<PAGE>
Registration No. 333-11591
================================================================================
SECURITIES AND EXCHANGE COMMISSION
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TICE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 8711 62-1647888
(State of Incorporation) (Primary Standard (IRS Employer
Industrial Classification Identification
Code Number) Number)
------------------------------------------
6711 Tice Plaza
Knoxville, Tennessee 37918
(423) 925-4501
(Address and telephone number of
Registrant's principal executive offices)
William A. Tice, President
Tice Technology, Inc.
6711 Tice Plaza
Knoxville, Tennessee 37918
(423) 925-4501
(Name, address and telephone number of agent for service)
Copy to: Lynn H. Wangerin, Esq.
Ogden Newell & Welch
1200 One Riverfront Plaza
Louisville, Kentucky 40202
(502) 582-1601
(502) 581-9564 (facsimile)
------------------------------------------
Approximate date of commencement of proposed distribution to public: As soon
as practicable after the registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price aggregate offering registration fee
registered per unit price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares (1) 1,841,407 $ 0.07 $ 128,898 $ 45
Common Shares (2) 54,750 $ 1.00 $ 54,750 $ 19
Common Shares (3) 88,560 $ 3.00 $ 265,680 $ 92
Common Shares (4) 1,000,000 $ 8.00 $8,000,000 $ 2,759
Common Stock
Purchase Warrants 1,000,000 $ (4) $ (4) $ (4)
Total Fee $ 2,915
Previously Paid $(2,883)
Now Due $ 32
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) These securities include 300,000 shares which were issued to
Monogenesis Corporation in contemplation of distribution at a price of
$0.01 per share. They will be distributed to holders of shares of
Monogenesis Corporation as a dividend at a rate of 125 shares for each
share held. The remaining shares are to be offered for sale at market
price from time to time and are currently held by former shareholders of
Tice Engineering and Sales, Inc., 1,302,937 shares by William A. Tice and
238,470 shares by Joseph Walker & Sons, Inc. There is no current
offering price for these shares. The fee calculation is based upon the
book value of Tice Engineering and Sales, Inc., the wholly owned
subsidiary of Tice Technology, Inc., as of September 30, 1996.
(2) These are the Common Shares which will be issued in the event that
employees holding stock options exercise the options and which are
registered only for resale by the holders. The maximum offering price is
based upon the exercise price of the options.
(3) Certain individuals who have loaned funds to Tice Engineering and
Sales, Inc., the Issuer's wholly owned subsidiary, are converting such
debt to Common Shares of the Issuer at the rate of $3.00 per share and
desire to include such shares in the registration statement for resale as
Selling Shareholders.
(4) These are the Common Shares which will be issued in the event the
Common Stock Purchase Warrants are exercised. The maximum offering price
is based upon the exercise price of the warrants.
(5) The warrants were issued to Monogenesis Corporation at a price of
$0.01 each and will be distributed to holders of shares of Monogenesis
Corporation as a dividend at a rate of 400 warrants for each share held.
The warrants are registered in the same registration statement as the
Common Shares underlying the warrants and, therefore, no separate
registration fee is required pursuant to Rule 457(g).
<PAGE>
TICE TECHNOLOGY, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER - PART I, S-1 LOCATION NUMBER
- ------------------------- -------- ------
<S> <C> <C>
1. Forepart of the Registration Statement and Same 1, 2
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Same 2, 111
Pages of Prospectus
3. Summary Information, Risk Factors and Summary; Risk Factors 3, 8
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds 16
5. Determination of Offering Price Risk Factors - No 13, 14
Assurance of Trading
Market and Arbitrary
Exercise Price
6. Dilution Not applicable
7. Selling Security Holders Risk Factors - Shares 14, 38
Eligible for Future Sale;
Plan of Distribution;
Principal and Selling
Shareholders
8. Plan of Distribution Plan of Distribution 14
9. Description of Securities to Be Registered Securities 41
10. Interests of Named Experts and Counsel Not applicable
11. Information With Respect to the Registrant
(a) Description of business Business 18
(b) Description of property Business - Property 27
(c) Legal proceedings Legal Proceedings 35
(d) Market price of and dividends on the Risk Factors - No 13, 41, 44
registrant's common stock and related Dividends and No
stockholder matters Assurance of Trading
Market; Securities;
Dividends
(e) Financial statements Financial Statements 49
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER - PART I, S-1 LOCATION NUMBER
- ------------------------- -------- ------
<S> <C> <C>
(f) Selected financial data Summary - Selected 6
Financial Data
(g) Supplementary financial information Not applicable
(h) Management's discussion and Management's Discussion 28
analysis of financial condition and and Analysis of Financial
results of operations Condition and Results of
Operations
(i) Changes in and disagreements with Not applicable
accountants on accounting and
financial disclosure
(j) Directors and executive officers Management 35
(k) Executive compensation Management - Executive 36
Compensation
(l) Security ownership of certain Principal and Selling 38
beneficial owners and management Shareholders
(m) Certain relationships and related Management - Certain
transactions Transactions 37
12. Disclosure of Commission Position on Liability and
Indemnification for Securities Act Indemnification of 45
Liabilities Directors and Officers
</TABLE>
<PAGE>
PROSPECTUS
- ----------
TICE TECHNOLOGY, INC.
6711 Tice Plaza
Knoxville, Tennessee 37918
(423) 925-4501
2,984,717 Common Shares (the "Shares")
(par value, $0.01 per share)
1,000,000 Common Stock Purchase Warrants (the "Warrants")
Tice Technology, Inc. (the "Issuer") is registering 300,000 Shares and
1,000,000 Warrants in an offering of such Shares and Warrants through a
distribution by Monogenesis Corporation ("Monogenesis") to its shareholders.
Monogenesis, a closed-end investment company with approximately 1,200
institutional shareholders, is a statutory underwriter in connection with the
distribution, and Monogenesis will distribute 125 Shares and 400 Warrants for
each share of Monogenesis stock held by its shareholders (the "Distribution").
See "Plan of Distribution." The Issuer will not receive any funds from the
Distribution other than the $13,000 paid by Monogenesis, but will receive funds
if any Warrants are exercised. Each Warrant entitles the holder to purchase
one Common Share at $8.00 per share for 24 months. There can be no assurance
that the price of a Common Share will equal or exceed the exercise price of the
Warrants or that it will be profitable for a holder to exercise any Warrant.
See "Risk Factors - Arbitrary Exercise Price" and "Securities." The Issuer is
registering 1,000,000 Shares which may be issued upon exercise of the Warrants
and 54,750 Shares which may be issued upon exercise of options held by certain
employees (as selling shareholders).
In addition to the Shares underlying the options, 1,629,967 of the Shares
registered will be registered on behalf of certain shareholders described
elsewhere for sale from time to time. See "Principal and Selling
Shareholders." The Issuer will not receive any proceeds from the sale of
shares by selling shareholders.
THE SHARES AND WARRANTS INVOLVE A HIGH DEGREE OF RISK, ARE ILLIQUID AND
SHOULD ONLY BE PURCHASED BY INVESTORS THAT CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 8.
The Risk Factors described in more detail beginning on page 8 include:
. history of operating losses
. lack of working capital
. dependence on patents and new technology
. limited number of customers
. Issuer's only operations is ownership of the stock of Tice
Engineering and Sales, Inc.
. possible future acquisitions in unrelated industries in which Issuer
has no experience.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
A MONOGENESIS INSTITUTIONAL DISTRIBUTION
The date of this Prospectus is ________________, 1996.
<PAGE>
(continued from previous page)
The purpose of the Distribution is to establish a public trading
market to facilitate acquisitions and access to equity capital and to
provide liquidity for employee stock incentive programs and existing
shareholders. See "Risk Factors - Acquisitions in Unrelated Industries."
There is no current public trading market for the Issuer's securities and
there can be no assurance that a market will develop after the
Distribution. See "Risk Factors - No Assurance of Trading Market."
Of the Shares to be registered for sale by Selling Shareholders,
1,302,937 Shares are owned by William A. Tice, 238,470 Shares are owned by
Joseph Walker & Sons, Inc., 88,560 Shares are owned by former holders of
notes of Tice Engineering and Sales, Inc. which was converted to Shares
and 54,750 Shares are Shares which may be issued upon exercise of certain
outstanding employee options (collectively, the "Selling Shareholders").
See "Principal and Selling Shareholders." The Issuer will not receive any
proceeds from the sale of these Shares. The Shares held by the Selling
Shareholders may be sold from time to time. Such sales may be made on an
exchange, in the over-the-counter market, or in negotiated transactions,
at market price or on negotiated terms. Upon any sale of the Shares held
by Selling Shareholders, Selling Shareholders and participating agents,
brokers or dealers may be deemed to be underwriters as defined in the 1933
Act and commissions, discounts or any profit realized on the resale of the
Shares may be deemed to be underwriting commissions or discounts. See
"Plan of Distribution." The Issuer will pay the expenses of this
registration (approximately $100,000) other than any brokerage commissions
or discounts in connection with the sale of Selling Shareholders' Shares.
Holders of Common Shares of the Issuer may elect only 25% of the
board of directors. William A. Tice owns 100% of the Class B Common
Shares, will elect 75% of the board of directors and thereby controls the
Issuer. In addition, as the current holder of 89% of the Common Shares,
Mr. Tice will elect the remaining 25% of the directors. On all other
matters, Mr. Tice will control 90% of the vote. See "Risk Factors -
Continued Control by Holder of Class B Common Shares."
ADDITIONAL INFORMATION
----------------------
The Issuer will furnish annual reports containing audited financial
statements to its shareholders. Additional unaudited reports may be
provided to shareholders at such time as the Issuer may determine or as
required by law. The Issuer is not currently required to file reports
under the Securities Exchange Act of 1934 (the "1934 Act"), but will
become subject to reporting requirements upon effectiveness of the
registration statement. See "Plan of Distribution."
The Issuer has filed a registration statement (which term shall
include all amendments, exhibits and schedules) on Form S-1 under the 1933
Act with the Securities and Exchange Commission (the "Commission") in
Washington, D.C. This Prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth
in the registration statement as filed including the exhibits thereto.
The registration statement may be reviewed
2
<PAGE>
without charge at the Commission's principal place of business in
Washington, D.C. Copies of the registration statement may be obtained
from the Public Reference Section of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed prices. In addition,
the Issuer is an electronic filer. The Commission maintains a Web site
which contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is
http://www.sec.gov. Statements made in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and, where
such contract or other document has been filed as an exhibit to the
registration statement, reference is hereby made to such exhibit and each
such statement is qualified in all respects by such reference.
SUMMARY
-------
The following is a summary of certain information contained elsewhere
in the Prospectus. Reference is made to, and this summary is qualified by,
the more detailed information set forth in the Prospectus, which should be
read in its entirety.
PLAN OF DISTRIBUTION
- --------------------
The Issuer............................ Tice Technology, Inc. (the "Issuer"),
a Delaware corporation, was
incorporated on June 21, 1996 by the
management of TES, Monogenesis
Corporation and Joseph Walker and
Sons, Inc. to act as a holding
company for TES stock and to create a
public company with a substantial
shareholder base without having to
sell shares in a traditional initial
public offering. The Issuer acquired
all of the issued and outstanding
stock of Tice Engineering and Sales,
Inc. ("TES") in exchange for
5,450,220 Common Shares and 750,000
Class B Common Shares of the Issuer
as of the date of this Prospectus.
See "Business - General" and
"Securities." It may make
additional acquisitions in the
future. See "Risk Factors -
Uncertainty and Risks Associated with
Future Acquisitions."
Distributing Company/ Monogenesis Corporation, a Delaware
Underwriter......................... corporation, is a statutory
underwriter and, pursuant to a
resolution of its board of directors,
is distributing Common Shares and
Warrants which it purchased from the
Issuer as a dividend to its
shareholders of record on
___________, 1996 as agreed with the
Issuer in order to create a public
company as described above. See
"Risk Factors - No Assurance of
Trading Market," "Plan of
Distribution" and "Management
- Certain Transactions."
3
<PAGE>
Distribution Ratio.................... Each Monogenesis shareholder will
receive 125 Common Shares, par value
$0.01 per share, and 400 Warrants of
the Issuer for each share of
Monogenesis stock held by it. See
"Plan of Distribution." After the
Distribution, Monogenesis will own
less than 1% of the outstanding
Common Shares of the Issuer.
Distribution Agent.................... Mid-America Bank of Louisville and
Trust Company, Monogenesis' transfer
agent, will act as distribution
agent, transfer agent and warrant
agent for the Issuer. See
"Securities - Transfer Agent and
Registrar."
Shares to be Distributed.............. The Common Shares to be distributed
through Monogenesis will constitute
approximately 4% of the issued and
outstanding Common Shares, and
approximately 4% of the total issued
and outstanding stock of all classes
of common stock of the Issuer. The
Issuer will not receive any proceeds
from the distribution of these
shares. However, the Issuer will
receive proceeds if any Warrants are
exercised. See "Plan of
Distribution" and "Securities."
Warrants to be Distributed............ The Warrants to be distributed
through Monogenesis will constitute
approximately 82% of the issued and
outstanding Warrants. The Common
Shares and the Warrants are
separately transferable. See
"Securities."
Exercise of Warrants.................. Each Warrant entitles the holder to
purchase one Common Share of the
Issuer at an exercise price of $8.00
per share and may be exercised during
the 24 month period following
issuance of the Warrant. The
exercise price was determined by
management of the Issuer and may not
be indicative of the market price of
the underlying shares. See "Risk
Factors - Arbitrary Exercise Price"
and "Securities."
Distribution Date..................... Certificates representing the Shares
and the Warrants will be mailed to
Monogenesis shareholders as soon as
practical after the date of this
Prospectus. See "Plan of
Distribution."
4
<PAGE>
Sales of Shares By Selling 1,629,967 Common Shares held by the
Shareholders......................... shareholders of the Issuer will be
registered and available for resale
by such shareholders from time to
time subject to certain limitations.
See "Principal and Selling
Shareholders." These shares
constitute approximately 28% of the
issued and outstanding Common Shares,
and approximately 25% of the total
issued and outstanding stock of all
classes of common stock of the
Issuer. The Issuer will not receive
any proceeds from the sale of Shares
held by the shareholders. See "Risk
Factors - Shares Eligible for Future
Sale" and "Plan of Distribution."
Option Shares......................... 54,750 Common Shares may be issued
upon the exercise of options held by
certain employees and are registered
for sale from time to time by such
employee shareholders. See
"Principal and Selling Shareholders"
and "Securities."
Trading Market........................ There will be no immediate trading
market for the Shares or the
Warrants. See "Risk Factors - No
Assurance of Trading Market." The
Issuer is registering the Shares and
Warrants to attempt to establish a
public trading market in the Shares
and is applying for quotation on the
OTC Bulletin Board, but has not
applied for listing on an exchange.
See "Plan of Distribution." There
can be no assurance that a trading
market will develop.
THE ISSUER
- ----------
Tice Technology, Inc. (the "Issuer"), a Delaware corporation,
was formed to acquire and hold all of the issued and outstanding shares of
stock of Tice Engineering and Sales, Inc. ("TES"), and to create a public
company with a substantial shareholder base without having to sell shares
in a traditional public offering. Management of TES and the Issuer
anticipate that at some point in the future it may be advantageous to
acquire additional businesses in order to expand the Issuer's operations
or diversify its holdings. The Issuer has not yet identified any
potential targets or industries, although it expects that initial
acquisitions would be in related industries or involve related technology.
Acquisitions may also be in unrelated industries in which the Issuer has
little or no experience. See "Risk Factors - Acquisitions in Unrelated
Industries." Currently, the Issuer does not have the resources necessary
to make any material acquisition, however management believes that the
Issuer's stock, especially if a trading market has developed in the stock,
might be used as some or all of the consideration for an acquisition. The
Issuer owns only the TES stock and has no other operations. The Issuer
acquired all of the issued and outstanding stock of TES, a Tennessee
corporation, in exchange for stock of the Issuer which acquisition was
effective as of the date of this Prospectus. See "Business - General."
5
<PAGE>
The Issuer's wholly owned subsidiary, TES, is an engineering
firm which provides engineering and technical solutions, generally through
the development or enhancement of equipment for the apparel industry. TES
researches, designs, develops and tests specialized high technology,
garment production line stitching machines and related equipment, which,
when patented, it licenses to other manufacturers to produce or contract
manufactures for its own customers. TES currently holds eight patents
over which it retains rights. It currently sells fourteen basic products
and is in the process of exploring the applications of the technology
covered by its latest patent. This patent covers an electronically geared
sewing machine which, among other things, reduces by 90% all moving parts
of the sewing machine. See "Business."
The Issuer was incorporated on June 21, 1996. It's principal
office is located at 6711 Tice Plaza, Knoxville, Tennessee 37918. The
telephone number is (423) 925-4501. TES was incorporated on March 16,
1973 and has the same principal office as the Issuer. See "Business -
History."
SELECTED FINANCIAL DATA
- -----------------------
The selected financial data is that of TES. The pro forma
figures of net income per share and stockholders' equity per share reflect
the capitalization of the Issuer.
<TABLE>
<CAPTION>
================================================================================================
Statement of Earnings Data (1):
================================================================================================
Years Ended March 31,
(Amounts in thousands except
per share amounts)
---------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,770 $ 1,694 $ 1,309 $ 1,240 $1,242
Cost of Sales (681) (843) (1,000) (868) (808)
Gross Margin 1,089 851 309 372 434
Expenses (1,104) (1,039) (332) (307) (379)
Income (Loss) From Operations (15) (188) (23) 65 55
Research and Development Costs (28) (34) (141) (192) (232)
Total Other Income (Expense) 31 44 (57) 92 202
Income (Loss) Before Taxes (12) (178) (221) (35) 25
Income Tax Benefit (Expense) --- --- 42 5 (6)
Net Income (Loss) Before Change in
Accounting Principle (12) (178) (179) (30) 19
Change in Accounting Principle --- --- 70 --- ---
Net Income (Loss) $ (12) $ (178) $ (109) $ (30) $ 19
Net Income per Pro Forma Common Share (2) $ (0.00) $ (0.03) $ (0.02) $ (0.00) $ 0.00
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended September 30,
(Amounts in thousands except
per share amounts)
------------------------------
1995 1996
------ ------
<S> <C> <C>
Revenues $ 833 $ 541
Cost of Sales (550) (370)
Gross Margin 283 171
Expenses (159) (206)
Income (Loss) From Operations 124 (35)
Research and Development Costs (111) (51)
Total Other Income (Expense) 76 438
Income (Loss) Before Taxes 89 352
Provision for Income Tax (25) (45)
Net Income $ 64 $ 307
Net Income per Pro Forma Common Share (2) $0.01 $0.05
</TABLE>
================================================================================
Balance Sheet Data (1):
================================================================================
<TABLE>
<CAPTION>
March 31,
(Amounts in thousands except
per share amounts)
----------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Assets $1,666 $1,528 $1,403 $1,578 $1,435
Total Long-Term Liabilities (3) $ 453 $ 385 $ 346 $ 302 $ 661
Total Stockholders' Equity $ 439 $ 261 $ 151 $ 121 $ 145
Stockholders' Equity Per Pro Forma Common Share (2) $ 0.07 $ 0.04 $ 0.02 $ 0.02 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
September 30,
(Amounts in thousands except
per share amounts)
------------------------------
1995 1996
------ ------
<S> <C> <C>
Total Assets $1,578 $1,263
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
September 30,
(Amounts in thousands except
per share amounts)
----------------------------
1995 1996
---- ----
<S> <C> <C>
Total Long-Term Liabilities $ 281 $ ---
Total Stockholders' Equity $ 190 $ 452
Stockholders' Equity Per Pro Forma
Common Share (2) $ 0.03 $ 0.07
- ------------------------------------------------------------------
</TABLE>
(1) The statement of earnings data and the balance sheet data for 1994, 1995
and 1996 were derived from the audited financial statements of TES which
are included in their entirety elsewhere in this Prospectus. In addition,
pro forma balance sheets based upon the September 30, 1996 financial
statements of the Issuer and TES and assuming acquisition of TES by the
Issuer and conversion of TES debt (including adjustments) are also included
in their entirety elsewhere in this Prospectus. See "Financial Statements."
(2) Pro forma net income and stockholders' equity per share reflect the
number of shares of the Issuer's common stock (including Class B Common
Stock) which are issued and outstanding as of the date hereof (6,588,780
shares) for all years rather than the number of shares of TES actually
outstanding on the applicable dates and have been rounded to the nearest
cent. These figures do not include Common Shares which may be issued upon
exercise of the Warrants or the options held by TES employees. See
"Capitalization."
(3) The total long-term liabilities amounts exclude the current portion of
such obligations.
RISK FACTORS
------------
The securities described in this Prospectus involve a high degree of risk.
Prior to purchasing, Shares or Warrants investors should consider the following
factors inherent in, and affecting the business of, the Issuer and its
subsidiary, TES.
HISTORY OF OPERATING LOSSES. For four of the last five fiscal years, TES
has had a net loss: $30,000 for 1995 ($(0.00) per pro forma share), $109,000 for
1994 ($(0.02) per pro forma share), $178,000 for 1993 ($(0.03) per pro forma
share) and $12,000 for 1992 ($(0.00) per pro forma share). In 1996, it had
minimal net income of $19,000 ($0.00 per pro forma share). See "Selected
Financial Data," "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and "Financial Statements." It had net income of
$307,000 ($0.05 per pro forma share) for the first six months of fiscal year
1997. Its history of losses together with uncertainties relating to the
company's ability to obtain additional financing or capital create uncertainty
about its ability to continue profitably. See "Financial Statements." The
Issuer's and TES's ability to achieve
8
<PAGE>
profitability depends upon the ability to exploit existing patents and
develop new patents. There can be no assurance that TES or the Issuer
will achieve profitability in the future.
LACK OF WORKING CAPITAL. The Issuer and TES need substantial
additional funding in the near future to continue to be profitable, to
develop and apply the technology inherent in its latest patent for the
electronically geared sewing machine and to be able to produce orders it
is currently receiving. The Issuer and TES expect to need at least
$5,000,000 in the next two years and hope to obtain those funds through
license fees received on the new technology and sale of stock of the
Issuer. Management of TES believes that the electronic gearing technology
has application to many of the manufacturing processes in the sewing
industry as well as in other industries. See "Capitalization," "Business
- - General" and "Research and Development" and "Financial Statements."
There can be no assurance that the Issuer and TES will receive any license
fees or will be able to raise such funds. If the license of the new
technology does not generate sufficient revenues or additional funds are
not available through sale of stock or otherwise, TES may not be able to
continue to operate profitably and may be required to delay development of
application of new technology. Currently, real estate it owns and a life
insurance policy on Mr. Tice are pledged on existing debt. Mr. Tice has
also personally guaranteed certain debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CONTINUED CONTROL BY HOLDER OF CLASS B COMMON SHARES. The Issuer has
two classes of voting stock issued and outstanding: Common Shares and
Class B Common Shares. Although each holder of Common Shares and Class B
Common Shares is entitled to one vote for each share of stock held, the
current holder of Class B Common Shares (William A. Tice) is entitled to
elect 75% of the members of the board of directors of the Issuer
(presently three members). Holders of Common Shares (together with
holders of Class D Common Shares and any voting Preferred Shares) are only
entitled to elect 25% of the members of the board of directors (presently
two members). (If the number of issued and outstanding Common Shares,
Class D Common Shares and voting Preferred Shares is less than 10% of the
aggregate number of issued and outstanding Common Shares and Class B
Common Shares, all directors will be elected by the holders of all shares
voting together.) Thus, the holder of Class B Common Shares will control
the board of directors and therefore, the Issuer. Except with respect to
matters which require voting by class, shareholders of all classes will
vote together on all other matters properly brought before the
shareholders. Currently, William A. Tice controls the Issuer and, as sole
holder of Class B Common Shares, elects all directors elected by holders
of Class B Common Shares. In addition, as holder of 88% of the Common
Shares, he can also elect all directors elected by holders of Common
Shares and control all other votes. See "Principal and Selling
Shareholders" and "Securities."
DEPENDENCE ON PATENTS AND ABILITY TO PROTECT PROPRIETARY PRODUCTS.
TES has applied for and received patent protection on certain of its
inventions, including most recently, its electronically geared sewing
machine. See "Business - Products." There can be no assurance that
others will not independently develop proprietary information or obtain
access to know-how and expertise (patented or otherwise) substantially
equivalent to that developed by TES. If a competitor were able to
develop a functionally similar product to any of TES's patented products
(especially if the competitor were one of the large sewing machine
manufacturers that is also a customer of
9
<PAGE>
TES), increased competition with respect to any such product could reduce
TES revenues arising from the sale of such product as well as TES's net
income. Management of TES does believe that, at least in the near future,
with respect to the electronically geared sewing technology, licensing the
product from TES is more cost effective for most sewing machine
manufacturers than attempting to duplicate the results without infringing
on TES's patent. There also can be no assurance that existing patents
held by TES or future patents obtained by TES will be enforceable, that
TES's products will not infringe on patents owned by others or that
competitors will not develop similar or functionally similar patents. In
the event that TES has infringed on any such rights, it could be required
to pay damages. In addition, if TES were unable to change the design of
such product so that it no longer infringed on any intellectual property
rights, it would lose the ability to sell such product as well as the
benefits of all previous marketing efforts and name recognition associated
with the product. Even if alterations to avoid any intellectual property
problems were possible, the product as changed might not be successful in
the marketplace. See "Business - Patents."
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS. Most of TES's business is
developing solutions and providing equipment for denim and work wear
clothing manufacturers. See "Business." Currently, although it has
shipped products to several hundred customers all over the world, 80% of
TES's annual revenues come from three principal customers - Levi Strauss &
Co., Wrangler, Inc. and A.B. Fab Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The loss
of any of these customers without replacement with comparable customers
for any reason could materially affect TES's revenues and income.
Management hopes that its new products and license fees generated thereby
will minimize this risk.
RISKS ASSOCIATED WITH FIXED PRICE CONTRACTS. TES principally performs
under agreements to develop products, or modifications to existing
products, to solve particular industry problems or to increase efficiency
or lower costs of a manufacturing process. Generally, in pricing a job,
TES estimates the time expected to produce the solution and a prototype
product. The proposed price is based on estimates provided in-house with
what management believes are suitable margins to accommodate reasonable
contingencies. Should development costs exceed the estimated price, TES
may be required to complete the project and incur whatever losses result.
Even if it incurs losses on the initial contract, it may recoup some or
all of the losses by selling the product to other manufacturers or
developing other uses or improvements to the product and marketing the
modified product. See "Business - Products."
DEPENDENCE ON HEALTH OF ONE INDUSTRY (SEWN PRODUCTS). Currently,
most of TES's revenues are derived from products and services related to
the sewn products industry. Should this industry take a substantial
downturn, business opportunities would be limited significantly. However,
based upon apparel industry trade magazines projecting a strong market for
the next three to five years, management does not believe that a
substantial downturn is likely in the near future. In addition, management
believes that the new technology for the electronically geared sewing
machine has applications in other industries which may lessen dependence
on the apparel industry. See "Business."
10
<PAGE>
POTENTIAL ADVERSE EFFECT OF COMPETITION. TES is aware of four
companies in the United States and two in Europe that perform work
similar to TES. In addition, all of the world's leading sewing machine
manufacturers (mainly based in Japan) engage in research and development
similar to that performed by TES. Several of such manufacturers (some of
which are also customers of TES) have tried or are trying to develop
machines which are similar or competitive to TES's electronically geared
machines. However, management is not aware of the development of any
method or machine which is performance competitive to TES's electronically
geared machines. These larger competitors have significantly greater
resources, financial and otherwise, than TES. See "Business -
Competition." TES's ability to compete depends upon its ability to
provide cost effective solutions and products to manufacturers. There can
be no assurance that TES can continue to compete effectively with these
companies.
POTENTIAL ADVERSE EFFECT OF TECHNOLOGICAL CHANGE. Although it has
not been so in the past, it is expected that the apparel industry will
show more rapid changes in what is state-of-the-art in the future. Any of
TES's products could become obsolete at any time due to technological
changes and TES may not be able to update its products quickly enough to
remain competitive. See "Risk Factors - Research and Development" and
"Business - Research and Development." In addition, some of TES's
customers have told management that they are delaying purchases in
expectation of the development of applications of new technology owned by
Tice. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
GENERAL ENVIRONMENTAL RISKS. TES previously owned and currently
leases the real estate on which its operations are located which is part
of a small retail shopping facility, commonly referred to as a strip
center. In addition, TES owns real estate on which it intends to build a
new facility. See "Business - Property." Accordingly, TES is an
"owner/operator" under applicable state and federal environmental laws.
As an operator, TES is potentially responsible for the clean-up of any
hazardous or toxic materials that may be improperly located in any of its
facilities. TES outsources manufacture of components or products which
could involve environmental hazards. Thus, the development and
manufacturing processes of TES do not generate any significant quantities
of hazardous or toxic materials. See "Business - Manufacturing." Should
TES be unable to outsource this type of manufacturing, TES could be
required to comply with additional environmental regulations which might
result in reduced profit margin or cause TES to change the way it produces
the product. The officers of TES are not aware of any hazardous materials
improperly located at any of TES's facilities.
DEPENDENCE UPON EXISTING MANAGEMENT. TES's success is dependent upon
the capabilities and reputation of its President, William A. Tice, and of
its senior management and technical personnel and on their maintaining or
enhancing existing relationships with TES's customers. See "Management."
The loss of Mr. Tice or senior management or technical staff could have a
materially adverse affect on TES's business. In such event, there can be
no assurance that TES could attract qualified replacements.
RISKS ASSOCIATED WITH SHORTAGE OF QUALIFIED EMPLOYEES. As a result
of the expansion of the number of business users of computers and the
expansion in demand for computer services and
11
<PAGE>
custom software programming, there is a short supply of computer
professionals. Computers and software figure in the development of and
expansion of the applications of the electronically geared sewing machine
technology recently patented by TES. The situation is not expected to
improve in the near future. Thus, it is possible that TES could have
problems finding, keeping and replacing employees. However, defense
contractors have laid off many of their computer/engineering employees and
this trend is expected to continue thereby creating a pool of employees
from which TES has drawn in the past and who would likely have at least
some of the expertise needed by TES.
RISKS ASSOCIATED WITH UNCERTAINTY OF MARKET ACCEPTANCE OF NEW
PRODUCTS. Although TES plans to continue to build and market its
traditional product line (which does not involve the new electronically
geared technology), TES's success is at least partially dependent on the
market's acceptance of the technology involved in the electronically
geared sewing machine. Historically, clothing manufacturing has not had
significant technological progression since the invention of the sewing
machine. However, due to indications of interest from manufacturers,
management believes that the new technology is gaining acceptance.
Failure to achieve significant market acceptance will have a material
adverse effect on TES's business, financial condition and results of
operations. Also, unless the new technology becomes TES's dominant
product, TES's growth is also dependent on the continued market acceptance
and expansion of its traditional product line. See "Business - Products."
TES plans to continue to develop new products for its customers to solve
their manufacturing problems which products TES may chose to add to its
product line.
RISKS ASSOCIATED WITH WARRANTY AND SUPPORT OBLIGATIONS. TES
traditionally has provided a 90-day warranty against defects in materials
and workmanship with most of its products. TES plans to continue this
warranty policy. It has been TES's past experience that the warranties
have cost it less than 0.5% of gross sales over the past five years.
However, this experience could change at any time. In addition, TES
anticipates that it will need to implement a support program for the
computer software associated with the new technology for the
electronically geared machine which is expected to include computer
technicians on call 24 hours a day. During the first 24 months, a minimal
number of technicians are expected to be needed at an estimated cost of
$100,000 per year. The number of technicians needed and costs of the
program are expected to increase as more products are sold, but is not
expected to exceed 0.5% of gross sales. If TES's estimates of the need
for and costs of the support program are significantly lower than the
actual costs, TES's profits could be significantly reduced.
RISKS ASSOCIATED WITH LOSS OF USE OF TRADEMARKS. Management of TES
does not believe that it is infringing on the trademark of any other
entity in the world. TES obtained a certificate of registration of the
name "tice(R)" for use in connection with certain components of stitching
machines from the U.S. Patent and Trademark Office in 1980. In addition,
TES has applied to register the name, "Tice Technology," and the related
logo. If TES were prohibited from using the name, it would lose the
benefits of name recognition and its previous marketing.
UNCERTAINTY AND RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. The
Issuer may pursue other acquisitions at some point in the future.
Currently, it has no operations other than ownership of TES and does not
have the resources necessary to make any material acquisitions. The
Issuer has not
12
<PAGE>
identified any particular target or target industries. It may make
acquisitions in the future in industries which are not related to its
current business and in which it may not have any experience or expertise.
RISKS ASSOCIATED WITH ISSUER'S LACK OF OPERATIONAL HISTORY. The
Issuer was incorporated on June 21, 1996 and has not yet engaged in
business other than the acquisition of TES as described in this
Prospectus. See "Business - General." It therefore has no earnings
record. However, the Issuer's wholly owned subsidiary, TES, has been in
business since 1964, first as a sole proprietorship then as a partnership
and since 1973 as a corporation. See "Selected Financial Data," "Business
- - History" and "Financial Statements."
POSSIBLE INABILITY TO EXERCISE WARRANTS IN CERTAIN STATES. Holders
of the Warrants will have the right to exercise the Warrants to purchase
Common Shares only if such shares qualify for sale under state securities
laws or are exempt from qualification under applicable securities or "blue
sky" laws of the states in which the various holders of the Warrants then
reside and there is available a current Prospectus permitting the sale of
the Common Shares underlying the Warrants. The Issuer has undertaken and
intends to use reasonable efforts to keep current a prospectus which will
permit the sale of the Common Shares underlying the Warrants, but there
can be no assurance that the Issuer will be able to do so. The Issuer is
not required to qualify for sale the Common Shares in any state. The
Warrants may lose some of all of their value if a prospectus covering the
underlying shares is not kept effective or if the underlying shares are
not, or cannot be, qualified in an applicable state. See "Securities."
NO DIVIDENDS. The Issuer is newly formed and has not paid dividends.
It's only significant source of earnings out of which to pay dividends
will be dividends it receives from its subsidiary, TES. TES has not
historically paid dividends to its shareholders, and has no present plans
to institute a policy of declaring dividends. In the foreseeable future,
the capital requirements of TES will likely consume all applicable
operating profits and other available cash. There is no guarantee that
TES, and therefore the Issuer, will pay dividends in the future.
POSSIBLE ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK ON HOLDERS OF
COMMON SHARES. The Issuer's Certificate of Incorporation authorizes the
issuance of Preferred Shares with designations, rights and preferences as
determined from time to time by its Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
Preferred Shares with dividends, liquidation, conversion, voting or other
rights that could adversely affect the dividends, liquidation rights,
voting rights or other rights of the holders of Common Shares. The voting
rights of any Preferred Shares, however, are limited by the Certificate of
Incorporation and cannot exceed the voting rights of any Common Shares.
In the event of issuance, Preferred Shares could be used, under certain
circumstances, as a method of discouraging, delaying or preventing a
change of control of the Issuer. See "Securities."
NO ASSURANCE OF TRADING MARKET. There is not an established public
trading market for the Shares or the Warrants. There can be no assurance
as to the prices at which the Shares or the Warrants will trade or that
such prices will not be significantly below the book value of the Shares.
13
<PAGE>
Until the Shares and the Warrants are fully distributed and an orderly
market develops (if at all), the prices at which the Shares or the
Warrants trade may fluctuate significantly. Prices for the Shares and the
Warrants will be determined in the marketplace and may be influenced by
many factors, including the depth and liquidity of the market, investor
perception of the Issuer and the industry in which the Issuer
participates, and general economic and market conditions.
ARBITRARY EXERCISE PRICE. The exercise price of the Warrants was
determined by management of the Issuer based upon management's assessment
of the Issuer's business potential and earnings prospects. It reflects
management's opinion relating to the future and may not be indicative of
future market prices of the Warrants or the underlying Shares, revenues or
profitability.
SHARES ELIGIBLE FOR FUTURE SALE. Approximately 67% of the issued and
outstanding Common Shares of the Issuer (all shares except the Common
Shares described in this Prospectus) are "restricted securities" as such
term is defined in Rule 144 promulgated under the Securities Act of 1933
(the "1933 Act"). (Class B Common Shares may be converted to Common
Shares.) Sales of securities by affiliates of the Issuer may also be
subject to Rule 144 resale limitations. Currently, all of the restricted
securities are held by William A. Tice. See "Principal and Selling
Shareholders." In general, under Rule 144, if adequate public information
is available with respect to the Issuer, beginning 90 days after the date
of this Prospectus a person who has satisfied a two year holding period
may sell, within any three month period, a number of shares which does not
exceed the greater of 1% of the then outstanding shares of the class of
securities in question or the average weekly trading volume during the
four calendar weeks prior to such sale. Sales under Rule 144 are also
subject to certain restrictions relating to manner of sale, notice and the
availability of current public information about the issuer. Sales of
restricted securities by a person who is not an affiliate of the issuer
(as defined in the 1933 Act) and who has satisfied a three year holding
period may be made without regard to volume limitations, manner of sale,
notice or other requirements of Rule 144. The Issuer is unable to predict
the effect that sales made pursuant to Rule 144 or other exemptions under
the 1933 Act may have on the prevailing market price of the registered
Common Shares, or when such sales may begin under the holding period
requirements of Rule 144.
PLAN OF DISTRIBUTION
--------------------
The Issuer issued 300,000 Common Shares and 1,000,000 Common Stock
Purchase Warrants to Monogenesis, a closed-end registered investment
company, and Monogenesis distributed the Shares and Warrants to its
shareholders as of the date of this Prospectus at a rate of 125 Common
Shares and 400 Warrants for each share of stock of Monogenesis held on
_______________, 1996. Monogenesis is a statutory underwriter which is
distributing the Shares and Warrants on behalf of the Issuer to create a
public company (the Issuer) with a substantial shareholder base without
having to sell shares in a traditional initial public offering. See "Risk
Factors - No Assurance of Trading Market."
Monogenesis purchased the Shares and Warrants at a price of $0.01
each which is the par value of the Common Shares. In addition,
Monogenesis agreed to distribute Shares and Warrants to its approximately
1,200 primarily institutional shareholders at the rate described above.
The price
14
<PAGE>
was determined by Monogenesis and TES. Monogenesis will retain the Shares
and Warrants not distributed and will own less than 1% of the outstanding
Common Shares of the Issuer after the Distribution. The Issuer and TES
have agreed to pay the expense of registering the Shares and Warrants
issued to Monogenesis which expenses include legal, accounting,
consulting, transfer agent and filing fees. Through the distribution of
the Shares and Warrants by Monogenesis (and the sale of Shares by the
Selling Shareholders from time to time), the Issuer hopes to create a
public trading market in its Common Shares to facilitate access to public
markets and equity capital and future acquisitions and to provide
liquidity for employee stock incentive programs and existing shareholders.
See "Risk Factors - No Assurance of Trading Market" and "Uncertainty and
Risks Associated with Future Acquisitions."
Since Monogenesis is purchasing Shares and Warrants with the intent
to distribute, it is a statutory underwriter under the 1933 Act.
Monogenesis is not a broker-dealer and has not participated in any
traditional underwritings. It is registered as a closed-end investment
company under the Investment Company Act of 1940 and was formed to provide
a mechanism for companies to become reporting companies under the 1934 Act
in transactions similar to the Distribution. Monogenesis completed one
such distribution in 1992. It has two directors - Scot D. Walker and
Brian P. Westfall. TES and Mr. Tice have agreed to indemnify Monogenesis
against any liability arising out of any representation, warranty or
covenant made by TES or Mr. Tice in the agreement with Monogenesis.
Shareholders of Monogenesis that receive Shares and Warrants will
receive such securities as a dividend. No holder of Monogenesis stock
will be required to pay any cash or other consideration for the Shares or
the Warrants received in the Distribution or surrender or exchange
Monogenesis stock in order to receive Shares or Warrants. Holders of the
Warrants will be required to pay the exercise price to exercise the
Warrants. See "Securities."
Shareholders, including the recipients of Common Shares distributed
by Monogenesis, will be able to sell their Shares and Warrants which are
registered, at any time, although the sale of securities by affiliates is
limited under Rule 144. It is expected that, at such time as registered
Shares or Warrants are sold, such securities will be sold through the
selling efforts of brokers or dealers. There is no agreement with any
specific brokers or dealers relating to the Shares or the Warrants nor has
any plan of distribution or sale of the Shares or Warrants been developed,
other than the dividend distribution to Monogenesis shareholders and the
debt conversion described above.
The Shares which are held by Selling Shareholders (or which may be
received by Selling Shareholders upon the exercise of employee options)
and which are registered hereunder may be disposed of from time to time by
the Selling Shareholders, or by permitted transferees, in one or more of
the following: (i) to purchasers directly; (ii) in ordinary brokerage
transactions and transactions in which the broker solicits purchasers;
(iii) through underwriters or dealers who may receive compensation in the
form of underwriting discounts, concessions or commissions from the
Selling Shareholders or permitted transferees or from the purchasers of
the securities for whom they may act as agent; (iv) by the pledge of the
Shares or Warrants as security for any loan or obligation,
15
<PAGE>
including pledges to brokers or dealers who may, from time to time, effect
distribution of the Shares or Warrants or interests therein; (v) to
purchasers by a broker or dealer as principal and resale by such broker or
dealer for its own account pursuant to this Prospectus; (vi) in a block
trade in which the broker or dealer so engaged will attempt to sell the
securities as agent but may position and resell a portion of the block as
principal to facilitate a transaction; and (vii) through an exchange
distribution in accordance with the rules of the exchange or in
transactions in the over-the-counter market. Such sales may be made at
then prevailing prices and terms which may be related to the then current
market price or at negotiated prices and terms. In effecting sales
brokers or dealers may arrange for other brokers or dealers to
participate.
The Selling Shareholders or their successors in interest, and any
underwriters, brokers, dealers or agents that participate in the
distribution of the Shares and Warrants held by the Selling Shareholders,
may be deemed to be "underwriters" within the meaning of the 1933 Act, and
any profit on the sale of securities by them and any discounts,
concessions or commissions received by any such underwriters, brokers,
dealers or agents may be deemed to be underwriting commissions or
discounts under the 1933 Act. The Issuer and TES will pay all expenses
incident to the registration of the Selling Shareholders' Shares and
Warrants other than underwriting discounts or commissions, brokerage fees
and the fees and expenses of counsel to the Selling Shareholders, if any.
The Issuer will not receive any proceeds from the sale of Shares or
Warrants by the Selling Shareholders. In the event of a material change
in the plan of distribution disclosed in this Prospectus, the Selling
Shareholders will not be able to effect transactions in the Shares and
Warrants pursuant to this Prospectus until such time as a post-effective
amendment to the registration statement is filed with, and declared
effective by, the Commission.
Prior to or on the effective date of the registration statement, the
Issuer will file a registration statement under the 1934 Act registering
the Shares and the Warrants thereunder. Such filing together with the
filing of the registration statement under the 1933 Act will subject the
Issuer to the reporting requirements of the 1934 Act and the Issuer will
be a public company. The Issuer has applied for quotation of the Shares
and Warrants on the OTC Bulletin Board. At such time as it meets listing
criteria, it intends to apply for a listing of the Shares and the Warrants
on a national exchange which reports transactions on a real time basis;
however, there can be no assurance that the Shares and the Warrants will
be so listed.
USE OF PROCEEDS
---------------
TES borrowed $255,187 from six persons in July and August of 1996.
The debt was evidenced by promissory notes bearing interest at 10% per
annum with original maturity dates of September 1, 1996 which were
extended to January 29, 1997. The proceeds of the notes were used as
working capital primarily to continue development of the electronically
geared technology. The Issuer is offering the holders of the notes up to
88,560 Common Shares in exchange for the principal and interest on such
notes through December 15, 1996 at $3.00 per share. The Issuer will not
receive any proceeds upon conversion of the notes.
16
<PAGE>
The minimal proceeds derived from the sale of the Shares and Warrants
to Monogenesis and any proceeds derived upon the exercise of any Warrants
or options held by TES employees will be used as working capital to hire
additional employees including mechanical and electrical engineers,
purchase additional equipment and expand TES's facility to address
expected demand for the new technology. However, even if none or only a
small portion of the Warrants are exercised, there will not be sufficient
funds and TES will need to obtain funds from licenses fees or financing
which may or may not be available. See "Risk Factors - Lack of Working
Capital." The Issuer does not have any plans at this time to use the
proceeds to acquire additional businesses. The Issuer will not receive
any proceeds from the sale of Shares or Warrants by the Selling
Shareholders. See "Plan of Distribution."
CAPITALIZATION
--------------
The capitalization of TES (prior to its acquisition by the Issuer)
and the pro forma capitalization of the Issuer (giving effect to the
acquisition of TES) as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
=============================================================================
Capitalization of TES Prior to Acquisition:
=============================================================================
<S> <C>
Stockholders' Equity:
Common stock
no par value; 2,000 shares authorized;
750 shares issued and outstanding $ 8,634
Stock Warrants to purchase 30 shares 4,859
Retained Earnings 438,728
--------
Total Stockholders' Equity $452,221
========
=============================================================================
Pro Forma Capitalization of the Issuer Assuming Acquisition of TES and
Conversion of TES Debt:
=============================================================================
Stockholders' Equity
Common Shares
par value - $0.01 per share;
30,000,000 authorized
5,838,780 shares issued and outstanding(1) $ 58,388
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Class B Common Shares
par value - $0.01 per share;
5,000,000 shares authorized;
750,000 shares issued and outstanding 7,500
Class D Common Shares
par value - $0.01 per share;
600,000 shares authorized;
no shares issued and outstanding -0-
--------
Total Common Shares $ 65,888
Preferred Shares
par value - $0.01 per share;
10,000,000 shares authorized;
no shares issued and outstanding -0-
Paid-in Surplus (2) 226,285
Retained Earnings 428,235
--------
Total Stockholders' Equity $720,408
========
</TABLE>
- --------------------------------------------------------------------------------
(1) In addition to the Common Shares of the Issuer held by the former
shareholder of TES, the issued and outstanding Common Shares of the
Issuer include the 300,000 Common Shares issued to Monogenesis for
$3,000, the 238,470 Common Shares issued to JWSI and the 88,560 Common
Shares issued upon conversion of TES debt. This number does not
include the 1,000,000 Common Shares which may be issued upon the
exercise of the Warrants or the 54,750 Common Shares which may be
issued upon the exercise of the options held by TES employees. See
"Securities."
(2) Pro forma balance sheets assuming acquisition of TES by the Issuer and
conversion of TES debt and showing pro forma adjustments are included
in their entirety elsewhere in this Prospectus. See "Financial
Statements."
BUSINESS
--------
GENERAL
- -------
The Issuer was formed as a holding company for TES on June 21, 1996
in connection with the registration of the Shares and Warrants to create a
public company with a substantial shareholder base without having to sell
shares in a traditional initial public offering (through the shareholder
base of Monogenesis). It is also believed that establishing the Issuer as
a public company may facilitate acquisitions at some point in the future.
No particular acquisition targets have been
18
<PAGE>
identified and the Issuer does not currently have the resources to make a
material acquisition. See "Risk Factors - Uncertainty and Risks
Associated with Future Acquisitions." The Issuer received all of the
issued and outstanding shares of stock of TES from Mr. Tice in exchange
for 5,211,750 Common Shares and 750,000 Class B Common Shares as of the
date of this Prospectus. The number of shares exchanged was determined by
TES and Monogenesis taking into consideration the proposed public float
and ownership interests. All of the Issuer's current business operations
are conducted through TES.
Of TES's historical revenue, 95% is derived from the sale of products
designed and manufactured by TES and further described below. The
remaining 5% is derived from rents received from real property owned by
TES and some consulting fees. TES sold the rental real estate on
September 30, 1996. The consulting fees are very minor as independent
revenues; traditionally these fees are encompassed in the design and
manufacture of TES's products for a particular customer.
TES performs original research engineering design, prototype
development and testing for its garment production line stitching machines
and related equipment. During manufacture and assembly, the arrangement
of component parts of a tice(R) product are configured to meet the
purchaser's special production line application requirements.
Accordingly, most of TES's products are made-to-order pursuant to
contractual arrangements with purchasers. See "Business - Products."
Generally, a potential customer outlines a need or problem relating to
their manufacturing process, TES reviews the need and estimates the cost
to provide the product or solution. See "Risk Factors -Risks Associated
with Fixed Price Contracts." Often then TES applies the technology
developed pursuant to a contract to other applications or sells the
product developed to other parties. See "Business - Products." TES also
manufactures replacement parts for its products and a few minor
attachments and provides consulting services at hourly rates.
During the past five years in addition to marketing and selling the
conventional product line that it has sold for some time, TES has spent
considerable time developing new technology and has obtained three
patents, two in 1994 and one in 1995. See "Business - Products." The
bulk of research efforts since 1993 have been centered on the electronic
gearing technology. This technology was initially developed for the
double needle belt loop machine and, by using a computer and servo motors,
eliminates approximately 90% of the mechanical parts as well as certain
other technical problems associated with the machine. TES also believes
the technology has application to many other types of machines including
machines used in industries other than the sewing industry. To date, in
addition to the double needle belt loop machine, TES has built "proof of
concept" models of the multi-head buttonhole machine, the lap seam felling
machine and the plain lock stitch sewing machine. See "Business -
Research and Development."
TES's success is dependant on its ability to provide solutions to the
sewing industry (and, to a certain extent, some other industries) through
its existing products or by developing new or enhanced products. TES
generally employs five engineers, but expects to employ more in the
future. In addition, Mr. Tice has worked in the business for more than 30
years and has substantial experience in designing solutions and estimating
the costs of providing solutions. Recently in light
19
<PAGE>
of the rapid changes management expects will occur in TES's business
resulting from the development and exploration of the electronic gearing
technology, TES has hired additional key personnel who it believes have
the ability to run the business.
John Burchill is currently acting as TES's general manager. He has
worked in the sewing machine industry for approximately 35 years and was
previously Manager of New Products and Technical Services for Brother
International Corp., the U.S. division of Brother Industries, Ltd., one of
the world's largest sewing machine manufacturers.
Eric Watson has accepted employment with TES as Electronics Manager.
Mr. Watson received his B.S.E.E. from Northeastern University, College of
Engineering, in Boston, Massachusetts in 1989. From 1983 (prior to
receiving his degree) through November of this year, he has been employed
as a project and design engineer for Loral Hycor, Inc., in Woburn,
Massachusetts which is a defense contractor selling products to the
government and commercial industries.
PRODUCTS
- --------
TES sells various products mainly to the sewn products industry.
Many of its products are covered by patents which generally provide
protection for seventeen years from date of issue. TES's basic products
include:
1) Twin Needle Belt-Loop Sewing Machines -- This machine takes pre-sewn
belt loop material, which is in lengths of 50 to 150 feet, and feeds
the belt loop out to the proper length, cuts the belt loop and folds
both ends under by way of turning pins. Next, the operator activation
presents the pre-cut, pre-folded belt loop to the pants waistband
whereupon two air-operated presser feet descend upon the folded belt
loop ends, the turning pins retract and both ends of the belt loop are
sewn on simultaneously. The presser feet return to the up position,
the operator moves the garment and the process is repeated. TES has
developed a prototype of the Twin Needle Belt-Loop Sewing Machine,
which uses the new electronic gearing technology. It is covered by
TES's patent #5,458,075 which was issued on October 17, 1995.
2) Ergonomic Stands -- These stands are either pneumatically or
electronically activated by the operator who can move the table top up
and down, stopping at any desired height, thus helping production and
physical approach to the machine/stand combination. These stands are
covered by TES's patent #5,313,892 which was issued on May 24, 1994.
3) Single Needle Belt-Loop Machines -- This machine takes pre-sewn belt
loop material which is in lengths of 50 to 150 feet. The machine feeds
the belt loop out to the proper length, cuts the belt loop and folds
both ends under by way of turning pins. Next, the operator activation
presents the pre-cut, pre-folded belt loop to the pants
20
<PAGE>
waistband whereupon two air-operated presser feet descend upon the
folded belt loop ends, the turning pins then retract, one end of the
belt loop is sewn, the unit indexes and the opposite end of the belt
loop is sewn. The presser feet return to the up position, the operator
moves the garment and the process is repeated. All patents, if any, on
this product have expired.
4) Button Hole Indexers -- This unit uses a conventional single head
buttonhole machine. The operator places a shirt panel with the placard
already formed at the beginning position on the buttonhole indexer
moving plate and engages the starting button. The first buttonhole is
sewn, upon completion the shirt panel is indexed the proper distance
where the second buttonhole is sewn, it is once again indexed and this
process continues through six, seven or eight buttonholes. The panel
is then removed and the operator starts the process again. All
patents, if any, on this product have expired.
5) Takeaway Mechanisms -- These mechanisms are built to customer
specifications and are used for the purpose of moving parts or full
garments from one point to another. This product is covered under
TES's patent #5,303,910 which was issued on April 19, 1994.
6) Indexing Stackers -- Indexing stackers incorporate the patented take-
away and pick-up device described in patent #5,303,910 where as the
pick-up / take-away mechanism moves the particular part to a
predetermined position where it is placed, the stacker then moves so
that the next part picked up by the take-away is placed in a different
stack, the indexer then returns to the original position to await
receipt of the next part. The sequence is then repeated.
7) Label Loader Folders -- The label loader folders feeds a label from a
hopper to a folding mechanism that folds the label, if required. It
presents the label to the sewing machine which is then activated, the
label is sewn on the garment. The label loader repeats the process.
This product is covered by TES's patents #4,677,923 and #4,979,934
which were issued on July 7, 1987 and December 25, 1990 respectively.
8) Automatic "J" Tackers -- The term automatic "J" tacker is a generic
term for a machine designed to make one tack then shift and place a
second tack automatically. These tacks are normally placed in
positions on garments that require additional reinforcement to add
strength. Patents on this product, if any, have expired.
9) Belt-Loop Winders -- During the process of manufacturing a belt loop
in lengths of 50 to 150 feet, the belt loop winder winds the belt loop
up on a reel (very similar in appearance to a movie reel that film is
wound on). These reels are then taken to a belt loop machine where the
belt loop material is then pulled off these reels by the belt loop
sewing machine. No patents exist on this product.
21
<PAGE>
10) Needle Positioners -- Needle positioners are air operated units that
are retrofitted to existing conventional sewing machines. This unit
when activated positions the needle up and out of the sewn work. This
process was traditionally done by the operator turning the pulley hand
wheel. This product is covered under TES's patents #4,271,775 and
#4,270,474 which were issued on June 9, 1981 and June 2, 1981
respectively.
11) Pocket Creasers -- The pocket creaser takes the pre-formed and cut
pocket material and first folds it, then creases it by means of heat
so that the operator can sew the pocket in a closed fashion into the
garment or, in the case of a back pocket, onto the outside of the
garment. No patents exist on this product.
12) Pneumatic Circuit Boards -- This technology was discovered in the mid-
1970's at which time TES was only one of two companies (that TES is
aware of) who were capable of manufacturing multi-level pneumatic
circuit boards. Basically, the circuit boards are multi-layered
acrylic sheets that are grooved and ported to facilitate the flow of
air to specific ports in a valve configuration. This technology to air
is similar to an electronic printed circuit board and greatly enhances
the capability of pneumatic operations. No patents exist on this
technology although the circuit boards created were copyrighted from
1976 to 1986 at which time the use was greatly reduced as TES
converted to electronics.
13) Air Operated Clamp Lifts -- The function of the air operated clamp
lift is to semi-automate tacker sewing machines. The clamp lift
controls the raising and lowering of the presser foot and the engaging
of the sewing machine into the sew cycle. TES's patents on this
product have expired.
14) Electronic Gearing Components for Sewing Machines -- The technology
referred to as electronic gearing is the ability to coordinate to
within one-eighth of one degree the accuracy between the needle and
the bobbin hook assembly of a sewing machine. TES believes that this
technology has many applications and is used in the Twin Needle Belt-
Loop Sewing Machine which operates as described above and is covered
by TES's patent #5,458,075 issued on October 17, 1995.
During fiscal year 1996, sales of the Label Loader Folders contributed 17%
to consolidated revenues with sales of the folders divided between three
different models, contributing 14%, 1.6% and 1.4%, respectively. During fiscal
year 1995, sales of the Label Loader Folders constituted 21% of revenues, split
between two models at 18.6% and 2.4% each. There were no products which
contributed 15% or more revenues during fiscal year 1994. Management expects
that products containing the electronic gearing technology will become its
dominant products over the next several years.
Historically, TES has primarily designed and manufactured special
application equipment and attachments for denim (blue jeans) and work wear
manufacturers. It also has manufactured
22
<PAGE>
equipment for other types of sewing manufacturers that produce drapery products;
upholstery; shoes; sewn medical supplies; boat, car and aircraft interiors; and
general apparel. Currently, TES receives approximately 80% of its annual revenue
from three denim and work wear manufacturers - Levi Strauss & Co., Wrangler,
Inc. and A.B. Fab Company. The loss of any of these customers could materially
affect TES's revenues and net income. See "Risk Factors - Dependence on Limited
Number of Customers." However, management believes that, as it further develops
uses for the electronic gearing technology, TES's dependence on a few customers
or segment of the sewing industry will lessen or disappear.
PATENTS
- -------
TES's success depends in large part on its ability to exploit its existing
patents and to obtain additional patents on similar or new technology. TES
currently has eight patents under which it is producing products and is working
on designs for additional products. See "Business- Research and Development."
The patents have expiration dates ranging from 1998 to 2012. TES also sells
products on which it holds patents that have expired. See "Business - Products."
TES is currently working on obtaining patent protection in countries other than
the U.S. on its electronic gearing technology.
There can be no assurance that foreign patents will be approved, that TES
will develop additional proprietary products that are patentable, that any
patents issued to TES will provide TES with competitive advantages or will not
be challenged or that the patents of others will not prevent the
commercialization of products incorporating the technology. Furthermore, there
can be no assurance that others will not independently develop similar products,
duplicate TES's products or design around its patents. Any of the foregoing
could have a material adverse effect on TES's results of operations and
financial condition.
Litigation, which could result in substantial costs to TES, may also be
necessary to enforce its patents or to determine the scope and validity of third
party proprietary rights. If competitors or customers of TES that claim
technology also claimed by TES prepare and file patent applications, TES may
have to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial costs to TES, even if the eventual outcome is favorable. Any such
litigation or proceedings, regardless of outcome, could be expensive and time
consuming or subject TES to significant liability, require disputed rights to be
licensed from third parties or require TES to cease using the technology, all of
which could have a material adverse effect on TES's results of operations. TES
does not know of any threatened challenges to any of its patents.
RESEARCH AND DEVELOPMENT
- ------------------------
TES primarily provides solutions to production or ergonomic problems of its
customers which are primarily sewing manufacturers and produces and markets such
products or technology. It also modifies existing products and markets them for
different applications. When a sewing manufacturer or other customer comes to
TES with a problem, TES will generally consult, build
23
<PAGE>
and then manufacture a piece of equipment designed to eliminate or lessen
production or ergonomic problems or enhance production capabilities. Once the
piece of equipment has been designed and produced as required by the customer,
TES generally retains rights to the design and then offers the equipment and
technology to the industry as a whole. In many cases, TES obtains a patent on
the process to protect its rights. See "Risk Factors - Dependence on Patents and
Ability to Protect Proprietary Products."
At the present time, TES is in the process of designing and building
the following equipment:
. A custom designed pickup and delivery system for a bedding
manufacturer.
. An apparatus to automatically inflate soccer balls for a
sporting goods manufacturer.
. A special system to rotate heating dryers for silk screen
printing for the same sporting goods manufacturer.
. A unit to cut belt loop and other like materials to obtain a
point cut on both ends.
TES is also in the process of designing the following equipment which uses
TES's newly patented electronically gearing technology:
. A multi-head button hole machine.
. A multi-head button sewing machine.
. A felling machine.
. A single needle plain sewer.
TES incurred research and development expenses of $140,990, $192,364 and
$231,849, respectively in fiscal years 1994, 1995 and 1996 and has incurred
research and development expenses of $50,957 during the first six months of
fiscal year 1996.
With respect to the felling machine, TES entered into a Joint Development
Agreement with a denim clothing manufacturer to develop a felling machine
suitable for inseaming jeans using the TES computer controlled sewing mechanism.
Under the agreement, TES retains ownership of the technology, but granted the
manufacturer a nonexclusive, paid-up license to the jointly developed
technology. The manufacturer paid TES a fee of $300,000 to develop the
technology. In return, in addition to the license, it has the exclusive right
after production of the first sewing machine to purchase the resulting sewing
machines so long as it purchases a minimum of the lesser of TES's entire
production or 249 machines during each year. The cost of each machine is as
agreed to, but in no event in excess of $20,000 per machine. With respect to
machines sold to any other person, the manufacturer is entitled to receive a
royalty of 4% of the gross selling price until such time as it has received an
amount equal to the amount paid by it to develop the product plus interest at a
rate
24
<PAGE>
of 10% per annum. TES currently has a first generation prototype of the
felling machine in operation.
TES also has entered into a non-binding letter of agreement with Brother
Industries, Ltd. ("Brother") of Nagoya, Japan relating to a license of the
technology to be used with the electronically geared sewing machines which sets
out certain terms relating to a potential license. This license would also be
nonexclusive. The letter describes the financial terms of the license, the legal
terms of which are to be negotiated. In return for the nonexclusive license of
the technology, Brother will pay TES, for each class of industrial sewing
machines in which it uses the technology, an initial license fee of $250,000, a
2% royalty on the FOB value of shipments of such class and an additional license
fee of $250,000 if the cumulative FOB value of shipments of such classes reaches
$30,000,000. At such point as the technology has been applied to 12 classes and
TES has received license fees of $6,000,000, no further license fees will be
paid to TES. Negotiations of the final agreement are ongoing.
MARKET
- ------
TES's customers are primarily, but not exclusively, apparel manufacturers.
In addition to providing products used in apparel manufacturing, TES has
designed and built special equipment for Ford Motor Company, Lockheed Aerospace,
Camel Tent and Awning, and California Sail and Rigging as well as a number of
furniture manufacturers and medical supply companies. An example of special
equipment that TES has produced is an automated soccer ball inflater. These
types of sales make up approximately 1% of TES's revenues.
TES currently markets primarily to the apparel industry. It sells its
products and services directly to end users as well as by means of a dealer
network of approximately 125 dealers worldwide. In addition, TES advertises
monthly in one or more of the apparel industry's international trade magazines.
TES also regularly attends apparel industry trade shows as an exhibitor to
display its equipment and technology. TES exhibited at a trade show in Japan in
May 1996 and at the Bobbin Show in Atlanta in October 1996. It also plans to
exhibit at the IMB Show in Cologne, Germany in May 1997.
BACKLOG
- -------
TES estimates that its backlog orders believed to be firm as of March 31,
1996 and 1995 were $780,000 and $612,000 respectively. TES estimates that 98% of
its backlog on March 31, 1996 will be completed during the fiscal year which
will end on March 31, 1997.
COMPETITION
- -----------
Management believes that all of the large Japanese and most of the other
manufacturers of equipment for the apparel industry maintain research and
development departments which perform research along the same lines as TES. All
of these companies are much larger than TES and have much larger research and
development facilities. See "Risk Factors - Potential Adverse Effects of
25
<PAGE>
Competition." In addition, management estimates that there are four companies of
approximately the same size as TES that provide similar services and products.
TES's management is also aware of two companies in Europe which perform similar
services, but does not know the size of the companies.
Like TES, most of these competitors perform research and development at a
customer's request. TES has found that its competitors have designed products
similar to TES's Single Needle Belt Loop Machine, Ergonomic Stands and Pocket
Creasers to which extent there is direct competition with these TES products.
Generally, the market in this industry is targeted through advertising in trade
journals and attendance at trade shows such as the Bobbin Show. The principal
methods of competition, in addition to technology, are price, workmanship,
overall machine performance and service offered.
MANUFACTURING
- -------------
TES generally manufactures all prototype products which it develops
pursuant to service agreements and manufactures the already developed products
it offers. It also sometimes manufactures the final products under such
contracts for the customer. However, TES's general policy has been to outsource
manufacturing of components (such as nickel and chrome plating for the ergonomic
stands) which for various reasons create environmental hazards. So far TES has
found that it has generally been less expensive to outsource when the
environmental compliance costs are factored in. In the event that TES were no
longer able to outsource the manufacture of these components or products, it
would most likely change the finish. TES has no current plans or perceived need
to make any material capital expenditures for environmental control.
TES's facility has the machining capabilities of sawing, milling, welding,
brazing, sanding, surface grinding, drilling, tapping, threading, turning
(lathe), riveting, bending, heat treating and painting. TES maintains an
assembly department which consists of eight assembly stations, each with an
assortment of hand tools, electronic and air-driven power tools, vises, air
supply and electronic requirements. In addition, the assembly department has two
stations designated for the assembly of electronic circuit boards and
components. During manufacture and assembly and prior to shipment, each product
manufactured by TES goes through a series of quality checks.
TES maintains an in-house inventory of all parts it manufactures and
approximately 80% of the components supplied by outside vendors. Approximately
25% of components of TES products are vendor supplied. TES generally uses
components supplied by a number of different sources and is therefore not
predominantly dependant on one supplier of any component of any of its products.
In addition, with the exception of a few items such as P.L.C.'s (programmable
logic controller, i.e. mini computer), PC computers, electric motors and
electric switches (which are available from numerous suppliers), TES has the
capability of manufacturing the components used in its products. Raw materials
are also available from many suppliers.
26
<PAGE>
PROPERTY
- --------
Until September 30, 1996 when it was sold, TES owned a small retail
shopping facility (commonly known as a strip center) in Knoxville, Tennessee.
The land and building were valued at $755,000 on TES's balance sheet. The
property was sold for $825,000. The proceeds were primarily used to pay off bank
loans. TES uses approximately 20,000 square feet of the total 33,000 square feet
available at the strip center for its operations and under an oral agreement
with the buyer may remain in the space rent free until May 1997. After that
time, TES may continue to rent the space on a month to month basis at a rate to
be negotiated (which is expected to be in the vicinity of $4,000 per month). Of
that space, the manufacturing area consists of 18,000 square feet , 2,000 square
feet of which constitute research and development operations. The remaining
2,000 square feet houses the administrative offices.
TES also owns approximately 5.71 acres of undeveloped land approximately
one quarter mile from the existing facility. To meet anticipated growth needs,
TES plans to build a 55,000 square foot building consisting of 40,000 square
feet for manufacturing and assembly and 15,000 for research and development and
administrative offices on the land. TES has architectural drawings of the
proposed facility and, assuming sufficient capital is available, expects the
facility to be complete by September 1997. See "Risk Factors - Lack of Working
Capital." In the event that TES were unable to remain in its current space until
its new facility is built, management believes that there is adequate available
space in the Knoxville area and that this would not create a problem for TES.
TES has no unusual space requirements.
TES's machinery and equipment consists of saws, mills, welding and brazing
equipment, sanders, surface grinders, drill presses, tapping and threading
machines, lathes, riveting and binding equipment, heat treating ovens and
painting equipment, hand tools, electronic and air-driven power tools, vises,
air compressors and electronic testing equipment. TES's machinery and equipment
is valued at $560,000 on TES's balance sheet. Management believes replacement
costs would be closer to $1,000,000.
EMPLOYEES
- ---------
TES is a non-union shop with eighteen hourly employees. It also has eight
salaried employees. TES employees are machinists, welding specialists,
electronic specialists, assembly personnel, shipping and inventory personnel,
clerical workers, electronic and mechanical engineers and sales and service
personnel. Approximately 70% of TES's employees have been employees of TES for
at least ten years.
HISTORY
- -------
TES was founded by Richard E. Tice (William Tice's father) in 1964 as a
contract designer and manufacturer of specialized, pneumatically operated
garment sewing equipment. Richard Tice had entered the garment making industry
in 1916 as a 13 year old apparel factory worker and worked through the years as
a sewing machine mechanic and equipment innovator, obtaining his
27
<PAGE>
first patent in 1950. William A. Tice began working in his father's firm in the
1960's when he was a teenager. Upon his father's retirement in 1972, William
Tice began running the business and in 1973 incorporated as Tice Engineering and
Sales, Inc. Mr. Tice purchased the last of his father's shares in TES in 1979
and purchased shares held by his mother in 1995. William Tice obtained his first
patent in 1975.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following is management's discussion and analysis of TES's
financial condition and results of operations for the six month periods
ended September 30, 1996 and 1995 and the years ended March 31, 1996, 1995
and 1994.
ANALYSIS OF OPERATIONS
- ----------------------
Six Months Ended September 30, 1996 Compared to Six Months Ended September
- --------------------------------------------------------------------------
30, 1995.
- --------
Net sales revenue for the first six months of fiscal year 1996 (the "1996
Period") was $833,243 compared with $541,499 for the first six months of fiscal
year 1997 (the "1997 Period"). The 1996 Period included $218,061 (26% of sales)
of Label Loader/Folders, $187,577 (23% of sale revenue) in sales of Ergonomic
Stands, and $168,136 (20% of sales) of Automatic J-Tackers whereas the first six
months of 1997 did not contain comparable sales. Equipment such as the Label
Loader/Folders or Ergonomic Stands are sometimes ordered by an apparel
manufacturer in large quantities in one quarter to replace or update their
existing equipment within their budget period and such sales can easily affect
the total sales dollars of one period versus another. The six month period
constituted more than half (69%) of TES's revenues for fiscal year 1996. For the
1997 Period, net sales revenue primarily consisted of $294,467 (54% of sales) of
Label Loader/Folders and $80,390 (15% of sales) of Automatic J-Tackers. The
Label Loader/Folders are part of TES's regular product line on which it holds a
patent and are ordered periodically by its customers. TES typically does not
have sales equally divided throughout the year and the timing of large sales
vary from year to year. The remaining revenues from this period were generated
from sales of a mix of TES's other products (primarily Ergonomic Stands and
Single Needle Belt Loop Machines) and parts replacement sales.
Management believes that less than 5% of TES's products will become
obsolete in the near future. Most of TES's main products are patented providing
some protection from competitors. In addition, although management expects its
larger customers to purchase products containing the electronic gearing
technology instead of certain other TES products, management believes that many
of its smaller customers or customers located in third world countries will not
be able to afford the equipment using the new technology and will continue to
purchase traditional products. Management believes that the new electronic
gearing technology will only replace approximately 10% of its existing product
line in the near future. In addition, management believes that the decrease in
sales for the 1997 Period as compared to the period of the previous year was due
to the adverse effect of TES's development of the new electronic gearing
technology on sales of existing
28
<PAGE>
products. Some of TES's customers have indicated that they are holding orders
for traditional equipment anticipating a conversion to the new technology.
Specifically, certain customers have indicated that they may want to order the
Twin Needle Belt Loop Machine, the Off-the-Arm Lap Seam Felling Machine, the
Button Hole Machine and the Button Sewer incorporating the electronic gearing
technology. TES is currently testing production machines using the electronic
gearing technology and management believes that it can deliver production models
of the Twin Needle Belt Loop Machine in early spring of 1997.
Cost of sales for the 1996 Period amounted to $550,362 compared to $370,796
for the 1997 Period. Cost of sales reduced in proportion to the reduction of
gross sales between the two periods. Gross profit for the 1996 Period was
$282,881 as compared to $170,703 for the 1997 Period. This represents a
reduction of the gross profit margin from 33.9% for the 1996 Period to 31.5% for
the 1997 Period. Gross profit margin was higher in the 1996 Period due to the
number of sales of the Ergonomic Stand which have a lower direct labor cost than
the products produced during the 1997 Period. Direct labor in production and
assembly represented 7.4% of sales in the first six months of 1996 whereas
direct labor represented 10.7% of sales in the same period of fiscal year 1997.
Sales and service salaries were reduced by 38.3% for the 1997 Period as compared
to the 1996 Period because of the departure of a sales representative who was
not immediately replaced (but has now been replaced). In addition, TES did not
use the services of a consultant that it had used during the same period of the
prior year thereby reducing commission/consulting fees from $6,000 to $550. The
lower gross profit margin for the 1997 Period is also a direct reflection of the
indirect labor and overhead costs which were reduced only by 9% from the 1996
Period while sales were down by 35%.
Operating expenses (selling, general and administrative expenses) increased
from $158,708 for the 1996 Period to $205,785 for the 1997 Period. Operating
expenses as a percentage of revenues from sales increased significantly from 19%
to 38% for the first six months of fiscal year 1996 as compared to the same
period of fiscal year 1997. Although overall operating expenses decreased for
the 1997 Period, expenses relating to research and development in the 1996
Period were $110,529 which is more than double the expenses of $50,957 incurred
in the 1997 Period thereby reducing the percentage of expenses to sales for the
1997 Period.
Airplane and travel related expenses (including vehicle and meals)
decreased from $63,263 for the 1996 Period to $39,215 during the 1997 Period as
a result of TES's sale of the aircraft in the last half of fiscal year 1996. The
1997 Period airplane expenses were expenses incurred in chartering aircraft
after the sale of the airplane. Management found that, under certain
circumstances, it is less expensive to charter aircraft than to take a
commercial flight, especially when there are several people traveling, thereby
often saving hotel and other costs if a one-day trip is not possible using
commercial airlines.
The amount of patent expenses amortized in the 1997 Period increased to
$2,274 from $611 for the 1996 Period since TES was able to begin amortizing the
expenses incurred in obtaining the patent for the electronic gearing technology
in October 1995. Marketing expenses associated with the new electronic gearing
technology were incurred in the 1997 Period in the amount of $18,331
29
<PAGE>
(while no such expenses were incurred in the 1996 Period) and legal and
accounting expenses decreased from $25,751 during the 1996 Period to $3,740
during the 1997 Period. Indirect labor (payroll and benefit costs) increased
from $93,577 during the 1996 Period to $106,762 during the 1997 Period due to
the addition of key employees. Other tax expense increased from $10 in the first
six months of 1996 to $9,699 in the same period of fiscal year 1997 as a result
of taxes owed upon the sale of the shopping center in September of 1996.
Other income (expenses) reduced net income by $35,088 in the first six
months of 1996 and increased net income by $387,123 in the same period of 1997.
Other income for the 1996 Period included the $100,000 payment under the
contract with the denim clothing manufacturer which was offset by $110,529 in
research and development expenses related to the contract and development of the
electronic gearing technology. In 1997, TES spent $50,957 on research and
development for the same purposes but no additional funding was received from
the manufacturer. The 1997 Period included a gain on the sale of the strip
shopping center in the amount of $468,363. Historically, TES has received a
significant portion of other income as rental income from the strip shopping
center, $24,125 for the first six months of fiscal year 1996 and $28,200 for the
first six months of fiscal year 1997. TES also had interest expense of $48,867
and $58,483 for the first six months of 1996 and 1997, respectively. For future
periods, these items will change since on September 30, 1996, TES sold the
rental real estate and paid off a significant portion of its debt. Thus, it will
not receive future rental income and its interest expenses will be reduced.
The average amount of outstanding debt for the 1996 Period was $1,269,450
at an average interest rate of 9.75% while the average amount of outstanding
debt for the 1997 Period was $990,780 at the same average interest rate. The
amount of outstanding debt was reduced significantly on September 30, 1996 when
approximately$790,000 was paid to one of TES's lenders in satisfaction of
several loans.
TES had a net income of $89,085 in the first six months of fiscal 1996
compared with a net income before provision for income taxes of $352,041 in the
first six months of fiscal 1997. The major factor in the net greater income from
operations of $124,173 for the first six months of fiscal 1996 was the high
volume of sales of the Ergonomic Stands which was not repeated during the 1997
Period. The gain for the 1997 Period is primarily attributable to the sale of
the real estate on September 30, 1996. TES has a loss from operations of $35,082
for the first six months of the 1997 Period. After income taxes, TES's net
income was $64,141 and $306,798 for the 1996 and 1997 Periods respectively.
Year ended March 31, 1996 Compared with Years Ended March 31, 1995 and 1994
- ---------------------------------------------------------------------------
Net sales revenue for 1996 was $1,242,558 compared to $1,239,854 for 1995,
and $1,308,708 for 1994. In fiscal year 1996, sales of the Label Loader/Folders
constituted 17% of sales revenue. The sales were divided among three models -
14%, 1.6% and 1.14%. In fiscal year 1995, sales of Label Loader/Folders
represented 21% of sales revenue, divided between two models - 18.6% and 2.4%.
Sales of no other products represented 15% or more of sales revenue in either
year. In fiscal year 1994, a variety of products and parts replacements were
sold with sales of no
30
<PAGE>
one product constituting 15% or more of sales revenues. Revenues from
services such as providing seminars, on-site installation fees and non-
warranty equipment repair amounted to less than 1% of sales in each of the
periods listed.
Cost of sales have decreased in each succeeding year since 1994. Cost of
sales amounted to $808,161 in 1996, $867,702 in 1995 and $999,797 in 1994. Gross
profit margin was $434,397 for 1996 as compared to $372,152 for 1995 and
$308,911 for 1994. The gross profit margin improved in each of these years going
from 23.6% in 1994 to 30.1% in 1995 and 35% in 1996. This improvement was
largely due to the lower material costs which reduced in proportion to gross
sales, material costs also reduced due to the type of sales made since certain
products, such as Ergonomic Stands, contain less costly materials. In addition,
management has worked to consolidate material purchases to obtain better volume
discounts from suppliers. Another significant factor in the reduction of cost of
sales was the reduction in sales and services salaries in fiscal year 1996 due
to the loss of sales/service personnel late in the year who were not replaced
until the following year.
Operating expenses (selling, general and administrative) decreased from
$331,898 in 1994 to $307,594 in 1995 then increased to $379,687 in 1996.
Operating expenses were 25.4% of sales revenue in 1994 as compared to 24.8% of
sales revenue in 1995, and 30.6% of sales revenue in 1996. Additional operating
expenses related directly to research and development increased from $140,990 in
1994 to $192,364 in 1995 and $231,849 in 1996.
Airplane and travel related expenses increased from $45,101 in 1994 to
$58,361 in 1995 and $94,905 in 1996. The large increase in fiscal year 1996 was
due to $20,000 of expenses incurred due to mandatory aircraft maintenance as
regulated by the Federal Aviation Administration. An additional $8,000 was
incurred in 1996 due to travel by vehicle where a van was rented to take a
prototype Electronically Geared Sewing Machine to various customer locations to
introduce the equipment to the market. The company aircraft was then sold in
November 1995, but additional airplane expenses were incurred as aircraft was
chartered as needed to cover trips which would have otherwise required overnight
stays and other expenses which would have been incurred to travel via commercial
airlines.
The amount of patent expenses amortized increased from $72 in 1994 to
$4,042 in 1996 due to the ability to being amortizing expenses related to the
new Electronic Gearing Technology after its patent was issued in October 1995.
Legal and accounting expenses increased from $6,030 in 1994 to $8,300 in 1995
and to $41,500 in 1996. The increase was due to the expenses associated with
preparing the licenses for the new electronic gearing technology as well as
consultations with attorneys and accountants relating to this registration
statement. Indirect labor (payroll and benefit costs) amounted to $220,094 in
1994, $203,030 in 1995 and $256,499 in 1996. Payroll and benefit costs
represented 16.8% of sales in 1994, 16.4% of sales in 1995 and 20.6% of sales in
1996. Increase in payroll costs in 1996 was related to increases in clerical
support staff and engineering staff.
Other expenses amounted to $198,095 in 1994 as opposed to $99,811 in 1995
and $30,093 in 1996. Research and development expenses totaled $140,990 in 1994
and were associated with
31
<PAGE>
the development of the new electronic gearing technology. In 1995 research and
development expenses totaled $192,364, but were offset by the receipt of
$150,000 from a denim clothing manufacturer to develop a machine which uses the
electronic gearing technology. In 1996 research and development expenses totaled
$231,849 and were also offset by the receipt of $150,000 from the same denim
clothing manufacturer to continue development of the machine. Additional income
of $105,593 was realized in 1996 due to the sale of the company aircraft in
November 1995. Additional income of $7,275 received in 1996 was due to
commissions on outgoing freight.
Interest expense increased from $91,585 in 1994 to $111,772 in 1995 then
reduced to $110,863 in 1996. The average debt for fiscal year 1994 was
$1,112,700 at an average interest rate of 8.58% as compared to the average debt
for fiscal year 1995 which was $1,245,300 at an average interest rate of 9.27%,
and an average debt for fiscal year 1996 of $1,177,500 at an average interest
rate of 9.75%. The reduction in interest paid in 1996 was a direct result of the
reduction in debt which resulted from the sale of the company aircraft in
November 1995.
TES has a net loss before taxes of $221,082 in 1994 with a provision for
income tax benefit of $41,680 which resulted in a net loss of $179,402. The net
loss before taxes in 1995 amounted to $35,253 with a provision for income tax
benefit of $5,591 which resulted in a net loss of $29,662. Then in 1996 TES
showed a net income of $24,617 which when reduced by income taxes of $5,537
resulted in a net income of $19,080. After implementing a change in accounting
principal in 1994 which accounted for deferred income taxes due to past losses
the resulting income/losses for the three year period was a net loss in 1994 of
$109,483; a net loss in 1995 of $29,662; and net income in 1996 of $19,080. The
greater losses in 1994 were primarily due to the significant amount of funds
spent on research and development for the new electronic gearing technology
without receiving any developmental fees from outside sources. In 1995 the
receipt of $150,000 in development fees greatly helped to offset these
expenditures. Then in 1996 although research and development costs increased the
receipt of additional development fees, the income realized from the sale of the
aircraft, and the reduction in cost of sales and other operating expenses
resulted in an income for the year.
FUTURE OPERATIONS
Within the next year or two, TES must move from its existing facility. TES
plans to build a new facility on undeveloped property it owns to allow for
continued growth in personnel and product development. Management is currently
negotiating an arrangement in which a facility will be built to TES's
specifications on this property and expects that the property will be sold and
leased back to TES. The lease is expected to have a 15 year term and include an
option to purchase the facility.
TES has been developing products which provide technical solutions to
problems relating to the manufacturing processes of various companies, primarily
in the sewing industry, but also in other industries since the business began in
1964. Ninety-five percent of its customers are repeat customers. Much of its
product line is equipment which was produced for a particular customer to
address a problem. TES solves the problem for the customer but keeps the right
to market the
32
<PAGE>
resulting equipment and then sells the equipment to other customers with similar
situations. For example, the Label Loader/Folder was originally built at the
request of Levi Strauss, but has since been sold to numerous denim and work wear
manufacturers all over the world including Wrangler, Inc., Lee Company and
H.I.S. Company. Sale of the equipment is ongoing.
TES markets products such as the Label Loader/Folder through its dealer
network, direct sales and advertising (primarily in trade journals) and by
attendance at trade shows. Management believes that its traditional products
will continue to generate sales and that TES will continue to solve other
problems which may arise in the manufacturing process for its customers.
Management also believes that there is great demand for products which will
incorporate the electronic gearing technology and is designing various machines
using the new technology including a multi-head button hole machine, a multi-
head button sewing machine, a felling machine and a single needle plain sewer.
With the sale of the shopping center in September of 1996, TES was able to
significantly reduce its debt. In addition, as of the beginning of November, it
had a backlog of orders it believes to be firm of approximately $240,000 for
equipment using traditional technology and has had indications of interest for
additional orders of approximately $500,000 relating to products using the new
electronic gearing technology when production models are complete. Management
believes that the ongoing orders for traditional equipment will be sufficient to
allow TES to continue operations through the next year.
In addition to revenues which may be received from products containing the
new technology, management believes that TES will be able to license the
electronic gearing technology to sewing machine manufacturers, such as Brother
Industries, Ltd. (with which it has begun negotiations). The bulk of any fees
and royalties generated under any such licenses will be profit since TES is not
expected to incur any additional significant expenses in connection with the
licenses. This income would provide TES with additional working capital.
Management intends to use the funds to expand its operations so that it will be
able to fill the orders it believes it will receive for products using the new
technology as well as continuing to market its traditional product line. Initial
market reaction to the new technology has been favorable. In addition, it hopes
to use the funds for development of additional applications of the electronic
gearing technology thereby broadening its customer base.
At some point in the future, management may deem it advantageous for the
Issuer to pursue diversification or other goals through acquisition of
businesses which may or may not be in industries related to TES's current
business. The acquisitions may be funded through the use of the Issuer's
securities or through other means depending upon the situation at the time.
Management has not identified any particular targets nor does it expect to
pursue any acquisitions until it has had the opportunity to further develop
applications of the electronic gearing technology.
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
September 30, 1996 Compared to September 30, 1995
At September 30, 1995 the ratio of current assets to current liabilities
was 0.54 to 1 compared to 1.1 to 1 at September 30, 1996. The major reason for
this change was the retirement of short term debt upon the sale of the real
estate. Quick liquidity (current assets less inventories to current liabilities)
was 0.24 to 1 at September 30, 1995 and 0.54 to 1 at September 30, 1996. The
current and quick ratios both improved from September 30, 1995 to September 30,
1996 due to the repayment of current debt. The monthly average collection period
was 36 days in 1995 and 41 days in 1996.
In the period ended September 30, 1995, cash provided by operating
activities was $120,883 compared to $(180,776) for the period ended September
30, 1996. Cash used by investing activities in the period ended September 30,
1995 was $57,186 and for the period ended September 30, 1996 cash provided by
investing activities was $768,311. The sale of the land and building generating
$824,475 was the main reason for this change. Cash used in financing activities
in the period ended September 30, 1995 was $102,714 and for the period ended
September 30, 1996, cash used in financing activities was $492,890.
The ratio of debt to total capitalization was 0.88 to 1 at September 30,
1995 and 0.64 to 1 at September 30, 1996. Total expenditures for fixed assets
during the six months ended September 30, 1996 consisted of $5,070 for new
equipment. TES has no commitments for capital expenditures due to its present
lack of funds to fulfill any such commitments.
March 31, 1996 Compared with March 31, 1995
At March 31, 1996 the ratio of current assets to current liabilities was
1.03 to 1 compared with 0.53 to 1 at March 31, 1995. The major reason of the
change was the restructuring of the notes payable from short term to long term
debt. Quick liquidity (current assets less inventories to current liabilities)
was 0.29 to 1 at March 31, 1996 and 0.24 to 1 at March 31, 1995. The current
ratio and quick ratio both improved due to the restructuring of current debt.
The monthly average collection period was 41 days in 1996 and 36 days in 1995.
In the year ended March 31, 1995, cash used by operating activities was
$(142,966) compared to cash provided by operating activities in 1996 of $19,820.
Cash used by investing activities in 1995 was $36,714 and in 1996 cash provided
by investing activities was $220,730. The sale of the aircraft generating
$350,000 was the cause for this change. Cash provided from financing activities
in 1995 was $202,307 and cash usage from financing activities in 1996 was
$283,292.
The ratio of debt to total capitalization was 0.9 to 1 at March 31, 1996
and 0.92 to 1 at March 31, 1995. Total expenditures for fixed assets consisted
mainly of improvements to the buildings of $27,835 and $9,422 for new
equipment.
34
<PAGE>
TES borrowed $225,000 from SunTrust Bank, East Tennessee, N.A. pursuant to
a commercial note with a maturity date of August 30, 1997. The interest rate is
the lender's Base Rate plus 1% which is currently 9.25%. The note is payable in
eleven installments of $4,711.84 with a final payment of the remaining principal
and accrued interest due on the maturity date. As of October 31, 1996, TES owed
$219,021.67 under the note. The note is secured by a Deed of Trust on Lot #4 on
Tice Lane which is the undeveloped real estate on which TES intends to build its
new facility, an assignment of a life insurance policy on Mr. Tice and Mr.
Tice's personal guaranty. TES expects to use funds from operations including
license fees to repay the debt.
In addition, TES has a ninety-day note in the principal amount of $25,000
due and payable upon demand or if no demand is made on February 25, 1997 with
Commercial Bank. The note bears interest at a rate of 9.25% per annum and is
secured by a 1989 Mercedes 420.
TES also has borrowed funds from Mr. Tice. As of October 31, 1996, the
principal balance owed him was $52,784.67. All of the debt bears interest at the
rate of 10% per annum and is subordinate to other debts of TES unless written
notice is otherwise given. Payments totaling $100,000 have been made to Mr. Tice
on these notes in fiscal year 1997. The outstanding promissory notes are due and
payable as follows: $9,000 due December 26, 1996; $11,756 due December 27, 1996;
$5,953 due December 28, 1996; $2,076 due December 29, 1996; $1,000 due January
16, 1997; $3,000 due January 22, 1997; $2,000 due January 27, 1997; and $18,000
due January 28, 1997.
LEGAL PROCEEDINGS
-----------------
There are no material legal proceedings currently pending against TES
or the Issuer.
MANAGEMENT
----------
OFFICERS AND DIRECTORS OF THE ISSUER AND TES
- --------------------------------------------
<TABLE>
<CAPTION>
NAME POSITION WITH THE ISSUER /1/ POSITION WITH TES
- ---- ---------------------------- ------------------
<S> <C> <C>
William A. Tice President, Chairman of the President, Chairman of
Board, the
Director Board, Director
Karen Ann Walton Vice President, Secretary/ Vice President,
Treasurer, Director Secretary/
Treasurer, Director
Sarah Y. Sheppeard Director Director
M. Wayne Colvin Director Director
Billie Joe Clayton Director Director
</TABLE>
- -------------------------------------------------------------------------------
35
<PAGE>
(1) All persons listed were appointed to such positions in 1996.
Officers serve at the discretion of the Board of Directors. Directors hold
office until the next annual meeting of shareholders and until their successors
have been elected and accept office. Directors receive directors' fees of $300
per year.
William A. Tice, age 52, has been President, Chairman of the Board and a
director of TES since 1972 when he purchased the business from his father. Mr.
Tice received an associate degree in Accounting and Business Administration from
Knoxville Business College in 1974.
Karen Ann Walton, age 36, has been Secretary and a director of TES since
1983, Treasurer from December 1983 to June 1986 and since July 1996 and an
employee since 1978. She became General Manager and a Vice President in 1988.
From June 1992 to March 1993, she also worked for Kimberly-Clark Corp assisting
in relocating their accounts receivable department from Neenah, Wisconsin to
Knoxville. Ms. Walton became a Licensed Public Accountant in 1989, but due to
her employment with a single company has ceased maintaining the license. She
received an Associates Degrees in Accounting and Computer Programming from
Draughon's Junior College in Knoxville, Tennessee in 1986.
Sarah Y. Sheppeard, age 41, has been a director of TES since 1995. She is
currently a partner with the Knoxville law firm of Sheppeard & Swanson and has
held such position since April 1994. Prior to forming her current firm, she was
a partner with the Knoxville law firm of Sheppeard and Susano from 1989 to 1994.
Prior to that, she was a sole practitioner since leaving Lockridge & Becker,
P.C. in 1985. She received her J.D. from the University of Tennessee College of
Law in 1979 and a B.S. also from the University of Tennessee in 1976.
M. Wayne Colvin, age 59, recently became a director of TES and the Issuer.
Mr. Colvin is currently the President and an owner of Col-Byn Enterprises, Inc.
which has provided consulting services and acted as a manufacturer's
representative in the sewn products industry since 1992. Prior to that from 1964
to 1992, Mr. Colvin worked for Levi Strauss & Co. and held various positions
including plant engineering area engineer, Director of Engineering and Vice
President of Manufacturing, Menswear Division. Prior to working for Levi
Strauss, he was engineering and plant manager for Blue Bell, Inc. (Wrangler) in
Greensboro, North Carolina.
Billie Joe Clayton, age 60, recently became a director of TES and the
Issuer. Mr. Clayton is currently the chief executive officer of Clayton Motors,
Inc. and affiliated companies and has held such position since 1961. He is also
a director and Vice Chairman of the Board of Clayton Homes, Inc. since 1985. He
is a Regional Director for First Tennessee Bank.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the President (the Chief
Executive Officer) for the fiscal years ending March 31, 1996, 1995 and 1994.
The Issuer has not paid any compensation.
36
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation
-----------------------------------------
Name and Other Annual
Principal Position Year Salary($) Bonus($) Compensation($)/1/
- ------------------ ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
William A. Tice, President, 1996 75,000 -0- 29,600
Chief Executive Officer 1995 68,500 -0- 17,218
1994 100,000 -0- 12,978
</TABLE>
- ------------------------------------------------------------------------------
(1) Other annual compensation includes life insurance premiums on split dollar
(for 1996, $17,780), regular life insurance (for 1996, $9,695; for 1995,
$15,770; and for 1994, $11,025), and health insurance premiums (for 1996,
$2,125; for 1995, $1,448; and for 1994, $1,953). TES provides Mr. Tice with
the use of a 1989 Mercedes 420 SEL; he pays the expenses of operation. Mr.
Tice also received interest on certain notes reflecting funds loaned to
TES. See "Management - Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
For all years referenced in the Summary Compensation Table, the two
shareholders of TES, Bill Tice and Daisy Tice (his mother who was a director and
shareholder of TES until her retirement in August 1995), determined executive
compensation.
CERTAIN TRANSACTIONS
Management believes that all of the transactions listed below are at least
as fair as a similar transaction with an unaffiliated third party would have
been.
During the last three years, Mr. Tice has loaned TES money on which debt he
had received interest at a rate of 10% per annum. For fiscal years ending March
31, 1994, 1995 and 1996, he received interest totaling $12,859, $15, 327 and
$11,628, respectively. See "Capitalization."
TES invested $1,245.25 in gold and silver certificates which subsequently
declined in value by approximately $200. Mr. Tice purchased the certificates at
the purchase price of $1,245.25 to avoid future losses by TES.
Mr. Colvin has acted as a manufacturer's representative and provided
consulting services to TES. The consulting services involve providing general
information about the sale of products. He receives as compensation commissions
on sales of equipment made by him. The commission rate is approximately two-
thirds of the rate paid to other dealers. It is expected that he will continue
to provide services to TES from time to time.
Ms. Sheppeard is corporate counsel for the Issuer and TES and provides
legal services to Mr. Tice from time to time.
37
<PAGE>
Mr. Clayton loaned TES $130,000 at an interest rate of 10% per annum
and is entitled to convert such debt into Common Shares of the Issuer at a
rate of $3.00 per share.
PRINCIPAL AND SELLING SHAREHOLDERS
MANAGEMENT AND 5% OR GREATER SHAREHOLDERS
The following table sets forth information with respect to ownership
of issued and outstanding stock and warrants of the Issuer by management
and 5% or greater shareholders as of the date hereof:
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Shares Sale (2)
- ---------------- --------------- ----------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
William A. Tice (3) Common Shares 5,211,750 89% 1,302,937 67% (4)
7610 Breckenridge Lane Class B Common Shares 750,000 100% -0-
Knoxville, TN
Billie Joe Clayton (5) Common Shares 44,990 1% 44,990 0% (4)
817 Laurel Hill Road Class B Common Shares -0- 0% -0-
Knoxville, TN
Karen Ann Walton (6) Common Shares 15,000 * 15,000 0% (4)
7633 Breckenridge Lane Class B Common Shares -0- 0% -0-
Knoxville, TN
Total number of shares Common Shares 5,271,740 90% 1,362,927 67% (4)
owned by directors and Class B Common Shares 750,000 100% -0-
executive officers as a
group
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Less than 1%
(1) These figures do not include Common Shares which may be issued upon
the exercise of the Warrants, but do include Common Shares which may be
issued upon exercise of employee options. See "Securities."
(2) This is the percent of class of the Shares held by Selling
Shareholders assuming all Shares offered are sold, all employee options
are exercised and no Warrants are exercised.
(3) Mr. Tice is President, Chairman of the Board and a director of the
Issuer and TES. See "Management." Mr. Tice's son Chris, who is an
employee of TES, has options to purchase up to 10,000 Common Shares upon
the same terms and conditions as the other employees. See "Securities."
These shares are not included in the numbers listed opposite Mr. Tice's
38
<PAGE>
name. In addition, Mr. Tice intends to give a total of 65,000 of his
Shares to his brother, sister, a son (not employed by TES) and a daughter
either outright or in trust.
(4) No Class B Common Shares will be registered or available for public
sale by Selling Shareholders.
(5) Mr. Clayton became a director of the Issuer and TES in 1996. These
are the Common Shares that Mr. Clayton will receive if he converts all
eligible debt to equity. See "Management - Certain Transactions."
(6) Ms. Walton is Vice President, Secretary/Treasurer and a director of
the Issuer and TES. See "Management." The shares listed are shares which
Ms. Walton is entitled to receive if she exercises options she received as
an employee of TES. The terms and conditions of the options are the same
as for other employees who hold options. See "Securities."
OTHER SELLING SHAREHOLDERS
- --------------------------
The following table sets forth information with respect to ownership of the
Issuer by Selling Shareholders (including employees who hold options to acquire
Shares registered for resale hereunder) who are not part of management and hold
less than 5% of the issued and outstanding shares of any class as of the date
hereof. No person listed below owns any Class B Common Shares.
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Shares Sale (2)
- ---------------------- -------------- ---------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Joseph Walker & Sons Common Shares 238,470 4% 238,470 0%
88 Walker Creek Road
Walker, WV
John Garret Common Shares 19,284 * 19,284 0%
3518 Crown Point Road
Louisville, TN
Sam Baird (1) Common Shares 10,000 * 10,000 0%
7713 Windsong Drive
Powell, TN
Greg Cunningham (1) Common Shares 10,000 * 10,000 0%
6107 E. Emory Road
Knoxville, TN
Chris Tice (1) Common Shares 10,000 * 10,000 0%
321 Old Dandridge Pike
Knoxville, TN
Fred Pickell Common Shares 6,994 * 6,994 0%
700 Hill Avenue
Knoxville, TN
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Shares Sale (2)
- ---------------------- -------------- ---------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
BHD Creations Common Shares 6,936 * 6,936 0%
P. O. Box 2832
Murfreesboro, TN
Gary Koontz Common Shares 6,865 * 6,865 0%
108 Hillcrest Avenue
Knoxville, TN
John B. Burchill (2) Common Shares 3,991 * 3,991 0%
6433 Downridge Road
Knoxville, TN
Scott Brenneman (1) Common Shares 3,000 * 3,000 0%
509 Hardwick Drive
Knoxville, TN
Randy Curington (1) Common Shares 2,000 * 2,000 0%
P. O. Box 91
Corryton, TN
Rory Karnes (1) Common Shares 2,000 * 2,000 0%
7710 Karnes Road
Corryton, TN
Larry Stipes (1) Common Shares 2,000 * 2,000 0%
7505 John Road
Corryton, TN
Roddy Creswell (1) Common Shares 250 * 250
1224 Woodberry Drive
Knoxville, TN
- -------------------------------------------------------------------------------------------------
</TABLE>
*less than 1%
(1) The Shares listed are shares which may be received if employee options
held by such persons are exercised. See "Securities."
(2) Of the Shares listed, 500 are Shares which Mr. Burchill may receive if
he exercises options he received as an employee of TES. See "Securities."
Joseph Walker and Sons, Inc. ("JWSI") performed certain consulting
services for TES and the Issuer in partial consideration of which it
received warrants of TES which it exchanged for 238,470 Common Shares
which constitute approximately 4% of the total issued and outstanding
Common Shares. (By agreement with TES, JWSI converted all Class B Common
Shares it was entitled to receive under its warrants to Common Shares.)
40
<PAGE>
SECURITIES
----------
DESCRIPTION OF CAPITAL STOCK
- ----------------------------
COMMON SHARES. The Issuer is authorized to issue 30,000,000 Common Shares,
par value $.01 per share, of which 5,838,780 shares were issued and outstanding
as of the date of this Prospectus. There will be approximately 1,200 holders of
the issued and outstanding Common Shares after the Distribution. However,
William A. Tice currently owns 89% of the issued and outstanding Common Shares
and together with his ownership of 100% of the Class B Common Shares controls
the Issuer. See "Risk Factors - Continued Control by Holder of Class B Common
Shares." See "Principal and Selling Shareholders." The holders of Common Shares
of the Issuer are entitled to one vote per share on all entitled matters
including the election of directors and do not have cumulative voting rights.
With respect to the election of directors, holders of Common Shares (together
with holders of Class D Common Shares and of any Preferred Shares with voting
rights) voting as a separate class are entitled to elect 25% of the members of
the Board of Directors of the Issuer. Holders of Class B Common Shares are
entitled to elect the remaining directors. See "Risk Factors - Control By
Holders of Class B Common Shares." Notwithstanding the foregoing, if, on the
record date for any shareholders' meeting at which directors are to be elected,
the number of issued and outstanding Common Shares, Class D Common Shares and
voting Preferred Shares is less than 10% of the aggregate number of issued and
outstanding voting shares of all classes, all directors will be elected by the
holders of all voting shares voting together.
The holders of Common Shares have a noncumulative $.05 per share annual
dividend preference over non-stock dividends paid on Class B Common Shares
(described below) from funds legally available for dividends when, as and if
declared by the Board of Directors of the Issuer. See "Risk Factors - No
Dividends." In addition, holders of Class B Common Shares may not receive any
dividends unless holders of Common Shares receive a dividend per share at least
equal to the dividend per share paid to holders of Class B Common Shares. Stock
dividends may only be paid to holders of Common Shares in Common Shares and only
if the same number of Class B Common Shares will be paid with respect to each
outstanding Class B Common Share. The payment of dividends may also be subject
to preferential or identical rights, if any, of the holders of other outstanding
securities. See "Risk Factors - Possible Adverse Effects of Issuance of
Preferred Stock." Common Shares or Class B Common Shares may not be combined or
subdivided without at the same time making a proportionate combination or
subdivision of the shares of the other of such classes.
Holders of Common Shares are also entitled to share ratably in all of the
assets of the Issuer available for distribution to holders of common shares
(including Class B Common Shares and Class D Common Shares) upon liquidation,
dissolution or winding up of the affairs of the Issuer subject to the preference
of holders of Common Shares, but only to the extent of the par value of such
Common Shares, and subject to any preferential rights of the holders of any
other outstanding securities. See "Risk Factors - Possible Adverse Effects of
Issuance of Preferred Stock." Common
41
<PAGE>
Shares do not have preemptive, subscription or conversion rights and are not
subject to call or redemption (there are no applicable sinking fund provisions).
All Common Shares now outstanding are fully paid and nonassessable.
CLASS B COMMON SHARES. In addition to Common Shares, the Issuer is
authorized to issue 5,000,000 Class B Common Shares, $.01 par value per share,
of which 750,000 shares were issued and outstanding as of the date hereof. See
"Principal and Selling Shareholders." There is one holder of Class B Common
Shares, William A. Tice. Holders of Class B Common Shares have the right to one
noncumulative vote per share on all matters on which they are entitled to vote.
For the election of directors, the holders of a majority of Class B Common
Shares are entitled to elect 75% of the members of the Board of Directors. If,
on the record date for any shareholders' meeting at which directors are to be
elected, the number of issued and outstanding Common Shares, Class D Common
Shares and voting Preferred Shares is less than 10% of the aggregate number of
issued and outstanding voting shares of all classes, all directors will be
elected by the holders of all voting shares voting together. If more than 90% of
the aggregate number of issued and outstanding Common Shares, Class B Common
Shares, Class D Common Shares and voting Preferred Shares are Class B Common
Shares, the holders of a majority of Class B Common Shares will in practice be
able to elect all of the members of the Board of Directors. See "Risk Factors -
Control By Holder of Class B Common Shares."
Holders of Class B Common Shares are entitled to receive dividends when, as
and if declared subject to a non-cumulative $.05 per share annual dividend
preference on each Common Share. See "Risk Factors - No Dividends." In addition,
holders of Class B Common Shares may not receive any dividend unless holders of
Common Shares receive a dividend per share at least equal to the dividend per
share paid to holders of Class B Common Shares. Stock dividends may only be paid
to holders of Class B Common Shares in Class B Common Shares and may only be
paid in shares at all if the same number of Common Shares will be paid with
respect to each outstanding Common Share. The payment of dividends may also be
subject to preferential or identical rights, if any, of the holders of other
outstanding securities. See "Risk Factors - Possible Adverse Effects of Issuance
of Preferred Stock."
Holders of Class B Common Shares are also entitled to share ratably in all
of the assets of the Issuer available for distribution to holders of common
shares (including Common Shares and Class D Common Shares) upon liquidation,
dissolution or winding up of the affairs of the Issuer, subject to the
preference of holders of Common Shares, but only to the extent of the par value
of such Common Shares, and subject to any preferential rights of other
shareholders. See "Risk Factors - Possible Adverse Effects of Issuance of
Preferred Stock." Holders of Class B Common Shares have preemptive rights only
as to Class B Common Shares. Class B Common Shares are not subject to call or
redemption (there are no applicable sinking fund provisions). All Class B Common
Shares now outstanding are fully paid and nonassessable.
42
<PAGE>
In addition, the Board of Directors must seek the approval of a majority of
the holders of Class B Common Shares to grant rights to subscribe for, purchase
or issue shares of authorized and unissued Class B Common Shares. Common Shares
or Class B Common Shares may not be combined or subdivided without at the same
time making a proportionate combination or subdivision of the shares of the
other of such classes. Each share may also be converted into one Common Share at
any time at the option of the holder.
At this time, 100% of the issued and outstanding Class B Common Shares are
owned by William A. Tice. See "Principal and Selling Shareholders." The holders
of Class B Common Shares elect 75% of the directors and therefore Mr. Tice
controls the Issuer. In addition, Mr. Tice held 89% of the issued and
outstanding Common Shares by which ownership he controls decisions by holders of
Common Shares as well. See "Risk Factors - Continued Control By Holder of Class
B Common Shares."
CLASS D COMMON SHARES. Class D Common Shares are a convertible security
created in order to secure highly motivated executive personnel for the Issuer
and its subsidiaries and take the place of compensation stock options, although
the Issuer remains authorized to issue stock options. There are 600,000 Class D
Common Shares authorized at $.01 par value per share. Class D Common Shares are
identical to Common Shares and have equal rights and privileges with Common
Shares except as described below. Class D Common Shares are nontransferable. The
Board of Directors, by resolution, may authorize the issuance of Class D Common
Shares; provided that, each such resolution contains a formula under which the
shares may be converted to Common Shares. In no case may the Board of Directors
set any conversion rights which could result in the issuance of more than ten
Common Shares for each Class D Common Share. At the close of business on the
fifth anniversary of the date of a resolution authorizing the issuance of any
Class D Common Shares, such issued and outstanding but unconverted shares will
be deemed to have been converted at the rate of one Common Share for each such
Class D Common Share. There are no issued and outstanding Class D Common Shares
as of the date of this Prospectus.
PREFERRED SHARES. The Board of Directors of the Issuer, by resolution, has
the authority to issue, in one or more series, up to 10,000,000 Preferred
Shares. Such unissued shares will have such preferences, rights and limitations
as are established by the Board of Directors except that the voting rights, if
any, of one Preferred Share may not exceed the voting rights of one Common
Share. See "Risk Factors - Possible Adverse Effects of Issuance of Preferred
Stock." There are no issued and outstanding Preferred Shares as of the date of
this Prospectus.
COMMON STOCK PURCHASE WARRANTS. The Issuer has issued and outstanding
1,000,000 Common Stock Purchase Warrants, each Warrant entitling the holder to
purchase one Common Share of the Issuer. The Warrants may be exercised at any
time during the 24 month period beginning on the date of this Prospectus at an
exercise price of $8.00 per share, subject to adjustment, by surrendering the
Warrant to the Warrant Agent with the subscription properly completed and
executed with payment of the exercise price. See "Risk Factors - Arbitrary
Exercise
43
<PAGE>
Price." No fractional Common Shares will be issued in connection with the
exercise of Warrants. The Issuer has no right to call the Warrants.
If a holder of Warrants fails to exercise the Warrants prior to their
expiration, the Warrants will expire and the holder will have no further rights
with respect to the Warrants. If a market for the Warrants develops, the holder
may sell the Warrants instead of exercising them. There can be no assurance that
a market for the Warrants will develop or continue. See "Risk Factors - No
Assurance of Trading Market." If the Issuer is unable to qualify for sale the
Common Shares underlying the Warrants (or the shares are exempt from
qualification) in the states in which the various holders of the Warrants then
reside, holder of the Warrants may have no choice but to let the Warrants
expire. See "Risk Factors - Possible Inability to Exercise Warrants in Certain
States."
A holder of Warrants will not have any rights or privileges of a
shareholder of the Issuer prior to exercise of such Warrants. The Issuer will
keep available a sufficient number of authorized Common Shares to permit
exercise of the Warrants. The exercise price of the Warrants and the number of
shares issuable upon exercise of the Warrants will be subject to adjustment in
the event of stock dividends, stock splits, combinations, reorganizations,
subdivisions and reclassifications. No assurance can be given that the market
price of the Issuer's Common Shares will exceed the exercise price at any time
during the term of the Warrants.
The Warrants were issued pursuant to a Warrant Agreement between the Issuer
and Mid-America Bank of Louisville and Trust Company (the "Warrant Agent"). All
descriptions of the Warrants are qualified in their entirety by reference to the
Warrant Agreement which is included as an exhibit to the Registration Statement
of which this Prospectus is a part.
EMPLOYEE STOCK OPTIONS. The Issuer granted options to purchase 54,750
Common Shares to ten of the employees of TES as of the date of this Prospectus.
The options may be exercised at any time during the 24-month period after
issuance at an exercise price of $1.00 per share. The options are "nonqualified"
options and the employees will have compensation income upon the exercise of the
options to the extent of the difference between the exercise price and the fair
market value of the Common Shares. The options are nontransferable except upon
the employee's death. A holder of the options will not have any rights or
privileges of a shareholder of the Issuer prior to exercise of the options.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
- -------------------------------------------
The transfer agent and registrar for the Common Shares and the Warrant
Agent is Mid-America Bank of Louisville and Trust Company, P.O. Box 1101,
Louisville, Kentucky 40201-1101.
44
<PAGE>
DIVIDENDS
---------
The Issuer has not paid any dividends. In addition, TES historically has
not paid dividends. It is expected that the capital requirements of TES will
prevent payment of dividends in the near future. There is no guarantee that TES,
and therefore the Issuer, will pay dividends in the future. See "Risk Factors -
No Dividends" and "Possible Adverse Effects of Issuance of Preferred
Stock."
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS
----------------------
Officers and directors of the Issuer are covered by certain provisions of
the Delaware General Corporation Law and the Certificate of Incorporation and
Bylaws of the Issuer, which serve to limit, and, in certain instances, to
indemnify them against, certain liabilities which they may incur in such
capacities.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
- -------------------------------------------------
Delaware has enacted legislation which authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
shareholders for monetary damages for breach of a director's fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations authorized by
the legislation, directors are accountable to corporations and their
shareholders for monetary damages for conduct constituting negligence or gross
negligence in the exercise of their duty of care. Although the statute does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission by including
certain provisions in its Certificate of Incorporation.
The Issuer's Certificate of Incorporation limits the liability of its
directors to the Issuer or its shareholders (in their capacity as directors, but
not in their capacity as officers) to the fullest extent permitted by the
legislation. Specifically, the directors of the Issuer will not be personally
liable for monetary damages for breach of director's fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Issuer or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit.
INDEMNIFICATION
- ---------------
The Issuer's Certificate of Incorporation provides that the Issuer
indemnify any and all of its directors or officers or former directors or
officers or any person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital stock or of
which
45
<PAGE>
it is a creditor against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they, or
any of them, are made parties, or a party, by reason of being or having been
directors or officers of the Issuer, or of such other corporation, except in
relation to matters as to which any such director or officer or former director
or officer or person shall be adjudged in such action, suit or proceeding to be
liable for negligence or misconduct in the performance of duty.
In addition, Section 7.1(a) of the Issuer's Bylaws provides that the Issuer
must indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Issuer) by reason of the fact that such person is or
was a director, officer, employee or agent of the Issuer, or is or was serving
at the request of the Issuer as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Issuer, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe the conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Issuer, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that this conduct was unlawful.
Section 7.1(b) of the Issuer's Bylaws provides that the Issuer must
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Issuer to procure a judgment in its favor by reason of the fact that such person
is or was a director, officer, employee or agent of the Issuer or is or was
serving at the request of the Issuer as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if such person acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the Issuer, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Issuer unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
Section 7.1(d) of the Issuer's Bylaws provides that any indemnification
under Sections 7.1(a) and (b) (unless ordered by a court) shall be made by the
Issuer only as authorized in the specific case
46
<PAGE>
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because such person has met the applicable
standard of conduct. Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
shareholders of the Issuer. To the extent, however, that a director, officer,
employee or agent of the Issuer has been successful on the merits or otherwise
in defense of any action, suit or proceeding described above, or in the defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred in
connection therewith, without the necessity of authorization in the specific
case under Section 7.1(c).
Under Section 7.1(e), expenses incurred by a director, officer, employee or
agent of the Issuer in defending or investigating a threatened or pending
action, suit or proceeding may be paid by the Issuer in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director, officer, employee or agent to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the Issuer.
The indemnification and advancement of expenses provided by or granted
pursuant to the Issuer's Bylaws are not exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any Bylaw, agreement, contract, vote of shareholders or disinterested directors
or otherwise, both as to action in official capacity and as to action in another
capacity while holding such office, it being the Issuer's policy that
indemnification of the persons specified in the Bylaws shall be made to the
fullest extent permitted by law. The indemnification and advancement of expenses
provided by, or granted pursuant to the Issuer's Bylaws shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Issuer pursuant
to the foregoing provisions, the Issuer has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is therefore unenforceable.
LEGAL MATTERS
-------------
The Issuer has been advised with respect to certain legal aspects of the
offering by Ogden Newell & Welch, 1200 One Riverfront Plaza, Louisville,
Kentucky 40202.
47
<PAGE>
EXPERTS
-------
The financial statements of TES at March 31, 1996, 1995 and 1994, and for
each of the years in the three year period ended March 31, 1996, appearing in
this Prospectus have been audited by Boring & Goins, P.C., Certified Public
Accountants, 107 Main Avenue, P. O. Box 2850, Knoxville, Tennessee 37901, as set
forth in its reports thereon appearing elsewhere herein. The financial
statements are included in reliance upon such report given upon the authority of
such firm as an expert in accounting and auditing.
48
<PAGE>
FINANCIAL STATEMENTS
TABLE OF CONTENTS
TICE ENGINEERING AND SALES, INC.
Six Months Ended September 30, 1996 and 1995
Years Ended March 31, 1996, 1995 and 1994
TICE TECHNOLOGY, INC.
September 30, 1996
<TABLE>
<CAPTION>
TICE ENGINEERING AND SALES, INC. PAGE
----
<S> <C>
Unaudited Balance Sheets - September 30, 1996 and 1995 49
Unaudited Statements of Income and Retained Earnings - For the Six
Months Ended September 30, 1996 and 1995 51
Unaudited Statements of Cash Flows - For the Six Months Ended
September 30, 1996 and 1995 52
Unaudited Notes to Financial Statements (September 30, 1996) 53
Schedules 60
Independent Auditor's Report - May 23, 1996 63
Balance Sheet - March 31, 1996 64
Statement of Income and Retained Earnings - For the Year Ended
March 31, 1996 66
Statement of Cash Flows - For the Year Ended March 31, 1996 67
Notes to Financial Statements - March 31, 1996 68
Independent Auditor's Report - Supplemental Information 74
Schedules 75
Independent Auditor's Report - June 1, 1995 78
Balance Sheet - March 31, 1995 79
Statement of Income and Retained Earnings - For the Year Ended
March 31, 1995 81
Statement of Cash Flows - For the Year Ended March 31, 1995 82
Notes to Financial Statements - March 31, 1995 83
Independent Auditor's Report - Supplemental Information 88
Schedules 89
Independent Auditor's Report - May 20, 1994 92
Balance Sheet - March 31, 1994 93
Statement of Income and Retained Earnings - For the Year Ended
March 31, 1994 95
Statement of Cash Flows - For the Year Ended March 31, 1994 96
Notes to Financial Statements - March 31, 1994 97
Independent Auditor's Report - Supplemental Information 102
Schedules 103
TICE TECHNOLOGY, INC.
Pro Forma Balance Sheets Assuming Acquisition 106
Independent Auditor's Report - November 15, 1996 108
Balance Sheet - September 30, 1996 109
Notes to Financial Statements - September 30, 1996 110
</TABLE>
49
<PAGE>
TICE ENGINEERING AND SALES, INC.
UNAUDITED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,547 $ 97,467
Accounts receivable
Trade 199,780 131,944
Employee 14,044 15,685
Prepaid expenses 37,112 26,898
Inventory 337,236 465,573
Due from related company 4,859 96,277
Deferred income tax benefit ---- 66,411
---------- ----------
Total current assets 599,578 900,255
Fixed assets:
Land 305,000 130,000
Building and improvements 430,050 ----
Equipment 560,547 516,195
Vehicles 450,859 124,599
---------- ----------
1,746,456 770,794
Less accumulated depreciation (934,529) (581,417)
---------- ----------
Net fixed assets 811,927 189,377
Other assets:
Deferred income tax benefit 92,246 ----
Utility deposit 890 890
Cash surrender value - officer's life ---- 14,250
Investments 1,245 ----
Patent, net of accumulated amortization 72,517 115,585
Note receivable - split dollar life insurance ---- 42,672
---------- ----------
Total other assets 166,898 173,397
---------- ----------
$1,578,403 $1,263,029
========== ==========
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
1995 1996
---------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - officer $ 101,199 $ 62,209
Accounts payable 143,777 238,173
Payroll and payroll taxes payable 3,279 2,592
Franchise tax payable -- 2,647
Notes payable 815,000 --
Current maturities of long-term debt 43,492 505,187
---------- ----------
Total current liabilities 1,106,747 810,808
Long-term debt, less current maturities 281,172 --
Stockholders' equity:
Capital stock, no stated
value, 2,000 shares authorized,
750 shares issued and outstanding 8,634 8,634
30 stock warrants outstanding 4,859 4,859
Retained earnings 176,991 438,728
---------- ----------
Total stockholders' equity 190,484 452,221
---------- ----------
$1,578,403 $1,263,029
========== ==========
</TABLE>
See accompanying notes.
51
<PAGE>
TICE ENGINEERING AND SALES, INC.
UNAUDITED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues
Sales $ 830,797 $540,105
Service 2,446 1,394
--------- --------
Total revenues 833,243 541,499
Cost of sales 550,362 370,796
--------- --------
Gross margin 282,881 170,703
Expenses 158,708 205,785
--------- --------
Income (loss) from operations 124,173 (35,082)
Other income (expense):
Gain on sale of fixed assets -- 468,363
Development fees 100,000 --
Rental income 24,125 28,200
Interest income 175 --
Other income 8 --
Research and development (110,529) (50,957)
Interest expense (48,867) (58,483)
--------- --------
Total other income (expense) (35,088) 387,123
--------- --------
Net income (loss) before
provision for income taxes 89,085 352,041
Provision for income tax (24,944) (45,243)
--------- --------
Net income (loss) 64,141 306,798
Retained earnings, beginning of period 112,850 131,930
--------- --------
Retained earnings, end of period $ 176,991 $438,728
========= ========
</TABLE>
See accompanying notes.
52
<PAGE>
TICE ENGINEERING AND SALES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 64,141 $ 306,798
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 24,820 24,466
Gain on sale of fixed assets -- (468,363)
Changes in operating assets and
liabilities:
Increase in receivable (7,841) (12,567)
Increase in inventories (9,941) (576)
(Increase) decrease in prepaid expenses (9,854) 1,393
Increase in amount due from related company -- (91,418)
Decrease in deferred income tax benefit 24,944 45,243
Increase in accounts payable 38,236 43,853
Decrease in accrued expenses (3,622) --
Decrease in payroll and payroll taxes payable -- (4,605)
Decrease in customer deposits -- (25,000)
--------- -----------
Net cash provided by (used in) operating activities 120,883 (180,776)
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets -- 824,475
Purchase of fixed assets (19,438) (5,070)
Increase in accounts receivable -
split dollar life insurance --- (24,892)
Increase in patent costs (37,748) (26,202)
--------- -----------
Net cash (used by) provided by investing activities (57,186) 768,311
FINANCING ACTIVITIES:
Proceeds from short term borrowings -- 205,000
Proceeds from refinancing of long term debt -- 700,000
Principal payments on notes payable (81,509) (1,397,890)
Principal payments on long term debt (21,205) ---
--------- -----------
Net cash used in financing activities (102,714) (492,890)
--------- -----------
Net (decrease) increase in cash (39,017) 94,645
Cash balance, beginning of period 45,564 2,822
--------- -----------
Cash balance, end of period $ 6,547 $ 97,467
========= ===========
</TABLE>
See accompanying notes.
53
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company designs and manufactures robotic and pneumatic industrial sewing
machine attachments.
TRADE ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined using
the first-in, first-out method.
Inventories at September 30, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Raw materials $290,055 $426,926
Work in progress 668 5,358
Finished goods 46,513 33,289
-------- --------
$337,236 $465,573
======== ========
</TABLE>
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash and/or cash equivalents.
Supplemental disclosures of cash flow information:
Cash paid during the period for:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Interest $ 48,867 $ 58,483
Taxes 10 9,699
</TABLE>
54
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method and accelerated methods over the estimated useful
lives of the assets. Significant improvements are capitalized while
maintenance and repairs are expensed as incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due and deferred taxes
related primarily to the basis of inventory for financial and income tax
reporting. The deferred tax assets represent the future tax return consequences
of those differences. Deferred tax assets also are recognized for operating
losses that are available to offset future taxable income.
PATENTS
Certain legal, consulting fees and other direct expenses incurred in order to
obtain patents on company designed and manufactured parts have been capitalized
at cost. Patent costs capitalized in the six months ending September 30, 1995
and 1996 totaled $37,748 and $26,202, respectively. Amortization is calculated
by the straight-line-method over a seventeen year estimated useful life.
Amortization expense totaled $ 611 and $2,274, respectively, during the six
months ended September 30, 1995 and 1996.
INTERIM UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements for the six months ended
September 30, 1995 and 1996 have been prepared on the same basis as the
Company's audited financial statements as of and for the years ended March 31,
1995 and 1996, respectively. In the opinion of management, all adjustments,
consisting of normal, recurring accruals, necessary to present fairly the
financial position of the Company at September 30, 1995 and 1996, respectively,
and the results of operations and cash flow for the six months ended September
30, 1995 and 1996 have been included. The results of operations for such
interim periods are not necessarily indicative of the results expected for the
full year ended March 31, 1997.
55
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
2. NOTES PAYABLE
<TABLE>
<CAPTION>
<S> <C>
Notes payable consisted of the following at September 30, 1995:
Note payable to a bank, interest at 9.5% payable monthly,
due on demand, secured by accounts receivable, inventory,
furniture, fixtures and equipment. $400,000
Note payable to a bank, interest at bank index rate plus 1%
payable monthly, due on demand, secured by jet airplane. 190,000
Note payable to a bank, interest at bank index rate plus 1%
payable monthly, due 10/1/96 secured by assignment
of officer's life insurance. 225,000
--------
$815,000
========
Notes payable consisted of the following at September 30, 1996:
Note payable to a bank, interest at 9.25% payable monthly,
due on 11/17/96, secured by automobile. $ 25,000
Note payable to a bank, interest at bank index rate plus 1%
payable monthly, principal and interest payments of $4,711.84
monthly and final payment of $192,644 due 8/30/97. 225,000
Notes payable to individuals, interest at 10%, principal and
interest due 1/29/97, unsecured. 255,187
--------
505,187
Less current maturities (505,187)
--------
$ 0
========
</TABLE>
56
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
3. LONG-TERM DEBT
Long term debt consisted of the following at September 30, 1995:
<TABLE>
<S> <C>
Note payable to an individual, interest at 10%, principal and
interest of $6,343, due monthly through April, 2001,
secured by real estate. $324,664
Less current maturities 43,492
--------
$281,172
========
</TABLE>
Maturities of long-term debt are as follows at September 30:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1996 $ 43,492
1997 48,046
1998 53,077
1999 58,635
2000 64,775
Thereafter 56,639
--------
$324,664
========
</TABLE>
4. CONTINGENT LIABILITY
In December, 1994, the company entered into a Joint Development Agreement with
a denim clothing manufacturer to develop a specialized sewing machine for the
manufacture of jeans. The manufacturer paid the company $150,000 in
development fees during the year ended March 31, 1995 and an additional
$100,000 in the six months ended September 30, 1995. Under the terms of the
agreement, the manufacturer will have exclusive rights to purchase said sewing
machine for an initial period of two years from the date of shipment of the
first production machine. After the initial two year period, in order to
maintain its exclusive rights, the manufacturer must purchase certain minimum
quantities. In the event the company sells machines to a third party, the
company is required to pay royalties to the manufacturer up to the amount paid
to the Company for development fees, plus 10% interest. Under no circumstances
is any portion of the development fee refundable.
57
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
5. RESEARCH AND DEVELOPMENT
As required by statement of Financial Accounting Standards No. 2, the Company
expenses research and development costs as incurred. Included in current year
expenses are the following amounts attributable to research and development:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Legal, materials fees, patent fees $ 37,748 $ 3,740
Salaries 63,257 40,189
Travel 515 618
Insurance 2,243 1,454
Payroll tax 4,839 2,697
Telephone 1,227 1,536
Utilities 700 723
-------- -------
$110,529 $50,957
======== =======
</TABLE>
In addition, during the period ended September 30, 1995, the Company purchased
$9,425 in fixed assets to be used for product development. Approximately
$36,000 of the research and development expense during the period ended
September 30, 1996 is related to the development contract described in Note 4.
6. RELATED PARTY TRANSACTIONS
The long-term debt described for the period ended September 30, 1995 evidenced
by a note payable to a bank is personally guaranteed by William Tice, a major
stockholder.
Included in current liabilities is a note payable to William Tice. The note
bears 10% interest and is due on demand and is subordinated debt.
The Company made principal payments of $81,509 during the six months ended
September 30, 1995. The Company borrowed an additional $1,000 from the
stockholder and made principal payments of $70,500 during the six months ended
September 30, 1996. In addition, the Company accrued interest of $2,593 on the
note.
58
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
7. INCOME TAXES
Effective April 1, 1993, the Company changed to an asset and liability method
of accounting for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax basis of assets and
liabilities and are measured using enacted tax rates. Taxes have been provided
for the period ended September 30, 1995 using expected rates of 15% federal and
6% state. For the period ended September 30, 1996, taxes have been provided
for at rates of 34% federal and 6% state tax on taxable income of $290,224.
The 1996 period tax provision has been adjusted to account for a change in the
rate used to estimate deferred tax assets from a 15% federal rate to 34%.
Summaries of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ------ -----
<S> <C> <C> <C>
September 30, 1995
Current $ -0- $ -0- $ -0-
Deferred 19,599 5,345 24,944
------- ------- ---------
</TABLE>
$ 24,944
=========
September 30, 1996
Current $96,476 $17,419 $ 113,895
Deferred -0- -0- -0-
------- ------- ---------
$ 113,895
Less valuation allowance - deferred tax asset (68,652)
---------
$ 45,243
=========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, including the carrying
value of inventory, for financial reporting purposes and amounts used for
income tax purposes. Deferred taxes have also been provided for operating
losses available to offset future income.
Deferred tax assets in the accompanying balance sheets include the following
components at September 30, 1995 and 1996:
59
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Section 263A cost in inventory $10,832 $20,383
Net operating loss carryover 81,414 46,027
------- -------
Net deferred tax asset $92,246 $66,410
======= =======
</TABLE>
At September 30, 1995, the Company had federal and state loss carry forwards of
$359,019 and $459,351, respectively. At September 30, 1996, the Company had
federal and state loss carryforwards of $100,018 and $200,350, respectively,
substantially all of which expire by 2008.
7. NOTE RECEIVABLE - SPLIT DOLLAR LIFE INSURANCE
The Company is paying the premiums on life insurance policies on the life of
William Tice, a Company officer, in a split dollar agreement with collateral
assignment, whereby the premiums paid by the Company are to be repaid upon
receipt of the proceeds of the policy by Mr. Tice's beneficiaries. The Company
is not a beneficiary on this policy. Premiums paid on the policy during the
six months ended September 30, 1996 totaled $24,892.
8. EMPLOYEE BENEFITS
Employee benefits for the period ending September 30, 1995 consist of insurance
premiums for major medical, dental and group term life insurance provided for
employees and their dependents totaling $14,857. Employee benefits for the
period ending September 30, 1996 consist of group health insurance and group
term life insurance provided for employees and their dependents totaling
$16,368.
9. STOCKHOLDERS' EQUITY
The changes in the stockholders' equity accounts from March 31,1995 to
September 30, 1995 and from March 31, 1996 to September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Balance March 31, 1995 and 1996 $121,484 $145,423
Issued 30 stock warrants in exchange for consulting 4,859 --
services to Joseph Walker and Sons, Inc.
Net income for the Six Months Ended September 30 64,141 306,798
-------- --------
Balance September 30, 1995 and 1996 $190,284 $422,221
======== ========
</TABLE>
60
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF COST OF SALES
(UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Materials $366,327 $227,430
Assembly and production labor 61,910 58,184
Assembly and production expense 2,494 942
Salaries - sales and service 67,318 41,550
Commissions 6,000 550
Shop expense 741 753
Applied overhead 45,572 41,387
-------- --------
$550,362 $370,796
======== ========
</TABLE>
See accompanying notes to financial statements.
61
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF EXPENSES
(UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
EXPENSES
Advertising $ 28,186 $ 20,967
Airplane 53,666 17,672
Amortization 611 2,274
Bad debts 508 33
Depreciation 20,578 18,863
Dues and fees 165 2,698
Employee benefits 5,349 7,366
Insurance 5,812 13,035
Legal and accounting 25,751 3,740
Marketing and promotions --- 18,331
Meals and entertainment 476 1,281
Moving expenses --- 1,118
Office supplies 5,440 3,694
Postage 508 483
Research and development materials 11,272 802
Rent 192 ----
Repairs and maintenance - real estate 2,718 1,905
Royalty 887 1,774
Salaries - officers 35,542 14,400
Salaries - other 45,781 76,725
Scholarship fund ---- 699
Shop 741 753
Taxes - payroll 6,905 7,572
Taxes - other 10 9,699
Telephone 5,521 6,914
Training ---- 70
Travel 4,670 19,881
Utilities 3,497 3,612
Vehicle 4,451 381
--------- --------
Total expenses $ 269,237 $256,742
========= ========
Less: Research and development expenses (110,529) (50,957)
--------- --------
$ 158,708 $205,785
========= ========
</TABLE>
See accompanying notes to financial statements.
62
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF APPLIED OVERHEAD
(UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Depreciation $ 3,631 $3,329
Employee benefits 9,508 9,002
Equipment maintenance 744 295
Insurance 371 832
Legal - accounting 526 ---
Office supplies 605 410
Postage 56 54
Rent 371 ---
Salaries - purchasing 4,320 3,172
Salaries - clerical 2,327 7,059
Salaries - officer 6,725 3,600
Payroll taxes 12,276 9,255
Telephone 614 768
Utilities 3,498 3,611
------- -------
$45,572 $41,387
======= =======
</TABLE>
See accompanying notes to financial statements.
63
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Tice Engineering and Sales, Inc.
Knoxville, Tennessee
We have audited the accompanying balance sheet of Tice Engineering and
Sales, Inc. as of March 31, 1996, and the related statements of income and
retained earnings 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 Tice Engineering and
Sales, Inc. as of March 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Boring & Goins, P.C.
Knoxville, Tennessee
May 23, 1996
Except for Note 6, as to which the date is November 15, 1996
64
<PAGE>
TICE ENGINEERING AND SALES, INC.
BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 2,822
Accounts receivable
Trade 119,060
Employee 16,002
Due from related party 4,859
Prepaid expenses 28,291
Inventory 464,997
Deferred income tax benefit 10,500
----------
Total current assets 646,531
Fixed assets:
Land 305,000
Building and improvements 449,885
Equipment 558,531
Vehicles 124,599
----------
1,438,015
Less accumulated depreciation (875,404)
----------
Net fixed assets 562,611
Other assets:
Utility deposit 890
Cash surrender value - officer's life 14,250
Patent, net of accumulated amortization 91,657
Note receivable - officer - split dollar life insurance 17,780
Deferred income tax benefit 101,153
----------
Total other assets 225,730
----------
</TABLE>
$1,434,872
==========
65
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Notes payable - officer $ 129,116
Accounts payable 196,912
Payroll and payroll taxes payable 4,605
Franchise tax payable 2,647
Customer deposits 25,000
Current maturities of long-term debt 269,844
----------
Total current liabilities 628,124
Long-term debt, less current maturities 661,325
Stockholders' equity:
Capital stock, no stated value, 2,000 shares
authorized, 750 shares issued and outstanding 8,634
30 stock warrants outstanding 4,859
Retained earnings 131,930
----------
Total stockholders' equity 145,423
----------
$1,434,872
==========
</TABLE>
The accompanying notes are an integral part of these statements.
66
<PAGE>
TICE ENGINEERING AND SALES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Revenues
<S> <C>
Sales $1,239,666
Service 2,892
----------
Total revenues 1,242,558
Cost of sales 808,161
----------
Gross margin 434,397
Expenses 379,687
----------
Income from operations 54,710
Other income (expense):
Development fee 150,000
Rental income 49,575
Interest income 176
Other income 7,275
Gain on sale of fixed assets 105,593
Interest expense (110,863)
Research and development (231,849)
----------
Total other income (expense) (30,093)
----------
Net income before provision for income taxes 24,617
Provision for income taxes 5,537
----------
Net income 19,080
Retained earnings, April 1, 1995 112,850
----------
Retained earnings, March 31, 1996 $ 131,930
==========
</TABLE>
The accompanying notes are an integral part of these statements.
67
<PAGE>
TICE ENGINEERING AND SALES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net income $ 19,080
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 51,887
Gain on sale of fixed assets (105,593)
Changes in operating assets and liabilities:
Decrease in receivables 70,921
Increase in inventories (137,702)
Increase in prepaid expenses (1,033)
Decrease in deferred tax asset 5,539
Increase in accounts payable 91,371
Increase in accrued expenses 25,350
---------
Net cash provided by operating activities 19,820
INVESTING ACTIVITIES:
Purchase of fixed assets (37,257)
Proceeds from sale of fixed assets 349,091
Investment in patents (60,319)
Increase in cash value life insurance (14,250)
Increase in note receivable - split dollar life insurance (17,780)
Sale of investment at cost 1,245
---------
Net cash provided by investing activities 220,730
FINANCING ACTIVITIES:
Principal payments on notes payable (283,292)
---------
Net decrease in cash (42,742)
Cash Balance, April 1, 1995 45,564
---------
Cash Balance, March 31, 1996 $ 2,822
=========
</TABLE>
The accompanying notes are an integral part of these statements.
68
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company designs and manufactures robotic and pneumatic industrial sewing
machine attachments.
TRADE ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required. If amounts become uncollectible,
they will be charged to operations when that determination is made.
INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined using
the first-in, first-out method.
Inventories at March 31, 1996 consist of:
Raw materials $278,735
Work in progress 141,994
Finished goods 44,268
--------
$464,997
========
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash and/or cash equivalents.
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $107,504
Taxes 2,870
69
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due and deferred taxes
related primarily to the basis of inventory for financial and income tax
reporting. The deferred tax assets represent the future tax return consequences
of those differences. Deferred tax assets also are recognized for operating
losses that are available to offset future taxable income.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method and accelerated methods over the estimated useful
lives of the assets. Significant improvements are capitalized while
maintenance and repairs are expensed as incurred.
PATENTS
Legal fees of $49,877, consulting fees of $9,436 and travel of $1,006 incurred
in order to obtain patents on company designed and manufactured parts have been
capitalized at cost. Amortization is calculated by the straight-line-method
over a seventeen year estimated useful life. Amortization expense totaled
$4,042 during the year ended March 31, 1996.
2. LONG-TERM DEBT
Notes payable consisted of the following at March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Note payable to a bank, interest at 9.5% payable monthly
due on demand, secured by accounts receivable,
inventory, furniture, fixtures and equipment. $ 400,000
Note payable to a bank, interest at bank index rate plus 1%
payable monthly, due 10/1/96 secured by assignment
of officer's life insurance. 225,000
Note payable, to an individual, interest at 10%, principal
and interest of $6,343, due monthly through April 2001,
secured by real estate. 306,169
---------
931,169
Less current maturities (269,844)
---------
$ 661,325
=========
</TABLE>
70
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
2. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows at March 31:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1997 $269,844
1998 49,212
1999 54,096
2000 59,465
2001 65,367
Thereafter 433,185
--------
$931,169
========
</TABLE>
On May 6, 1996, the Company borrowed $700,000 from a bank at 9.5% thru May of
1999 and 3.5% over prime thereafter. The loan is payable in 120 equal
installments of $9,112. The Company intends to use the proceeds to pay $625,000
to refinance short term borrowings and accordingly, that amount has been
classified as long term debt at March 31, 1996.
In addition the Company, on May 6, 1996, obtained a working capital loan of
$100,000 with interest a prime +2% due and payable on August 31, 1996.
3. CONTINGENT LIABILITY
In December, 1994, the Company entered into a Joint Development Agreement with a
denim clothing manufacturer to develop a specialized sewing machine for the
manufacture of jeans. The manufacturer paid the Company $150,000 in development
fees during the year ended March 31, 1995 and an additional $150,000 in the year
ended March 31, 1996. Under the terms of the agreement, the manufacturer will
have exclusive rights to purchase said sewing machine for an initial period of
two years from the date of shipment of the first production machine. After the
initial two year period, in order to maintain its exclusive rights, the
manufacturer must purchase certain minimum quantities. In the event the Company
also sells machines to a third party, the Company is required to pay royalties
to the manufacturer up to the amount paid to the Company for development fees,
plus 10% interest. Under no circumstances is any portion of the development fee
refundable.
71
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
4. RESEARCH AND DEVELOPMENT
As required by statement of Financial Accounting Standards No. 2, the Company
expenses research and development costs as incurred. Included in current year
expenses are the following attributable to research and development:
<TABLE>
<S> <C>
Legal, patent fees $ 58,321
Salaries 150,496
Travel 2,135
Insurance 5,614
Payroll tax 11,513
Telephone 2,337
Utilities 1,433
--------
$231,849
========
</TABLE>
Approximately $150,000 of the research and development cost is related to the
development agreement described in Note 3.
5. RELATED PARTY TRANSACTIONS
Included in current liabilities is a note payable to William Tice, a company
officer and a major stockholder. The note bears 10% interest and is due on
demand and is subordinated debt.
The Company borrowed an additional $63,000 from the stockholder and made
principal payments of $131,652 during the year ended March 31, 1996. In
addition, the Company accrued interest of $16,312 on the note.
Additionally, the notes payable to the banks are secured by a second mortgage
on Mr. Tice's personal residence as well as his personal guarantee.
6. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109 "Accounting
for Income Taxes." Taxes have been provided for at expected statutory rates of
15% federal and 6% state tax.
Summaries of the provisions for income taxes are as follows:
<TABLE>
<S> <C>
Federal $3,956
State 1,581
------
$5,537
======
</TABLE>
72
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of inventory for financial reporting purposes and
amounts used for income tax purposes. Deferred taxes have also been provided
for operating losses available to offset future income.
Deferred tax assets in the accompanying balance sheet include the following
components at March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Section 263A cost in inventory $ 23,662
Net operating loss carryover 89,991
--------
Net deferred tax asset $111,653
========
</TABLE>
The Company has federal and state loss carry forwards of $390,342 and $490,674,
respectively, substantially all of which expire by 2008.
7. MAJOR CUSTOMERS AND EXPORT SALES
The Company sells a substantial portion of its products to three major
customers. Transactions with these major customers consist of the following:
<TABLE>
<CAPTION>
Sales % of Sales
--------- -----------
<S> <C> <C>
Customer 1 $582,643 47%
Customer 2 272,727 22%
Customer 3 136,363 11%
-------- --
$991,733 80%
</TABLE>
Approximately 4% of the Company's sales are export sales. All export sales are
paid with an irrevocable letter of credit drawn on U.S. funds, therefore, there
are no exchange gains or losses included in income.
8. EMPLOYEE BENEFITS
Employee benefits consist of group health insurance and group term life
insurance provided for employees and their dependents totaling $23,734.
73
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
9. NOTE RECEIVABLE - SPLIT DOLLAR LIFE INSURANCE
The Company is paying the premiums on life insurance policies on the life of
William Tice, a company officer, in a split dollar agreement with collateral
assignment, whereby the premiums paid by the Company are to be repaid upon
receipt of the proceeds of the policy by Mr. Tice's beneficiaries. The Company
is not a beneficiary on this policy. Premiums paid on the policy during the
year totaled $17,780.
10. STOCKHOLDER'S EQUITY
The changes in the stockholders' equity account from March 31, 1995 to March
31, 1996 are as follows:
<TABLE>
<CAPTION>
Common Retained
Stock Warrants Earnings
------ -------- --------
<S> <C> <C> <C>
Balance March 31, 1995 $8,634 $ -- $112,850
30 stock warrants issued to Joseph
Walker and Sons, Inc. in exchange
for consulting services 4,859
Net income for the year ended
March 31, 1996 19,080
------ ------ --------
$8,634 $4,859 $131,930
====== ====== ========
</TABLE>
74
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
ON SUPPLEMENTAL INFORMATION
---------------------------
Board of Directors
Tice Engineering and Sales, Inc.
Knoxville, Tennessee
Our report on our audit of the basic financial statements of Tice Engineering
and Sales, Inc. for the year ended March 31, 1996 appears on page 63. That audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The Supplemental Schedule of Operating Expenses, Schedule of
Cost of Sales and Schedule of Applied overhead are presented for purposes of
additional analysis and are not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
May 23, 1996 Boring & Goins, P.C.
Knoxville, Tennessee
75
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF COST OF SALES
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Materials $450,937
Production and assembly labor 128,900
Production and assembly expenses 4,045
Sales and services salaries 108,868
Shop expense 1,605
Commissions 14,405
Applied overhead 99,401
--------
$808,161
========
</TABLE>
See accompanying independent auditors' report.
76
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF EXPENSES
FOR THE YEAR ENDED MARCH 31, 1996
EXPENSES
Advertising $ 70,539
Airplane 71,728
Amortization 4,042
Bad debts 587
Depreciation 40,605
Dues and fees 525
Employee benefits 10,633
Insurance 28,490
Legal and accounting 41,500
Meals and entertainment 1,630
Office supplies 12,572
Postage 1,191
Research and development materials 15,997
Rent 383
Repairs and maintenance - real estate 3,733
Royalty 3,843
Salaries - officers 116,095
Salaries - other 112,027
Shop 1,605
Taxes - payroll 17,744
Taxes - other 15,808
Telephone 10,518
Travel 15,187
Utilities 8,194
Vehicle 6,360
---------
Total expenses $ 611,536
Less research and development (231,849)
---------
$ 379,687
=========
See accompanying independent auditors' report.
77
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF APPLIED OVERHEAD
FOR THE YEAR ENDED MARCH 31, 1996
Depreciation $ 7,240
Equipment maintenance 1,085
Employee benefits 13,101
Insurance 1,758
Legal and accounting 576
Office supplies 1,311
Postage 132
Rent 743
Salaries - officer 29,522
Salaries - purchasing 8,978
Salaries - clerical 4,756
Taxes - payroll 21,864
Telephone 1,169
Utilities 7,166
-------
$99,401
=======
See accompanying independent auditors' report.
78
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Tice Engineering and Sales, Inc.
Knoxville, Tennessee
We have audited the accompanying balance sheet of Tice Engineering and
Sales, Inc. as of March 31, 1995, and the related statements of income and
retained earnings 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 Tice Engineering and Sales,
Inc. as of March 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Boring & Goins, P.C.
Knoxville, TN
June 1, 1995
Except for Note 7, as to which the date is November 15, 1996
79
<PAGE>
TICE ENGINEERING AND SALES, INC.
BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 45,564
Accounts receivable
Trade 196,209
Employee 9,774
Prepaid expenses 27,258
Inventory 327,295
----------
Total current assets 606,100
Fixed assets:
Land 305,000
Building and improvements 422,050
Equipment 549,109
Vehicles 450,859
----------
1,727,018
Less accumulated depreciation (910,320)
----------
Net fixed assets 816,698
Other assets:
Deferred income tax benefits 117,190
Utility deposit 890
Investments 1,245
Patent, net of accumulated amortization 35,380
----------
Total other assets 154,705
----------
$1,577,503
==========
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - officer $ 182,708
Notes payable 815,000
Accounts payable 105,541
Payroll taxes payable 4,031
Franchise tax payable 2,870
Current maturities of long-term debt 43,492
----------
Total current liabilities 1,153,642
Long-term debt, less current maturities 302,377
Stockholders' equity:
Capital stock, no stated value, 2,000 shares
authorized, 750 shares issued and outstanding 8,634
Retained earnings 112,850
----------
Total stockholders' equity 121,484
----------
$1,577,503
==========
</TABLE>
The accompanying notes are an integral part of these statements.
81
<PAGE>
TICE ENGINEERING AND SALES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Revenues
Sales $1,235,492
Service 4,362
----------
Total Revenues 1,239,854
Cost of sales 867,702
----------
Gross margin 372,152
Expenses 307,594
----------
Income from operations 64,558
Other income (expense):
Development fees 150,000
Rental income 52,920
Interest income 618
Other income 787
Research and development (192,364)
Interest expense (111,772)
----------
Total other income (expense) (99,811)
----------
Net loss before provision for income taxes (35,253)
Provision for income tax benefit of net operating loss 5,591
----------
Net loss (29,662)
Retained earnings, April 1, 1994 142,512
----------
Retained earnings, March 31, 1995 $ 112,850
==========
</TABLE>
The accompanying notes are an integral part of these statements.
82
<PAGE>
TICE ENGINEERING AND SALES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (29,662)
Adjustment to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 51,994
Change in operating assets and liabilities:
Increase in receivables (124,393)
Increase in inventories (35,485)
Increase in prepaid expenses (1,261)
Increase in deferred tax asset (5,591)
Decrease in accounts payable (1,639)
Increase in accrued expenses 3,071
---------
Net cash used by operating activities (142,966)
INVESTING ACTIVITIES:
Purchase of fixed assets (4,957)
Increase in patents (31,757)
---------
Net cash used by investing activities (36,714)
FINANCING ACTIVITIES:
Proceeds from notes payable 305,526
Principal payments on notes payable and long term debt (103,219)
---------
Net cash provided by financing activities 202,307
---------
Net Increase in cash 22,627
Cash balance, April 1, 1994 22,937
---------
Cash balance, March 31, 1995 $ 45,564
=========
</TABLE>
The accompanying notes are an integral part of these statements.
83
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company designs and manufactures robotic and pneumatic industrial sewing
machine attachments.
TRADE ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
INVENTORIES
Inventories are valued at lower of cost or market, cost is determined using the
first-in, first-out method.
<TABLE>
<CAPTION>
<S> <C>
Inventories at March 31, 1995 consist of:
Raw materials $196,377
Work in progress 101,461
Finished goods 29,457
--------
$327,295
========
</TABLE>
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash and/or cash equivalents.
Supplemental disclosures of cash flow information:
<TABLE>
<S> <C>
Cash paid during the year for:
Interest $ 96,445
Taxes 2,891
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method and accelerated methods over the estimated useful
lives of the assets. Significant improvements are capitalized while
maintenance and repairs are expensed as incurred.
84
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due and deferred taxes
related primarily to the basis of inventory for financial and income tax
reporting. The deferred tax assets represent the future tax return consequences
of those differences. Deferred taxes also are recognized for operating losses
that are available to offset future taxable income.
PATENTS
Certain legal and consulting fees incurred in order to obtain patents on
Company designed and manufactured parts have been capitalized at cost. Patent
costs capitalized in the current year totaled $31,757. Amortization is
calculated by the straight-line-method over a seventeen year estimated useful
life. Amortization expense totaled $1,223 during the year ended March 31,
1995.
2. NOTES PAYABLE
Notes payable consisted of the following at March 31, 1995:
<TABLE>
<S> <C>
Note payable to a bank, interest at 9.5% payable monthly, due on
demand, secured by accounts receivable, inventory, furniture,
fixtures and equipment. $400,000
Note payable to a bank, interest at bank index rate plus 1% payable
monthly, due 10/1/96 secured by assignment of officer's life
insurance. 225,000
Note payable to a bank; interest at bank index rate
plus 1%, due on demand, secured by airplane. 190,000
--------
$815,000
========
</TABLE>
3. LONG-TERM DEBT
<TABLE>
<S> <C>
Note payable to an individual, interest at 10%,
principal and interest payments of $6,343 due monthly through
April 2001, secured by shopping center. $345,869
Less current maturities (43,492)
--------
$302,377
========
</TABLE>
85
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
3. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows at March 31:
<TABLE>
<CAPTION>
Year
--------
<S> <C>
1996 $ 43,492
1997 48,046
1998 53,077
1999 58,635
2000 64,775
Thereafter 77,844
--------
$345,869
========
</TABLE>
4. CONTINGENT LIABILITY
In December, 1994, the Company entered into a Joint Development Agreement with
a denim clothing manufacturer to develop a specialized sewing machine for the
manufacture of jeans. The manufacturer paid the Company $150,000 in
development fees during the year ended March 31, 1995. Under the terms of the
agreement, the manufacturer will have exclusive rights to purchase said sewing
machine for an initial period of two years from the date of shipment of the
first production machine. After the initial two year period, in order to
maintain its exclusive rights, the manufacturer must purchase certain minimum
quantities. In the event the Company sells machines to a third party, the
Company is required to the pay royalties to the manufacturer up to the amount
paid to the Company for development fee, plus 10% interest. Under no
circumstances is the Company required to refund any portion of the development
fee.
5. RESEARCH AND DEVELOPMENT
As required by statement of Financial Accounting Standards No. 2, the Company
expenses research and development costs as incurred. Included in current year
expenses are the following attributable to research and development:
<TABLE>
<S> <C>
Materials $ 36,355
Salaries 134,077
Travel 4,000
Insurance 4,893
Payroll Tax 9,336
Telephone 2,350
Utilities 1,353
--------
$192,364
========
</TABLE>
In addition, the Company purchased $4,018 of equipment to be used for product
development. Included in Research and Development expense is approximately
$150,000 of expenses related to the development contract described in Note 4.
86
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
6. RELATED PARTY TRANSACTIONS
Included in current liabilities is a note payable to William Tice, a Company
officer and major stockholder. The note bears 10% interest and is due on
demand and is subordinated debt.
The Company borrowed an additional $65,200 from Mr. Tice and made principal
payments of $63,850 during the year ended March 31, 1995. In addition, the
Company accrued interest of $15,326 on the note. In addition, the notes
payable to banks secured by a second mortgage Deed of Trust on Mr. Tice's
personal residence as well as his personal guarantee.
7. INCOME TAXES
Effective April 1, 1993, the Company changed to an asset and liability method
of accounting for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes."
Taxes are provided at expected rates of 15% federal and 6% state.
Summaries of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Federal State Total
------- ----- ------
<S> <C> <C> <C>
Current 0 0 0
Deferred 3,994 1,597 5,591
----- ----- ------
$5,591
======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Deferred taxes have also
been recognized for operating losses that are available to offset future
taxable income.
Deferred tax assets in the accompanying balance sheets include the following
components at March 31, 1995:
<TABLE>
<S> <C>
Section 263A cost in inventory $ 17,069
Net operating loss carryover 100,121
--------
Net deferred tax asset $117,190
========
</TABLE>
The Company has federal and state loss carryforwards of $448,104 and $548,436,
respectively, substantially all of which expire by 2008.
87
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
8. MAJOR CUSTOMERS AND EXPORT SALES
The Company sells a substantial portion of its product to two major customers.
Transactions with these major customers consist of the following during the
year ended March 31, 1995:
<TABLE>
<CAPTION>
Sales % of Sales
-------- ----------
<S> <C> <C>
Customer 1 $197,679 16%
Customer 2 395,357 32%
-------- ---
$593,036 48%
======== ===
</TABLE>
Approximately 4% of the Company's sales are export sales. All export sales are
paid with an irrevocable letter of credit drawn on U.S. funds, therefore, there
are no foreign exchange gains or losses included in income.
9. EMPLOYEE BENEFITS
Employee benefits consist of insurance premiums for major medical, dental and
group term life insurance provided for employees and their dependents totaling
$19,422. Also, included in employee benefits is $6,422 of key employee life
insurance premiums.
10. STOCKHOLDERS EQUITY
The changes in the stockholders' equity account from March 31, 1994 to March
31, 1995 are as follows:
<TABLE>
<CAPTION>
Common Retained
Stock Earnings
------ --------
<S> <C> <C>
Balance March 31, 1994 $8,634 $142,512
Net income (loss) for the year
ended March 31, 1995 -- (29,662)
------ --------
Balance March 31, 1995 $8,634 $112,850
====== ========
</TABLE>
88
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
ON SUPPLEMENTAL INFORMATION
---------------------------
Board of Directors
Tice Engineering and Sales, Inc.
Knoxville, Tennessee
Our report on our audit of the basic financial statements of Tice Engineering
and Sales, Inc. for the year ended March 31, 1995 appears on page 78. That audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The supplemental schedules of Cost of Sales, Operating
Expenses and Overhead Applied are presented for purposes of additional analysis
and are not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Boring & Goins, P.C.
June 1, 1995
89
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF COST OF SALES
FOR THE YEAR ENDED MARCH 31, 1995
Materials $492,455
Production and assembly labor 106,518
Production and assembly expense 2,029
Salaries - sales and service 155,560
Shop expense 1,539
Commissions 5,545
Applied overhead 104,056
--------
$ 867,702
=========
See accompanying independent auditor's report.
90
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF OPERATING EXPENSES
FOR THE YEAR ENDED MARCH 31, 1995
EXPENSES
Advertising $ 68,111
Airplane 47,242
Amortization 1,223
Bad debts 28
Depreciation 43,232
Dues and fees 993
Employee benefits 12,951
Insurance 24,514
Legal and accounting 8,300
Meals and entertainment 1,964
Office supplies 8,812
Postage 1,237
Research and development materials 36,355
Rent 533
Repairs and maintenance - real estate 2,299
Royalty 3,714
Salaries - officers 129,876
Salaries - other 47,416
Shop 1,540
Taxes - payroll 12,787
Taxes - other 15,820
Telephone 10,576
Travel 11,280
Utilities 6,767
Vehicle 2,388
---------
Total Expenses 499,958
Less: Research and development expense (192,364)
---------
$ 307,594
=========
See accompanying independent auditor's report.
91
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF APPLIED OVERHEAD
FOR THE YEAR ENDED MARCH 31, 1995
Depreciation $ 7,539
Equipment maintenance 638
Employee benefits 22,058
Insurance 2,554
Legal - accounting 148
Office supplies 979
Postage 137
Rent 817
Salaries - purchasing 8,190
Salaries - clerical 3,529
Salaries - company officer 28,374
Payroll taxes 21,152
Telephone 1,175
Utilities 6,766
--------
$104,056
========
See accompanying independent auditor's report.
92
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Tice Engineering and Sales, Inc.
Knoxville, Tennessee
We have audited the accompanying balance sheet of Tice Engineering and
Sales, Inc. as of March 31, 1994, and the related statements of income and
retained earnings 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 Tice Engineering and Sales,
Inc. as of March 31, 1994, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
May 20, 1994 Boring & Goins, P.C.
Knoxville, TN
Except for Note 6, as to which
the date is November 15, 1996
93
<PAGE>
TICE ENGINEERING AND SALES, INC.
BALANCE SHEET
MARCH 31, 1994
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 22,937
Accounts receivable:
Trade 79,173
Employee 2,417
Prepaid expenses 25,997
Inventory 291,810
----------
Total current assets 422,334
Fixed assets:
Land 305,000
Building and improvements 421,111
Equipment 545,091
Vehicles 450,859
----------
1,722,061
Less accumulated depreciation (859,549)
----------
Net fixed assets 862,512
Other assets:
Deferred income tax benefit 111,599
Utility deposit 890
Investments 1,245
Patent, net of accumulated amortization 4,846
----------
Total other assets 118,580
----------
$1,403,426
==========
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - officer $ 166,032
Accounts payable 107,180
Payroll taxes payable 1,674
Franchise tax payable 2,156
Notes payable 590,000
Current maturities of long-term debt 39,369
----------
Total current liabilities 906,411
Long-term debt, less current maturities 345,869
Stockholders' equity:
Capital stock, no stated value, 2,000 shares
authorized, 750 issued and outstanding 8,634
Retained earnings 142,512
----------
Total stockholders' equity 151,146
----------
$1,403,426
==========
</TABLE>
The accompanying notes are an integral part of these statements.
95
<PAGE>
TICE ENGINEERING AND SALES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Revenues
Sales $1,305,478
Service 3,230
----------
Total Revenues 1,308,708
Cost of sales 999,797
----------
Gross margin 308,911
Operating expenses 331,898
----------
Income (loss) from operations (22,987)
Other income (expenses):
Rental income 33,675
Interest income 500
Other income 305
Research and development (140,990)
Interest expense (91,585)
----------
Total other income (expense) (198,095)
----------
Net loss before provision for income taxes (221,082)
Provision for income tax benefit of net operating loss 41,680
----------
Net loss before change in accounting principles (179,402)
Change in accounting principle
Cumulative effect to March 31, 1994 of application of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" 69,919
----------
Net loss (109,483)
Retained earnings, April 1, 1993 251,995
----------
Retained earnings, March 31, 1994 $ 142,512
==========
</TABLE>
The accompanying notes are an integral part of these statements.
96
<PAGE>
TICE ENGINEERING AND SALES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES:
Net income (loss) $(109,483)
Adjustment to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 60,507
Change in operating assets and liabilities:
Decrease in receivables 120,216
Decrease in inventories 73,983
Increase in prepaid expenses (14,145)
Increase in deferred tax asset (111,599)
Decrease in accounts payable (72,925)
Increase in accrued expenses 397
---------
Net cash provided by operating activities (53,049)
INVESTING ACTIVITIES:
Purchase of fixed assets (10,624)
Increase in patent cost (4,918)
---------
Net cash used by investing activities (15,542)
FINANCING ACTIVITIES:
Proceeds from notes payable 114,211
Principal payments on notes payable and long-term debt (57,067)
---------
Net cash provided by financing activities 57,144
---------
Net decrease in cash (11,447)
Cash balance, April 1, 1993 34,384
---------
Cash balance, March 31, 1994 $ 22,937
=========
</TABLE>
The accompanying notes are an integral part of these statements.
97
<PAGE>
TICE ENGINEERING AND SALES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company designs and manufactures robotic and pneumatic industrial sewing
machine attachments.
TRADE ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
INVENTORIES
Inventories are valued at lower of cost or market. Cost is determined using
the first-in, first-out method.
<TABLE>
<CAPTION>
<S> <C>
Inventories at March 31,1994 consist of:
Raw materials $ 4,058
Work in process 9,310
Finished goods 278,442
--------
$291,810
========
</TABLE>
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash and/or cash equivalents.
Supplemental disclosures of cash flows information:
Cash paid during the year for:
Interest $91,585
Taxes 2,281
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method and accelerated methods over the estimated useful
lives of the assets. Significant improvements are capitalized while
maintenance and repairs are expensed as incurred.
98
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF OPERATING EXPENSES (CONTINUED)
FOR THE YEAR ENDED MARCH 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due and deferred taxes
related primarily to the basis of inventory for financial and income tax
reporting. The deferred tax assets represent the future tax return consequences
of those differences. Deferred taxes also are recognized for operating losses
that are available to offset future taxable income.
PATENTS
Certain legal expenses incurred in order to obtain patents on company designed
and manufactured parts have been capitalized at cost. Patent costs capitalized
in the current year totaled $4,918. Amortization is calculated by the
straight-line method over a seventeen year estimated useful life.
Amortization expense totaled $72 during the year ended March 31, 1994.
<TABLE>
<CAPTION>
2. NOTES PAYABLE
<S> <C>
Notes payable consisted of the following at March 31, 1994:
Note payable to a bank, interest at 6.75% payable monthly, due on demand,
secured by accounts receivable, inventory, furniture, fixtures and equipment. $400,000
Note payable to a bank, interest at bank index rate plus 1% payable monthly,
due on demand, secured by jet airplane. 190,000
--------
$590,000
========
3. LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 1994:
Note payable to an individual interest at 10%, principal and interest payments
of $6,343 due monthly though April 2001, secured by real estate. $385,238
Less current maturities (39,369)
--------
$345,869
========
</TABLE>
99
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF OPERATING EXPENSES (CONTINUED)
FOR THE YEAR ENDED MARCH 31, 1994
3. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows at March 31:
<TABLE>
<CAPTION>
Year
--------
<S> <C>
1995 $ 39,369
1996 43,492
1997 48,046
1998 53,077
1999 58,635
Thereafter 142,619
---------
$ 385,238
=========
</TABLE>
4. RESEARCH AND DEVELOPMENT
As required by statement of Financial Accounting Standards No. 2, the Company
expenses research and development costs as incurred. Included in current year
expenses are the following attributable to research and development:
<TABLE>
<CAPTION>
<S> <C>
Legal, patent fees $ 222
Salaries 119,838
Materials 5,263
Insurance 2,949
Payroll tax 9,168
Telephone 2,052
Utilities 1,498
---------
$ 140,990
=========
</TABLE>
In addition, the Company purchased $6,704 of equipment to be used for product
development.
5. RELATED PARTY TRANSACTIONS
Included in current liabilities is a note payable to William Tice, a Company
officer and major stockholder. The note bears 10% interest and is due on
demand and is subordinated debt.
The Company borrowed an additional $92,000 from the stockholder and made
principal payments of $46,116 during the year ended March 31, 1994. In
addition, the Company accrued interest of $11,127 on the note. In addition,
the notes payable to banks are secured by a second mortgage Deed of Trust on
Mr. Tice's personal residence as well as his personal guarantee.
100
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF OPERATING EXPENSES (CONTINUED)
FOR THE YEAR ENDED MARCH 31, 1994
6. INCOME TAXES
Effective April 1, 1993, the Company changed to an asset and liability method
of accounting for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes."
Taxes have been provided for at expected rates of 15% for federal and 6% state
tax.
Summaries of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
Federal State Total
------- ------- -------
<S> <C> <C> <C>
Current -0- -0- -0-
Deferred (29,771) (11,909) (41,680)
------- ------- -------
</TABLE>
$(41,680)
========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Deferred taxes have also
been recognized for operating losses that are available to offset future
taxable income.
Deferred tax assets in the accompanying balance sheet include the following
components at March 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
Section 263A cost in inventory $ 16,409
Net operating loss carryover 95,190
--------
Net deferred tax asset $111,599
========
</TABLE>
The Company has federal and state loss carryforwards of $424,623 and $524,955,
respectively, substantially all of which expire by 2008.
7. MAJOR CUSTOMERS AND EXPORT SALES
The Company sells a substantial portion of its product to two major customers.
Transactions with these major customers consist of the following:
Sales % of Sales
-------- ----------
Customer 1 $549,657 42%
Customer 2 170,132 13%
-------- ---
$719,789 55%
======== ===
101
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF OPERATING EXPENSES (CONTINUED)
FOR THE YEAR ENDED MARCH 31, 1994
7. MAJOR CUSTOMERS AND EXPORT SALES (CONTINUED)
Approximately 4% of the Company's sales are export sales. All export sales are
paid with an irrevocable letter of credit drawn on U.S. funds, therefore, there
are no foreign exchange gains or losses included in income.
8. EMPLOYEE BENEFITS
Employee benefits consist of insurance premiums for major medical, dental and
group term life insurance provided for employees and their dependents totaling
$23,211. Also, included in employee benefits is $6,422 of key employee life
insurance premiums.
9. STOCKHOLDERS EQUITY
The changes in the stockholders' equity account from March 31, 1993 to March
31, 1994 are as follows:
Common Retained
Stock Earnings
------- --------
Balance March 31, 1993 $ 8,634 $ 251,995
Net income (loss) for the year
ended March 31, 1994 (109,483)
------- ---------
Balance March 31, 1994 $ 8,634 $ 142,512
======= =========
102
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTAL INFORMATION
Board of Directors
Tice Engineering and Sales, Inc.
Knoxville, Tennessee
Our report on our audit of the basic financial statements of Tice
Engineering and Sales, Inc. for 1994 appears on page 92. That audit was
made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules of Cost of Sales,
Operating Expenses and Overhead Applied are presented for purposes of
additional analysis and are not a required part of the basic financial
statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Boring & Goins, P.C.
May 20, 1994
103
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF COST OF SALES
FOR THE YEAR ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Materials $587,226
Production and assembly labor 137,860
Production and assembly expense 3,843
Salaries - sales and service 144,160
Shop expense 1,549
Commissions 11,958
Applied overhead 113,201
--------
$999,797
========
</TABLE>
See accompanying independent auditors' report.
104
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF OPERATING EXPENSES
FOR THE YEAR ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
<S> <C>
EXPENSES
Advertising $ 52,082
Airplane 33,584
Amortization 72
Bad debts 1,143
Depreciation 51,560
Donations 744
Dues and fees 957
Employee benefits 11,148
Employee training 1,184
Insurance 34,095
Legal and accounting 6,030
Meals and entertainment 1,247
Office supplies 8,655
Postage 1,001
Research and development materials 5,263
Rent 304
Repairs and maintenance - real estate 7,772
Royalty 942
Salaries - officers 108,299
Salaries - other 86,527
Scholarship fund 2,408
Shop 1,549
Taxes - payroll 14,120
Taxes - other 14,319
Telephone 9,232
Travel 6,159
Utilities 8,381
Vehicle 4,111
---------
Total Expenses 472,888
Less Research and development cost (140,990)
---------
$ 331,898
=========
</TABLE>
See accompanying independent auditors' report.
105
<PAGE>
TICE ENGINEERING AND SALES, INC.
SCHEDULE OF APPLIED OVERHEAD
FOR THE YEAR ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Depreciation $ 8,875
Equipment maintenance 1,210
Employee benefits 18,485
Insurance 2,518
Legal - accounting 223
Office supplies 962
Postage 111
Rent 371
Salaries - purchasing 7,695
Salaries - clerical 3,055
Salaries - company officer 37,318
Payroll taxes 24,756
Telephone 1,026
Utilities 6,596
--------
$113,201
========
</TABLE>
See accompanying independent auditors' report.
106
<PAGE>
PRO FORMA BALANCE SHEETS ASSUMING ACQUISITION
OF TES AND CONVERSION OF TES DEBT:
<TABLE>
<CAPTION>
Tice Engineering &
Tice Technology, Inc. Sales, Inc. Tice Technology, Inc.
Balance Sheet Balance Sheet Pro-Forma & Subsidiary Pro
September 30, 1996 September 30, 1996 Adjustments Forma Balance Sheet
--------------------- ------------------- -------------- ----------------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current Assets
Cash $28,000 $ 97,467 $ 3,000 (5) $ 138,467
10,000 (6)
Accounts receivable 147,629 147,629
Inventory 465,573 465,573
Prepaid expenses 26,898 26,898
Deferred income tax 66,411 66,411
Due from related company 96,277 (96,277)(1)
------- ---------- ---------
Total current assets 28,000 900,255 844,978
Fixed Assets 770,794 770,794
Less accumulated depreciation (581,417) (581,417)
---------- ----------
Net fixed assets 189,377 189,377
Other Assets
Utility deposits 890 890
Cash value - life insurance 14,250 14,250
Note receivable - split dollar
life insurance 42,672 42,672
Patent, net of amortization 115,585 115,585
Organization cost 68,277 68,277
------- ---------- ----------
Total other assets 68,277 173,397 241,674
------- ---------- ---------- ----------
Total assets $96,277 $1,263,029 $ (83,277) $1,276,029
======= ========== ========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
- -----------------------------------
Current Liabilities
Note payable - officer $ $ 62,209 $ $ 62,209
Accounts payable 238,173 238,173
Taxes payable 5,239 5,239
10,493 (7)
Current maturities - long term debt 505,187 (265,680)(4) 250,000
96,277 (96,277)(1)
Due to related company ------- ---------- --------- -----------
Total liabilities 96,277 810,808 (351,464) 555,621
</TABLE>
107
<PAGE>
PRO FORMA BALANCE SHEETS ASSUMING ACQUISITION
OF TES AND CONVERSION OF TES DEBT:
<TABLE>
<CAPTION>
Tice Engineering &
Tice Technology, Inc. Sales, Inc. Tice Technology, Inc.
Balance Sheet Balance Sheet Pro-Forma & Subsidiary Pro
September 30, 1996 September 30, 1996 Adjustments Forma Balance Sheet
--------------------- ------------------ ----------- ---------------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS
- ----------------------------
EQUITY (continued)
- ------------------------
Stockholders Equity 8,634 (8,634)(2)
Capital stock, no stated value,
2,000 authorized,
750 shares issued and outstanding
30 stock warrants outstanding 4,859 (4,859)(3)
Common Shares, par value $.01 per
share, 30,000,000 52,117 (2)
authorized, 5,838,780 shares issued
and outstanding 2,385 (3)
886 (4)
3,000 (5) 58,388
Class B Common Shares, par value $.01 per share, 7,500 (2) 7,500
5,000,000 shares authorized, 750,000 shares
issued and outstanding
Class D Common Shares, par value $.01
per share, 10,000,000 shares authorized, no
shares issued and outstanding -0-
----------
Total Common Shares 65,888
Preferred Shares, par value $.01 per share,
10,000,000 shares authorized, no shares
issued and outstanding -0-
Paid in surplus (50,983)(2)
(2,385)(3)
264,794 (4)
10,000 (6)
4,859 (3) 226,285
Retained earnings 438,728 (10,493)(7) 428,235
-------- ---------- ----------- ----------
Total stockholders equity -0- 452,221 268,187 720,408
-------- ---------- ----------- ----------
Total liabilities and
stockholder's equity $96,277 $1,263,029 $ (83,277) $1,276,029
======= ========== =========== ==========
</TABLE>
(1) Eliminate inter-company receivables and payables.
(2) Exchange of Mr. Tice's stock in Tice Engineering and Sales, Inc. for
5,211,750 Common Shares and 750,000 Shares of Class B Common.
(3) 238,470 Common Shares issued to JWSI upon conversion of warrants issued
by TES.
(4) 88,560 Common Shares issued upon conversion of $265,680 debt of TES at
$3 per share.
(5) Issuance of 300,000 Common Shares to Monogenesis for $3,000.
(6) Issuance of 1,000,000 Common Stock Purchase Warrants to Monogenesis for
$10,000.
(7) Accrued interest of $10,493 on debt of TES converted to Common Shares.
108
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Tice Technology, Inc.
We have audited the accompanying balance sheet of Tice Technology, Inc. (a
development stage company) as of September 30, 1996. This financial
statement is the responsibility of the company's management. Our
responsibility is to express an opinion on this financial statement 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 balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall balance sheet presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Tice Technology, Inc. as
of September 30, 1996, in conformity with generally accepted accounting
principles.
BORING & GOINS, P.C.
November 15, 1996
109
<PAGE>
TICE TECHNOLOGY, INC.
BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
Current Assets $28,000
Cash - checking
Other Assets 68,277
-------
Organizational cost
Total Assets $96,277
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current Liabilities $96,277
-------
Due to related company
Total Liabilities and Stockholders Equity $96,277
=======
</TABLE>
110
<PAGE>
TICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NATURE OF BUSINESS
Tice Technology, Inc., a newly formed Delaware corporation, was formed to
acquire and hold all of the issued and outstanding stock of Tice
Engineering and Sales, Inc. Tice Engineering and Sales, Inc. is an
engineering firm which provides engineering and technical solutions for
the apparel industry. Tice Technology, Inc. was incorporated on June 21,
1996. Management of Tice Engineering and Sales, Inc. and Tice Technology,
Inc. anticipate that at some point in the future it may be advantageous to
acquire additional businesses and that Tice Technology, Inc. stock may be
used as some or all of the consideration for such acquisition.
111
<PAGE>
No dealer, salesman or other
person has been authorized to 2,984,717 COMMON SHARES
give any information or to make
any representations other than AND
those contained in this
Prospectus and if given or made, 1,000,000 COMMON STOCK
such information or PURCHASE WARRANTS
representations must not be
relied upon as having been OF
authorized by the Issuer. The
delivery of this Prospectus at TICE TECHNOLOGY, INC.
any time does not imply that the
information herein is correct as
of any time subsequent to its
date of issue. This Prospectus
does not constitute an offer to
sell or a solicitation of an
offer to buy any of these
securities.
------------------------- -------------------------
TABLE OF CONTENTS PROSPECTUS
------------------------- -------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information 2
Summary 3
Risk Factors 8
Plan of Distribution 14
Use of Proceeds 16 _______________, 1996
Capitalization 17
Business 18
Management's Discussion 28
and Analysis of Financial
Condition
Legal Proceedings 35
Management 35
Principal and Selling 38
Shareholders
Securities 41 UNTIL _____________________, 1997,
Dividends 44 DEALERS EFFECTING TRANSACTIONS IN THE
Liability and Indemnification 45 REGISTERED SECURITIES, WHETHER OR NOT
of Directors PARTICIPATING IN THIS DISTRIBUTION, MAY BE
Legal Matters 47 REQUIRED TO DELIVER A PROSPECTUS WHEN
Experts 47 ACTING AS UNDERWRITERS AND WITH RESPECT TO
Financial Statements 48 THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-------------------------
</TABLE>
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
- ------- --------------------------------------
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
Expenses of the offering are estimated to be approximately $100,000 which
amount includes the following items:
<TABLE>
<CAPTION>
<S> <C>
Registration fee - federal $ 2,915
Registration fees - state $ 0
Transfer Agent Fees* $15,000
Printing and EDGAR Filing Costs* $12,000
Legal Fees (including fees relating
to the reorganization)* $50,000
Accounting Fees $20,000
- --------------------------------------------------------------------------------
</TABLE>
* estimates
The Selling Shareholders are not paying any expenses of the registration.
Item 14. Indemnification of Directors and Officers
-----------------------------------------
The Issuer has provisions in its Certificate of Incorporation which limit
its directors' monetary liability to it or its shareholders except: (a) for any
breach of the director's duty of loyalty to the corporation or its shareholders;
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (c) for unlawful payment of dividends
or unlawful repurchase or redemption of its own stock; or (d) for any
transaction from which the director derived an improper personal benefit.
The Issuer is required to indemnify its officers and directors for any
liability incurred by them in their capacity as such except in relation to
matters as to which any such director or officer or former director or officer
or person shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty.
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
On the effective date of this Registration Statement, the Issuer issued
5,450,220 Common Shares and 750,000 Class B Common Shares to the shareholders of
Tice Engineering and Sales, Inc. in exchange for all of TES's issued and
outstanding stock (238,470 Class B Common Shares issued to Joseph Walker & Sons,
Inc. were converted to Common Shares) and options to purchase 54,750 Common
Shares to ten employees. The Issuer also issued 88,560 shares to six persons in
satisfaction of certain debt of TES. The Issuer claims exemption from
registration under Section 4(2) of the Securities Act of 1933.
Of the Common Shares issued to TES shareholders and note holders, 1,629,967
shares (in addition to the Common Shares sold to Monogenesis) will be registered
under this Registration Statement. The remaining securities issued will bear a
restrictive legend. The Common Shares which may be issued upon exercise of the
employee stock options will also be registered under this Registration
Statement.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
I. Plan of Acquisition, Reorganization, Arrangement, 2
Liquidation or Succession
- ---------------------------------------------------------------------------------------------
(i) Stock Purchase Agreement and Plan of 116
Reorganization (including all schedules)
- ---------------------------------------------------------------------------------------------
II. Articles of Incorporation and Bylaws 3
- ---------------------------------------------------------------------------------------------
(i) Certificate of Incorporation of Tice Technology, Inc. 145
- ---------------------------------------------------------------------------------------------
(ii) Bylaws of Tice Technology, Inc. 155
- ---------------------------------------------------------------------------------------------
III. Instruments Defining the Rights of Security Holders 4
- ---------------------------------------------------------------------------------------------
(i) Common Stock Purchase Warrant Agreement *
Between Tice Technology, Inc. and Warrant Agent
- ---------------------------------------------------------------------------------------------
IV. Opinion of Counsel - Legality of Securities Being 5 *
Registered
- ---------------------------------------------------------------------------------------------
V. Material Contracts 10
- ---------------------------------------------------------------------------------------------
(i) Agreement Between Tice Technology, Inc. and *
Transfer Agent
- ---------------------------------------------------------------------------------------------
VI. Subsidiaries of the Registrant 21
- ---------------------------------------------------------------------------------------------
VII. Consent of Experts 23
- ---------------------------------------------------------------------------------------------
(i) Consent of Boring & Goins, P.C., *
Certified Public Accountants
- ---------------------------------------------------------------------------------------------
(ii) Consent of Counsel - See Exhibit 5
- ---------------------------------------------------------------------------------------------
VIII. Financial Data Schedule 27
- ---------------------------------------------------------------------------------------------
* Included in original filing of Registration Statement and incorporated by reference herein.
</TABLE>
<PAGE>
Item 17. Undertakings
------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this pre-effective amendment no. 1 to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Knoxville, State of Tennessee, on December 13, 1996.
Tice Technology, Inc.
By: \s\ William A. Tice
----------------------------------------------------
William A. Tice, President, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this pre-
effective amendment no. 1 to this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
\s\ William A. Tice on December 13, 1996
- ---------------------------------------------------------
William A. Tice, President, Chief Executive Officer
\s\ Karen A. Walton on December 13, 1996
- ---------------------------------------------------------
Karen A. Walton, Chief Financial Officer
The following are at least a majority of the directors of Tice Technology,
Inc.:
\s\ William A. Tice on December 13, 1996
- ---------------------------------------------------------
William A. Tice, Director
\s\ Karen A. Walton on December 13, 1996
- ---------------------------------------------------------
Karen A. Walton, Director
\s\ Sarah Y. Sheppeard on December 12, 1996
- ---------------------------------------------------------
Sarah Y. Sheppeard, Director
<PAGE>
Exhibit 2
---------
STOCK PURCHASE AGREEMENT
AND
PLAN OF REORGANIZATION
----------------------
This Stock Purchase Agreement and Plan of Reorganization (the "Agreement") is
entered into as of this ____ day of ________, 1996 by and among Tice Engineering
and Sales, Inc., a Tennessee corporation ("Tice"); Monogenesis Corporation, a
Delaware corporation ("Monogenesis"); Joseph Walker & Sons, Inc., a Delaware
corporation ("JWSI"); and William A. Tice, the sole shareholder of Tice (the
"Shareholder").
WHEREAS, Monogenesis is a closed-end investment company with approximately
1,200 institutional shareholders which was formed to provide a mechanism for
companies to become reporting companies under the Securities Act of 1934 through
distributions to its shareholders;
WHEREAS, Tice desires to form a holding company which will have a class of
shares for which a public trading market exists to facilitate access to equity
capital and future acquisitions and to provide liquidity for employee stock
incentive programs and its shareholders;
WHEREAS, a Delaware corporation (the "Holding Company") will be created which
will acquire all of the issued and outstanding shares of stock of Tice in a
stock for stock exchange;
WHEREAS, the Holding Company will have four classes of stock authorized:
Common Shares, Class B Common Shares, Class D Common Shares and Preferred Shares
as well as common stock purchase warrants as described below;
WHEREAS, Tice has authorized 2,000 shares of common stock, 750 of which are
issued and outstanding and has outstanding warrants to purchase 30 shares of
common stock of Tice;
WHEREAS, the Shareholder owns all of the issued and outstanding stock of Tice
and desires to exchange his stock in Tice for stock in the Holding Company, in
the ratio of 1,000 Class B Common Shares and 6,949 Common Shares of the Holding
Company for each share of common stock of Tice;
WHEREAS, JWSI has received warrants to purchase 30 shares of common stock of
Tice which will entitle JWSI to purchase 238,470 Common Shares of the Holding
Company (JWSI will agree to convert the 1,000 Class B Common Shares which are
part of the exchange to Common Shares;
<PAGE>
WHEREAS, the Holding Company will authorize Common Stock Purchase Warrants
(the "Warrants") to purchase Common Shares of the Holding Company (which
Warrants will be exercisable for 24 months and have an exercise price of $8.00
per share);
WHEREAS, prior to the Closing Date (as hereinafter defined), Monogenesis will
purchase, and the Holding Company will issue to Monogenesis, 300,000 of its
Common Shares at a purchase price of $0.01 per share together with 1,000,000
Warrants at a purchase price of $0.01 per Warrant;
WHEREAS, prior to the stock for stock exchange, the Holding Company (and Tice)
will file a registration statement (the "Registration Statement") registering
1,302,937 of the Common Shares to be issued to the Shareholder, all of the
Common Shares and all of the Warrants to be issued to Monogenesis and JWSI and
all of the Common Shares underlying the Warrants pursuant to the Securities Act
of 1933, as amended (the "1933 Act"); and
WHEREAS, on the Closing Date, Monogenesis will authorize its transfer agent to
distribute to Monogenesis shareholders 125 Common Shares of the Holding Company
and 400 Warrants of the Holding Company for each share of stock of Monogenesis
held;
NOW THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, the parties agree as follows:
ARTICLE I
SECURITIES
1.1 EXCHANGE OF SECURITIES. Subject to the terms and conditions hereinafter
set forth, on the Closing Date (as defined below), the Holding Company shall
cause to be issued and delivered to the Shareholder and JWSI (upon exercise of
its warrants) the class and the number of shares of stock of the Holding Company
(the "Shares") set forth opposite their names on Schedule 1.1, which is attached
hereto and made a part hereof, in exchange for which the Shareholder and JWSI
shall deliver to the Holding Company all of the issued and outstanding stock and
warrants of Tice.
1.2 JWSI WARRANTS. In connection with the proposed transactions, Tice has
issued to JWSI warrants to purchase 30 of its shares of common stock which will
be exercised to purchase 238,470 Common Shares of the Holding Company which
shares will be registered. JWSI agrees to convert all Class B Common Shares
which it is eligible to receive in the exchange upon exercise of its warrants to
Common Shares.
2
<PAGE>
1.3 ISSUANCE OF SECURITIES TO MONOGENESIS. Prior to the exchange of
securities described in Section 1.1 above, the Holding Company shall issue to
Monogenesis 300,000 Common Shares upon receipt of the purchase price of $0.01
per share and 1,000,000 Warrants (in substantially the form attached hereto as
Exhibit 1.3) upon receipt of the purchase price of $0.01 per Warrant.
1.4 REGISTRATION STATEMENT. The Holding Company and Tice shall prepare and
file the Registration Statement pursuant to the 1933 Act registering a total of
2,984,717 Common Shares and 1,000,000 Warrants, which constitute 1,302,937 of
the 5,211,750 Common Shares to be issued to the Shareholder, the 300,000 Common
Shares and 1,000,000 Warrants to be issued to Monogenesis, the 238,470 Common
Shares to be issued to JWSI, 88,560 Common Shares to be issued to certain
noteholders of Tice, the 1,000,000 Common Shares underlying the Warrants and
54,750 Common Shares underlying certain stock options to be issued to certain
employees of Tice. The Shareholder shall receive the registered shares as
indicated on Schedule 1.1.
1.5 DISPOSITIONS OF SHARES BY THE SHAREHOLDER. The parties desire that this
transaction qualify as a tax free reorganization under Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended. In furtherance thereof, the
Shareholder shall not dispose of any shares of the Holding Company stock
received in the exchange within five years of the exchange if such disposition
would reduce the aggregate fair value of the Holding Company stock (measured as
of the date of the exchange) retained by the Shareholder to an amount less than
50% of the aggregate fair value of all of Tice's issued and outstanding stock
immediately before the exchange, unless he obtains an opinion of counsel
reasonably satisfactory to the Holding Company that such transfer will not
violate the continuity of shareholder interest requirement set forth in Treas.
Reg. (S) 1.368-1. The Shareholder shall provide written notice to the Holding
Company, not less than five business days prior to the intended date of
disposition, specifying the number of shares of which the Shareholder proposes
to dispose.
ARTICLE II
CLOSING
2.1 TIME AND PLACE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the place and on such date and at
such time within ten business days after the date on which all of the conditions
set forth in Articles IX and X to each party's obligations hereunder have been
satisfied or waived, as set forth in a written notice from Monogenesis at least
five business days prior thereto; or on such
3
<PAGE>
other date and at such other time and place as Tice and Monogenesis may mutually
agree. The date on which the Closing actually occurs is herein referred to as
the "Closing Date".
2.2 ACTIONS AT THE CLOSING. (a) At the Closing, the Shareholder shall
deliver to the Holding Company and the Holding Company shall deliver to the
Shareholder the shares to be exchanged in accordance with Sections 1.1 and 1.2
of this Agreement. The Shareholder shall deliver the certificates and
agreements representing all of the issued and outstanding shares of stock of
Tice to the Holding Company in negotiable form or together with completed and
executed stock powers transferring such shares and warrants to the Holding
Company. Upon receipt of such shares and warrants, the Holding Company shall
instruct the transfer agent to prepare and deliver certificates representing the
Shares.
(b) After the share exchange, JWSI will exercise the warrants, convert the
Class B Common Shares to Common Shares and receive a total of 238,470 Common
Shares of the Holding Company.
2.3 HOLDING COMPANY DIRECTORS. The Board of Directors of the Holding Company
shall have the number of directors designated by Tice and shall consist of the
individuals designated by Tice.
2.4 SIMULTANEOUS ACTIONS. All proceedings to be taken and all documents to be
executed and delivered by the parties at the Closing shall be deemed to have
been taken and executed simultaneously and no proceedings shall be deemed taken
nor any documents executed or delivered until all have been taken, executed and
delivered.
ARTICLE III
REPRESENTATIONS AND WARRANTS OF TICE
Tice represents and warrants to Monogenesis, all of which representations and
warranties shall be true on the Closing Date and shall survive the Closing,
that:
3.1 ORGANIZATION. Tice is a corporation duly organized, validly existing and
in good standing under the laws of the State of Tennessee and has the corporate
power to own its property and carry on its business as it is now being
conducted. Tice is duly qualified and in good standing to do business in every
jurisdiction in which such qualification is necessary and each of such
jurisdictions is listed on Schedule 3.1 attached hereto. Copies of the
Certificate of Incorporation and the Bylaws of Tice, which have been furnished
by Tice to Monogenesis, are true and correct copies
4
<PAGE>
of said documents including all amendments to the date hereof. The offices and
directors of Tice are listed on Schedule 3.1.
3.2 CAPITALIZATION. Tice has authorized 2,000 shares of Common Stock which
have no par value. Of such shares, 750 are issued and outstanding and have been
and will be duly authorized, validly issued, fully paid and nonassessable.
Except for the warrants issued to JWSI and as set forth on Schedule 3.2 hereto
and as described herein, there is no: (i) outstanding security convertible into
or exchangeable for Common Stock; (ii) option, warrant, put, call or other right
to purchase or subscribe to Common Stock; or (iii) contract, commitment,
agreement, understanding or arrangement of any kind relating to the issuance or
disposition of Common Stock or the issuance or disposition of any security
convertible into Common Stock. Tice's records reflect the ownership of all
issued and outstanding shares of its stock by the Shareholder.
3.3 SUBSIDIARIES. Tice has no subsidiaries and owns no stock, partnership or
other equity interest in any other entity.
3.4 AUTHORITY. Tice has full power to execute and perform this Agreement.
The execution and delivery of this Agreement has been duly authorized by all
necessary corporate and other actions. Neither the execution nor delivery of
this Agreement nor the performance, observation or compliance with its terms and
conditions will violate any provision of law, any order of court or other
governmental agency, the Certificate of Incorporation or Bylaws of Tice, or any
indenture, agreement or other instrument to which Tice is a party, or by which
it is bound or by which any of its property is bound. No consent to the
performance, observation or compliance with the terms and conditions of this
Agreement by Tice is required from any third party.
3.5 FINANCIAL STATEMENTS. Schedule 3.5 attached hereto contains true and
complete copies of the following (collectively, the "Financial Statements"):
(a) the audited balance sheets of Tice as of March 31, 1994, 1995 and 1996,
and the related audited statements of earnings and retained earnings and cash
flow for the fiscal years then ended, and notes related thereto; and
(b) the unaudited balance sheet (the "Balance Sheet") of Tice as of
September 30, 1996 (the "Balance Sheet Date") and the related unaudited
statement of earnings for the six months then ended, prepared by Tice and
accompanied by a certificate in the
5
<PAGE>
form of Exhibit 3.5 hereto executed by the persons indicated on said Exhibit.
The Financial Statements either eliminate or clearly disclose all transactions
between Tice, the Shareholder and their affiliates. Except as otherwise noted in
the Financial Statements, the Financial Statements are complete and present
fairly the financial position of Tice and the results of its operations as of
the dates thereof and for the periods covered thereby in conformity with
generally accepted accounting principles applied on a consistent basis.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the Best Knowledge (as defined in
Section 3.20 below) of Tice, at the Balance Sheet Date (i) Tice had no
liabilities or obligations of any nature (matured or unmatured, fixed or
contingent) which were not provided for or disclosed on the Balance Sheet, (ii)
all reserves and allowances provided on the Balance Sheet were adequate for the
purposes indicated therein and (iii) there were no loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board ("FASB")) which were not adequately
provided for in the Balance Sheet.
3.7 ABSENCE OF CHANGES. Since the Balance Sheet Date, Tice's business has
operated in the ordinary course and there has not been (i) any adverse change in
its condition (financial or otherwise), assets, liabilities, earnings or
business; (ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) incurred, or any
transaction, contract or commitment entered into, other than items incurred or
entered into (as the case may be) in the ordinary course of the business; (iii)
any amendment or termination of a material contract, license, lease, commitment
or other agreement to which Tice is a party, except in the ordinary course of
business and consistent with past practice; (iv) any license, sale, transfer,
pledge, mortgage or other disposition of any tangible or intangible asset or
Intellectual Property (as defined in Section 3.13 below) except sales of
inventory in the ordinary course of business and consistent with past practice;
(v) any failure to operate its business in the ordinary course consistent with
past practice, including, but not limited to, any failure to make capital
expenditures or investments necessary to continue business in the ordinary
course or any failure to pay trade accounts payable when due; or (vi) any
dividend or other distribution declared or paid or any change in its Common
Stock outstanding.
6
<PAGE>
3.8 TITLE TO ASSETS. Tice has good and marketable title to all of its
assets, free and clear of all mortgages, liens, pledges, charges, security
interests, rights of way, options, rights of first refusal, conditions,
restrictions or encumbrances of any kind or character, whether or not relating
to the extension of credit or the borrowing of money (collectively,
"Encumbrances"), except for (i) the Encumbrances disclosed in the Financial
Statements and (ii) liens for taxes and governmental charges not yet payable
without penalty. There is no asset used or required by Tice in the conduct of
its business which is not either owned by it or licensed or leased to it.
3.9 LITIGATION. There are no (i) audits, inspections, actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or
threatened against Tice, whether at law or in equity, whether civil or criminal
in nature or whether before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, nor, to the Best Knowledge of Tice, does any basis exist
therefor or (ii) judgments, decrees, injunctions or orders of any court,
governmental department, commission, agency, instrumentality or arbitrator
against Tice.
3.10 COMPLIANCE; GOVERNMENTAL AUTHORIZATION. (a) Tice has complied with all
federal, state, territorial, local or foreign laws, ordinances, regulations or
orders applicable to its business or assets, including, by way of description,
and not limitation, matters relating to the environment, anti-competitive
practices, discrimination, employment, health and safety, taxes, issuance of
securities, customs duties and requirements and foreign practices. Tice has all
federal, state, territorial, local and foreign governmental licenses and permits
necessary in the conduct of its business as presently conducted, which licenses
and permits are in full force and effect, and no violations are outstanding or
uncured with respect to any such licenses or permits and no proceeding is
pending or threatened to revoke or limit any of them. Such licenses, consents
and permits shall not be affected in any respect by the transactions
contemplated hereby.
(b) As used in this Agreement, "Hazardous Substance" shall mean and include
all hazardous or toxic substances, wastes or materials, any pollutants or
contaminants (including, without limitation, all oil and petroleum of any kind
and in any form, asbestos and raw materials which include hazardous
constituents), or any other similar substances, or materials which are included
under or regulated by any applicable local, state, federal or foreign law, rule
or regulation pertaining to environmental regulation, contamination, clean-up or
disclosure, including,
7
<PAGE>
without limitation, the Clean Air Act, the Federal Water Pollution Control Act,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act of 1976, the Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, the Occupational Safety and
Health Act, the Emergency Planning and Community Right-to-Know Act of 1986, and
all comparable applicable state or local laws, orders and regulations, as any of
the foregoing has heretofore been amended.
(c) Tice hereby warrants to Monogenesis that Tice and the supervisory
employees, officers and directors of Tice have no knowledge of the presence,
storage, disposition, generation, treatment, release or discharge of any
Hazardous Substance on, under or about the assets owned by Tice or the land and
buildings on and in which Tice currently conducts or previously conducted its
operations.
3.11 LABOR RELATIONS; EMPLOYEES. Tice is in compliance with all applicable
federal, state, territorial, local and foreign laws and regulations respecting
labor, employment and employment practices, terms and conditions of employment
and wages and hours. There is no unfair labor practice complaint against Tice
pending before any state, local or foreign agency. There is no labor strike,
dispute, slowdown, stoppage or organizational effort or similar activity
actually pending or, to the Best Knowledge of Tice, threatened involving Tice;
no representation question exists respecting the employees of Tice; and no
collective bargaining agreement presently covers any employees of Tice, nor is
any currently being negotiated.
3.12 EMPLOYEE BENEFIT PLANS. (a)Schedule 3.12 attached hereto lists all
"employee pension benefit" plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), all "employee
welfare benefit" plans (as defined in Section 3(1) of ERISA) and any other
qualified or non-qualified plans, programs or letters of commitment promising
current or future benefits or deferred compensation (individually, a "Plan" and,
collectively, the "Plans") maintained by Tice. All Plans which are "employee
pension benefit" plans are so indicated on Schedule 3.12. All reports,
statements, returns and other information required to be furnished or filed with
respect to the Plans have been furnished or filed, or both, and all required
records have been maintained. There are no actions, suits or claims pending, or
to the Best Knowledge of Tice, threatened against, involving, or affecting any
Plan. Tice has no material liability, civil or criminal, under any provision of
ERISA or any other applicable statute or rule of law with respect to the Plans.
8
<PAGE>
(b) There are no violations of the health care continuation coverage
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") with respect to employees of Tice or any qualified
beneficiaries of such employees.
3.13 INTELLECTUAL PROPERTY. Set forth on Schedule 3.13 is a list and a brief
description or identification of all intellectual property rights owned, leased
or licensed by Tice or used in connection with its business, including without
limitation all patents, patent applications, trade names, fictitious or assumed
names, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, patterns, inventions, trade
secrets, proprietary processes and formulae, license agreements, and all other
similar proprietary rights, whether patentable or unpatentable (collectively,
the "Intellectual Property"). Except only as set forth on Schedule 3.13, Tice is
not a licensor or licensee in respect of any Intellectual Property. Tice owns or
possesses adequate licenses or other rights to use all Intellectual Property
necessary to conduct its business as now operated and all of such Intellectual
Property is owned outright by Tice except as is otherwise specifically noted on
Schedule 3.13. To the Best Knowledge of Tice, there is no infringement,
misappropriation or other misuse being made by any other party of the
Intellectual Property. No claim is pending or threatened to the effect that the
present or past operations of Tice infringe or conflict with the asserted rights
of others in respect of any Intellectual Property, and no claim is pending or
threatened to the effect that any of such Intellectual Property is invalid or
unenforceable.
3.14 ACCOUNTS AND NOTES RECEIVABLE. All unpaid accounts and notes receivable
outstanding at the date hereof constitute, and those outstanding at the Closing
Date will constitute, valid and enforceable claims arising in bona fide
transactions in the ordinary course of business, except as enforceability is
limited by applicable bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance or similar laws affecting the enforcement of creditors
rights generally. There is (i) no account or note debtor who has refused or
threatened to refuse to pay its obligations or who has or threatened to set-off
such obligations for any reason, (ii) no account or note debtor who is to Tice's
Best Knowledge insolvent or bankrupt and (iii) no account or note receivable
pledged to any third party. The reserves and allowances provided for on the
Balance Sheet have been established on the basis of historical experience in
accordance with generally accepted accounting principles. To the Best Knowledge
of Tice, no material
9
<PAGE>
customer of Tice is currently a debtor in any proceeding under the Federal
Bankruptcy Code or other similar law.
3.15 INVENTORIES. The inventories of Tice are, and at the Closing Date will
be, (i) of a quantity which is reasonable in the circumstances of Tice; and (ii)
of a quality which is substantially similar to the historical quality of Tice's
inventory.
3.16 TAX MATTERS. For purposes of this Agreement, the term "Taxes" means all
taxes of any kind or nature, including but not limited to federal, state, local
and foreign income taxes, withholding taxes, branch profit taxes, gross receipts
taxes, franchise taxes, sales and use taxes, business and occupation taxes,
property taxes, VAT, custom duties or imposts, stamp taxes, excise taxes,
payroll taxes, intangible taxes and capital taxes and any penalties or interest
thereon. Tice has filed within the time and in the manner prescribed by law all
tax returns and reports required to be filed by it under the laws of the United
States and each state or other jurisdiction in which it conducts business
activities requiring the filing of tax returns or reports. Tice has paid or set
up adequate reserves in the Balance Sheet in respect of all Taxes. There are no
tax liens, whether imposed by the United States, any state, local, foreign or
other taxing authority, outstanding against Tice or its assets. All Taxes and
assessments that Tice is required to withhold or to collect have been duly
withheld or collected and all withholdings and collections have either been duly
and timely paid over to the appropriate governmental authorities or are,
together with the payments due or to become due in connection therewith, duly
reflected on the Balance Sheet in accordance with generally accepted accounting
principles.
3.17 BOOKS AND RECORDS. The books of account and other corporate financial
records of Tice are in all material respects complete and correct, have been
maintained in accordance with good business practices and matters contained
therein are appropriately and accurately reflected in the Financial Statements.
The corporate record book of Tice contains true and complete copies of all
meetings of its shareholders and directors.
3.18 DISPOSITION OF HOLDING COMPANY STOCK. Tice is not aware of any present
plan, intention or arrangement of the Shareholder to dispose of the Holding
Company stock to be received hereunder which would reduce the aggregate fair
value of the Holding Company stock (as measured as of the date of the exchange)
retained by the Shareholder to an amount less than 50% of the aggregate value of
all Tice stock immediately prior to the exchange.
10
<PAGE>
3.19 DISCLOSURE. Neither this Agreement (including the Schedules and Exhibits
attached hereto) nor any other document, certificate or statement furnished to
Monogenesis by or on behalf of Tice in connection with the transactions
contemplated hereby, when considered in the aggregate with all other such
documents, certificates or statements, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
3.20 BEST KNOWLEDGE OF TICE. Tice represents and warrants that each time a
representation and warranty is based on "Best Knowledge" that Tice has made a
duly diligent investigation and inquiry.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder represents and warrants, all of which representations and
warranties shall be true on the Closing Date and shall survive the Closing,
that:
4.1 AUTHORITY. The Shareholder has full power and authority to execute and
perform this Agreement and to exchange the shares of stock of Tice upon the
terms provided in this Agreement. The execution and delivery of this Agreement
has been duly authorized by the Shareholder. Neither the execution nor delivery
of this Agreement nor the performance, observation or compliance with its terms
and provisions will violate any provision of law, any order of court or other
governmental agency, or any indenture, agreement or other instrument to which
the Shareholder is a party, or by which he is bound or by which his property is
bound. No consent to the performance, observation or compliance with the terms
and conditions of this Agreement by the Shareholder is required from any third
party.
4.2 STOCK OWNERSHIP. All of the Common Stock of Tice is directly owned by the
Shareholder, as indicated herein, free and clear of all liens, encumbrances,
security interests, charges, pledges, options, restrictions on transfer, rights
of refusal or other adverse claims of any kind except as set forth on Schedule
4.2 attached hereto. No person owns or has any beneficial interest in any Common
Stock except the Shareholder. The Shareholder has good and marketable title to
the shares being. The Shareholder has not transferred or assigned, or entered
into any agreement or understanding to transfer or assign, any of the Common
Stock of Tice or any of the voting rights pertaining to the shares except as
described herein.
11
<PAGE>
4.3 DISPOSITION OF HOLDING COMPANY STOCK. The Shareholder does not have any
present plan, intention or arrangement to dispose of the Holding Company stock
to be received hereunder which would reduce the aggregate fair value of the
Holding Company stock (as measured as of the date of the exchange) retained by
the Shareholder to an amount less than 50% of the aggregate value of all Tice
stock immediately prior to the exchange.
4.4 INVESTMENT REPRESENTATIONS. (a) The Shareholder has received such material
information as has been requested for purposes of becoming fully familiar with
the financial condition of Tice and the expected condition of the Holding
Company, the administration of their business affairs, and their prospects for
future business.
(b) The Shareholder is fully aware and has been advised that the securities
received pursuant to this Agreement are speculative in nature and that neither
Tice nor the Holding Company make any assurance whatever concerning the present
or prospective value of the securities.
(c) The Shareholder understands that, with the exception of the 1,302,397
Common Shares which will be registered pursuant to the 1933 Act, the Common
Shares to be received by the Shareholder pursuant to this Agreement will not be
registered under the 1933 Act, on the ground that the securities are being
issued and sold in a transaction not involving any public offering and that,
consequently, the transaction is exempt from registration under the 1933 Act by
virtue of the provisions of Section 4(2) thereof; nor are the securities to be
registered under the securities laws of any state on the ground that the sale is
exempt, or registration of securities is not required, under the securities laws
of Tennessee in which state the Shareholder resides.
(d) The Shareholder understands that the reliance of Tice and the Holding
Company upon the above exemptions is predicated in part on the representation of
the Shareholder that such unregistered securities are being acquired for the
account of the Shareholder with no present intention of reselling or otherwise
distributing the same.
(e) The Shareholder understands that he will not be able to dispose of any
shares acquired pursuant to this Agreement, except such shares as are registered
as described in Article I, or any interest therein unless and until such shares
or interests have been registered under the 1933 Act and applicable state
securities laws or the Holding Company has received an opinion from counsel
satisfactory to it that registration is not required in connection
12
<PAGE>
with such disposition. The Shareholder understands that the Holding Company
will prohibit transfers of the shares which are not registered as described in
Article I in the absence of registration or the mentioned opinion of counsel and
a restrictive legend will be placed on the Class B Common Shares and on the
Common Shares received by the Shareholder which are not registered as described
in Article I reflecting these restrictions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MONOGENESIS
Monogenesis represents and warrants, all of which representations and
warranties shall be true on the Closing Date and shall survive the Closing,
that:
5.1 ORGANIZATION. Monogenesis is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted.
5.2 AUTHORITY. Monogenesis has the full power to execute and perform this
Agreement. The execution and delivery of this Agreement has been duly
authorized by all necessary corporate and other actions. Neither the execution
nor delivery of this Agreement nor the performance, observance or compliance
with its terms and conditions will violate any provision of law, any order of
court or other governmental agency, the Certificate of Incorporation or Bylaws
of Monogenesis or any indenture, agreement or other instrument to which
Monogenesis is a party, or by which it is bound. No consent to the performance,
observation or compliance with the terms and conditions of this Agreement by
Monogenesis is required from any third party.
5.3 SHAREHOLDERS. Monogenesis has in excess of 1,000 shareholders.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF JWSI
JWSI represents and warrants, all of which representations and warranties
shall be true on the Closing Date and shall survive the Closing, that:
6.1 ORGANIZATION. JWSI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the corporate
power to carry on its business as it is now being conducted.
13
<PAGE>
6.2 AUTHORITY. JWSI has the full power to execute and perform this Agreement.
The execution and delivery of this Agreement has been duly authorized by all
necessary corporate and other actions. Neither the execution nor delivery of
this Agreement nor the performance, observance or compliance with its terms and
conditions will violate any provision of law, any order of court or other
governmental agency, the Certificate of Incorporation or Bylaws of JWSI or any
indenture, agreement or other instrument to which JWSI is a party, or by which
it is bound. No consent to the performance, observation or compliance with the
terms and conditions of this Agreement by JWSI is required from any third party.
6.3 OWNERSHIP OF WARRANTS. JWSI owns the warrants of Tice to be exchanged
hereunder free and clear of all liens, encumbrances, security interests,
charges, pledges, options, restrictions on transfer, rights of refusal or other
adverse claims of any kind. JWSI has good and marketable title to the warrants
being transferred. JWSI has not transferred or assigned, or entered into any
agreement or understanding to transfer or assign, any of the warrants.
ARTICLE VII
COVENANTS OF TICE
Tice hereby covenants and agrees with Monogenesis as follows:
7.1 CONDUCT OF BUSINESS UNTIL CLOSING DATE. Except as permitted or required
hereby or as Monogenesis may otherwise consent in writing, between the date
hereof and the Closing Date, Tice shall:
(a) operate its business only in the usual, regular and ordinary manner as
such business was conducted prior to the Balance Sheet Date and, to the extent
consistent with such operation, use its best efforts to (i) preserve the present
business organization intact, (ii) keep available the services of the present
employees, and (iii) preserve the present business relationship with customers,
suppliers and others having business dealings with it;
(b) maintain all properties necessary for the conduct of the business,
whether owned or leased, in substantially the same condition as they now are
(reasonable wear and tear which are not such as to materially adversely affect
operations and damage due to unavoidable casualty excepted);
(c) neither (i) encumber, mortgage or voluntarily subject to lien, except
for liens created pursuant to existing loan
14
<PAGE>
agreements, any of the properties or assets, (ii) convey, transfer or acquire
any material asset or property other than in the ordinary course of business,
nor (iii) except in the ordinary course of business, incur any material fixed or
contingent obligation or enter into any material agreement, commitment or other
transaction or arrangement; and
(d) neither declare, set aside, pay or make any dividend or other
distribution or payment on or in respect of shares of its stock, nor directly or
indirectly redeem, retire, purchase or otherwise acquire any of its stock.
7.2 ACCESS TO PROPERTIES AND RECORDS. Tice shall give to Monogenesis and its
representatives reasonable access during normal business hours to Tice's
properties, personnel, books, tax returns, contracts, commitments and records
and the right to make copies thereof. Tice shall furnish to Monogenesis and such
representatives all such additional documents and financial and other
information as Monogenesis or its representatives may from time to time
reasonably request and permit Monogenesis and such representatives to examine
all records and working papers relating to the preparation, review and audits of
Tice's financial statements and tax returns.
7.3 ADVICE OF CHANGES. Between the date hereof and the Closing Date, Tice
shall advise Monogenesis promptly in writing of any fact of which any Tice
becomes aware, which, if known at the date hereof, would have been required to
be set forth or disclosed in or pursuant to this Agreement.
7.4 CONDUCT. Except as permitted or required hereby or as Tice may notify
Monogenesis in writing, Tice shall not enter into any transaction, take any
action, or fail to take any action, which would result in any of the
representations and warranties of Tice contained in this Agreement or in any
Schedule or Exhibit hereto not being true and correct at and as of the time
immediately after such transaction has been entered into or such event has
occurred and on the Closing Date.
7.5 APPROVALS, CONSENTS. Tice shall obtain in writing prior to the Closing
Date all approvals, consents and waivers, required to be obtained by Tice in
order to effectuate the transactions contemplated hereby, and shall deliver to
Monogenesis copies thereof, reasonably satisfactory in form and substance to
Monogenesis.
15
<PAGE>
ARTICLE VIII
COVENANTS OF MONOGENESIS
Monogenesis hereby covenants and agrees with Tice as follows:
8.1 CONFIDENTIALITY; RETURN OF DOCUMENTS. Unless and until the transactions
contemplated by this Agreement are consummated, Monogenesis shall keep in
confidence all proprietary and financial information of Tice, and shall not,
except to the extent required by law or to the extent any such information is
otherwise publicly available, without the prior written consent of Tice, reveal
any such financial or proprietary information to any third party other than
securities regulatory authorities in connection with the Registration Statement
or counsel, accountants or experts retained by Monogenesis who shall be bound by
the same restrictions. If the transactions contemplated by this Agreement are
not consummated, Monogenesis shall return to Tice, at Tice's request, all
documents supplied to Monogenesis by Tice pursuant to the provisions of this
Agreement.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF MONOGENESIS
The obligation of Monogenesis to perform as provided in this Agreement is
subject to the satisfaction at or prior to the Closing Date of the following
conditions unless waived by Monogenesis in its sole discretion:
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Tice and the Shareholder contained in this Agreement and in any
Schedule or Exhibit hereto shall be true and accurate in all material respects
on and as of the Closing Date, with the same force and effect as if made on the
Closing Date, except as affected by transactions required or permitted hereby,
and except that any such representation or warranty made as of a specified date
(other than the date of this Agreement) shall have been true and accurate in all
material respects on and as of such date.
9.2 PERFORMANCE OF AGREEMENTS. Tice and the Shareholder shall have performed
and complied with all covenants, obligations and agreements to be performed or
complied with, on or before the Closing Date pursuant to this Agreement or any
Schedule or Exhibit hereto, including, but not limited to, the transfer of the
Shares to the Holding Company.
9.3 TICE'S CERTIFICATE. Monogenesis shall have received an accurate
certificate, dated the Closing Date, of Tice, satisfactory
16
<PAGE>
in form and substance to Monogenesis, certifying as to the fulfillment of the
matters specified in Sections 9.1 and 9.2.
9.4 SECRETARY'S CERTIFICATE. Monogenesis shall have received an accurate
certificate, dated the Closing Date, of the Secretary or Assistant Secretary of
Tice, satisfactory in form and substance to Monogenesis, with respect to the
resolutions adopted by the Board of Directors of Tice approving this Agreement
and the transactions contemplated hereby.
9.5 CONSENTS, AUTHORIZATIONS. All consents, authorizations, orders or
approvals of, and filings or registrations with and the expiration of all
waiting periods imposed by, any third party, including, without limitation, any
federal, state or local commission, board or other regulatory body, lender,
lessor, licensor or supplier which are required for or in connection with the
execution and delivery of this Agreement by Tice and the Shareholder and the
consummation of the transactions contemplated hereby shall have been duly
obtained or made and shall be in full force and effect.
9.6 LEGISLATION. No federal, state or local statute, rule or regulation shall
have been enacted after the date of this Agreement which prohibits, restricts,
delays or materially adversely affects the business of Tice or the consummation
of the transactions contemplated by this Agreement or any of the conditions to
the consummation of such transactions. No temporary restraining order or
injunction shall be in effect, or threatened by a governmental agency,
restraining the consummation of the transactions contemplated hereby.
9.7 JWSI WARRANTS. Tice shall have sold to JWSI warrants to purchase 30 of
its shares of common stock.
9.8 ISSUANCE, REGISTRATION AND DISTRIBUTION OF SHARES AND WARRANTS. The
Holding Company shall have been formed and shall have taken all steps necessary
to issue the Shares and Warrants in accordance with this Agreement. Monogenesis
shall have resolved to distribute to each of its shareholders 125 Common Shares
and 400 Warrants of the Holding Company to be issued to Monogenesis for each
share of stock of Monogenesis held by such shareholder. The Registration
Statement shall have been filed registering 1,302,937 of the Common Shares to be
issued to the Shareholder, all of the Common Shares to be issued to Monogenesis
and JWSI, all of the Warrants and all of the Common Shares underlying the
Warrants, and such Registration Statement shall have become effective.
17
<PAGE>
9.9 GOOD STANDING CERTIFICATES. Monogenesis shall have received certificates
acceptable to it from the Secretary of State of (i) the jurisdiction in which
Tice is incorporated, certifying that Tice is in good standing under the laws of
such jurisdiction and a certified copy of the Certificate of Incorporation of
Tice and all amendments, and (ii) each jurisdiction in which Tice is qualified
to do business as a foreign corporation, certifying that Tice is so qualified
and in good standing.
9.10 INTERIM FINANCIAL STATEMENTS. Monogenesis shall have received the
unaudited balance sheet of Tice as of the month-end immediately preceding the
Closing Date (or the prior month-end if the Closing occurs prior to the tenth
business day of a month), and the related unaudited statements of earnings,
retained earnings and cash flows for the portion then ended of the fiscal year
commencing April 1, 1996, presented on a comparative basis with financial
statements of the same portion of the preceding fiscal year, prepared by Tice
and accompanied by a certificate in the form of Exhibit 3.5 attached hereto
executed by the persons indicated on said Exhibit. Such statements for the
fiscal year commencing April 1, 1996 shall not differ from those for the
comparable period of the preceding fiscal year in any materially adverse
respect.
9.11 CASUALTY. There shall have not occurred any fire, flood, earthquake or
other casualty to assets of Tice resulting in a cost of repair or replacement of
more than $25,000 in excess of applicable insurance coverage.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF TICE, THE SHAREHOLDER AND JWSI
The obligation of Tice, the Shareholder and JWSI to perform their obligations
under this Agreement is subject to the satisfaction at or prior to the Closing
Date of the following conditions unless waived by Tice, the Shareholder and JWSI
in their sole discretion:
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Monogenesis contained in this Agreement or in any Schedule or
Exhibit hereto shall be true and accurate in all material respects on and as of
the Closing Date, with the same force and effect as if made on the Closing Date,
except as affected by transactions required or permitted hereby, and except that
any such representation or warranty made as of a specified date (other than the
date of this Agreement), shall have been true and accurate in all material
respects on and as of such date.
18
<PAGE>
10.2 PERFORMANCE OF AGREEMENTS. Monogenesis shall have performed and complied
in all material respects with all covenants, obligations and agreements to be
performed or complied with by it on or before the Closing Date pursuant to this
Agreement or any Schedule or Exhibit hereto.
10.3 OFFICER'S CERTIFICATION. Tice and the Shareholder shall have received an
accurate certificate, dated the Closing Date, of a duly authorized officer of
Monogenesis, satisfactory in form and substance to Tice and the Shareholder,
certifying as to the fulfillment of the matters specified in Sections 10.1 and
10.2.
10.4 SECRETARY'S CERTIFICATE. Tice and the Shareholder shall have received an
accurate certificate, dated the Closing Date, of the Secretary or Assistant
Secretary of Monogenesis, satisfactory in form and substance to Tice and the
Shareholder, with respect to the resolutions adopted by the Board of Directors
of Monogenesis approving this Agreement and the transactions contemplated
hereby.
10.5 CONSENTS, AUTHORIZATIONS. All consents, authorizations, orders or
approvals of, and filings or registrations with, and the expiration of all
waiting periods imposed by any third party, including without limitation, any
federal, state or local commission, board or other regulatory body which are
required for or in connection with the execution and delivery by Monogenesis of
this Agreement and the consummation by Monogenesis of the transactions
contemplated hereby shall have been obtained or made and shall be in full force
and effect.
10.6 LEGISLATION. No federal, state or local statute, rule or regulation
shall have been enacted after the date of this Agreement which prohibits,
restricts, delays or materially adversely affects the consummation of the
transactions contemplated by this Agreement or any of the conditions to the
consummation of such transactions. No temporary restraining order or injunction
shall be in effect, or threatened by a governmental agency, restraining the
consummation of the transactions contemplated hereby.
10.7 JWSI WARRANTS. Tice shall have sold to JWSI warrants to purchase 30 of
its shares of common stock.
10.8 ISSUANCE, REGISTRATION AND DISTRIBUTION OF SHARES AND WARRANTS. The
Holding Company shall have been formed and shall have taken all steps necessary
to issue the Shares in accordance with this Agreement. Monogenesis shall have
resolved to distribute to each of its shareholders 125 Common Shares and 400
Warrants of the Holding Company to be issued to Monogenesis for each share of
19
<PAGE>
stock of Monogenesis held by such shareholder. The Registration Statement shall
have been filed registering 1,302,937 of the Common Shares to be issued to the
Shareholder, all of the Common Shares to be issued to Monogenesis and JWSI, all
of the Warrants and all of the Common Shares underlying the Warrants, and such
Registration Statement shall have be become effective.
ARTICLE XI
TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by Tice or Monogenesis at any time after ________, 1996; provided,
however, that if the Registration Statement has not become effective and
Monogenesis is diligently pursuing the registration of the Shares then
Monogenesis may extend such date beyond _________, 1996 to a date within ten
business days of the effective date, but not later than ___________, 199 ;
(b) by Monogenesis, if the after tax earnings of Tice do not equal an
average of $________ per month for the period beginning immediately after the
end of the last fiscal year and ending on the day prior to the effective date of
the Registration Statement;
(c) by Monogenesis, if there has been a violation or breach by Tice or
the Shareholder of any material agreement, representation or warranty of any of
them contained in this Agreement and such violation or breach has not been
waived by Monogenesis, or, with respect to a violation or breach of an
agreement, cured within ten business days after the receipt of written notice
thereof; or
(d) by Tice, if there has been a violation or breach by Monogenesis of
any material agreement, representation or warranty of Monogenesis contained in
this Agreement and such violation or breach has not been waived by Tice or, with
respect to a violation or breach of an agreement, cured within ten business days
after the receipt of written notice thereof.
In the event of termination of this Agreement and abandonment of the
transactions contemplated hereby pursuant to this Section 11.1, written notice
thereof shall forthwith be given to the other party and this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned, without
further action by any of the parties hereto. The provisions of Sections 8.1,
13.1 and 13.2 shall survive any such termination.
20
<PAGE>
ARTICLE XII
INDEMNIFICATION
12.1 INDEMNIFICATION. (a) Tice and the Shareholder shall, jointly and
severally, indemnify, defend and save Monogenesis harmless from, against, for
and in respect of the following: (i) any damages, losses, obligations,
liabilities, claims, actions or causes of action sustained or suffered by
Monogenesis and arising from a breach of any representation, warranty, covenant
or agreement of Tice or the Shareholder contained in or made pursuant to this
Agreement (including the Schedules and Exhibits attached hereto), or in any
certificate, instrument or agreement delivered by Tice or the Shareholder
pursuant hereto or in connection with the transactions contemplated hereby; and
(ii) all reasonable costs and expenses (including, without limitation,
reasonable attorneys', accountants', and other professional fees and expenses)
incurred by Monogenesis in connection with any action, suit, proceeding, demand,
investigation, assessment or judgment incident to any of the matters indemnified
against under this Section 12.1(a). No claim, demand, suit or cause of action
shall be brought against Tice under or pursuant to this Section 12.1(a) with
respect to the representations and warranties set forth in Articles III and IV
hereof unless Monogenesis gives Tice and the Shareholder written notice, with
reasonable specificity, of the existence of any such claim, demand, suit or
cause of action under this Agreement. Upon the giving of such written notice as
aforesaid, Monogenesis shall have the right, in addition to all other remedies
available to it, to commence legal proceedings for the enforcement of its rights
under this Agreement. Monogenesis, at its option and with at least two days
advance notice to the affected party, may recover any such liability by set off
against payments otherwise required to be made by Monogenesis to such party
pursuant to any agreement between Monogenesis and such party.
(b) Monogenesis shall indemnify, defend and save Tice and the
Shareholder harmless from, against, for and in respect of the following: (i)
any damages, losses, obligations, liabilities, claims, actions or causes of
action sustained or suffered by Tice or the Shareholder and arising from a
breach of any representation, warranty, covenant or agreement of Monogenesis
contained in or made pursuant to this Agreement or in any certificate,
instrument or agreement delivered by it pursuant hereto or in connection with
the transactions contemplated hereby; and (ii) all reasonable costs and expenses
(including, without limitation, reasonable attorneys', accountants', and other
professional fees and expenses) incurred by Tice or the Shareholder in
connection with any action, suit, proceeding, demand, investigation, assessment
or judgment incident to any of the matters indemnified against under this
Section
21
<PAGE>
12.1(b). No claim, demand, suit or cause of action shall be brought against
Monogenesis under or pursuant to this Section 12.1(b) unless such party gives
Monogenesis written notice, with reasonable specificity, of the existence of any
such claim, demand, suit or cause of action under this Agreement. Upon the
giving of such written notice as aforesaid, such party shall have the right, in
addition to all other remedies available to it, to commence legal proceedings
for the enforcement of its rights under this Agreement.
12.2 THIRD PARTY CLAIMS. With respect to claims resulting from the
assertion of liability by third parties, the obligations and liabilities of the
party responsible for indemnification (the "Indemnifying Party") hereunder with
respect to indemnification claims by the party entitled to indemnity (the
"Indemnified Party") shall be subject to the following terms and conditions: (i)
the Indemnified Party shall give prompt written notice to the Indemnifying Party
of any assertion of liability by a third party which might give rise to a claim
by the Indemnified Party against the Indemnifying Party based on the indemnity
agreements contained in Section 11.1 hereof, stating the nature and basis of
said assertion and the amount thereof, to the extent known; and (ii) the
Indemnifying Party shall not make any settlement of any claims without the
written consent of the Indemnified Party; provided, however, that if an
Indemnified Party does not consent to a settlement proposed by the Indemnifying
Party and accepted by the adverse third party, the liability of the Indemnifying
Party shall be limited to the amount that would have been paid in such
settlement.
12.3 REMEDIES CUMULATIVE. The remedies provided for in this Article XII
shall be cumulative and shall not preclude assertion by the Indemnified Party of
any other rights or the seeking of any other remedies against the Indemnifying
Party.
12.4 RECOVERIES. In the event an Indemnified Party subsequently receives
payment (including without limitation proceeds of insurance and payments on
accounts receivable) with respect to a matter for which it has been fully
indemnified by the Indemnifying Party, the Indemnified Party shall promptly pay
the amount of such payment up to the indemnification received, to the
Indemnifying Party.
ARTICLE XIII
MISCELLANEOUS
13.1 EXPENSES; TRANSFER TAXES. All fees, costs and expenses incurred by
Tice, the Shareholder or Monogenesis in connection
22
<PAGE>
with, relating to or arising out of the preparation, execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, organizational costs of the
Holding Company, fees of the transfer agent and legal and accounting fees and
expenses, shall be borne by Tice.
13.2 BINDING EFFECT. This Agreement shall become binding and effective when
executed by the parties hereto. This Agreement shall not be assignable by any
party without the prior written consent of the other parties, except that
without relieving Monogenesis of any of its obligations under this Agreement,
Monogenesis may assign this Agreement to any of its affiliates. Subject to the
foregoing, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors, heirs, legal representatives, and
assigns of the parties hereto. This Agreement constitutes an agreement among the
parties hereto and none of the agreements, covenants, representations or
warranties contained herein shall be for the benefit of any third party not a
party to this Agreement.
13.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including the Schedules and
Exhibits attached hereto) contains the entire understanding of the parties with
respect to its subject matter. This Agreement supersedes all prior agreements
and understandings between the parties with respect to the subject matter
hereof. This Agreement may be amended only by a written instrument duly executed
by the parties, and any condition to a party's obligations hereunder may only be
waived in writing by such party.
13.4 HEADINGS. The article and section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.5 NOTICES. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally, if mailed (by registered or certified mail, return receipt
requested and postage prepaid), if sent by reputable overnight courier service
for next business day delivery, or if sent by facsimile transmission, as
follows:
23
<PAGE>
if to Tice, to: William A. Tice, President
Tice Engineering and Sales, Inc.
6711 Tice Plaza
Knoxville, Tennessee 37918
Telephone: (423) 922-7501
Facsimile: (423) 922-3134
with a copy to: Sarah Y. Sheppeard, Esq.
Sheppeard & Swanson
Suite 200, Main Place
P. O. Box 2149
Knoxville, Tennessee 37901
Telephone: (423) 546-3653
Facsimile: (423) 637-7300
if to Monogenesis or Scot D. Walker, President
JWSI, to: Monogenesis Corporation
Drawer 88, Walker Creek Road
Walker, West Virginia 26180-9948
Telephone: (800)543-8620
Facsimile: (800)543-8619
with a copy to: Lynn H. Wangerin, Esq.
Ogden Newell & Welch
1200 One Riverfront Plaza
Louisville, Kentucky 40202
Telephone: (502) 582-1601
Facsimile: (502) 581-9564
if to the Shareholder, to: his address set forth on the
books of Tice.
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
communication shall be effective on the date of receipt (or, if received on a
non-business day, on the first business day after the date of receipt).
13.6 PUBLICITY. The parties agree that, except as otherwise required by law,
the issuance of any reports, statements or releases pertaining to this Agreement
or the transactions contemplated hereby is subject to mutual consent.
13.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware (without giving
effect to its laws regarding conflicts of law).
24
<PAGE>
13.8 WAIVERS. Any provision of this Agreement may be waived only by a written
instrument executed by the party to be charged with such waiver. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
13.9 DEFINED TERMS. Throughout this Agreement various terms have been
defined by being enclosed in quotation marks, usually in parentheses, and used
with their initial letters capitalized. Unless the context otherwise requires,
such defined terms shall have their designated meaning whenever used in this
Agreement or any attached schedules.
13.10 FEES. If there is any litigation between the parties related to this
Agreement or the transactions contemplated by this Agreement, the prevailing
party shall be entitled to recover all reasonable costs and expenses (including,
without limitation, reasonable attorneys', accountants' and other professional
fees and expenses).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
TICE ENGINEERING AND SALES, INC.
By: ______________________________
Title: ______________________________
MONOGENESIS CORPORATION
By: ______________________________
Scot D. Walker, President
JOSEPH WALKER AND SONS, INC.
By: ______________________________
Title: ______________________________
THE SHAREHOLDER
______________________________
William A. Tice
25
<PAGE>
SCHEDULE 1.1
HOLDING COMPANY STOCK TO BE
----------------------------
ISSUED TO THE SHAREHOLDER AND JWSI
----------------------------------
<TABLE>
<CAPTION>
RESTRICTED REGISTERED CLASS B
NAME COMMON SHARES COMMON SHARES COMMON SHARES
- -------------------------------------------------------------------
<S> <C> <C> <C>
William A. Tice 3,908,813 1,302,937 750,000
- -------------------------------------------------------------------
Joseph Walker &
Sons, Inc. -0- 238,470 -0-
- -------------------------------------------------------------------
- -------------------------------------------------------------------
TOTAL 3,908,813 1,541,407 750,000
- -------------------------------------------------------------------
</TABLE>
SCHEDULE 3.1
JURISDICTIONS IN WHICH TICE IS QUALIFIED TO DO BUSINESS
-------------------------------------------------------
Tennessee
OFFICERS AND DIRECTORS OF TICE
-------------------------------
Name Office
---- ------
William A. Tice President, Chairman of
the Board, Director
Karen Ann Walton Vice President, Secretary/
Treasurer, Director
Sarah Y. Sheppeard Director
M. Wayne Colvin Director
Billie Joe Clayton Director
SCHEDULE 3.2
CONVERTIBLE SECURITIES, OPTIONS,
WARRANTS, AGREEMENTS RELATING TO STOCK OF TICE
----------------------------------------------
1. Joseph Walker & Sons, Inc. Warrants to purchase 30 shares of Common Stock.
<PAGE>
SCHEDULE 3.5
FINANCIAL STATEMENTS
---------------------
See financial statements included in Registration Statement.
SCHEDULE 3.12
EMPLOYEE BENEFIT PLANS
-----------------------
1. 401(k) plan established November, 1996, first payment due December,
1996.
SCHEDULE 3.13
INTELLECTUAL PROPERTY
----------------------
1. Patent No. 4,270,474 issued 6/2/81 for dual position needle positioner
for stitching machine.
2. Patent No. 4,271,775 issued 6/9/81 for needle positioner for high
speed stitching machine.
3. Patent No. 4,677,923 issued on 7/7/87 for card feeding apparatus.
4. Patent No. 4,859,260 issued on 8/22/89 for apparatus and method for
cutting and sealing belt loop ends and belt loop construction.
5. Patent No. 4,979,934 issued on 12/25/90 for card feeding and holding
apparatus.
6. Patent No. 5,303,910 issued on 4/19/94 for pick-up means for use with
limp sheet material.
7. Patent No. 5,313,892 issued on 5/24/94 for table with height and tilt
adjustment.
8. Patent No. 5,458,075 issued on 10/17/95 for electronically geared
sewing machine (subject to certain royalty rights under Joint
Development Agreement).
9. Trademark Reg. No. 1,142,004, registered 12/2/80, "tice" for presser
foot lifts for stitching machines, needle positioners for stitching
machines in Class 7.
<PAGE>
EXHIBIT 1.3
FORM OF COMMON STOCK PURCHASE WARRANTS
See exhibit to Registration Statement.
EXHIBIT 3.5
CERTIFICATE RELATING TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CERTIFICATE
--------------------------------
The undersigned, President of Tice Engineering and Sales, Inc. (the
"Corporation"), certifies that:
1. The balance sheet of the Corporation as of September 30, 1996 and the
income statement of the Corporation for the period beginning on April 1, 1996
and ending on September 30, 1996 (collectively, the "Financial Statements"), all
as attached hereto and provided in connection with the Stock Purchase Agreement
and Plan of Reorganization among the Corporation, its shareholders, Joseph
Walker & Sons, Inc. and Monogenesis Corporation dated _____________, 1996, are
complete and present fairly the financial position of the Corporation.
2. The undersigned is not aware of any matters which are not reflected on
such Financial Statements or which would make such Financial Statements
misleading in any manner.
Witness the signature of the undersigned as of this ____ day of
______________, 1996.
--------------------------------
William A. Tice, President
Tice Engineering and Sales, Inc.
<PAGE>
Exhibit 3(i)
------------
CERTIFICATE OF INCORPORATION
OF
TICE TECHNOLOGY, INC.
--------------------
The undersigned, acting as incorporator of a corporation under the General
Corporation Law of the State of Delaware, adopts the following certificate of
incorporation for such corporation (the "Corporation"):
1. NAME. The name of the Corporation is "Tice Technology, Inc."
2. PURPOSES. 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.
3. CLASSES OF STOCK. The total number of shares which the Corporation is
authorized to issue is 45,600,000 shares of which 30,000,000 shares shall be
designated "Common Shares;" 5,000,000 shall be designated "Class B Common
Shares;" 600,000 shall be designated "Class D Common Shares;" and 10,000,000
shall be designated "Preferred Shares." The number of Class D Common Shares
authorized shall not exceed 2% of the number of Common Shares authorized. All
shares of stock of the Corporation shall have a par value of $0.01 per share. No
holder of shares of any class of stock of the Corporation now or hereafter
authorized shall be entitled to cumulative voting or shall have any preferential
or preemptive right to subscribe for, purchase or receive any shares of the
Corporation of any class now or hereafter authorized, or any portions or
warrants for such shares, or any securities convertible into or exchangeable for
such shares, which may at any time be issued, sold or offered for sale by the
Corporation; except that, holders of Class B Common Shares shall have preemptive
rights with respect to the issuance of Class B Common Shares only. In addition,
the Corporation shall not sell or offer to sell any Class B Common Shares
without the prior approval of the holders of a majority of the issued and
outstanding Class B Common Shares.
4. COMMON AND CLASS B COMMON SHARES. The Common Shares and the Class B
Common Shares shall be identical in all respects and have equal rights and
privileges, except as otherwise provided in this certificate. The relative
rights, preferences and limitations of the shares of each class are as follows:
(a) DIVIDENDS. Except as provided in subparagraph 4(b), the
Corporation shall not pay any dividends during any fiscal year to the holders of
Class B Common Shares, unless and until the Corporation shall have paid the
holders of Common Shares a dividend
<PAGE>
of not less than $0.05 per share during such year, and in addition, unless the
Corporation shall also pay the holders of Common Shares a dividend per share at
least equal to the dividend per share paid to the holders of the Class B Common
Shares during such year. The Corporation may pay dividends to holders of Common
Shares in excess of dividends paid, or without paying dividends, to holders of
Class B Common Shares. The dividend preference for Common Shares shall not be
cumulative.
(b) SHARE DISTRIBUTION. The Corporation shall make a share
distribution of Class B Common Shares or Common Shares only as follows:
(i) Common Shares may only be distributed as a stock dividend on
Common Shares and Class B Common Shares may only be distributed as a stock
dividend on Class B Common Shares; except that, prior to the issuance of any
Common Shares, Common Shares may be distributed as a stock dividend on Class B
Common Shares; and
(ii) if a stock dividend is declared with respect to either
Common Shares or Class B Common Shares, a stock dividend of the same number of
shares shall be declared with respect to the other of such classes.
(c) STOCK COMBINATIONS OR SPLITS. The Corporation shall not combine or
subdivide either Common Shares or Class B Common Shares without at the same time
making a proportionate combination or subdivision of shares of the other of such
classes.
(d) VOTING. Each holder of Common Shares and Class B Common Shares
shall be entitled to one vote for each share of stock registered in such
shareholder's name, except that, the holders of Class B Common Shares shall have
exclusive voting power if no Common Shares, Class D Common Shares or voting
Preferred Shares are issued and outstanding and holders of Common Shares, Class
D Common Shares and voting Preferred Shares shall have exclusive voting power if
no shares of Class B Common Shares are issued and outstanding. In all other
cases, voting power shall be divided between such classes as follows:
(i) With respect to the election of directors, holders of Common
Shares together with the holders of Class D Common Shares and voting Preferred
Shares voting together as a separate class shall be entitled to elect that
number of directors which constitutes 25% of the authorized number of members of
the board of directors and, if such 25% is not a whole number, then the holders
of Common Shares, Class D Common Shares and voting Preferred Shares shall be
entitled to elect the nearest higher whole number of directors that is at least
25% of such membership. Holders of Class
2
<PAGE>
B Common Shares voting as a separate class shall be entitled to elect the
remaining directors.
(ii) The holders of Common Shares, Class D Common Shares and
voting Preferred Shares shall be entitled to vote together as a separate class
on the removal, with or without cause, of any director elected by such holders
and the holders of Class B Common Shares shall be entitled to vote as a separate
class on the removal, with or without cause, of any director elected by the
holders of Class B Common Shares.
(iii) Any vacancy in the office of a director elected by the
holders of the Common Shares, Class D Common Shares and voting Preferred Shares
may be filled by a vote of such holders voting together as a separate class and
any vacancy in the office of a director elected by the holders of the Class B
Common Shares may be filled by a vote of such holders voting as a separate
class. In the absence of a stockholder vote, in the case of a vacancy in the
office of a director elected by either class, such vacancy may be filled by the
remaining directors as provided in the bylaws of the Corporation. Any director
elected by the board of directors to fill a vacancy shall serve until the next
annual meeting of stockholders and until a successor has been elected and has
qualified. If permitted by the bylaws, the board of directors may increase the
number of directors and any vacancy so created may be filled by the board of
directors; provided that, so long as the holders of Common Shares, Class D
Common Shares and voting Preferred Shares have the rights provided in
subparagraph 4(d) of this certificate in respect of the last preceding annual
meeting of stockholders, the board of directors may be so enlarged by the board
of directors only to the extent that at least 25% of the enlarged board consists
of directors elected by the holders of the Common Shares, Class D Common Shares
and voting Preferred Shares or by persons appointed to fill vacancies created by
the death, resignation or removal of persons elected by the holders of the
Common Shares, Class D Common Shares and voting Preferred Shares.
(iv) Notwithstanding the foregoing, holders of Common Shares,
Class D Common Shares and voting Preferred Shares shall not have the right to
elect directors as set forth above if, on the record date for any stockholders'
meeting at which directors are to be elected, the number of issued and
outstanding Common Shares, Class D Common Shares and voting Preferred Shares is
less than 10% of the aggregate number of issued and outstanding voting shares of
all classes. In such case, all directors to be elected at such meeting shall be
elected by the holders of all voting shares voting together as a single class.
3
<PAGE>
(v) The holders of the Common Shares and the holders of the Class
B Common Shares shall be entitled to vote as separate classes only when required
by law to do so irrespective of the limitations placed herein on the voting
rights of such stockholders, or when a separate class vote is required by
specific provision therefor in this certificate of incorporation or in the
bylaws of the Corporation. Holders of all voting shares shall vote as a single
class, in all other matters including, but not limited to, any amendment to this
certificate in order to increase or decrease the aggregate number of authorized
shares of Common Stock, Class D Common Stock or Preferred Stock.
(e) CONVERSION. Each holder of record of Class B Common Shares may at
any time or from time to time, in such holder's sole discretion and at such
holder's option, convert any whole number or all of such holder's Class B Common
Shares into fully paid and non-assessable Common Shares at the rate (subject to
adjustment as hereinafter provided) of one Common Share for each Class B Common
Share surrendered for conversion. Any such conversion may be effected by
surrendering the certificate or certificates for the Class B Common Shares to be
converted, duly endorsed, at the office of the Corporation, or the transfer
agent, if any, together with a written notice to the Corporation that such
holder elects to convert all or a specified number of Class B Common Shares and
stating the name or names in which the certificate or certificates for such
Common Shares are to be issued. The conversion shall be deemed to have been made
at the close of business on the date of surrender and the person or persons
entitled to receive the Common Shares issuable on conversion shall be treated
for all purposes as the record holder or holders of such Common Shares on that
date.
The Corporation shall hold in reserve the number of authorized but
unissued Common Shares as may be necessary to convert all issued and outstanding
Class B Common Shares to Common Shares without the necessity of a declaration by
the directors. No Class B Common Shares may be issued unless the number of
authorized but unissued and unreserved Common Shares is sufficient to satisfy
the conversion of such Class B Common Shares.
No fraction of a Common Share shall be issued on conversion of any
Class B Common Share. In lieu thereof, the Corporation shall pay the holder the
fair market value of any such fraction in cash. The fair market value shall be
based, in the case of publicly traded securities, on the last sale price for
such securities on the business day next prior to the date such fair market
value is to be determined (or, in the event no sale is made on that day, the
average of the closing bid and asked prices for that day on the principal stock
exchange on which Common Shares are traded or, if the Common Shares are not then
listed on any national securities exchange, the
4
<PAGE>
average of the closing bid and asked prices for the day quoted by the NASDAQ
System), or, in the case of non-publicly traded securities, the fair market
value on such day determined by a qualified independent appraiser appointed by
the board of directors of the Corporation. Any such determination of fair market
value shall be conclusive and binding on the Corporation and on each holder of
Class B Common Shares and Common Shares.
(f) LIQUIDATION. Holders of issued and outstanding Common Shares shall
have preference over the Class B Common Shares upon the voluntary or involuntary
liquidation of the Corporation, but only to the extent that the holders of
Common Shares be paid the par value of such shares prior to any distribution
being made to the holders of Class B Common Shares. In such case, after
receiving the par value of their shares, the holders of Common Shares shall
receive no further distribution unless and until each holder of Class B Common
Shares has received the par value of each share held and a sum equal to the
distribution made on each Common Share for which the holders of Class B Common
Shares have not received a like amount.
5. CLASS D COMMON SHARES. Class D Common Shares shall be identical to
Common Shares and have equal rights and privileges, except as otherwise set
forth below:
(a) ISSUANCE. The board of directors, by resolution, may authorize the
issuance of Class D Common Shares; provided that, each resolution authorizing
the issuance of Class D Common Shares shall provide a formula under which the
shares issued may be converted into Common Shares. In no case shall the board of
directors set any conversion rights which could result in the issuance of more
than 10 Common Shares for each Class D Common Share.
(b) TRANSFER. Class D Common Shares shall be non-transferable.
(c) CONVERSION. The board of directors shall decide, in its sole
discretion, if a holder of record of Class D Common Shares is deemed to have met
any conditions placed upon the conversion of the holder's Class D Common Shares
into Common Shares. At such time as a holder of record of Class D Common Shares
has received a written notice from the board of directors of the Corporation
that such holder is deemed to have met all conditions for conversion of any
Class D Common Shares into Common Shares as set forth in the resolution
authorizing the issuance of such shares, the holder may convert the Class D
Common Shares described in the notice into fully paid and non-assessable Common
Shares. Any such conversions may be effected by surrendering the certificate or
certificates for the Class D Common Shares to be converted, duly endorsed, at
the office of the Corporation, or the transfer agent, if any, together with a
5
<PAGE>
written notice to the Corporation that such holder elects to convert such Class
D Common Shares and stating the name or names in which the certificate or
certificates for Common Shares are to be issued. The conversion shall be deemed
to have been made at the close of business on the date of surrender and the
person or persons entitled to receive the Common Shares issuable on conversion
shall be treated for all purposes as the record holder or holders of such Common
Shares on that date.
At the close of business on the fifth anniversary of the date of the
resolution authorizing the issuance of any Class D Common Shares, issued and
outstanding but unconverted Class D Common Shares shall be deemed to have been
converted at the rate of one fully paid and non-assessable Common Share for one
Class D Common Share and, commencing at the close of business on such
anniversary, the record holder of such Class D Common Shares shall be treated
for all purposes as the record holder of the Common Shares issuable on such
conversion.
The Corporation shall hold in reserve the number of authorized but
unissued Common Shares as may be necessary to convert issued and outstanding
Class D Common Shares to Common Shares without the necessity of a declaration by
the directors. No Class D Common Shares may be issued unless the number of
authorized but unissued and unreserved Common Shares is sufficient to satisfy
the conversion of such Class D Common Shares.
6. PREFERRED SHARES. The board of directors, by resolution, shall have
the authority to issue, in one or more series, Preferred Shares, having such
preferences, rights and limitations as established by the board of directors.
However, the voting rights, if any, of one Preferred Share shall not exceed the
voting rights of one Common Share.
7. DURATION. The period of duration of the Corporation shall be
perpetual.
8. POWERS OF BOARD OF DIRECTORS. The affairs of the Corporation shall be
managed and conducted by a board of directors. The board of directors shall have
the authority, without first obtaining the approval of the stockholders of the
Corporation, unless otherwise provided herein, upon such terms and conditions as
the board deems appropriate:
(a) to grant rights or options to subscribe for or purchase, and
issue, shares of authorized and unissued stock of the Corporation of any class
now or hereafter authorized, to any persons, including officers and directors of
the Corporation;
6
<PAGE>
(b) to make distributions to its stockholders out of its capital
surplus, and to purchase its own shares out of its unreserved and unrestricted
capital surplus;
(c) to the extent permitted by the applicable laws of the State of
Delaware, to guarantee or assume liability for the payment of the principal of,
or dividends or interest on, or sinking fund payments in respect to, stocks,
bonds, debentures, warrants, rights, scrip, notes, evidences of indebtedness or
other securities or obligations of any kind; and liability for the performance
of any other contract or obligation, made or issued by any domestic or foreign
corporation, partnership, association, trustee, group, individual or entity; and
(d) to make, alter and repeal the bylaws of the Corporation.
9. NUMBER OF AND INITIAL BOARD OF DIRECTORS. The number of directors
shall be fixed by, or in the manner provided in, the bylaws.
10. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot unless otherwise provided by the bylaws of the Corporation.
11. STOCKHOLDERS' MEETINGS. Meetings of stockholders may be held at the
Corporation's principal offices, or as the bylaws may provide. In order to
constitute a quorum for purposes of actions by the stockholders of the
Corporation, one-third of the shares entitled to vote must be present or
represented by proxy at the meeting.
12. BOOKS. The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the board of directors or in
the bylaws of the Corporation.
13. CREDITORS. 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 Section 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 Section 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
7
<PAGE>
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 if 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 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.
14. DIRECTOR'S LIABILITY. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided that a director's liability
shall not be limited: (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders; (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (c) for
unlawful payment of dividends or unlawful repurchase or redemption of its own
stock; or (d) for any transaction from which the director derived an improper
personal benefit.
15. INDEMNIFICATION. The Corporation shall indemnify any and all of its
directors or officers or former directors or officers or any person who may have
served at its request as a director or officer of another corporation in which
it owns shares of capital stock or of which it is a creditor against expenses
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they, or any of them, are made parties, or a
party, by reason of being or having been directors or officers or a director or
officer of the Corporation, or of such other corporation, except in relation to
matters as to which any such director or officer or former director or officer
or person shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty. Such indemnification shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled, under any bylaw, agreement, vote of stockholders, or otherwise.
16. AMENDMENTS. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this certificate of incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
17. REGISTERED OFFICE AND AGENT. The address of the Corporation's
registered office in the County of New Castle of the State of Delaware is 902
Market Street, 13th Floor, P.O. Box 25130,
8
<PAGE>
Wilmington, Delaware 25130 and the name of its registered agent is The Delaware
Corporation Agency.
18. INCORPORATOR. The name and mailing address of the incorporator is:
Tice Engineering and Sales, Inc., 6711 Tice Plaza, Knoxville, Tennessee 37918.
The undersigned, being the incorporator of Tice Technology, Inc., for the
purpose of forming a corporation under the General Corporation Law of the State
of Delaware hereby acknowledges the foregoing to be its act and deed and that
the facts stated herein are true this 14th day of June, 1996.
Tice Engineering and Sales, Inc.
By: /s/William A. Tice
------------------------------
William A. Tice, President
State of Tennessee )
) SS
County of Knox )
I, Karen A. Walton, a notary of said state and county do certify that
William A. Tice, as President of Tice Engineering and Sales, Inc., the
incorporator, whose name is signed to the writing above bearing date the 14th
day of June, 1996 has this day acknowledged the same before me. Given under my
hand this 14th day of June, 1996.
My commission expires: May 30, 2000.
---------------
/s/Karen A. Walton
-------------------------------
[seal] Notary Public
9
<PAGE>
Exhibit 3(ii)
-------------
BYLAWS
OF
TICE TECHNOLOGY, INC.
ARTICLE I
OFFICES
-------
1.1 Principal Office. The principal office of the Corporation shall be in
Knoxville, Tennessee. The Corporation may have such other offices, either within
or without the State of Delaware or the State of Tennessee, as the business of
the Corporation may require.
1.2 Registered Office. The registered agent and office of the Corporation at
the date of adoption of these Bylaws are The Delaware Corporation Agency, 902
Market Street, 13th Floor, P.O. Box 25130, County of New Castle, Wilmington,
Delaware 19899. The registered agent and the address of the registered office
may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
------------
2.1 Annual Meetings. The annual meeting of the shareholders shall be held at
such time, place and on such date as the Board of Directors may designate and
state in the notice of the meeting. If no place is designated, the meeting shall
be held at the principal executive office of the Corporation. The purpose of
such meeting shall be the election of directors and such other business as may
properly come before it. If the election of directors shall not be held on the
day designated for an annual meeting, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders to be held as soon thereafter as may be practicable. The failure to
hold an annual meeting does not invalidate the Corporation's existence or affect
any otherwise valid corporate act.
2.2 Special Meetings. Special meetings of the shareholders may be called by
the Chairman of the Board, President, by the Board of Directors, or by the
holders of shares entitling such holders to not less than twenty-five percent of
the possible votes at such meeting.
2.3 Place of Special Meetings. The Board of Directors may designate any place
within or without the State of Delaware or the State of Tennessee as the place
for any special meeting called by the
<PAGE>
Board of Directors. A waiver of notice signed by all shareholders may include a
designation of any place as the place for the holding of such meeting. If no
designation is properly made, or if a special meeting be otherwise called, the
place of the meeting shall be at the principal executive office of the
Corporation.
2.4 Notice of Annual or Special Meetings. Written or printed notice stating
the place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) days nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President or the
Secretary, or the officer or persons calling the meeting, to each shareholder
entitled to vote at such meeting as of the record date established under Section
2.8 of these Bylaws. Only business within the purpose or purposes described in
the meeting notice may be conducted at the special meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, in a sealed envelope addressed to the shareholder at such
shareholder's address as it appears in the records of the Corporation. When a
meeting is adjourned to another time or place, notice of the adjourned meeting
need not be given if the time and place are announced at the meeting at which
the adjournment is taken. At the adjourned meeting, the Corporation may transact
any business which could have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days or, if after adjournment a new
record date is fixed, a notice of the adjourned meeting must be given to every
shareholder entitled to vote at the meeting.
2.5 Meetings by Consent of All Shareholders. If all the shareholders shall
meet at any time and place and consent in writing to the holding of a meeting,
such meeting shall be valid without call or notice, and at such meeting any
corporate action may be taken.
2.6 Waiver and Consent to Meetings of Less Than All Shareholders. If a
shareholder meeting shall occur without all shareholders in attendance, a prior
or subsequent written waiver of notice or consent to the holding of such meeting
signed by the absent shareholders shall be equivalent to the call and giving of
any requisite notice, and such meeting shall be valid without call or notice,
and corporate action may be taken at such meeting. Neither the business to be
transacted at, nor the purpose of, any meeting need be specified in the written
waiver. Attendance of a person at a meeting constitutes waiver of notice except
when the person attends the meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened. The execution of a written consent shall
constitute a waiver of notice with respect to the actions taken
2
<PAGE>
in the consent even if the consent does not expressly contain a waiver clause.
2.7 Exception to Notice Requirements. Whenever notice is required to be given
to any person with whom communication is unlawful, the giving of such notice is
not required and the Corporation has no duty to apply to any governmental
authority or agency for a license or permit to give such notice. In addition,
whenever notice is required to be given to any shareholder to whom (a) notice of
two (2) consecutive annual meetings, and all notices of meetings or the taking
action by written consent during the period between such two (2) consecutive
annual meetings, or (b) all, and at least two (2) payments (if sent by first
class mail) of dividends or interest on securities during a twelve (12) month
period, have been mailed addressed to such person at the address shown on the
records of the Corporation and have been returned undeliverable, the giving of
notice to such persons is not required. Any action or meeting which shall be
taken or held without notice to such persons shall have the same force and
effect as if such notice had been duly given. If any such person thereafter
delivers to the Corporation a written notice setting forth such person's then
current address, the requirement that notice be given to such person shall be
reinstated.
2.8 Fixing of a Record Date.
(a) The Board of Directors of the Corporation may fix a date which shall
not precede the date of the resolution fixing the record date and which record
date is not less than ten (10) days nor more than sixty (60) days prior to the
date of any meeting of shareholders as the record date for the determination of
shareholders entitled to notice of, or to vote at, such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day which next precedes the day on which the meeting is held. When a
determination of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting. The
Board of Directors may fix a record date to determine the shareholders entitled
to consent to corporate action in writing without a meeting on a date which
shall not precede and is not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted by the Board of Directors. If
no record date has been fixed, the record date for shareholders entitled to
consent to corporate action in writing is (i) when no prior action by the Board
of Directors is required, the first date on which a signed written consent
setting forth the actions taken or proposed to be taken is delivered, by hand or
certified or registered mail, to
3
<PAGE>
the Corporation to its registered office, to its principal place of business, or
to an officer or agent of the Corporation having custody of the Corporation's
minute book; or (ii) when prior action by the Board of Directors is required, at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(b) The Board of Directors may fix a record date to determine the
shareholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the shareholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action which shall not precede the date upon which the
resolution fixing the record date is adopted and which shall not be more than
sixty (60) days prior to such action. If no record date is fixed, the record
date shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
2.9 Voting Record. The officer or agent having charge of the transfer book for
shares of the Corporation shall make a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of, and the number of shares held by, each shareholder. Such list shall
be available for inspection by any shareholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to such 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 must also
be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder who is present during the whole
course of the meeting.
2.10 Quorum. One-third of the outstanding shares of the Corporation entitled
to vote, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders, unless otherwise required by Delaware corporation law.
If a quorum of shareholders is present, the affirmative vote of a majority of
the shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by the Delaware corporation law, or by the
Certificate of Incorporation or Bylaws of the Corporation.
2.11 Proxies. At all meetings of shareholders, a shareholder may vote shares
in person or by proxy. A shareholder may execute a writing authorizing another
person or persons to act as proxy or such shareholder. The shareholder or the
shareholder's authorized
4
<PAGE>
officer, director, employee or agent may sign or cause a signature to be affixed
by any reasonable means to the proxy. A telegram, cablegram or other means of
electronic transmission including information from which it can be determined
that the transmission was authorized by the shareholder, or a photographic,
photostatic, facsimile or other reliable reproduction of a writing appointing a
proxy shall be deemed to be a sufficient, signed appointment form assuming that
it is a complete reproduction of the entire original writing or transmission.
Such proxy shall be filed with the Secretary of the Corporation before or at the
time of the meeting. No proxy shall be valid after three (3) years from the date
of its execution, unless otherwise provided in the proxy. An appointment of a
proxy is revocable unless the proxy is coupled with an interest and the
appointment form conspicuously states that the proxy is irrevocable and that the
appointment is coupled with an interest. A proxy may be made irrevocable
regardless of whether the interest is an interest in the stock itself or in the
Corporation generally. Upon extinguishment of the interest the proxy becomes
revocable.
2.12 Voting of Shares. Each outstanding share of stock authorized by the
Corporation's Certificate of Incorporation to have voting power shall be
entitled to the number of votes set forth in the Certificate of Incorporation
upon each matter submitted to a vote at a meeting of shareholders.
2.13 Voting of Shares by Certain Holders.
(a) Shares standing in the name of another corporation may be voted by
either that corporation's president or by proxy appointed by the president
unless another person appointed to vote the stock under a bylaw or a resolution
of the board of directors of that corporation presents a certified copy of the
bylaw or resolution, in which case such person may vote the stock.
(b) A fiduciary may vote, either in person or by proxy, stock registered in
such person's name as fiduciary. If the stock is not registered in the
fiduciary's name, the fiduciary may vote the stock, either in person or by
proxy, upon providing proof of the fact that such fiduciary has legal title to
the stock in a fiduciary capacity and is qualified to act in that capacity.
(c) Where shares stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary of
the Corporation is given written notice to the contrary, and is furnished with a
copy of the instrument or order appointing them or creating the
5
<PAGE>
relationship wherein it is so provided, their acts with respect to voting have
the following effect:
(i) if only one (1) votes, such act binds all;
(ii) if more than one (1) vote, the act of the majority so voting binds
all; or
(iii) if more than one (1) vote, but the vote is evenly split on any
particular matter each faction may vote the securities in question
proportionately, or any person voting the shares or a beneficiary, if any, may
apply to any court of competent jurisdiction to appoint an additional person to
act with the persons so voting the shares which shall then be voted as
determined by a majority of such persons and the person appointed by the court
(if the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even split shall be a majority or even split in
interest).
(d) A shareholder whose shares are pledged shall be entitled to vote such
shares unless the transfer by the pledgor on the books of the Corporation
expressly empowered the pledgee to vote thereon, in which case only the pledgee
shall be entitled to vote the shares so transferred.
(e) The Corporation shall be entitled to reject a vote, consent, waiver or
proxy appointment if the Secretary or other officer or agent authorized to
tabulate votes, acting in good faith has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
2.14 Voting Procedures and Inspectors of Elections. At any time at which the
Corporation has a class of voting securities listed on a national securities
exchange, authorized for quotation on an inter-dealer quotation system thereof,
or held of record by more than two thousand (2,000) shareholders, in advance of
any meeting of shareholders, the Corporation must appoint one (1) or more
inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one (1) or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of shareholders, the person presiding at the meeting shall
appoint one (1) or more inspectors to act at the meeting. Each inspector, before
beginning, must take and sign an oath to execute faithfully the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors must: (a) ascertain the number of shares outstanding and
the voting power of each; (b) determine the shares represented at a meeting and
the validity of proxies and ballots; (c) count all votes and ballots; (d)
determine and retain
6
<PAGE>
for a reasonable period a record of the disposition of any challenges made to
any determination by the inspectors; and (e) certify the determination of the
number of shares represented at the meeting and the count of all votes and
ballots. The inspectors may appoint or retain other persons or entities to
assist in the performance of such duties. The date and time of the opening and
the closing of the polls for each matter upon which the shareholders will vote
at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor
any revocations thereof or changes thereto, shall be accepted by the inspectors
after the closing of the polls unless a court of competent jurisdiction upon
application by a shareholder shall determine otherwise. In determining the
validity and counting of proxies and ballots, the inspectors are limited to an
examination of the proxies, any envelopes submitted with those proxies, any
other information provided in accordance with Section 2.11 hereof, ballots and
the regular books and records of the Corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the shareholder holds
of record. If the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors, at the time they make the
certification, must specify the precise information considered including, the
person or persons from whom the inspectors obtained the information, when the
information was obtained, the means by which the information was obtained, and
the basis for the inspectors' belief that such information is accurate and
reliable.
2.15 Consent of Shareholders In Lieu of Meeting. Any action required to be
taken, or which may be taken, at a meeting of the shareholders may be taken
without a meeting, without prior notice and without a vote, if one (1) or more
consents in writing, setting forth the action so taken, are (a) signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shareholders entitled to vote thereon were present and voted and (b)
delivered to the Corporation by delivery to the Corporation's registered office,
its principal place of business, or an officer or agent having custody of its
minute book. Delivery made to the Corporation's registered office must be made
by hand or by certified or registered mail, return receipt requested. A written
consent must bear the date of signature of each shareholder who signs the
consent. No written consent is effective, unless within sixty (60) days of the
earliest date a consent is delivered, written consents signed by a sufficient
number of holders are delivered as required. Prompt notice of the taking of the
actions without a meeting by less than unanimous written consent must be given
to those shareholders who have not consented in writing.
7
<PAGE>
2.16 Shareholder Inspection of Books and Records. As used in this section,
"shareholder" means a shareholder of record. Any shareholder, in person or by
attorney or other agent, upon written demand under oath stating the purpose
thereof, has the right during the usual hours for business to inspect for any
proper purpose the Corporation's stock ledger, a list of its shareholders and
its other books and records, and to make copies of extracts therefrom. A proper
purpose shall mean a purpose reasonably related to such person's interest as a
shareholder. In every instance where an attorney or other agent shall be the
person who seeks the right to inspection, the demand under oath must be
accompanied by a power of attorney or such other writing which authorizes the
attorney or other agent to so act on behalf of the shareholder. The demand under
oath shall be directed to the Corporation at its registered office in Delaware
or at its principal place of business.
ARTICLE III
DIRECTORS
---------
3.1 General Powers. The business and affairs of the Corporation shall be
managed by its Board of Directors.
3.2 Number, Tenure and Qualifications. The number of directors on the date of
adoption of these Bylaws shall be five (5). The number of directors of the
Corporation may be increased or decreased by resolution of the Board of
Directors. All directors shall hold office for the term for which they are
elected or until their successors shall have been elected and qualified,
whichever period is longer. The directors need not be residents of the State of
Delaware, nor need they hold any shares of stock of the Corporation.
3.3 Removal and Resignation. Holders of Common Stock, Class D Common Stock and
voting Preferred Stock, if any, may remove, with or without cause, any or all
directors elected by them by a majority of shares voting together as a separate
class. Holders of Class B Common Stock may remove, with or without cause, any or
all directors elected by them by a majority of shares voting together as a
separate class. Any member of the Board of Directors may resign from the Board
of Directors at any time by giving written notice to the President or Secretary
of the Corporation, and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
3.4 Regular Meetings. A regular meeting of the Board of Directors shall be
held without other notice than this Bylaw immediately after, and at the same
place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, either within or without the State
of Delaware or the
8
<PAGE>
State of Tennessee, for the holding of additional regular meetings without other
notice than such resolution.
3.5 Special Meetings. Special meetings of the Board of Directors may be called
by, or at the request of, the Chairman of the Board, the President or a majority
of the total number of directors of the Corporation and shall be preceded by at
least two (2) days notice of the date, time and place of the meeting.
3.6 Telephonic Meetings. Members of the Board of Directors or a committee of
the board may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
3.7 Notice of Directors' Meetings. No notice need be given of any regular
meeting of the Board of Directors. Notice of a special meeting of the Board of
Directors shall contain the date, time and place of the meeting and may be
communicated in person; by telephone, telegraph, facsimile or other form of wire
or wireless communication; or by mail or private carrier. Oral or telephonic
notice shall be effective when communicated, provided that it is promptly
confirmed in writing. Written notice is effective at the earliest of the
following: (a) when received; (b) five (5) days after deposit in the United
States mail as evidenced by the postmark, if mailed postpaid and correctly
addressed; or (c) on the date shown on the return receipt, if sent by registered
or certified mail, return receipt requested, and the receipt is signed by, or on
behalf of, the addressee. Any director may waive notice of any meeting before or
after the meeting. The waiver shall be in writing and signed by the director
entitled to the notice and filed with the minutes of the meeting. The attendance
of a director at any meeting shall constitute a waiver of notice of such
meeting, except when a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. The execution of a written consent shall constitute a waiver
of notice with respect to the actions taken in the consent even if the consent
does not expressly contain a waiver clause. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
3.8 Quorum. A majority of the number of directors fixed by, or determined in
accordance with, Section 3.2 hereof shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors; provided that,
if less than a majority of the directors are present at said meeting, a majority
of the directors present may adjourn the meeting from time to time without
further notice.
9
<PAGE>
3.9 Manner of Acting. The act 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 otherwise required by the Certificate of Incorporation of the Corporation
or these Bylaws. A director who is present at a meeting of the Board of
Directors, or a committee of the Board of Directors when corporate action is
taken, shall be deemed to have assented to the action taken unless the director:
(a) objects at the beginning of the meeting (or promptly upon arrival) to
holding it or transacting business at the meeting;
(b) dissents or abstains from the action taken and such dissent or
abstention is entered in the minutes of the meeting; or
(c) delivers written notice of dissent or abstention to the presiding
officer of the meeting before its adjournment or to the Corporation immediately
after adjournment of the meeting. The right of dissent or abstention shall not
be available to a director who votes in favor of the action taken.
3.10 Vacancies. A vacancy occurring in the office of a director elected by the
holders of the Common Stock, Class D Common Stock and voting Preferred Stock may
be filled by the affirmative vote of a majority of the holders of such classes
of stock or a majority of the remaining directors elected by the holders of such
classes of stock, if at least one (1) such director remains. A vacancy occurring
in the office of a director elected by the holders of Class B Common Stock may
be filled by the affirmative vote of a majority of the holders of such class of
stock or a majority of the remaining directors elected by the holders of such
class of stock, if at least one (1) such director remains. A director elected to
fill a vacancy shall be elected for the unexpired term of the predecessor in
office. If at any time, by reason of death, resignation or other cause, the
Corporation has no directors in office, then any officer, shareholder, personal
representative of a shareholder or other like fiduciary, may call a special
meeting of shareholders or may apply to a court of competent jurisdiction for a
decree ordering an election. Subject to the restrictions described above
relating to directors elected by holders of certain classes of stock, if one (1)
or more directors resign from the board effective at a future date, a majority
of the directors then in office, including those who have so resigned, have the
power to fill such vacancy or vacancies, the vote thereon to take effect when
the resignations become effective.
3.11 Compensation. By resolution of the Board of Directors, each director may
be paid expenses, if any, of attendance at each meeting of the Board of
Directors, and may be paid a stated stipend as director or a fixed sum for
attendance at each meeting of the Board of Directors, or both. No such payment
shall preclude any
10
<PAGE>
director from serving the Corporation in any other capacity and receiving
compensation therefor.
3.12 Action by Written Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors of any committee thereof may be taken
without a meeting if all members of the board or the committee, as the case may
be, consent to such action in writing, and the writing or writings are filed
with the minutes of the proceedings of the board or committee.
3.13 Chairman and Vice Chairman of the Board. The Board of Directors may
appoint one of its members Chairman of the Board of Directors. The Board of
Directors may also appoint one of its members as Vice Chairman of the Board of
Directors, and such individual shall serve in the absence of the Chairman and
perform such additional duties as may be assigned by the Board of Directors.
3.14 Conflicts of Interest. No contract or transaction between the
Corporation and one (1) or more of its directors or officers, or between the
Corporation and any other corporation, partnership, trust, firm, association or
entity in which one (1) or more of the directors or officers of the Corporation
is a director, officer, partner, shareholder, member, employee or agent or is
financially interested, shall be void or voidable solely for this reason, or
solely because the director or officer is present at, or participants in, the
meeting of the Board of Directors or a committee thereof which authorizes,
approves or ratifies such contract or transaction or solely because their votes
are counted for such purposes, if:
(a) the material facts of the contract or transaction and the director's
interest or relationship are disclosed or known to the Board of Directors or
committee of the Board of Directors and the Board of Directors or the committee
in good faith authorizes, approves, or ratifies the contract or transaction by
the affirmative vote (or consent) of a majority of the disinterested directors
even though the number of disinterested directors may be less than a quorum;
(b) the material facts of the contract or transaction and the director's
interest or relationship are disclosed or known to the shareholders entitled to
vote thereon and they specifically authorize, approve or ratify in good faith
such contract or transaction by vote or written consent sufficient for the
purpose; or
(c) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof or the shareholders.
11
<PAGE>
Such interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or a committee thereof which authorizes,
approves or ratifies such contract or transaction.
3.15 Director Inspection of Books and Records. Any director shall have the
right to examine the Corporation's stock ledger, a list of its shareholders and
its other books and records for a purpose reasonably related to such person's
position as a director.
3.16 Committees.
(a) The Board of Directors may appoint an Executive Committee, which shall
consist of two (2) or more members of the Board of Directors and shall serve at
the pleasure of the Board of Directors. The Chairman of any Executive Committee
shall be designated by the Board of Directors. Meetings of the Executive
Committee shall be held from time to time as called by the Chairman of the
Executive Committee or any two (2) members thereof by notice to the other
members of the committee. Notice of any such meeting shall be given by oral,
telegraphic or written notice not less than twenty-four (24) hours prior to such
meeting. In order to take action, a majority of the members of such committee
must be present and shall constitute a quorum. During the intervals between the
meeting of the Board of Directors, the Executive Committee, if such committee is
established, shall possess and may exercise all of the powers of the Board of
Directors of the Corporation in the management of the business, affairs and
properties of the Corporation, as are not prohibited by statute, the Certificate
of Incorporation of the Corporation or these Bylaws. All action taken the
Executive Committee shall be deemed to be action of the Board of Directors of
the Corporation.
(b) The Board of Director may also designate one (1) or more other
committees, each committee to consist of two (2) or more members of the Board of
Directors of the Corporation. Such committees shall have and may exercise the
powers of the Board of Directors of the Corporation which are delegated to the
committee by the Board of Directors.
(c) Each committee shall keep regular minutes of its meetings and report
same to the Board of Directors of the Corporation when required.
12
<PAGE>
ARTICLE IV
OFFICERS
--------
4.1 Classes. The officers of the Corporation shall be a President, a
Secretary and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed necessary
may be elected or appointed by the Board of Directors. Any two (2) or more
offices may be held by the same person. A person who holds more than one (1)
office may not act in more than one (1) capacity to execute, acknowledge or
verify an instrument if required by law to be executed, acknowledged or verified
by more than one (1) officer.
4.2 Election and Term of Office. The officers of the Corporation shall be
elected by the Board of Directors at the first and, thereafter, at each annual
meeting of the Board of Directors. If the election of officers shall not be held
at any such meeting, such election shall be held as soon thereafter as is
convenient. Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Officers shall hold office until their
successors shall have been duly elected and shall have qualified or until death,
resignation or removal.
4.3 Removal and Resignations. Any officer or agent elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever, in its
judgment, the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights. Any officer of the Corporation may resign at any
time by giving written notice to the President or Secretary of the Corporation,
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
4.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Directors
for the unexpired portion of the term.
4.5 Chairman of the Board of Directors. The Chairman of the Board of
Directors, if that office be created and filled, may, at the discretion of the
Board of Directors, be the chief executive officer of the Corporation and, if
such, shall, in general, supervise and control the affairs and business of the
Corporation, subject to control by the Board of Directors. The Chairman of the
Board shall preside at all meetings of the shareholders and Board of Directors.
4.6 President. The President, unless a chairman is appointed and designated
chief executive officer pursuant to Section 4.5
13
<PAGE>
hereof, shall be the chief executive officer of the Corporation. If no chairman
has been appointed or, in the absence of the chairman, the President shall
preside at all meetings of the shareholders and of the Board of Directors. The
President may sign, with the Secretary or any other proper officer of the
Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed;
and, in general, shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time. Unless otherwise ordered by the Board of Directors, the President shall
have full power and authority on behalf of the Corporation to attend, act and
vote at any meetings of shareholders of any corporation in which the Corporation
may hold stock, and at such meeting, shall hold and may exercise all rights
incident to the ownership of such stock which the Corporation, as owner, might
have had and exercised if present. The Board of Directors may confer like powers
on any other person or persons.
4.7 Vice President. In the absence of the President, or in the event of
inability or refusal to act, the Vice President (or, in the event there be more
than one Vice President, the Vice Presidents in order designated at the time of
their election, or in the absence of any designation, then, in the order of
their election), if that office be created and filled, shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Any Vice President may sign,
with the Secretary or an assistant secretary, certificates for shares of the
Corporation; and shall perform such other duties as from time to time may be
assigned by the Chairman of the Board, President or the Board of Directors.
4.8 Treasurer. The Treasurer shall have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies and other depositories as shall be selected in accordance
with the provisions of Article V of these Bylaws; and, in general, perform all
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned by the Chairman of the Board, the President or the
Board of Directors. If required by the Board of Directors, the Treasurer shall
give a bond for the faithful discharge of duties in such sum and with such
surety as the Board of Directors shall determine.
14
<PAGE>
4.9 Secretary. The Secretary shall keep the minutes of the shareholders'
meetings, Board of Directors' meetings and meetings of committees of the Board
of Directors in one (1) or more books provided for that purpose; see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; be custodian of the corporate records and of the seal, if any,
of the Corporation; keep a register of the post office address of each
shareholder; sign with the President or Vice President certificates for shares
of stock of the Corporation; have general charge of the stock transfer books of
the Corporation; and, in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned by the
Chairman of the Board, the President or the Board of Directors.
ARTICLE V
CONTRACTS, LOANS,
CHECKS AND DEPOSITS
-------------------
5.1 Contracts. The Board of Directors may authorize any officer or officers,
agent or agents, to enter into any contract and execute and deliver any
instruments in the name of and on behalf of the Corporation. Such authority may
be general or confined to specific instances.
5.2 Checks, Drafts. 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, or agent or agents, of
the Corporation and in such manner as shall, from time to time, be determined by
resolution of the Board of Directors.
5.3 Deposits. All funds of the Corporation not otherwise employed shall be
deposited, from time to time, to the credit of the Corporation in such banks,
trust companies and other depositories as the Board of Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES
AND THEIR TRANSFER
------------------
6.1 Certificates for Shares. Certificates representing shares of the
Corporation shall be in such form as may be determined by the Board of Directors
and by the laws of the State of Delaware. Each certificate shall have noted
conspicuously thereon any applicable restrictions on sale or transfer. Such
certificates shall be signed by the President and by the Secretary or such other
officers as may be designated by the Board of Directors. All certificates for
shares
15
<PAGE>
shall be consecutively numbered within each class of stock in the order in which
they are issued. The name of the person owning the shares represented thereby,
with the number of shares and date of issue, shall be entered on the books of
the Corporation. All certificates surrendered to the Corporation or its agent
for transfer shall be canceled and no new certificates shall be issued until the
former certificates for a like number of shares shall have been surrendered and
canceled, except that, in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Board of Directors may prescribe.
6.2 Lost, Stolen or Destroyed Stock Certificates. The Corporation may issue a
new certificate of stock in place of any certificate issued by it and alleged to
have been lost, stolen or destroyed, if the person claiming the certificate to
be lost, stolen or destroyed shall make an affidavit of that fact. In addition,
the Corporation may require the owner of the lost, stolen or destroyed
certificate, or such person's legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction.
6.3 Transfer of Shares. Transfer of shares of the Corporation shall be made
only on the books of the Corporation by the registered holders thereof, or by
their legal representatives who shall furnish proper evidence of authority to
transfer, or by their attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary or the transfer agent of the Corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 Indemnification.
(a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against
16
<PAGE>
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if such person acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that this
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee
17
<PAGE>
or agent is proper in the circumstances because such person has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made: (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding; (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or (3) by the shareholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in official capacity
and as to action in another capacity while holding such office.
(g) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify against such liability
under this section.
(h) For purposes of this section, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or
18
<PAGE>
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to any employee benefit plan or its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Amendments. The Board of Directors shall have the power and authority to
alter, amend or repeal Bylaws of the Corporation at any regular or special
meeting at which a quorum is present by the vote of a majority of the entire
Board of Directors, subject always to the power of the shareholders under
Delaware law to adopt, alter or repeal such Bylaws.
8.2 Fiscal Year. The Board of Directors shall have the power to fix, and from
time to time change, the fiscal year of the Corporation. Unless otherwise fixed
by the Board, the fiscal year of the Corporation shall end on March 31.
8.3 Dividends. The Board of Directors may, from time to time, declare, and
the Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law and its Certificate of
Incorporation.
19
<PAGE>
8.4 Seal. The Board of Directors of the Corporation may adopt a seal on
behalf of the Corporation.
8.5 Waiver of Notice. Whenever any notice is required to be given under the
provisions of these Bylaws, or under the provisions of the Corporation's
Certificate of Incorporation, or under the provisions of the corporation laws of
the State of Delaware, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be equivalent to the giving of such notice.
The above Bylaws were adopted by the Board
of Directors of Tice Technology, Inc. on
August 1, 1996.
/s/ Karen A. Walton
------------------------------------------
Secretary
20
<PAGE>
EXHIBIT 23
----------
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated May 23, 1996, June 1,
1995 and May 20, 1994 in the Form S-1 Registration Statement filed on behalf of
Tice Technology, Inc. for the registration of 2,984,717 Common Shares and
1,000,000 Common Stock Purchase Warrants of Tice Technology, Inc. under Section
8(a) of the Securities Act of 1933.
Dated : December 16, 1996 Boring & Goins, P.C.
By: /s/Roger L. Goins
-------------------------------
Title: /s/Vice President/Secretary
----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Financial Statements of Tice Engineering and Sales, Inc. for Fiscal Year Ended
March 31, 1996 and Six Months Period Ended September 30, 1996 and is qualified
in its entirety by reference to such financial statements.</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997
<PERIOD-START> APR-01-1995 APR-01-1996
<PERIOD-END> MAR-31-1996 SEP-30-1996
<CASH> 2,822 97,467
<SECURITIES> 0 0
<RECEIVABLES> 119,060 131,944
<ALLOWANCES> 0 0
<INVENTORY> 464,997 465,573
<CURRENT-ASSETS> 646,531 900,255
<PP&E> 1,438,015 770,794
<DEPRECIATION> 875,404 581,417
<TOTAL-ASSETS> 1,434,872 1,263,029
<CURRENT-LIABILITIES> 628,124 810,808
<BONDS> 661,325 0
<COMMON> 8,634 8,634
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,434,872 1,263,029
<SALES> 1,239,666 540,105
<TOTAL-REVENUES> 1,242,558 541,499
<CGS> 808,161 370,796
<TOTAL-COSTS> 1,419,697 627,538
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 110,863 58,483
<INCOME-PRETAX> 54,710 (35,082)
<INCOME-TAX> 5,537 45,243
<INCOME-CONTINUING> 24,617 352,041
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,080 306,798
<EPS-PRIMARY> 25.44 409.06<F1>
<EPS-DILUTED> 0.00 0.05<F2>
<FN>
<F1> Earnings per share are calculated based upon the number of shares of Tice
Engineering and Sales, Inc. issued and outstanding (750) during the periods
reflected in the applicable financial statements.
<F2> Earnings per share fully diluted are the earnings per share adjusted to
reflect the number of shares of Tice Technology, Inc. (which will own all
shares of Tice Engineering and Sales, Inc.) issued and outstanding as of the
effective date (6,585,279).
</FN>
</TABLE>
