 1.5 "Cause" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended and the rules, regulations and interpretations issued thereunder. 1.7 "Commencement Date" shall be April 24, 1997. 1.8 "Confidential Information" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.9 "Date of Termination" shall mean the Term Date or any date upon which this Agreement shall terminate pursuant to Section 7 hereof. 2 1.10 "Disability" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to Employee or his agent. 1.11 "Duties" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.12 "Employment Year" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of any subsequent calendar year and each consecutive 12 month period thereafter. 1.13 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.14 "Subsidiary" shall mean a corporation of which more than 50% of the Voting Stock is owned, directly or indirectly, by the Company. 1.15 "Term" shall mean the term of employment of Employee under this Agreement. 1.16 "Term Date" shall have the meaning assigned to that term in Section 3 of this Agreement. 1.17 "Voting Stock" shall mean capital stock of a corporation which gives the holder the right to vote in the election of directors for such corporation in the ordinary course of business and not as the result of, or contingent upon, the happening of any event. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 3 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 Employment; Title; Duties. The Company hereby employs Employee, and Employee hereby accepts appointment, as Vice Chairman of the Company. The duties of Employee shall be to pursue the objectives of the Business, to perform generally those responsibilities typical of a vice chairman and to render services as are necessary and desirable to protect and to advance the best interests of the Company and its Subsidiaries (collectively, the "Duties"), acting, in all instances, in accordance with the policies set by the Board. Without further compensation, Employee shall attend meetings of the Board and committees of the Board, as applicable, and serve as an officer and/or director of any Subsidiary. 2.2 Performance of Duties. Employee shall devote such time as in his reasonable discretion he believes necessary to perform the Duties as Vice Chairman of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the Board. The Company acknowledges that Employee is (i) currently the owner of the other business ventures (conducted through corporations, general partnerships, limited partnerships, limited liability companies and otherwise) that are engaged in the same business as the Company, and (ii) serving as an officer, director or partner of such businesses. The Company further acknowledges that in certain instances such businesses may be considered to be in competition with the business of the Company. The Company agrees that Employee may continue to engage in such business ventures as such ventures are presently conducted or as reorganized or recapitalized. Employee agrees that he shall not engage in any business that competes with the business of the Company other than those presently engaged in as described above without the prior written consent of the Board which may be given or withheld by the Board in its absolute discretion. During the Term, Employee shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement commenced as of the Commencement Date and shall end three years thereafter, unless sooner terminated pursuant to Section 7 (the "Term Date"). 4. COMPENSATION AND BENEFITS The Company and/or its Subsidiaries shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term and the Restricted Period, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to the Employee under this Agreement for any period subsequent to the termination of employment of the Employee for any reason whatsoever, except as provided in Section 7. 4 5. BASIC SALARY/BONUS 5.1 Basic Salary. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $175,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company or a Subsidiary to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 Bonus. At the discretion of the Board, the Company may pay Employee a cash bonus in the event that during the Term the Company successfully carries out the objectives of the Business and the Employee's services are determined as having contributed to same. The bonus shall be established by the Committee based on goals established in advance for each fiscal year of the Company and shall be related to the estimated budget for the Company for such fiscal year. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 Additional Benefits. The Company shall provide such benefits as the Board shall lawfully adopt and approve. 6.2 Reimbursement for Expenses. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any travel expenses in accordance with this Section 6.2. 5 7. TERMINATION OF EMPLOYMENT 7.1 Death. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death. 7.2 Disability. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of termination of his employment. 7.3 Voluntary Termination. The Agreement may be terminated by Employee at any time with or without cause upon sixty (60) days prior written notice to the Company. 7.4 Termination for Cause. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. 7.5 Notice of Termination. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause shall be communicated by written Notice of Termination to Employee by the Company. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 6 7.6 Date of Termination. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, Employee notifies the Company that a Dispute exists (a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be cancelled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any Dispute or any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any Dispute or arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. 7 This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 Acknowledgment of Confidentiality. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not during the Term or at any time within two years after the Date of Termination (the "Restricted Period") (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 8 9.2 Delivery of Material. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company and the Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. SURVIVAL The provisions of Section 7, 8, 9, and this Section 10 shall survive termination of this Agreement and remain enforceable according to their terms. 11. SEVERABILITY The invalidity of unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 12. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company Janus Industries, Inc. One Riverfront Plaza Newark, New Jersey 07102 Attn: James E. Bishop, President If to Employee: Harry G. Yeaggy 8534 East Kemper Road Cincinnati, Ohio 45249 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 9 13. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company, including, without limitation, to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the tie of such assignment, without the consent of Employee. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof and the Company shall require as a condition thereof that such corporation assume this Agreement in form and substance satisfactory to Employee. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 14. ENTIRE AGREEMENT, WAIVER AND OTHER 14.1 Integration. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 14.2 No Waiver. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing an signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 10 15. GOVERNING LAW 15.1 Miscellaneous. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of Florida. 15.2 Headings. The Section and Subsection heading contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 15.3 Severability. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 15.4 Obligations of Company. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.6 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 15.5 Rights of Beneficiaries of Employee. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. JANUS INDUSTRIES, INC. By:________________________________________ Name: Louis S. Beck Title: Chairman of the Board ________________________________________ Harry G. Yeaggy 11 EX-10.5 9 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT dated as of April 24, 1997 by and between JANUS INDUSTRIES, INC., a Delaware corporation, with its principal offices located at One Riverfront Plaza, Newark, New Jersey 07102 (the "Company"), and MICHAEL NANOSKY, with an address at 20802 Sonrisa Way, Boca Raton, Florida 33431-8596 ("Employee"); RECITALS: WHEREAS, the Company wishes to employ Employee as a senior officer; and WHEREAS, the Employee wishes to be employed by the Company pursuant to the terms as hereinafter set forth. NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation which, directly or indirectly, controls, is controlled by or is under common control with the Company, and for purposes hereof, "control" shall mean the ownership of 20% or more of the Voting Stock of the corporation in question. 1.2 "Basic Salary" shall have the meaning assigned to that term in Section 5.1 of this Agreement. 1.3 "Board" shall mean the Board of Directors of the Company as duly constituted from time to time. Any action of the Board hereunder with respect to this Agreement shall require the approval of a majority of the whole Board of Directors of the Company. 1.4 "Business" shall mean the business to be conducted by the Company or any Subsidiary, directly or indirectly, including, but not limited to, the ownership and operation of hotel properties. 1.5 "Cause" shall mean any of the following: (a) The conviction of Employee for a felony, or the willful commission by Employee of a criminal act that in the reasonable judgment of the Board causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The willful commission by Employee of an act of fraud in the performance of such Employee's duties on behalf of the Company or a Subsidiary; or (c) The continuing willful failure of Employee to perform the substantive duties of Employee to the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. 1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended and the rules, regulations and interpretations issued thereunder. 1.7 "Commencement Date" shall be April 24, 1997. 1.8 "Confidential Information" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, possible acquisition information and other business affairs of the Company or its Affiliates, which (i) is or are designed to be used in, or are or may be useful in connection with, the Business of the Company, any Subsidiary or any Affiliate of any thereof, or which, in the case of any of these entities, results from any of the research or development activities of any such entity, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by Employee, or (iii) gives the Company or a Subsidiary or any Affiliate an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.9 "Date of Termination" shall mean the Term Date or any date upon which this Agreement shall terminate pursuant to Section 7 hereof. 2 1.10 "Disability" shall mean the inability of Employee to perform Employee's duties of employment for the Company, if employed by the Company or a Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company as hereinafter provided, because of physical or mental disability, where such disability shall have existed for a period of more than 90 consecutive days or an aggregate of 120 days in any 365 day period. The existence of a Disability means that Employee's mental and/or physical condition substantially interferes with Employee's performance of his duties for the Company and/or its Subsidiaries as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by professionally qualified medical experts selected by the Board and reasonably acceptable to Employee or his agent. 1.11 "Duties" shall have the meaning assigned to that term in Section 2.1 of this Agreement. 1.12 "Employment Year" shall mean each twelve-month period, or part thereof, during which Employee is employed hereunder, commencing on the Commencement Date and on the same day of any subsequent calendar year and each consecutive 12 month period thereafter. 1.13 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.14 "Subsidiary" shall mean a corporation of which more than 50% of the Voting Stock is owned, directly or indirectly, by the Company. 1.15 "Term" shall mean the term of employment of Employee under this Agreement. 1.16 "Term Date" shall have the meaning assigned to that term in Section 3 of this Agreement. 1.17 "Voting Stock" shall mean capital stock of a corporation which gives the holder the right to vote in the election of directors for such corporation in the ordinary course of business and not as the result of, or contingent upon, the happening of any event. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 3 2. EMPLOYMENT AND DUTIES OF EMPLOYEE 2.1 Employment; Title; Duties. The Company hereby employs Employee, and Employee hereby accepts appointment, as President-Hotel Operations of the Company. The duties of Employee shall be to pursue the objectives of the Business, to perform generally those responsibilities typical of a division president and to render services as are necessary and desirable to protect and to advance the best interests of the Company and its Subsidiaries (collectively, the "Duties"), acting, in all instances, in accordance with the policies set by the Board and the senior officers to whom he reports as designated by the Board (the "Designated Senior Officers"). Without further compensation, Employee shall attend meetings of the Board and committees of the Board, as applicable, and serve as an officer and/or director of any Subsidiary. 2.2 Performance of Duties. Employee shall devote such time as in his reasonable discretion he believes necessary to perform the Duties as President-Hotel Operations of the Company and for the performance of such other executive duties as are assigned to him from time-to-time by the Board or a Designated Senior Officer. The Company acknowledges that Employee is (i) currently the owner of the other business ventures (conducted through corporations, general partnerships, limited partnerships, limited liability companies and otherwise) that are engaged in the same business as the Company, and (ii) serving as an officer, director or partner of such businesses. The Company further acknowledges that in certain instances such businesses may be considered to be in competition with the business of the Company. The Company agrees that Employee may continue to engage in such business ventures as such ventures are presently conducted or as reorganized or recapitalized. Employee agrees that he shall not engage in any business that competes with the business of the Company other than those presently engaged in as described above without the prior written consent of the Board which may be given or withheld by the Board in its absolute discretion. During the Term, Employee shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business. 3. TERM OF EMPLOYMENT The employment of Employee pursuant to this Agreement commenced as of the Commencement Date and shall end three years thereafter, unless sooner terminated pursuant to Section 7 (the "Term Date"). 4. COMPENSATION AND BENEFITS The Company and/or its Subsidiaries shall pay Employee, as compensation for all of the services to be rendered by him hereunder during the Term and the Restricted Period, and in consideration of the various restrictions imposed upon Employee during the Term and the Restricted Period, and otherwise under this Agreement, the Basic Salary and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to the Employee under this Agreement for any period subsequent to the termination of employment of the Employee for any reason whatsoever, except as provided in Section 7. 4 5. BASIC SALARY/BONUS 5.1 Basic Salary. The Company shall pay Employee, as compensation for all of the services to be rendered by him hereunder during each Employment Year, a salary of $100,000 per Employment Year (as adjusted upward by the Board from time to time) (the "Basic Salary"), payable in substantially equal monthly payments, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for employee contributions to welfare benefits provided by the Company or a Subsidiary to Employee and such other deductions or amounts, if any, as are authorized by Employee. The Basic Salary shall be prorated for the month in which employment by the Company or a Subsidiary commences or terminates, and for any Employment Year which is less than twelve (12) months in duration. The Basic Salary may be increased from time-to-time by the Board (without Employee's participation as a director) and, once increased, shall not thereafter be reduced. The Basic Salary shall be reviewed at least once in every Employment Year by a committee of the Board responsible for determining compensation of senior management of the Company, each of the members of which is a "non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Committee"). Any increase in Basic Salary shall not serve to offset or reduce any other obligation to Employee under this Agreement. 5.2 Bonus. At the discretion of the Board, the Company may pay Employee a cash bonus of up to $100,000 for each Employment Year in the event that during the Term the Company successfully carries out the objectives of the Business and the Employee's services are determined as having contributed to same. The bonus shall be established by the Committee on the recommendation of the Chairman of the Board based on goals established in advance for each fiscal year of the Company and shall be related to the estimated budget for the Company for such fiscal year related to the Company's hotel properties and operations. 6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES 6.1 Additional Benefits. The Company shall provide the following additional benefits to Employee during the Term: 5 (i) provision of a comprehensive medical indemnity policy for Employee and his family having terms no less favorable than the coverage made available to Employee and his family on the day prior to the Commencement Date; (ii) such other benefits as the Board shall lawfully adopt and approve for Employee; (iii) fifteen (15) working days of paid vacation; and (iv) life insurance coverage in the amount of $480,000 and long term disability insurance coverage, each in accordance with the split dollar insurance program in effect for Employee on the Commencement Date and provided by the employer of Employee on the day prior to the Commencement Date. 6.2 Reimbursement for Expenses. The Company shall pay or reimburse Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. In the event the Company requires Employee to travel on business during the Term, Employee shall be reimbursed for any travel expenses in accordance with this Section 6.2. 7. TERMINATION OF EMPLOYMENT 7.1 Death. If Employee dies during the Term, this Agreement shall terminate, except that the Company shall continue to pay to Employee's spouse, or in the absence of a surviving spouse, his estate, Employee's Basic Salary for a period through the third full month following the date of death. 7.2 Disability. If, during the Term, Employee has a Disability, the Company may, at any time after Employee has a Disability, terminate Employee's employment by written notice to him. In the event that Employee's employment is terminated, this Agreement shall terminate except that the Company shall continue to pay Employee's Basic Salary for a period through the third full month following the date of termination of his employment. 7.3 Voluntary Termination. The Agreement may be terminated by Employee at any time with or without cause upon sixty (60) days prior written notice to the Company. 7.4 Termination for Cause. The Company may terminate Employee's employment hereunder for Cause at any time by written notice given to Employee by the Board. 6 7.5 Notice of Termination. Any purported termination of employment by the Company by reason of Employee's Disability or for Cause shall be communicated by written Notice of Termination to Employee by the Company. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the Company, which shall indicate the specific basis for termination of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. 7.6 Date of Termination. For purposes of this Agreement, "Date of Termination" shall mean the date of termination of employment specified in the Notice of Termination, which shall not be more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the following two sentences. If within thirty (30) days after any Notice of Termination is given, Employee notifies the Company that a Dispute exists (a "Notice of Dispute"), the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, by the Panel, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a Notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company shall continue to pay Employee the same Basic Salary and to provide Employee with the same or substantially comparable welfare benefits and prerequisites, including participation in the Company's retirement plans, profit sharing plans, to the extent then so available at the date of such determination, stock option plans, stock award plans or stock appreciation right plans that Employee was paid and provided to the extent that such continued participation is possible under the general terms and provisions of such plans, programs and benefits but in no event beyond the Term Date. Should a Dispute ultimately be determined in favor of the Company, then all sums (net of tax withholdings by the Company from such sums) paid by the Company to Employee from the Date of Termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph shall be repaid promptly by Employee to the Company, all options, rights and stock awards granted to Employee during such period shall be cancelled or returned to the Company, and no service as an employee shall be credited to Employee for such period for pension purposes. Employee shall not be obligated to pay to the Company the cost of providing Employee with welfare benefits and prerequisites for such period unless the final judgment, order or decree of a court arbitration panel or other body resolving the Dispute determines that Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute ultimately be determined in favor of Employee, then Employee shall be entitled to retain all sums paid to Employee under this subparagraph pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in Section 7 to the extent not previously paid hereunder and the payment of Employee's reasonable legal fees incurred as a result of such Dispute upon submission to the Company of a detailed statement of fees from Employee's attorneys. 7 8. ARBITRATION Except as otherwise provided herein, the parties hereby agree that any Dispute or any dispute regarding the rights and obligations of any party under this Agreement or under any law governing the relationship created by this Agreement, including without limitation Employee's challenge of a purported termination for Cause or Disability, must be resolved pursuant to this Section 8. Within seven (7) days of either party's written notice to the other of his or its desire to submit any Dispute or arbitrable matter as set forth herein to arbitration, the parties will meet to attempt to amicably resolve their differences and, failing such resolution, either or both of the parties may submit the matter to mandatory and binding arbitration with the Center for Public Resources ("CPR"). The issue(s) in dispute shall be settled by arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by a panel of three arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will be those issues specifically submitted to the Panel. The Panel will not extend, modify or suspend any of the terms of this Agreement. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the Panel may be entered by any court having jurisdiction thereof. A determination of the Panel shall be by majority vote. Promptly following receipt of the request for arbitration, CPR shall convene the parties in person or by telephone to attempt to select the arbitrators by agreement of the parties. If agreement is not reached, the Company shall select one arbitrator and Employee shall select one other arbitrator. These two arbitrators shall select a third arbitrator. If these two arbitrators are unable to select the third arbitrator by mutual agreement, CPR shall submit to the parties a list of not less than eleven (11) candidates. Such list shall include a brief statement of each candidate's qualifications. Each party shall number the candidates in order of preference, shall note any objection they may have to any candidate, and shall deliver the list so marked back to CPR. Any party failing without good cause to return the candidate list so marked within ten (10) days after receipt shall be deemed to have assented to all candidates listed thereon. CPR shall designate the arbitrator willing to serve for whom the parties collectively have indicated the highest preference and who does not appear to have a conflict of interest. If a tie should result between two candidates, CPR may designate either candidate. This agreement to arbitrate is specifically enforceable. Judgment upon any award rendered by the Panel may be entered in any court having jurisdiction. The decision of the Panel within the scope of the submission is final and binding on all parties, and any right to judicial action on any matter subject to arbitration hereunder hereby is waived (unless otherwise provided by applicable law), except suit to enforce this arbitration award or in the event arbitration is not available for any reason or in the event the Company shall seek equitable relief to enforce Section 9 of this Agreement. If the rules of the CPR differ from those of this Section 8, the provisions of this Section 8 will control. The Company shall pay all the costs of arbitration including the fees of the arbitrators, and the arbitrators shall award reasonable legal fees to Employee, unless the arbitrators or a judicial forum shall finally determine that Employee acted in bad faith. 8 9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 9.1 Acknowledgment of Confidentiality. Employee understands and acknowledges that he may obtain Confidential Information during the course of his employment by the Company. Accordingly, Employee agrees that he shall not during the Term or at any time within two years after the Date of Termination (the "Restricted Period") (i) use or disclose any such Confidential Information outside the Company, its Subsidiaries and Affiliates; or (ii) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company or any Subsidiary or Affiliate. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by Employee of his obligations under this Section 9). In the event Employee is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 9.2 Delivery of Material. Employee shall promptly, and without charge, deliver to the Company on the termination of his employment hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business of the Company and the Affiliates, and all property associated therewith, which he may then possess or have under his control. 10. SURVIVAL The provisions of Section 7, 8, 9, and this Section 10 shall survive termination of this Agreement and remain enforceable according to their terms. 9 11. SEVERABILITY The invalidity of unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 12. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company Janus Industries, Inc. One Riverfront Plaza Newark, New Jersey 07102 Attn: James E. Bishop, President If to Employee: Michael Nanosky 20802 Sonrisa Way Boca Raton, Florida 33431-8596 By notifying the other parties in writing, given as aforesaid, any party may from time-to-time change its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 13. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or duties hereunder may be assigned or delegated by Employee. This Agreement is not assignable by the Company, including, without limitation, to any successor in interest which takes over all or substantially all of the business of the Company, as it is conducted at the tie of such assignment, without the consent of Employee. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof and the Company shall require as a condition thereof that such corporation assume this Agreement in form and substance satisfactory to Employee. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 10 14. ENTIRE AGREEMENT, WAIVER AND OTHER 14.1 Integration. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 14.2 No Waiver. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing an signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by Employee with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. Employee shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by Employee reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by all of the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. 15. GOVERNING LAW 15.1 Miscellaneous. This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of Florida. 15.2 Headings. The Section and Subsection heading contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 15.3 Severability. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 11 15.4 Obligations of Company. The Company's obligation to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in Section 7.6 herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from Employee or any person entitled thereto. Employee shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. 15.5 Rights of Beneficiaries of Employee. This Agreement shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to Employee's estate. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. JANUS INDUSTRIES, INC. By:_____________________________________ Name: Louis S. Beck Title: Chairman of the Board ____________________________________ Michael Nanosky 12 EX-10.6 10 STOCK OPTION PLAN JANUS INDUSTRIES, INC. 1996 STOCK OPTION PLAN SECTION 1. PURPOSE The purpose of the Janus Industries, Inc. Stock Option Plan (the "Plan") is to provide an additional incentive to key employees, independent contractors, agents and consultants of Janus Industries, Inc. (the "Company") and its subsidiaries, to aid in attracting and retaining employees, independent contractors, agents and consultants of outstanding ability, and to align their interests with those of shareholders. SECTION 2. DEFINITIONS Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth in this Section 2. (a) "Board" shall mean the Board of Directors of the Company. (b) "Change in Control". A change in control of the Company shall be deemed to have occurred if, over the initial opposition of the then-incumbent Board (whether or not such Board ultimately acquiesces therein), (i) any person or group of persons shall acquire, directly or indirectly, stock of the Company having at least 25% of the combined voting power of the Company's then-outstanding securities, or (ii) any shareholder or group of shareholders shall elect a majority of the members of the Board in each case after January 1, 1997. (c) "Code" shall mean the Internal Revenue Code of 1986 and the rules and regulations thereunder, as it or they may be amended from time to time. (d) "Committee" shall mean the full Board, Compensation Committee of the Board or such other committee as may be designated by the Board. If less than the full Board, the Committee shall consist of two or more members of the Board who are not eligible to participate in the Plan, and who otherwise are "non-employee directors" under Rule 16b-3. (e) "Date of Exercise" shall mean the earlier of the date on which written notice of exercise, together with payment in full, is received at the office of the Secretary of the Company or the date on which such notice and payment are mailed to the Secretary of the Company at its principal office by certified or registered mail. (f) "Employee" shall mean any employee or any officer of the Company or any of its Subsidiaries, or any other person, who is an independent contractor, agent or consultant of the Company or any of its Subsidiaries, and excluding any director of the Company who is not otherwise an employee of the Company. For the purposes of any provision of this Plan relating to Incentive Stock Options, the term "Employee" shall be limited to mean any employee (as that term is defined under Code Section 3401(c)) or officer of the Company or any of its Subsidiaries, but not any person who is merely an independent contractor, agent or consultant of the Company or any of its subsidiaries. (g) "Fair Market Value" of the Stock means, for all purposes of the Plan unless otherwise provided (i) the mean between the high and low sales prices of the Stock as reported on the National Market System or Small Cap Market of the National Association of Securities Dealers, Inc., Automated Quotation System, or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, or (ii) if not quoted as described in clause (i), the mean between the high bid and low asked quotations for the Stock as reported by a the National Quotation Bureau Incorporated or such other source as the Committee shall determine, or (iii) if the Stock is listed or admitted for trading on any national securities exchange, the mean between the high and low sales price, or the closing bid price if no sale occurred, of the Stock on the principal securities exchange on which the Stock is listed. In the event that the method for determining the Fair Market Value of the Stock provided for above shall either be not applicable or not be practical, in the opinion of the Committee, then the Fair Market Value shall be determined by such other reasonable method as the Committee, in its discretion, shall select and apply. (h) "Grantee" shall mean an Employee granted a Stock Option. (i) "Granting Date" shall mean the date on which the Committee authorizes the issuance of a Stock Option for a specified number of shares of Stock to a specified Employee. (j) "Incentive Stock Option" shall mean a Stock Option granted under the Plan which is properly qualified under the provisions of Section 422 of the Code. (k) "Nonstatutory Stock Option" shall mean a Stock Option granted within the Plan which is not an Incentive Stock Option or otherwise qualified under similar tax provisions. (l) "Progressive Stock Options" shall mean either Incentive Stock Options or Nonstatutory Stock Options granted pursuant to Section 5(j) of this Plan. (m) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, or any rule in replacement thereof. (n) "Stock" shall mean the Common Stock, par value $.01 per share, of the Company. (o) "Stock Appreciation Right" shall mean a right granted pursuant to the Plan to receive Stock, cash, or a combination thereof, upon the surrender of the right to purchase all or part of the shares of Stock covered by a Stock Option. (p) "Stock Option" shall mean an Incentive Stock Option or Nonstatutory Stock Option granted pursuant to the Plan to purchase shares of Stock. (q) "Subsidiary" shall mean any subsidiary corporation as defined in Section 424(f) of the Code. SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN Subject to adjustment pursuant to Section 9, 300,000 shares of Stock shall be reserved for issuance upon the exercise of Stock Options granted pursuant to this Plan. Shares delivered under the Plan may be authorized and unissued shares or issued shares held by the Company in its treasury. If any 2 Stock Options expire or terminate without having been exercised, the shares of Stock covered by such Stock Option shall become available again for the grant of Stock Options hereunder. Similarly, if any Stock Options are surrendered for cash pursuant to the provisions of Section 7, the shares of Stock covered by such Stock Options shall also become available again for the grant of Stock Options hereunder. Shares of Stock covered by Stock Options surrendered for Stock pursuant to Section 7, however, shall not become available again for the grant of Stock Options hereunder. SECTION 4. ADMINISTRATION OF THE PLAN (a) The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of Stock Option grants, and to make all other determinations necessary or advisable for the administration of the Plan. (b) It is intended that the Plan and any transaction hereunder meet all of the requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission, as such rule is currently in effect or as hereafter modified or amended, and all other applicable laws. If any provision of the Plan or any transaction would disqualify the Plan or such transaction under, or would not comply with, Rule 16b-3 or other applicable laws, such provision or transaction shall be construed or deemed amended to conform to Rule 16b-3 or such other applicable laws or otherwise shall be deemed to be null and void, in each case to the extent permitted by law and deemed advisable by the Committee. (c) Any controversy or claim arising out of or related to this Plan shall be determined unilaterally by and at the sole discretion of the Committee. SECTION 5. GRANTING OF STOCK OPTIONS (a) Only key Employees shall be eligible to receive Stock Options under the Plan. Directors of the Company who are not also employees shall not be eligible for Stock Options. (b) The option price of each share of Stock subject to an Incentive Stock Option shall be at least 100% of the Fair Market Value of a share of the Stock on the Granting Date. (c) The option price of each share of Stock subject to a Nonstatutory Stock Option shall be 100% of the Fair Market Value of a share of the Stock on the Granting Date, or such other price either greater than or less than the Fair Market Value (but in no event less than the par value of the Stock) as the Committee shall determine appropriate to the purposes of the Plan and to the Company's total compensation program. (d) The Committee shall determine and designate from time to time those key Employees who are to be granted Stock Options and whether the particular Stock Options are to be Incentive Stock Options or Nonstatutory Stock Options, and shall also specify the number of shares covered by and the option price per share of each Stock Option. Each Stock Option granted under the Plan shall be clearly identified as to its status as a Nonstatutory Stock Option or an Incentive Stock Option. (e) The aggregate Fair Market Value (determined at the time the Stock Option is granted) of the Stock with respect to which Incentive Stock Options are exercisable for the first time by any individual during any calendar year (under all plans of the individual's employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. 3 (f) A Stock Option shall be exercisable during such period or periods and in such installments as shall be fixed by the Committee at the time the Stock Option is granted or in any amendment thereto; but each Stock Option shall expire not later than ten years from the Granting Date. (g) The Committee shall have the authority to grant both transferable Stock Options and nontransferable Stock Options, and to amend outstanding nontransferable Stock Options to provide for transferability. Each nontransferable Stock Option intended to qualify under Rule 16b-3 or otherwise shall provide by its terms that it is not transferable otherwise than by will or the laws of descent and distribution or, except in the case of Incentive Stock Options, pursuant to a "qualified domestic relations order" as defined by the Code, and is exercisable, during the Grantee's lifetime, only by the Grantee. Each transferable Stock Option may provide for such limitations on transferability and exercisability as the Committee may designate at the time a Stock Option is granted or is otherwise amended to provide for transferability. (h) Stock Options may be granted to an Employee who has previously received Stock Options or other options whether such prior Stock Options or other options are still outstanding, have previously been exercised or surrendered in whole or in part, or are canceled in connection with the issuance of new Stock Options. (i) Subject to adjustment pursuant to Section 9, the aggregate number of shares of Stock subject to Stock Options granted to an Employee under the Plan during any calendar year shall not exceed 25,000 shares. (j) Without in any way limiting the authority of the Committee to make grants of Stock Options under the Plan, and in order to induce Employees to retain ownership of Stock, the Committee shall have the authority (but not the obligation) to include within any agreement reflecting a Stock Option a provision entitling the Grantee of such a Stock Option to a further Stock Option (a "Progressive Stock Option") in the event the Grantee exercises such Stock Option evidenced by such agreement, in whole or in part, by surrendering other shares of Stock in accordance with this Plan and the terms and conditions of such agreement. Any such Progressive Stock Option shall be for a number of shares of Stock equal to the number of surrendered shares, shall become exerciseable no sooner than six months after the Granting Date of the Stock Option or such longer period as the Committee may establish, shall have an option price per share equal to one hundred percent (100%) of the Fair Market Value of a share of Stock on the Granting Date of the Progressive Stock Option, and shall be subject to such other terms and conditions as the Committee may determine. (k) Notwithstanding the foregoing, the option price of an Incentive Stock Option in the case of a Grantee who owns more than ten percent of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, will not be less than one-hundred-ten percent (110%) of the Fair Market Value of the Stock at the Granting date and in the case of such a Grantee, the Incentive Stock Option may be exercised no more than five years after the Granting Date. SECTION 6. EXERCISE OF STOCK OPTIONS (a) Except as provided in Section 8, no Stock Option may be exercised at any time unless the Grantee is an Employee on the Date of Exercise and, in the case of holders of Incentive Stock Options, has been an Employee at all times during the period beginning on the Granting Date and ending on the day 3 months before the date of such exercise. 4 (b) The Grantee shall pay the option price in full on the Date of Exercise of a Stock Option in cash, by check, or by delivery of full shares of Stock of the Company, duly endorsed for transfer to the Company with signature guaranteed, or by any combination thereof. Stock will be accepted at its Fair Market Value on the Date of Exercise. (c) Subject to the approval of the Committee, or of such person to whom the Committee may delegate such authority ("its designee"), and subject further to the applicable regulations of any governmental authority, the Company may loan to the Grantee a sum equal to an amount which is not in excess of 100% of the purchase price of the shares of Stock acquired upon exercise of a Stock Option, such loan to be evidenced by the execution and delivery of a promissory note. Interest shall be paid on the unpaid balance of the promissory note at such times and at such rate as shall be determined by the Committee or its designee. Such promissory note shall be secured by the pledge to the Company of shares of Stock having an aggregate purchase price on the date of purchase equal to or greater than the amount of such note. A Grantee shall have, as to such pledged shares of Stock, all rights of ownership including the right to vote such shares of Stock and to receive dividends paid on such shares of Stock, subject to the security interest of the Company. Such shares of Stock shall not be released by the Company from the pledge unless the proportionate amount of the note secured thereby has been repaid to the Company; provided, however that shares of Stock subject to a pledge may be used to pay all or part of the purchase price of any other option granted hereunder or under any other stock incentive plan of the Company under the terms of which the purchase price of an option may be paid by the surrender of shares of Stock, subject to the terms and conditions of this Plan relating to the surrender of shares of Stock in payment of the exercise price of an option. In such event, that number of the newly purchased shares of Stock equal to the shares of Stock previously pledged shall be immediately pledged as substitute security for the pre-existing debt of the Grantee to the Company, and thereupon shall be subject to the provisions hereof relating to pledged shares of Stock. All notes executed hereunder shall be payable at such times and in such amounts and shall contain such other terms as shall be specified by the Committee or its designee or stated in the option agreement; provided, however, that such terms shall conform to requirements contained in any applicable regulations which are issued by any governmental authority. SECTION 7. STOCK APPRECIATION RIGHTS (a) The Committee may grant to any Employee, Stock Appreciation Rights in connection with any Stock Option. Stock Appreciation Rights may be granted at the time the related Stock Option is granted or at any time thereafter up to six months prior to the expiration of the related Stock Option. (b) Stock Appreciation Rights shall be exercisable at such times and to the extent that the related Stock Option shall be exercisable and only to the extent the Stock Appreciation Right has a positive value, unless the Committee specifies a more restrictive period. (c) Upon the exercise of a Stock Appreciation Right, the Grantee shall surrender the related Stock Option or a portion thereof and shall be entitled to receive payment of an amount determined by multiplying the number of shares as to which the Stock Option rights are surrendered by the difference obtained by subtracting the exercise price per share of the related Stock Option from the Fair Market Value of a share of Stock on the Date of Exercise of the Stock Appreciation Right. (d) Payment of the amount determined under Section 7(c) shall be made in Stock, in cash, or partly in cash and partly in Stock as the Committee shall determine in its sole discretion. 5 (e) Except as provided in Section 10(b), the exercise of a Stock Appreciation Right for cash may be made only during the period beginning on the third business day following the release of quarterly or annual financial data and ending on the twelfth business day following such date. SECTION 8. TERMINATION OF EMPLOYMENT Except as otherwise provided by the Committee at the time the Stock Option is granted or any amendment thereto, if a Grantee ceases to be an Employee then: (a) if termination of employment is voluntary or involuntary without cause, the Grantee may exercise each Stock Option held by the Grantee within three months after such termination (but not after the expiration date of the Stock Option) to the extent of the number of shares subject to the Stock Option which are purchasable pursuant to its terms at the date of termination; (b) if termination is for cause, all Stock Options held by the Grantee shall be canceled as of the date of termination; (c) subject to the provisions of Section 8(d), if termination is (i) by reason of retirement at a time when the Grantee is entitled to the current receipt of benefits under any retirement plan maintained by the Company or any Subsidiary, or (ii) by reason of disability, each Stock Option held by the Grantee may be exercised by the Grantee at any time (but not after the expiration date of the Stock Option) (within one year of termination in the case of Incentive Stock Options) to the extent of the number of shares subject to the Stock Option which were purchasable pursuant to its terms at the date of termination; (d) if termination is by reason of the death of the Grantee, or if the Grantee dies after retirement or disability as referred to in Section 8(c), each Stock Option held by the Grantee may be exercised by the Grantee's estate, or by any person who acquires the right to exercise the Stock Option by reason of the Grantee's death, at any time within a period of three years after death (but not after the expiration date of the Stock Option) to the extent of the total number of shares subject to the Stock Option which were purchasable pursuant to its terms at the date of termination; or (e) if the Grantee should die within three months after voluntary termination of employment or involuntary termination without cause, as contemplated in Section 8(a), each Stock Option held by the Grantee may be exercised by the Grantee's estate, or by any person who acquires the right to exercise by reason of the Grantee's death, at any time within a period of one year after death (but not after the expiration date of the Stock Option) to the extent of the number of shares subject to the Stock Option which were purchasable pursuant to its terms at the date of termination. SECTION 9. ADJUSTMENTS In the event of any merger, consolidation, reorganization, recapitalization, stock dividend, stock split or other change in the corporate structure or capitalization affecting the Stock, there shall be an appropriate adjustment made by the Committee in the number and kind of shares that may be granted in the aggregate and to individual Employees under the Plan, the number and kind of shares subject to each outstanding Stock Option and Stock Appreciation Right and the option prices. 6 SECTION 10. TENDER OFFER; CHANGE IN CONTROL (a) A Stock Option shall become immediately exercisable to the extent of the total number of shares subject to the Stock Option in the event of (i) a tender offer by a person or persons other than the Company for all or any part of the outstanding Stock if, upon consummation of the purchases contemplated, the offeror or offerors would own, beneficially or of record, an aggregate of more than 25% of the outstanding Stock, or (ii) a Change in Control of the Company. (b) The Committee may authorize the payment of cash upon the exercise of a Stock Appreciation Right during a period (i) beginning on the date on which a tender offer as described in (a), above, is first published or sent or given to holders of Stock and ending on the date which is seven days after its termination or expiration, or (ii) beginning on the date on which a Change in Control of the Company occurs and ending on the twelfth business day following such date. SECTION 11. GENERAL PROVISIONS (a) Each Stock Option shall be evidenced by a written instrument containing such terms and conditions, not inconsistent with this Plan, as the Committee shall approve. (b) The granting of a Stock Option in any year shall not give the Grantee any right to similar grants in future years or any right to be retained in the employ of the Company or any Subsidiary or interfere in any way with the right of the Company or such Subsidiary to terminate an Employee's employment at any time. (c) The Company shall have the right to deduct from any payment or distribution under the Plan any federal, state or local taxes of any kind required by law to be withheld with respect to such payments or to take such other action as may be necessary to satisfy all obligations for the payment of such taxes. In case distributions are made in shares of Stock, the Company shall have the right to retain the value of sufficient shares of Stock to equal the amount of tax to be withheld for such distributions or require a recipient to pay the Company for any such taxes required to be withheld on such terms and conditions prescribed by the Committee. (d) No Grantee shall have any of the rights of a shareholder by reason of a Stock Option until it is exercised. (e) This Plan shall be construed and enforced in accordance with the laws of the State of Delaware (without regard to the legislative or judicial conflict of laws rules of any state), except to the extent superseded by federal law. SECTION 12. AMENDMENT AND TERMINATION (a) The Plan shall terminate on July 17, 2006 and no Stock Option shall be granted hereunder after that date, provided that the Board may terminate the Plan at any time prior thereto. (b) The Board may amend the Plan at any time without notice, provided however, that the Board may not, without prior approval by the shareholders, (i) increase the maximum number of shares of Stock for which Stock Options may be granted (except as contemplated by the provisions of Section 9), (ii) materially increase the benefits accruing to participants under the Plan or (iii) materially modify the requirements as to eligibility for participation in the Plan. 7 (c) No termination or amendment of the Plan may, without the consent of a Grantee to whom a Stock Option shall theretofore have been granted, adversely affect the rights of such Grantee under such Stock Option. SECTION 13. EFFECTIVE DATE AND SHAREHOLDERS' APPROVAL The Plan shall become effective as of July 18, 1996, subject to its approval by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote thereon at the Annual Meeting of Shareholders of the Company or any adjournment or postponement thereof. Before such approval, Stock Options may be granted under the Plan expressly subject to such approval. 8 EX-10.7 11 INCENTIVE STOCK OPTION TERMS AND CONDITIONS JANUS INDUSTRIES, INC. 1996 STOCK OPTION PLAN Incentive Stock Option Terms and Conditions 1. Plan Incorporated by Reference. This Option is issued pursuant to the terms of the Plan and may be amended as provided in the Plan. Capitalized terms used and not otherwise defined in this certificate have the meanings given to them in the Plan. This certificate does not set forth all of the terms and conditions of the Plan, which are incorporated herein by reference. The Committee administers the Plan and its determinations regarding the operation of the Plan are final and binding. Copies of the Plan may be obtained upon written request without charge from the President of the Company. 2. Option Price. The price to be paid for each share of Common Stock issued upon exercise of the whole or any part of this Option is the Option Price set forth on the face of this certificate. 3. Exercisability Schedule. This Option may be exercised at any time and from time to time for the number of shares and in accordance with the exercisability schedule set forth on the face of this certificate, but only for the purchase of whole shares. This Option may not be exercised as to any shares after the Expiration Date. 4. Method of Exercise. To exercise this Option, the Optionholder shall deliver written notice of exercise to the President of the Company specifying the number of shares with respect to which the Option is being exercised accompanied by payment of the Option Price for such shares in cash, by certified check or in such other form, including shares of Common Stock of the Company valued at their Fair Market Value on the date of delivery, as the Committee may at the time of exercise approve. Promptly following such notice, the Company will deliver to the Optionee a certificate representing the number of shares with respect to which the Option is being exercised. 5. Rights as a Stockholder or Employee. The Optionee shall not have any rights in respect of shares as to which the Option shall not have been exercised and payment made as provided above. The Optionee shall not have any rights to continued employment by the Company or any Subsidiary by virtue of the grant of this Option. 6. Recapitalization, Mergers, Etc. As provided in the Plan, in the event of certain corporate transactions affecting the Company's outstanding Common Stock, the Committee shall equitably adjust the number and kind of shares subject to this Option and the exercise price hereunder. If such transaction involves a consolidation or merger of the Company with another entity, the sale or exchange of all or substantially all of the assets of the Company or a reorganization or liquidation of the Company, then in lieu of the foregoing, the Committee may upon written notice to the Optionee provide that this Option shall terminate on a date not less than 20 days after the date of such notice unless theretofore exercised. In connection with such notice, the Committee may in its discretion accelerate or waive any deferred exercise period. 7. Option Not Transferable. This Option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution, and is exercisable, during the Optionee's lifetime, only by Optionee. Any attempted assignment,, transfer, pledge, hypothecation or other disposition other than in accordance with the terms set forth herein and in the Plan shall be void and of no effect. 8. Compliance with Securities Laws. It shall be a condition to the Optionee's right to purchase shares of Common Stock hereunder that the Company may, in its discretion, require (a) that the shares of Common Stock reserved for issue upon the exercise of this Option shall have been duly listed, upon official notice of issuance, upon any national securities exchange or automated quotation system on which the Company's Common Stock may then be listed or quoted, (b) that either (i) a registration statement under the Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in the opinion of counsel for the Company, the proposed purchase shall be exempt from registration under that Act and the Optionee shall have made such undertakings and agreements with the Company as the Company may reasonably require, and (c) that such other steps, if any, as counsel for the Company shall consider necessary to comply with any law applicable to the issue of such shares by the Company shall have been taken by the Company or the Optionee, or both. The certificates representing the shares purchased under this Option may contain such legends as counsel for the Company shall consider necessary to comply with any applicable law. 9. Payment of Taxes. The Optionee shall pay to the Company, or make provision satisfactory to the Company for payment of, any taxes required by law to be withheld with respect to the exercise of this Option. The Committee may, in its discretion, require any other Federal or state taxes imposed on the sale of the shares to be paid by the Optionee. In the Committee's discretion, such tax obligations may be paid in whole or in part in shares of Common Stock, including shares retained from the exercise of this Option, valued at their Fair Market Value on the date of delivery. The Company and its Subsidiaries may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Optionee. 1996 ISO - ---------- Shares JANUS INDUSTRIES, INC. 1996 Stock Option Plan Incentive Stock Option Certificate Janus Industries, Inc. (the "Company"), a Delaware corporation, hereby grants to the person named below an option to purchase shares of Common Stock, par value $0.01 per share, of the Company (the "Option") under and subject to the Company's 1996 Stock Option Plan (the "Plan") exercisable on the following terms and conditions and those set forth on the reverse side of this certificate: Name of Optionee: _______________________________________________ Address: _______________________________________________ _______________________________________________ Social Security No.: _______________________________________________ Number of Shares: _______________________________________________ Option Price: _______________________________________________ Date of Grant: _______________________________________________ Exercisability Schedule Exercise Period ------------------------------------- Number of Shares Subject to Option Commencement Date Expiration Date - ---------------------------------- ----------------- --------------- Special Provisions Regarding Rights if Optionee Ceases to be an Employee: Although this Option is intended to be treated as an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company does not and cannot guaranty or warranty that the Option will be so treated. Certain acts of the Optionee such as disposing of the Stock issued pursuant to this Option prior to the expiration of the holding periods required under Code Section 422 will prevent this Option from being treated as an Incentive Stock Option. By acceptance of this Option, the Optionee agrees to the terms and conditions hereof. JANUS INDUSTRIES, INC. Dated: By: ______________________________ James E. Bishop, President and Chief Executive Officer ACCEPTED: _________________________________ [Optionee] EX-10.8 12 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") made April 23, 1997 by and between JANUS INDUSTRIES, INC., a Delaware corporation ("the "Corporation") ("Seller") and LOUIS S. BECK, an individual (the "Shareholder"). Recitals: A. As a result of the closing of the transactions contemplated by (i) the Asset Purchase Agreement dated April 23, 1997 (the "Asset Purchase Agreement") by and among the Corporation, Beck Yeaggy of Ohio, Inc., Motel Associates of Westerville, Inc., Harry Yeaggy and the Shareholder and (ii) the Agreement and Plan of Merger dated April 23, 1997 (the "Merger Agreement"; and together with the Asset Purchase Agreement, the "Acquisition Agreements"), the Shareholder is, or will become, the holder of Registrable Securities (defined below). B. It is a condition precedent to the closing of the transactions under the Acquisition Agreements that the Corporation and the Shareholder enter into this Agreement. NOW, THEREFORE, the parties intending to be legally bound, agree as follows: 1. Definitions. For purposes of this Agreement, the following definitions shall apply: (i) The terms "register," "registered," and "registration" refer to a registration under Section 5 of the Federal Securities Act of 1933, as amended (the "Act") effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement, document or amendment thereto by the United States Securities and Exchange Commission ("SEC"); (ii) The term "Common Stock" means the Corporation's common stock, par value $.01 per share; (iii) The term "Preferred Stock" means the shares of the Corporation's Series B Preferred Stock issuable under the terms of the Merger Agreement; (iv) The term "Shareholder Common Stock" means the shares of the Corporation's Common Stock issuable under the terms of the Acquisition Agreements; and (v) The term "Registrable Securities" means the Preferred Stock and the Shareholder Common Stock collectively; 2. Demand Registration Request as to the Preferred Stock. (a) On a one time basis, at any time, the Shareholder may deliver to the Corporation a notice to the effect that the Shareholder desires to have all, but not less than all, of the Preferred Stock registered under the Act (a "Preferred Demand Registration Request"). (b) Provided that the Corporation has received a Preferred Demand Registration Request from holders representing 75% of the outstanding shares of the Preferred Stock, the Corporation shall thereupon, as expeditiously as possible, effect the registration of the Preferred Stock under the Act to permit the transfer by the Shareholder of the Preferred Stock in accordance with the intended method of transfer described in the Preferred Demand Registration Request. Notwithstanding the foregoing, (i) the right of the Shareholder to require registration under this paragraph 2 shall not be exercisable less than six (6) months following the date upon which a previous registration statement issued in respect of an offering of securities for cash for the account of the Corporation shall have become effective and (ii) unless the Shareholder shall notify the Corporation that the Preferred Stock to be sold can only be sold in a manner not permitted by Rule 144 of the SEC promulgated under this Act, the Corporation shall not be required to register any Preferred Stock on behalf of the Shareholder to the extent such Preferred Stock may then be sold without restrictive legend in compliance with Rule 144 and the Corporation takes all steps as are necessary or appropriate to permit the transfer of the Preferred Stock under such rule. 3. Incidental Registration Rights as to the Preferred Stock. If the Corporation proposes to register any of its stock or other securities under the Act in connection with a public offering of such securities (other than a registration on Form S-4, Form S-8 or other limited purpose form) and all Preferred Stock has not theretofore been included in a registration statement under paragraph 2 which remains effective, the Corporation agrees to give the Shareholder and all other holders of the Preferred Stock prompt written notice of such registration. Upon the written request of the Shareholder and holders of the Preferred Stock representing 75% of the outstanding shares in the aggregate given within twenty (20) days after receipt of such notice, the Corporation agrees to use its best efforts to cause to be registered under the Act all of the Preferred Stock. However, the Corporation shall have no obligation under this paragraph 3 to the extent that, with respect to a public offering registration, any underwriter of such public offering determines, in its reasonable discretion, that the inclusion of the Preferred Stock in the offering would adversely affect its consummation. 4. Demand Registration Request as to the Common Stock. (a) On a one time basis, at any time following the Termination Date under the Investor Agreement of even date herewith between the Corporation and the Shareholder (the "Investor Agreement"), the Shareholder may deliver to the Corporation a notice to the effect that the Shareholder desires to have shares of the Shareholder Common Stock registered under the Act (a "Common Demand Registration Request"), at the expense of the Corporation, as provided in Section 9 below. The Corporation shall thereupon, as expeditiously as possible, effect the registration of the shares of Shareholder Common Stock under the Act to permit the transfer by the Shareholder of the Shareholder Common Stock in accordance with the intended method of transfer described in the Common Demand Registration Request. 2 (b) To the extent that all of the Shareholder's Shareholder Common Stock has not theretofore been included in a registration statement under paragraph (a) above which remains effective, on a one time basis, following the Termination Date under the Investor Agreement, the Shareholder may deliver a Common Demand Registration Request, and all of the fees, costs and expenses of and incidental to such registration shall be at the Shareholder's expense. (c) Notwithstanding the foregoing paragraphs (a) and (b), (i) the right of the Shareholder to require registration under this paragraph 4 shall not be exercisable less than six (6) months following the date upon which a previous registration statement issued in respect of an offering of securities for cash for the account of the Corporation shall have become effective and (ii) unless the Shareholder shall notify the Corporation that the shares of Shareholder Common Stock to be sold can only be sold in a manner not permitted by Rule 144 of the SEC promulgated under this Act, the Corporation shall not be required to register any Shareholder Common Stock on behalf of the Shareholder to the extent such Shareholder Common Stock may then be sold without restrictive legend in compliance with Rule 144 and the Corporation takes all steps as are necessary or appropriate to permit the transfer of the Shareholder Common Stock under such rule. 5. Incidental Registration Rights as to the Shareholder Common Stock. If following the Termination Date under the Investor Agreement the Corporation proposes to register any of its Common Stock under the Act in connection with a public offering of such securities (other than a registration on Form S-4, Form S-8 or other limited purpose form), the Corporation agrees to give the Shareholder prompt written notice of such registration. Upon the written request of the Shareholder given within twenty (20) days after receipt of such notice, the Corporation agrees to use its best efforts to cause to be registered under the Act all of the Shareholder Common Stock which the Shareholder requests to be included in the registration. However, the Corporation shall have no obligation under this paragraph 4 to the extent that, with respect to a public offering registration, any underwriter of such public offering determines, in its reasonable discretion, that the inclusion of the Shareholder Common Stock, or a portion thereof, in the offering would adversely affect its consummation. Moreover, the Corporation shall have no obligation under this paragraph 4 to the extent that any of Daewoo Corporation, Mitsubishi Corporation, The Prudential Insurance Company of America or General Electric Capital Corporation, or any of their respective successors, remains subject to restrictions on the disposition of its or their Common Stock by way of agreement with the Corporation or under the terms of the Corporation's Restated Certificate of Incorporation, as amended. 6. Certain Covenants of the Corporation. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Corporation agrees to use its best efforts to: (i) Keep a registration statement effective for at least a period of one year in the aggregate, pursuant to the provisions of Rule 415 under the Act or otherwise, while any holder of Registrable Securities desires to dispose of the securities covered by such registration statement (but not after the holder of Registrable Securities, in the reasonable opinion of the Corporation's 3 counsel, is free to sell all such securities in any three month period under the provisions of Rule 144 under the Act). (ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (iii) Furnish to each holder of Registrable Securities such numbers of copies of a current prospectus, in conformity with the requirements of the Act, and such other documents as each holder of Registrable Securities may reasonably require in order to facilitate the disposition of Registrable Securities owned by such holder of Registrable Securities. (iv) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or "Blue Sky" laws of such jurisdictions as shall be reasonably requested by the holder of Registrable Securities, provided that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (v) Notify each holder of Registrable Securities of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and use its reasonable best efforts to promptly update and/or correct such prospectus. (vi) Furnish, at the request of any holder of Registrable Securities, an opinion of counsel of the Corporation, dated the effective date of the registration statement, as to the due authorization and issuance of the securities being registered. (vii) Use its best efforts to list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock, is then listed in accordance with the rules of such exchange. 7. Information to be provided by the Shareholder. The Shareholder will furnish to the Corporation in connection with any registration under this Agreement, in writing, such information regarding himself, the Registrable Securities and other securities of the Corporation held by him and the intended method of disposition of the Registrable Securities as shall be reasonably required to effect the registration of the Registrable Securities held by the Shareholder. Notwithstanding the provisions of this Agreement, if the Shareholder fails to provide such information to the Corporation on a timely basis as is reasonably requested by the Corporation, the Corporation may exclude the Shareholder's Registrable Securities from such registration statement and the Shareholder will not for twelve (12) months thereafter be entitled to registration of such Shareholder's Registrable Securities under this Agreement. 4 8. Indemnification. (i) The Corporation agrees to indemnify, defend and hold harmless the Shareholder from and against, and shall reimburse the Shareholder with respect to, any and all claims, suits, demands, causes of action, losses, damages, liabilities, costs or expenses ("Liabilities") to which the Shareholder may become subject under the Act or otherwise, arising from or relating to (A) any untrue statement or alleged untrue statement of any material fact contained in a registration statement pursuant to the provisions of this Agreement, any prospectus contained therein or any amendment or supplement thereto, or (B) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Corporation shall not be liable in any such case to the extent that any such Liability arises out of or is based upon an untrue statement or omission so made in conformity with information furnished by the Shareholder in writing specifically for use in the preparation thereof. (ii) The Shareholder shall indemnify, defend and hold harmless the Corporation from and against, and shall reimburse the Corporation with respect to, any and all Liabilities to which the Corporation may become subject under the Act or otherwise, arising from or relating to (A) any untrue statement or alleged untrue statement of any material fact contained in a registration statement pursuant to the provisions of this Agreement, any prospectus contained therein or any amendment or supplement thereto or (B) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading if the case of (A) or (B) the information was supplied by the Shareholder in writing specifically for use in the preparation of such registration statement. (iii) Promptly after receipt by a party entitled to indemnification hereunder (an "indemnitee") of notice of the commencement of any action, such indemnitee shall, if a claim in respect thereof is to be made against the party required to make indemnification hereunder (the "indemnitor"), notify the indemnitor in writing thereof, but the omission so to notify the indemnitor shall not relieve the indemnitor from any Liability which it may have to the indemnitee other than under this paragraph and shall only relieve it from any Liability which it may have to the indemnitee under this section if and to the extent the indemnitor is materially prejudiced by such omission. In case any such action shall be brought against any indemnitee and such indemnitee shall notify the indemnitor of the commencement thereof, the indemnitor shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnitee, and, after notice from the indemnitor to the indemnitee of its election so to assume and undertake the defense thereof, the indemnitor shall not be liable to the indemnitee under this section for any legal expenses subsequently incurred by the indemnitee in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that if the defendants in any such action include both the indemnitor and such indemnitee and the indemnitee shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnitor or if the interests of 5 the indemnitee reasonably may be deemed to conflict with the interests of the indemnitor, the indemnitee shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnitor as incurred. 9. Expenses of Registration. (i) With respect to the inclusion of Registrable Securities in a registration statement pursuant to this Agreement, except for a registration under Section 4(b), all fees, costs and expenses of and incidental to such registration, inclusion and public offering shall be borne by the Corporation; provided, however, that any security holders participating in such registration shall bear their pro-rata share of the underwriting discounts and commissions, if any, incurred in connection with such registration. (ii) The fees, costs and expenses of registration to be borne by the Corporation as provided in this paragraph 9 shall include, without limitation, all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Corporation, and all legal fees and disbursements and other expenses of complying with state securities or Blue Sky laws of any jurisdiction or jurisdictions in which securities to be offered are to be registered and qualified. In all cases the fees and disbursements of counsel and accountants for the holders of Registrable Securities for personal services rendered incidental to any registration shall be borne by such respective holders. 10. Standstills. Notwithstanding any other provision of this Agreement, if requested by the Corporation and an underwriter in connection with a public offering of securities of the Corporation which are the same or similar to the Registrable Securities or convertible into such securities or evidencing a right to purchase such securities registered on Form S-1, S-2, S-3 or similar form of the SEC then available to the Corporation, the Shareholder shall not sell or otherwise transfer or dispose of any Registrable Securities held by him during the one hundred eighty (180) day period following the effective date of a registration statement of the Corporation filed under the Act; provided that the foregoing restrictions shall not apply to a registration statement relating solely to an employee benefit plan or a registration relating solely to a transaction covered by Rule 145 under the Act on Form S-4 or similar form or forms promulgated in the future. The Corporation may impose stop-transfer instructions with respect to the Registrable Securities subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 11. Rights of Transferees. In the event that all or any part of the Preferred Stock held by the Shareholder shall at any time be transferred by the Shareholder, in a transfer permissible under applicable securities laws, other than pursuant to an effective registration statement, the registration rights hereunder shall extend to the transferee of such securities. In the event that all or any part of the Shareholder Common Stock held by the Shareholder shall at any time be pledged by the Shareholder to a bank or other financial institution as security for a loan, the registration rights hereunder shall extend to the pledgee of such securities. 6 12. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval or other communication shall or may be given to or served upon any party by any other, or whenever any party desires to give or serve upon another party communication with respect to this Agreement, each such notice, demand, request, consent, approval, or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (i) If to the Shareholder, at the address of such holder appearing on the books and records of the Corporation. (ii) If to the Corporation, at Janus Industries, Inc. 685 Liberty Avenue P.O. Box 1551 Union, N.J. 07083-1551 Telecopy: 908-964-6068 Attention: President or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) days after the same shall have been deposited in the United States mail for overnight delivery or delivered to a courier service for overnight delivery. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 13. Miscellaneous. (i) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. (ii) None of the terms or provisions of this Agreement may be waived, altered, modified or amended except in writing duly signed for and on behalf of the parties hereto. (iii) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the day and year first above written. JANUS INDUSTRIES, INC. By:____________________________ Name: James E. Bishop Title: President _______________________________ Louis S. Beck Address: 5629 Princeton Way Boca Raton, FL 33496 8 EX-10.9 13 INVESTOR AGREEMENT INVESTOR AGREEMENT INVESTOR AGREEMENT, (this "Agreement") made as of April 23, 1997, by and between JANUS INDUSTRIES, INC., a Delaware corporation, with offices at 685 Liberty Avenue, Union, New Jersey 07083 (the "Corporation") and each of LOUIS S. BECK ("Beck") and HARRY YEAGGY ("Yeaggy") and BECK HOSPITALITY INC. III, an Ohio corporation ("Beck Hospitality" and together with Beck and Yeaggy, each, a "Shareholder"). Recitals: A. As a result of the closing of the transactions contemplated by (i) the Asset Purchase Agreement dated as of April 23, 1997 by and among the Corporation, Beck Yeaggy of Ohio, Inc., Motel Associates of Westerville, Inc. Beck and Yeaggy; and (ii) the Agreement and Plan of Merger dated as of April 23, 1997 (collectively, with (i), the "Acquisition Agreements") by and among the Corporation, Beck Group Management Corp., Envoy Inns of America, Inc., Beck and Yeaggy, the Shareholders, collectively, will become the owners of 10,451.88 shares of the Corporation's Preferred Stock, Series B (the "Preferred Stock") and 3,799,999 shares of the Corporation's common stock (the "Common Stock"). B. The Shareholders will control approximately 43% of the issued and outstanding shares of the Common Stock of the Corporation. C. The Corporation and the Shareholders desire to set forth the terms upon which the Preferred Stock and the Common Stock are to be held by the Shareholders for the purpose of assuring compliance with the various securities laws, and preservation of the Corporation's federal income tax attributes, and the Corporation further desires to confirm certain representations and warranties of the Shareholders. NOW, THEREFORE, in consideration of the premises and the terms, provisions, covenants and conditions hereinafter set forth, and for other valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below. All capitalized terms used herein and not defined in this Section 1 shall have the meanings ascribed to such terms elsewhere in this Agreement. The term "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the federal securities laws with respect to the registration and public offering of securities of the Corporation. The term "Corporation Securities" shall mean, collectively, the Preferred Stock and the shares of Common Stock. The term "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, government entity or government or any group comprised of one or more of the foregoing. The term "Securities Act" shall mean the Federal Securities Act of 1933, as amended from time to time and the rules, regulations, decisions and interpretations promulgated thereunder or such other federal act, rules, regulations, decisions and interpretations as may regulate and require the registration of the public offering of securities of the Corporation. 2. Certificate Legend. Each certificate or document representing the Corporation Securities issued pursuant to this Agreement shall be imprinted with a legend substantially as follows: The securities represented by this certificate have not been registered under the Securities Act of 1933 or the securities laws of any state. These securities have been acquired for investment and not with a view to distribution or resale, and may not be sold, assigned, made subject to a security interest, pledged, hypothecated, or otherwise transferred except pursuant to an effective registration statement under the Securities Act of 1933 and applicable state laws or exemptions therefrom or an opinion of counsel to the Corporation that such registration is not required as to such sale or offer. The Restated Certificate of Incorporation, as amended of the Corporation prohibits the purchase or acquisition of record or beneficial ownership of, or any beneficial or other interest in, any shares of the capital stock or securities of the Corporation if, at the date of such purchase or acquisition, such person or entity is, or would be after giving effect to any such proposed purchase or acquisition, directly, indirectly or by attribution, a holder of five percent (5%) or more of the issued and outstanding capital stock of the Corporation, determined based on the fair market value of the capital stock of the Corporation or the votes represented by the shares of the capital stock of the Corporation entitled to vote for the election of directors. A copy of the Restated Certificate of Incorporation of the Corporation is available for inspection and copying at the principal offices of the Corporation, and a copy of the provisions of the Restated Certificate of Incorporation of the Corporation setting forth such restrictions will be furnished to the record holder of this certificate without charge upon written request to the Corporation. The Corporation will furnish without charge to each stockholder who so requests, a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or or rights. 2 The securities represented by this certificate are subject to substantial restrictions on transfer contained in an Investor Agreement with the Corporation, a copy of which can be obtained from the Corporation. 3. Covenants of the Shareholder. Each Shareholder, by acquiring the Corporation Securities, hereby covenants and agrees that: (a) the Shareholder will not offer for sale or sell, or pledge, assign, hypothecate or otherwise transfer the Corporation Securities to any Person unless pursuant to: (i) an effective registration statement under the Securities Act ("Registration Statement") covering such offer and sale; or (ii) an exemption from registration under the Securities Act; provided that prior to any such proposed transfer, the Shareholder shall give written notice to the Corporation of the Shareholder's intentions to effect such transfer, which notice shall be accompanied by such evidence as may be reasonably satisfactory to the Corporation that the proposed transfer may be effected without registration under the Securities Act, or (iii) the provisions of Rule 144 under the Securities Act, if applicable or any successor rule thereto. Notwithstanding the foregoing, the Shareholder may pledge the Preferred Stock to a bank or other financial institution as security for a loan provided that the Shareholder delivers an opinion of legal counsel for the Shareholder (which counsel and opinion (in form, scope and substance) shall be satisfactory to the Corporation), that such pledge would be in compliance with the federal and state securities laws. (b) Any offer or sale of the Corporation Securities shall be made in accordance with the federal and state securities laws (including the prospectus delivery requirements of the Securities Act), of applicable jurisdictions and any other applicable law. (c) Each of the Corporation Securities transferred as above provided shall bear the appropriate restrictive legend unless, in the opinion of legal counsel for the Shareholder (which counsel and opinion (in form, scope and substance) shall be satisfactory to the Corporation), such legend is not required in order to establish compliance with any provisions of the Securities Act. 4. Representations and Warranties of the Shareholders. Each Shareholder hereby represents and agrees that: (a) The Shareholder has full power, authority and capacity to execute this Agreement, to make the representations and agreements contained in this Agreement and, in the case of Beck Hospitality, this Agreement and the transactions contemplated hereby have been duly authorized by all necessary actions on the part of the Shareholder, and this Agreement is a 3 legal, valid and binding obligation of the Shareholder enforceable against the Shareholder in accordance with its terms; and (b) The Shareholder understands each of the following representations and agreements, and hereby represents and agrees to each of the following with the understanding that the Corporation will rely upon the Shareholder representations and agreements in determining whether the Corporation may issue the Corporation Securities to the Shareholder under applicable securities laws: (i) The Shareholder is either an accredited investor (under the qualifications set forth in paragraph (vii) below) or has indicated by checking the following box that the Shareholder is not an accredited investor but is represented by a representative who is a "purchaser representative" as defined in Regulation D of the Commission under the Securities Act and in any event is able to bear the economic risk of an investment in the Corporation Securities, including the loss of his entire investment. (ii) The Shareholder has prior substantial investment experience, including investments in non-registered securities, and recognizes the highly speculative nature of an investment in the Corporation Securities. (iii) The Shareholder has been afforded the opportunity to ask questions of, and receive answers from, directors and executive officers of the Corporation concerning the Corporation and the terms and conditions of the offering of the Corporation Securities pursuant to the Acquisition Agreements. The Shareholder has been furnished with all information and all documents which he has requested. (iv) Neither the offer nor the sale of the Corporation Securities is being registered under the Securities Act or the securities laws of any state. The Corporation Securities are being offered and sold in reliance on exemptions from registration under the Securities Act and the various state securities laws for transactions not involving any public offering. Accordingly, none of the Corporation Securities can be sold, assigned, bequeathed, exchanged, pledged, hypothecated or otherwise transferred (each individually a "Transfer") by the Shareholder unless and until each is registered under the Securities Act and the securities laws of each applicable state or an exemption from registration pursuant to the Securities Act and such laws is available to the Shareholder. (v) The Corporation is relying on exemptions from the various federal and state securities laws which depend, in part, upon the Shareholder's investment intent and upon the information the Shareholder has set forth in this Agreement. This Agreement is delivered to the Corporation by the Shareholder with the understanding and intent that the Corporation will rely on the information contained in this Agreement and with such Shareholder's consent to such reliance. (vi) The Corporation Securities are being acquired by the Shareholder for the Shareholder's own account for investment and not for distribution or resale or 4 fractionalization thereof or reselling thereof or any part thereof within the meaning of the Securities Act other than in compliance therewith or in accordance with an exemption therefrom. The Shareholder will not transfer any of the Corporation Securities unless they are registered under the Securities Act and the securities laws of each applicable state or unless an exemption from each such registration is available for such Transfer. The Shareholder has adequate means of providing for the Shareholder's current needs and possible personal and business contingencies and has no need for liquidity of his investment in the Corporation Securities. (vii) Unless indicated otherwise in clause (i) above, the Shareholder fits within, and is adequately described by, one or more of the following categories: (1) the Shareholder is a natural person who has a net worth or joint net worth with the Shareholder's spouse in excess of $1,000,000 at the time of the Shareholder's purchase; or (2) the Shareholder is a natural person who had an individual income in excess of $200,000 in each of the two most recent years or a joint income with the Shareholder's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; or (3) the Shareholder is an officer and/or director of the Corporation; or (4) the Shareholder is either (a) a bank as defined in Section 3(a)(2) of the Securities Act or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity, (b) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, (c) an insurance Corporation as defined in Section 2(13) of the Securities Act, (d) an investment Corporation registered under the Investment Corporation Act of 1940, as amended, or a business development Corporation as defined in Section 2(a)(48) of such Act, (e) a Small Business Investment Corporation licensed by The United States Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, as amended, (f) a plan established or maintained by a state or its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000, or (g) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which plan fiduciary is a bank, savings and loan association, an insurance Corporation or a registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons who otherwise meet these suitability standards; or (5) the Shareholder is a private business development Corporation as defined in Section 202(a)(22) of the Investment Advisors Act of 1940, as amended; or (6) the Shareholder is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, a corporation, a Massachusetts or similar business trust or a partnership not formed for the specific purpose of acquiring the Corporation Securities with total assets in excess of $5,000,000; or (7) the Shareholder is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Corporation Securities, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment; or (8) the Shareholder is a corporation or partnership, and each and every equity owner of such entity certifies that he or she meets the qualifications set forth in either clause (1), (2), (3), (4), (5), (6) or (7) above. As used in this Agreement, the term "net worth" means the excess of total assets over total liabilities. In determining income, an 5 investor should add to his adjusted gross income any amount attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to an IRA or Keogh retirement plan, alimony payments and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income. (viii) The Shareholder agrees that the Shareholder shall not cancel, terminate or revoke this Agreement or any other agreement executed by the Shareholder with respect to the purchase of the Corporation Securities and that this Agreement shall survive the Shareholder's death or disability, except as pursuant to the laws of the applicable jurisdiction. (ix) The address set forth below is the Shareholder's true and correct residence, and he has no present intention of becoming a resident of any other country, state or jurisdiction prior to the Shareholder's acquisition of the Corporation Securities. (x) The Shareholder acknowledges that the Corporation and its officers and agents have made no representations or warranties, whether orally or in writing, or express or implied, as to the financial condition, assets, operations, business, prospects or condition of the Corporation other than as set forth in the Acquisition Agreements and the Corporation's Disclosure Letter delivered in connection therewith. (xi) The Shareholder understands the meaning and legal consequences of the foregoing representations and warranties, which are true and correct as of the date hereof and will be true and correct as of the date of the Shareholder's purchase of the Corporation Securities subscribed for herein. Each such representation and warranty shall survive such purchase. 5. Standstill. (a) Without the prior written consent of the Board of Directors of the Corporation, the Shareholder agrees that until the Termination Date (as defined below), he shall not sell or contract to sell, exchange, assign, bequeath, pledge, mortgage, alienate, grant an option to purchase, hypothecate or otherwise in any manner whatsoever (voluntarily or involuntarily, by operation of law or otherwise) Transfer or encumber record or beneficial ownership of any shares of the Common Stock or any securities issued with respect to any such shares or into which they may be converted, exchanged or otherwise changed. (b) The Corporation shall have no obligation to consent to a Transfer of the Common Stock unless it shall have received an opinion, in writing, of counsel of its choosing, that the proposed Transfer of the Common Stock does not give rise to an "ownership change" under ss.382 or otherwise adversely affect the availability to the Corporation of its net operating loss carry forwards and any other applicable tax attributes for Federal Income Tax purposes. (c) The Shareholder acknowledges and agrees that the Corporation will give to its stock transfer agent instructions prohibiting the Transfer of the Common Stock in violation 6 of this Agreement. Shareholder acknowledges any Transfer in violation of this Agreement will be void. (d) In the event that the Corporation is notified of a proposed Transfer by the Shareholder or a transfer proposed by any other person who is subject to an agreement with the Corporation containing standstill provisions substantially similar to those set forth in this Section 5 (a "Standstill Agreement") including, without limitation, those agreements existing as of this date with Daewoo Corporation, Mitsubishi Corp., General Electric Capital Corporation and The Prudential Insurance Company of America, and the Corporation determines preliminarily to consent to such Transfer or transfer, the Corporation shall notify all persons (including the Shareholder) who are subject to a Standstill Agreement of such proposed consent. The Shareholder and each other person who is subject to a Standstill Agreement shall have 30 days from the date of such notice to advise the Corporation in writing whether it wishes to Transfer or transfer securities of the Corporation, and the amount of securities it wishes to Transfer or transfer. The Corporation shall then allocate, in the sole discretion of the Board of Directors of the Corporation, the number of securities of the Corporation which may be the subject of a Transfer or transfer among those persons who have indicated in writing their desire to transfer securities of the Corporation in the event the Corporation consents to the original Transfer or transfer. In such event the Corporation may establish such mechanism to monitor any such Transfer or transfer, including time limitations on such Transfer or transfer, as it deems appropriate. (e) The restrictions of this Section 5 shall terminate on the earliest to occur of (i) notification from the Corporation to the Shareholder of such termination, (ii) the fourth annual anniversary of the date of the Agreement, or (iii) the Transfer with the prior written consent of the Board of Directors of the Corporation of all of the Common Stock. The date of termination of the Agreement shall be the "Termination Date". 6. Notices. Except as otherwise provided in this Agreement, all notices, requests, claims, demands, waivers and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or five business days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) properly addressed as set forth below. Any such notice or other communication shall be addressed (a) if to the Shareholders, at their respective addresses set forth below or at such other address as a Shareholder shall have furnished to the Corporation in writing, with a copy to (which shall not be a condition to adequate notice) Thomas Sherman, Esq., Dinsmore & Shohl, L.L.P., 1900 Chemed Center, 255 E. Fifth St., Cincinnati, Ohio 45202, or (b) if to the Corporation, to 685 Liberty Avenue, P.O. Box 1551, Union, New Jersey 07083 or to such other address and/or to the attention of such other copied person as the Corporation shall have furnished to the Shareholders and each such other holder in writing. 7. Waiver, Amendment. Any modification, waiver, amendment or termination of this Agreement or any provision hereof shall be effective only if in writing and signed all parties to this Agreement. 7 8. Successors, Assigns. This Agreement shall inure to the benefit of and be binding upon the parties and the personal representatives of the Shareholders hereto and their respective successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason this Agreement. 9. Invalidity. In the event any provision of this Agreement shall be held invalid or unenforceable by any court, such holding shall not invalidate or render unenforceable any other provision of this Agreement. 10. Governing Law. This Agreement shall be interpreted and construed in accordance with the laws of the State of Delaware. 8 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered on the day and year first above written. JANUS INDUSTRIES, INC. By: _______________________________ Name: James E. Bishop Title: President ___________________________________ Louis S. Beck Residence: 5629 Princeton Way Boca Raton, FL 33496 Social Security Number: ###-##-#### ___________________________________ Harry Yeaggy Residence: 7750 Ivygate Lane Cincinnati, Ohio 45242 Social Security Number: ###-##-#### BECK HOSPITALITY, INC. III By:________________________________ Name: Louis S. Beck Title: President Address: 8534 E. Kemper Rd. Cincinnati, OH 45249 E.I.N.: 9 EX-10.10 14 INVESTOR AGREEMENT INVESTOR AGREEMENT INVESTOR AGREEMENT, (this "Agreement") made as of April 23,1997, by and between JANUS INDUSTRIES, INC., a Delaware corporation, with offices at 685 Liberty Avenue, Union, New Jersey 07083 (the "Corporation") and each of BECK YEAGGY OF OHIO, INC., an Ohio corporation ("Beck Yeaggy") and MOTEL ASSOCIATES OF WESTERVILLE, INC., an Ohio corporation ("Westerville" and together with Beck Yeaggy the "Shareholders" and each, a "Shareholder"). Recitals: A. As a result of the closing of the transactions contemplated by the Asset Purchase Agreement dated as of April 23, 1997 (the "Purchase Agreement") by and among the Corporation, the Shareholders, Louis S. Beck ("Beck") and Harry Yeaggy ("Yeaggy"), Beck Yeaggy and Westerville will become the owners of 1,989,727.15 and 492,721.85 shares, respectively, of the Corporation's common stock (the "Common Stock"). B. The Corporation and the Shareholders desire to set forth the terms upon which the Common Stock are to be held by the Shareholders for the purpose of assuring compliance with the various securities laws, and preservation of the Corporation's federal income tax attributes, and the Corporation further desires to confirm certain representations and warranties of the Shareholders. NOW, THEREFORE, in consideration of the premises and the terms, provisions, covenants and conditions hereinafter set forth, and for other valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below. All capitalized terms used herein and not defined in this Section 1 shall have the meanings ascribed to such terms elsewhere in this Agreement. The term "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the federal securities laws with respect to the registration and public offering of securities of the Corporation. The term "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, government entity or government or any group comprised of one or more of the foregoing. The term "Securities Act" shall mean the Federal Securities Act of 1933, as amended from time to time and the rules, regulations, decisions and interpretations promulgated thereunder or such other federal act, rules, regulations, decisions and interpretations as may regulate and require the registration of the public offering of securities of the Corporation. 2. Certificate Legend. Each certificate or document representing the Common Stock issued pursuant to this Agreement shall be imprinted with a legend substantially as follows: The securities represented by this certificate have not been registered under the Securities Act of 1933 or the securities laws of any state. These securities have been acquired for investment and not with a view to distribution or resale, and may not be sold, assigned, made subject to a security interest, pledged, hypothecated, or otherwise transferred except pursuant to an effective registration statement under the Securities Act of 1933 and applicable state laws or exemptions therefrom or an opinion of counsel to the Corporation that such registration is not required as to such sale or offer. The Restated Certificate of Incorporation, as amended of the Corporation prohibits the purchase or acquisition of record or beneficial ownership of, or any beneficial or other interest in, any shares of the capital stock or securities of the Corporation if, at the date of such purchase or acquisition, such person or entity is, or would be after giving effect to any such proposed purchase or acquisition, directly, indirectly or by attribution, a holder of five percent (5%) or more of the issued and outstanding capital stock of the Corporation, determined based on the fair market value of the capital stock of the Corporation or the votes represented by the shares of the capital stock of the Corporation entitled to vote for the election of directors. A copy of the Restated Certificate of Incorporation of the Corporation is available for inspection and copying at the principal offices of the Corporation, and a copy of the provisions of the Restated Certificate of Incorporation of the Corporation setting forth such restrictions will be furnished to the record holder of this certificate without charge upon written request to the Corporation. The Corporation will furnish without charge to each stockholder who so requests, a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or or rights. The securities represented by this certificate are subject to substantial restrictions on transfer contained in an Investor Agreement with the Corporation, a copy of which can be obtained from the Corporation. 3. Covenants of the Shareholder. Each Shareholder, by acquiring the Common Stock, hereby covenants and agrees that: 2 (a) the Shareholder will not offer for sale or sell, or pledge, assign, hypothecate or otherwise transfer the Common Stock to any Person unless pursuant to: (i) an effective registration statement under the Securities Act ("Registration Statement") covering such offer and sale; or (ii) an exemption from registration under the Securities Act; provided that prior to any such proposed transfer, the Shareholder shall give written notice to the Corporation of the Shareholder's intentions to effect such transfer, which notice shall be accompanied by such evidence as may be reasonably satisfactory to the Corporation that the proposed transfer may be effected without registration under the Securities Act, or (iii) the provisions of Rule 144 under the Securities Act, if applicable or any successor rule thereto, or (iv) plans of liquidation and dissolution of the Shareholders, in which case the Common Stock may be transferred solely to Beck, Yeaggy and their wholly-owned corporation, Beck Hospitality, Inc. III. (b) Any offer or sale of the Common Stock shall be made in accordance with the federal and state securities laws (including the prospectus delivery requirements of the Securities Act), of applicable jurisdictions and any other applicable law. (c) The Common Stock transferred as above provided shall bear the appropriate restrictive legend unless, in the opinion of legal counsel for the Shareholder (which counsel and opinion (in form, scope and substance) shall be satisfactory to the Corporation), such legend is not required in order to establish compliance with any provisions of the Securities Act. 4. Representations and Warranties of the Shareholders. Each Shareholder hereby represents and agrees that: (a) The Shareholder has full power, authority and capacity to execute this Agreement, to make the representations and agreements contained in this Agreement and this Agreement is a legal, valid and binding obligation of the Shareholder enforceable against the Shareholder in accordance with its terms; and (b) The Shareholder understands each of the following representations and agreements, and hereby represents and agrees to each of the following with the understanding that the Corporation will rely upon the Shareholder representations and agreements in determining whether the Corporation may issue the Common Stock to the Shareholder under applicable securities laws: (i) The Shareholder is either an accredited investor (under the qualifications set forth in paragraph (vii) below) or has indicated by checking the following box [ ] that the Shareholder is not an accredited investor but is represented by a representative who is 3 a "purchaser representative" as defined in Regulation D of the Commission under the Securities Act and in any event is able to bear the economic risk of an investment in the Common Stock, including the loss of his entire investment. (ii) The Shareholder has prior substantial investment experience, including investments in non-registered securities, and recognizes the highly speculative nature of an investment in the Common Stock. (iii) The Shareholder has been afforded the opportunity to ask questions of, and receive answers from, directors and executive officers of the Corporation concerning the Corporation and the terms and conditions of the offering of the Common Stock pursuant to the Purchase Agreement. The Shareholder has been furnished with all information and all documents which he has requested. (iv) Neither the offer nor the sale of the Common Stock is being registered under the Securities Act or the securities laws of any state. The Common Stock are being offered and sold in reliance on exemptions from registration under the Securities Act and the various state securities laws for transactions not involving any public offering. Accordingly, none of the Common Stock can be sold, assigned, bequeathed, exchanged, pledged, hypothecated or otherwise transferred (each individually a "Transfer") by the Shareholder unless and until each is registered under the Securities Act and the securities laws of each applicable state or an exemption from registration pursuant to the Securities Act and such laws is available to the Shareholder. (v) The Corporation is relying on exemptions from the various federal and state securities laws which depend, in part, upon the Shareholder's investment intent and upon the information the Shareholder has set forth in this Agreement. This Agreement is delivered to the Corporation by the Shareholder with the understanding and intent that the Corporation will rely on the information contained in this Agreement and with such Shareholder's consent to such reliance. (vi) The Common Stock are being acquired by the Shareholder for the Shareholder's own account for investment and not for distribution or resale or fractionalization thereof or reselling thereof or any part thereof within the meaning of the Securities Act other than in compliance therewith or in accordance with an exemption therefrom. The Shareholder will not transfer any of the Common Stock unless they are registered under the Securities Act and the securities laws of each applicable state or unless an exemption from each such registration is available for such Transfer. The Shareholder has adequate means of providing for the Shareholder's current needs and possible personal and business contingencies and has no need for liquidity of his investment in the Common Stock. (vii) Unless indicated otherwise in clause (i) above, the Shareholder fits within, and is adequately described by, one or more of the following categories: (1) the Shareholder is a natural person who has a net worth or joint net worth with the Shareholder's spouse in excess of $1,000,000 at the time of the Shareholder's purchase; or (2) the Shareholder is a natural person who had an individual income in excess of $200,000 4 in each of the two most recent years or a joint income with the Shareholder's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; or (3) the Shareholder is an officer and/or director of the Corporation; or (4) the Shareholder is either (a) a bank as defined in Section 3(a)(2) of the Securities Act or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity, (b) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, (c) an insurance Corporation as defined in Section 2(13) of the Securities Act, (d) an investment Corporation registered under the Investment Corporation Act of 1940, as amended, or a business development Corporation as defined in Section 2(a)(48) of such Act, (e) a Small Business Investment Corporation licensed by The United States Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, as amended, (f) a plan established or maintained by a state or its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000, or (g) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which plan fiduciary is a bank, savings and loan association, an insurance Corporation or a registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons who otherwise meet these suitability standards; or (5) the Shareholder is a private business development Corporation as defined in Section 202(a)(22) of the Investment Advisors Act of 1940, as amended; or (6) the Shareholder is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, a corporation, a Massachusetts or similar business trust or a partnership not formed for the specific purpose of acquiring the Common Stock with total assets in excess of $5,000,000; or (7) the Shareholder is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Common Stock, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment; or (8) the Shareholder is a corporation or partnership, and each and every equity owner of such entity certifies that he or she meets the qualifications set forth in either clause (1), (2), (3), (4), (5), (6) or (7) above. As used in this Agreement, the term "net worth" means the excess of total assets over total liabilities. In determining income, an investor should add to his adjusted gross income any amount attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to an IRA or Keogh retirement plan, alimony payments and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income. (viii) The Shareholder agrees that the Shareholder shall not cancel, terminate or revoke this Agreement or any other agreement executed by the Shareholder with respect to the purchase of the Common Stock and that this Agreement shall survive the Shareholder's death or disability, except as pursuant to the laws of the applicable jurisdiction. 5 (ix) The address set forth below is the Shareholder's true and correct residence, and the Shareholder has no present intention of becoming a resident of any other country, state or jurisdiction prior to the Shareholder's acquisition of the Common Stock. (x) The Shareholder acknowledges that the Corporation and its officers and agents have made no representations or warranties, whether orally or in writing, or express or implied, as to the financial condition, assets, operations, business, prospects or condition of the Corporation other than as set forth in the Purchase Agreement and the Corporation's Disclosure Letter delivered in connection therewith. (xi) The Shareholder understands the meaning and legal consequences of the foregoing representations and warranties, which are true and correct as of the date hereof and will be true and correct as of the date of the Shareholder's purchase of the Common Stock subscribed for herein. Each such representation and warranty shall survive such purchase. 5. Standstill. (a) Without the prior written consent of the Board of Directors of the Corporation, the Shareholder agrees that until the Termination Date (as defined below), the Shareholder shall not sell or contract to sell, exchange, assign, bequeath, pledge, mortgage, alienate, grant an option to purchase, hypothecate or otherwise in any manner whatsoever (voluntarily or involuntarily, by operation of law or otherwise) Transfer or encumber record or beneficial ownership of any shares of the Common Stock or any securities issued with respect to any such shares or into which they may be converted, exchanged or otherwise changed. (b) The Corporation shall have no obligation to consent to a Transfer of the Common Stock unless it shall have received an opinion, in writing, of counsel of its choosing, that the proposed Transfer of the Common Stock does not give rise to an "ownership change" under ss.382 or otherwise adversely affect the availability to the Corporation of its net operating loss carry forwards and any other applicable tax attributes for Federal Income Tax purposes. (c) The Shareholder acknowledges and agrees that the Corporation will give to its stock transfer agent instructions prohibiting the Transfer of the Common Stock in violation of this Agreement. Shareholder acknowledges any Transfer in violation of this Agreement will be void. (d) In the event that the Corporation is notified of a proposed Transfer by the Shareholder or a transfer proposed by any other person who is subject to an agreement with the Corporation containing standstill provisions substantially similar to those set forth in this Section 5 (a "Standstill Agreement") including, without limitation, those agreements existing as of this date with Daewoo Corporation, Mitsubishi Corp., General Electric Capital Corporation and The Prudential Insurance Company of America, and the Corporation determines preliminarily to consent to such Transfer or transfer, the Corporation shall notify all persons (including the Shareholder) who are subject to a Standstill Agreement of such proposed consent. The Shareholder and each other person who is subject to a Standstill Agreement shall have 30 days 6 from the date of such notice to advise the Corporation in writing whether it wishes to Transfer or transfer securities of the Corporation, and the amount of securities it wishes to Transfer or transfer. The Corporation shall then allocate, in the sole discretion of the Board of Directors of the Corporation, the number of securities of the Corporation which may be the subject of a Transfer or transfer among those persons who have indicated in writing their desire to transfer securities of the Corporation in the event the Corporation consents to the original Transfer or transfer. In such event the Corporation may establish such mechanism to monitor any such Transfer or transfer, including time limitations on such Transfer or transfer, as it deems appropriate. (e) The restrictions of this Section 5 shall terminate on the earliest to occur of (i) notification from the Corporation to the Shareholder of such termination, (ii) the fourth annual anniversary of the date of the Agreement, or (iii) the Transfer with the prior written consent of the Board of Directors of the Corporation of all of the Common Stock. The date of termination of the Agreement shall be the "Termination Date". 6. Notices. Except as otherwise provided in this Agreement, all notices, requests, claims, demands, waivers and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or five business days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) properly addressed as set forth below. Any such notice or other communication shall be addressed (a) if to the Shareholders, at their respective addresses set forth below or at such other address as a Shareholder shall have furnished to the Corporation in writing, with a copy to (which shall not be a condition to adequate notice) Thomas Sherman, Esq., Dinsmore & Shohl, L.L.P., 1900 Chemed Center, 255 E. Fifth St., Cincinnati, Ohio 45202, or (b) if to the Corporation, to 685 Liberty Avenue, P.O. Box 1551, Union, New Jersey 07083 or to such other address and/or to the attention of such other copied person as the Corporation shall have furnished to the Shareholders and each such other holder in writing. 7. Waiver, Amendment. Any modification, waiver, amendment or termination of this Agreement or any provision hereof shall be effective only if in writing and signed all parties to this Agreement. 8. Successors, Assigns. This Agreement shall inure to the benefit of and be binding upon the parties and the personal representatives of the Shareholders hereto and their respective successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason this Agreement. 9. Invalidity. In the event any provision of this Agreement shall be held invalid or unenforceable by any court, such holding shall not invalidate or render unenforceable any other provision of this Agreement. 10. Governing Law. This Agreement shall be interpreted and construed in accordance with the laws of the State of Delaware. 7 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered on the day and year first above written. JANUS INDUSTRIES, INC. By: ________________________________ Name: James E. Bishop Title: President BECK YEAGGY OF OHIO, INC. By:_________________________________ Name: Louis S. Beck Title: President Address: 8534 E. Kemper Rd. Cincinnati, OH 45249 E.I.N.: MOTEL ASSOCIATES OF WESTERVILLE, INC. By:_________________________________ Name: Louis S. Beck Title: President Address: 8534 E. Kemper Rd. Cincinnati, OH 45249 E.I.N.: EX-10.11 15 EXHIBIT 10.11 MANAGEMENT AGREEMENT THIS AGREEMENT, made and entered into this 23rd day of April, 1997 (the "Effective Date"), by and between ______________________________, a ______ corporation (hereinafter called "Owner") and JANUS INDUSTRIES, INC., a Delaware corporation (hereinafter called "Manager"). WHEREAS, Owner represents that it owns the motel and the underlying real estate which is more fully described on Exhibit A attached hereto and made a part hereof (hereinafter called the "Property"); and WHEREAS, the parties hereto desire that Manager shall manage and operate the Property as agent of Owner under the terms of this written Management Agreement (hereinafter called the "Agreement"). NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: ARTICLE I APPOINTMENT AND COMPENSATION OF MANAGER 1.1 Appointment of Manager. Owner hereby appoints Manager, and Manager hereby accepts appointment, on the terms and conditions hereinafter set forth, to maintain, operate and manage the Property on Owner's behalf from the date hereof. Manager shall be an agent of Owner. 1.2 Delegation of Authority. Solely to the extent expressly provided herein, the day-to-day operation, management and maintenance of the Property shall be under the supervision, direction and control of Manager. 1.3 Management Fee. For its services hereunder, Manager shall receive a management fee (the "Management Fee") equal to five percent (5%) of the Gross Revenues (as defined in Exhibit B attached hereto) of the Property. The Management Fee shall be calculated for each Accounting Period (as defined in Exhibit B attached hereto) and payable to Manager from the General Account (as defined in Section 3.2 below) at the end of each Accounting Period. ARTICLE II TERM 2.1 Term. The term ("Term") of this Agreement shall be for an initial term (the "Initial Term") of ten (10) years commencing on the Effective Date and ending on the tenth anniversary of such date (the "Initial Term Expiration Date"). The Agreement shall automatically be renewed after the Initial Term for successive one (1) year periods (each term referred to hereinafter as a "Renewal Term") unless either party hereto shall affirmatively decide not to renew the same. Notice of termination must be delivered in writing on or before ninety (90) days prior to the expiration of the Initial Term or the Renewal Term. 2.2 Early Termination. This Agreement shall cease prior to the expiration of the Initial Term hereof upon the occurrence of any of the following circumstances (hereinafter referred to as an "Early Termination Event"): (a) In the event of a bona fide sale of the Property, Owner may terminate this agreement upon thirty (30) days prior written notice to Manager. (b) In the event that either Owner or Manager materially breaches this Agreement or fails to observe or perform any of its material covenants or agreements and shall not cure any such breach within thirty (30) days after written notice from the other part, then the other party may terminate this Agreement upon written notice to such breaching party. (c) If Manager shall engage in any act of willful misconduct or fraud with respect to, or the misappropriation or diversion of funds or property of, Owner or the Property. (d) If either Owner or Manager shall file a voluntary petition for reorganization or for any arrangements under any provisions of any bankruptcy code now or hereafter enacted, the other party may terminate this Agreement upon written notice to the party filing such petition. (e) If a petition shall be filed by any third party for the reorganization of Owner or Manager under any provisions of any bankruptcy code now or hereafter enacted and such proceeding is not dismissed within ninety (90) days after such filing, then the other party may terminate this Agreement upon written notice to the party against whom such petition was filed. (f) If a receiver, trustee in involuntary bankruptcy or other similar officer shall be appointed to take care of all or a substantial portion of the property of Owner or Manager, then the other party may terminate this Agreement upon written notice to the party for whom such official has been appointed. (g) If either Owner or Manager makes a general assignment for the benefit of its creditors, the other party may terminate this Agreement upon written notice to the party making such assignment. (h) If any material license, permit, or government authorization necessary for the operation of the Property is terminated, or renewal refused by the governing authority having jurisdiction thereof. 2 (i) If the current franchise agreement ("Franchise Agreement") is terminated or expires, and Manager and Owner cannot agree on Owner's new franchise agreement or cannot agree that the Property should be operated without a new franchise agreement. 2.3 Payment Upon Early Termination. In the event this Agreement is terminated upon the occurrence of the Early Termination Event provided for in Section 2.2(a) of this Agreement, Owner shall pay to Manager on the early termination date ("Early Termination Date"), as liquidated damages and not as a penalty, an amount equal to the Present Value (as hereinafter defined) of the Management Fee, for each Accounting Period that remains between the Early Termination Date and the Initial Term Expiration Date (the "Expected Gross Revenues"). For purposes of this Section 2.3, the Gross Revenues for each Accounting Period between the Early Termination Date and the Initial Term Expiration Date shall be the average of the Gross Revenues for each Accounting Period for the three (3) years prior to the Early Termination Date; provided, however, if this Agreement is in effect less than three (3) years on the occurrence of the Early Termination Date, then the average of the Gross Revenues for each Accounting Period from the Effective Date until the Early Termination Date shall be used as the Gross Revenues for calculating the payment provided for herein. "Present Value" shall be an amount of the Expected Gross Revenues discounted to present value at the Discount Rate. The "Discount Rate" shall mean the yield on the United States Treasury obligations quoted on the Early Termination Date which most closely matches the unexpired term of this Agreement. For example, if on the Early Termination Date there is six years and seven months remaining on the Initial Term of this Agreement, then the Discount Rate would be calculated by adding 300 basis points to the then current yield on the 7-year U.S. Treasury obligations. If there were six years and four months remaining on the Initial Term of this Agreement, the Discount Rate would be calculated by adding 300 basis points to the then current yield on the 6-year U.S. Treasury obligations. ARTICLE III OPERATION OF THE PROPERTY 3.1 General Responsibilities of Manager. Manager shall be responsible for all matters relating to the day-to-day operation, management and maintenance of the Property including, without limitation, (i) rental and occupancy of rooms and commercial space, if any, and setting of charges therefore; (ii) food and beverage services; (iii) employment policies; (iv) the receipt, holding and disbursement of funds; (v) accounting; (vi) budgeting; (vii) procurement of inventories, supplies and services; (viii) promotion, sales, marketing and publicity; and (ix) maintenance, repair and cleaning of all improvements and equipment. Manager shall use its best efforts to operate, manage and maintain the Property in such a manner as to provide a quality environment and to maximize to Owner the profits that can be derived from the Property and, upon its own initiative, with reasonable frequency, shall consult with and advise Owner and otherwise bring to Owner's attention opportunities to obtain and increase such profits. 3 3.2 General Accounts, Payments, and Distributions. (a) Manager, on behalf of Owner, shall establish a bank account (the "General Account") for the Property in both Owner's name and in Manager's name as agent for Owner in banks approved by Owner (which approval shall not be unreasonably withheld). The General Account for the Property shall be used to deposit all cash generated by the Property and to pay all permitted costs and expenses of the Property. Manager shall deposit all funds collected from the operation of the Property in the General Account. All funds deposited shall be held by Manager for the benefit of Owner. Funds from the General Account shall be disbursed by the Manager to pay its Management Fee and other normal and reasonable expenses of the Property incurred in the operation and maintenance of the Property pursuant to this Agreement. It is understood and agreed that to facilitate the payment of expenses for the Property (such as payroll), Manager may elect to make such payments from an account maintained by Manager for making such payments with regard to the Property and shall be entitled to withdraw from the General Account for the Property and deposit to such other account from time to time an amount equal to the checks drawn upon such other account for the payment of expenses of the Property. All other accounts shall be approved in advance by Owner. All bank accounts shall be owned by Owner and shall be operated by Manager as the agent of Owner. (b) Nothing herein contained shall be construed to deprive Manager of the right to maintain petty cash funds and to make payment therefrom as the same are understood and employed in the property management business. (c) Manager shall keep its own funds separate and apart from those belonging to the Owner. (d) On or before the Effective Date, Owner agrees to deposit in the General Account the sum of $10,000 (the "Minimum Working Capital Balance"). Thereafter, at any time when the balance in the General Account shall be less than the Minimum Working Capital Balance and the balance in the Depository Account is not sufficient to fund such deficit, Owner shall deposit to such General Account, upon seven (7) business days prior written notice from Manager, an amount equal to such deficiency. (e) Subject to maintaining the Minimum Working Capital Balance, Manager shall transfer to Owner such excess funds as Owner shall specify. (f) Manager shall not be required to incur any liability or obligation for Owner's account without assurances satisfactory to Manager that the funds necessary for the discharge thereof will be provided by the Owner. (g) Manager shall provide cash management for all funds of Owner controlled by Manager. For the purpose of this Agreement, the term "cash management" shall mean expediting cash inflows, controlling cash outflows, and, to the extent reasonably possible, investing the difference between cash inflows at a market rate of interest. 4 3.3 Books and Records. Manager shall maintain at its principal office full, adequate and separate books and records as are necessary to reflect all transactions of the Property and of Manager with respect to the Property. Such books and records shall be kept in a manner such that accounting statements may be prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). Owner shall have the right and privilege of examining such books and records at the Manager's principal office at any and all reasonable times during normal business hours. Manager shall not destroy or dispose of any such books or records except by delivery to Owner or as Owner may otherwise instruct. Upon termination of this Agreement, all books and records shall be forthwith delivered to Owner so as to ensure the orderly continuance of the operation of the Property, but all such books and records shall thereafter be available to Manager at all reasonable times for inspection, audit, examination, and transcription for a period of not less than seven (7) years from the date of said termination. 3.4 Monthly Financial Reports. Within fifteen (15) days after the end of each Accounting Period, Manager shall deliver to Owner an accounting for the operations of the Property, including a detailed profit and loss statement and balance sheet showing the results of operation of the Property for the preceding Accounting Period and for the Fiscal Year (as defined in Exhibit B attached hereto) to date and the cash needs, if any, for the subsequent three (3) months. Such statements shall be calculated on the accrual method. Manager shall also deliver to Owner at such times: (a) a report comparing actual results to budgeted results (b) occupancy and room rate reports, (c) reports on insurance claims and (d) other reports as reasonably requested by Owner, in each case for the preceding Accounting Period and for the Fiscal Year to date. 3.5 Annual Financial Reports. Within thirty (30) days after the end of each Fiscal Year, Manager shall deliver to Owner unaudited financial statements including a detailed balance sheet, a statement of cash flows and an income and expense statement showing the results of operations of the Property during such Fiscal Year. Such financial statements shall be calculated on the accrual method and be prepared in accordance with GAAP. 3.6 Audits. Owner shall have the right at any time to cause an audit of the books, records, and operations of the Property to be made by an independent certified accounting firm. Manager shall cooperate fully with such auditors and shall make available to them any and all information concerning the Property. Owner shall deliver to Manager copies of all financial reports regarding the Property promptly after they are received from such auditors. Any adjustment to any Management Fee required because of the results of such audit shall be made by the parties within ten (10) business days. The cost of any such independent audit shall be an administrative and general expense of the Property for the Fiscal Year in which such audit occurs. 3.7 Annual Budgets. (a) Manager shall submit to Owner, in a form reasonably satisfactory to Owner, for its consideration and approval, the following for the Property for each Fiscal Year, no later than sixty (60) days prior to the beginning of each Fiscal Year: 5 (i) a proposed operating budget on a monthly and yearly basis ("Operating Budget") for the Property as approved by Owner and which shall set forth Manager's best estimate of the following items for such Fiscal Year including supporting schedules for each line item: A. Projected occupancy and average room rate; B. Projected gross revenue; C. Leasing plan with respect to commercial or retail spaces, if any, that will be vacant; D. Projected expenses, detailed by type; E. Detailed proposed scheduling of staff, salaries and wages; F. Property room rates and charges for other services; G. Insurance premiums and property taxes; H Property operations and maintenance (non-capital); I. Advertising, promotional and marketing expenses; J. Calculation of estimated Management Fee; and K. Narrative overview of all budgeted revenue and expense levels and an analysis of budgeted levels to the previous year's actual results, with an explanation of any differences. (ii) a proposed budget on a monthly and yearly basis ("Equipment Budget") setting forth Manager's best estimate of the capital expenditures to be made for replacement of and additions to furniture, furnishings and equipment for such Fiscal Year; and (iii) a proposed budget ("Capital Expenditures Budget" and together with the Operating Budget and the Equipment Budget, the "Annual Budget") setting forth Manager's best estimate of capital expenditures to be made for major building improvements, renovation, capital repairs and expansion for such Fiscal Year. (b) Owner shall be deemed to have approved any of the foregoing budgets, unless Owner gives notice of its disapproval to Manager on or before the commencement of a new fiscal year. In the event Owner does not approve all or any part of the foregoing budgets prior to the commencement of a new Fiscal Year, Owner promptly shall furnish to Manager an interim budget which shall reasonably permit the continued operation of the Property until final approval is given. (c) Manager shall comply with the Annual Budget, once it is approved by Owner, and shall not deviate substantially therefrom as to the planned expenditures on a line-item basis or change the manner of operation (including the marketing plan) of the Property without prior written consent of Owner, except where such deviation is due to and is in direct proportion to an increase (or decrease) in the revenues of the Property in excess of (or below) the budgeted amounts on a line-item basis or in case of an emergency, where Owner is promptly advised thereof. 6 (d) With respect to the portion of a Fiscal Year remaining following the Effective Date, Manager shall submit the Annual Budget no later than forty-five (45) days after the date Manager assumes control of the Property. (e) Upon the request of Owner, Manager shall make available to Owner the data utilized in preparing the Annual Budget. 3.8 Insurance. (a) Owner agrees to maintain at all times during the term hereof the following insurance: (i) Insurance on the building, equipment, furniture and furnishings (including business interruption coverage) against loss or damage. (ii) Comprehensive general liability insurance (including protective liability coverage on operations of independent contractors engaged in construction and also blanket contractual liability insurance) at a minimum amount of two (2) million dollars general aggregate with an umbrella policy to exceed five (5) million dollars in total coverage, against claims for personal injury, death, or property damage, including coverage against liability arising out of the use by or on behalf of the Owner or Manager of any owned, non-owned or hired automotive equipment and including coverage against Manager's liability, liquor liability, and dram shop liability, to the extent required by the laws of the jurisdiction in which the Property is located. (b) All policies of insurance shall: (i) name and designate the Manager as an additional insured and (ii) be an expense of the Property. Without limiting the foregoing, all insurance shall be effected under policies issued by insurers of recognized responsibility and shall, to the extent obtainable, provide that such policies shall not be canceled without at least thirty (30) days' prior written notice to the Manager as an additional insured and that any loss shall be payable to the Owner, notwithstanding any act of negligence of the Manager that otherwise might result in forfeiture of said insurance. Certificates of insurance, along with evidence or renewal from time to time thereof, shall be given to Manager no less than ten (10) days prior to their effectiveness. (c) Manager shall report to the appropriate insurance companies all accidents and potential claims. (d) Manager shall cause to be placed and kept in force worker's compensation insurance up to the statutory limit, as required by the state where the Property is located, and employer's liability of at least $100,000. Manager shall furnish Owner with certificates of same no less than ten (10) days prior to their effectiveness. (e) Provided that Owner and Manager shall procure and keep in force all of the insurance required to be obtained by each of them, respectively, pursuant to this Agreement, 7 neither Owner nor Manager shall assert against the other claims for any losses, damages, liabilities or expenses (including attorney fees) incurred or sustained by either of them, to the extent that the same are covered by such insurance, on account of damage or injury to person or property arising out of the ownership, operation, or maintenance of the Property. The parties agree that all policies of insurance shall permit the foregoing waiver. 3.9 Taxes and Assessments. Manager shall obtain bills for real estate and personal property taxes, improvement assessments and other like charges that are or may become liens against the Property and recommend to Owner payment thereof or appeal therefrom. Manager shall annually review and submit all real estate and personal property taxes and all assessments affecting the property to Owner. 3.10 Compliance With Legal Requirements. Owner and Manager shall take such actions (to the extent of the delegation of responsibilities hereunder) as may be necessary to comply with any and all material laws, rules, regulations, orders, or requirements of any federal, state, county, parish, or municipal agency, or other authority having jurisdiction thereof, affecting the Property or the ownership or operations thereof by Owner or Manager. Manager, however, shall not take any such action as long as Owner is contesting, or has affirmed its intention to contest any material payment, assessment, order or requirement (except that where failure to comply promptly with any such order or requirement might expose Manager to criminal liability, Manager may take such action without Owner's approval). Manager promptly shall notify Owner in writing of all such orders and notices or requirements. Manager shall prepare, execute and, after obtaining the approval of Owner, file any such reports and documents as may be required by any governmental authority. Manager hereby specifically covenants and agrees to use its reasonable best efforts to obtain and maintain all licenses and permits necessary for the operation of the Property and all other costs incurred by Manager under this Section shall be deemed expenses of the Property. 3.11 Use and Maintenance of the Property. Manager shall use the property solely for the operation of a Property under standards comparable to those prevailing in the transient guest lodging industry and for all activities in connection therewith that are customary and usual to such an operation. Manager agrees not to permit the Property to be used for any purpose the Manager knows might void any policy of insurance relating to such Property or which Manager knows might render any loss thereunder uncollectable. Manager hereby covenants and agrees to use its reasonable best efforts to keep the Property in good connection and repair and to make regular inspections thereof within the limitations contained herein. Expenses incurred by Manager in keeping the Property in good condition and repair shall be expenses of the Property. Manager further covenants and agrees to take all reasonable precautions against fire, vandalism, burglary, and trespass to the Property within the limitations contained herein, the cost of all such precautions to be expenses of the Property. 3.12 Marketing. (a) Manager shall use its reasonable best efforts to secure and retain guests for the Property and to merchandise food and beverages served at the Property. Subject to the 8 Annual Budget, Manager shall have the right to rent suites and rent meeting room services in such manner and upon such terms and conditions as Manager deems advisable, including the offering of complementary suites, food, and beverages when deemed necessary by Manager in the furtherance of marketing activities. (b) Both parties recognize the goal is to achieve the highest possible occupancy at the most profitable rates possible and that the Manager shall use its reasonable best efforts to achieve that goal. (c) Manager agrees that upon Owner's request, at termination of the Agreement or otherwise, it immediately will deliver to Owner all customer folios, marketing files and records pertaining to the Property. Manager shall make available to Owner all other records and files pertaining to guests, tenants or customers and correspondence and files related to prospective and existing guests and tenants. (d) Manager will prepare on an annual basis a marketing plan that shall include, but not be limited to, projected occupied room-nights and a detailed program for advertising and promotion. 3.13 Sales of FF&E. All proceeds from the sale of operating equipment and/or furniture, furnishings and equipment no longer needed for the operation of the Property shall be paid to Owner. Any such sale shall occur only with the prior approval of Owner, unless such sale is included in the Annual Budget. 3.14 Compliance with Franchise Requirements. Manager shall operate and manage the Property in compliance with the Franchise Agreement and shall, in connection therewith, communicate with the franchisor, purchase such supplies and services as may be required by the Franchise Agreement, conduct the business of the Property in compliance with the Franchise Agreement, and prepare any and all writings and make all payments required by the Franchise Agreement to the extent of funds available for payment of Property expenses from the Operating Account. Manager shall forward to Owner copies of all notices, correspondence, and other writings received from or sent to the franchisor immediately following such receipt or dispatch. Upon Owner's request, Manager shall cause an appropriate employee of Manager to attend any and all meetings administered by franchisor or held by or for the franchisees and to prepare reports of such meetings for Owner, all at the expense of Owner. 3.15 Compliance with Mortgage Requirements. If Manager receives notice of default under any mortgage, lease or other agreement executed by Owner which relates to the Property, Manager shall immediately give written notice thereof to Owner. 3.16 Periodic Meetings. After each fiscal quarter, Manager and Owner shall, if deemed necessary by Manager or Owner (or more frequently if deemed necessary), meet at a mutually agreeable time and place to review operating results for the Fiscal Year to date and operating plans for the balance of the Fiscal Year. 9 3.17 Owner Responsible for Debts, Liabilities, and Expenses. Except as otherwise provided in this Agreement, all debts and liabilities to third persons incurred by Manger in the course of its operation and management of the Property and within the scope of its authority hereunder shall be the debts and liabilities of Owner only, and Manager shall not be liable for any such obligations by reason of its management, supervision, direction or operation of the Property for Owner or for any other reason whatsoever. 3.18 Manager to Consult With Owner. Except as otherwise provided in this Agreement, Manager shall consult with and advise Owner concerning all policies and procedures affecting all phases of the conduct of business at the Property and will give consideration to suggestions made by Owner. To the greatest extent possible, such consultation and advice shall take place prior to the institution of any major policies and procedures. 3.19 Manager Does Not Guarantee Projections or Annual Budget. Owner hereby represents that in entering into this Agreement, Owner has not relied on any projection of earnings, budgets or statements as to the possibility of future success or other similar matters that may have been prepared by Manager. Owner understands that no guaranty is made or implied by Manager as to the future financial success of the Property and that Manager does not warrant or guarantee any projections, budget or similar matter in any way whatsoever. ARTICLE IV MANAGEMENT AUTHORITY 4.1 Contracts. Manager is authorized to make and enter into for the account of, in the name of, and at the expense of Owner, all such contracts, equipment leases and agreements as are included in the Annual Budget and are required in the ordinary course of business for the operation, maintenance and service of the Property and to pay the same when due. However, Manager shall be required to obtain the written consent of Owner before entering into any contract for the account of Owner, of whatever nature, if the total amount payable under such a contract exceeds $5,000, unless it is made under circumstances which the Manager reasonably shall consider to constitute an emergency. Notwithstanding the foregoing, Manager shall use its best efforts to contact and secure approval of Owner in the event any such emergency expenditure should be likely to exceed $10,000. 4.2 Term of Contracts. Any contract, equipment lease, or agreement entered into by Manager of the Property shall not exceed a term of one (1) year without the prior written approval of Owner. 4.3 Employment of Personnel. (a) Manager, either directly or under the terms of its agreement with Hospitality Employee Leasing Program, Inc. ("HELP"), will hire, train, supervise, direct the work of, and discharge all personnel of the Property that Manager reasonably determines to be necessary or appropriate for the operation of the Property ("Property Employees"). Owner acknowledges that it has been advised by Manager that it is Manager's present intention to utilize 10 the services of HELP in filling the personnel requirements of operating the Property. Manager will not, and will not permit HELP to, discriminate against any employee or applicant for employment because of race, creed, color, sex, age or national origin. Such personnel shall in every instance be deemed employees of the Manager or HELP, as applicable. Manager shall use its reasonable best efforts and exercise reasonable care to seek qualified, competent and trustworthy employees. (b) The salaries, wages (including bonus plans) and other compensation, including social security, taxes, worker's compensation insurance, relocation expenses and the like, of Property Employees shall be an expense of the Property. Manager shall cause its accounting department, or competent accounting department of a third party, to prepare and timely file all necessary reports with respect to withholding taxes, social security taxes, unemployment insurance, disability insurance, the Fair Labor Standards Act, and all other statements and reports pertaining to labor employment on or about the Property. (c) Manager shall provide appropriate training for all Property Employees. Manager also shall cause the appropriate employees to attend any program required by the franchisor pursuant to the Franchise Agreement. The costs of attending any such meetings or seminars, including the cost of tourist class travel, accommodations, and food, shall be an expense of the Property, but shall not unreasonably exceed the amount provided for such purpose in the Annual Budget. (d) Manager shall be entitled to reimbursement for any reasonable travel-related expenses for travel to and from the Property, including tourist air and ground transportation, lodging, and needs incurred in connection with visits to the Property by members of Manager's home office and regional offices. Any such expense shall be charged to the Property, and all such individuals shall receive complimentary room, food and non-alcoholic beverage services at the Property during their work-related visits to the Property. The Annual Budget shall include a line item for such travel expenses. (e) All salaries, wages, and compensation of Property Employees, to the extent their time shall be devoted to the Property, shall be deemed to be expenses of the Property payable to Manager out of the General Account. In addition, so-called fringe benefits such as insurance or group life insurance pertaining to such Property Employees also shall be expenses of the Property payable to Manager out of the General Account. (f) Immediately following any termination hereof, Manager shall withdraw its employees and other personnel from the Property. In the event of a termination of Manager for any reason other than Manager's default hereunder, Owner agrees that it shall not employ the following employees of the Property for a period of one (1) year following such termination without the written approval of the Manager, which may be withheld in Manager's sole discretion: general manager of the Property, food and beverage manager and director of sales or any home office management personnel of Manager. 11 (g) Subject to the restrictions imposed by the Annual Budget, Manager shall set the salaries, bonuses and fringe benefits of all Property Employees. 4.4 Advertising. Manager shall ensure that all advertising and signage in and around the Property shall have its primary goal and purpose the promotion and marketing of the Property. 4.5 Inventories and Supplies. Manager shall purchase such consumable supplies and other expendable items as are necessary to operate the Property and shall pay for such supplies out of the General Account. 4.6 Accounting and Control Fees. Manager shall provide, in connection with the Property (i) all required and necessary accounting functions and reports, as described on the attached Exhibit B (the "Accounting Functions"), for a fee of $475.00 per month (during the first twelve months of the Management Term) (the "Accounting Fee"), and (ii) computer hardware and software for a Reservation Property Control System (hereinafter called the "Control System") for a fee of $699.60 per month (during the first twelve months of the Management Term) ("Control Fee"). Said Control System will make available to the Property's front desk a reservation management system, instantaneous accounting information, and a protective audit system in lieu of and/or in conjunction with the manual or cash register system. The hardware, software and Control System shall at all times not be the property of the Owner, and upon termination of this Agreement, the parties agree the Control System shall be removed from the Property by the Manager. Owner agrees to maintain the confidential nature of the Control System software and operating procedures during and after the termination of this Agreement. The parties agree that they shall negotiate in good faith every 12 months with respect to the amount of the Accounting Fee and Control Fee, but if they cannot agree, the maximum increase each 12 months shall not exceed 10%. 4.7 Sales and Use Taxes. Manager shall maintain all required records and prepare and file all forms related to the collection and payment of all sales and use taxes. Manager shall make required payments to the appropriate taxing authority from the Operating Accounts. Manager's responsibilities hereunder specifically exclude the preparation or filing of local, state or federal income tax returns. 4.8 Extraordinary Services. Manager shall not be obligated under this Agreement to provide any extraordinary, specialized services of its construction, architectural, engineering, legal or similar staff, or any other services of a professional, technical, extraordinary, non-routine nature, which services involve a substantial commitment of Manager's personnel to or on behalf of Owner or the Property, whether in connection with construction or remodeling activities at the Property or otherwise. Any such services as may be requested by Owner and provided by Manager shall be upon such terms and provisions as may be agreed upon by Manager and Owner at the time of such services. Manager shall make available to Owner at no cost to Owner or the Property the services of the Manager's specialized facilities employed in the performance of its 12 Property management activities generally, including its central buying facilities, accounting, cost control, food and beverage expertise, publicity, marketing and interior design. ARTICLE V CONDEMNATION 5.1 Condemnation. (a) If the whole of the buildings of the land shall be taken or condemned by reason of any eminent domain, condemnation, or like proceeding by any competent authority for any public or quasi-public use or purpose, or if such a portion thereof shall be taken or condemned as to make it imprudent or unreasonable, in the reasonable opinion of Owner, to use the remaining portion as a Property of the type and class as immediately preceding such taking or condemnation, then in either of such events, this Agreement shall terminate as of thirty (30) days after written notice from Owner to Manager. Owner may settle any such action or award, solely as to its own interest in the Property, on such terms as it may deem advisable. All proceeds of any condemnation (including a partial condemnation) shall belong to Owner, except to the extent that separate award is made to Manager. Manager shall have the right to seek an award in an eminent domain, condemnation, compulsory acquisition or like proceeding only if such action by Manager is not likely to, and does not, in Owner's opinion, prejudice any of Owner's rights or diminish or adversely affect any award or proceeds sought by or awarded to Owner. (b) If only a portion of the Building or Land shall be taken or condemned, and the taking or condemnation of such portion does not make it unreasonable or imprudent to operate the remainder of such Property as a Property of the type and class immediately preceding such taking or condemnation, this Agreement shall not terminate. ARTICLE VI MISCELLANEOUS PROVISIONS 6.1 Relationship. The relationship of Owner and Manager created hereby is that of a principal and agent, it being understood that Manager's agency is defined by virtue of this Agreement. Nothing herein contained shall constitute or be construed to be or create a partnership or joint venture between Owner and Manager with respect to the management of the Property as provided for in this Agreement. 6.2 Assignment. This Agreement is not assignable by either party hereto without prior written consent of the other party hereto; provided, however, Manager may assign this Agreement to a wholly-owned subsidiary or limited liability company of which it is the sole member, without the prior written consent of Owner. Subject to the foregoing, the covenants and agreements herein contained shall inure to the benefits of, and be binding upon, the parties hereto and their respective successors and permitted assigns. 13 6.3 Indemnifications. (a) Owner shall indemnify, defend and hold Manager harmless from and against all claims, damages and costs (including reasonable attorney's fees and costs) arising out of or in connection with any acts of Owner, its agents, officers, employees or contractors, that (i) involve negligence or willful misconduct of Owner, its agents, officer, employees or contractors; (ii) constitute a breach of this Agreement; or (iii) violate any law or regulation. (b) Owner does hereby covenant, represent and warrant to Manager that prior to the date of this Agreement that no part of the Property has been or is being used for the storage of any hazardous waste materials of any kind whatsoever; there are no violations of any applicable environmental protection laws, ordinance or regulations affecting the Property; and the Property is unencumbered by the lien of any governmental or quasi-governmental environmental agency. Owner agrees to and shall indemnify, defend and hold harmless Manager from any liability, claims, obligations or losses, including reasonable attorneys' fees, incurred by Manager or assessed against the Property or any part thereof by virtue of any claim or lien of any governmental or quasi-governmental unit, body or agency or any third party for clean-up costs or other costs pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any other similar statute, law, rule or regulation of any governmental or quasi-governmental unit, body or agency arising on account of acts or omissions prior to the date of this Agreement. This provision shall survive the termination of this Management Agreement and shall continue in full force and effect so long as the possibility of any such liability, claims, obligations or losses exists. If any hazardous waste materials of any kind whatsoever are discovered upon any part of the Property, Manager shall have the right, but not the obligation, to terminate this Management Agreement. (c) Manager shall indemnify, defend and hold Owner harmless from and against all claims, damages and costs (including reasonable attorneys' fees and costs) arising out of or in connection with any acts of Manager, its agents, officers, employees or contractors, that (i) are outside the scope of Manager's employment hereunder; (ii) involve negligence or willful misconduct of Manager, it agents, officers, employees or contractors; (iii) constitute a breach of this Agreement; or (iv) violate any law or regulation. (d) It is expressly understood and agreed that the foregoing provisions shall survive the termination of this Agreement and shall be binding upon all successors and assigns. 6.4 Owner's Right to Inspect. Owner or its agents shall have access to the Property at any and all reasonable times for the purpose of protecting the same against fire or other casualty, prevention of damage to the Property, inspection, making repairs or showing the Property to prospective purchasers, tenants or mortgagees. Owner may converse with any Property Employee regarding any subject and Manager shall instruct them to disclose fully to Owner at Owner's request all information regarding the Property. In all respects, Owner shall seek to minimize any disruptions to the operations of the Property resulting from its access thereto. 14 6.5 Notice. Whenever, under the terms of this Agreement, any notice is required, it may be served either upon the other party by personal service or by sending said notice by certified mail or overnight delivery mail to the other party. Notice to each party shall be in writing and, until further notification in writing, shall be mailed as follows: (a) If to Owner, to: Motel Associates of Pompano, Inc. 8534 E. Kemper Road Cincinnati, Ohio 45249 (b) If to Manager, to: Janus Industries, Inc. 2300 Corporate Boulevard, N.W. Boca Raton, Florida 33431 6.6 Amendments. None of the covenants, terms or conditions of this Agreement shall, in any manner, be altered, waived, changed or abandoned, except by written instrument signed by both parties. Consent to or any acquiescence in any breach of this Agreement shall not constitute a waiver of any other or later breach of the same or of any other covenants, agreement or condition thereof. 6.7 Consent. Owner and Manager shall not unreasonably withhold their consent whenever such consent shall be required under the terms of this Agreement. 6.8 Complete Agreement. This Agreement is the complete agreement between the parties, and supersedes all prior agreements whether written or oral. 6.9 Authority. Each person signing this Agreement warrants that he has full authority to execute the same, that all necessary approvals to the execution of this Agreement and the transactions contemplated herein have been or will be timely obtained and will not result in the breach or termination of a provision of or constitute a default under any indenture, agreement or other instrument to which it is a party or by which it is bound or violate any provision of law. 6.10 Cancellation. The parties agree that this Agreement shall supersede all prior Management Agreements between the parties hereto, including, but not limited to, predecessors of Manager (including but not limited to Beck Group Management Corp. and Beck Hospitality, Inc.). All such prior management agreements shall be canceled effective this date. 15 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. OWNER __________________________________ a _________ corporation By:_______________________________ Name: Title: MANAGER JANUS INDUSTRIES, INC., a Delaware corporation By:________________________________ Name: James E. Bishop Title: President 16 EXHIBIT "A" PROPERTY Days Inn Pompano 1411 NW 31st Avenue Pompano Beach, Florida 33069 17 EXHIBIT "B" DEFINITIONS "Accounting Period" is hereby defined to mean a calendar month. "Fiscal Year" is hereby defined to mean a calendar year. "Gross Revenues" is hereby defined to mean all revenues and income of every kind resulting from the operation of the motel and all of its facilities from guests, subtenants, licensees, concessionaires and other persona occupying space or rendering services in, at, on or from the motel, including, but not limited to, rooms, telephone, newsstand, interest income, and rental and management fees, whether on a cash basis or on credit, paid or unpaid, collected or uncollected, and without reserve or deduction for failure or inability to collect, all as determined in accordance with generally accepted accounting principles applied on a consistent basis; provided, however, that there shall be deducted or excluded from Gross Revenues: (i) cash or credit refunds paid to customers upon transactions included in Gross Revenues; (ii) the amount of any city, county, state or federal sales, use, luxury or excise taxes on such sales which are required to be collected from the customer (but included in the price or stated separately therefrom) and paid to the taxing authorities; (iii) proceeds of claims under any insurance policies other than rent or business interruption insurance; (iv) gains arising from the sale or other disposition of capital assets; and (v) any reversal of any contingency or tax reserve. "Accounting Functions" is hereby defined to mean Manager's complete system of central financial services utilizing Manager's home office financial staff and computer equipment. The services included as part of the Accounting Fee shall include, without limitation, verification of daily work, preparation of payroll and benefits administration, preparation of payroll tax returns, handling of accounts receivable (including normal in-house collection activities) and accounts payable, billing under national credit cards, cash management, preparation of monthly internal operating statements, verification of financial controls, advice and monitoring of accounting and reporting systems and internal controls (relating to cash, inventories, and accounts receivable), and training and supervision of cashiers, front desk, and inventory personnel. Such services shall not include the cost of a certified audit or the preparation and filing of state and federal income tax returns. 18 EX-10.12 16 CLIENT SERVICE AGREEMENT CLIENT SERVICE AGREEMENT THIS CLIENT SERVICE AGREEMENT (hereinafter referred to as "Agreement") is executed April 23, 1997, by and between HOSPITALITY EMPLOYEE LEASING PROGRAM, INC., an Ohio corporation, (hereinafter referred to as "HELP") with principal offices located at 8534 E. Kemper Road, Cincinnati, Ohio 45249 and JANUS INDUSTRIES, INC., a Delaware corporation (hereinafter referred to as "CLIENT"). In consideration of the mutual promises contained herein below, the parties agree as follows: 1. PERSONNEL (a) As used in this Agreement, the term "Job Function Positions" means the personnel positions commonly associated with the administration and operation of hotels, motels and related hospitality businesses including, without limitation, those associated with housekeeping, maintenance, laundry, front desk and other office personnel, restaurant/lounge and kitchen, room and other guest services and general management. (b) HELP hereby agrees to furnish to CLIENT and CLIENT hereby agrees to engage from HELP, personnel for the Job Functions Positions of the hotels, motels and related hospitality businesses owned and/or managed by Client as listed on Exhibit A hereto, as the same may be amended from time to time, upon the following terms and conditions. (c) HELP acknowledges and agrees that CLIENT is relying exclusively upon the services of HELP in filling CLIENT's personnel requirements at the hotel, motel and other hospitality establishments presently owned and/or managed by CLIENT, and that CLIENT will continue to rely on the expertise of HELP in the hospitality employee leasing business, as CLIENT expands its business, for the foreseeable future. HELP represents and warrants to CLIENT that it has the resources and personnel contacts in each of the markets in which the establishment identified in Exhibit A are located, in order to permit the continued operation of such establishments, consistent with past practice. 2. TERM OF AGREEMENT This Agreement shall have an initial term of one (1) year. This Agreement shall automatically renew for additional one (1) year terms unless canceled by either party at least three (3) months prior to the scheduled termination date. Notwithstanding the foregoing, if CLIENT should sell or cease to have management responsibility for any of the establishments listed in Exhibit A, or such additional establishments that CLIENT may acquire or for which CLIENT may assume management responsibility subsequent to the date hereof, CLIENT may terminate the services of HELP as to such particular establishment or establishments coincident with the date of sale by CLIENT or the date of cessation of its management responsibility. 3. WORKING ENVIRONMENT (a) CLIENT agrees that it will comply with all health and safety laws, regulations, ordinances, directives, and rules imposed by controlling federal, state and local government in all areas where HELP employees shall furnish services and shall keep working premises so as not to be in violation of any health or safety laws or ordinances, including without limitation, the Hazardous Chemical Act. (b) The premises shall be kept so that the working conditions are safe and healthy for HELP employees. HELP agrees to advise CLIENT immediately of any information of which it becomes aware in order to facilitate CLIENT's compliance with the provisions of paragraph (a) above. HELP will immediately report all accidents and injuries to CLIENT. 4. REPRESENTATIONS AND WARRANTIES OF HELP HELP represents and warrants to CLIENT as follows: (a) It is presently providing services for the Job Function Positions at the establishments listed on Exhibit A and there presently exists no labor dispute or claim of unfair labor practice at any of such establishments which would impede HELP's ability to provide services pursuant to this Agreement. (b) Wages and compensation to HELP employees is current and HELP has, to date paid, and will continue to pay, on a timely basis all withholding tax and other employment - related taxes due with respect to HELP employees to the federal government and the taxing authorities of all applicable state and local jurisdictions. (c) The employee benefits provided by HELP to its employees are described in Exhibit B hereto. 5. REPRESENTATIONS AND WARRANTIES OF CLIENT CLIENT represents and warrants to HELP as follows: (a) That no separate agreements or arrangements exist that would obligate HELP except as set forth herein. (b) That, in the opinion of CLIENT, all pension and profit sharing plans in existence are current and in compliance with applicable law and this Agreement shall not be deemed a breach under the terms of those plans. (c) That CLIENT is not in default of the Management Agreement for any of the properties managed by CLIENT which are listed on Exhibit A and the execution of this Agreement shall not cause a default under any such Management Agreement. -2- 6. PAYMENT TERMS (a) HELP will bill CLIENT and CLIENT agrees to pay for services performed by HELP employees. (b) CLIENT may submit and/or verify time records on said basis for HELP employees assigned to CLIENT. (c) All payments for services performed by HELP employees must be made by CLIENT in the following form (1) wire transfer into HELP account; (2) cashier's check; or (3) other form of payment pre-approved in writing by HELP. (d) CLIENT agrees to pay HELP the amount due for that pay period within twenty-four (24) hours after written notification. (e) Any statutory or government body increase in local, state or federal employment taxes, insurance, or any change in the Job Function Positions shall be effective on the date of such increase or change. (f) If CLIENT believes that any billing or other communication between the parties is in error, CLIENT shall immediately notify HELP of such error. 7. ADMINISTRATIVE FEE (a) CLIENT shall pay HELP reimbursable fees associated with payroll processing per HELP employee per pay period. Pay period for purposes of this Agreement shall mean every other Friday. Administrative fees, described in Exhibit C hereto, are due with the regularly scheduled payment on the agreed upon pay day. (b) During the initial term of this Agreement, HELP may not adjust its administrative fee. During any renewal term of this Agreement, upon thirty (30) days written notice, HELP may adjust its fee rate, but in an amount no greater than five percent (5%) over a twelve (12) month period. 8. INSURANCE (a) If any HELP employee filling a JOB Function Position is to drive a vehicle of any kind for CLIENT, CLIENT shall furnish automobile insurance. CLIENT shall cause its insurance carrier to name HELP as an additional named insured and issue a Certificate of Insurance to HELP allowing not less than thirty (30) days advanced notice of cancellation or material change in the nature or amounts of insurance coverage. (b) HELP represents and warrants to CLIENT that it maintains worker's compensation and general liability insurance with respect to its employees and that its coverages are adequate in scope and amount. HELP has provided CLIENT with a certificate of its present -3- insurance coverage and agrees to provide CLIENT with evidence of coverage annually on the policy renewal dates. HELP shall cause its insurance carriers to name CLIENT as an additional named insured. Each certificate of insurance shall provide that CLIENT will be given not less than thirty (30) days advanced notice of cancellation or material change in the nature or amounts of insurance coverage. (c) CLIENT agrees to cause its insurance carrier to name HELP as an additional named insured on CLIENT's General Liability Insurance policy and issue a certificate of insurance allowing not less than thirty (30) days advance notice of cancellation or material change in the nature or amounts of insurance coverage. 9. ADMINISTRATION (a) It is understood and agreed that all individuals assigned to CLIENT to fill the Job Function Positions are employees of HELP. The CLIENT understands and agrees that HELP reserves the exclusive rights to exercise all power and control over its employees belonging to an employer at common law and by statute including, without limitation, the rights to determine whether an employee is to be hired or retained; to supervise through HELP personnel the performance by criteria established by HELP; to reprimand, suspend, terminate or otherwise discipline employees; to expand, reduce, alter, combine, transfer, assign or otherwise change work assignments; and to determine and control such other conditions as are incidental to employment. HELP represents and warrants to CLIENT that its employees are employed "at will". (b) HELP is responsible for such administrative employment matters as payment of all federal, state and local employment taxes, providing workers' compensation coverage, as well as nonobligatory fringe benefit programs for its employees. (c) If requested by HELP, CLIENT agrees to participate in the periodic evaluation of HELP employees. HELP will use these evaluations to determine wage and rate adjustments. 10. SUPERVISION The HELP on-site supervisor or if none, the HELP regional manager, shall determine the procedures to be followed by HELP employees regarding the time and performance of their duties. If requested by HELP, CLIENT agrees to cooperate with HELP in the formation of such policies and procedures relating to HELP employees. 11. HOLIDAY AND VACATION PAY (a) Each HELP employee receives paid holidays as set out in Exhibit D hereto. CLIENT agrees that the cost of HELP employee holidays is included in the fees paid to HELP by CLIENT. (b) Each HELP employee receives a paid vacation in accordance with the policy described in Exhibit D hereto. CLIENT agrees that the cost of HELP employee vacations is included in the fees paid to HELP by CLIENT. -4- 12. INDEMNIFICATION AND ATTORNEY'S FEES (a) HELP agrees to indemnify, defend and hold CLIENT harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney's fees, costs and expenses) which the CLIENT may suffer as a result of any claim asserted against CLIENT: (i) for payroll or related tax payable by HELP in connection the services of its employees pursuant to this Agreement; (ii) arising out of the acts or omissions of HELP employees; or (iii) in respect of any worker's compensation claims brought by HELP employees. (b) CLIENT agrees to indemnify, defend and hold HELP harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney's fees, costs and expenses) which HELP may suffer as a result of any actions or omissions by CLIENT. (c) In the event that any action is brought by either party hereto as a result of a breach or default in any provision of this Agreement or to enforce the terms of this Agreement, the prevailing party in such action shall be awarded reasonable attorney's fees and costs in addition to any other relief to which the party may be entitled. 13. APPROVAL OF SUPPLIED STAFF HELP shall provide employees which are duly qualified and skilled in the area in which their services are to be utilized. HELP reserves the right to determine which of HELP's employees shall be designated to fill CLIENT's Job Function Positions provided, that, HELP will consult with CLIENT in this regard as frequently as possible. HELP reserves the right to determine which of HELP's employees shall be designated to fill CLIENT'S Job Function Positions, provided, that CLIENT shall possess the right to reject any employee so furnished. If any HELP employee is rejected, HELP agrees to furnish a suitable replacement within a reasonable time and if one cannot be found within a reasonable time, HELP will provide temporary personnel from a temporary help agency. The CLIENT agrees to pay for temporary help costs directly at the prevailing rates for temporary personnel. 14. ASSIGNMENT Neither HELP nor CLIENT may assign any rights under this Agreement nor transfer this Agreement in whole or part, without the express written consent of the other party. 15. WAIVER Failure by either party at any time to require performance by the other party or to claim a breach of any provision of this Agreement will not be construed as a waiver of any subsequent breach nor affect the effectiveness of this Agreement, nor any part thereof nor prejudice either party as regards to any subsequent action. -5- 16. NOTICES Any notice or demand to be given hereunder by either party shall be effected by personal delivery in writing or by certified mail, postage prepaid return receipt requested or by overnight courier service and shall be deemed communicated forty-eight (48) hours after mailing. Mailed notices shall be addressed to the party's principal place of business, but each party may change the address by written notice in accordance with this paragraph. 17. TERMINATION FOR DEFAULT If the CLIENT fails to pay any sum due pursuant to this Agreement or breaches any other term, condition or obligation of this Agreement, or if any proceeding in bankruptcy, receivership or insolvency shall be instituted by or against the CLIENT, or if the CLIENT's financial condition should otherwise be materially impaired so as to put HELP at a substantial risk of nonpayment by the CLIENT, then the CLIENT shall be and is in default under this Agreement. In the event of default by the CLIENT, HELP may at its option terminate this Agreement and terminate the employees provided under this Agreement upon such prior written notice to the CLIENT as shall be reasonable under the circumstances. 18. CONSTRUCTION (a) This Agreement shall be interpreted, construed and governed by and under the laws of the State of Ohio. (b) The paragraph headings of this Agreement are for reference only and shall not be considered in the interpretation of this Agreement. (c) Should any term, covenant, condition or provision of this Agreement be held to be invalid or unenforceable, the balance of the Agreement shall remain in full force and shall stand as if the unenforceable provision did not exist. (d) This Agreement constitutes the entire Agreement between the parties with regard to this subject matter and no other Agreement, statement, promise or practice between the parties relating to the subject matter shall be binding on the parties. This Agreement may be changed only by a written amendment signed by both parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. HOSPITALITY EMPLOYEE LEASING PROGRAM, INC. By:______________________________ Name: Title: -6- JANUS INDUSTRIES, INC. By:_____________________________ Name: James E. Bishop Title: President -7- Exhibit A Locations Owned (Directly or Indirectly) by Client Days Inn, Sharonville, Ohio Knights Inn, Westerville, Ohio Knights Inn, Michigan City, Indiana Knights Inn, Lafayette, Indiana Best Western, Doswell, Virginia Days Inn, Raleigh, North Carolina Days Inn RTP, Raleigh, North Carolina Locations Managed by Client Days Inn, Cincinnati, Ohio Days Inn, Pompano Beach, Florida Holiday Inn Express, Juno Beach, Florida Howard Johnson, Juno Beach, Florida Holiday Inn Pompano, Pompano Beach, Florida Comfort Suites, Blue Ash, Ohio Exhibit B Description of HELP Employee Benefits See Employee Handbook attached hereto. Exhibit C Description of HELP Administrative Fees $8.15 per pay period per employee. Pay periods are bi-monthly. Exhibit D List of Paid Holidays See Employee Handbook attached hereto. Vacation Policy See Employee Handbook attached hereto. EX-10.13 17 PRODUCT LEASE AND SERVICE AGREEMENT PRODUCT LEASE AND SERVICE AGREEMENT This Product Lease and Service Agreement (hereinafter referred to as "Agreement") dated April 23, 1997 is made by and between COMPUTEL COMPUTER SYSTEMS, INC. a computer leasing company having a place of business at EXECUTIVE COURT II, 2300 CORPORATE BLVD. NW, BOCA RATON, FLORIDA 33431 (hereinafter referred to as "CCS") and JANUS INDUSTRIES, INC. having a place of business 2300 CORPORATE BLVD NW BOCA RATON, FL 33431 (hereinafter referred to as "Subscriber"). Both parties desire to enter into an agreement to establish the terms and conditions by which CCS will provide to Subscriber certain equipment, software (Property Management System), communications, training and support services (hereinafter referred to as "Product") described in detail hereafter at hotel or motel facilities owned or managed by Subscriber, from time to time, (each of which is hereinafter referred to as "Premises). In consideration of the mutual covenants contained within the parties agree as follows: I. PRODUCT Pursuant to the terms and conditions described, CCS or its representative will supply to Subscriber the Product described in attachment Schedule A. The current Property Management System Services and the current charges therefore, are set forth in the Computel Computer system Schedule of Services and Fees, attached as Schedule A. As rental for the lease of the Product, Subscriber shall pay to CCS the monthly rental fee established during the entire Term. In addition, Subscriber shall pay all sales, use or other taxes on the Product and services provided for in this agreement. All lease payment are due and payable on the first day of each month during the Lease Term. Payments not received by CCS by the due date shall bear interest at the rate of 1-1/2% per month from the due date until paid. A. Shipment and installation The Subscriber shall be responsible for the installation of the Product in accordance with CCS's installation schedule and recommendations or at the expense of the Subscriber, CCS or its representative will install the Product. CCS will give Subscriber reasonable notice of a scheduled installation date. If said installation is delayed through he fault of the Subscriber, however, any obligation on the part of the Subscriber to make rental or other payments for Product shall commence as of the scheduled installation date. Subscriber shall make available prior to any scheduled installation date, a suitable location for installation of the Product, which must be readily accessible to installation personnel. Subscriber shall furnish the electrical connections and cable installation and shall perform all work, including alterations which may be necessary to prepare the site for the installation and operation of the Product and related equipment. B. Maintenance CCS or its equipment supplier has entered into maintenance agreements with service organizations to maintain the Product described in Schedule A. In the event maintenance of the Product is necessary, Subscriber will notify CCS which in turn will notify the proper service organization to dispatch a service representative. Subscriber shall be responsible for additional maintenance charges for maintenance provided or for maintenance services required due to the Subscriber's improper use of the Product. Maintenance, whenever possible will constitute replacement of the defective Product at the sole discretion of CCS. The replacement Product will be delivered to the Subscriber via a courier service chosen by CCS, dependent upon the urgency of need for the replacement Product. The Subscriber shall be responsible for all expenses incurred by CCS for shipping and handling of the replacement Product. C. Use Subscriber shall use the Product solely in the conduct of its business and in careful and proper manner consistent with the requirements of all applicable insurance policies relating to the Product and any instructions issued by CCS. At no time shall the Subscriber have access to the operating system, or have the ability to alter the software structure of the Product. D. Operating Supplies Subscriber shall purchase and replace, from any source of its choosing, including CCS or suppliers recommended by CCS, paper, ribbons, diskettes and such other operating supplies as shall be required for the operation of the Product. E. Product as Personal Property Subscriber further agrees that it will not change, alter, relocate of modify the physical nature of the Product in any manner without the prior written consent of CCS, which consent may be withheld in CCS's sole discretion. The Product is, and will be at all times, personal property which shall not, by reason of connection to any realty, become a fixture or appurtenance to such realty. Furthermore, the Product is severable from realty and remains the property of CCS, free from claims of Subscriber or the holder of any lien or encumbrance on the Premises. Subscriber will obtain any landlord's or mortgage's consent and acknowledgment that the Product is and will remain personal property subject to all provisions of this Agreement. Subscriber will obtain and record such instruments and take such other steps as may be deemed necessary by CCS to prevent any third person from acquiring rights in the Product paramount to those of CCS. Upon discovery, Subscriber shall promptly notify CCS in writing of any attempt by a third party to establish such rights. F. Intent; Title It is the express intent of the parties that this Agreement constitute a true lease and in no event shall this Agreement be constructed as a sale of the Product. Title to the Product shall at all times remain in CCS, and Subscriber shall acquire no ownership, title, property, right, equity, or interest in Product other than its leasehold interest solely as lessee subject to all the terms an conditions hereof. Notwithstanding the express intent of the parties, should a court of competent jurisdiction determine that this Agreement not a true lease, but rather one intended as security, then solely in that event and for the expressly limited purposes thereof, Subscriber shall be deemed to have hereby granted CCS a security interest in this Agreement, the Product and all -2- accessions thereto, substitutions and replacements therefore, and proceeds (including insurance proceeds) thereof (but without power of sale); to secure the prompt payment and performance as and when due of all obligations and indebtedness of Subscriber to CCS. G. Dedicated Telephone Line Subscriber shall provide a dedicated telephone line into the Product for updates to the Software, on-line support, date transfer, diagnostics. The telephone line shall not be attached to any other answering device and must have a separate telephone line number for access by CCS. II. SOFTWARE A. Title and Proprietary Rights The parties agree that participation by Subscriber in the Property Management System requires that CCS supply Subscriber with a computer software package (hereinafter referred to as "Software") for use with the equipment listed in Schedule A (hereinafter referred to as "Equipment"). Title and full ownership rights to any such Software furnished under this Agreement remain with CCS, or those entities (hereinafter referred to as "Licensers") that have licensed CCS use of the Software. The Software is agreed to be CCS's or Licensers' proprietary information and trade secrets, whether or not any portion thereof is or may be licensed, copyrighted or patented. Subscriber agrees to maintain the confidential nature of the Software and related materials provided for its use under this Agreement and agrees to use the utmost care to protect them. Subscriber shall maintain the Software in strict confidence, disclosure it only to its employees requiring access and implement adequate procedures controlling access to and use the Software. B. Use of Software The Software may only be used by the Subscriber, and only at the Subscriber's Premises and only on the Equipment leased thereunder. Subscriber shall not make or allow others to make copies or reproductions of the Software in any form without prior written consent of CCS, which consent may be withheld in CCS's sole discretion. Distribution by Subscriber of Software, including derivative modifications or extensions, is expressly prohibited except for distribution to the hotel facilities owned or managed by Subscriber from time to time. C. Termination of Default In the event of the termination of this Agreement or in the event of a default by Subscriber, it shall immediately return the Software unencumbered, or certify in writing to CCS that all Copies have been destroyed. This provision shall not be regarded as a waiver by CCS of any other rights or remedies to which it may be entitled pursuant to this Agreement or otherwise. Default under this paragraph is defined to include but not to be limited to any assignment or transfer or any attempted assignment or transfer of the Software by Subscriber. III. GENERAL PROVISIONS -3- A. Warranty and Disclaimer of Warranties CCS warrants to Subscriber that, so long as Subscriber shall not be in default of any of the provisions of this Agreement or except as otherwise provided herein, CCS will not disturb Subscriber's quiet and peaceful possession of the Product. CCS warrants to Subscriber that upon installation, and subsequently thereafter, the Equipment and the Software will perform according to their specifications and perform the functions necessary to operate within the Product. This warranty shall not apply if Subscriber abuses the Product or fails to comply with CCS's or manufacturer's installation and operation instructions. CCS MAKES NO OTHER WARRANT, EXPRESS OR IMPLIED, AS TO THE MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE PRODUCT, ITS MERCHANTABILITY OR ITS FITNESS OR CAPACITY OR DURABILITY FOR ANY PARTICULAR PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE PRODUCT OR CONFORMITY OF THE PRODUCT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER(S) RELATING THERETO. NEITHER CCS NOR ANY OF ITS RELATED ENTITLES SHALL BE LIABLE FOR ANY CONSEQUENTIAL OR OTHER DAMAGES ARISING OUT OF OR RELATED TO THE SELECTION, INSTALLATION, USE, PRESENCE OR REMOVAL F THE PRODUCT AND/OR THE PROPERTY MANAGEMENT SYSTEM. B. Legal Expense and Insurance Subscriber shall pay all costs, charges and expenses, including reasonable attorney's fees incurred or paid at any time by CCS due to the failure on the part of the Subscriber to promptly and fully perform, comply with and abide by each and every stipulation, warranty, condition and covenant of this agreement. Subscriber will maintain, during the term of this Agreement and any extension thereof, fire, extended coverage, vandalism and malicious mischief insurance on the Equipment in an amount not less than the replacement value of the Equipment. CCS shall be named as an additional insured with respect to all such insurance. C. Taxes Subscriber shall indemnify CCS for any federal, state or municipal taxes, other than income taxes, including, but not limited to, sales, use or property taxes that may be assessed against CCS for the Product, for use thereof, or upon any payments made under this Agreement. D. Term This Agreement shall have a term of one year and shall automatically renew for successive terms of one year each unless one party notifies the other to the contrary at least three months prior to the termination date, provided, however, upon any automatic renewal of this Agreement, CCS shall have the right to adjust its fees hereunder commensurate with the fees paid by its subscribers generally. E. Access -4- Subscriber shall permit access by CCS, or its designee for inspection, testing, maintenance or replacement of hardware and software provided under this Agreement. Further, Subscriber agrees to permit access by CCS or its designee to the telephone or other communication systems for testing, maintenance, data base management, data loading and extraction's or collections at times which would not interrupt a normal operation of the Subscriber's property. F. Agreement Irrevocability and Other Covenants and Warranties of Subscriber Subscriber agrees that, except as provide herein, this Agreement is irrevocable for its full term; that Subscriber's obligations thereunder are absolute and shall continue without abatement, set off or demand, regardless of any disability of the Subscriber to use the Product or any part thereof because of any reason including, but not limited to, war, act of God, government regulation, strike, loss, damage, destruction, obsolescence, failure of the Equipment or Software to operate properly, termination by operation of law, or any other cause except breach or default by CCS of its obligations thereunder. Subscriber warrants that this Agreement has been duly authorized and that no provision of this Agreement is inconsistent with Subscribers charter, bylaws, or any loan, credit agreement or other instrument to which Subscriber is a party or by which Subscriber or its property may be bound or affected. G. Default If any one of the following events (each of "Event of Default") shall occur, then to the extent permitted by applicable law, CCS shall have the right to exercise any one or more the remedies set forth in part III(H) below: (1) Subscriber fails to pay any rental or any other payment thereunder when due and such failure continues for ten (10) days after notice thereof; or (2) Subscriber breaches any covenant, warranty or agreement thereunder, and such breach continues for ten (10) days after written notice thereof; or (3) Subscriber admits in writing its inability to pay debts as they become due; or (4) Subscriber becomes insolvent or makes an assignment for the benefit of creditors; or (5) a receiver, conservator or liquidator of Subscriber, or all or any substantial part of its assets, is appointed with or without the application or consent of Subscriber; or (6) a petition is filed by or against Subscriber under bankruptcy laws providing for the relief of debtors; or (7) Subscriber is in default of any of monetary payment obligations to CCS or to its related entitles under the terms and conditions of any other agreement; or (8) through the fault of the Subscriber, the Product is rendered inoperative; or (9 Subscriber assigns or transfers or attempts to assign or transfer the Software supplied by CCS pursuant to the terms of this Agreement. H. Remedies If an Event of Default shall occur, CCS may, at its option: (1) declare the entire amount of unpaid lease payments for the balance of the term of this Agreement or any extension thereof immediately due and payable, whereupon Subscriber shall become obligated to pay CCS present value amount of the unpaid lease payments; (2) without demand or legal process, enter the Premises where the Equipment may be found and take possession of and remove the -5- Equipment without liability for suit, action or other proceeding, and all rights of Subscriber in the Equipment so removed shall terminate absolutely; and (3) without demand or legal process enter the Premises where the Software may be found and take possession of and remove the Software without liability for suit, action or other proceedings, and all rights of Subscriber in the Software so removed shall terminate absolutely. Subscriber hereby waives notice of, or hearing with respect to, any such retaking. No failure on the part of CCS to exercise and no delay in exercising any right or remedy shall operate as a waiver thereof or modify the terms of this Agreement. (4) CCS without demand or legal process, suspend the operation of the Product. I. Removal Fee In the event of termination of this Agreement, before the thirtieth 30th full day after this agreement became effective or if an Event of Default shall occur, and CCS is requested to, required to, or elects to remove the Product from Subscriber's Premises, Subscriber shall pay to CCS a Removal Fee equal to the actual cost incurred by CCS for such removal. Such fee shall be payable upon presentation of an invoice thereof. J. Assignment Subscriber shall not assign this Agreement or any part thereof nor any right to, or interest in the Product without prior written consent of CCS which consent may be withheld in CCS's sole desecration. CCS may at any time assign any or all of its rights, obligations, title and interest thereunder, to any other person. If Subscriber is given notice of such assignment. Subscriber shall acknowledge receipt thereof in writing. In the event CCS retains the obligations of the lessor thereunder in any such assignment, CCS's assignee shall not be obligated to perform any duty, covenant or condition required to be performed by CCS under the terms of this lease; and no breach or default by CCS thereunder of pursuant to any other agreement between CCS and Subscriber shall excuse performance by Subscriber of any provision hereof; it being understood that in the event of a default or breach by CCS that Subscriber shall pursue any rights on account thereof solely against CCS. Subject always to the foregoing, this Agreement inures to the benefit of, and is binding upon, the successors and assigns of the parties hereto. K. Authorization Each party will promptly and duly execute and deliver to the other such further documents, instruments and assurances and take such further action as either party from time to time reasonably request in order to carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created thereunder. L. Applicable Law This Agreement shall be governed and construed in accordance with the laws of the State of Florida. M. Waiver of Breach -6- Waiver by either party of nonperformance or any other breach of any provision of this Agreement shall not operate as a waiver of any subsequent nonperformance or other breach of the same or any other provision. N. Obsolete Equipment and/or Software If CCS determines, in its sole discretion at any time, that the Product or any unit thereof has became obsolete, is no longer functioning efficiently, or should be upgraded, CCS shall have the right to immediately replace such Product or unit thereof with replacement Product. In such event, all the terms and conditions of this Agreement shall remain in full force and effect except that the relating to the replacement Product or the installation thereof shall be reasonably determined by CCS after review by CCS with the Board of Directors. O. Notices All notices required by this Agreement or deemed advisable by either party shall be in writing and transmitted by certified US mail, return receipt requested or overnight courier service shall be effective from the date of mailing, and unless subsequently changed by either party in writing, shall be addressed to the parties at the respective addresses set forth in the preamble to this Agreement. P. License and Permits Subscriber shall obtain any and all licenses required by public authorities for the installation of the Product. CCS assumes no responsibilities for payment of licenses or permits or for prevention of the revocation thereof. Q. Additional Terms Additional terms and conditions governing the relationship established by this Agreement are contained in Schedule A which is incorporated and made part of this Agreement. R. Right to Purchase Upon the expiration of the full term hereof or any extension hereof (but not upon termination of this Agreement prior to the expiration of the term hereof as the same may be extended), Subscriber shall have the right, exercisable upon written notice to CCS given thirty days prior to the expiration of the Term hereof as aforesaid, to purchase the Equipment at its then fair market value. Such fair market value shall be determined by an independent appraiser selected by CCS whose valuation shall be final. Upon such purchase by Subscriber, and upon notice form CCS, the Equipment shall be disconnected from the Property Management System and all Software shall be returned forthwith to CCS or Subscriber shall certify in writing to CCS that all copies have been destroyed. Subscriber shall have no right at any time to purchase the Software. S. Complete Agreement -7- This Agreement, together with any schedules listed in part III. above, when executed by both parties, constitutes a final written expression of all the terms to the Agreement between the parties, and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified in this Agreement. Any representations, promises, warranties or other statements made by either party that differ in any way from the terms of this written Agreement will be given no force or effect. CCS and Subscriber specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the Product or services contemplated to be provided under this Agreement, unless copies of the same are presently attached to and made a part of this Agreement. No addition to or modification of any provision of this Agreement will be binding to either party unless made in writing and signed by a duly authorized representative of both parties. No course of dealing, usage of trade or course of performance will be relevant to explain or supplement any term expressed in this Agreement. -8- SCHEDULE A - PRODUCT LIST AND FEE SCHEDULE ADDENDUM The Terms outlined below shall be construed and interpreted by reference as part of the entire Agreement by and between CCS and Subscriber. I. PRODUCT CCS agrees to provide to Subscriber the Equipment, Communication and Software (hereinafter Referred to as "Product") which constitutes a PROPERTY MANAGEMENT SYSTEM at each of Subscriber's Premises, as selected by Subscriber: DESCRIPTION OF PRODUCT A. EQUIPMENT [ ] IBM AT compatible CPU [ ] Monitor [ ] 6' parallel printer cable [ ] 80 column printer [ ] Uninterruptable Power Supply [ ] 101 Key Keyboard [ ] Internal Modem [ ] Credit Card Reader [ ] Monochrome Workstation - No Printer [ ] Monochrome Workstation - With Printer [ ] Color Workstation - No Printer [ ] Interactive Cash Drawer [ ] Non-Interactive Cash Drawer [ ] Owned Workstation B. SOFTWARE (monthly charges noted) [ ] Base Property Management Software Package (monthly charge of $275; each additional terminal is $75/month) [ ] Software for Interface with a central office (N/C) [ ] Software for remote diagnostics (N/C) [ ] Guest Messaging Software ($10.00) [ ] Call Accounting Interface ($75.00) [ ] Pre-Printed Registration Card Option ($25.00) [ ] Franchise Central Reservation Interface ($25.00) [ ] Property-To-Property Reservation Software ($50.00) [ ] Hotel Area Information (Included in Base Software) [ ] Pre-Registration Printing Package ($25.00) [ ] Movie Interface ($50.00) CCS reserves the right to replace or substitute equipment of a similar nature whenever required either prior to or subsequent to installation provided such equipment maintains, improves or enhances the capability of the Property Management System provided to the Subscriber under the terms of this Agreement. Subscriber understands that the equipment be new equipment or used equipment refurbished to a like new condition. II. PRODUCT RENTAL CHARGE Subscriber agrees during the term of the Agreement to pay to CCS a monthly rental fee per Premises based upon the fee schedule set forth above and based upon the additional optional Software and interfaces selected by Subscriber for each of its Premises. Subscriber understands -9- that the equipment may be new equipment or used equipment refurbished to a like new condition. The monthly fees for the current premises of Subscriber is attached hereto as Exhibit A. III. MAINTENANCE SERVICES CCS (for purposes hereof, "CCS" includes CCS's designees and third party servicing agents), shall provide maintenance services to the Subscriber for the Equipment (herein referred to as "Hardware") and Software provided under the terms of the Agreement. The types of maintenance and extent of service to be provided are set forth below: A. Scheduled Remedial Software Maintenance CCS shall provide remedial software maintenance. Such maintenance service includes updates, patches, revisions or temporary bypass solutions to software program errors and distribution to Subscriber of updates, revisions and new releases of the Software as the same are made generally available from time to time during the term of this agreement by CCS. B. Scheduled Maintenance CCS shall provide 24-hour per day emergency assistance for all hardware or software problems via a telephone number answered by a support person trained in the use, operation and maintenance of the hardware and software. C. Non Scheduled Software Maintenance All software support will be free of charge to Subscriber provided that the following provision has been met. A software back-up (transference of live data files to a floppy disk for the sole purpose of restoration of data due to a system failure) has been performed by each person at the close of their shift and a back-up has been performed prior to printing the financial totals for the day. If no such back-up has been performed then a fee of $100.00 per hour, not to exceed $1000.00 per occurrence, will be charged to Subscriber. Subscriber acknowledges that if a system backup has not been performed that all prior data may be deemed unrecoverable and the Property Management System will be reinstated with no prior information or history available. CCS shall not be liable for any loss or damages to Subscriber either directly or indirectly that may result. D. Non-Scheduled Maintenance In addition to the fees set forth in Section II above, Subscriber agrees to pay any freight and/or shipping and handling costs for any emergency hardware replacement that will require new Equipment to be sent by an overnight package handler and shall also pay any and all charges to send the equipment back to the manufacturer for repair. CCS shall be responsible for replacing or repairing the Equipment leased by Subscriber. Subscriber shall be held responsible for the costs of repairing or replacing of the Equipment when the need for such service is a result of the following: -10- o Lack of suitable operating environment. o Lack of adequate power or power failures. o Failure to provide air conditioning or humidity control where required. o Damage caused by Subscriber alteration or modification unless authorized in writing in advance by CCS. o Use of hardware of software for purposes other than for which it was designed. o Accident, disaster, Subscriber negligence and/or misuse. o Unauthorized maintenance, repair or adjustment. o Transfer or movement of the system to another location. o Failure to use the latest available release of the system software support. Additional maintenance fees assessed by CCS, or its designee, under the terms of this provision will not exceed the actual cost incurred including direct payroll, indirect payroll, service fees, travel, lodging and other related expenses. IV. TRAINING If the Subscriber desires on site training the Subscriber shall pay to CCS a fee of $200.00 per day for a representative of CCS for the sole purpose of training the staff at the Subscribers location, plus all travel expenses, including expenses incurred to and from destination for on-site training. If CCS personnel are used to initiate the startup of the computer system Subscriber shall pay to CCS a one time start-up fee of $200.00. IN WITNESS WHEREOF, both parties have executed and agree to abide by all sections of the Product Lease and Service Agreement and Product List and Fee Addendum Schedule A. COMPUTEL COMPUTER SYSTEMS, INC. JANUS INDUSTRIES, INC. By:___________________________ By:__________________________ Name: Louis S. Beck Name: James E. Bishop Title: Title: President -11- Exhibit A Best Western Cambridge, Ohio $473.93 Days Inn Cambridge, Ohio $543.16 Comfort Suites Blue Ash, Ohio $540.60 Days Inn Sharonville, Ohio $646.60 Days Inn East Cincinnati, Ohio $498.20 Howard Johnson Juno Beach, Florida $471.70 Best Western Kings Island, Ohio $482.30 Days Inn Kings Island, Ohio $577.70 Knights Inn Lafayette, Indiana $601.65 Best Western Mansfield, Ohio $470.59 Knights Inn Michigan City, Indiana $627.90 Days Inn Pompano Beach, Florida $699.60 Days Inn RTP Raleigh, North Carolina $604.20 Days Inn Raleigh, North Carolina $577.70 Knights Inn Westerville, Ohio $605.95 Surrey Inn Ashland, Ohio $185.50 Days Inn Baltimore, Maryland $1,286.25 Robert E. Lee Hotel North Fort Myers, Florida $561.80 Knights Inn Palm Harbour, Florida $564.96 Inn at Plymouth Mtg. Plymouth Meeting, Pennsylvania $503.50 -12- EX-10.14 18 OFFICE SUB-LEASE AGREEMENT OFFICE SUB-LEASE AGREEMENT Beck Hospitality, Inc. III, an Ohio corporation ("Lessor") and Janus Industries, Inc., a Delaware corporation, ("Sub-Lessee") hereby enter into the following Office Sub-Lease Agreement. WHEREAS, Lessor on April 15, 1997, entered into a Lease Agreement with Union Savings Bank ("Owner") of two office buildings located at 8520 and 8534 E. Kemper Road, Symmes Township, Cincinnati, Ohio 45249 (hereinafter collectively referred to as "Office Building"); AND WHEREAS, Lessor leased from the Owner 4092 rentable square feet in the Office Building wich is referred to herein as the "Leased Premises"; AND WHEREAS, Lessor has agreed to Lease to Sub-Lessee an undivided fifty percent (50%) interest in the Leased Premises, hereinafter described under the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises and the Leased Premises the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. THE LEASED PREMISES. Lessor hereby grants, sub-leases and demises to Sub-Lessee and Sub-Lessee agrees to lease from Lessor an undivided fifty percent (50%) interest in a portion of a certain Office Building located in Hamilton County, Ohio, the street address of which is 8520 and 8534 E. Kemper Road, Cincinnati, Ohio 45249. The portion of the Office Building hereby sub-leased to Sub-Lessee at 8534 E. Kemper Rd., Symmes Township, Cincinnati, Ohio 45249 has a floor area of approximately 3292 rentable square feet, the floor plan of which is attached hereto as Exhibit "A" and the portion of the Office Building hereby sub-leased to Sub-Lessee at 8520 E. Kemper Rd., Symmes Township, Cincinnati, Ohio 45249, has a floor area of approximately 800 rentable square feet, the floor plan of which is attached hereto as Exhibit "B" (the "Leased Premises"). Lessor also grants to Sub-Lessee, together with and subject to the same rights granted from time to time by Owner to Lessor and to other lessees and occupants of the Office Building the right to use lobbies, elevators and common areas within the Office Building and the common parking adjoining the Office Building (the "Associated Common Areas"). 2. TERM AND COMMENCEMENT DATE. The term of this Sub-Lease shall be for a period of approximately three (3) years (the "Lease Term"), commencing on April __, 1997. ("Commencement Date"), and ending April 14, 2000. 1 3. CONSTRUCTION OF IMPROVEMENTS. Sub-Lessee hereby accepts the Leased Premises "as is". 4. RENT. (a) Minimum Rent. Sub-Lessee shall pay Monthly Minimum Rent in advance on the first day of each calendar month. Beginning on April _, 1997, Sub-Lessee shall pay as minimum monthly rent for the Leased Premises, the sum of Two thousand one hundred three dollars and ninety-seven cents ($2,103.97) and continuing such monthly installments for the remainder of the Lease Term. In the event the Lease Term commences on a day other than the first day of a calendar month, Sub-Lessee shall pay rent for such month proportional to its occupancy of the Leased Premises and same shall be prorated on the basis of a thirty (30) day month. Sub-Lessee shall pay fifty percent (50%) for all electric service used by Lessor during the term of this Sub-Lease, including but not limited to such electric service as shall be required for the operation of Lessor's heating and air conditioning, equipment, lighting, and Lessor's office equipment. (b) Supplies. Notwithstanding the above, the Sub-Lessee shall pay Lessor fifty percent (50%) of Lessor's expense for lighting replacements. (c) Late Charges. In the event that any payment of Monthly Minimum Rent shall become overdue for a period of five (5) days, a "late charge" of five percent (5%) of the payment so overdue shall be paid by Sub-Lessee. In addition, a further "late charge" of two and one-half percent (2 1/2%) of the payment so overdue shall be paid by Sub-Lessee for every five (5) days thereafter that the payment remains delinquent. 5. OBLIGATIONS OF LESSOR. Owner agrees during the term of this Sub-Lease at its cost and expense to furnish the following: (a) Services. Such water and sewer, and such janitorial service as in its judgement is reasonably necessary for the comfortable use and occupation of the Leased Premises for normal office use during normal business hours on all generally recognized business days. Failure to furnish such water and sewer and other services shall not render Owner or Lessor or its employees or agents liable for damages or injury to persons, business or property suffered by Sub-Lessee, its employees, agents, licensees or invitees, nor be construed as an eviction of Sub-Lessee or work an abatement or diminution of rent. (b) Repair. Maintenance of the exterior and structure of the Office Building (including the heating, ventilating and air conditioning system serving the Leased Premises), the Associated Common Areas and the underlying land and improvements in a manner 2 compatible with good quality office space, provided however, that such maintenance and repair is not the result of Sub-Lessee's negligence. 6. OBLIGATIONS OF SUB-LESSEE. During the term of this Sub-Lease, Sub-Lessee agrees as follows: (a) Use of Premises. Sub-Lessee shall use the Leased Premises for office purposes and for no other purpose without the prior written consent of Lessor. (b) Compliance with Law and Regulations. Sub-Lessee shall comply with all laws, regulations and orders of any governmental authority and with the rules and regulations, as reasonably adopted and modified from time to time by Lessor (the "Rules and Regulations"). Sub-Lessee shall not do or permit anything to be done in or about the Leased Premises or the Associated Common Areas which will in any way obstruct or interfere with the rights of other tenants or occupants of the Office Building or injure or annoy them, and shall not do or permit anything to be done which will increase the premiums of fire insurance on the Office Building. At no time during the Lease Term shall Sub-Lessee store any inventory, equipment or any other materials outside of the Leased Premises. Lessor shall not be responsible to Sub-Lessee for the non-observance of the Rules and Regulations by any other tenant or occupant of the Office Building. (c) Care of Leased Premises. Sub-Lessee shall take good care of the Leased Premises, shall commit no waste therein or damage thereto and shall return the Leased Premises on the termination of the Lease Term in as good condition as it was at the beginning of Sub-Lessee's occupancy or was placed in during the term of this Sub-Lease, ordinary wear and tear and casualty excepted. (d) Alterations. Sub-Lessee shall make no alterations in or to the Leased Premises, unless and until plans have been approved in advance by Lessor in writing. As a condition of such approval, Lessor may require Sub-Lessee to remove the alterations and restore the Leased Premises upon termination of this Sub-Lease. Nothing in this Sub-Lease shall, however, be construed to constitute the consent by Lessor to the creation of any lien, and no person shall be entitled to any lien on the Office Building or the underlying land and improvements. In the event, despite this provision, a lien is placed thereon, Sub-Lessee shall cause such lien to be removed or shall, immediately upon request of Lessor, provide a corporate surety bond satisfactory to Lessor which shall save Lessor harmless under such lien and from any interest, costs and attorneys' fees incurred by Lessor in connection therewith. Sub-Lessee shall indemnify Lessor from any and all costs incurred by Lessor as a result of such liens. (e) Repair. Sub-Lessee, at is sole cost and expense, shall repair any damage to the Leased Premises or the Associated Common 3 Areas caused by any act or neglect of Sub-Lessee, its employees, agents, invitees or licensees, ordinary wear and tear and casualty excepted. If Sub-Lessee shall fail to make such repairs within a reasonable time not exceeding twenty (20) days after receiving notice thereof from Lessor, Lessor may cause such repair to be made at Sub-Lessee's expense, and Sub-Lessee shall immediately reimburse Lessor therefor. (f) Assignment and Subletting. Sub-Lessee shall not assign or sublet the Leased Premises or this Sub-Lease, in whole or in part, without the prior written consent of Lessor, which shall not be unreasonably withheld. Without in any way limiting Lessor's right to refuse to give such consent for any other reason or reasons, Lessor reserves the right to refuse to give such consent if in Lessor's sole discretion and opinion the use of the Leased Premises or quality of operation is or may be in any way adversely affected. In the event of any assignment or subletting, Sub-Lessee shall, nevertheless, remain primarily liable to perform the obligations imposed on Sub-Lessee hereunder. Sub-Lessee further agrees to reimburse Lessor for reasonable attorneys' fees incurred in conjunction with the processing and documentation of any requested transfer, assignment, subletting, change of ownership or hypothecation of this Sub-Lease or Sub-Lessee's interest in and to the Leased Premises. (g) Signs. Sub-Lessee shall not place or permit to be placed or maintained in or on any portion of the Office Building outside the Leased Premises, including but not limited to any exterior doors, walls, roof or windows of the Leased Premises or the Office Building, any sign, awning or canopy or other advertising matter, and shall not place or permit to be placed or maintained any decoration, lettering or advertising matter on the interior of the glass of any window or door of the Leased Premises without the prior written approval of Lessor, which approval shall be in Lessor's absolute and unqualified discretion. 7. RIGHTS RESERVED TO LESSOR. Lessor shall have the following rights: (a) Entrance. To inspect the Leased Premises at all reasonable times, and to show them after Sub-Lessee gives notice of intended vacation or within ninety (90) days of the expiration of the Sub-Lease Term, and to enter the Leased Premises at any reasonable time to make such repairs, additions or alterations as it may deem necessary for the safety, improvement or preservation thereof or of the Office Building. (b) Fixtures and Improvements. On termination of this Sub-Lease, to retain any improvements to the Leased Premises, except fixtures attached by Sub-Lessee which can be removed without material damage to the Leased Premises, provided Sub-Lessee is not in default hereunder and shall, upon removal, promptly repair any damage. 4 (c) Common Areas. Sub-Lessee agrees Owner shall have the right at any time to change or otherwise alter the common areas of the Office Building and the Associated Common Areas. 8. CASUALTY. In the event the Leased Premises are damaged or destroyed in whole or in part by fire or other casualty during the term hereof, Sub-Lessee agrees Owner shall, to extent of insurance proceeds repair and restore the same to tenantable condition and the rent herein provided for shall abate entirely in case the entire Leased Premises are untenantable and prorated for the portion rendered untenantable, in the event of partial untenantability, until such time as the Leased Premises are restored to tenantable condition. If the Leased Premises cannot be restored to tenantable condition within a period of one hundred eighty (180) days, Lessor shall have the right to terminate this Sub-Lease upon written notice to Sub-Lessee and any rent paid in advance for any period after the date of such damage and destruction shall be refunded to Sub-Lessee. If the Leased Premises are damaged due to fire or other casualty, Sub-Lessee shall at its own cost and expense remove such of its furniture and other belongings from the Leased Premises as Lessor shall require in order to repair and restore the Leased Premises. Sub-Lessee agrees Owner shall be the sole judge as to the extent of the untenantability of the Leased Premises and of the time required for the repair and rebuilding of the same. In the event the building in which the Leased Premises are located is destroyed to the extent of more than one-half of the then value thereof, Lessor and/or Owner shall have the right to terminate this Sub-Lease upon written notice to Sub-Lessee, in which event any rent paid in advance for any period after the date of such destruction shall be refunded to Sub-Lessee. 9. EMINENT DOMAIN. In the event that all of the Leased Premises are taken by eminent domain or conveyance in lieu thereof, this Sub-Lease shall automatically terminate as of the date title vests in the condemning authority and all rent and other payments due hereunder shall be paid to that date. In the event that more than fifty (50%) but less than one hundred percent (100%) of the Leased Premises is taken by eminent domain or conveyance in lieu thereof, Owner, Lessor and Sub-Lessee shall each have the option to terminate the Sub-Lease, such option to be exercised by giving written notice to the other within thirty (30) days of the final adjudication of condemnation and all rent and other payments due hereunder shall be paid to the date title rests in the condemning authority. In the event neither party terminates then, this Sub-Lease shall remain in full force and effect for the remaining portion of the Leased Premises and all rent and other payments due hereunder shall abate on a pro rata basis as of the date title vests in the condemning authority. 5 10. SECURITY DEPOSIT. None. 11. FIRE AND EXTENDED COVERAGE INSURANCE. During the Sub-Lease Term, Owner shall maintain fire and extended coverage insurance on the Office Building, but shall not protect Sub-Lessee's property in the event of damage however caused. Sub-Lessee shall be responsible for insuring its property located on the Leased Premises, in the Office Building or the Associated Common Areas, and neither Owner, Lessor nor any other tenant or occupant of the Office Building shall be liable to the Sub-Lessee for damage to Sub-Lessee's property however caused. All insurance policies maintained by the Owner or Sub-Lessee as provided in this paragraph shall contain an agreement by the insurer waiving the insurer's right of subrogation against the other party to this Sub-Lease or agreeing not to acquire any rights of recovery which the insured has expressly waived prior to loss. Owner, Lessor and Sub-Lessee each hereby waives and releases any and all rights of recovery which either might have against the other for any loss or damage whether or not caused by any alleged negligence of the other party, its agents, licensees or invitees. Sub-Lessee shall not use the Leased Premises in any manner or store anything in or upon the Leased Premises which would result in an increase in the premiums for the fire and extended coverage insurance. 12. LESSEE'S INDEMNIFICATION OF LESSOR. Owner or Lessor shall not be liable to Sub-Lessee or any other person for damage to property or injury or death to persons due to the condition of the Leased Premises, the Office Building or the Associated Common Areas, to any occurrence or happening in or about the Leased Premises, the Office Building or the Associated Common Areas or to any act or neglect of Sub-Lessee or any other tenant or occupant of the Office Building or of any other person, unless such damage, injury or death is the direct result of the negligence of Owner or Lessor. Sub-Lessee shall be responsible and liable to Owner and/or Lessor for any damage to the Leased Premises, the Office Building or the Associated Common Areas by the Sub-Lessee or invitation of Sub-Lessee, expressed or implied, except where such damage is a result of a casualty loss covered by Lessor's Fire and Extended Coverage Insurance provided in accordance with paragraph 11. Sub-Lessee shall save Owner and/or Lessor harmless from any and all liability to any person for any damage to property or for injury or death to any person resulting from use of the Leased Premises or the Associated Common Areas, shall protect against such liability with public liability insurance and shall furnish Lessor, and upon request Owner, with a certificate evidencing such insurance issued by a company and in amounts reasonably satisfactory to Owner and/or Lessor and naming Owner and Lessor as an additional insured. 6 13. DEFAULTS AND REMEDIES. (a) Defaults. Each of the following shall be deemed a default by Sub-Lessee: (1) Failure to pay the rent as herein provided when due; (2) Failure to make additional payments as provided for in this Sub-Lease when due; (3) Failure to perform any act to be performed by Sub-Lessee hereunder or to comply with any condition or covenant contained herein; or failure to comply with applicable laws, rules or regulation; or, (4) The abandonment of the Leased Premises by Sub-Lessee or its adjudication as a bankrupt; the making by Sub-Lessee of a general assignment for the benefit of creditors by or against Sub-Lessee; Sub-Lessee's taking the benefit of any insolvency action or law; the appointment of a permanent receiver or trustee or custodian in bankruptcy for Sub-Lessee or its assets; the appointment of a temporary receiver for the Sub-Lessee or its assets if such temporary receiver has not been vacated or set aside within thirty (30) days from the date of such appointment; the initiation of any arrangement or similar proceeding for the benefit of creditors by or against Sub-Lessee; termination of Sub-Lessee's existence, whether by dissolution, agreement, death or otherwise, as the case may be. (b) Remedies. In the event of any default of Sub-Lessee provided in (i) Clause (1) of the foregoing subparagraph (a) and the continuance of such a default after three (3) days written notice from Lessor to Sub-Lessee; (ii) Clause (2) or (3) of the foregoing subparagraph (a) and the continuance of such a default after ten (10) days written notice from Lessor to Sub-Lessee; or (iii) Clause (4) of the foregoing subparagraph (a) without any demand or notice, this Sub-Lease shall terminate at the option of the Lessor. In the event of termination of this Sub-Lease, Lessor, may, in addition to its other rights and remedies at law and in equity, re-enter the Leased Premises, take possession of all or any part thereof and remove all property and persons therefrom and shall not be liable for any damage therefore or for trespass. No such re-entry shall be deemed an acceptance of the surrender of this Sub-Lease or deemed satisfaction of Sub-Lessee's obligation to pay rent as provided herein or of any other obligation of Sub-Lessee hereunder. Lessor shall be entitled to recover from Sub-Lessee all damages incurred by Lessor by reason of Sub-Lessee's default including, but not limited to, the cost of recovering possession of the Leased Premises; and reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the 7 amount of such rental loss for the same period that Sub-Lessee proves could be reasonably avoided, that portion of any leasing commission paid by Lessor applicable to the unexpired term of this Sub-Lease. 14. LESSOR'S RIGHT TO RELOCATE LESSEE. Lessor shall have the right, at its option, upon at least thirty (30) days prior written notice to Sub-Lessee, to relocate Sub-Lessee and to substitute for the Leased Premises described herein other space in the Office Building containing at least as much rentable area as the Leased Premises. Such substituted space shall be improved by Lessor, at its expense with improvements at least equal in quantity and quality to those in the Leased Premises. Lessor shall pay all reasonable expenses incurred by Sub-Lessee in connection with such relocation. Upon completion of the relocation, Lessor and Sub-Lessee shall amend this Sub-Lease to change the description of the Leased Premises and any other matters pertinent thereto. 15. LESSEE'S POSSESSION. No promise of the Lessor to alter, remodel, repair or improve the Leased Premises or the Office Building and no representation respecting the condition of the Leased Premises or the Office Building have been made by Lessor to Sub-Lessee other than as may be contained herein. At the termination of this Sub-Lease, the Sub-Lessee shall return the Leased Premises broom-clean and in as good condition as when the Sub-Lessee took possession, ordinary wear and tear and loss of fire or other casualty excepted, failing which the Lessor may restore the Leased Premises to such condition and the Sub-Lessee shall pay the cost thereof on demand. 16. MISCELLANEOUS PROVISIONS. (a) Right of Quiet Enjoyment. Lessor agrees that if Sub-Lessee shall perform all the covenants and agreements herein provided to be performed by Sub-Lessee, Sub-Lessee shall, at all times during the Sub-Lease Term have the peaceable and quiet enjoyment of possession of the Leased Premises, except as provided in paragraph 14. (b) Lessor's Right to Mortgage. Sub-Lessee agrees at any time, and from time to time, upon request of Owner, or the holder of any mortgage or other instrument of security given by Owner, to execute, acknowledge and deliver to Owner or to the holder of such instrument, a statement in writing certifying that this Sub-Lease has not been modified and is in full force and effect (or if there have been modifications, that the same are in full force and effect and state such modifications); that there are no defaults hereunder by Lessor, if such is the fact; and the dates to which the fixed rents and other charges have been paid, it being intended that any such statement delivered pursuant to this paragraph may be relied upon by the holder of any such mortgage or other instrument of security of any authorized assignee of Lessor. Sub-Lessee's rights shall be subject to any bona fide mortgage now existing upon or hereafter placed upon the Leased Premises by 8 Owner; provided, however, that if the mortgagee shall take title to the Leased Premises through foreclosure or deed-in-lieu of foreclosure, Sub-Lessee shall be allowed to continue in possession of the Leased Premises as provided for in this Sub-Lease so long as Sub-Lessee shall not be in default. (c) Rights of Assigns. Except where specifically limited, the rights and liabilities of the parties hereto shall run for the benefit of and shall be binding upon the personal representatives, heirs, assigns and successors in interest of Lessor and Sub-Lessee. (d) Indemnification. Sub-Lessee shall be liable for and hereby agrees to pay any and all costs and expenses, including reasonable attorneys' fees incurred by Lessor in connection with any default by Sub-Lessee under the terms, covenants and conditions contained herein, without relief from valuation or appraisement laws. (e) Waiver. No waiver of any covenant or condition or the breach of any covenant or condition of this Sub-Lease shall be taken to justify or authorize a non-observance on any other occasion of such covenant or condition or any other covenant or condition or to constitute a waiver of any subsequent breach of such covenant or condition. Acceptance of rent by Lessor at any time when Sub-Lessee is in default of any covenant or condition hereof shall not be construed as a waiver of any such default or of Lessor's right to terminate this Sub-Lease on account of such default. (f) Notice. Any notice, consent or waiver required or permitted to be given or served by either party to this Sub-Lease shall be in writing and either delivered personally to the other party or mailed by certified or registered mail, return receipt requested, addressed as follows: Lessor: Beck Hospitality, Inc. III Attn: Charles Thornton, Atty. 8534 East Kemper Road Cincinnati, Ohio 45249 Sub-Lessee: Janus Industries, Inc. Attn: Richard Tonges 8534 East Kemper Road Cincinnati, Ohio 45249 Either party may change its address for such purposes by serving notice on the other party. (g) Severabilitv. If any provision of this Sub-Lease or the application thereof to any person or circumstance is invalid, such invalidity shall not affect other provisions or applications of this Sub-Lease which can be given effect without the invalid provision of application, and to this end the provisions of this Sub-Lease are declared to be severable. 9 (h) Holding Over. If Sub-Lessee remains in possession of all or any part of the Leased Premises after the expiration of the term hereof, with or without the express or implied consent of Lessor, such tenancy shall be month-to-month only and shall not constitute a renewal or extension for any further term. In such event, rent shall be the same as set forth in this Sub-Lease, and said rent and any other sums due hereunder shall be payable in the amount and at the time specified in this Sub-Lease, and such month-to-month tenancy shall be subject to every other term, condition, covenant and agreement contained herein. Said month-to-month tenancy may be terminated by either party giving thirty (30) days written notice of termination to the other party. (i) Services. Any services which Lessor is required to furnish pursuant to the provisions of this Sub-Lease may, at Lessor's option, be furnished from time to time, in whole or in part, by employees of Lessor or by the Managing Agent of the Property or by one or more third persons. (j) Broker. Sub-Lessee has engaged no brokers who would be entitled to any commission or fee. (k) Recording Sub-Lease. This lease shall not be recorded by either party without the consent of the other. (1) Exhibits. Exhibit "A" and "B" are attached hereto and made a part hereof. Executed this _____ day of April, 1997. Signed and Acknowledged LESSOR: in the Presence of: Beck Hospitality, Inc. III /s/ Louis S. Beck, President - ------------------------ ----------------------------- Mary Ellen Steck Louis S. Beck, President - ------------------------ SUB-LESSEE: Janus Industries, Inc. /s/ Thomas O. Ix /s/ James Bishop, President - ----------------------- ----------------------------- James Bishop, President 10 Owner (Union Savings Bank) hereby agrees to be bound by the terms and conditions of this Sub-Lease and consents to this Sub-Lease Agreement between Beck Hospitality, Inc. III and Janus Industries, Inc. OWNER: Union Savings Bank Mary Ellen Steck /s/ Robert L. Bogenschutz - ----------------------- ------------------------- Robert L. Bogenschutz Senior Vice President - ----------------------- STATE OF OHIO ) ) ss: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me this 15th day of April, 1997, by Louis S. Beck, President of Beck Hospitality, Inc. III, an Ohio corporation, on behalf of the corporation. /s/ Charles Thornton --------------------------- Notary Public CHARLES W. THORNTON ATTY. AT LAW (SEAL) Notary Public, State of Ohio My Commission has no expiration. Ses:. 147.03 R.C. My Commission Expires: 11 STATE OF NEW JERSEY ) ) ss: COUNTY OF ESSEX ) The foregoing instrument was acknowledged before me this 17th day of June, 1997, by James Bishop, President of Janus Industries, Inc., a Delaware corporation, on behalf of the corporation. /s/ Eleanor M. Doganier -------------------------- Notary Public (SEAL) ELEANOR M. DOGANIER Notary Public of New Jersey My Commission Expires Jan. 23, 2000 My Commission Expires: 1-23-2000 STATE OF OHIO ) ) ss: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me this 15th day of April __, 1997, by Robert L. Bogenschutz, Senior Vice President of Union Savings Bank, an Ohio corporation, on behalf of the corporation. /s/ Charles Thornton --------------------------- Notary Public CHARLES W. THORNTON ATTY. AT LAW (SEAL) Notary Public, State of Ohio My Commission has no expiration. Ses:. 147.03 R.C. My Commission Expires: 12 EXHIBIT "A" 0534 E. KEMPER ROAD SECOND FLOOR [FLOOR PLAN OMITTED] EXHIBIT B [FLOOR PLAN OMITTED] EX-10.15 19 SUB-LEASE AGREEMENT SUB-LEASE AGREEMENT By and Between Beck Hospitality, Inc. III as Landlord and Janus Industries, Inc. as Sub-Tenant Dated as of: April 24, 1997 Property location: 2300 Corporate Boulevard, N.W. Boca Raton, Florida 33431 Condominium Units 231, 232, 233, 234 and part of 235 for 2,280 Square Feet TABLE OF CONTENTS Page ---- Article 1 - Premises ......................................... 2 Article 2 - Term ............................................. 2 Article 3 - Rent ............................................. 3 Article 4 - Possession; Quiet Enjoyment ...................... 5 Article 5 - Use of Premises .................................. 5 Article 6 - Taxes ............................................ 6 Article 7 - Insurance ........................................ 6 Article 8 - Indemnification .................................. 7 Article 9 - Utilities and Services; Parking .................. 7 Article 10 - Premises "As Is" ................................. 8 Article 11 - Repairs and Maintenance .......................... 8 Article 12 - Alterations ...................................... 9 Article 13 - Trade Fixtures ................................... 9 Article 14 - Mechanics' Liens ................................. 9 Article 15 - Damage and Destruction ........................... 10 Article 16 - Condemnation ..................................... 10 Article 17 - Environmental Provisions.......................... 11 Article 18 - Signs and Advertising............................. 12 Article 19 - Entry by Landlord................................. 12 Article 20 - Assignment and Subletting......................... 12 Article 21 - Subordination; Estoppel........................... 14 Article 22 - Default........................................... 14 Article 23 - Return of Premises; Holdover...................... 17 Article 24 - Notices........................................... 17 Article 25 - Broker's Commission............................... 18 Article 26 - Limitation of Landlord's Liability................ 18 Article 27 - Rules and Regulations............................. 18 Article 28 - Recording of Sub-lease........................... 19 Article 29 - Miscellaneous..................................... 19 Exhibits Exhibit A - Premises SUB-LEASE AGREEMENT Summary of Sub-Lease Terms Premises Address: 2300 Corporate Boulevard, N.W. Square Footage: 2,280 Square Feet Term: 24 months, commencing April 24, 1997 and expiring April 23, 1999. Option: None. Rent: $5.75 rent per square foot per year, payable in equal monthly installments of $1,092.50, plus $2.25 condo fees per square foot per year, payable in equal monthly installments of $427.50 (hereinafter referred to as "Base Rent") plus applicable taxes on both of these amounts. Deposit: $1,520.00 (one month's rent and condo fees) Sub-Leasehold Improvements: As is condition. 1 Sub-Lease AGREEMENT This Sub-Lease AGREEMENT ("Sub-Lease"), dated as of this 24th day of April, 1997, is made by and between Beck Hospitality, Inc. III, an Ohio corporation, having an address at 2300 Corporate Boulevard, N.W., Boca Raton, Florida 33431 ("Landlord"), and Janus Industries, Inc., a Delaware corporation, having an address at 2300 Corporate Boulevard, N.W. Boca Raton, Florida 33431 ("Sub-Tenant"). Article 1 - Premises Section 1.01. Landlord hereby leases to Sub-Tenant, and Sub-Tenant hereby leases from Landlord, for the term and subject to the covenants, agreements and conditions hereinafter set forth, an undivided interest in those certain premises located at 2300 Corporate Boulevard, N.W. identified as Premises (the "Premises") outlined in yellow on Exhibit A attached hereto currently being leased by Landlord from The Beck Group of Boca, the Owner of the Premises. Section 1.02. The rentable area of the Premises is agreed to be 2,280 square feet. The Premises are a portion of the building (the "Building") located at 2300 Corporate Boulevard N.W. in Boca Raton, Florida and are known as condominium units 231, 232, 233, 234 and part of 235 (collectively the "Property"). Section 1.03. Landlord hereby grants to Sub-Tenant the nonexclusive right to use the common areas associated with the Building (the "Common Areas"), which are defined herein as all areas and facilities outside the Premises contained in or related to the Building that are provided for the general use and convenience of Sub-Tenant and of other tenants of rental space in the Building and their respective agents, invitees and customers. The Common Areas shall include, without limitation, pedestrian walkways, restrooms, stairways, landscaped areas, sidewalks, service corridors, throughways and private roads servicing the Building. The Common Areas shall also include the parking facilities servicing the Building (the "Parking Area"). Article 2 - Term Section 2.01. The term (the "Initial Term") of this Sub-Lease shall have commenced on April 24, 1997 (the "Commencement Date") and shall expire on April 23, 1999 (the "Expiration Date"), subject to an earlier termination upon default (as hereinafter provided). 2 Article 3 - Rent Section 3.01. Commencing on the Commencement Date and continuing through the Expiration Date, Sub-Tenant agrees to pay to Landlord annual rent ("Base Rent") for the use of the Premises, in lawful money of the United States in the amount of $8.00 per square foot, payable in equal monthly installments of $1,520.00. All installments of Base Rent shall be payable on the first day of each month in advance. Section 3.02. In addition to Base Rent, Sub-Tenant shall pay as additional rent (hereinafter called "Additional Rent") Sub-Tenant's Pro Rata Share (fifty percent (50%)) (a) of all real estate taxes and assessments of any kind relating to the Property excluding condominium fees which have been included in the Base Rent and (b) of all Operating Costs (as hereinafter defined) incurred by the Landlord. Landlord shall deliver to Sub-Tenant from time to time written estimates with respect to Additional Rent payable hereunder. Sub-Tenant shall pay such amounts upon receipt of such statements. As soon as reasonably practicable after the end of each calendar year, Landlord shall deliver to Sub-Tenant a reasonably detailed statement setting forth the items included in Additional Rent for such prior calendar year. If Sub-Tenant shall have paid less than the amount set forth in such statement, Sub-Tenant shall pay the balance shown on such statement to Landlord within thirty (30) days after the date of such statement. If Sub-Tenant shall have paid more than the amount set forth in such statement, Landlord shall credit such amount against future payments of Additional Rent. Additional Rent and Base Rent are herein collectively referred to as "Rent". For purpose of this Sub-Lease, the term "Operating Costs" shall mean all costs incurred and expenditures of whatever nature made by Owner and/or Landlord (including costs and expenditures for outside contractors, and contractors who may be affiliated with Owner and/or Landlord to the extent that the contracts are at reasonable rates consistent with the type and quality of the services rendered) in the operation and management, for repairs, replacements, and improvements, or for cleaning and maintenance of the Property including, without limitation, parking areas, driveways and walkways on or related to the Property, related equipment, facilities and appurtenances, elevators, and cooling and heating equipment owned by the Owner and/or Landlord. Operating Costs shall include, but not be limited to, the following: (i) sales, federal social security, unemployment and old age taxes and contributions and state unemployment taxes and contributions accruing to and paid on account of all employees who are employed on account of the Property (other than employees of independent contractors); 3 (ii) all charges, costs, expenses and rates connected with or for or on account of (a) water supplied to the Property and all sewer use charges, (b) heat, ventilation, air conditioning, and security services supplied to the Property, (c) janitorial expenses and the cleaning of the Property, surrounding areaways and windows, whether performed by Owner and/or Landlord's employees or by persons or firms under contract with Owner and/or Landlord or Owner and/or Landlord's managing agent, (d) upkeep and maintenance of all elevators in the Property (if any), (e) the upkeep, maintenance and replacement of landscaping, plant material and decoration inside and outside of the Property, (f) the maintenance and cleaning of all parking area, driveways and walkways, (g) the shoveling, plowing and removal of snow, ice, rubbish and debris from the Property, (h) the painting and general repair of the Property, (i) building supplies, (j) general office and administrative expenses (including without limitation a management fee, office expenses and supplies, and date processing), (k) legal and accounting expenses and (l) licenses, permits and other governmental charges; (iii) all wage and salary costs including the cost of all employee benefits for all employees who are employed on account of the Property and all management fees or expenses, whether based upon rents or otherwise; and the imputed costs equal to the loss of rent by Owner for making available to the managing agent space for an office within the Property; and (iv) all charges, costs, expenses and rates connected with electric current supplied to the Property, including the cost of electric current for any elevators, lights, air conditioning, heating, and electrical alarm systems but not including electric current which is either paid for directly to the utility by the user/tenant or separately billed by and paid to the Landlord relating to the user/tenant's individual consumption; (v) premiums for fire, casualty, rent loss, liability and all other insurance as may from time to time be carried by Owner in connection with the Property, (as deemed appropriate by Owner) excluding premiums paid by tenants; (vi) all other expenses or costs which, in accordance with generally accepted accounting principles would be considered as an expense of operating, managing, maintaining or repairing the Property. Section 3.03. It is the purpose and intent of Landlord and Sub-Tenant that the Rent shall be absolutely net to Landlord and that Sub-Tenant shall pay, without notice or demand, and without abatement, deduction or setoff, and shall hold harmless and indemnify Landlord from and against all costs, charges, duties, rates, licenses and permit fees, real and personal property taxes, levies and assessments, insurance premiums, and expenses relating to the Premises which may arise or become due during the Sub-Lease 4 Term, other than (a) expenses incurred by or at the instance of Landlord which Sub-Tenant does not agree to pay or reimburse Landlord for under the provisions of this Sub-Lease and (b) payment of any amounts secured by liens on the Premises created by Landlord. In the event of any nonpayment of any of the foregoing, Landlord shall have, in addition to all other rights and remedies, all of the rights and remedies provided for herein or by law in the case of nonpayment of net rent. Section 3.04. All payments of Rent required to be made hereunder shall be made payable to and sent to Landlord at the address set forth in Article 19 hereof. Section 3.05. A late fee of 5% of the overdue amount will be charged for Rent received after the third day of the month for payments of Base Rent or after the thirty-third day after the statement is sent by Landlord for Additional Rent. Section 3.06. Upon execution of this Sub-Lease, Sub-Tenant shall deposit with Landlord the sum of $1,520.00 (the "Deposit"), which shall be held as a security for Sub-Tenant's performance as herein provided. In no event shall the Security Deposit be considered a measure of liquidated damages. All or any part of the Security Deposit may be applied by Landlord in full or partial satisfaction of any default by Sub-Tenant. If all or any part of the Security Deposit is so applied, Sub-Tenant upon demand will restore the Security Deposit to its full amount. At the expiration of the Sub-Lease and upon the satisfaction by Sub-Tenant of its obligations hereunder the balance of the Security Deposit, and any accrued interest thereon, will be paid over to Sub-Tenant. Article 4 - Possession: Quiet Enjoyment Section 4.01. Landlord shall, on or before the Commencement Date, deliver possession of the Premises to Sub-Tenant, including completed leasehold improvements as set forth in Article 10 hereof, in good condition and repair, and in material compliance with all governmental codes, laws, ordinances, regulations and requirements applicable to the Premises and to Sub-Tenant's use thereof. Section 4.02. Landlord covenants and agrees to keep Sub-Tenant in quiet possession and enjoyment of the Premises during the Term, and warrants that it has full power and authority to lease the Premises to Sub-Tenant for the Term. Article 5 - Use of Premises Sub-Tenant shall be permitted to use the Premises for the purposes of general office use (the "Permitted Use"). In the event Sub-Tenant is prohibited from using the Premises for the Permitted Use 5 for any reason other than the willful acts or negligence of Sub-Tenant, Sub-Tenant shall have the right to terminate this Sub-Lease upon thirty (30) days written notice to Landlord, whereupon Landlord shall promptly refund or cause to be refunded to Sub-Tenant any advance Rent, the Deposit and/or other monies paid by Sub-Tenant. Article 6 - Taxes Section 6.01. Sub-Tenant shall pay before delinquency all taxes that become payable during the Initial Term or the Term which are levied or assessed upon Sub-Tenant's equipment, furniture, fixtures and Sub-Tenant's other personal property installed or located in or on the Premises. Section 6.02. Landlord shall cause Owner to pay before delinquency all real property and/or rental taxes which are now or hereafter imposed upon the Property and/or the Building by any governmental agency or authority having jurisdiction over the Property, or any net income, franchise, estate, inheritance or transfer or any net income, franchise, estate, inheritance or transfer tax imposed upon the Property and/or Building, subject to whatever rights. Landlord shall be reimbursed by the Sub-Tenant for payment of all or a portion of such taxes as provided in Article 3. Article 7 - Insurance Section 7.01. Sub-Tenant shall maintain, throughout the Term, a policy of comprehensive liability insurance, naming Landlord as an additional name insured, against all claims in connection with Sub-Tenant's Permitted Use or occupancy of the Premises. Such policies shall have limits of liability of not less than $1,000,000 for personal injury or death of any one person, not less than $1,000,000 for any one incident, and not less than $50,000 for property damage. Sub-Tenant shall furnish Landlord, upon written demand therefor, a copy of such policy or a certificate evidencing such insurance. Such insurance policy shall provide at least thirty (30) days cancellation notice to Landlord. Section 7.02. Landlord shall cause Owner to maintain, throughout the Term (a) a policy of comprehensive liability insurance with respect to the Property, and (b) policies of insurance covering damage to the Building, excluding Sub-Tenant's fixtures, or equipment, in the amount of the full replacement value thereof, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, and "all risk". Landlord shall cause Owner to furnish to Sub-Tenant, upon written demand therefor, a copy of such policies or a certificate evidencing such insurance. 6 Section 7.03. Landlord and Sub-Tenant hereby mutually waive their respective rights of recovery against each other for any loss of, or damage to, either party or its property, where such loss or damage is insured by an insurance policy required to be in effect at the time of such loss or damage; and they further mutually agree that their respective insurance companies shall have no right of subrogation against the other on account thereof. Each party shall obtain any special endorsements, if required by its insurer, whereby the insurer waives its rights of subrogation against the other party hereto. The provisions of this Article 7 shall not apply in those instances in which waiver of subrogation would cause either party's insurance coverage to be voided or otherwise made uncollectible. Article 8 - Indemnification Section 8.01. Sub-Tenant shall hold Landlord harmless from and defend Landlord against any and all claims or liability for any injury or damage to any person or property whatsoever: (a) occurring in, on, or about the Premises; and (b) occurring in, on, or about the Building, when such injury or damage shall be caused in part or in whole by the act, neglect, fault, or omission of and duty with respect to the same, by Sub-Tenant, its agents, employees, or invitees. Section 8.02. Landlord shall hold Sub-Tenant harmless from and defend Sub-Tenant against any and all claims or liability for any injury or damage to any person or property whatsoever occurring in, on, or about the Premises, when such injury or damage shall be caused in part or in whole by the act, neglect, fault, or omission of any duty with respect to the same, by Landlord, its agents, employees or invitees. Article 9 - Utilities and Services; Parkinq Section 9.01. Landlord shall cause water and sewage service to be furnished to the Premises for the use of Sub-Tenant. Sub-Tenant shall reimburse Landlord for Sub-Tenant's Pro Rata Share (fifty percent (50%)) of the cost of such water and sewage service as provided in Article 3 hereof. Sub-Tenant shall, at its sole cost and expense, pay or cause to be paid all charges (including any deposits) for gas, electricity, telephone or other services or utilities furnished to the Premises or to Sub-Tenant with respect to its operation therein during the Term to the extent that such utilities shall be separately metered and/or directly billed to Sub-Tenant by the respective utilities. To the extent that any such utilities are metered and/or billed to more than one Tenant (including Sub-Tenant) Sub-Tenant shall pay its Pro Rata Share of such amounts. 7 Section 9.02. Sub-Tenant shall have the right to park vehicles in accordance with the parking requirements of the city or town in which the Premises are located free of charge and on an unreserved basis, in that portion of the Parking Area located adjacent to the Premises. Landlord may from time to time establish reasonable rules and regulations for the Parking Area, and Sub-Tenant agrees to observe the same upon being advised thereof. Any and all parking of motor vehicles in said Parking Area shall be at the risk of the owner of the same. Article 10 - Premises "As Is" Sub-Tenant accepts the Premises "as is" based upon Sub-Tenant's own investigation with no representation from Landlord. Article 11 - Repairs and Maintenance Section 11.01. Subject to the provisions in this Sub-Lease requiring Sub-Tenant to reimburse Landlord for Sub-Tenant's Pro Rata Share of the cost of such repairs and maintenance and except as provided in Section 11.02, Landlord shall cause Owner to do the following: (a) Maintain, in good condition and repair during the Term all structural components of the Property, including, without limitation, the foundation, roof, exterior walls of the Building, and the plumbing, electrical, heating and air-conditioning systems which are a part of and/or service the Premises except for those owned by the Sub-Tenant; (b) Maintain and keep clean all Common Areas, including the Parking Area, remove snow therefrom with reasonable dispatch when required, provide adequate lighting and drainage for the Parking Area during normal business hours, and maintain all landscaping in a neat and orderly condition; and (c) Cause trash and refuse to be removed daily or as often as is reasonably necessary from the Building so as to avoid unreasonable accumulations of the same. Section 11.02. Sub-Tenant, as its sole expense, shall do the following: (a) Make on a Pro Rata Share (fifty percent (50%)) all interior repairs to the Premises during the Term which are necessary to keep the Premises in substantially as good condition as on the Commencement Date, reasonable wear and tear and damage by fire or other casualty excepted; 8 (b) Be responsible on a Pro Rata Share (fifty percent (50%)) for providing janitorial services to the Premises consistent with those provided in buildings similar in quality to the Building. Article 12 - Alterations Sub-Tenant shall make no alterations, installations, additions or improvements ("additions") in or to the Premises in excess of $5,000, without the prior written consent of Landlord. The additions shall be made only by contractors or mechanics approved by Landlord at Sub-Tenant's expense. Sub-Tenant shall install and maintain the interior decoration and appearance in a first class manner. Notwithstanding the foregoing, Landlord may disapprove any additions or decorative changes which in the opinion of Landlord's architect harm the architectural integrity of the Building or conflict with the use of the rest of the Building. All such permanent additions shall be deemed to be part of the Building and to belong to Owner at the end of the Term. Article 13 - Trade Fixtures All equipment (other than exhaust vents and fans and heating, air conditioning and ventilating system), business and office machines, furniture and other items of personal property (except additions including without limitation walls, floors, ceilings, wiring, plumbing, sewerage, and water pipes and lines) owned or installed by Sub-Tenant in the Premises at its expense shall remain the property of Sub-Tenant, (and any taxes thereon and risk of loss shall be borne by Sub-Tenant, and may be removed by Sub-Tenant at any time provided that Sub-Tenant shall at its expense, repair any damage, holes or openings caused or occasioned by such removal whether by Sub-Tenant or Landlord as hereafter provided and provided that during the Term such removal does not adversely affect the appearance of the Premises). Any such personal property of the Sub-Tenant left upon the Premises at the end of the Term may, at the election of Landlord and after reasonable notice to Sub-Tenant, (a) be removed at Sub-Tenant's expense and sold, stored or discarded; or (b) be deemed to have been abandoned and belong to the Landlord. Article 14 - Mechanic's Liens Sub-Tenant shall keep the Property, the Building and the Premises free from and promptly remove any mechanic's liens and indemnify, defend, and hold Landlord harmless from any and all liability or expense of any kind and description which may arise out of or be connected in any way with Sub-Tenant's additions. Landlord's consent to the construction of additions shall not be deemed to be such consent of the Landlord or acknowledgement that its estate is 9 holden for the payment for such additions as would bind the interest of the Landlord under applicable mechanic's lien law. Article 15 - Damage and Destruction Section 15.01 If the Premises are damaged by fire, earthquake, act of God or the elements, Landlord shall cause Owner to repair the same, subject to the provisions of this Section hereinafter set forth and provided such repairs can be made within ninety (90) days under applicable state, federal and city and county laws and regulations. This Sub-Lease shall remain in full force and effect, except that if there shall be damage to the Premises and such damage is not the result of the negligence or willful misconduct of Sub-Tenant or Sub-Tenant's agents, employees or invitees, a proportionate reduction in Rent shall be allowed Sub-Tenant in the for such part of the Premises as shall be rendered unusable by Sub-Tenant in the conduct of its business during the time such part is so unusable. If such repairs cannot be made within ninety (90) days, either Landlord or Sub-Tenant may, upon written notice to the other within ninety (90) days after the date of such fire or other casualty, repair or restore such damage, this Sub-Lease continuing in full force and effect but the Rent to be proportionately reduced as hereinabove provided. If Landlord elects not to make such repairs which cannot be made within ninety (90) days, then either Landlord or (provided the damage affects the Premises or Common Areas necessary to Sub-Tenant's occupancy) Sub-Tenant may, by written notice to the other given not less than sixty (60) days and not more than ninety (90) days after the date of such fire or other casualty, terminate this Sub-Lease as of the date of such fire or other casualty. Section 15.02. Landlord shall not be required to repair any injury or damage by fire, earthquake, act of God or the elements, or to make any repairs or replacements, of any improvements installed in the Premises by Sub-Tenant, except for the portion of such improvements the cost of which was borne by Landlord; and Sub-Tenant shall, at Sub-Tenant's sole cost and expense, repair and restore its portion of such improvements. Section 15.03. In the event the Premises or the Building is totally destroyed or rendered wholly unusable for Sub-Tenant's Permitted Use, this Sub-Lease shall terminate and Sub-Tenant shall only be liable for Rent up to the date of such total destruction. Article 16 - Condemnation If the Premises and/or the Building, or any portion thereof, are taken or condemned under the power of eminent domain, or by purchase in lieu of such taking or condemnation, and as a result thereof the use and enjoyment of the Premises by Sub-Tenant are 10 materially impaired, Sub-Tenant may, at its sole option, but without prejudice to any rights and claims which it may otherwise have on account of such taking, condemnation or sale, terminate this Sub-Lease upon written notice to Landlord. If Sub-Tenant does not elect to terminate this Sub-Lease, the Rent reserved for the remainder of the Term shall be reduced in proportion to the portion of the Premises taken, condemned or sold, having due regard to the nature and extent of the injury caused thereby to the Premises and to Sub-Tenant's Permitted Use thereof, and such reduction in Rent shall be without prejudice to any rights and claims which Sub-Tenant may otherwise have on account of such taking or condemnation or sale. Landlord reserves to itself, and Sub-Tenant assigns to Landlord, all rights to damages accruing on account of any taking under the power of eminent domain or by reason or any act or any public or quasi-public authority for which damages are payable. Sub-Tenant agrees to execute such instruments of assignment as may be reasonably required by Landlord in any proceeding, except it is agreed and understood, however, that Landlord does not reserve to itself, and Sub-Tenant does not assign to Landlord, any damages specifically payable for Sub-Tenant's trade fixtures, furniture, moving expenses, and/or Sub-Tenant's leasehold improvements. Article 17 - Environmental Provisions Section 17.01. Sub-Tenant represents, warrants and covenants that it has obtained, is in compliance with, and will continue to comply with all permits, licenses and other authorizations which are required under all environmental laws and regulations, including laws relating to emission, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, groundwater, or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling or pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes, except to the extent failure to have any such permit, license or authorization does not have a material adverse effect on the financial condition, operations, prospects, or business of the Sub-Tenant. Section 17.02. Sub-Tenant shall comply with the requirements of all material federal, state, and local environmental laws relating to the Premises; shall immediately notify the Landlord in the event of any material spill, pollution or contamination affecting the Premises from oil, friable asbestos, hazardous waste, hazardous material, or other waste or material regulated or limited by applicable federal, state, or local environmental law or regulation ("Hazardous Material"); and shall immediately forward to the Landlord any notices relating to such matters received from any governmental agency. 11 Section 17.03. Sub-Tenant shall immediately contain and remove at its sole cost and expense any Hazardous Material found on the Premises if caused by Sub-Tenant or anyone acting under Sub-Tenant; such work must be done in compliance with applicable laws. Section 17.04. Sub-Tenant will indemnify, defend, and hold the Landlord harmless from and against any claim, cost, damage (including without limitation consequential damages), expense (including without limitation reasonable attorneys' fees and expenses), loss, liability, or judgement now or hereafter arising as a result of any claim for environmental cleanup costs, any resulting damage to the environment and any other environmental claims against the Sub-Tenant, the Landlord, or the Premises relating to any act or failure to act by Sub-Tenant or anyone claiming under Sub-Tenant. The provisions of this Section 17.04 shall continue in effect and shall survive (among other events) any termination or expiration of this Sub-Lease. Article 18 - Signs and Advertising Sub-Tenant shall not place any sign on or around the Premises without the advance written consent of Landlord. Signs identifying the Building or any owners or Tenants therein shall not be deemed to be advertising. Article 19 - Entry by Landlord Landlord and its agents shall have the right to enter into and upon the Premises at all reasonable times for the purpose of examining and exhibiting the same, for making any necessary repairs or alterations thereto, for the purpose of supplying any service, or building maintenance to be provided by Landlord hereunder; provided however, that Landlord shall advise Sub-Tenant a reasonable time in advance thereof, and, provided further, that the operations of Sub-Tenant shall not be interfered with unreasonably thereby. Article 20 - Assignment and Subletting Section 20.01. Sub-Tenant will not assign, sublet, pledge, mortgage, or otherwise transfer this Sub-Lease or the whole or any part of the Premises without in each instance having first received the express written consent of Landlord. In any case where Landlord shall consent to an assignment or subletting, Sub-Tenant shall remain primarily liable for Sub-Tenant's obligations hereunder. In the event that the Premises are sublet or this Sub-Lease is assigned, Landlord shall be paid and have the benefit of any and all rentals and payments in excess of the rental rates and other amounts required to be paid by Sub-Tenant pursuant to this Sub-Lease. It shall be a condition to the validity of any 12 assignment or subletting that the terms of any sublease or assignment shall not be more favorable than the terms of this Sub-Lease and shall not be more favorable than the terms which Landlord is then offering for new rental space in the Building or for existing rental space in the Building which will be coming available. The transfer of a majority interest in the capital stock of any corporate Sub-Tenant or a majority of the interest in any partnership Sub-Tenant, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Sub-Lease. Section 20.02. If Sub-Tenant (which term for the purposes of this Section 20.02 shall mean the authorized representative of Sub-Tenant's estate in Bankruptcy) assumes this Sub-Lease and proposes to assign the same pursuant to the provisions of the Bankruptcy code, 11 U.S.C. 101 et seq., or any future statute in amendment or in substitution thereof (the "Bankruptcy Code") to any person or entity who shall have made a bona fide offer to accept an assignment of this Sub-Lease on terms acceptable to the Sub-Tenant, then notice of such proposed assignment, setting forth (i) the name and address of such person or entity, (ii) all of the terms and conditions of such offer, and (iii) adequate assurance to be provided Landlord to assure such person's or entity's future performance under this Sub-Lease, including, without limitation, the assurance referred to in Section 365 (b) (3) of the Bankruptcy Code, shall be given to Landlord by Sub-Tenant no later than twenty (20) days after receipt by the Sub-Tenant, but in any event no later than ten (10) days prior to the date that Sub-Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption. Landlord shall thereupon have the prior right and option, to be exercised by notice to Sub-Tenant at any time prior to the effective date of such proposed assignment, to accept an assignment of this Sub-Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person or entity, less any brokerage commissions which may be payable out of the consideration to be paid by such persons or entity for the assignment of this Sub-Lease. In the event this Sub-Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, then any and all monies or other consideration paid, payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Sub-Tenant or of the estate of Sub-Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's 13 property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. Any person or entity to which this Sub-Lease is assigned, pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations arising under this Sub-Lease on and after the date of such assignment. Any such assignee shall, upon demand, execute and deliver to Landlord an instrument confirming such assumption. Article 21 - Subordination; Estoppel Section 21.01. This Sub-Lease will be subject and subordinate to any mortgage of the Premises now existing or hereafter executed by Owner or its successors and assigns. Such subordination is automatic and is effective without any further act of Sub-Tenant, but Sub-Tenant hereby agrees from time to time on request from Landlord to execute and deliver any instruments that may be required by any lender to confirm the subordination provided for herein. Any mortgagee may elect that this Sub-Lease shall have priority over its mortgage, and upon notification of such election by such mortgagee to Sub-Tenant, this Sub-Lease shall be deemed to have priority over such mortgage whether this Sub-Lease is dated prior to or subsequent to the date of such mortgage. Sub-Tenant hereby appoints Landlord, with full power of substitution, as Sub-Tenant's attorney-in-fact (which appointment shall be irrevocable and shall be deemed to be coupled with an interest) to execute and deliver any such instrument for and in the name of Sub-Tenant. Section 21.02. Sub-Tenant, within ten (10) days after written request from Landlord shall furnish a written certificate stating whether this Sub-Lease is in full force and effect, if any amendments have been executed, if any default exist by Landlord or by Sub-Tenant hereunder and the nature of any alleged default, if Sub-Tenant is then claiming any offsets, counterclaims or defenses to this Sub-Lease, and any other matter which may be reasonably requested. Article 22 - Default Section 22.01. If any of the following shall occur, Sub-Tenant shall be deemed in default of this Sub-Lease: (a) if Sub-Tenant shall fail to pay any Rent or other sum when and as the same becomes due and payable and such failure shall continue for more than ten (10) days; (b) if Sub-Tenant shall fail to perform any of the other duties required to be performed by Sub-Tenant under this Sub-Lease and such failure shall continue for more than thirty (30) days after receipt of written notice thereof from Landlord; provided, however, that if such cannot reasonably be performed within such thirty (30) day period, Sub-Tenant shall have such 14 additional time as is reasonably necessary to perform such duty; (c) if Sub-Tenant shall make a general assignment for the benefit of creditors, admit in writing its inability to pay its debts as they become due, file a petition in bankruptcy, have an order of relief entered against it, or file or have filed against Sub-Tenant a petition seeking any reorganization, receivership, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation. Section 22.02. In the event of default, to the extent not prohibited by applicable law it will be lawful for the Landlord thereupon, or at any time thereafter, upon written notice of termination to Sub-Tenant, and with or without process of law (forcibly if necessary) enter into and upon the Premises or any part thereof in the name of the whole or mail a notice of termination addressed to Sub-Tenant at the Premises, and repossess the same as of Landlord's former estate and expel Sub-Tenant and those claiming through or under Sub-Tenant and remove its and their effects (forcibly, if necessary) without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and upon such entry or mailing as aforesaid this Sub-Lease shall terminate, Sub-Tenant hereby waiving all statutory rights (including without limitation rights of redemption, if any, to the extent such rights may be lawfully waived) and Landlord, without notice to Sub-Tenant, may store Tenant's effects, and those of any person claiming through or under Sub-Tenant at the expense and risk of Sub-Tenant, and, if Landlord so elects, may sell such effects at public auction or private sale and apply the next proceeds to the payment of all sums due to Landlord from Sub-Tenant if any, and pay over the balance, if any, to Sub-Tenant. Section 22.03. Upon the termination of this Sub-Lease under any provision contained in Section 22.01, Sub-Tenant shall nevertheless remain liable for all Rent then due and payable hereunder as of the date of the termination of this Sub-Lease, together with all damages due or sustained by Landlord prior to such termination or arising as a result of events or conditions occurring or in existence during the term hereof and prior to or after such termination, and all reasonable costs, fees and expenses incurred by Landlord in pursuit of, or in the collection of its remedies hereunder or under any law, or in leasing or attempting to lease all or any portion of the Premises to others from time to time (including, without limitation, all repossession costs, brokerage commissions, reasonable attorney's fees in connection with the foregoing matters, and all costs of such alterations, repairs, and decorations as Landlord, in its reasonable judgement, considers necessary or advisable in connection with such reletting)(all such rent, damages, costs, fees and expenses being referred to herein as the "Termination Damages") and, in addition thereto, additional damages (the "Liquidated Damages"), which, at the election of Landlord, shall be either of the following: 15 (a) an amount or amounts equal to all Rent which, but for termination, would have been payable to Landlord over the remainder of the Term, reduced by the amount of Rent, if any, which the Landlord shall actually receive from time to time during such period from others to whom the Premises may be rented from time to time. The Landlord shall not be obligated to attempt to collect any rental or other payment obligation from any other person renting all or any portion of the Premises by litigation or otherwise. Such Liquidated Damages shall be computed and payable in monthly installments, with interest on any amount in arrears at the rate of two percent (2%) per annum in excess of the Barnett Bank Prime Rate, in arrears, on the first day of each calendar month following termination of the Sub-Lease and shall continue to become due and payable in monthly installments until the date on which the Term would have expired but for such termination; and any and all amounts due and payable hereunder, including any amount in arrears, shall be a continuing liability of Sub-Tenant thereafter, and interest thereon shall accrue at the rate of two percent (2%) per annum in excess of the Barnett Bank Prime Rate, until Sub-Tenant shall discharge same by payment to Landlord of the amount due, and any suit or action brought from time to time to collect any such Liquidated Damages for any month or months shall not in any manner prejudice the right of Landlord to collect any Liquidated Damages for any subsequent month or months by a similar proceeding; or (b) an amount equal to the present value (as of the date of such termination) of all Rent which, but for termination of this Sub-Lease, would have become due during the remainder of the Term, reduced by an amount equal to the fair rental value of the Premises over the remainder of the Term, as determined by an independent real estate appraiser named by Landlord, in which case such Liquidated Damages shall be payable to Landlord in one lump sum on demand made by Landlord at any time and shall bear interest at the rate of two percent (2%) per annum in excess of the Barnett Bank Prime Rate from the date of termination until paid. For purposes of this clause (ii), present value shall be computed by the application of a discount rate equal to the discount rate in effect at the Federal Reserve Bank nearest to the location of the Premises as of the date of determination. Section 22.04. In addition, if this Sub-Lease is terminated, Landlord may, but shall have no obligation to, relet the Premises or any part thereof, alone or together with other premises, for such term or terms (which may be greater or less than the period which would have constituted the balance of the Term) and on such terms and conditions (which may include concessions for free rent and alterations of the Premises) as Landlord, in its uncontrolled discretion, may determine, but Landlord shall not be liable for, nor shall Sub-Tenant's obligations hereunder be diminished by reason of, failure by Landlord to relet the Premises or any failure by Landlord to collect any rent due upon such reletting, and Sub- 16 Tenant, to the extent Sub-Tenant may lawfully do so, hereby waives all right to require Landlord to relet the Premises. Section 22.05. Nothing contained in this Sub-Lease shall, however, limit or prejudice the right of Landlord to prove for and obtain in proceedings under any federal or state laws relating to bankruptcy or insolvency or reorganization or arrangement by reason of the termination of this Sub-Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than the amount of the loss or damages referred to above. Section 22.06. Any and all rights and remedies which Landlord may have under this Sub-Lease, and at law and equity, shall be cumulative and shall not be deemed inconsistent with each other, and any two or more of all such rights and remedies may be exercised at the same time insofar as permitted by law. Section 22.07. The waiver by either party of any default shall not be deemed to be a waiver of any subsequent default under the same, or under any other term, covenant or condition of this Sub-Lease. The subsequent acceptance of any Rent by Landlord shall not be deemed to be a waiver of any preceding default by Sub-Tenant under any term, covenant or condition of this Sub-Lease, other than the failure of Sub-Tenant to pay the particular Rent so accepted, regardless of Landlord's knowledge of such preceding default at the time of acceptance of such Rent. Article 23 - Return of Premises; Holdover Section 23.01. At the expiration or other termination of the Term, Sub-Tenant will remove from the Premises its property and that of all claiming under it and will peaceably yield up to Landlord the Premises in as good condition in all respects as the same were at the commencement of this Sub-Lease, except for the ordinary wear and tear, damage by the elements, by any exercise of the right of eminent domain or by any public or other authority, or damage not caused by Sub-Tenant and with respect to which Sub-Tenant is not required to maintain insurance hereunder. Section 23.02. If Sub-Tenant remains in possession of the Premises after the expiration of the Term, said tenancy shall be month-to-month pursuant to Section 23.02, and should Landlord at any time decline to accept the Rent at the rate specified herein, Sub-Tenant's holding over thereafter will be deemed to be as a Tenant-at-sufferance. Article 24 - Notices All notices which are required to be given by either party hereunder shall be in writing, sent by certified or registered 17 mail, postage prepaid, return receipt requested, and addressed to the parties at the following addresses: LANDLORD: Beck Hospitality, Inc. III 2300 Corporate Boulevard N.W. Boca Raton, FL 33431 Attention: Louis S. Beck, President (561) 997-2325 SUB-TENANT: Janus Industries, Inc. 2300 Corporate Boulevard N.W. Boca Raton, FL 33431 Attention: James Bishop, President (561) 997-2325 or to such other addresses and to such other persons as the parties may from time to time designate in writing. The time of giving of any such notice shall be deemed to be three (3) days after such notice is mailed. Article 25 - Broker's Commissions The parties represent no brokers were involved in this transaction. Article 26 - Limitation of Landlord's Liability Sub-Tenant shall neither assert nor seek to enforce any claim for breach of this Sub-Lease against any of Landlord's assets other than Landlord's interest in the Property and in the rents, issues and profits thereof. No partner, trustee, stockholder, officer, director, employee or beneficiary of Landlord shall be personally liable under the Sub-Lease, and Sub-Tenant shall look solely to Landlord's interest as the landlord in the Property in pursuit of its remedies upon an event of default hereunder so that the general assets of Landlord and of the individual partners, trustees, stockholders, officers, employees or beneficiaries of the Landlord shall not be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Sub-Tenant. In the event Landlord sells or otherwise transfers its interest in the Property (or a part thereof which includes the Premises), then from and after such sale or other transfer Landlord shall be released from liability hereunder and Sub-Tenant shall look solely to the interests in the Property of Landlord's transferee for the performance of all of the obligations of Landlord hereunder. 18 Article 27 - Rules and Regulations Sub-Tenant shall abide by the rules and regulations from time to time established by Landlord with respect to the Building and the Property. In the event that there shall be conflict between such rules and regulations and the provisions of this Sub-Lease, the provisions of this Sub-Lease shall control. Article 28 - Recording of Sub-Lease The parties hereto agree that this Sub-Lease shall not be recorded, but the Landlord and Sub-Tenant hereby agree upon request of either party to enter into a notice of lease in recordable form, setting forth the names of the parties describing the Premises, specifying the Term, and such other provisions, except rental provisions, with respect to the Sub-Lease as will put on notice any third party of the existence of this Sub-Lease. Article 29 - Miscellaneous Section 29.01. The words "Landlord" and "Sub-Tenant", as used herein, shall include the plural as well as the singular. Words used in the masculine gender herein shall include feminine and neuter forms thereof. Section 29.02. The covenants and conditions contained herein shall be binding upon and inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties hereto. Section 29.03. The article headings in this Sub-Lease are for convenience only, and shall not limit or otherwise affect the meaning of any provisions hereof. Section 29.04. Time is of the essence in each and every provision of this Sub-Lease. Section 29.05. The invalidity or unenforceability of any provision of this Sub-Lease shall not affect any other provision hereof. Section 29.06. Should either party hereto commence an action against the other to enforce any obligation under this Sub-Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees and expenses from the other. Section 29.07. This Sub-Lease shall be construed and enforced in accordance with the laws of the State of Florida. Section 29.08. This Sub-Lease constitutes the entire agreement between the parties hereto and may not be modified in any manner other than by written agreement, executed by all of the parties 19 hereto or their successors in interest. No prior understanding or representation of any kind made before the execution of this Sub-Lease shall be binding upon either party unless incorporated herein. IN WITNESS WHEREOF, the parties hereto have executed this Sub-Lease as of the date first set forth above: LANDLORD: Beck Hospitality, Inc. III, an Ohio corporation By: /s/ Louis S. Beck ------------------------- Louis S. Beck, President SUB-TENANT: Janus Industries, Inc., a Delaware corporation By: /s/ James E. Bishop ------------------------- James Bishop, President 20 STATE OF OHIO ) ) SS: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me this day of __________, 1997 by Louis S. Beck, as President of Beck Hospitality, Inc. III, an Ohio corporation. He is personally known to me or has produced a Florida driver's license as identification and did take an oath. Notary Public: Signature:_________________________ Print Name:________________________ State of______________ at Large (Notarial Seal) My Commission expires: STATE OF NEW JERSEY ) ) SS: COUNTY OF ESSEX ) The foregoing instrument was acknowledged before me this 17th day June, 1997 by James Bishop, as President of Janus Industries, Inc., a Delaware corporation. He is personally known to me or has produced a driver's license as identification and did take an oath. Notary Public: Signature: /s/ Eleanor M. Doganier ------------------------- Print Name: Eleanor M. Doganier ------------------------ State of NJ at Large --------- (Notarial Seal) My Commission expires: 1-23-2000 ELEANOR M. DOGANIER Notary Public of New Jersey My Commission Expires Jan. 23, 2000 21 EXHIBIT A [FLOOR PLAN OMITTED] EX-10.16 20 FIRST AMENDMENT TO PARTNERSHIP AGREEMENT FIRST AMENDMENT TO AMENDED AND RESTATED PARTNERSHIP AGREEMENT BECK SUMMIT HOTEL MANAGEMENT GROUP This First Amendment to the Amended and Restated Partnership Agreement of Beck Summit Hotel Management Group is effective the 1st day of September, 1994, by and between Summit Hotel Management Company, Inc., a Florida corporation (hereinafter referred to as "Summit"), Beck Hospitality, Inc., an Ohio corporation (hereinafter referred to as "BHI", and Beck Group Management Corp, an Ohio corporation (hereinafter referred to as "BGMC"). W I T N E S S E T H WHEREAS, Summit, BHI and BGMC entered into that certain Amended and Restated Partnership Agreement for Beck Summit Hotel Management Group (hereinafter referred to as "Restated Partnership Agreement") effective the 1st day of November 1993; and WHEREAS, Summit, BHI and BGMC desire to amend the Restated Partnership Agreement as hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants contained herein, it is agreed by the parties hereto as follows: 1. Paragraph 3.06 Partnership Assets and Liabilities Subparagraph C. is hereby deleted in its entirety and the followings is substituted therefore: "C) Summit shall pay to BHI on a month-to-month basis while occupying space at 2300 Corporate Boulevard, N.W., Suite 232, Boca Raton, Florida 33431, a monthly rental fee of $1,596.50, representing its proportionate share of rent, other occupying expenses, receptionist, incoming telephone lines and general supplies." 2. Paragraph 4.04 New Management Contracts is hereby deleted in its entirety and the following is substituted therefore: "4.04 New Management Contracts. Partners and their affiliates (entities controlled by a Partner or shareholder of a Partner) shall solicit and/or procure Hotel Management Contracts for the benefit of the Partnership and shall not solicit and/or procure Hotel Management Contracts on behalf of their own interest exclusive of the Partnership, for the duration of this Partnership Agreement. The Partners shall notwithstanding the above enter into new Management Contracts in the name of the Partners and not the name of the Partnership; however the Partnership shall benefit as provided in this Restated and Amended Partnership Agreement and Schedule "E" shall be expanded to reflect New Management Contracts. A majority of the Management Committee shall determine if the Partnership should benefit from a proposed Hotel Management Contract. If rejected, a Partner, or any entity affiliated with a Partner, whose members voted in favor of said Management Contract may enter into said Hotel Management Contract with the owner of the hotel to the exclusion of the Partnership. The procuring Partner of any New Management Contracts shall be paid a fee of forty percent (40%) of the Management Fees excluding accounting fees collected from said Management Contract and shall have the right to manage said Property for an additional forty percent (40%) of said management fee as collected. The Partnership shall retain the remaining twenty percent (20%) of said fees from the New Management Contracts which shall be divided between the Partners according to their Partnership interest. The party performing the accounting function shall receive compensation for said service which shall equal the same amount collected pursuant to any Management Contract; however, if no compensation is provided for in the Management Contract for the accounting function then the compensation for the accounting function shall be $300.00 per month for limited service motels and $475.00 per month for full service hotels (limited service shall be defined as a motel rooms only operation). If the procuring Partner does not wish to manage said Property, upon consent by the other Partner, the other Partner may manage said hotel and receive the forty percent (40%) Management Fee collected." Paragraph 4.06 Purchase of Properties Subparagraph A. is hereby deleted in its entirety and the following is substituted therefore: "A. Should a Partner, or any controlling entity of a Partner, obtain an opportunity to purchase a hotel, whether or not such hotel is managed or not managed by a Partner, then the Partner shall have the right to Purchase the Hotel to the exclusion of the other 2 Partners. However, in the event the Partners elect to purchase a hotel together, then such purchase shall be consummated in an entity other than this Partnership. Ownership shall be equal to the Partners' capital contribution in such new entity, with the initial concept that ownership in the new entity will be equal to the Partners' then Partnership Ownership Interest in this Partnership (subject, however, to negotiations between the parties)." 4. Schedule "D" attached to the Restated Partnership Agreement is hereby deleted and the Schedule "D" dated September 1, 1994 attached to this First Amendment to the Restated Partnership Agreement is hereby substituted therefore. 5. The parties hereby acknowledge that Triple T. Hotel Management Company is executing this First Amendment to the Restated Partnership Agreement since Summit includes Management Contracts entered into by Triple T. Hotel Management Company and Triple T. Hotel Management Company hereby consents to this First Amendment to the Restated Partnership Agreement. 6. Accept as provided herein, the provisions of the Restated Partnership Agreement remain in full force and effect. 7. This First Amendment may be executed in two or more counterparts, each First Amendment signed by one party shall be deemed an original, but all First Amendments signed by the parties together shall constitute the same instrument. Counterparts of this First Amendment may be executed and delivered in facsimile form. IN WITNESS WHEREOF, the parties to this First Amendment have executed same on the date set forth hereinbelow. WITNESSES: SUMMIT HOTEL MANAGEMENT COMPANY, INC., a Florida corporation /s/ Michele Strun /s/ Leon H. Volkert ----------------------------- -------------------------------- Leon H. Volkert /s/ Laura Flanney Dec. 1, 1994 ----------------------------- -------------------------------- Date 3 WITNESSES: BECK HOSPITALITY, INC., an Ohio corporation /s/ Charles W. Thornton /s/ Louis S. Beck - -------------------------- -------------------------------- Louis S. Beck, President /s/ Mary Ellen Steck 12-6-94 - -------------------------- ---------------------- Date WITNESSES: BECK GROUP MANAGEMENT CORP, an Ohio corporation /s/ Charles W. Thornton /s/ Michael M. Nanosky - -------------------------- -------------------------------- Michael M. Nanosky, President /s/ Mary Ellen Steck 12-6-94 - -------------------------- ---------------------- Date WITNESSES: TRIPLE T. HOTEL MANAGEMENT COMPANY /s/ Lyle [Illegible] /s/ Charles R. Faust - -------------------------- -------------------------------- Charles R. Faust, President (Director) /s/ Lisa M. Henning 12/1/94 - -------------------------- ---------------------- Date /s/ Charisse A. Henderson /s/ Wayne Thompson - -------------------------- -------------------------------- Wayne Thompson, Secretary (Director) /s/ Sharon Heard 12-15-94 - -------------------------- ---------------------- Date /s/ Charisse A. Henderson /s/ Ronald Thompson - -------------------------- -------------------------------- Ronald Thompson, (Director) /s/ Sharon Heard 12-15-94 - -------------------------- ---------------------- Date 4 STATE OF FLORIDA ) ) SS: COUNTY OF PALM BEACH ) The foregoing instrument was acknowledged before me this 1st day of December, 1994, by Leon H. Volkert, as President of SUMMIT HOTEL MANAGEMENT COMPANY, INC., on behalf of the corporation. He is personally know to me or has produced a ___________ drivers license as identification and did take an oath. Notary Public: Signature: /s/ Linda L. Gollehon --------------------------------- Print Name: Linda L. Gollehon -------------------------------- (Notarial Seal) State of Florida at Large Commission #CC136308 My Commission expires: NOTARY PUBLIC STATE OF FLORIDA [ILLEGIBLE] BONDED THRU CENTRAL INS. [ILLEGIBLE] STATE OF OHIO ) ) SS: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me this 6 day of December, 1994, by Louis S. Beck as President of BECK HOSPITALITY, INC., on behalf of this corporation. he is personally know to me or has produced a ___________ drivers license as identification and did take an oath. Notary Public: Signature: /s/ Patricia A. Neff --------------------------------- Print Name: Patricia A. Neff -------------------------------- (Notarial Seal) State of Ohio at Large Commission # _______________ My Commission expires: [Notarial Seal State of Ohio] Patricia A. Neff Notary Public, State of Ohio My Commission Expires Oct. 5, 1999 5 STATE OF OHIO ) ) SS: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me this 6 day of December, 1994, by Michael M. Nanosky, as President of BECK GROUP MANAGEMENT CORP., on behalf of this corporation. he is personally know to me or has produced a ___________ drivers license as identification and did take an oath. Notary Public: Signature: /s/ Patricia A. Neff --------------------------------- Print Name: Patricia A. Neff -------------------------------- (Notarial Seal) State of Ohio at Large Commission # _______________ My Commission expires: [Notarial Seal State of Ohio] Patricia A. Neff Notary Public, State of Ohio My Commission Expires Oct. 5, 1999 STATE OF FLORIDA ) ) SS: COUNTY OF BROWARD ) The foregoing instrument was acknowledged before me this 1st day of December, 1994, by Charles R. Faust, as President of TRIPLE T. HOTEL MANAGEMENT COMPANY, on behalf of the corporation. He is personally know to me or has produced a ___________ drivers license as identification and did take an oath. Notary Public: Signature: /s/ Judith Luff --------------------------------- Print Name: Judith Luff -------------------------------- (Notarial Seal) State of Florida at Large Commission #CC067900 My Commission expires: Notary Public, State of Florida My Commission Expires Dec. 10, 1994 Bonded Thru Troy Fain - Insurance Inc. 6 STATE OF FLORIDA ) ) SS: COUNTY OF BREVARD ) The foregoing instrument was acknowledged before me this 15th day of December, 1994, by Wayne Thompson, as Secretary (Director) of TRIPLE T. HOTEL MANAGEMENT COMPANY, on behalf of the corporation. He is personally know to me and did take an oath. Notary Public: Signature: /s/ Charisse A. Henderson --------------------------------- Print Name: Charisse A. Henderson -------------------------------- (Notarial Seal) State of Florida at Large Commission # CC097121 My Commission expires: NOTARY PUBLIC, STATE OF FLORIDA MY COMMISSION EXPIRES April 8, 1995. BONDED THRU NOTARY PUBLIC UNDERWRITERS STATE OF FLORIDA ) ) SS: COUNTY OF BREVARD ) The foregoing instrument was acknowledged before me this 15th day of December, 1994, by Ronald Thompson, as Director of TRIPLE T. HOTEL MANAGEMENT COMPANY, on behalf of the corporation. He is personally know to me and did take an oath. Notary Public: Signature: /s/ Charisse A. Henderson --------------------------------- Print Name: Charisse A. Henderson -------------------------------- (Notarial Seal) State of Florida at Large Commission # CC097121 My Commission expires: NOTARY PUBLIC, STATE OF FLORIDA MY COMMISSION EXPIRES April 8, 1995. BONDED THRU NOTARY PUBLIC UNDERWRITERS 7 SCHEDULE "D" SEPTEMBER 1, 1994 Howard Johnson, Clearwater Florida Howard Johnson, Bowling Green, KY Holiday Inn, Bowling Green, KY Days Inn Syracuse New York Wickenburg Inn Howard Johnson Jacksonville Holiday Inn City Center Shawnee Peak Inn at Sewickley Inn at Plymouth Meeting Comfort Inn, Kingsland, GA Comfort Inn, Kingsport, TN Howard Johnson - Cincinnati Howard Johnson - Columbus Briar Hall Quality Suites, Orlando Florida 8 AMENDED AND RESTATED PARTNERSHIP AGREEMENT BECK SUMMIT HOTEL MANAGEMENT GROUP Amended and Restated Partnership Agreement of Beck Summit Hotel Management Group, a Florida General Partnership, effective this 1st day of November, 1993, by and among Summit Hotel Management Company, Inc., a Florida corporation (hereinafter referred to as "Summit"), Beck Hospitality, Inc., an Ohio corporation (hereinafter referred to as "BHI"), and Beck Group Management Corp, an Ohio corporation (hereinafter referred to as "BGMC"). The parties to this Agreement may be collectively referred to as the "Partners" or individually as a "Partner". W I T N E S S E T H WHEREAS, by Partnership Agreement effective October 1, 1992 and as subsequently amended November 6, 1992 (the "Initial Partnership Agreement as Amended") Beck Summit Hotel Management Group, a Florida general partnership (the "Initial Partnership"), was created and amended; and WHEREAS, the Partners of the Initial Partnership desire to amend and restate the Initial Partnership as Amended in its entirety effective this date. WHEREAS, Summit, BHI and BGMC are operators, managers and/or owners of various hotel properties (collectively "hotel or motel"); and 12/13/93 1 WHEREAS, Summit has entered into management contracts and is presently acting as the hotel manager for the properties set forth and described on Schedule "A" attached hereto and by reference made a part hereof (all such management contracts shall hereinafter be called the "Summit Management Contracts") Summit Management Contracts shall include Management Contracts entered into by Triple T. Hotel Management Company and/or Summit. WHEREAS, BHI has entered into management contracts and is presently acting as the hotel manager for the properties set forth and described on Schedule "B" attached hereto and by reference made a part hereof (all such Management Contracts shall hereinafter be called the "BHI Management Contracts"); and WHEREAS, BGMC has entered into management contracts and is presently acting as the hotel manager for the properties set forth and described on Schedule "C" attached hereto and by reference made a part hereof (all such management contracts shall hereinafter be called the "BGMC Management Contracts"); and WHEREAS, Summit, BHI and BGMC have assigned the Management Contract Fees under the Summit Management Contracts set forth on Schedule "A", the BHI Management Contracts set forth on Schedule "B" and the BGMC Management Contracts set forth on Schedule "C" to the Partnership. 12/13/93 2 WHEREAS, Summit, BHI and BGMC desire to terminate the Management Contract Fees to be received by the Initial Partnership under the Summit Management Contracts set forth on Schedule "A", the BHI Management Contracts set forth on Schedule "B" and the BGMC Management Contracts set forth on Schedule "C". WHEREAS, Summit, BHI and BGMC have assigned Management Contract Fees to the Initial Partnership for the Management Contracts entered into after October 1, 1992 for the properties set forth and described on Schedule "D" attached hereto and by reference made a part hereof; and WHEREAS, Summit, BHI AND BGMC desire to continue to contribute the Management Contract fees to this Restated and Amended Partnership and to jointly pursue and implement additional hotel management contracts through this Restated and Amended Partnership Agreement which Management Contract Fees shall be contributed to this Restated and Amended Partnership as set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, it is agreed by the parties hereto as follows: 12/13/93 3 Article I 1.01 Recitals. The Recitals set forth herein above are incorporated herein by reference as if fully restated. 1.02 Partnership Agreement Amended and Restated. The Initial Partnership Agreement As Amended shall be amended in its entirety by this Amended and Restated Partnership Agreement. 1.03. Formation And Name. Summit, BHI and BGMC hereby form a Partnership (the "Partnership") to be known by the name "The Beck-Summit Hotel Management Group", a Florida general partnership. The commencement date for the business of the Partnership shall be November 1, 1993 (the "Effective Date") and shall terminate September 1, 2035, unless terminated earlier under Section 1.06. 1.04. Principal Office. The principal office of the Partnership shall be Executive Court II, 2300 Corporate Blvd., N.W., Suite 232, Boca Raton, Florida 33431. The principal office shall be subject to change. 12/13/93 4 1.05. Purpose Of Partnership. The purpose of the Partnership shall be as follows: A. To receive Management Contract fees from Summit Management Contracts, BHI Management Contracts and BGMC Management Contracts (collectively the "Existing Management Contracts") for the Properties listed on Schedule "D", attached hereto and made a part hereof and any New Management Contracts entered into by the Partners after October 31, 1993. B. To devote the personnel and resources of Summit, BHI, and BGMC to obtain from third parties and/or from the Partners new and additional contracts for hotels and motels, and related activities of such hotels/motels including but not limited to restaurants and gift shops (the "New Management Contracts"); and C. To do all and everything required to carry out the purposes hereinabove set forth. All assets of the Partnership, agreements and transactions shall be taken, executed and performed in the name of the Partnership except as provided for herein, or unless otherwise expressly agreed in advance by the Partners. 1.06 Term. The Partnership shall commence as of the Effective Date and shall terminate upon the occurrence of any of the following events: A. September 1, 2035 unless by written agreement, the parties hereto all agree to extend such date; B. Mutual consent of the parties hereto; C. Thirty (30) days following written notification by any Partner hereto to the other Partners at any time. Such notice of termination may be given without cause, in good faith or bad faith; D. The Partnership no longer is managing any hotel/motel properties; or 12/13/93 5 E. As otherwise provided by law. Upon termination of the Partnership, the provisions of Article VIII hereof shall control. 1.07. Compliance With Existing Laws. Except to the extent specifically set forth herein, this Partnership shall be governed by the laws of the State of Florida, including but not limited to, Chapter 620, Part II, Uniform Partnership Act. The Partners agree to comply with any and all statutes and ordinances that affect the Partnership's operations, including registration under applicable fictitious name laws. Any expense incurred by the Partners in compliance with such registration laws shall be an expense of the Partnership. 1.08 Fictitious Name. Each of the Partners shall sign and acknowledge the Fictitious Name Certificate required by Section 865.09 of the Florida Statutes, and shall sign any other documents and do any and all other things that may be required to accomplish the continuation of the Partnership as a general partnership. 12/13/93 6 1.09 Other Business Activity Or Enterprise. Each Partner may engage in any other business or enterprise activity, other than securing Hotel Management Contracts, for its exclusive benefit unless secured as provided for herein, and no Partner by virtue of this Partnership shall have any interest in such other business enterprise or activity of any other Partner. No Partner shall be deemed a partner or agent of any other Partner. 1.10 Conflicts of Interest. The Partners recognize that each entity which is a party hereto, and their officers, directors and shareholders, including but not limited to Charles Faust, Louis S. Beck, Harry G. Yeaggy and Wayne Thompson, all have other outside business interests which at their discretion shall require their time, talents and assets. This activity shall not be deemed to conflict with the Partnership or be considered cause for termination of their duties or interest in the Partnership. The Partners further agree that the Partnership shall be permitted to contract for services from entities controlled by the Partners, or have common ownership, which shall include, but not be limited to, Computel Computer Systems, Inc. and Hospitality Employee Leasing Program, Inc. Such contracts shall be negotiated at market rates with terms and conditions customary for the services to be provided. 12/13/93 7 Article II 2.01. Initial Contributions. Upon the Effective Date, the Partners shall have contributed to the Partnership the following: CASH AMOUNTS A. Summit $ 100,000 BHI $ 60,000 BGMC $ 40,000 B. Existing Management Contract Fees set forth on Schedule "D". To the extent required, each Partner hereto has obtained the necessary consents from any hotel/motel owners for the assignment of the Management Contract Fee for the Existing Management Contracts to the Partnership for the properties set forth on Schedule "D". 2.02. Ownership Interest. The Partners shall have an interest in the Partnership ("Partnership Interest") in accordance with the percentages set forth opposite their names below: Summit 50% BHI 30% BGMC 20% The above Ownership interest shall provide for and control distribution of cash flow and allocation of profits and losses of the Partnership. 12/13/93 8 2.03. Additional Capital. It is not now anticipated that any additional capital contributions shall be made by the Partners. However, if the Management Committee should agree that additional cash or other capital is required for the Partnership, then a contribution to capital shall be made based upon the then Ownership Interests of the Partners ("Mandatory Contribution"). If determined by the Management Committee, subsequent contributions may take the form of loans from Partners or third parties. Loans from Partners required by the Management Committee shall be considered Mandatory Contributions. 2.04. Default In Mandatory Contributions. In the event a Partner ("Defaulting Partner") fails to pay its Mandatory Contribution on the date specified, the percentage ownership interest of the Partner in the Partnership shall be adjusted pursuant to this paragraph. A. In the event that the Defaulting Partner fails to pay its delinquent Mandatory Contribution on or before thirty (30) calendar days after the due date of the Mandatory Contribution, then and in that event any Non-Defaulting Partners shall be entitled, at its sole option, to the following course of action: The Ownership Interests of the defaulting Partner shall be adjusted to such new percentages so as to accurately reflect the capital contributions of the Partners taking into account the advance of the Mandatory Contribution by a Non-Defaulting Partner(s) plus a bonus of fifty (50%) percent of the amount 12/13/93 9 contributed by the Non-Defaulting Partner(s) on behalf of the Defaulting Partner together with a fifty (50%) percent penalty reduction to the Defaulting Partner in adjusting the Ownership Interest of the Partners. For example, after each Partner pays its initial contribution, then the Ownership Interest of each Partner shall be as follows: Initial Ownership Contribution Interest ------------ -------- Summit $100,000 50% BHI $ 60,000 30% BGMC $ 40,000 20% Subsequently, the Management Committee (as hereinafter described) unanimously calls for an additional Mandatory Contribution of $300,000 to the Partnership which additional Mandatory Contribution shall require the following Mandatory Contributions from the Partners: Summit, $150,000; BHI, $90,000; and BGMC, $60,000; Summit pays its own Mandatory Contribution and the Mandatory Contribution of BGMC, who becomes a Defaulting Partner, BHI pays its own Mandatory Contribution. After thirty (30) days, the Management Committee, upon demand of Summit, shall adjust the Ownership Interests and shall grant the applicable bonus and impose the applicable penalty as follows (Note: $500,000 represents the total of the initial and Mandatory Contributions): For Example: Initial/Mandatory Bonus/ Ownership Contributions Penalty Interest Summit $100,000 + 210,000 +30,000 68% BHI $ 60,000 + 90,000 -0- 30% BGMC $ 40,000 + -0- -30,000 2% If the Management Committee shall cause a distribution of cash or other property to the Partners in accordance with this Agreement, then and in that event the first distributions shall be made to the Non-Defaulting Partner(s) in payment of the Non-Defaulting Partner's advancement of the Mandatory Contribution of the Defaulting Partner. 12/13/93 10 Such distributions shall continue until all the advanced Mandatory Contribution to the Non-Defaulting Partner has been paid; any such distributions shall not affect future recalculations of Ownership Interest which shall be calculated as if such Mandatory Contribution made on behalf of a Defaulting Partner shall not have been repaid to the Non-Defaulting Partner(s) having made such contribution. 2.05. Guarantees of Partners. Should the Partnership at any time be required, by the terms of financing approved by the Management Committee, to furnish guarantees of the Partners to a lender, then, to the extent such lender shall be agreeable to accept several guarantees, each Partner shall provide its guarantee (or guarantee of its shareholders, partners, or others as required) up to the percentage of Ownership Interest held by such Partner at the time the loan is made. To the extent joint and several guarantees are required by the lender, each Partner (and its shareholders, partners, or others if required) shall execute such guarantees. Each Partner shall indemnify the other Partner(s) against any amounts which the other Partner(s) (or its shareholders, partners, or others on its behalf) are required to pay under any guarantees in excess of their Ownership Interest. 12/13/93 11 Article III 3.01. Management of Day to Day Affairs of Partnership. The Partners agree that the day to day operations and major decisions of the Partnership shall be run by members of the Management Committee, who shall agree among themselves how decisions within the Partnership shall be made. 3.02. Election and Voting of Management Committee. The Partners agree that throughout the term of this Partnership Agreement, the Management Committee of the Partnership shall consist of not fewer than eight (8) nor more than eight (8) members. Summit shall appoint four members and BHI and BGMC shall each appoint two (2) members, so that collectively the members appointed by Summit together with the members appointed by BHI and BGMC shall constitute eight (8) members. The members initially appointed shall serve for three (3) years unless they resign, are unable to serve, or are removed by the Partners they represent. The members or their successors may be reappointed by the Partner they represent on a continuing basis for three (3) year terms. In the event that no successor member is appointed, the business of the Partnership shall nevertheless continue. On all issues to come 12/13/93 12 before the Management Committee, except as otherwise specifically set forth herein, a majority vote of the Ownership Interest shall be required in order for approval. The four (4) individuals designated by Summit shall have the right and authority to vote on behalf of Summit (3 of 4 votes shall be controlling); the two (2) individuals designated by BHI shall have the right and authority to vote on behalf of BHI and the two (2) individuals designated by BGMC shall have the right and authority to vote on behalf of BGMC. 3.03. Management Committee. The Management Committee shall initially consist of the following members: Title Members ----- ------- Chairman Charles R. Faust Vice Chairman Wayne Thompson Managing Chief Executive Louis S. Beck (aka President/CEO) Executive Manager Leon H. Volkert (aka Executive Vice President) Executive Manager Harry G. Yeaggy (aka Executive Vice President) Executive Manager Larry Koonin (aka Executive Vice President) Executive Manager Michael M. Nanosky (aka Executive Vice President) Controller Richard A. Tonges (aka Secretary/Treasurer) 12/13/93 13 The Titles that each of the members shall have shall be decided annually by a three fourths (3/4) vote of the members. The partners agree that none of the partners, members or officers shall be entitled to any salaries and/or fringe benefits. The above listed individuals and such other individuals as shall be hired by the Partnership shall have such job titles and descriptions as the parties shall agree. 3.04 Major Decisions. For purposes of this Agreement, Major Decisions shall be limited to the following: loans to or made by the Partnership; merger with another entity or acquisition of assets from another entity; the requirement to make a Mandatory Contribution to capital; change in purpose; acquisition of personal property costing in excess of Five Thousand ($5,000) Dollars; admission of additional Partners. Major decisions shall require a vote of seventy-five (75%) percent of the Ownership Interest in order for approval. 3.05. Meetings. The Management Committee shall meet from time to time as required and meetings may be held by telephonic conferences and by written resolution. 12/13/93 14 3.06. Partnership Assets and Liabilities. A) The Partnership shall not be permitted to own or hold under lease any real property or any improvements to real property nor shall it incur any liabilities other than normal operating expenses, or liabilities and obligations set forth under any operating agreement, management agreement or employment service agreement for any hotels under its control. The Partnership shall not assume any liability or obligation for operating deficits related to any Management Contracts. B) Notwithstanding anything set forth above or hereafter set forth, the Partnership after November 1, 1993 shall not be responsible for any lease obligations assigned to the Partnership by any Partner prior to November 1, 1993. Said lease obligations if any are hereby reassigned by the Partnership to the respective Partners from whom they were originally assigned and no separate assignment instrument shall be necessary. C) Summit shall pay to BHI on a month-to-month basis while occupying space at 2300 Corporate Boulevard, N.W., Suite 232 Boca Raton, Florida, a monthly rental fee of $3,193.00, representing its proportionate share 12/13/93 15 of the rent, other occupying expenses, receptionist, incoming telephone lines and general office supplies. D) Any personal property of the Partnership contributed by the respective Partners prior to November 1, 1993, shall be returned to the respective Partners as of November 1, 1993. E) The Partners agree that each shall be responsible for their own expenses, including but not limited to, salaries, rent, travel, occupancy expenses postage, long distance telephone calls , and overnight delivery packages, and the Partnership shall have only those expenses specifically approved jointly by Michael M. Nanosky on behalf of BHI and BGMC, and Leon Volkert on behalf of Summit. The parties agree that Louis S. Beck, or Harry G. Yeaggy or Richard A. Tonges may approve expenses in lieu of Michael M. Nanosky and that Charlie Faust or Larry Koonin may approve expenses in lieu of Leon Volkert. F) BHI and BGMC shall pay Summit a mutually agreed upon fee for any accounting services performed by Summit for properties managed by BHI or BGMC. 12/13/93 16 Article IV 4.01. Banking. The Partnership shall maintain an account for the deposit of Management fees and such other accounts as the Management Committee considers appropriate at one or more banks in the United States. Except as otherwise specifically agreed by the Management Committee, one committee member's signature from Summit and one committee member's signature from BHI or BGMC shall be required on all checks, drafts, notes and any expenditure of funds on behalf of the Partnership. ("Joint Signatures") 4.02. Financial Reporting. Except as otherwise determined by the Management Committee, the fiscal year of the Partnership shall be the calendar year. Within ninety (90) days following the end of a fiscal year, an audit at the expense of the requesting Partner shall upon request by said Partner be prepared of the financial records of the Partnership by one of the larger international accounting firms in the United States and each Partner shall be forwarded a copy of said audit upon completion. 12/13/93 17 4.03. Accounting. Summit shall maintain the books and records of the Partnership and shall generate and distribute to the Partner's detailed financial reports not less frequently than monthly. Summit shall be responsible for the preparation of all Partnership federal, state and municipal income tax returns, preparation of real estate tax and personal property returns. The party preforming the accounting function shall not receive any additional compensation for said function over and above that provided for herein. 4.04 New Management Contracts. Partners and their affiliates (entities controlled by a Partner or shareholder of a Partner) shall solicit and/or procure Hotel Management Contracts for the benefit of the Partnership and shall not solicit and/or procure Hotel Management Contracts on behalf of their own interest exclusive of the Partnership, for the duration of this Partnership Agreement. The Partners shall notwithstanding the above enter into new Management Contracts in the name of the Partners and not the name of the Partnership; however the Partnership shall benefit as provided in this Restated and Amended Partnership Agreement and Schedule "E" shall be expanded to reflect New Management Contracts. A majority of the Management Committee shall determine if the Partnership should benefit from a proposed Hotel Management Contract. If rejected, a 12/13/93 18 Partner, or any entity affiliated with a Partner, whose members voted in favor of said Management Contract may enter into said Hotel Management Contract with the owner of the hotel to the exclusion of the Partnership. The procuring Partner of any New Management Contracts shall be paid a fee of twenty percent (20%) of the Management Fees excluding accounting fees collected from said Management Contract and shall have the right to manage said Property for an additional twenty percent (20%) of said management fee as collected. The Partnership shall retain the remaining sixty percent (60%) of said fees from the New Management Contracts. The party performing the accounting function shall receive compensation for said service which shall equal the same amount collected pursuant to any Management Contract; however, if no compensation is provided for in the Management Contract for the accounting function then the compensation for the accounting function shall be $300.00 per month for limited service motels and $475.00 per month for full service hotels (limited service shall be defined as a motel rooms only operation). If the procuring Partner does not wish to manage said Property, upon consent by the other Partner, the other Partner may manage said hotel and receive the twenty percent (20%) Management Fee collected. 12/13/93 19 4.05 Termination of Existing Management Fees. Summit, BHI and BGMC through this Restated and Amended Partnership Agreement hereby assigns the Partnership Management Contract fees for the properties' set forth on Schedule "A" to Summit, the Partnership Management fees for the properties set forth on Schedule "B" to BHI and the Partnership Management fees for the properties set on Schedule "C" to BGMC. The Partners agree no separate assignments shall be required and the prior assignments for the properties set forth on Schedule "A", "B" and "C" are hereby terminated as of November 1, 1993. 4.06 Purchase of Properties. (A) Should a Partner, or any controlling entity of a Partner, obtain an opportunity to purchase a hotel, whether or not such hotel is managed or not managed by a Partner, then the Partners shall have the first opportunity to purchase the hotel, such purchase to be consummated in an entity other than this Partnership. Ownership shall be equal to the Partners' capital contribution in such new entity, with the initial concept that ownership in the new entity will be equal to the Partners' then Partnership Ownership Interest in this Partnership (subject, however, to negotiations between the parties). It is agreed that the foregoing provisions on purchase shall not be applicable to a proposed transfer between related entities. For example, a transfer by Summit to a new corporation or partnership where the shareholders in Summit are in control of the new corporation or partnership shall not trigger the right of BHI and BGMC to be a part of the acquired entity. 12/13/93 20 If the Partners elect not to purchase the hotel property, then the Partners shall have the right to bid independently of one another to purchase the hotel property without violating or being in default of any terms, covenants or conditions of this Partnership Agreement. (B) In the event any Partners purchase a hotel property after November 1, 1993, then upon request of such Partner or Partners that the Partner enter into a Hotel Management Contract for such new property for the benefit of the Partnership, and upon affirmative vote of a majority of the members of the Management Committee, the Partner shall manage said hotel property for the Partnership. The Partnership shall, upon request, subordinate its management fees to any debt service on the hotel to be managed. In addition, the Partnership shall agree that its fees will not be paid unless and until the investors in said hotel first receive a ten percent (10%) cash on cash return on their invested funds. The abovesaid Hotel Management Contract shall provide that either party may terminate same upon thirty (30) days' notice. A decision to terminate may be made on behalf of the Partnership by a majority of the Management Committee members. C) Notwithstanding anything to the contrary, in the event only one Partner or controlling entity of a Partner desires to participate in a purchase of a property set forth on Schedule "D", Schedule "E", or any other property, then that Partner or controlling entity will have the exclusive right to all the management fees generated by said property. 4.07. Attorneys and Auditors. The Management Committee of the Partnership shall from time to time determine, by a three-fourths (3/4) vote, the attorneys and auditors of the Partnership. 12/13/93 21 Article V 5.01. Encumbering or Transferring of Ownership Interests. No Partner shall be entitled to mortgage, pledge or grant a security interest or transfer all or any part of its Ownership Interest without the prior written consent of the other Partner(s). 5.02. Loans. Loans made by the Partnership to Partners or to any third party may only be made with the consent of three-fourths (3/4) of the members of the Management Committee. The Management Committee shall establish the terms of repayment, interest rate, security and other provisions of the loan. Article VI 6.01 Distributions by Partnership. All distributions of cash to the Partners shall be based upon the Partners' then Ownership Interests in the Partnership. Cash distribution shall be made monthly to Partners provided the Management Committee determines that funds in excess of the reasonable foreseeable budgeted cash requirements are available and provided that no such distribution shall impair the minimum requirements for maintaining Hotel Management Contracts as set forth in Schedule "D" attached hereto and those subsequently secured by the Partnership. 12/13/93 22 6.02. Share in Partnership Profits and Losses. The share of a Partner in the Partnership profits and losses shall be in the same percentage as that Partner's Ownership Interest in the Partnership. 6.03. Indemnification of Partners. If any Partner suffers, or is held liable for, any loss or liability of the Partnership which is in excess of its Ownership Interest, that Partner suffering the loss or liability shall be indemnified by the other Partners to the extent of their respective Ownership Interests in the Partnership. 6.04. Hospitality Employee Leasing Program, Inc. The Partners may contract with Hospitality Employee Leasing Program, Inc. on a mutually agreed basis. The Partners further agree that Hospitality Employee Leasing Program, Inc. shall not pay any fees or commissions from any Contracts to the Partnership or Summit after November, 1, 1993. Article VII 7.01. Representations and Warranties. The Partners hereby make the following material representations and warranties to each other with the intention that the others shall rely thereon in entering into this 12/13/93 23 Partnership Agreement. A. Summit, BHI and BGMC represent to one another that the Hotel Management Contracts set forth on Schedules "A", "B" and "C" are not in performance or monetary default. B. The Partners represent to one another that they control the management contracts for the hotel properties set forth on Schedules "A", "B" and "C". C. That the Partners are duly organized, validly existing and in good standing under the laws of the state where they are incorporated and also where they are doing business, and have all necessary powers to perform all their obligations and covenants under this Partnership Agreement and the responsibilities anticipated by this Partnership Agreement. D. That the execution and delivery of this Partnership Agreement and the consummation by the Partners of the transactions described herein have been duly authorized, and no further action or authorization is necessary in connection therewith. E. That the consummation by the Partners of the transactions contemplated herein will not result in or constitute any of the following: a breach of any term or condition of this Partnership Agreement, a default or an event that, with notice or lapse of time or both, would constitute a default, breach or violation by the Partner of any agreement, instrument or arrangement to which a Partner is a party; or an event that would permit any party to terminate an agreement or to accelerate the maturity of any obligation of a Partner. Article VIII 8.01 Dissolution. Upon termination or dissolution of the Partnership, the following shall occur: A. A proper reserve shall be established to pay all debts. B. The leases (where the Partnership is the lessee) entered into by the Partnership subsequent to November 1, 1993 shall be assigned to the Partner to whom the 12/13/93 24 parties had previously agreed would be responsible for same or if no such agreement was previously made, as the Partners shall mutually agree. C. The Hotel Management Contract Fees for the properties set forth on Schedule "D" assigned to the Partnership as provided for herein and those anticipated by New Management Contracts to be set forth on Schedule "E" shall be assigned to the partners based upon their then percentage Ownership Interest in the Partnership, taking into consideration to the extent possible the Partner who was previously responsible for securing the contract in the first place. D. The personal property of the Partnership shall be returned to the Partner who contributed same to the Partnership. E. The personal property acquired by the Partnership subsequent to November 1, 1993 shall be delivered to the Partner as previously agreed or if no prior agreement, then divided based upon the Ownership Interest of the Partners. F. All loans of the Partners shall be paid in full. G. Any other assets of the Partnership shall be distributed to the Partners based upon their then Ownership Interest in the Partnership. Article IX 9.01. New Partners. A new Partner may be admitted to the Partnership upon three-fourths (3/4) vote of the Management Committee during the existence of this Partnership Agreement. The terms upon which such new Partner shall be admitted shall be stated by appropriate amendments to this Agreement, to be endorsed hereon at the time of the admission of the new Partner to this Partnership. 12/13/93 25 9.02. Notice. Any notice or consent which any Partner is required or desires to give to another Partner shall not be deemed given to such Partner unless said notice shall be in writing and shall be mailed or delivered by overnight courier to such Partner at the following addresses: A. Summit Hotel Management Company, Inc. 325 Fifth Avenue P.O. Box 3659 Indiatlantic, FL 32903 B. Beck Hospitality, Inc. Executive Court II, Suite 232 2300 Corporate Blvd., N.W. Boca Raton, Florida 33431 C. Beck Group Management Corp. Executive Court II, Suite 232 2300 Corporate Blvd., N.W. Boca Raton, Florida 33431 Any Partner may change its above or any subsequent address by appropriate written notice of such change which notice shall be mailed or delivered by overnight courier to the other Partners. 9.03. Modifications And Waivers. This Agreement constitutes the sole agreement between the Partners with regard to the subject matter thereof. No amendments, alterations, modifications or changes shall be effective or binding upon the Partners unless the same are agreed to by all Partners. 26 9.04. Time Of Essence. Time shall be of the essence as to all terms and conditions set forth in this Partnership Agreement. 9.05. Binding Effect. This Partnership Agreement shall be binding upon and inure to the benefit of the Partners, their successors and assigns, and said interests shall be subject to this Partnership Agreement. 9.06. Further Assurances. Each Partner will perform all other acts and execute and deliver all of the documents as may be necessary or appropriate to carry out the intent and purposes of this Partnership Agreement. 9.07. Survival Clause. In the event any provision of this Agreement shall be held to be invalid or unenforceable at a subsequent date, all of the remaining provisions of this Agreement shall remain in full force and effect. 9.08. Governing Law. This Partnership Agreement shall be governed by the laws of the State of Florida as to its interpretation and effect. 27 9.09. Enforcement Proceedings. If any legal action, arbitration or other proceeding is brought for the enforcement of this Partnership Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Partnership Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorney's fees and other costs incurred in connection with that action, arbitration or proceeding, in addition to any other relief to which such party or parties may be entitled. 9.10. General Terms and Conditions. The subject headings of the paragraphs of this Partnership Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. 9.11. Assignment and Delegation. The Partners may not, except as provided for herein, assign, delegate, encumber or otherwise transfer this Partnership Agreement, or any of their duties, responsibilities, obligations, rights or liabilities hereunder, nor any interest they may have in the Partnership anticipated by this Partnership Agreement and any such purported 28 assignment, delegation, encumbrance or transfer shall be null and void. 9.12. Counterparts. This Agreement may be executed in two or more counterparts, each Agreement signed by one Partner shall be deemed an original, but all Agreements signed by the Partners together shall constitute one and the same instrument. Counterparts of this Agreement may be executed and delivered in facsimile form. IN WITNESS WHEREOF, the parties to this Partnership Agreement have executed same on this 23 day of December, 1993. WITNESSES: SUMMIT HOTEL MANAGEMENT COMPANY, INC., a Florida corporation /s/ Linda [ILLEGIBLE] /s/ Leon H. Volkert - --------------------------- ----------------------------------- Leon H. Volkert /s/ Lori D. Wolin - --------------------------- WITNESSES: BECK HOSPITALITY, INC., an Ohio corporation /s/ Charles W. Thornton /s/ Louis S. Beck - --------------------------- ----------------------------------- Louis S. Beck, President /s/ Mary Ellen Steck - --------------------------- 29 WITNESSES: BECK GROUP MANAGEMENT CORP., An Ohio corporation /s/ Charles W. Thornton /s/ Michael M. Nanosky - ------------------------------ ----------------------------------- Michael M. Nanosky, President /s/ Mary Ellen Steck - ------------------------------ WITNESSES: TRIPLE T. HOTEL MANAGEMENT COMPANY /s/ Linda Gollehon /s/ Charles R. Faust - ------------------------------ ----------------------------------- Charles R. Faust, President (Director) /s/ Laura Flanney - ------------------------------ /s/ Linda Gollehon /s/ Wayne Thompson - ------------------------------ ----------------------------------- Wayne Thompson, Secretary (Director) /s/ Laura Flanney - ------------------------------ /s/ Linda Gollehon /s/ Ronald Thompson - ------------------------------ ----------------------------------- Ronald Thompson, (Director) /s/ Laura Flanney - ------------------------------ 12/13/93 30 STATE OF FLORIDA ) ) SS: COUNTY OF PALM BEACH ) The foregoing instrument was acknowledged before me this 10th day of January, 1994, by Leon H. Volkert, as President of SUMMIT HOTEL MANAGEMENT COMPANY, INC., on behalf of the corporation. He is personally known to me or has produced a FLORIDA drivers license as identification and did take an oath. Notary Public: Signature: /s/ Linda Gollehon ----------------------------- Print Name: Linda Gollehon ----------------------------- (Notarial Seal) State of FLORIDA at Large Commission #: CC136308 My Commission expires: [Illegible] [Illegible] [Illegible] STATE OF OHIO ) ) SS: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me this 23 day of December, 1993, by Louis S. Beck as President of BECK HOSPITALITY, INC., on behalf of the corporation. He is personally known to me or has produced a ____________ drivers license as identification and did take an oath. Notary Public: Signature: /s/ Charles W. Thornton ----------------------------- Print Name: Charles W. Thornton ----------------------------- (Notarial Seal) State of OHIO at Large Commission # : My Commission expires: CHARLES W. THORNTON ATTY. AT LAW Notary Public, State of Ohio My Commission has no expiration. Sec. 147.03 R.C. 12/13/93 31 STATE OF OHIO ) ) SS: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me this 23 day of December, 1993, by Michael M. Nanosky, as President of BECK GROUP MANAGEMENT CORP., on behalf of the corporation. He is personally known to me or has produced a ____________ drivers license as identification and did take an oath. Notary Public: Signature: /s/ Charles W. Thornton ----------------------------- Print Name: Charles W. Thornton ----------------------------- (Notarial Seal) State of OHIO at Large Commission # : My Commission expires: CHARLES W. THORNTON ATTY. AT LAW Notary Public, State of Ohio My Commission has no expiration. Sec. 147.03 R.C. STATE OF FLORIDA ) ) SS: COUNTY OF PALM BEACH ) The foregoing instrument was acknowledged before me this 10th day of February, 1994, by Charles R. Faust, as President of TRIPLE T. HOTEL MANAGEMENT COMPANY, on behalf of the corporation. He is personally known to me or has produced a Florida drivers license as identification and did take an oath. Notary Public: Signature: /s/ Linda Gollehon ----------------------------- Print Name: Linda Gollehon ----------------------------- (Notarial Seal) State of FLORIDA at Large Commission #: CC136308 My Commission expires: [Illegible] [Illegible] 12/13/93 [Illegible] 32 STATE OF FLORIDA ) ) SS: COUNTY OF PALM BEACH ) The foregoing instrument was acknowledged before me this 10th day of February, 1994, by Wayne Thompson, as Secretary (Director) of TRIPLE T. HOTEL MANAGEMENT COMPANY, on behalf of the corporation. He is personally known to me and did take an oath. Notary Public: Signature: /s/ Linda Gollehon ----------------------------- Print Name: Linda Gollehon ----------------------------- (Notarial Seal) State of FLORIDA at Large Commission #: CC136308 My Commission expires: [Illegible] [Illegible] [Illegible] STATE OF INDIANA ) ) SS: COUNTY OF PALM BEACH ) The foregoing instrument was acknowledged before me this 10th day of February, 1994, by Ronald Thompson, as Director of TRIPLE T. HOTEL MANAGEMENT COMPANY, on behalf of the corporation. He is personally known to me and did take an oath. Notary Public: Signature: /s/ Linda Gollehon ----------------------------- Print Name: Linda Gollehon ----------------------------- (Notarial Seal) State of FLORIDA at Large Commission #: CC136308 My Commission expires: [Illegible] [Illegible] [Illegible] 12/13/93 33 SCHEDULE "A" SUMMIT HOTEL MANAGEMENT COMPANY MANAGED HOTELS * Columbus, Ohio/Sheraton * Cocoa Beach, Florida/Hilton * Flagstaff, Arizona/Holiday Inn * Tucson, Arizona/Hampton Inn @ Phoenix, Arizona/Airport Holiday Inn * Phoenix, Arizona/I-17 Inn West * Charleston, South Carolina/Sheraton Inn * Aiken, South Carolina/Ramada Inn * Montgomery, Alabama/Riverfront Inn * Las Cruces, New Mexico/Holiday Inn * Vero Beach, Florida/Driftwood Resort Boca Raton, Florida/Holiday Inn Glades Orlando, Florida/Holiday Inn Central park Phoenix, Arizona/Knights Inn Airport Pomona, California/Sheraton Suites Sebastian, Florida/Oyster Pointe Resort Savannah, Georgia/Sheraton Albuquerque, New Mexico/Best Western Winrock Charlotte, North Carolina/Ramada Inn Ltd. East Stroudsburg, Pennsylvania/Birchwood Resort Columbia, South Carolina/Comfort Inn TRIPLE T HOTEL MANAGEMENT MANAGED HOTELS * Sharon, Pennsylvania/Holiday Inn * Mattoon, Illinois/Holiday Inn * Clovis, New Mexico/Holiday Inn * Vincennes, Indiana/Holiday Inn * Lafayette, Indiana/Holiday Inn * Gainesville, Florida/Residence Inn * Kingman, Arizona/Holiday Inn * Lauderdale By The Sea, Florida/Holiday Inn * Lafayette, Indiana/Days Inn * Edwardsville, Illinois/Knights Inn * Mesa, Arizona/Holiday Inn * Vero Beach, Florida/Waldo's Restaurant * Indicates Summit owned hotels @ Indicates Beck-Summit owned hotels 12/13/93 34 SCHEDULE "B" AND "c" BECK HOSPITALITY AND BECK GROUP MANAGEMENT MANAGED HOTELS * Deerfield Beach, Florida/Days Inn * Pompano Beach, Florida/Days Inn * Juno Beach, Florida/Howard Johnsons * Orlando, Florida/KOA Campground * Lafayette, Indiana/Knights Inn * Michigan City, Indiana/Knights Inn @ Pompano Beach, Florida/Holiday Inn * Raleigh, North Carolina/Days Inn * Durham, North Carolina/Days Inn * Cambridge, Ohio/Best Western * Kings Island, Ohio/Best Western * Mansfield, Ohio/Best Western * Blue Ash, Ohio/Comfort Suites * Cambridge, Ohio/Days Inn * Cincinnati, Ohio/Days Inn * Cincinnati, Ohio/Days Inn East * Kings Island, Ohio/Days Inn * Westerville, Ohio/Knights Inn * Sandusky, Ohio/Ramada Inn * Doswell, Virginia/Best Western Kings Quarters Ft. Lauderdale, Florida/Holiday Inn West Syracuse, New York/Days Inn Charlotte, North Carolina/Ramada Inn Palm Harbor, Florida/Knights Inn Franklin, Pennsylvania/Inn at Franklin Spring Valley, New York/Best Western * Indicates Summit owned hotels @ Indicates Beck-Summit owned hotels 12/13/93 35 SCHEDULE "D" BECK SUMMIT HOTEL MANAGEMENT MANAGED HOTELS Bowling Green, Kentucky/Holiday Inn Bowling Green, Kentucky/Howard Johnson Syracuse, New York/Days Inn East Stroudsburg, Pennsylvania/Memory Town Columbus, Ohio/Holiday Inn City Centre Charleston, South Carolina/Comfort Inn Jacksonville, Florida/Howard Johnson Ocala, Florida/Radisson Inn Portland, Maine/Ski Resort Clearwater, Florida/Howard Johnsons 12/13/93 36 SCHEDULE "E" NEW MANAGEMENT CONTRACTS 12/13/93 37 EX-10.17 21 EXHIBIT 10.17 SEVENTH AMENDMENT TO RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE, Effective: April 24, 1997 Seventh Amendment to Restated Partnership Agreement made with effect this 24th day of April, 1997, by and between Janus Industries, inc., successor by merger to The Beck Group Management Corporation fka Beck Hospitality, Inc. ("Janus") and Elbe Properties. WITNESSETH: WHEREAS, The Beck Group Incorporated and Elbe Properties entered into a Restated General Partnership Agreement dated with effect January 13, 1986 (the "Agreement"); and WHEREAS, the Agreement was amended by First Amendment dated January 13, 1986; Second Amendment dated December 31, 1986; Third Agreement dated December 31, 1988; Fourth Amendment dated December 31, 1988; Fifth Amendment dated June 1, 1990; and Sixth Amendment dated January 1, 1992 (collectively the Agreement and all amendments shall be called the "Partnership Agreement"); and WHEREAS, Janus has succeeded by merger to the interest of The Beck Group Management Corporation fka Beck Hospitality, Inc. in the partnership and the parties hereto desire to amend the Partnership Agreement to reflect such succession by Janus. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. Paragraph 6 of the Partnership Agreement shall be modified to read as follows: "6. The names and addresses of the General Partners are as follows: Name Address ---- ------- Janus Industries, Inc. Executive Court II, Suite 232 2300 Corporate Boulevard NW Boca Raton, Florida 33431 Elbe Properties 8534 E. Kemper Road Cincinnati, OH 45249 2. The allocation of profits, losses and cash flow provided in Paragraph 8 of the Partnership Agreement shall be modified as follows: Janus 85.0% Elbe Properties 15.0% 3. Other than as provided above, the Partnership Agreement shall remain unaltered, in full force and effect. Signed with effect on the day and year first above written. Janus Industries, Inc., a Delaware corporation By: /s/ JAMES BISHOP ------------------------------------------- James Bishop, President Elbe Properties, an Ohio general partnership By: /s/ LOUIS S. BECK ------------------------------------------- Louis S. Beck, General Partner 2 MODIFICATION OF PARTNERSHIP AGREEMENT AND CONSENT TO PAY FEES FOR PRIOR SERVICES Agreement made with effect the first day of April, 1985 by and between KINGS LODGE CORPORATION (formerly Kings Dominion Corporation), a Virginia corporation (hereinafter called "Kings") and THE BECK GROUP INCORPORATED, a Virginia corporation (hereinafter called "Beck"). W I T N E S S E T H: WHEREAS, Kings and Beck entered into a general partnership agreement dated June 1, 1976 (the "Partnership Agreement"), wherein Kings and Beck formed a Virginia general partnership called Kings Dominion Lodge (hereinafter called "KDL"); and WHEREAS, Beck and Kings desire to modify the Partnership Agreement; and WHEREAS, The Beck Group Management Corporation (hereinafter called "Corporation") and Beck have a unity of ownership; and WHEREAS, Beck would like to have KDL pay certain sums to Corporation for prior services rendered by Corporation to KDL and seeks the consent of Kings to pay same. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto hereby agree as follows: 1. Kings and Beck hereby amend the first sentence of Paragraph 9 of the Partnership Agreement to read as follows: "9. The net earnings and losses of the Partnership for each fiscal year shall be allocated seventy percent (70%) to Beck and thirty percent (30%) to Kings; provided, however, that in the fiscal year ending March 31, 1986, the net earnings and losses of the Partnership shall be allocated one hundred percent (100%) to Beck and zero percent (0%) to Kings." 2. Other than as provided above, the Partnership Agreement shall remain in full force and effect, without modification. 3. Pursuant to the terms of Paragraph 10 of the Partnership Agreement, Kings hereby gives its consent for Beck to cause KDL, during KDL's fiscal year ending March 31, 1986, to pay to Corporation such sum or sums as Beck and Corporation reasonably determine will compensate Corporation for prior services rendered by Corporation to KDL. Signed with effect on the day and year first above-written. KINGS DOMINION LODGE By: /s/ NELSON SCHWAB ----------------------------- Nelson Schwab THE BECK GROUP INCORPORATED By: /s/ LOUIS S. BECK ----------------------------- Louis S. Beck -2- SECOND MODIFICATION OF PARTNERSHIP AGREEMENT RESTATED PARTNERSHIP AGREEMENT Agreement made with effect the 13th day of January, 1986, by and between The Beck Group Incorporated, a Virginia corporation (hereinafter called "Beck Group"); and Elbe Properties, an Ohio general partnership (hereinafter called "Elbe"). WITNESSETH: WHEREAS, Kings Lodge Corporation, formerly Kings Dominion Corporation, a Virginia corporation (hereinafter called "Kings") and Beck Group entered into a general partnership agreement dated June 1, 1976 (the "Agreement"), wherein Kings and Beck Group formed a Virginia general partnership called Kings Dominion Lodge (hereinafter called "KDL"); and WHEREAS, Kings and Beck Group did modify the Agreement by Modification of Partnership Agreement dated with effect April 1, 1985 (the "Modification"); and WHEREAS, Elbe has effective this day purchased all the right, title and interest of Kings in KDL; and WHEREAS, the parties hereto desire to delete all of the terms and provisions of the Agreement, as previously modified by the Modification (collectively the "Partnership Agreement") and to entirely restate the same. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE This Restated Partnership Agreement, entered into with effect this 13th day of January, 1986, by and between The Beck Group Incorporated, a Virginia corporation (hereinafter sometimes referred to as "Beck") and Elbe Properties, an Ohio general partnership (hereinafter sometimes referred to as "Elbe"). WITNESSETH: WHEREAS, the parties hereto do hereby agree to delete the terms and provisions of the Partnership Agreement and to restate same; and WHEREAS, the parties desire to enter into a Restated Partnership Agreement for the ownership and operation of the real property described on the attached Exhibit A (the "Real Property"). NOW, THEREFORE, the parties hereto agree as follows: 1. The parties hereto hereby form a General Partnership composed of the parties hereto, as General Partners, pursuant to the General Partnership Act of the Commonwealth of Virginia (the "Partnership"). 2. The Partnership shall be conducted under the firm name and style of "Kings Dominion Lodge". The principal place of business of the Partnership will be Hanover County, Virginia or such other place as the General Partners may decide. 3. The purpose and business of the Partnership shall be: A. to erect, construct, operate, manage, maintain and repair a lodge of approximately two hundred fifty (250) units and a restaurant on the Real Property; B. to buy, own, sell, convey, assign, mortgage or lease any personal property necessary to the operation of the abovesaid lodge and restaurant; C. to borrow money and issue evidences of indebtedness in furtherance of any or all of the objectives of its business; to secure the same by mortgage, pledge or other lien; and D. to enter into any kind of activity and to perform and carry out contracts of any kind necessary to, or in connection with, or incidental to the accomplishments of the purposes of this Partnership. 4. The term of the Partnership shall begin as of the execution date of this Agreement and shall continue thereafter indefinitely subject to termination pursuant to the provisions of the Uniform Partnership Act of the Commonwealth of Virginia and also pursuant to the termination provisions hereinafter set forth. 5. From time to time, Beck Group shall prepare for execution by the partners a Certificate of Partnership or Amended Certificate of Partnership and cause the same to be filed in accordance with applicable law. 6. The names and addresses of the General Partners are as follows: The Beck Group Incorporated 8534 E. Kemper Road Cincinnati, Ohio 45249 2 Elbe Properties 8534 E. Kemper Road Cincinnati, Ohio 45249 7. A. Each of the partners shall have a capital account on the books of the Partnership. B. Additional contributions to the capital of the Partnership shall be made as the partners shall mutually agree. C. No withdrawals or distributions from the capital accounts shall be made to the partners except upon termination of the Partnership. 8. The net earnings and losses of the Partnership for each fiscal year shall be allocated seventy per cent (70%) to Beck Group and thirty per cent (30%) to Elbe. Cash flow arising with respect to each fiscal year of the Partnership shall be distributed to the partners on the basis of a seventy per cent (70%) distribution to Beck Group and a thirty per cent (30%) distribution to Elbe, provided no such distribution shall be made to the extent the operations of the Partnership's business are impaired. Distribution shall be made from time to time with respect to each fiscal year. For purposes of this Agreement, "cash flow" shall mean the operating profits of the Partnership as determined in accordance with generally accepted accounting principles consistently applied. 9. Beck Group shall be the Managing Partner of the Partnership and shall be vested with the following duties: A. to account faithfully and fully to the partners with respect to all property of the Partnership and to furnish to each of the partners from time to time accounting and operating reports; B. to manage the affairs of the Partnership, including the development and operation of the lodge, to employ, discharge and fix the compensation for all personnel required in the conduct of the Partnership business, and to enter into contracts for the operating of the Partnership and including, without limitation, contracts for the day-to-day operation of the lodge and leasing of the lodge facilities; C. to designate those agents of the Partnership who shall have authority to bind the Partnership with reference to extensions of credit, bank transactions, and agreements of any nature; D. to administer all labor relations matters relating to the Partnership, to promulgate and make policy and other decisions with respect to such labor relations, 3 and to be responsible for the determination of all issues, matters and disputes which might arise between the Partnership and any of its employees; and E. to borrow funds for and on behalf of and in the name of the Partnership, and in connection therewith to execute notes, assignments, deeds of trusts/mortgages, affidavits, agreements and other related documents. Beck Group shall not: (i) assign Partnership property in trust for creditors or on the assignee's promise to pay the debts of the Partnership, nor confess any judgment against the Partnership; or (ii) commence construction of any building on the Real Property without written approval of the plans and specifications for such building from the other partners. 10. At such place as she partners may from time to time select, there shall be kept books of account, in which shall be entered fully and accurately each and every transaction of the Partnership, in accordance with generally accepted accounting principles consistently applied. All partners shall have the right to inspect and examine such books at all reasonable times. The books shall be closed, balanced and audited at the end of each fiscal year. Annual statements showing the Partnership profits and losses for the fiscal year and indicating the share of profit or loss of each partner for income tax purposes shall be prepared and distributed to all the partners within a reasonable time after the close of each fiscal year. 11. The funds of the Partnership shall be deposited in a separate bank account at a banking institution in the name of the Partnership and no funds not belonging to the Partnership shall be commingled with funds of the Partnership. The partners, or their duly authorized agents, shall be authorized to draw checks upon said account and shall arrange for the appropriate conduct of such Partnership bank account; provided, however, that no funds shall be withdrawn from any such account except for a purpose provided for in this Agreement. 12. The Partnership shall be dissolved without breach of this Agreement upon the happening of any one of the following events: A. the decision of all of the partners to dissolve the Partnership; B. a sale of the Real Property with final cash payment received. 13. Upon any event of dissolution of the Partnership specified above in Paragraph 12, the Partnership business shall be terminated, its liabilities discharged, and its property distributed as hereinafter described. A proper accounting shall be made of the 4 accounts of the Partnership and of each Partner thereto, and of the Partnership net income or Partnership net losses from the date of the last previous accounting to the date of dissolution. The partners shall proceed to wind-up and terminate the Partnership affairs or may appoint a Liquidating Trustee and such Liquidating Trustee shall have all the rights, powers and duties of the Partners in acting as the Liquidating Trustee. A reasonable period of time shall be allowed for the orderly termination of the Partnership's business, discharge of its liabilities and distribution of its remaining property so as to enable the Partnership to minimize the normal losses of a liquidation process. Upon the dissolution or termination of the Partnership, for any reason and by any means, the proceeds of such liquidation shall be applied and distributed in the following order of priority: A. to the payment of debts and liabilities of the Partnership (other than any loans or advances that may have been made by any partner) and to the expenses of liquidation or of the Liquidating Trustee; B. to the setting up of any reserves which the partners or Liquidating Trustee may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership or of the partners, arising out of or in connection with the Partnership; C. to the payment of loans made by any partner; D. to the payment of the partners' positive capital accounts on the books of the Partnership; and E. any balance then remaining shall be distributed to the partners in accordance with the amounts of their respective percentage interests in the sharing of profits of the Partnership. 14. This Partnership Agreement shall not be construed to prevent or in any way limit the unrestricted rights of the parties to engage in and carry on any form or manner of other similar enterprise to that of the Partnership. 15. Each partner may charge to the Partnership reasonable management expenses, provided such expenses have been approved in advance by the other partners. An affiliate of a partner may be hired for management duties, provided the fees charged are commercially reasonable. 5 16. Any and all notices called for under this Partnership Agreement shall be deemed adequately given only if in writing and sent by registered or certified mail, postage prepaid, to the party or parties for whom such notices are intended. All such notices, in order to be effective, shall be addressed to the last address of record on the Partnership books. 17. Interests in this Partnership Agreement are not assignable by any partner without the consent of all partners. All partnership decisions not made by Beck Group under Paragraph 9 shall be voted upon by the partners based upon their percentage sharing of profits and losses, with a majority vote required. 18. No amendment nor modification of this Agreement shall be made except by instrument in writing duly signed by the parties hereto. 19. This Agreement shall be construed in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ELBE PROPERTIES By: /s/ LOUIS S. BECK ----------------------- Louis S. Beck, duly authorized general partner THE BECK GROUP INCORPORATED By: /s/ LOUIS S. BECK ----------------------- Louis S. Beck, President 6 EXHIBIT "A" ALL that piece or parcel of land lying and being in Beaverdam District, Hanover County, Virginia, to the East of the right of way for Interstate 95 containing 10.5 acres as shown on the plat of Associated Engineers & Surveyors Ltd. dated July 29, 1976, and revised August 6, 1976 and August 12, 1976, a copy which is recorded herewith and made a part hereof and being more particularly described as follows: BEGINNING at a point at a rod(s) on the right-of-way line of Frontage Road approximately 1,344 feet, more or less, from the south line of Route 30; thence in an easterly direction north 90(degrees) 00' 00" east 597.09 feet to a rod(s); thence in a southerly direction south 00(degrees) 00' 00" east 762.25 feet to a rod(s); thence in a westerly direction south 84(degrees) 55' 21" west 542.75 feet to a rod(s); thence in northerly direction fronting on the right-of-way to Frontage Road north 06(degrees) 03' 30" west 557.03 feet to a Virginia Department of Highways right-of-way monument; thence in a northerly direction along the arc of a curve with a radius of 1,115.12 feet fronting on the right-of-way to Frontage Road 240.99 feet to a rod(s); thence in a northerly direction north 6(degrees) 19' 26" est 15.95 feet to a rod(s) to the place and point of beginning. BEING the same real estate conveyed to Kings Dominion Lodge, a Virginia general partnership, by Deed from Family Leisure Centers, Inc., an Ohio corporation, dated August 5, 1976 and recorded in the Clerk's Office of the Circuit Court of Hanover County, Virginia, in Deed Book 405. Page 330. TOGETHER WITH a sixteen (16) foot sanitary sewer easement across the lands of Family Leisure Centers, Inc., described as follows: ALL that piece or parcel of land lying and being in Beaverdam District, Hanover County, Virginia, to the East of the right-of-way for Interstate 95, containing 0.428 acres as shown on plat entitled "Plat Showing, a 16' Sanitary Sewer Easement Across 'Kings Dominion' in Beaverdam Dist., Hanover County, Virginia" prepared by Associated Engineers & Surveyors Ltd. and dated August 3, 1976, a copy of which is recorded herewith and made a part hereof. BEING the same easement conveyed to Kings Dominion Lodge by deed from Family Leisure Centers, Inc. dated August 5, 1976 and recorded in the Clerk's Office of the Circuit Court of Hanover County, Virginia, in Deed Book 405, Page 334. SIXTH AMENDMENT TO RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE, Effective: January 1, 1992 Sixth Amendment to Restated Partnership Agreement made with effect this 1st day of January, 1992, by and between Beck Hospitality, Inc. ("Beck Hospitality"), Carl Beck ("C. Beck") and Elbe Properties. W I T N E S S E T H WHEREAS, The Beck Group Incorporated and Elbe Properties entered into a Restated General Partnership Agreement dated with effect January 13, 1986 (the "Agreement"); and WHEREAS, C. Beck was admitted as a partner and the Agreement was amended by First Amendment To Restated Partnership Agreement dated with effect July 15, 1986 (the "First Amendment"); and WHEREAS, the Agreement was amended by First Amendment dated January 13, 1986; Second Amendment dated December 31, 1986; Third Agreement dated December 31, 1988; Fourth Amendment dated December 31, 1988 and Fifth Amendment dated June 1, 1990 (collectively the Agreement and all amendments shall be called the "Partnership Agreement"); and WHEREAS, Elbe Properties has purchased all of C. Beck's interest in the partnership and the parties hereto desire to amend the Partnership Agreement to reflect said purchase by Elbe Properties. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. Paragraph 6 of the Partnership Agreement shall be modified to read as follows "6. The names and addresses of the General Partners are as follows: Name Address ---- ------- Beck Hospitality, Inc. 8534 E. Kemper Road Cincinnati, OH 45249 Elbe Properties 8534 E. Kemper Road Cincinnati, OH 45249 2. The allocation of profits, losses and cash flow provided in Paragraph 8 of the Partnership Agreement shall be modified as follows: Beck Hospitality, Inc. 85.0% Elbe Properties 15.0% 3. Other than as provided above, the Partnership Agreement shall remain unaltered, in full force and effect. Signed with effect on the day and year first above written. Witnesses: BECK HOSPITALITY, INC. /s/ [ILLEGIBLE] /s/ LOUIS S. BECK -------------------- -------------------------------- /s/ [ILLEGIBLE] Louis S. Beck, President -------------------- /s/ [ILLEGIBLE] ELBE PROPERTIES, an Ohio -------------------- General Partnership /s/ [ILLEGIBLE] -------------------- /s/ LOUIS S. BECK -------------------------------- Louis s. Beck, General Partner Withdrawing General Partner: AGREED: /s/ CARL BECK - --------------------- Carl Beck This instrument was prepared by: Charles W. Thornton, Esq. 8534 East Kemper Road Cincinnati, Ohio 45249 FIFTH AMENDMENT TO RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE June 13, 1990 Fifth Amendment to Restated Partnership Agreement made with effect this 13th day of June, 1990 by and between Beck Hospitality, Inc. ("Beck Hospitality"), formerly known as The Beck Group Management Corporation ("Beck Management"), and Carl Beck ("C. Beck"). WITNESSETH: WHEREAS, The Beck Group Incorporated and Elbe Properties entered into a Restated General Partnership Agreement dated with effect January 13, 1986 (the "Agreement"); and WHEREAS, C. Beck was admitted as a partner and the Agreement was amended by First Amendment To Restated Partnership Agreement dated with effect July 15, 1986 (the "First Amendment"); and WHEREAS, the Agreement was amended by First Amendment dated January 13, 1986; Second Amendment dated December 31, 1986; Third Agreement dated December 31, 1988; and Fourth Amendment dated December 31, 1988 (collectively the Agreement and all amendments shall be called the "Partnership Agreement"); and WHEREAS, Beck Management has changed its name to Beck Hospitality, Inc. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. It is agreed that in all instances in the Partnership Agreement where The Beck Group Management Corporation is referenced, hereinafter Beck Hospitality, Inc. shall be substituted therefor. 2. Other than as provided above, the Partnership Agreement shall remain unaltered, in full force and effect. Signed with effect on the day and year first above written. BECK HOSPITALITY, INC. By: /s/ LOUIS S. BECK ----------------------------- Louis S. Beck, President /s/ CARL BECK -------------------------------- Carl Beck FOURTH AMENDMENT RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE December 31, 1988 Fourth Amendment to Restated Partnership Agreement made with effect this 31st day of December, 1988 by and between Carl Beck ("C. Beck") and The Beck Group Management Corporation ("Beck Management"). WITNESSETH: WHEREAS, The Beck Group Incorporated and Elbe Properties entered into a Restated General Partnership Agreement dated with effect January 13, 1986 (the "Agreement"); and WHEREAS, C. Beck was admitted as a partner and the Agreement was amended by First Amendment To Restated Partnership Agreement dated with effect July 15, 1986 (the "First Amendment"); and WHEREAS, Beck Management and The Beck Group Incorporated were merged and to reflect that Beck Management was the successor to The Beck Group Incorporated, C. Beck, Beck Management and Elbe Properties entered into a Second Amendment To Restated Partnership Agreement dated with effect December 31, 1986 (the "Second Amendment"); and WHEREAS, Elbe Properties ("Elbe") distributed its partnership interests in this Partnership to Beck Management, Louis S. Beck ("L. Beck") and Harry Yeaggy ("Yeaggy") on December 31, 1988, and to reflect same, C. Beck, Beck Management, L. Beck and Yeaggy entered into a Third Amendment to Restated Partnership Agreement dated with effect December 31, 1988 (the "Third Amendment") (collectively the Agreement, First Amendment, Second Agreement and Third Amendment shall be called the "Partnership Agreement"); and WHEREAS, effective this day, L. Beck and Yeaggy have contributed their partnership interest in the Partnership to Beck Management; and NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. Paragraph 6 of the Partnership Agreement shall be modified to read as follows: "6. The names and addresses of the General Partners are as follows: Name Address ---- ------- The Beck Group Management 8534 E. Remper Road Corporation Cincinnati, Ohio 45249 Carl Beck 2604 E. Franklin Street Richmond, Virginia 23223 2. The allocation of profits, losses and cash flow provided in Paragraph 8 of the Partnership Agreement shall be modified as follows: The Beck Group Management Corporation 85% Carl Beck 15% 3. Other than as provided above, the Partnership Agreement shall remain unaltered, in full force and effect. Signed with effect on the day and year first above written. THE BECK GROUP MANAGEMENT CORPORATION By: /s/ LOUIS S. BECK ------------------------------- Louis S. Beck, President /s/ CARL BECK ---------------------------------- Carl Beck Withdrawing General Partners: AGREED: /s/ LOUIS S. BECK - --------------------------- Louis S. Beck /s/ HARRY YEAGGY - --------------------------- Harry Yeaggy 2 THIRD AMENDMENT TO RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE December 31, 1988 Third Amendment to Restated Partnership Agreement made with effect this 31st day of December, 1988 by and between Carl Beck ("C. Beck"), The Beck Group Management Corporation ("Beck Management"), Louis S. Beck ("L. Beck") and Harry Yeaggy ("Yeaggy"). WITNESSETH: WHEREAS, The Beck Group Incorporated and Elbe Properties entered into a Restated General Partnership Agreement dated with effect January 13, 1986 (the "Agreement"); and WHEREAS, C. Beck was admitted as a partner and the Agreement was amended by First Amendment To Restated Partnership Agreement dated with effect July 15, 1986 (the "First Amendment"); and WHEREAS, Beck Management and The Beck Group Incorporated were merged and to reflect that Beck Management was the successor to The Beck Group Incorporated, C. Beck, Beck Management and Elbe Properties entered into a Second Amendment To Restated Partnership Agreement dated with effect December 31, 1986 (the "Second Amendment") (collectively the Agreement, First Amendment and Second Amendment shall be called the "Partnership Agreement"); and WHEREAS, Beck Management, L. Beck and Yeaggy have this day had distributed to them from Elbe Properties ("Elbe") all of Elbe's right, title and interest in the partnership. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. Paragraph 6 of the Partnership Agreement shall be modified to read as follows: "6. The names and addresses of the General Partners are as follows: Name Address ---- ------- The Beck Group Management 8534 E. Kemper Road Corporation Cincinnati, Ohio 45249 Carl Beck 2604 E. Franklin Street Richmond, Virginia 23223 Louis S. Beck Executive Court II 2300 Corporate Blvd., N.W. Boca Raton, Florida 33431 Harry Yeaggy 7750 Ivygate Lane Cincinnati, Ohio 45242". 2. The allocation of profits, losses and cash flow provided in Paragraph 8 of the Partnership Agreement shall be modified as follows: The Beck Group Management Corporation 70.3% Carl Beck 15% Louis S. Beck 11.025% Harry Yeaggy 3.675% 3. Other than as provided above, the Partnership Agreement shall remain unaltered, in full force and effect. Signed with effect on the day and year first above written. THE BECK GROUP MANAGEMENT CORPORATION By: /s/ LOUIS S. BECK ------------------------------- Louis S. Beck, President /s/ CARL BECK ---------------------------------- Carl Beck /s/ LOUIS S. BECK ---------------------------------- Louis S. Beck /s/ HARRY YEAGGY ---------------------------------- Harry Yeaggy Withdrawing General Partner: AGREED: Elbe Properties By: /s/ LOUIS S. BECK ------------------------------- Louis S. Beck, duly authorized general partner 2 SECOND AMENDMENT TO RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE December 31, 1986 Second Amendment to Restated Partnership Agreement made with effect this 31st day of December, 1986 by and between The Beck Group Management Corporation ("Beck Management"), successor by merger to The Beck Group Incorporated ("Beck Group"), Elbe Properties ("Elbe") and Carl Beck ("C. Beck"). WITNESSETH: WHEREAS, Beck Group and Elbe entered into a Restated General Partnership Agreement dated with effect June 13, 1986 (the "Agreement"); and WHEREAS, C. Beck was admitted as a partner and the Agreement was amended by First Amendment To Restated Partnership Agreement dated with effect July 15, 1986 (the "Amendment") (collectively the Agreement and Amendment shall be called the "Partnership Agreement"); and WHEREAS, Beck Group and Beck Management have been merged and the parties hereto desire to amend the Partnership Agreement to reflect that Beck Management is successor to Beck Group. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. It is agreed that in all instances in the Partnership Agreement where The Beck Group Incorporated is referenced, hereinafter The Beck Group Management Corporation shall be substituted therefor. 2. Other than as provided above, the Partnership Agreement shall remain unaltered, in full force and effect. Signed with effect on the day and year first above written. THE BECK GROUP MANAGEMENT CORPORATION By: /s/ LOUIS S. BECK ------------------------ Louis S. Beck, President ELBE PROPERTIES By: /s/ LOUIS S. BECK ---------------------------- Louis S. Beck, duly authorized general partner /s/ CARL BECK -------------------------------- Carl Beck 2 ASSIGNMENT AND ASSUMPTION December 31, 1988 WHEREAS, attached hereto as Exhibit A is a Purchase Agreement by and between Carl Beck ("C. Beck") and Elbe Properties ("Elbe") (the "Purchase Agreement"); and WHEREAS, effective this day, Elbe did distribute to The Beck Group Management Corporation ("Beck Management"), Louis S. Beck ("Beck") and Harry Yeaggy ("Yeaggy") all its right, title and interest in and to the partnership known as Kings Dominion Lodge ("KDL"); and WHEREAS, the Purchase Agreement contains certain obligations and rights of Elbe as to C. Beck; and WHEREAS, Beck Management, Beck and Yeaggy desire to assume such obligations and obtain such rights from Elbe. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. Elbe hereby assigns and transfers to Beck Management, Beck and Yeaggy all its rights and obligations set forth in the Purchase Agreement. 2. Beck Management, Beck and Yeaggy hereby accept such assignment and agree to indemnify and hold Elbe harmless of and from any liability under the Purchase Agreement. Signed with effect the 31st day of December, 1988. ELBE PROPERTIES By: /s/ LOUIS S. BECK ------------------------------ Louis S. Beck, duly authorized general partner THE BECK GROUP MANAGEMENT CORPORATION By: /s/ LOUIS S. BECK ------------------------------ Louis S. Beck, President /s/ LOUIS S. BECK ---------------------------------- Louis S. Beck, Individually /s/ HARRY YEAGGY ---------------------------------- Harry Yeaggy, Individually SECOND ASSIGNMENT AND ASSUMPTION December 31, 1988 WHEREAS, Carl Beck ("C. Beck") and Elbe Properties ("Elbe") did enter into a Purchase Agreement dated July 15, 1986 (the "Purchase Agreement"); and WHEREAS, effective this day, Elbe did distribute to The Beck Group Management Corporation ("Beck Management"), Louis S. Beck ("Beck") and Harry Yeaggy ("Yeaggy") all its right, title and interest in and to the partnership known as Kings Dominion Lodge ("KDL"); and WHEREAS, effective this day, Beck and Yeaggy did contribute to Beck Management all of their right, title and interest in and to KDL; and WHEREAS, the Purchase Agreement contains certain obligations and rights of Beck and Yeaggy (as assigned from Elbe) as to C. Beck; and WHEREAS, Beck Management desires to assume all such obligations and obtain such rights from Beck and Yeaggy. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. Beck and Yeaggy hereby assign and transfer to Beck Management all their rights and obligations set forth in the Purchase Agreement. 2. Beck Management hereby accepts such assignment and agrees to indemnify and hold Beck and Yeaggy harmless of and from any liability under the Purchase Agreement. Signed with effect the 31st day of December, 1988. THE BECK GROUP MANAGEMENT CORPORATION By: /s/ LOUIS S. BECK ------------------------------ Louis S. Beck, President /s/ LOUIS S. BECK ---------------------------------- Louis S. Beck, Individually /s/ HARRY YEAGGY ---------------------------------- Harry Yeaggy, Individually FIRST AMENDMENT TO RESTATED PARTNERSHIP AGREEMENT KINGS DOMINION LODGE July 15, 1986 First Amendment to Restated Partnership Agreement made with effect this 15th day of July, 1986 by and between The Beck Group Incorporated ("Beck Group"), Elbe Properties ("Elbe") and Carl Beck ("C. Beck"). WITNESSETH: WHEREAS, Beck Group and Elbe entered into a Restated General Partnership Agreement dated with effect January 13, 1986 (the "Partnership Agreement"); and WHEREAS, Beck Group and Elbe desire to admit C. Beck as a partner in the Partnership. NOW, THEREFORE, in consideration of the mutual promises and premises hereinafter set forth, the parties hereto agree as follows: 1. Paragraph 6 of the Partnership Agreement shall be modified to read as follows: "6. The names and addresses of the General Partners are as follows: Name Address ---- ------- The Beck Group Incorporated 8534 E. Kemper Road Cincinnati, Ohio 45249 Elbe Properties 8534 E. Kemper Road Cincinnati, Ohio 45249 Carl Beck 2604 E. Franklin Street Richmond, Virginia 23223". 2. The allocation of profits, losses and cash flow provided in Paragraph 8 of the Partnership Agreement shall be modified as follows: Beck Group 70% Elbe Properties 15% C. Beck 15% 3. Other than as provided above, the Partnership Agreement shall remain unaltered, in full force and effect. Signed with effect on the day and year first above written. THE BECK GROUP INCORPORATED By: /s/ LOUIS S. BECK ------------------------------ Louis S. Beck, President ELBE PROPERTIES By: /s/ LOUIS S. BECK ------------------------------ Louis S. Beck, duly authorized general partner /s/ CARL BECK --------------------------------- Carl Beck 2 PARTNERSHIP AGREEMENT KINGS DOMINION LODGE This Partnership Agreement, entered into this 1 day of June, 1976, by and between KINGS DOMINION CORPORATION, a Virginia corporation (hereinafter sometimes referred to as "Kings"), and THE BECK GROUP INCORPORATED, a Virginia corporation (hereinafter sometimes referred to as "Beck"), W I T N E S S E T H: WHEREAS, Kings is the owner of approximately ten (10) acres of land adjacent to the Kings Dominion Amusement Park located north of Richmond, Virginia (hereinafter sometimes referred to as "Real Property"); and WHEREAS, the parties desire to enter into a Partnership Agreement for the development and operation of a lodge on the aforesaid land; NOW, THEREFORE, the parties hereto agree as follows: 1. The parties hereto hereby form a General Partnership composed of Kings and Beck as General Partners pursuant to the General Partnership Act of the Commonwealth of Virginia (the "Partnership"). 2. The Partnership shall be conducted under the firm name and style of "Kings Dominion Lodge." The principal place of business of the Partnership will be Hanover County, Virginia or such other place as the General Partners may decide. 3. The Purpose and business of the Partnership shall be: A. to erect, construct, operate, manage, maintain and repair a lodge of approximately two hundred fifty (250) units and a restaurant on the Real Property in the general form and scope of the plans attached hereto as Exhibit "A"; B. to buy, own, sell, convey, assign, mortgage or lease any personal property necessary to the operation of the abovesaid lodge and restaurant; C. to borrow money and issue evidences of indebtedness in furtherance of any or all of the objectives of its business; to secure the same by mortgage, pledge or other lien; and D. to enter into any kind of activity and to perform and carry out contracts of any kind necessary to, or in connection with, or incidental to the accomplishments of the purposes of this Partnership. 4. A. The term of the Partnership shall begin as of the execution date of this Agreement and shall continue thereafter indefinitely subject to termination pursuant to the provisions of the Uniform Partnership Act of the Commonwealth of Virginia and also pursuant to the termination provisions hereinafter set forth. B. Either Partner may terminate this Agreement and this Partnership at any time within one hundred twenty (120) days hereof upon written notice to the other party if a written commitment for construction financing of the lodge and restaurant has not been secured by such time by the Partnership. -2- 5. Beck shall promptly prepare for execution by the two (2) Partners a Certificate of Partnership and cause the same to be filed in accordance with applicable law. 6. The names and addresses of the General Partners are as follows: Name Address ---- ------- The Beck Group Incorporated P.O. Box L Cincinnati, Ohio 45242 Kings Dominion Corporation P.O. Box 166 Ashland, Virginia 23005 7. A. Each of the Partners shall contribute to the capital of the Partnership the following amounts: Kings $300.00 Beck 700.00 --------- Total $1,000.00 The foregoing capital contributions shall be paid in cash to the Partnership by each Partner within five (5) days after execution of this Agreement and shall be credited to the respective capital accounts of the Partners in the amounts shown. B. In addition to the foregoing, Kings shall make a special contribution to the capital of the Partnership of ten (10) acres of land, more or less, located adjacent to the Kings Dominion Amusement Park, north of Richmond, Virginia, a description of which is attached hereto as Exhibit "B" and made a part hereof ("Real Property"). Such special contribution to capital shall be made after a written commitment for construction financing of the lodge and restaurant has been obtained, as contemplated in Paragraph 4 B above, and upon such occasion as an outside financial -3- source requires the placement of a first mortgage to secure such construction financing. The conveyance as herein contemplated shall be of all of Kings rights and interest in the Real Property. The Real Property shall be valued for purposes of the capital account of Kings in the Partnership in the amount of Four Hundred Twenty Thousand Dollars ($420,000). C. The Real Property shall be transferred to the Partnership by Kings with such title as shall be sufficient for the operations of the lodge as contemplated herein and without material claim or material interference with said operations by any third party. Kings represents that the Partnership may utilize presently existing access roads now being utilized which are under the control of the Kings Dominion Park, and further represents that the Partnership may tap in to those water, electricity, telephone, sanitary sewer and storm sewer facilities as presently exist in the areas abutting the Real Property, except where prevented by governmental authority or by the particular utility company. D. The Partnership shall erect any and all extensions and connections required for utilization of roads or tapping in to currently existing water, electricity, telephone, sanitary sewer and storm sewer facilities. Any and all fees and costs arising in connection with such utilization or tap ins shall be an expense of the Partnership. E. In the event that the written commitment for construction financing and funds obtained pursuant to such commitment, as contemplated in Paragraph 4 B, are insufficient for purposes of construction of the lodge and restaurant contemplated in Exhibit "A", Beck shall loan to the Partnership -4- on the same interest basis and the same payment basis as the construction financing obtained by the Partnership, sufficient funds for completion of construction. In the event the Partnership at any time has inadequate funds available to conduct its business operations, Beck shall make a non-interest bearing loan to the Partnership of such amounts, if any, as are necessary to insure the continued business operations of the Partnership. Loans provided in this paragraph shall be repaid only after payment of all operating expenses, including license fee payments provided herein to Family Leisure Centers, Inc., but before distribution of cash flow to the General Partners as provided in Paragraph 9. F. No withdrawals, or distributions, from the capital accounts (which are those accounts arising from contribution made pursuant to Paragraphs 7 A and B hereof) shall be made to the Partners except upon termination of the Partnership. Until such time as the lodge is completed, any capital distribution in the event of termination shall be in kind. 8. Contemporaneously herewith a License Agreement is being entered into between the Partnership and Family Leisure Centers, Inc., pursuant to which the Partnership shall obtain for the annual payment of Forty-six Thousand, Two Hundred Dollars ($46,200) the right to utilized the name "Kings Dominion" in connection with its lodge and restaurant operation and the referral of customers for lodge and restaurant business. 9. The net earnings and losses of the Partnership for each fiscal year shall be allocated seventy per cent (70%) to Beck and thirty per cent (30%) to Kings. Cash flow arising with respect to each fiscal year of the Partnership shall be distributed to the Partners on the basis of -5- a seventy per cent (70%) distribution to Beck and a thirty per cent (30%) distribution to Kings, provided no such distributions shall be made to the extent the operations of the Partnership's business are impaired. Distribution shall be made from time to time with respect to each fiscal year, but not later than one hundred twenty (120) days after the conclusion thereof. For purposes of this Agreement, "cash flow" shall mean the operating profits of the Partnership as determined in accordance with generally accepted accounting principles consistently applied (and specifically including as an operating expense the license fees contemplated in Paragraph 8) after deduction of the following to the extent not considered operating expenses: (1) first, all debt service charges other than service charges to Beck pursuant to loans made under Paragraph 7 E; (2) second, an amount equal to Twenty Thousand Dollars ($20,000) per year which shall be set aside as a reserve fund each year for utilization for capital improvements; and (3) thereafter, debt service charges to Beck pursuant to loans made under Paragraph 7 E. Operating expenses and thereafter those items described in Sections (1), (2) and (3) above shall be paid or reserved by the Partnership in the priority set forth with full satisfaction of operating expenses and thereafter each item in Sections (1), (2) and (3) in the priority indicated (including unpaid accruals from former years) before payment or reservation of the next item and before any distribution of cash flow. 10. Beck shall be the Managing Partner of the Partnership and shall be vested with the following duties: A. to account faithfully and fully to the Partners with respect to all property of the Partnership and to furnish to each of the Partners from time to time accounting and operating reports; B. to manage the affairs of the Partnership, including the development and operation of the -6- lodge, to employ, discharge and fix the compensation for all personnel required in the conduct of the Partnership business, and to enter into contracts for the operation of the Partnership including, without limitation, contracts for the day-to-day operation of the lodge and leasing of the lodge facilities; C. to designate those agents of the Partnership who shall have authority to bind the Partnership with reference to extensions of credit, bank transactions, and agreements of any nature; and D. to administer all labor relations matters relating to the Partnership, to promulgate and make policy and other decisions with respect to such labor relations, and to be responsible for the determination of all issues, matters and disputes which might arise between the Partnership and any of its employees. Beck's rights as set forth in this Paragraph 10 are subject to the following specific limitations and rights of Kings: (1) Kings shall have the right to approve any and all cash distributions or payments to any of the Partners; (2) Kings shall have the right to approve any contract or other agreement between the Partnership and any member or any person affiliated with any Partner; (3) Kings shall have the right to approve any additional business purpose of the Partnership other than that associated with operating the lodge and restaurant near the Kings Dominion Amusement Park; -7- (4) Kings shall have the right to approve: (i) general operating plans of the Partnership; (ii) quality control standards of operation; (iii) the affiliation with any national motel chain; (iv) general budgets for the operations of the lodge; (v) the expenditures of any sums in any fiscal year of the Partnership in excess of the general budget for the year; (vi) any contracts or other instruments for additional capital expenditures in excess of Ten Thousand Dollars ($10,000); (vii) the sale or transfer of any Partnership interest; (viii) the contribution of any additional funds from any Partner to the Partnership; (ix) all drawings, plans and specifications relating to the construction of the lodge; and (x) any sale, transfer, mortgage, assignment or refinancing of any Partnership property of a value of more than Two Hundred Fifty Thousand Dollars ($250,000); (5) Beck shall not: (i) mortgage any Partnership property that does not contain a provision requiring notice of default to Kings and time to cure said default by Kings after such notice; (ii) assign Partnership property in trust for creditors or on the assignee's promise to pay the debts of the Partnership, nor confess any judgment against the Partnership; or (iii) commence construction of any building on the Real Property without written approval of -8- the plans and specifications for such building from Kings. 11. At such place as the Partners may from time to time select there shall be kept books of account, in which shall be entered fully and accurately each and every transaction of the Partnership, in accordance with generally accepted accounting principles consistently applied. All Partners shall have the right to inspect and examine such books at all reasonable times. The books shall be closed, balanced and audited at the end of each fiscal year. Annual audited statements showing the Partnership profits and losses for the fiscal year and indicating the share of profit or loss of each Partner for income tax purposes shall be prepared and distributed to all the Partners within a reasonable time after the close of each fiscal year. 12. The funds of the Partnership shall be deposited in a separate bank account at a banking institution in the name of the Partnership and no funds not belonging to the Partnership shall be commingled with funds of the Partnership. The Partners, or their duly authorized agents, shall be authorized to draw checks upon said account and shall arrange for the appropriate conduct of such Partnership bank account; provided, however, that no funds shall be withdrawn from any such account except for a purpose provided for in this Agreement. 13. The Partnership shall be dissolved without breach of this Agreement upon the happening of any one of the following events: A. the decision of all of the Partners to dissolve the Partnership; -9- B. a sale of the Real Property with final cash payment received; C. adjudication of bankruptcy or insolvency of either Partner, an assignment by either Partner for the benefit of creditors or attachment of a Partner's interest by a creditor, which attachment remains unreleased for a period of thirty (30) days. 14. Upon any event of dissolution of the Partnership specified in Paragraph 13, the Partnership business shall be terminated, its liabilities discharged, and its property distributed as hereinafter described. A proper accounting shall be made of the accounts of the Partnership and of each Partner thereto, and of the Partnership net income or Partnership net losses from the date of the last previous accounting to the date of dissolution. In the event dissolution is a result of one of the reasons set forth in Subparagraph 13 A or B, the Partners shall proceed to wind-up and terminate the Partnership affairs. In the event that the termination of the Partnership is the result of one of the reasons set forth in Subparagraph 13 C, a Liquidating Trustee may be appointed and such Liquidating Trustee shall have all the rights, powers and duties of the Partners in acting as the Liquidating Trustee. A reasonable period of time shall be allowed for the orderly termination of the Partnership's business, discharge of its liabilities and distribution of its remaining property so as to enable the Partnership to minimize the normal losses of the liquidation process. -10- Upon the dissolution or termination of the Partnership, for any reason and by any means, the proceeds of such liquidation shall be applied and distributed in the following order of priority: A. the payment of debts and liabilities of the Partnership (other than any loans or advances that may have been made by any Partner) and to the expenses of liquidation or of the Liquidating Trustee; B. to the setting up of any reserves which the Partners or Liquidating Trustee may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership or of the Partners, arising out of or in connection with the Partnership; C. to the payment of loans made by any Partner; D. to the payment of Four Hundred Twenty Thousand Dollars ($420,000) to Kings, but which may be satisfied by a distribution in kind of the special contribution to capital made by Kings pursuant to Paragraph 7 B; E. to the payment of the Partners' positive capital accounts on the books of the Partnership (with a reduction of Kings' capital account to reflect the distribution made pursuant to Paragraph D above); and F. any balance then remaining shall be distributed to the Partners in accordance with the amounts of their respective percentage interests in the sharing of profits of the Partnership. -11- 15. This Partnership Agreement shall not be construed to prevent or in any way limit the unrestricted rights of the parties to engage in and carry on any form or manner of other similar enterprise to that of the Partnership. 16. Each Partner may charge to the Partnership reasonable management expenses, provided such expenses have been approved in advance by the other Partner. Kings specifically approves management expenses to be incurred by Beck to the extent and in the form attached hereto as Exhibit "C" and made a part hereof. 17. Kings shall have the right to purchase all of Beck's right, title and interest in and to the Kings Dominion Lodge Partnership upon the occurrence of any of the following events: A. on or after twenty-five (25) years from the date hereof; B. in the event a majority of the shares of Beck at any time is not held by Robert D. Beck, Louis S. Beck, and James P. Carroll, or members of their immediate family; C. in the event the Partnership defaults on any material obligation to a third party; or D. in the event Beck defaults on any material obligation under this Partnership Agreement. On and after the occurrence of any event set forth above, Kings may notify Beck of its desire and determination to purchase Beck's interest in the Partnership. Upon such -12- notification, Beck shall notify Kings within ninety (90) days after receipt thereof of the price and terms of sale at which it is willing to sell its entire Partnership interest. Within ninety (90) days after receipt of Beck's offer, Kings shall notify Beck of its acceptance of Beck's price and terms of sale or of a counter-proposal price and terms of sale at which Kings desires to purchase. The parties thereafter shall engage in mutual negotiations to determine the final purchase price and terms of sale of the Partnership interest; provided that if they are unable to reach an agreement within ninety (90) days after submittal of the counter-proposal by Kings, either party thereafter may submit the questions of price and terms of sale to an independent third arbitrator, whose determination as to price and terms of sale shall be final and binding on all parties. The arbitrator's authority, however, shall be limited to determining and awarding as the final price and terms of sale either the last price and terms of sale offered by Kings or the last price and terms of sale offered by Beck; the arbitrator's decision shall be determined on the basis of which last price and terms of sale most closely approximates the fair market value (taking into consideration the particular terms of sale) of Beck's Partnership interest. The arbitration, and proceedings relating thereto, shall be held in accordance with the rules and regulations of the American Arbitration Association. In the event either Beck or Kings desires at any time to sell all or any portion of its Partnership interest (but excepting from the provision hereof any sale by Kings in connection with a sale of Kings Dominion Amusement Park by Family Leisure Centers, Inc. or its -13- successors and assigns), then such party upon obtaining a prospective buyer shall notify the other party of the name of the proposed buyer and the proposed price and terms of sale. The second party within ninety (90) days after receipt thereof may elect, by notice to the first party, to purchase the first party's interest in the Partnership at the price and upon the terms of sale offered by the outside prospective buyer. Upon such election, if any, by the second party, the parties shall consummate the sale to the second party within ninety (90) days after the date that notice of election to purchase is received by the first party. If the second party does not elect to purchase the interest of the first party, the first party may sell its interest to the prospective buyer at the price and upon the terms of sale stipulated in the original notice to the second party. 18. Any and all notices called for under this Partnership Agreement shall be deemed adequately given only if in writing and sent by registered or certified mail, postage prepaid, to the party or parties for whom such notices are intended. All such notices, in order to be effective, shall be addressed to the last address of record on the Partnership books. 19. This Partnership Agreement is not assignable by either party. 20. The Partnership shall be on an accrual method of accounting and its fiscal year shall be for the period April 1st through March 31st. 21. No amendment nor modification of this Agreement shall be made except by instrument in writing duly signed by the parties hereto. -14- 22. As an inducement to Kings to enter into this Partnership Agreement, the owners of Beck have contemporaneously herewith guaranteed the annual license fee of Forty-six Thousand, Two Hundred Dollars ($46,200) to Family Leisure Centers, Inc. as described in Paragraph 8 hereof. In the event any payments are made by any of said owners in satisfaction of said guaranty and suretyship, such payment shall be deemed a non-interest bearing loan from the particular owner or owners to the Partnership and treated for all purposes hereof (except for identity of the lender) as though it were a non-interest bearing loan from Beck to the Partnership under Paragraph 7 E. 23. This Agreement will be construed in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. KINGS DOMINION CORPORATION By /s/ DUDLEY S. TAFT -------------------------- THE BECK GROUP INCORPORATED By /s/ LOUIS S. BECK -------------------------- As an inducement to Kings to enter into the aforesaid Agreement, the undersigned, jointly and severally agree to the provisions of Paragraph 22 thereof. IN WITNESS WHEREOF, the undersigned have executed this special agreement on the day and year first above written in the aforesaid Partnership Agreement. /s/ ROBERT D. BECK ------------------------------ Robert D. Beck /s/ LOUIS S. BECK ------------------------------ Louis S. Beck /s/ JAMES P. CARROLL ------------------------------ James P. Carroll -15- EXHIBIT "A" Plans and specifications are to be agreed upon by the Partners with the applicable documents to be initialed by appropriate representatives. EXHIBIT B The following is the approximate description: All that certain lot, piece or parcel of land, together with all improvements thereon and appurtenances thereunto belonging, lying and being in Beaverdam District, Hanover County, Virginia, containing 10.50 acres and more particularly described as follows: Beginning at a point on the Eastern right of way line of Interstate Route I-95, said point being located North 5 (degrees) 35' 38" West, 160 feet from an iron rod on the same right of way line; thence along the Eastern right of way line of Interstate Route I-95 North 5 (degrees) 35' 38" West, 552.15 feet to a point; thence continuing along said right of way on an arc to the right having a length fo 241.14 feet, a radius of 1,202.34 feet and a cord North 0 (degrees) 10' 28" West, 240.73 feet to a point; thence continuing along said right of way North 5 (degrees) 34' 13" East; 20.79 feet to a point; thence continuing along said right of way on an arc to the right having a length of 5.07 feet, a radius of 532.96 feet and a cord North 5 (degrees) 50' 36: East, 5.07 feet to a point; thence along a line due East 595.00 feet to a point; thence along a line due South 745.00 feet to a point; thence along a line south 84 (degrees) 55'21" West, 541.45 feet to the point of beginning. Reference is hereby made to a plat of the property described, prepared by Associated Engineers & Surveyors, Ltd., dated May 21, 1976 for a more particular description. EXHIBIT "C" Management expenses are to be included in the operating plan to be approved by the Partners. EX-16.1 22 LETTER ON CHANGE IN CERTIFYING ACCOUNTANT Arthur Andersen June 23, 1997 _______________________________________ Arthur Andersen LLP _______________________________________ 1345 Avenue of the Americas New York, New York 10105-0032 United States Securities and Exchange Commission Washington, DC 20549 Dear Gentlemen: We have read Part II, Item 3 included in the attached Form 10=SB of Janus Industries, Inc. to be filed with the Securities and Exchange Commission in June, 1997, and are in agreement with the statements contained therein. Sincerely, Arthur Andersen LLP EX-24 23 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below under the heading "Signature" constitutes and appoints James E. Bishop his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any or all registration statements including amendments, if any, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registration statement on Form 10-SB, including amendments thereto, has been signed by the following persons in the capacities and on the dates stated. Signature Title Date - --------- ----- ---- /s/ Louis S. Beck Chairman, Director April 24, 1997 - --------------------------- Louis S. Beck /s/ Harry G. Yeaggy Director April 24, 1997 - --------------------------- Harry G. Yeaggy /s/ Vincent A. Hatala, Jr. Director April 24, 1997 - --------------------------- Vincent A. Hatala, Jr. /s/ Anthony Pacchia Director April 24, 1997 - --------------------------- Anthony Pacchia /s/ Arthur Lubell Director April 24, 1997 - --------------------------- Arthur Lubell /s/ Richard P. Lerner Director April 24, 1997 - --------------------------- Richard P. Lerner /s/ C. Scott Bartlett, Jr. Director April 24, 1997 - --------------------------- C. Scott Bartlett, Jr. /s/ Michael M. Nanosky Director April 24, 1997 - --------------------------- Michael M. Nanosky /s/ Paul Tipps Director April 24, 1997 - --------------------------- Paul Tipps /s/ Peter G. Aylward Director April 24, 1997 - --------------------------- Peter G. Aylward /s/ Lucille Hart-Brown Director April 24, 1997 - --------------------------- Lucille Hart-Brown EX-27 24 FDS --
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 6,580,836 0 83,100 0 0 7,521,870 668,798 86,105 9,047,317 981,875 0 0 0 80,809 7,940,796 9,047,317 381,055 381,055 363,162 1,774,962 0 0 1,476 (1,143,491) 0 0 0 0 0 (1,218,693) (.24) (.24)
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