<PAGE>
As filed with the Securities and Exchange Commission on September 26, 1997
Registration No. 333-30583
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Amendment No. 1 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
____________________
NEW DIRECTIONS MANUFACTURING, INC.
(Name of small business issuer in its charter)
Nevada 2511 86-0671974
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification No.)
Classification Code
Number)
2940 W. Willetta 2940 W. Willetta
Phoenix, AZ 85009 Phoenix, AZ 85009
(602) 352-1165 (602) 352-1165
(Address and telephone number of (Address of principal place
principal executive office) of business)
ParaCorp, Incorporated
318 North Carson Street, Suite 208
Carson City, NV 89701
(888) 972-7273
(Name, address and telephone number of agent for service)
____________________________
COPIES TO:
Lawrence W. Horwitz, Esq.
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, CA 92618
(714) 453-0300
___________________
Approximate Date of Proposed Sale to the Public.
As soon as practicable after this 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]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Securities to be Number of Shares Proposed Proposed Maximum Amount of
Registered to be Registered Maximum Offering Aggregate Offering Registration
Price Per Share(1) Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value 1,000,000 $4.94 $4,940,000 $1,496.97
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value, underlying
H&B options/(2)/ 50,000 $2.25 $ 112,500 $ 34.09
- -----------------------------------------------------------------------------------------------------------------------------
Total 1,050,000 $5,052,500 $1,531.06
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 and based upon the average of the bid
and asked prices for the Common Stock on June 24, 1997, as reported by the
OTC Bulletin Board.
(2) Represents Common Stock issuable to Horwitz & Beam, Inc. upon exercise of
options granted to Horwitz & Beam, Inc. as counsel to the Company ("H&B
Options") in connection with this Offering. Pursuant to Rule 416
promulgated under the Securities Act, this Registration Statement also
covers any additional common shares which may become issuable by reason of
the anti-dilution provisions of the H&B Options. Registration fee
calculated pursuant to Rule 457(g)(2).
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.
- --------------------------------------------------------------------------------
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulations S-B
Showing Location in the Prospectus
of Information Required by Items of Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Prospectus
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Cover Page
of Prospectus.................................................... Facing Page of Registration Statement: Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of prospectus.......... Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Summary Information; Risk Factors................................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................................................. Prospectus Summary; Business of the Company; Use of
Proceeds
5. Determination of Offering Price.................................. Risk Factors; Plan of Distribution
6. Dilution......................................................... Dilution
7. Selling Security Holders......................................... Selling Shareholders
8. Plan of Distribution............................................. Underwriting
9. Legal Proceedings................................................ Not Applicable
10. Directors, Executive Officers, Promoters and Control Persons..... Management and Principal Shareholders
11. Security Ownership of Certain Beneficial Owners and Management... Management and Principal Shareholders
12. Description of Securities to be Registered....................... Description of Securities
13. Interests of Named Experts and Counsel........................... Selling Shareholders
14. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities....................................... Indemnification of Directors and Officers
15. Organization Within Last Five Years.............................. Business of the Company
16. Description of Business.......................................... Business of the Company
17. Management's Discussion and Analysis of Plan of Operation........ Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.......................................... Business of the Company (Properties)
19. Certain Relationships and Related Transactions................... Transactions with Affiliates
20. Market for Common Equity and Related Stockholder Matters......... Risk Factors; Market for Common Stock and Related
Shareholder Matters
21. Executive Compensation........................................... Executive Compensation
22. Consolidated Financial Statements................................ Consolidated Financial Statements
23. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure............................................. Not Applicable
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1997
PROSPECTUS
NEW DIRECTIONS MANUFACTURING, INC.
1,000,000 Shares
of
Common Stock
and
50,000 Shares of
Common Stock
Underlying Options to Counsel
($0.001 par value)
The shares of Common Stock of New Directions Manufacturing, Inc., a Nevada
corporation ("the Company") offered hereby (the "Shares") will be sold from time
to time by the shareholders described herein (the "Selling Shareholders") in
transactions in the national over-the-counter market or otherwise at prices
prevailing at the time of sale. The Company will not receive any of the
proceeds from the sale of the Shares. All expenses incurred in registering the
Shares (approximately $37,000) are being borne by the Company, but all selling
and other expenses incurred by the Selling Shareholders will be borne by the
Selling Shareholders. See "Selling Shareholders."
The Shares offered hereby have been acquired by the Selling Shareholders
from the Company in private transactions and are "restricted securities" under
the Securities Act of 1933, as amended (the "Act"), prior to their sale
hereunder. This Prospectus has been prepared for the purpose of registering the
Shares under the Act to allow for future resales by the Selling Shareholders to
the public without restriction. To the knowledge of the Company, the Selling
Shareholders have made no arrangement with any brokerage firm for the sale of
the Shares. The Selling Shareholders may be deemed to be "underwriters" within
the meaning of the Act. Any commissions received by a broker or dealer in
connection with resales of the Shares may be deemed to be underwriting
commissions or discounts under the Act. See "Plan of Distribution."
Brokers or dealers effecting transactions in the Shares should confirm the
registration of the Shares under the securities laws of the states in which such
transactions occur or the existence of an exemption from such registration, or
should cause such registration to occur in connection with any offer or sale of
the Shares.
Additionally, the Company is registering for sale hereunder, 50,000 Shares
underlying options issued to its legal counsel in exchange for services rendered
in connection with this Registration Statement. Twenty-five thousand options
were issued to counsel on June 9, 1997 and 25,000 options were issued to counsel
on September 15, 1997. All options are exercisable for five years at the option
exercise price of $2.25 per Share.
The Common Stock of the Company is traded in the over-the-counter market
and quoted on the National Association of Securities Dealers Electronic Bulletin
Board ("OTC Bulletin Board") under the symbol "NDMI." The closing bid and asked
prices for the Common Stock on September 24, 1997, as reported by the OTC
Bulletin Board were $3.50 and $4.00 per share, respectively. To date, the
volume of trading in the Common Stock has been limited and, therefore, the
market prices for the Common Stock may not accurately reflect the value of the
Company.
-----------------------
The Securities offered hereby involve a high degree of risk.
See "Risk Factors" commencing on page 4.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Date of this Prospectus is September 26, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is not presently subject to the reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company has filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form SB-2 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act") with respect to the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement on file with the Commission pursuant to
the Act and the rules and regulations of the Commission thereunder. The
Registration Statement, including the exhibits thereto, may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of such material
may be obtained by mail at prescribed rates from the Public Reference Branch of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. Such material may also be accessed electronically by means
of the Commission's home page on the Internet at http://www.sec.gov. The
Company's securities are currently listed on the NASD over-the-counter bulletin
board and trading under the symbol "NDMI."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS SUMMARY.............................................. 1
RISK FACTORS.................................................... 4
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS......... 7
DIVIDEND POLICY................................................. 7
SELECTED FINANCIAL DATA......................................... 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................. 9
BUSINESS OF THE COMPANY......................................... 11
MANAGEMENT...................................................... 15
PRINCIPAL SHAREHOLDERS.......................................... 18
SELLING SHAREHOLDERS............................................ 19
PLAN OF DISTRIBUTION............................................ 20
DESCRIPTION OF SECURITIES....................................... 20
LEGAL MATTERS................................................... 20
EXPERTS......................................................... 20
CONSOLIDATED FINANCIAL STATEMENTS............................... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise specifically referenced, all references to dollar
amounts refer to United States dollars.
The Company
The Company was incorporated under the laws of the state of Nevada on January
9, 1997. In July 1996, Sean F. Lee acquired an option to purchase 100% of the
issued and outstanding common stock of New Directions-Manufacturers of
Contemporary Furniture, Inc., an Arizona corporation ("New Directions"), a
manufacturer and distributor of contemporary oak wood furniture in exchange for
$20,000. The Company acquired the option ("Option") to purchase the outstanding
capital stock of New Directions from Mr. Lee in exchange for the opportunity to
purchase 1,530,000 shares of the Company at par value, and the reimbursement of
Mr. Lee's costs associated with acquiring the option ($20,000). The Company
then paid the initial purchase price of the Option of $100,000. The Stock
Purchase Agreement and the companion agreements pertaining to the acquisition of
New Directions by the Company shall collectively be referred to herein as the
"Acquisition Agreement."
The terms of the Acquisition Agreement include the following:
1. The Company held the option to purchase 100% of the issued and outstanding
common stock of New Directions for the stated purchase price of $2.08 million,
of which approximately $1.18 million was to be paid in cash on or before January
31, 1997, the purchase price of the option of $100,000 would be credited, and
$800,000 was to be financed by the Sellers under the terms of a four year
promissory note bearing interest at the rate of 8% annually with level principal
and interest payments due monthly. The amount of the cash payments to be made
at closing was dependent upon the amount of New Directions' accounts receivable
on the closing date.
2. The selling shareholders of New Directions, which included its current
officers and directors, have agreed to a five year non-compete covenant.
3. Except as noted in (4) below, the officers and directors of New Directions
would resign and be replaced with the nominees of the Company. (See
"Management.")
4. Jack Horner, Jr., a co-founder, shareholder and executive officer of New
Directions, would continue to serve as the Vice-President of the Company after
the Company's acquisition of New Directions.
5. Two key executive officers of the Company, Donald A. Metke and Jack
Horner, Jr., were each issued 510,000 shares of restricted common stock of the
Company in exchange for the payment of par value ($510 each) and to ensure their
long term commitment to the Company. Sean F. Lee was issued 1,530,000 shares
of restricted common stock of the Company.
On January 10, 1997, the Company entered into an Exchange Agreement with
Premier Ventures & Exploration, Inc., a Louisiana corporation ("Premier")
whereby the Company became a wholly-owned subsidiary of Premier.
On January 15, 1997, the Company exercised the Option with a cash payment of
$1,180,000. The Company paid the cash payment of $1,180,000 with funds raised
in its private offering commenced on January 9, 1997 as well as a short-term
loan from a private individual in the amount of $500,000. The loan was
completely paid off, including principal and interest, upon the completion of
the private offering on May 14, 1997. The remaining balance of the purchase
price of $800,000 was financed by the sellers according to a promissory note
under the terms set forth in (1) above. There remains due and owing $713,382
under the note, as of June 30, 1997.
1
<PAGE>
The Company entered into a Plan of Merger (the "Merger Agreement") with
Premier on February 25, 1997. The Company had no relationship with Premier prior
to the transactions related to the Merger. The purpose of the merger was to
change the corporate domicile of the Company from Louisiana to Nevada. Prior to
the execution of the Merger Agreement, Premier was a public company with dormant
operations and had 3,560,296 shares of common stock outstanding. Premier became
a "public company" pursuant to two Regulation D, Rule 504 offerings, one in 1996
and one in 1997. Premier's common stock was listed on the NASD's over-the-
counter market as of January 6, 1997 under the symbol "PVEI" and quoted pursuant
to SEC Rule 15c2-11. Premier's predecessor-in-interest was Omni Answers, Inc.
("Omni") which was incorporated on September 11, 1985 in the State of Louisiana.
Omni operated a consultation by mail business. Omni changed its name to Premier
on December 20, 1996. Pursuant to the terms of the Merger Agreement, the
Premier shareholders received one share of the Company for every share of
Premier common stock they held, all Premier stock was cancelled, and Premier was
merged with and into the Company, leaving the Company as the surviving entity.
The Merger was effective on April 16, 1997. New Directions changed its name to
New Directions Manufacturing, Inc., an Arizona corporation and the Company (New
Directions Manufacturing, Inc., a Nevada corporation) then became the 100% owner
of New Directions (the Arizona corporation) which conducts business as the
Company's wholly-owned operating subsidiary.
The Selling Shareholders hereunder are identified in the "Selling
Shareholders" section of this Prospectus.
The address of the Company's principal executive offices is 2940 W. Willetta,
Phoenix, AZ 85009. The Company's telephone number is (602) 352-1165. Unless
otherwise noted, the "Company" as used in this Prospectus, will refer to the
consolidated entities described above.
2
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock Outstanding on September 15, 1997 4,987,770
Common Stock Offered by Selling Shareholders 1,000,000
Risk Factors The securities offered hereby
involve a high degree of risk
and immediate substantial
dilution. See "Risk Factors."
OTC Bulletin Board Symbol NDMI
</TABLE>
Summary Financial Information
The following table presents selected historical financial data for the Company
derived from the Company's Financial Statements. The historical financial data
are qualified in their entirety by reference to, and should be read in
conjunction with, the Financial Statements and notes thereto of the Company,
which are incorporated by reference into this Prospectus. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements of
the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Period from
January 9, 1997 Six Months Ended
(date of incorporation) December 31 Fiscal Year Ended
through (unaudited) June 30
June 30, 1997 1996 1995 1996 1995
------------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 3,215,985 $2,872,989 $2,789,447 $5,802,840 $4,607,085
Net income (loss) $(2,339,798) $ (213,734) $ (111,210) $ 50,078 $ (30,370)
Net income (loss) per share $ (0.47) $ (214) $ (111) $ 50 $ (30)
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Working Capital $ 796,761 $385,689 $576,812
Total assets $ 3,045,171 $681,063 $890,070
Total liabilities $ 1,177,733 $273,653 $268,925
Stockholder's equity $ 1,867,438 $407,410 $621,145
</TABLE>
3
<PAGE>
RISK FACTORS
An investment in the Securities offered in this Prospectus involves a high
degree of risk and should only be made by persons who can afford the loss of
their entire investment. Accordingly, prospective investors should consider
carefully the following factors, in addition to the other information concerning
the Company and its business contained in this Prospectus, before purchasing the
Securities offered hereby.
Limited Operating History. Although the operating subsidiary of the Company
was in operation for several years prior to the Acquisition Agreement, the
current management team, with the exception of Jack F. Horner, Jr., is new to
the Company as well as to the furniture manufacturing business, and the Company,
after the Merger and acquisition of the operating company, has no operating
history and its financial health will be subject to all the risks inherent in
the establishment of a new business enterprise. Additionally, the Company on a
consolidated basis has operated at a loss for most of the periods for which
financial statements are presented herein. The likelihood of success of the
Company must be considered in the light of the problems, expenses, difficulties,
complications, and delays frequently encountered in connection with the startup
and growth of a new business, and the competitive environment in which the
Company will operate. The Company's success is dependent upon the successful
development and marketing of its products, as to which there is no assurance.
Unanticipated problems, expenses, and delays are frequently encountered in
establishing a new business and marketing and developing products. These
include, but are not limited to, competition, the need to develop customer
support capabilities and market expertise, setbacks in product development,
market acceptance, sales, and marketing. The failure of the Company to meet any
of these conditions would have a materially adverse effect upon the Company and
may force the Company to reduce or curtail operations. No assurance can be
given that the Company can or will ever operate profitably. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business of the Company--Marketing" and "--Competition."
Dependence Upon Key Personnel. The Company's success depends, to a
significant extent, upon a number of key employees. The loss of services of one
or more of these employees could have a material adverse effect on the business
of the Company. The Company believes that its future success will also depend
in part upon its ability to attract, retain, and motivate qualified personnel,
and consequently has entered into employment agreements with certain key
officers. Competition for such personnel is intense. There can be no assurance
that the Company will be successful in attracting and retaining such personnel.
The Company does not have "key person" life insurance on any of its key
employees. See "Management."
Competition. The Company will be competing with other established businesses
that market similar products. Many of these companies have greater capital,
marketing and other resources than the Company. There can be no assurance that
these or other entities will not develop new or enhanced products that have
greater market acceptance than any that may be marketed by the Company. There
can be no assurance that the Company will successfully differentiate itself from
its competitors or that the market will consider the Company's products to be
superior or to or more appealing than those of its competitors. Market entry by
any significant competitor may have an adverse effect on the Company's sales and
profitability. See "Business of the Company--Competition."
Substantial Dilution. In many cases, the officers, directors, and present
shareholders of the Company have acquired their interest at a cost substantially
lower than that which investors will pay for the Common Stock offered hereby. As
a result, investors participating in this offering will likely incur immediate,
substantial dilution in the net tangible book value per share. The net tangible
book value of a share represents the amount of the Company's tangible assets
less the amount of its liabilities, divided by the number of shares outstanding.
Lack of Dividends. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the future.
The Company currently intends to retain future earnings, if any, to fund the
development and growth of its business. See "Dividend Policy."
Future Capital Needs Could Result in Dilution to Investors; Additional
Financing Could be Unavailable or Have Unfavorable Terms. The Company's future
capital requirements will depend on many factors, including cash flow from
4
<PAGE>
operations, progress in its research and development, competing market
developments, and the Company's ability to market its proposed products
successfully. Although the Company currently has no specific plans or
arrangements for financing, to the extent that the Company's working capital is
insufficient to fund the Company's activities, it may be necessary to raise
additional funds through equity or debt financings. Any equity financings could
result in dilution to the Company's then-existing stockholders. Sources of debt
financing may result in higher interest expense. Any financing, if available,
may be on terms unfavorable to the Company. If adequate funds are not obtained,
the Company may be required to reduce or curtail operations. The Company
anticipates that its existing capital resources, together with the net proceeds
of this Offering, will be adequate to satisfy its operating expenses and capital
requirements for at least 12 months after the date of this Prospectus. However,
such estimates may prove to be inaccurate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business of the
Company" and Financial Statements.
Economic Conditions and Consumer Spending. As with other businesses, the
Company's results may be adversely affected by unfavorable local, regional or
national economic conditions affecting disposable consumer income. There can be
no assurance that consumer spending will not decline in response to economic
conditions, thereby adversely affecting the Company's growth, net sales, and
profitability.
Unpredictable Product Acceptance; Lack of Distribution Agreements. There can
be no assurance that the Company's marketing and/or sales strategies will be
effective and that consumers will buy the Company's products. The failure of
the Company to penetrate its markets would have a material adverse effect upon
the Company's operations and prospects. Market acceptance of the Company's
products will depend in part upon the ability of the Company to demonstrate the
advantages of its products over competing products. In addition, the Company's
sales strategy for its products contemplates sales to markets yet to be
established. Also, the Company currently has no distribution agreements for any
of its products in place. See "Business of the Company--Marketing" and "--
Competition."
Difficulty of Planned Expansion; Management of Growth. The Company has
expanded its operations rapidly, and it plans to continue to further expand its
level of operations in all areas following the Offering. The Company's
operating results will be adversely affected if net sales do not increase
sufficiently to compensate for the increase in operating expenses caused by this
expansion. In addition, the Company's planned expansion of operations may cause
significant strain on the Company's management, technical, financial, and other
resources. To manage its growth effectively, the Company must continue to
improve and expand its existing resources and management information systems and
must attract, train, and motivate qualified managers and employees. There can
be no assurance, however, that the Company will successfully be able to achieve
these goals. If the Company is unable to manage growth effectively, its
operating results will be adversely affected.
No Outside Directors. The Company's Board of Directors presently consists of
three (3) directors: Sean F. Lee, Chairman of the Board; Donald A. Metke,
President, Chief Operating Officer, Chief Financial Officer, Director; and Jack
Horner, Jr., Vice President, Secretary, Director. Therefore, the Company's
Board of Directors has no outside directors and insiders can presently control
certain policies, actions, and decisions of the Company. See "Management--
Directors and Executive Officers.
Potential Conflicts of Interest Between the Company and its Officers,
Directors, and Shareholders. The interest of Investors and Shareholders may be
inconsistent in some respects with the interests of the principals of the
Company. The risk exists that such conflicts will not be resolved in the best
interest of the Company. Further, the Company will rely on its Officers and
Directors to manage the Company's business operations. All Officers and
Directors will devote as much of their time to the business of the Company as,
in their judgment, is reasonably necessary to operate the Company in a
profitable manner. These individuals may engage for their own account, or the
account of others in other business ventures for which the Company is not
entitled to compensation. At some time in the future, the Company may compete
for the management services of the Officers of the Company. As a result, these
individuals may be placed in a position where their decision to favor other
operations in which they are associated over those of the Company will result in
a conflict of interest. In allocating their time, they will recognize their
fiduciary obligations to the Company, the prevailing industry standards, and the
financial situation of the Company. The officers and directors of the Company
5
<PAGE>
are also shareholders in the Company. This situation creates a potential
conflict of interest situation where the officers and directors could act in the
best interest of themselves and their families rather than the Company. See
"Certain Transactions" and "Principal Shareholders."
Offering Price and Subsequent Trading Dependent Upon Market. The securities
to be offered hereby will be offered at the market price prevailing at the time
of the offer, which price may vary and may have a limited relationship, or no
relationship, to the Company's assets, book value, results of operations, or
other established criteria of value. The offering price also many not be
indicative of the prices that will prevail in the subsequent trading market for
the company's securities. The Company's securities will trade in the subsequent
trading market at prices that may vary and have a limited relationship, or no
relationship, to the Company's assets, book value, results of operating, or
other established criteria of value.
Shares Eligible for Future Sale. Of the 4,987,770 shares of Common Stock
issued and outstanding as of the date of this Prospectus, 3,557,283 shares are
"restricted securities" as that term is defined under Rule 144 promulgated under
the Act, and will become eligible for sale in the public market subject to the
provisions of Rule 144. In general, under Rule 144, a person (or persons whose
shares are aggregated) who has satisfied a one-year holding period may sell
restricted securities in ordinary brokerage transactions or in transactions
directly with a market maker within any three-month period limited to a number
of shares which does not exceed the greater of one percent of the Company's
then-outstanding Common Stock or the average weekly trading volume during the
four calendar weeks prior to such sale. Rule 144 also permits the sale (without
any quantity limitations) of "restricted securities" by a person who is not an
affiliate of the issuer and who has satisfied a two-year holding period. Future
sales of such shares could have an adverse effect on the market price of the
Common Stock. One million of the 3,557,283 "restricted securities" are being
registered herein and, upon effectiveness, will be eligible for sale in the
public market. See "Description of Securities."
Risks Relating to Low-Price Stocks. The Company's Common Stock is quoted and
traded on the Over-the-Counter Bulletin Board ("OTC Bulletin Board"). As a
result, an investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities. In
addition, trading in the Common Stock would be covered by Rules 15g-1 through
15g-100 promulgated under the Exchange Act for non-Nasdaq and non-exchange
listed securities. Under this rule, broker-dealers who recommend such
securities must satisfy burdensome sales practice requirements. The Securities
Enforcement and Penny Stock Reform Act of 1990 (the "Reform Act") also requires
additional disclosure in connection with any trades involving a stock defined as
a "penny stock" (generally, according to recent regulations adopted by the
Commission, any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions), including the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. The regulations governing low-priced
or penny stocks could limit the ability of broker-dealers to sell the Company's
securities and thus the ability of the purchasers of this Offering to sell their
securities in the secondary market.
6
<PAGE>
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Common Stock of Premier Ventures & Exploration, Inc. ("Premier") began
trading on the NASD's over-the-counter market as of January 6, 1997 under the
symbol "PVEI" and quoted pursuant to SEC Rule 15c2-11. On April 16, 1997,
Premier was merged with and into the Company. The stock symbol was changed from
"PVEI" to "NDMI" on April 25, 1997. Trading activity with respect to the
Company's Common Stock has been extremely limited and sporadic. From the time
of listing through June 24, 1997, the high bid price was $12.00 and the low bid
price was $3.00; quarter end high and low bids, as reported by the OTC Bulletin
Board, for the first two quarters of 1997 are set forth below, which quotations
reflect inter-dealer prices, without retail mark-up, mark-down, or commission,
and may not reflect actual transactions:
<TABLE>
<CAPTION>
- -------------------------------------
High Low
- -------------------------------------
1997
- -------------------------------------
<S> <C> <C>
First Quarter $12.00 $1.875
- -------------------------------------
Second Quarter $ 9.50 $ 3.00
- -------------------------------------
</TABLE>
As of September 15, 1997, there were approximately 129 shareholders of record
of the Company's Common Stock. On September 24, 1997, the closing bid price for
the Company's Common Stock was $3.50.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the future. The Company currently
intends to retain future earnings, if any, to fund the development and growth of
its business.
7
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, the Financial Statements, related Notes to
Financial Statements and Report of Independent Public Accountants, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein. The following tables summarize certain
selected financial data of New Directions for the fiscal year ended June 30,
1995 (audited), the fiscal year ended June 30, 1996 (audited), the six months
ended December 31, 1995 (unaudited), the six months ended December 31, 1996
(unaudited). The operations of the Company for the period from January 9, 1997
(date of incorporation of the acquiring company) through June 30, 1997 (audited)
are also presented. The data has been derived from Financial Statements
included elsewhere in this Prospectus. No dividends have been paid for any of
the periods presented.
<TABLE>
<CAPTION>
Period from
January 9, 1997 Six Months Ended
(date of incorporation) December 31 Fiscal Year Ended
through (unaudited) June 30
June 30, 1997 1996 1995 1996 1995
------------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 3,215,985 $2,872,989 $2,789,447 $5,802,840 $4,607,085
Net income (loss) $(2,339,798) $ (213,734) $ (111,210) $ 50,078 $ (30,370)
Net income (loss) per share $ (0.47) $ (214) $ (111) $ 50 $ (30)
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Working Capital $ 796,761 $385,689 $576,812
Total assets $ 3,045,171 $681,063 $890,070
Total liabilities $ 1,177,733 $273,653 $268,925
Stockholder's equity $ 1,867,438 $407,410 $621,145
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion regarding the financial statements of the Company
should be read in conjunction with the Financial statements of the Company
included herewith.
Overview
The Company is engaged in the business of manufacturing and supplying oak
wood furniture.
Results of Operations
Period from January 9, 1997 (date of incorporation) through June 30, 1997
The period ended June 30, 1997 was the first period reflecting the
consolidated operations of the Company and its wholly-owned subsidiary New
Directions Manufacturing, Inc., an Arizona corporation (formerly New Directions-
Manufacturers of Contemporary Furniture, Inc.) During this period, the Company
started to pursue its goals of increasing sales. As a result, sales increased
to $3,215,985 for the six months ended June 30, 1997 as compared to $2,872,989
for the six months ended December 31, 1996 and $3,029,670 for the six months
ended June 30, 1996. During the past year, the Company has been able to hold
its material costs in line but has had increases in the cost of labor as the
result of increases in the minimum wage.
The net loss for the period was largely attributable to non-cash expenses
during the period. The Company had to reflect an expense of $2,295,000 related
to compensation of its officers for the difference between the price paid for
their stock and the price paid by outside investors. This resulted in charge to
earnings and an increase in paid-in-capital. In addition, the Company reflected
depreciation and amortization of $106,578 for the covenant not to compete,
goodwill, and the increased cost of property and equipment.
The Company incurred interest expense of $35,029 for the first six months of
1997, primarily from the $800,000 carryback by the sellers of New
Directions.
The most significant changes in the balance sheet of the Company at June 30,
1997 as compared to New Directions at June 30, 1996 are:
. Increased cash and equity resulting from the private placement
. Acquiring the covenant not to compete for $800,000 and the related
liability to the shareholders for it
. Increasing the cost of property and equipment to fair market value as
the result of the acquisition
. Recording goodwill for the excess of the purchase price over the fair
market value of the assets acquired from sellers.
Fiscal Year Ended June 30, 1996 as Compared to Fiscal Year Ended June 30, 1995
Sales increased from $4,607,085 in fiscal 1995 to $5,802,480 in fiscal
1996, which represents an increase of approximately 26%. Costs and expenses,
other than officer compensation, as a percentage of sales remained relatively
constant during both years. Because New Directions was privately held,
management's policy was to take any increase in earnings as compensation to
officers. The combined total of new income (loss) and officer compensation
increased from $479,744 ($510,144 -$30,370) in fiscal 1995 to $610,200 ($560,122
+ $50,078) in fiscal 1996. This resulted in an increase of approximately 27%,
which compared favorably with the increase in sales of 26%.
In comparison to similar companies, New Directions' fiscal management was
extremely conservative. New Directions did not rely upon any outside debt to
finance its business and had no long term obligations except a capital lease.
With credit terms that allow no exceptions from full payment within 30 days, the
average age of New Directions' accounts receivable was only 45 days.
9
<PAGE>
As a result of its conservative management, New Directions' growth was
limited significantly. New Directions limited itself by its credit limits
and/or terms. In addition, New Directions' limited investment in production
equipment restricted New Directions' ability to capitalize on modern automation
technologies which could enable New Directions to improve manufacturing
efficiencies and reduce costs.
Six Months Ended December 31, 1996 as Compared to the Six Months Ended December
31, 1995
Sales for the six months ended December 31,1996 increased to $2,872,989
from $2,789,447 for the same period in 1995. The net loss before income taxes
for the same period increased from $111,210 in 1995 to $246,734 in 1996. The
most significant difference in the net loss is attributable to increases in
officer compensation from $266,382 in 1995 to $427,701 in 1996. New Directions'
policy was to declare bonuses prior to December 31, based upon the earnings of
the Corporation for the previous twelve month period. As a result of the
bonuses, the cash position of New Directions at December 31 of each year was
substantially less than its cash position at June 30.
As of December 31, 1996, New Directions had no cash reserves and total
current assets of $634,955 as compared to the six months ended December 31,
1995 when New Directions had cash reserves of $55,238 and total current assets
of $698,031.
Liquidity and Capital Resources
Initial start-up funding of $2,550 was raised through the sale of 2,550,000
shares of the Company's Common Stock to its founders and other principals for
$0.001 per share.
On January 9, 1997, the Company commenced a private placement of 1,000,000
shares of its Common Stock at $2.25 per Share (the "Private Placement"). The
Private Placement was exempt from the registration provisions of the Securities
Act of 1933 (the "Act") by virtue of Section 4(2) of the Act, as transactions by
an issuer not involving any public offering. The securities issued pursuant to
the Private Placement were restricted securities as defined in Rule 144. The
shares of Common Stock issued in the Private Placement are being registered
herein for resale only. The offering generated net proceeds of approximately
$1,909,686, net of offering costs and expenses and commissions of $340,314.
At June 30, 1997, the Company had outstanding current liabilities of
$593,086. The Company anticipates satisfying its current liabilities in the
ordinary course of business from revenues.
The Company plans on expending approximately $50,000 over the next twelve
12 months upgrading and acquiring new equipment.
The Company does not believe that inflation has had a significant impact on
its operations since inception of the Company.
Fluctuations in Operating Results; Seasonality.
Annual and quarterly fluctuations in the Company's results of
operations may be caused by the timing and composition of orders from the
Company's customers and distribution channels. The Company's future results
also may be affected by a number of factors, including its ability to offer
products at competitive prices and to anticipate customer demands. The
Company's results may also be affected by economic conditions in the
geographical areas in which the Company operates. Further, the furniture
industry is affected by seasonality, with the summer months tending to be the
slowest part of the year. All of the foregoing may result in substantial
unanticipated quarterly earnings shortfalls or losses. Due to all of the
foregoing, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indicative of future performance.
10
<PAGE>
BUSINESS OF THE COMPANY
History
The Company was incorporated under the laws of the state of Nevada on
January 9, 1997. In July 1996, Sean F. Lee acquired an option to purchase 100%
of the issued and outstanding common stock of New Directions-Manufacturers of
Contemporary Furniture, Inc., an Arizona corporation ("New Directions"), a
manufacturer and distributor of contemporary oak wood furniture in exchange for
$20,000. The Company acquired the option ("Option") to purchase the outstanding
capital stock of New Directions from Mr. Lee in exchange for the opportunity to
purchase 1,530,000 shares of the Company at par value, and reimbursement of Mr.
Lee's costs associated with acquiring the option ($20,000). The Company then
paid the initial purchase price of the Option of $100,000. The Stock Purchase
Agreement and the companion agreements pertaining to the acquisition of New
Directions by the Company shall collectively be referred to herein as the
"Acquisition Agreement."
The terms of the Acquisition Agreement include the following:
1. The Company held the option to purchase 100% of the issued and
outstanding common stock of New Directions for the stated purchase price of
$2.08 million, of which approximately $1.18 million was to be paid in cash on or
before January 31, 1997, the purchase price of the option of $100,000 would be
credited, and $800,000 was to be financed by the Sellers under the terms of a
four year promissory note bearing interest at the rate of 8% annually with level
principal and interest payments due monthly. The amount of the cash payments to
be made at closing was dependent upon the amount of New Directions' accounts
receivable on the closing date.
2. The selling shareholders of New Directions, which included its current
officers and directors, have agreed to a five year non-compete covenant.
3. Except as noted in (4) below, the officers and directors of New
Directions would resign and be replaced with the nominees of the Company. (See
"Management".)
4. Jack Horner, Jr., a co-founder, shareholder and executive officer of
New Directions, would continue to serve as the Vice-President of the Company
after the Company's acquisition of New Directions.
5. Two key executive officers of the Company, Donald A. Metke and Jack
Horner, Jr., were each issued 510,000 shares of restricted common stock of the
Company in exchange for the payment of par value ($510 each) and to ensure their
long term commitment to the Company. Sean F. Lee was issued 1,530,000 shares of
restricted common stock of the Company.
On January 10, 1997, the Company entered into an Exchange Agreement with
Premier Ventures & Exploration, Inc., a Louisiana corporation ("Premier")
whereby the Company became a wholly-owned subsidiary of Premier.
On January 15, 1997, the Company exercised the Option with a cash payment
of $1,180,000. The Company paid the cash payment of $1,180,000 with funds
raised in its private offering commenced on January 9, 1997 as well as a short-
term loan from a private individual in the amount of $500,000. The loan was
completely paid off, including principal and interest, upon the completion of
the private offering on May 14, 1997. The remaining balance of the purchase
price of $800,000 was financed by the sellers according to a promissory note
under the terms set forth in (1) above. There remains due and owing $713,382
under the note, as of June 30, 1997.
The Company entered into a Plan of Merger (the "Merger Agreement") with
Premier on February 25, 1997. The Company had no relationship with Premier
prior to the Merger. The purpose of the merger was to change the corporate
domicile of the Company from Louisiana to Nevada. Prior to the execution of the
Merger Agreement, Premier was a public company with dormant operations and had
3,560,296 shares of common stock outstanding. Premier became a "public company"
pursuant to two Regulation D, Rule 504 offerings, one in 1996 and one in 1997.
Premier's common
11
<PAGE>
stock was listed on the NASD's over-the-counter market as of January 6, 1997
under the symbol "PVEI" and quoted pursuant to SEC Rule 15c2-11. Premier's
predecessor-in-interest was Omni Answers, Inc. ("Omni") which was incorporated
on September 11, 1985 in the State of Louisiana. Omni operated a consultation
by mail business. Omni changed its name to Premier on December 20, 1996.
Pursuant to the terms of the Merger Agreement, the Premier shareholders received
one share of the Company for every share of Premier common stock they held, all
Premier stock was cancelled, and Premier was merged with and into the Company,
leaving the Company as the surviving entity. The Merger was effective on April
16, 1997. New Directions changed its name to New Directions Manufacturing,
Inc., an Arizona corporation and the Company (New Directions Manufacturing,
Inc., a Nevada corporation) then became the 100% owner of New Directions (the
Arizona corporation) which conducts business as the Company's wholly-owned
operating subsidiary.
The Selling Shareholders hereunder are identified in the "Selling
Shareholders" section of this Prospectus.
The address of the Company's principal executive offices is 2940 W.
Willetta, Phoenix, AZ 85009. The Company's telephone number is (602) 352-1165.
Unless otherwise noted, the "Company" as used in this Prospectus, will refer to
the consolidated entities described above.
Business
New Directions-Manufacturers of Contemporary Furniture, Inc., an Arizona
corporation ("New Directions") was established in 1989 by the Horner family.
Previously, Jack Horner, Sr. and Jr. both owned and managed separate chains of
furniture stores in the Southwest United States. Jack Jr. was also a factory
representative for different furniture manufacturers over a period of 10 years.
In the late 1980's, they saw the increasing demand for quality oak furniture and
the lack of an adequate supply of the product. Consequently, Jack Sr. sold the
furniture store chain and established New Directions with his two sons.
The Company manufactures quality oak furniture using no particle board.
Its product line consists mainly of entertainment centers, wall units, and room
dividers; however, it also offers bookshelves, bedroom suites, and other oak
furniture units.
The Company's customers are located throughout the United States, as well
as Canada and Puerto Rico. Because of its formerly strict credit terms, the
Company limited its opportunities for growth. In particular, its strict credit
terms made it difficult to obtain business with high volume department stores
and large furniture chains.
Despite such limitations, the business expanded from 12 employees and a
10,000 sq. ft. production facility, to 80 employees in a 34,000 sq. ft.
facility. Revenues grew to over $5 million for the fiscal year ending June 30,
1996. The Company's early growth was financed entirely by internally generated
funds.
Primarily due to his declining health, Jack Sr. wished to retire from the
business. For personal reasons, neither of Jack Sr.'s sons desired to assume
control of the Company from their father. Consequently, the family offered the
business for sale. Jack Jr. expressed a strong interest in remaining with the
business after the change in ownership. New management agreed to keep him in
the business to ensure a smooth management transition and to take advantage of
his extensive knowledge gained from 15 years of experience in the furniture
trade.
Market Opportunities
The market for quality oak furniture has grown considerably in the past
five years as demonstrated by the growth of specialty oak furniture stores such
as Oak Express and Oak Showcase. In addition, the oak furniture market has also
grown within the larger department and furniture stores. One reason for the
market's growth has been the aging of the baby boomer population. As the baby
boomers age, they typically prefer and purchase more traditional furniture, such
as oak furniture, as opposed to furniture constructed with more contemporary,
man-made materials. Management of the
12
<PAGE>
Company believes that this factor alone will continue to create significant
growth opportunities in the existing market for entertainment centers, wall
units, bedroom suites, tables, and all other typical home furniture pieces.
Another market that may be pursued is the international market. Excluding
sales to Canada, the Company does not currently export its products despite the
fact that oak furniture manufactured in the United States is popular in Europe
and other foreign markets.
The Company also has significant opportunities within the existing domestic
United States marketplace. This market could easily be further exploited
through more aggressive marketing, more flexible credit terms (while including
the cost of extending credit in the price of the product), and by exploring
means of further expanding in the United States.
Notably, the Company currently makes minimal expenditures for marketing and
advertising its products. Media advertising has averaged less than $20,000
annually, reflecting the former principals' conservative management style. New
management believes that increased marketing will not only increase sales but
will allow higher pricing of products and increased margins.
Production
The Company maintains its manufacturing operations in a 34,000 sq. ft.
building located in Phoenix, Arizona. Together with its administrative offices,
the Company occupies the entirety of the building under the terms of a lease
expiring March 1, 2000 (which is currently awaiting final authorization from the
lessor). See "Business of the Company--Properties."
The Company's production line was originally designed to be simplistic with
a significant amount of manual labor. However, by minimizing large investments
in manufacturing equipment, former management of the Company significantly
restricted the Company's ability to take advantage of opportunities to reduce
labor costs and to streamline its manufacturing operations. The new management
team believes that the Company is capable of producing higher quality, higher
value products with only a minimal increase in cost.
Major Suppliers/Customers/Contracts
No single customer accounts for more than ten percent of the Company's
annual sales, nor is the Company reliant upon any single supplier for any raw
materials, parts or other supplies used in the Company's manufacturing process
which are not readily available on the open market at reasonable prices and in
adequate quantities for the Company's current and anticipated levels of
operations.
Competition
The Company faces competition from numerous companies, certain of which are
more established, benefit from greater market recognition, and have greater
financial, production and marketing resources than the Company. The Company's
products compete on the basis of certain factors, including quality and price.
The Company's competitors include Thornwood; Aspen, Inc.; and Legends.
Properties
The Company rents a 34,000 square foot facility in Phoenix, Arizona which
includes offices and manufacturing space, pursuant to a lease agreement entered
into on November 11, 1992. The term of the lease covers the period of March
1993 through March 1998, and requires monthly payments of approximately $7,500.
On May 27, 1997, the Company executed a proposal to extend the lease through
March 2000 at an average monthly payment of approximately $8,500 for the first
year of the extension and approximately $9,500 for the second year of the
extension (which is currently awaiting final authorization from the lessor).
The Company also leases showrooms in San Francisco, California and North
Carolina which require approximate monthly lease payments of $2,037 and $6,000,
respectively.
13
<PAGE>
Employees
As of the date of this Memorandum, the Company employs 75 full-time
employees. The Company hires independent contractors on an "as needed" basis
only. The Company has no collective bargaining agreements with its employees.
The Company believes that its employee relationships are satisfactory.
Litigation
There is no litigation currently pending or threatened against the Company.
14
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and officers of the Company as of the date of this Prospectus
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Sean F. Lee 56 Chairman of the Board
Donald A. Metke 62 President, Chief Operating Officer, Chief Financial
Officer, Director
Jack Horner, Jr. 41 Executive Vice President, Secretary, Director
</TABLE>
Sean F. Lee, Chairman of the Board of Directors
Sean F. Lee has served in management positions in the retail industry since
1963. Recently Mr. Lee was co-founder and chairman of INFOPAK, a company which
manufactured a hand held computer and created custom software for the real
estate industry. He held the position of Chairman from inception in January
1991 until its sale in October 1996. In October 1996, Mr. Lee accepted the
position of co-founder Chairman of Soy Environmental Products, Inc., Overland,
Kansas, a manufacturer of cleaners and solvents for the retail market. Mr.
Lee's retail experience includes 18 years with Montgomery Ward, starting as a
trainee and ending in 1981 as merchandise manager for the Western region. In
1982 he joined W.R. Grace as a divisional Vice President ending in 1986 as
C.E.O. of Grace Homecenters West. Mr. Lee was C.E.O. of YellowFront Stores,
Inc. from 1986 through 1988. Mr. Lee was C.E.O. of Homebase a $1.7 billion
home improvement chain in 1988 and 1989. He holds a B.S. in economics from Hood
College, Frederick Maryland.
Donald A. Metke, President, Chief Operating Officer, Chief Financial Officer,
Director
Donald A. Metke's business background includes extensive consulting for
Yucaipa Companies of Los Angeles, California, and Smitty's Supermarkets,
Phoenix, Arizona. From 1990 to 1993 Mr. Metke served as Executive Vice
President for Almac's Supermarkets, Providence, Rhode Island, and from 1988 to
1990 he served as Executive Vice President of Marketing for Chas. P. Young, the
leader in the financial and securities printing fields. Mr. Metke was a partner
with MultiServices of Orlando, Florida from 1983 to 1988 with involvement in
sales, and mergers and acquisitions of small and medium sized companies. He was
President of the Consumer Products Division of Petrolane from 1977 to 1983 with
responsibility for Supermarkets (Stater Brothers, 92 stores in California),
Health Services (44 hospitals in the West and Midwest), and 92 automotive
stores.
Jack Horner, Jr., Executive Vice President, Secretary, Director
Jack Horner, Jr. was a co-founder of New Directions and was instrumental in
its development from inception to over $5 million in sales annually. From 1987
to 1990, he was a manufacturer's representative covering the Southwestern United
States for three separate furniture companies. From 1985 to 1987, he owned and
operated retail furniture stores in Phoenix, Arizona and has been a central
figure in the management of New Directions since its establishment in 1989.
The number of directors may be fixed from time to time by the Board of
Directors. The Board of Directors presently consists of three directors. Each
of the Company's directors hold office until their respective successors are
elected at the next annual meeting of shareholders. Vacancies in the Board of
Directors are filled by a majority vote of the remaining directors or by a
shareholder vote called expressly for such purpose.
15
<PAGE>
Executive Compensation
The following shows the annual amounts which the Company anticipates paying
each executive officer and director for the fiscal year ending June 30, 1998.
The officers and directors were associated with the Company for only six months
in the fiscal year ending June 30, 1997 and received only nominal compensation
for such time. The Company has employment agreements with all of its executive
officers and a consulting agreement with its chairman of the board. The
following officers and directors of the Company receive the following annual
cash salaries and other compensation:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Year Annual Salary/(1)(2)(3)/
--------------------------- ---- -------------
<S> <C> <C>
Sean F. Lee, Chairman 1998 $ 60,000
Donald A. Metke, President, Chief Operating 1998 $ 100,000
Officer, Chief Financial Officer, Director
Jack Horner, Jr., Executive Vice President, 1998 $ 100,000
Secretary, Director
All Officers and Directors as a Group (3 persons) 1998 $ 260,000
</TABLE>
____________________________________
(1) No officers received or will receive any bonus or other annual compensation
other than salaries during fiscal 1998. The Company does not provide any
personal benefits to officers of the Company, such as the cost of
automobiles, life insurance, and supplemental medical insurance. The
officers of the Company have an opportunity to receive additional
compensation to make up for the lack of benefits, such as payment for the
cost of an automobile, payment of a life insurance premium, and monthly
payments for medical insurance. However, such sums are not included herein
because the specific dollar amounts of such personal benefits cannot
presently be ascertained. Management believes that the value of non-cash
benefits and compensation distributed to executive officers of the Company
individually or as a group during fiscal year 1998 will not exceed the
lesser of $50,000 or ten percent of such officers' individual cash
compensation or, with respect to the group, $50,000 times the number of
persons in the group or ten percent of the group's aggregate cash
compensation.
(2) No officers received or will receive any long term incentive plan (LTIP)
payouts or other payouts during fiscal 1998.
(3) No officers received or will receive any awards, including restricted stock
awards or securities underlying options, during fiscal 1998.
Indemnification of Directors and Officers
The laws of the State of Nevada and the Company's Bylaws provide for
indemnification of the Company's directors for liabilities and expenses that
they may incur in such capacities. In general, directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, and
with respect to any criminal action or proceeding, actions that the indemnitee
had no reasonable cause to believe were unlawful.
The Company has been advised that in the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the Act is
against public policy as expressed in the Act and is, therefore, unenforceable.
Transactions with Affiliates
In August 1996, Sean F. Lee acquired the Option to purchase the outstanding
shares of New Directions. The Company acquired the Option from Sean F. Lee, a
director of the Company in exchange for the opportunity to purchase 1,530,000
shares of the Company at par value, which purchase was completed, and
reimbursement for his costs associated with acquiring the option ($20,000).
Jack Horner, Jr., an officer and director of the Company, was a
shareholder of New Directions. The terms of the Option to purchase the
outstanding shares of New Directions provided that the Company pay the then
current shareholders of New Directions a total purchase price of approximately
$2.08 million over a period of four years. As a
16
<PAGE>
former shareholder of New Directions, Mr. Horner will receive a pro rata portion
of the purchase price according to his percentage ownership of New
Directions.
As part of Donald Metke and Jack Horner, Jr.'s Employment Agreement, the
Company has issued to both officers/directors 510,000 shares each of the
Company's restricted common stock in consideration for the payment of par value
($510 each) and to ensure their long-term commitment to the Company's future
success.
All future transactions with affiliates will be on terms no less favorable
than could be obtained from unaffiliated third parties, and will be approved by
a majority of the disinterested directors.
Employment and Related Agreements
The Company entered into an Employment Agreement with Donald A. Metke,
President, Chief Operating Officer, and Chief Financial Officer of the Company,
on December 31, 1996. Mr. Metke commenced his employment with the Company on
January 1, 1997. Pursuant to that Agreement, Mr. Metke receives a salary of
$8,333.33 per month; eligibility to participate in all employment benefit plans
and arrangements relating to pensions, health and life insurance, and other
similar employee benefit plans or arrangements; and reimbursement of expenses.
Also as part of his Agreement, the Company issued to Mr. Metke 510,000 shares of
the Company's restricted common stock in consideration of the payment of par
value ($510 total) and to ensure his long-term commitment to the Company's
future success. The Employment Agreement has a term of three years and is
terminable at will by Mr. Metke or for cause by the Company. There are no
severance provisions. A covenant not to compete is in effect for a period of
five years from January 1, 1997.
The Company entered into an Employment Agreement with Jack Horner, Jr.,
Executive Vice President and Secretary on December 31, 1996. Mr. Horner
commenced his employment with the Company on January 1, 1997. Pursuant to that
Agreement, Mr. Horner receives a salary of $8,333.33 per month; eligibility to
participate in all employment benefit plans and arrangements relating to
pensions, health and life insurance, and other similar employee benefit plans or
arrangements; and reimbursement of expenses. Also as part of his Agreement, the
Company issued to Mr. Horner 510,000 shares of the Company's restricted common
stock in consideration of the payment of par value ($510 total) and to ensure
his long-term commitment to the Company's future success. The Employment
Agreement has a term of three years and is terminable at will by Mr. Horner or
for cause by the Company. There are no severance provisions. A covenant not to
compete is in effect for a period of five years from January 1, 1997.
The Company entered into a Consulting Agreement with Sean F. Lee on
December 31, 1996 pursuant to which Mr. Lee will consult with the Company to
assist it in its day-to-day business operations, financing, and management. Mr.
Lee also serves on the board of directors of the Company. Pursuant to the
Consulting Agreement, Mr. Lee receives monthly compensation of $5,000 and
expense reimbursement. Mr. Lee is not an employee of the Company and,
therefore, is not eligible to participate in any employment benefit plans or
arrangements relating to pensions, health and life insurance, or other similar
employee benefit plans or arrangements. The Consulting Agreement has a term of
three years and is terminable at will by Mr. Lee or for cause by the Company.
There are no severance provisions. A covenant not to compete is in effect for a
period of five years from January 1, 1997.
17
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of the date of this
Memorandum by: (i) each stockholder known by the Company to be the beneficial
owner of more than five percent of the outstanding Common Stock, (ii) each
director of the Company and (iii) all directors and officers as a group.
<TABLE>
<CAPTION>
Shares of Percent of
Name and Address Common Stock/(1)/ Class/(2)/
- ---------------- ----------------- -----------
<S> <C> <C>
Sean F. Lee/(3) (4)/ 1,410,000 28.3%
Donald Metke/(3)/ 510,000 10.2%
Jack Horner, Jr./(3)/ 510,000 10.2%
Winthrop Trust, Ronald W. Tupper, TTEE/(5)/ 494,444 10.0%
P.O. Box 11587
Bainbridge Island, WA 98110
Whittington Investments Limited/(6)/ 297,129 6.0%
Charlotte House
P.O. Box N-4825
Nassau, N.P., Bahamas
All Officers and Directors
as a Group/(7)/ 2,430,000 48.7%
- ---------------
</TABLE>
* Less than one percent
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed above, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
purposes of computing the percentage of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage of any other person.
(2) Does not give effect to the sale of any shares offered or sold by the
Selling Shareholders.
(3) c/o Company's address: 2940 West Willetta, Phoenix, AZ 85009.
(4) Mr. Lee was originally issued 1,530,000 shares, but transferred 120,000
shares to a third party, leaving Mr. Lee with 1,410,000 shares.
(5) The beneficiary of the Winthrop Trust is Ronald W. Tupper.
(6) The sole shareholder of Whittington Investments Limited is Niaz Ahmad
Khan.
(7) None of the Company's officers or directors have any options, warrants or
rights to acquire shares of the Company's common stock from the Company or
other person.
SELLING SHAREHOLDERS
The following table sets forth the number of shares of Common Stock which
may be offered for sale from time to time by the Selling Shareholders. The
shares offered for sale constitute all of the shares of Common Stock known to
the Company to be beneficially owned by the Selling Shareholders. To the best
of management's knowledge, none of the Selling Shareholders has or have any
material relationship with the Company.
18
<PAGE>
<TABLE>
<CAPTION>
Name of Shares of
Selling Shareholder Common Stock Offered/(1)/
- ------------------- --------------------
<S> <C>
Winthrop Trust, Ronald W. Tupper TTEE 494,444
Stanley A. Levine and Lois O. Levine, JTWROS 30,000
Earl T. Shannon, an individual 45,000
Bruce Walsh, an individual 4,444
Ronald L. Schneider and Lois C. Schneider, JTWROS 15,556
James L. Walsh, an individual 4,444
Dwight Van Brunt, an individual 27,000
Keith Feingold and Caryn Feingold, JTWROS 4,444
Hugh L. Renfro IRA 45,000
Whittington Investments Limited, a corporation 297,129
Peter W. Mettler, an individual 20,000
David Mark Ocheltree and Kyle Ocheltree, JTWROS 3,500
A. Frederick Bahr and Carole E. Crafts, JTWROS 3,039
Richard Houlihan, an individual 6,000
Total 1,000,000
</TABLE>
_______________
(1) All of these Shares are currently restricted under Rule 144 of the 1933 Act.
Additionally, the Company is registering for sale hereunder, 50,000 Shares
underlying options issued to its legal counsel in exchange for services rendered
in connection with this Registration Statement. Twenty-five thousand options
were issued to counsel on June 9, 1997 and 25,000 options were issued to counsel
on September 15, 1997. All options are exercisable for five years at the option
exercise price of $2.25 per Share.
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Shareholders for their
own accounts. The Company will not receive any of the proceeds from the sale of
the Shares pursuant to this Prospectus. The Company will pay all of the
expenses of the registration of the Shares, but shall not pay any commissions,
discounts, and fees of underwriters, dealers, or agents.
The Selling Shareholders may offer and sell the Shares from time to time in
transactions in the over-the-counter market or in negotiated transactions, at
market prices prevailing at the time of sale or at negotiated prices. The
Selling Shareholders have advised the Company that they have not entered into
any agreements, understandings, or arrangements with any underwriters or broker-
dealers regarding the sale of their Shares, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of Shares by the
Selling Shareholders. Sales may be made directly or to or through broker-
dealers who may received compensation in the for of discounts, concessions, or
commissions from the Selling Shareholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions).
The Selling Shareholders and any broker-dealers acting in connection with
the sale of the Shares hereunder may be deemed to be "underwriters' within the
meaning of Section 2(11) of the Act, and any commissions received by them and
any profit realized by them on the resale of Shares as principals may be deemed
underwriting compensation under the Act.
19
<PAGE>
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Shares offered by this Prospectus may not
simultaneously engage in market making activities with respect to the Common
Stock of the Company during the applicable "cooling off" periods prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Shareholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Common Stock by the Selling Shareholders.
Selling Shareholders may also use Rule 144 under the Act to sell the Shares
if they meet the criteria and conform to the requirements of such Rule.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company currently consists of
25,000,000 shares of Common Stock, $0.001 par value. The Company has no shares
of Preferred Stock.
The Company's Transfer Agent is Atlas Stock Transfer Corp., 5899 South
State Street, Salt Lake City, Utah, 84107.
The following summary of certain terms of the Common Stock does not purport
to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Articles of Incorporation and Bylaws.
Common Stock
As of the date of this Prospectus, there are 4,987,770 shares of Common
Stock outstanding.
Holders of Common Stock are each entitled to cast one vote for each share
held of record on all matters presented to shareholders. Cumulative voting is
not allowed; hence, the holders of a majority of the outstanding Common Stock
can elect all directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will be
paid until the Company is profitable.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares if issued by the Company. There are no conversion,
redemption, sinking fund or similar provisions regarding the Common Stock. All
of the outstanding shares of Common Stock are fully paid and non-assessable and
all of the shares of Common Stock offered hereby will be, upon issuance, fully
paid and non-assessable.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Horwitz & Beam, Irvine, California.
EXPERTS
The Financial Statements of the Company and New Directions for the fiscal
years ended June 30, 1995 , June 30, 1996, and the period from January 9, 1997
(dated of incorporation) through June 30, 1997, included herein and elsewhere in
the registration statement, have been included herein and in the registration
statement in reliance on the report of Evers & Company, Ltd., appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New Directors, Inc.:
We have audited the accompanying consolidated balance sheet of New Directions
Manufacturing, Inc. and subsidiary as of June 30, 1997 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the period from January 9, 1997 (date of incorporation) through June
30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Directions Manufacturing, Inc. and subsidiary as of June 30, 1997 and the
consolidated results of their operations and their cash flows for the period
from January 9, 1997 (date of incorporation) through June 30, 1997, in
conformity with generally accepted accounting principles.
August 27, 1997
Phoenix, Arizona
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Statement of Changes in Shareholders' Equity
For the Period From January 9, 1997 (Date of Incorporation)
Through June 30, 1997
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional
Number of Paid-In Accumulated
Shares Amount Capital Deficit Total
--------------- ----------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Incorporation of New Direction 2,550,000 2,550 2,295,000 $ - $ 2,297,550
Private placement of stock 1,000,000 1,000 1,908,686 - 1,909,686
Merger with Premier Ventures 1,437,770 1,438 (1,438) - -
Net loss - - - (2,339,798) (2,339,798)
--------------- ----------- ------------- --------------- --------------
Balance June 30, 1997 4,987,770 4,988 4,202,248 $ (2,339,798) $ 1,867,438
============== =========== ============= ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
1. Summary of Significant Accounting Policies
------------------------------------------
The following is a summary of the significant accounting policies followed by
New Directions Manufacturing, Inc. The policies conform with generally
accepted accounting principles, which requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
a. Operations
----------
New Directions Manufacturing, Inc. manufactures oak furniture in Phoenix,
Arizona and sells to customers located throughout the United States and
Canada.
b. Consolidation
-------------
The accompanying financial statements include the activity of New
Directions Manufacturing, Inc. (The Company or NDM-NV, a Nevada
corporation) and its wholly-owned subsidiary, New Directions
Manufacturing, Inc., (formerly New Directions-Manufacturers of
Contemporary Furniture, Inc. - NDMCF). All significant intercompany
transactions and accounts have been eliminated in consolidation.
c. Cash Equivalents
----------------
Cash equivalents include money market accounts and other short-term
investments with an original maturity of three months or less.
d. Inventory
---------
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
e. Goodwill
--------
Goodwill, which resulted from the acquisition of NDMCF, is being amortized
over twenty years on the straight line basis.
f. Covenant-not-to-compete
-----------------------
The covenant-not-to-compete is being amortized over five years on the
straight line basis.
g. Property and Equipment
----------------------
Property and equipment are recorded at cost and are being depreciated over
estimated useful lives of six to seven years using the straight-line
method.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
1. Summary of Significant Accounting Policies, continued
-----------------------------------------------------
h. Income taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective
tax bases, including operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect in
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
i. Advertising costs:
-----------------
Advertising costs are expensed as incurred
j. Net Loss Per Share
------------------
Net loss per share is computed based upon the weighted average number of
shares outstanding during the period, which was assumed to be 4,987,770
for the period ended June 30, 1997. Options are considered antidilutive
and were not considered in the calculation.
2. Organization and Capital Transactions
-------------------------------------
New Directions Manufacturing, Inc.-Nevada was incorporated on January 9,
1997. The Company's chairman acquired 1,530,000 shares of common stock in
exchange for $1,530 and the assignment of his option to acquire the stock
of NDMCF. At the same time, the Company's President and Vice President each
acquired 510,000 shares of common stock for $510 each. Additional
compensation to these officers of $2,295,000, related to the acquisition of
this stock, has been reflected in the accompanying financial statements.
NDM-NV had no significant assets, liabilities or operations prior to its
acquisition of NDMCF.
On January 9, 1997, the Company prepared a private placement memorandum that
offered 1,000,000 shares of common stock for sale at $2.25 per share The
offering was successful and the Company received cash proceeds of
$1,910,237, which was net of offering costs.
In January 1997, the Company acquired 100% of the stock of New Directions-
Manufacturers of Contemporary Furniture, Inc. Except for the Company's
vice president, who currently owns 510,000 shares of the Company's common
stock, the stock ownership of NDMCF was different from that of NDM-NV. The
selling shareholders of NDMCF received cash of $1,280,000 at closing and
agreed to finance $800,000 over four years at 8% interest. The Company
used proceeds from the private placement and a short term loan for the cash
payment at closing.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
2. Organization and Capital Transactions, continued
------------------------------------------------
The sellers retained all cash in the corporation and were responsible for the
payment of substantially all liabilities existing at that time. In
addition, the sellers retained the balance of accounts receivable that
exceeded $300,000. The agreement provides for a five-year covenant not-to-
compete by the original shareholders of NDMCF. This transaction is being
accounted for as a purchase and includes the operations of NDMCF effective
January 1, 1997.
In March 1997, the Company merged with Premier Ventures and Exploration, Inc.
with the Company being the surviving corporation. The shareholders of NDM-
NV and Premier received 3,550,000 and 1,437,770 shares, respectively, of
the merged Company. The merger is being accounted for as a reverse
acquisition. Premier had no significant assets or operations at the time
of the merger. Prior to the merger, the Premier effected a reverse stock
split of 415 to 1 and issued approximately 1,400,000 shares of common stock
at $.01 per share.
In conjunction with the private placement and subsequent registration
statement, the Company's legal counsel received options to acquire 25,000
shares at $2.25 per share.
3. Concentration of Risk
---------------------
At June 30, 1997, the Company maintained cash accounts in a single financial
institution that exceeded federally insured limits by approximately
$441,000.
4. Inventory
---------
Inventory consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $178,703
Work-in-process 39,790
Finished goods 18,375
--------
$236,868
========
</TABLE>
5. Property and Equipment
----------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment $303,087
Office furniture & equipment 36,681
--------
339,768
Less: Accumulated depreciation 12,125
--------
$327,643
========
</TABLE>
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
6. Lease Commitments
-----------------
The Company leases its plant in Phoenix and showrooms in San Francisco and
North Carolina under non-cancelable operating leases. In addition to rent,
the leases generally require the Company to pay increases in the operating
expenses of the properties.
The Company also leases certain equipment, under non-cancelable financing
leases, with a cost of approximately $114,000 and accumulated depreciation
of $4,000 at June 30, 1997. Certain leases contain purchase options. The
leases require the Company to pay all operating expenses and taxes related
to the equipment.
Future minimum lease obligations, are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Capital Operating
-------------------- ------- ---------
<S> <C> <C>
1998 $29,282 $145,795
1999 11,612 81,000
2000 8,013 21,600
2002 2,576 -
------- --------
51,483 $248,395
========
Less amounts representing
interest at rates ranging
from 16% to 19% 7,564
-------
Present value of capital
lease obligations 43,919
Current portion 25,239
-------
Capital lease obligations,
net of current portion $18,680
=======
</TABLE>
Rent expense for the period ended June 30, 1997 was $99,627.
Subsequent to June 30, 1997, the Company acquired and leased equipment with a
cost of $98,400. The lease requires 60 monthly payments of $2,077, with a
buyout for $1 at the end of the lease term. The Company intends to record
the lease as capital lease.
The Company is currently negotiating an extension of the lease for its
manufacturing facilities in Phoenix.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
7. Debt
----
Debt consists of an 8% promissory note to the former shareholders of NDMCF,
due January 2001. The unpaid balance of the note was $713,382 at June 30,
1997.
Future minimum principal payments required in accordance with the terms of
this agreement are:
Year ending June 30,
--------------------
<TABLE>
<CAPTION>
<S> <C>
1998 $184,215
1999 199,231
2000 215,767
2001 114,169
--------
$713,382
========
</TABLE>
In May 1997, the Company obtained a $500,000 revolving line of credit from a
bank, which expires on April 15, 1998. The line bears interest at prime
plus 1% and is secured by accounts receivable and inventory. Advances on
the line may not exceed 75% of eligible accounts receivable. The line
contains various restrictive covenants, including minimum equity, working
capital and tangible net worth.
8. Income Taxes
------------
Deferred income tax liabilities consist of the following:
Difference in basis of property and equipment $ 65,200
Difference in basis of covenant-not-to-compete (12,200)
State net operating loss carryforward (12,800)
Other (3,400)
---------
$ 36,800
=========
A reconciliation of expected to actual taxes follows:
Expected tax recovery at rate of 34% $(798,600)
Non-cash compensation to shareholders 780,300
Amortization of goodwill 4,800
Surtax exemption and other 4,600
---------
Financial statement recovery of income taxes $ (8,900)
=========
NDMCF filed federal and state corporate tax returns through its tax year ended
December 31, 1996.
NDMCF had an Arizona net operating loss carryforward of approximately $142,000
at June 30, 1997, which may be used to offset future state income taxes
through 2001.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
9. Profit Sharing Plan
-------------------
NDMCF adopted a profit sharing plan on January 1, 1992, which covers
substantially all full-time employees with more than one year of service.
Contributions to the plan are at the discretion of the board of directors.
The board has not approved any contributions for the period ended June 30,
1997. Management intends to terminate the plan and does not expect to
incur additional cost related to the plan.
10. Related Party Transactions
--------------------------
The Company has entered into employment and consulting agreements with the
principal officers and directors of the Company. The agreements have an
initial term of three years and contain five year covenants-not-to-compete.
Consulting fees paid to the Company's chairman were $30,000 through June
30, 1997.
In conjunction with the acquisition of NDMCF, the Company's president
received compensation of $30,000. The Company's chairman also received
reimbursement for costs he incurred related to the acquisition of
approximately $42,000.
The Company's vice president was also an officer and stockholder of NDMCF,
prior to the acquisition. As such, he received his proportionate share of
the $1,280,000 cash payment made to acquire NDMCF. He also received his
pro-rata share of all principal and interest payments made through June 30,
1997. Total principal and interest payments to all former shareholders
through June 30, 1997 were $117,180.
11. Disclosures about fair value of financial instruments
-----------------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. The following summary
presents a description of the methodologies and assumptions used to
determine such amounts.
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument;
they are subjective in nature and involve uncertainties, matters of
judgment and, therefore, cannot be determined with precision. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
instrument. Changes in assumptions could significantly affect the
estimates.
Since the fair value is estimated as of June 30, 1997, the amounts that will
actually be realized or paid at settlement of the instruments could be
significantly different.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
11. Disclosures about fair value of financial instruments, continued
----------------------------------------------------------------
The carrying amount of cash and cash equivalents is assumed to be the fair
value because of the liquidity of these instruments. Accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short maturity of these instruments. The recorded balance of notes payable
are assumed to be the fair value since the rates specified in the notes
approximate current market rates.
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
New Directions Manufacturing, Inc.:
We have audited the accompanying balance sheet of New Directions Manufacturing,
Inc. as of June 30, 1996 and the related statements of operations and cash flows
for the years ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Directions Manufacturing,
Inc. as of June 30, 1996 and the results of its operations and its cash flows
for the years ended June 30, 1996 and 1995, in conformity with generally
accepted accounting principles.
November 20, 1996
Phoenix, Arizona
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Balance Sheet
June 30, 1996
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents $243,951
Accounts receivable, net of allowance for doubtful accounts of $26,000 345,446
Inventory 211,000
Prepaid expenses 7,790
--------
Total current assets 808,187
--------
Property and equipment, net 62,363
Deferred income taxes 11,000
Deposits 8,520
--------
$890,070
========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of capital lease obligations $ 23,418
Accounts payable 143,764
Commissions payable 16,590
Advances from officers 457
Accrued payroll and payroll taxes 3,146
Income taxes payable 44,000
--------
Total current liabilities 231,375
--------
Capital lease obligations, net of current portion 37,550
--------
Stockholders' equity
Common stock, $1.00 par value. 1,000,000 shares authorized; 1,000 shares
issued and outstanding 1,000
Retained earnings 620,145
--------
621,145
--------
Commitments and subsequent events (see notes) $890,070
========
</TABLE>
See accompanying notes to financial statements
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Statements of Operations
For the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Sales, net of returns and allowances $5,802,480 $4,607,085
---------- ----------
Cost of sales:
Materials 3,747,999 2,902,099
Labor 758,343 590,822
Overhead 264,004 231,466
---------- ----------
4,770,346 3,724,387
---------- ----------
Gross profit 1,032,134 882,698
---------- ----------
Selling, general and administrative expenses:
Officers' compensation 560,122 510,144
Administrative salaries 59,887 88,403
Advertising and show expenses 102,706 103,965
Commissions 84,003 51,582
Retirement plan contribution - 40,000
Travel and entertainment 11,898 21,210
Vehicle leasing 18,310 16,155
Other 107,733 88,222
---------- ----------
944,659 919,681
---------- ----------
Income (loss)from operations 87,475 (36,983)
---------- ----------
Other income (expense)
Interest income 5,774 6,369
Interest expense (10,171) (10,756)
---------- ----------
(4,397) (4,387)
Net income (loss) before income taxes (benefit) 83,078 (41,370)
Provision for income taxes (benefit) 33,000 (11,000)
---------- ----------
Net income (loss) 50,078 (30,370)
Retained earnings, beginning 570,067 600,437
---------- ----------
Retained earnings, ending $ 620,145 $ 570,067
========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Statements of Cash Flows
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 50,078 $(30,370)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation & amortization 27,496 30,961
Decrease (increase) in receivables (29,988) 142,451
Increase in inventory - (20,000)
Increase in prepaid expenses (7,790) 6,738
Increase in accounts payable 11,075 17,462
Increase (decrease) in commissions payable 3,375 (3,520)
Decrease in accrued payroll and payroll taxes (3,104) (12,349)
Decrease in officer advances - (52,086)
Increase (decrease) in accrued retirement contribution (40,000) 5,000
Increase (decrease) in income taxes payable 33,000 (11,000)
--------- ---------
Net cash provided by operating activities 44,142 73,287
--------- ---------
Cash flows for investing activities:
Acquisition of property and equipment - (4,985)
--------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Statements of Cash Flows, Continued
For the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows for financing activities:
Payment of capital lease obligations (19,491) (14,697)
--------- --------
Net increase in cash and cash equivalents 24,651 53,605
Cash and cash equivalents, beginning of period 219,300 165,695
--------- --------
Cash and cash equivalents, end of period $243,951 $219,300
========= ========
Supplemental disclosures of cash flow information:
- -------------------------------------------------
Cash paid during the period for:
Interest $ 10,171 $ 10,756
Income taxes --------- --------
Supplemental schedule of noncash investing and financing activities:
- -------------------------------------------------------------------
During 1996 and 1995, the Company acquired equipment costing $15,018 and
$25,575, respectively using financing leases.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Notes to Financial Statements
June 30, 1996
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of Presentations
----------------------
New Directions Manufacturing, Inc., formerly New Directions-
Manufacturers of Contemporary Furniture, Inc. (The Company)
manufactures oak furniture in Phoenix, Arizona and primarily sells to
customers in the western United States. The accompanying financial
statements were prepared in accordance with generally accepted
accounting principles which necessitate the use of management
estimates in preparing the statements.
(b) Cash Equivalents
----------------
Cash equivalents include money market accounts and other short- term
investments with an original maturity of three months or less.
(c) Inventory
---------
Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(d) Property and Equipment
----------------------
Property and equipment is recorded at cost and is being depreciated
over estimated useful lives of five years using the straight-line
method.
(e) Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards #109.
(2) Inventory
---------
Inventory consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $120,800
Work-in-process 74,500
Finished goods 15,700
--------
$211,000
========
</TABLE>
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Notes to Financial Statements
June 30, 1996
(3) Property and Equipment
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment $203,572
Office furniture & equipment 18,463
--------
222,035
Less: Accumulated depreciation 159,672
--------
$ 62,363
========
</TABLE>
(4) Lease Commitments
-----------------
The Company leases its plant in Phoenix and showrooms in San Francisco and
North Carolina under non-cancelable operating leases. In addition to rent,
the leases generally require the Company to pay increases in the operating
expenses of the properties.
The Company also leases certain equipment, with a cost of $110,550 and
accumulated depreciation of $58,044, under non-cancelable financing leases.
Certain leases contain purchase options. The leases require the Company to
pay all operating expenses and taxes related to the equipment.
Future minimum lease obligations at June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Capital Operating
-------------------- ------- ---------
<S> <C> <C>
1997 $31,552 $100,748
1998 22,894 59,773
1999 11,612
2000 8,013
2001 2,567
------- --------
76,638 $160,521
========
Less amounts representing interest
at rates ranging from 16% to 19% 15,670
-------
Present value of capital lease obligations 60,968
Current portion 23,418
-------
Capital lease obligations, net of
current portion $37,550
=======
</TABLE>
Rent expense for the years ended June 30, 1996 and 1995 was $99,627 and
$91,518, respectively.
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Notes to Financial Statements
June 30, 1996
(5) Income Taxes
------------
Deferred income taxes consists of the following:
<TABLE>
<S> <C>
Leases capitalized for financial
statement purposes $ 3,400
Differences in tax and book
depreciation 7,600
-------
$11,000
=======
</TABLE>
The Company filed federal and state corporate tax returns through December
31, 1995. As such, the tax provision at June 30, 1996, has been adjusted
to reflect 50% of the surtax exemptions.
(6) Profit Sharing Plan
-------------------
The Company adopted a profit sharing plan on January 1, 1992 which covers
substantially all full-time employees with more than one year of service.
Contributions to the plan are at the discretion of the board of directors.
No contributions were approved for the year ended June 30, 1996. The board
granted a $40,000 contribution during the year ended June 30, 1995.
Management intends to terminate the plan upon completion of the sale
described in note 8.
(7) Concentration of Risk
---------------------
As of June 30, 1996, the company maintained cash accounts in a single
financial institution which exceeded federally insured limits by
approximately $230,000.
(8) Subsequent Sale of Shareholders' Interests
------------------------------------------
On July 17, 1996, the shareholders and the Company entered into an agreement
whereby the shareholders of New Directions will sell all of their stock to
a newly-formed corporation, New Directions Manufacturing, Inc., a Nevada
corporation. The stock ownership of the new Company is substantially
different than that of the existing Company. The selling shareholders are
to receive cash of $1,280,000 at closing and will finance $800,000 over
four years at 8% interest. The seller will retain all cash in the
corporation on the closing date and will be responsible for the payment of
all payables existing on the closing date. In addition, any excess of
receivables over payables which exceeds $300,000 (net receivables) at
closing will be paid to the sellers as those receivables are collected.
Any shortage in net receivables at closing will reduce the purchase price
and the cash payment required.
The agreement provides for a five-year covenant not-to-compete by the original
shareholders of New Directions Manufacturing, Inc.
<PAGE>
[LETTERHEAD OF EVERS & COMPANY, LTD.]
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors
New Directions Manufacturing, Inc.
We have audited the accompanying balance sheets of New Directions Manufacturing,
Inc. as of June 30, 1996 and the related statements of operations and cash flows
for the years ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Directions Manufacturing,
Inc. as of June 30, 1996 and the results of its operations and its cash flows
for the years ended June 30, 1996 and 1995, in conformity with generally
accepted accounting principles.
Evers & Company, Ltd.
June 26, 1997
Phoenix, Arizona
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Unaudited Balance Sheets
<TABLE>
<CAPTION>
Assets
------
Dec. 31, Dec. 31,
1996 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 55,238
Accounts receivable, net 483,251 520,412
Inventory 151,704 122,381
-------- --------
Total current assets 634,955 698,031
-------- --------
Property and equipment, net 37,588 61,092
Deposits 8,520 8,520
-------- --------
$681,063 $767,643
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of capital lease obligations $ 25,339 $ 19,716
Accounts payable 206,121 234,315
Accrued Rent 8,000 7,900
Commissions payable 9,806 8,450
Other - 457
-------- --------
Total current liabilities 249,266 270,838
-------- --------
Capital lease obligations, net of current portion 24,387 36,948
-------- --------
Stockholders' equity
Common stock, $1.00 par value. 1,000,000 shares authorized;
1,000 shares issued and outstanding 1,000 1,000
Retained earnings 406,410 458,857
-------- --------
407,410 459,857
-------- --------
Commitments and subsequent events (see notes)
$681,063 $767,643
======== ========
</TABLE>
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Unaudited Statements of Operations
<TABLE>
<CAPTION>
Six months ended December 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Sales, net of returns and allowances $2,872,989 $2,789,447
---------- ----------
Cost of sales:
Materials 1,841,993 1,943,650
Labor 408,091 389,742
Overhead 169,489 107,726
---------- ----------
2,419,573 2,441,118
---------- ----------
Gross profit 453,416 348,329
---------- ----------
Selling, general and administrative expenses:
Officers' compensation 427,701 266,382
Administrative salaries 71,165 33,708
Advertising and promotion 72,798 35,434
Commissions 30,007 22,232
Travel and entertainment 7,946 10,060
Vehicle leasing 10,267 9,172
Other 79,542 80,197
---------- ----------
699,426 457,185
---------- ----------
Loss from operations (246,010) (108,856)
Other income (expense)
Interest income 3,790 2,438
Interest expense (4,514) (4,792)
---------- ----------
(724) (2,354)
---------- ----------
Net loss before provision for income taxes (benefit) (246,734) (111,210)
Provision for income taxes (benefit) (33,000) (-)
---------- ----------
Net loss (213,734) (111,210)
Retained earnings, beginning 620,144 570,067
---------- ----------
Retained earnings, ending $ 406,410 $ 458,857
========== ==========
</TABLE>
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
Unaudited Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (213,734) $(111,210)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation & amortization 24,775 13,749
Increase in receivables (137,806) (204,954)
Decrease in inventory 59,296 88,619
Decrease in prepaid expenses 7,790 -
Decrease in deferred taxes 11,000 -
Increase (decrease) in rent payable 8,000 (52)
Increase in accounts payable 62,357 111,562
Decrease in commissions payable (6,784) (4,765)
Decrease in accrued payroll and payroll taxes (3,146) (8,234)
Decrease in accrued retirement contribution (40,000)
Decrease in other liabilities (457)
Decrease in income taxes payable (44,000) -
---------- ---------
Net cash used in operating activities (232,709) (155,285)
---------- ---------
Cash flows for financing activities:
Payment of capital lease obligations (11,242) (8,777)
---------- ---------
Net decrease in cash and cash equivalents (243,951) (164,062)
Cash and cash equivalents, beginning of period 243,951 219,300
---------- ---------
Cash and cash equivalents, end of period $ 0 $ 55,238
========== =========
</TABLE>
<PAGE>
NEW DIRECTIONS MANUFACTURING, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
- -------- ------------------------------------------
The Nevada Corporation Law and the Company's Certificate of Incorporation
and Bylaws authorize indemnification of a director, officer, employee or agent
of the Company against expenses incurred by him or her in connection with any
action, suit, or proceeding to which such person is named a party by reason of
having acted or served in such capacity, except for liabilities arising from
such person's own misconduct or negligence in performance of duty. In addition,
even a director, officer, employee or agent of the Company who was found liable
for misconduct or negligence in the performance of duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers,
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed 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.
Item 25. Other Expenses of Issuance and Distribution
- -------- -------------------------------------------
<TABLE>
<S> <C>
SEC Registration Fee $ 1,531
Accounting Fees and Expenses $ 5,000
Legal Fees and Expenses $25,000
Printing Expenses $ 5,000
Miscellaneous $ 469
-------
Total $37,000
</TABLE>
Item 26. Recent Sales of Unregistered Securities
- -------- ---------------------------------------
On January 9, 1997, the Company commenced a private placement of 1,000,000
shares of Common Stock at $2.25 per share (the "Private Placement"). The
Private Placement was exempt from the registration provisions of the Act by
virtue of Section 4(2) of the Act, as transactions by an issuer not involving
any public offering. The securities issued pursuant to the Private Placement
were restricted securities as defined in Rule 144. The shares sold in the
Private Placement are being registered herein. The offering generated net
proceeds of approximately $1,909,686, net of offering costs and expenses of
$340,314. See the "Selling Shareholders" section of the Prospectus for a
complete list of the investors in the Private Placement.
Item 27. Exhibits
- -------- --------
<TABLE>
<CAPTION>
Exhibit
- -------
<C> <S>
3.1 Articles of Incorporation of New Directions Manufacturing, Inc., a
Nevada corporation, dated January 9, 1997*
3.2 Amendment to Articles of Incorporation of New Directions
Manufacturing, Inc., a Nevada corporation, dated May 29, 1997*
3.3 Bylaws of New Directions Manufacturing, Inc., dated May 29, 1997*
4 Option Agreement between New Directions Manufacturing, Inc. and
Horwitz & Beam, Inc., dated June 9, 1997*
4.1 Option Agreement between New Directions Manufacturing, Inc. and
Horwitz & Beam, Inc., dated September 15, 1997
5 Opinion of Horwitz & Beam*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.1 Employment Agreement, dated December 31, 1996, between New Directions
Manufacturing, Inc. and Donald A. Metke*
10.2 Employment Agreement, dated December 31, 1996, between New Directions
Manufacturing, Inc. and Jack Horner, Jr.*
10.3 Consulting Agreement, dated December 31, 1996, between New Directions
Manufacturing, Inc. and Sean F. Lee*
10.4 Lease Agreement, dated November 11, 1992
10.5 Plan of Merger between Premier Ventures, Inc. and New Directions
Manufacturing, Inc., dated February 25, 1997*
10.6 Articles of Merger between Premier Ventures, Inc. and New Directions
Manufacturing, Inc., dated March 14, 1997*
10.7 Stock Purchase Agreement between New Directions, Inc., an Arizona
corporation and the Lee Family Partnership, a limited partnership
organized under the laws of the State of Arizona, dated July 17, 1996
10.8 Exchange Agreement between New Directions Manufacturing, Inc., a
Nevada corporation and Premier Ventures & Explorations, Inc., a
Louisiana corporation, dated January 10, 1997
24.1 Consent of Horwitz & Beam (included in their opinion set forth in
Exhibit 5 hereto)*
24.2 Consent of Evers & Company, Ltd.
25 Power of Attorney (see signature page)
</TABLE>
____________
* Previously filed
Item 28. Undertakings
- ----------------------
The undersigned registrant hereby undertakes to:
(1) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company 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 Company 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.
(2) File, during any period in which it offers or sells securities, a post
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
For determining liability under the Securities, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Phoenix,
State of Arizona on September 23, 1997.
NEW DIRECTIONS MANUFACTURING, INC.
By: ______________*________________
Donald A. Metke, President,
Chief Operating Officer,
Chief Financial Officer, Director
POWER OF ATTORNEY
Each person whose signature appears appoints Donald A. Metke as his agent and
attorney-in-fact, with full power of substitution to execute for him and in his
name, in any and all capacities, all amendments (including post-effective
amendments) to this Registration Statement to which this power of attorney is
attached. In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Operating Officer, September 23, 1997
- ---------------------------- Chief Financial Officer, Director
Donald A. Metke
* Executive Vice President, Secretary, September 23, 1997
- ---------------------------- Director
Jack Horner, Jr.
* Director September 23, 1997
- ----------------------------
Sean F. Lee
*By: /s/ Donald A. Metke
------------------------
Donald A. Metke
Attorney in Fact
</TABLE>
<PAGE>
EXHIBIT 4.1
OPTION AGREEMENT BETWEEN
NEW DIRECTIONS MANUFACTURING, INC.
AND
HORWITZ & BEAM, INC.,
DATED SEPTEMBER 15, 1997
<PAGE>
OPTION AGREEMENT
OPTION AGREEMENT dated as of September 15, 1997, between NEW DIRECTIONS
MANUFACTURING, INC., a Nevada corporation (the "Company"), and HORWITZ & BEAM,
INC., a California corporation, dba HORWITZ & BEAM ("H&B").
WHEREAS, the Company proposes to issue to H&B 25,000 options (the "Options"),
each such Option entitling the holder thereof to purchase one share of Common
Stock par value $0.001 per share, of the Company (the "Shares") at an exercise
price of $2.25 per share; and
WHEREAS, the Options which are the subject of this Agreement will be issued by
the Company to H&B as part of consideration payable to H&B in connection with
the rendering of a legal opinion on behalf of the Company as well as for other
legal services to the Company in connection with the registration of certain of
the Company's Shares (the "Registration") on Form SB-2 with the Securities and
Exchange Commission ("SEC").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Option Certificates. The Option Certificates to be delivered
--------------------
pursuant to this Agreement (the "Option Certificates") shall be in the form set
forth in Exhibit A, attached hereto and made a part hereof. The Option
Certificates shall be executed on behalf of the Company by its Chief Executive
Officer, President, or any Vice President under its corporate seal reproduced
thereon and attested by its corporate secretary or one of its assistant
secretaries. Option Certificates may be exchanged at the Optionholder's option,
when surrendered to the Company for another Option Certificate or other Option
Certificates of like tenor and representing in the aggregate a like number of
Options.
SECTION 2. Right to Exercise Options. Each Option may be exercised from the
--------------------------
date of this Agreement until 11:59 P.M. (Los Angeles time) on the date that is
five years after the date of this Agreement (the "Expiration Date"). Each
Option not exercised on or before the Expiration Date shall expire. Subject to
the provisions of this Option Agreement, including Section 10 hereof, the holder
of each Option shall have the right to purchase from the Company, and the
Company shall issue and sell to each such Optionholder, at an initial exercise
price per share of $2.25, subject to adjustment as provided herein (the
"Exercise Price"), one fully paid and nonassessable Share upon surrender to the
Company of the Option Certificate evidencing such Option, with the form of
election to purchase duly completed and signed and evidence of payment of the
Exercise Price. Payment of the Exercise Price for the Options may be permitted
by a cash payment or by setoff from legal fees incurred by the Company with H&B
in accordance with that certain Engagement Letter between the Company and H&B.
The Engagement Letter provides that legal services will be offered to the
company by H&B. Each of H&B and the Company will prepare an accounting of legal
fees incurred as of any given date which may be used to exercise any of the
Options hereunder.
Upon surrender of such Option Certificate and payment of the Exercise Price,
the Company shall cause to be issued and delivered promptly to the Optionholder
a certificate for the Shares issuable upon the exercise of the Option or Options
evidenced by such Option Certificate. The Options evidenced by an Option
Certificate shall be exercisable at the election of the Optionholder thereof,
either as an entirety or from time to time for less than all of the number of
Options specified in the Option Certificate.
SECTION 3. Reservation of Shares. The Company will at all times reserve and
----------------------
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Shares or its authorized and issued Shares held in its
treasury for the purpose of enabling it to satisfy any obligation to issue
Shares upon exercise of Options, the full number of Shares deliverable upon the
exercise of all outstanding Options. The Company covenants that all Shares
which may be issued upon exercise of Options will be validly issued, fully paid
and nonassessable outstanding Shares of the Company.
1
<PAGE>
SECTION 4. Registration under the Securities Act of 1933. H&B represents and
----------------------------------------------
options to the Company that H&B is acquiring the Options for investment and with
no present intention of distributing or reselling any of the Options. The
Shares and the certificate or certificates evidencing any such Shares shall bear
the following legend:
"THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."
Certificates for Shares without such legend shall be issued if such shares are
sold pursuant to an effective registration statement under the Act or if the
Company has received an opinion from counsel reasonably satisfactory to counsel
for the Company, that such legend is no longer required under the Act.
Certificates for Options or Shares shall also bear such legends as may be
required from time to time by law.
SECTION 5. Registration Rights.
--------------------
(a) Piggyback Registration Rights. If the Company at any time proposes
-----------------------------
to register any of its securities under the Act, including under an S-8
Registration Statement, an SB-2 Registration Statement (including the current
SB-2 Registration Statement of the Company, File No. 333-30583), or otherwise,
it will each such time give written notice to all holders of outstanding Shares
and Options of its intention so to do. Upon the written request of a holder or
holders of any such Shares or Options given within 30 days after receipt of any
such notice, the Company will use its best efforts to cause all such Shares, the
holders of which (or of the Options for which upon exercise thereof the Company
will issue Shares) shall have so requested registration thereof, to be
registered under the Act (with the securities which the Company at the time
propose to register), all to the extent requisite to permit the sale or other
disposition by the prospective Sellers of the Shares so registered; provided,
however, that the Company may, as a condition precedent to its effective such
registration, require each prospective Seller to agree with the Company and the
managing underwriter or underwriters of the offering to be made by the Company
in connection with such registration that such Seller will not sell any
securities of the same class or convertible into the same class as those
registered by the Company (including any class into which the securities
registered by the Company are convertible) for such reasonable period after such
registration becomes effective (not exceeding 30 days) as shall then be
specified in writing by such underwriter or underwriters if in the opinion of
such underwriter or underwriters the Company's offering would be materially
adversely affected in the absence of such an agreement. All expenses incurred by
the Company in complying with this Section, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of all independent accounts, or counsel for the Company and or
counsel for the Sellers and the expense of any special audits incident to or
required by any such registration and the expenses of complying with the
securities or blue sky laws of any jurisdiction shall be paid by the Company.
Notwithstanding the foregoing, Sellers shall pay all underwriting discounts or
commissions with respect to shares sold by the Sellers.
(b) Indemnification.
----------------
(i) In the event of any registration of any of its Shares under
the Act pursuant to this Section, the Company hereby indemnifies and holds
harmless the Sellers of such Shares (which phrase shall include any underwriters
of such Shares), their respective directors and officers, and each other person
who participates, in the offering of such Shares and each other person, if any,
who controls such Sellers, or such participating persons within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several,
to which each such Seller or any such director or officer or participating
person or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained, on the effective date thereof, in any
registration statement under which such Shares were registered under the Act,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon any omission
or alleged omission to state therein an material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse each such Seller and each director, officer or participating or
controlling person for any legal or any other expenses
2
<PAGE>
reasonably incurred by such Seller or such director, officer or participating or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
preliminary prospectus or prospectus or amendment or supplement in reliance upon
and in conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating that it is for use
therein. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Seller or such directors, officer or
participating or controlling person, and shall survive the transfer of such
Shares by such Seller.
(ii) Each holder of any Shares or Options shall by acceptance
thereof indemnify and hold harmless the Company and its directors and officers,
and each person, if any who controls the Company, against any losses, claims,
damages or liabilities, joint or several, to which the Company or any director
or officer or any such person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained, on the effective date thereof, in any
registration statement under which Shares were registered under the Act at the
request of such holder, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary prospectus, prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by or on behalf of such
holder specifically stating that it is for use therein; and will reimburse the
Company or such director, officer or person for any legal or any other expense
reasonably incurred in connection with investigation or defending any such loss,
claim, damage, liability or action.
(c) Rule 144. If the Company shall be subject to the reporting
--------
requirements of Section 13 of the 1934 Act, the Company will use its best
efforts timely to file all reports required to be filed from time to time with
the Commission (including but not limited to the reports under Section 13 and
15(d) of the 1934 Act referred to in subparagraph (c)(1) of Rule 144 adopted by
the Commission under the Act). If there is a public market for any Shares of the
Company at any time that the Company is not subject to the reporting
requirements of either of said Section 13 or 15(d), the Company will, upon the
request of any holder of any Shares or Options, use its best efforts to make
publicly available the information concerning the Company referred to in
subparagraph (c)(2) of said Rule 144. The Company will furnish to each holder of
any shares or Options, promptly upon request, (i) a written statement of the
Company's compliance with the requirements of subparagraphs (c)(1) or (c)(2), as
the case may be, of said Rule 144, and (ii) written information concerning the
Company sufficient to enable such holder to complete any Form 144 required to be
filed with the Commission pursuant to said Rule 144.
SECTION 6. Adjustment of Exercise Price and Number of Shares and Class of
--------------------------------------------------------------
Capital Stock Purchasable. The Exercise Price and the number of Shares and
- --------------------------
classes of capital stock of the Company purchasable upon the exercise of each
Option are subject to adjustment from time to time as set forth in this Section
6.
(a) Adjustment for Change in Capital Stock. If the Company: pays a
--------------------------------------
dividend or makes a distribution on its Common Stock, in each case, in shares of
its Common Stock; subdivides its outstanding shares of Common Stock into a
greater number of shares; combines its outstanding shares of Common Stock into a
smaller number of shares; makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock; or issues by reclassification of its
shares of Common Stock any shares of its capital stock; then the number and
classes of shares purchasable upon exercise of each Option in effect immediately
prior to such action shall be adjusted so that the holder of any Option
thereafter exercised may receive the number and classes of shares of capital
stock of the Company which such holder would have owned immediately following
such action if such holder had exercised the Option immediately prior to such
action.
3
<PAGE>
(b) Adjustment for Other Distributions. If the Company distributes to
----------------------------------
all holders of shares of its Common Stock any of its assets or debt securities
or any rights or options to the purchase assets, debt securities or other
securities of the Company, the Company shall, at the option of each
Optionholder, either:
(1) distribute to each Optionholder, on the date of distribution
to the shareholders, the amount of such assets or debt securities or the number
of such rights or options, pro rata, determined in accordance the following
formula:
X' = X x W
------
O + W
where
X'= the amount of assets or debt securities or the number of rights or
options to be distributed to such Optionholder, as the case may be.
X = the total amount of assets or debt securities or the total number of
rights or options to be distributed, as the case may be.
W = the number of shares of Common Stock purchaseable upon exercise of the
Options held by such Optionholder outstanding on the record date set
forth in paragraph (ii) below.
O = the number of shares of Common Stock outstanding on the record date
set forth in paragraph (ii) below; or
(2) adjust the Exercise Price in accordance with the following
formula:
C' = C x (O x M) - F
-----------
O x M
where
C'= the adjusted Exercise Price.
C = the Exercise Price on the record date set forth below.
O = the number of shares of Common Stock outstanding on the record date
set forth below.
M = the Current Market Price per share of Common Stock on the date set
forth below.
F = the fair market value on the record date of the distribution of the
assets, securities, rights or options. The Board of Directors of the
Company shall in good faith determine such fair market value.
(3) Consolidation, Merger or Sale of the Company. If the Company
--------------------------------------------
is a party to a consolidation, merger or transfer of assets which reclassifies
or changes its outstanding Common Stock, the successor corporation (or
corporation controlling the successor corporation or the Company, as the case
may be) shall by operation of law assume the Company's obligations under this
Option Agreement. Upon consummation of such transaction the Options shall
automatically become exercisable for the kind and amount of securities, cash or
other assets which the holder of an Option would have owned immediately after
the consolidation, merger or transfer if the holder had exercised the Option
immediately before the effective date of such transaction. As a condition to the
consummation of such transaction, the Company shall arrange for the person or
entity obligated to issue securities or deliver cash or other assets upon
exercise of the Option to, concurrently with the consummation of such
transaction, assume the Company's obligations hereunder by executing an
instrument so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided for in this
Section.
SECTION 7. Notices to Company and H&B. Any notice or demand authorized by
---------------------------
this Agreement to be given or made by any registered holder of any Option
Certificate to or on the Company shall be sufficiently give or made if sent by
registered mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the holders) to the Company as follows:
New Directions Manufacturing, Inc.
2940 W. Willetta
Phoenix, AZ 85009
Attn: Donald A. Metke, President
4
<PAGE>
Any notice pursuant to this Agreement to be given by the Company to H&B shall
be sufficiently given if sent by registered mail, postage prepaid, addressed
(until another address is filed in writing by H&B with the Company) to H&B as
follows:
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, California 92618
Attn: Lawrence W. Horwitz
SECTION 8. Supplements and Amendments. The Company and H&B may from time to
---------------------------
time supplement or amend this Agreement without the approval of any
Optionholders (other than H&B) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and H&B may deem necessary or
desirable and which the Company and H&B deem shall not adversely affect the
interests of the Optionholders.
SECTION 9. Successors. All the covenants and provisions of this Agreement by
-----------
or for the benefit of the Company or H&B shall bind and inure to the benefit of
their respective successors and assigns hereunder.
SECTION 10. Governing Law. This Agreement and each Option Certificate issued
--------------
hereunder shall be deemed to be a contract made under the laws of the State of
California and for all proposes shall be governed by and construed in accordance
with the laws of said State.
SECTION 11. Counterparts. This Agreement may be executed simultaneously in
-------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. The Parties agree
that facsimile signatures of this Agreement shall be deemed a valid and binding
execution of this Agreement.
SECTION 12. Conflict Waiver. The Parties hereto agree and acknowledge that
---------------
H&B has been hired by the Company to perform services in preparation and filing
of the Company's Form SB-2 Registration Statement with the SEC, as well as to
perform other services for the Company. The Parties hereto further acknowledge
that they have been informed of the inherent conflict of interest associated
with the drafting of this Agreement by the H&B and waive any action they may
have against the H&B regarding such conflict. All parties to this Agreement
have been given the opportunity to consult with counsel of their choice
regarding their rights under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the date and year first above written.
New Directions Manufacturing, Inc.
By: /s/ DONALD A. METKE
-------------------------------
Donald A. Metke
President
Horwitz & Beam, Inc.
By: /s/ LAWRENCE W. HORWITZ
-------------------------------
Lawrence W. Horwitz,
Vice President
5
<PAGE>
EXHIBIT A
[FORM OF OPTION CERTIFICATE]
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK (OR
OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE OPTIONS, SHARES OR OTHER SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
EXERCISABLE FROM 12:00 P.M. LOS ANGELES TIME,
ON SEPTEMBER 15, 1997 UNTIL
11:59 P.M., LOS ANGELES TIME ON SEPTEMBER 15, 2002
No. 0-2 25,000 Options
OPTION CERTIFICATE
NEW DIRECTIONS MANUFACTURING, INC.
This Option Certificate certifies that Horwitz & Beam, Inc. or registered
assigns, is the registered holder of 25,000 Options (the "Options") expiring
September 15, 2002, (the "Expiration Date"), to purchase shares of Common Stock,
par value $0.001 per share (the "Shares") of New Directions Manufacturing, Inc.,
a Nevada corporation (the "Company"). Each Option entitles the holder to
purchase from the Company before 11:59 p.m. (Los Angeles time) on the
"Expiration Date" one fully paid and nonassessable share of Common Stock of the
Company at the initial exercise price for each Option, subject to adjustment in
certain events of $2.25 per share (the "Exercise Price"), upon surrender of this
Option Certificate and payment of the Exercise Price at an office or agency of
the Company, but only subject to the terms and conditions set forth herein and
in the Option Agreement. Payment of the Exercise Price may be permitted by cash
or by setoff from legal fees incurred by the Company with H&B in accordance with
that certain Engagement Letter between the Company and H&B (the "Engagement
Letter"). The Engagement Letter as modified provides that legal services will
be offered to the Company by H&B. As used herein, "Share" or "Shares" refers to
the Common Stock of the Company and, where appropriate, to the other securities
or property issuable upon exercise of an Option as provided for in the Option
Agreement upon the happening of certain events. The Exercise Price and the
number of Shares and classes of capital stock purchasable upon exercise of the
Options are subject to adjustment upon the occurrence of certain events set
forth in the Option Agreement. In the event that upon any exercise of Options
evidenced hereby, the number of Options exercised shall be less than the total
number of Options evidence hereby, there shall be issued to the holder hereof or
his or her assignee a new Option Certificate evidencing the number of Options
not exercised. No adjustment shall be made for any cash dividends on any Shares
issuable upon exercise of this Option.
No Option may be exercised after 11:59 P.M. (Los Angeles Time) on the
Expiration Date. All Options evidenced hereby shall thereafter be void.
The Options evidenced by this Option Certificate are part of a duly authorized
issue of Options issued pursuant to an Option Agreement, dated as of September
15, 1997 (the "Option Agreement"), duly executed by the Company and H&B which
Option Agreement is hereby incorporated by reference in and made a part of this
instruments and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder of the Option Certificates of Shares).
The Company may deem and treat the person(s) registered in the Company's
register as the absolute owner(s) of this Option Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s) hereof,
and for all purposes, and the Company shall not be affected by any notice to the
contrary.
1
<PAGE>
All terms used in this Option Certificate which are defined in the Option
Agreement shall have the meaning assigned to them in the Option Agreement.
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK (OR
OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE OPTIONS, SHARES OR OTHER SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
IN WITNESS WHEREOF, the Company has caused this Option Certificate to be duly
executed under its corporate seal.
Dated: New Directions Manufacturing, Inc.
Attested
_________________________ By:_______________________________
Secretary Donald A. Metke
President
2
<PAGE>
ELECTION TO PURCHASE
(To be executed upon exercise of Option)
The undersigned hereby irrevocably elects to exercise the right, represented
by this Option Certificate, to purchase ______ Shares and herewith authorizes in
payment for such Shares the reduction of the legal fee exercise account in the
amount of $________ all in accordance with the terms hereof. The undersigned
requests that certificates for such Shares be registered as follows:
Name Number of Shares
---- ----------------
all of whose addresses are Two Venture Plaza, Suite 350, Irvine, California
92618, and that such certificates be delivered to Horwitz & Beam whose address
is Two Venture Plaza, Suite 350, Irvine, California 92618. If said number of
Shares is less than all of the Shares purchasable hereunder, the undersigned
requests that a new Option Certificate representing the remaining balance of the
Shares be registered in the name of Horwitz & Beam whose address is Two Venture
Plaza, Suite 350, Irvine, California 92618 and that such Certificates be
delivered to Horwitz & Beam whose address is Two Venture Plaza, Suite 350,
Irvine, California 92618.
Dated: Signature: ________________________
Lawrence W. Horwitz for
HORWITZ & BEAM, INC.
(Signature must conform in all
respects to name of holder as
specified on the face of the
Option Certificate)
3
<PAGE>
OPTION CERTIFICATE
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK (OR
OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE OPTIONS, SHARES OR OTHER SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
EXERCISABLE FROM 12:00 P.M. LOS ANGELES TIME,
ON SEPTEMBER 15, 1997 UNTIL
11:59 P.M., LOS ANGELES TIME ON SEPTEMBER 15, 2002
No. 0-2 25,000 Options
OPTION CERTIFICATE
NEW DIRECTIONS MANUFACTURING, INC.
This Option Certificate certifies that Horwitz & Beam, Inc. or registered
assigns, is the registered holder of 25,000 Options (the "Options") expiring
September 15, 2002, (the "Expiration Date"), to purchase shares of Common Stock,
par value $0.001 per share (the "Shares") of New Directions Manufacturing, Inc.,
a Nevada corporation (the "Company"). Each Option entitles the holder to
purchase from the Company before 11:59 p.m. (Los Angeles time) on the
"Expiration Date" one fully paid and nonassessable share of Common Stock of the
Company at the initial exercise price for each Option, subject to adjustment in
certain events of $2.25 per share (the "Exercise Price"), upon surrender of this
Option Certificate and payment of the Exercise Price at an office or agency of
the Company, but only subject to the terms and conditions set forth herein and
in the Option Agreement. Payment of the Exercise Price may be permitted by cash
or by setoff from legal fees incurred by the Company with H&B in accordance with
that certain Engagement Letter between the Company and H&B (the "Engagement
Letter"). The Engagement Letter as modified provides that legal services will
be offered to the Company by H&B. As used herein, "Share" or "Shares" refers to
the Common Stock of the Company and, where appropriate, to the other securities
or property issuable upon exercise of an Option as provided for in the Option
Agreement upon the happening of certain events. The Exercise Price and the
number of Shares and classes of capital stock purchasable upon exercise of the
Options are subject to adjustment upon the occurrence of certain events set
forth in the Option Agreement. In the event that upon any exercise of Options
evidenced hereby, the number of Options exercised shall be less than the total
number of Options evidence hereby, there shall be issued to the holder hereof or
his or her assignee a new Option Certificate evidencing the number of Options
not exercised. No adjustment shall be made for any cash dividends on any Shares
issuable upon exercise of this Option.
No Option may be exercised after 11:59 P.M. (Los Angeles Time) on the
Expiration Date. All Options evidenced hereby shall thereafter be void.
The Options evidenced by this Option Certificate are part of a duly authorized
issue of Options issued pursuant to an Option Agreement, dated as of September
15, 1997 (the "Option Agreement"), duly executed by the Company and H&B which
Option Agreement is hereby incorporated by reference in and made a part of this
instruments and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder of the Option Certificates of Shares).
The Company may deem and treat the person(s) registered in the Company's
register as the absolute owner(s) of this Option Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s) hereof,
and for all purposes, and the Company shall not be affected by any notice to the
contrary.
1
<PAGE>
All terms used in this Option Certificate which are defined in the Option
Agreement shall have the meaning assigned to them in the Option Agreement.
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK (OR
OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE OPTIONS, SHARES OR OTHER SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
IN WITNESS WHEREOF, the Company has caused this Option Certificate to be duly
executed under its corporate seal.
Dated: New Directions Manufacturing, Inc.
Attested
/s/ Jack F. Horner, Jr. /s/ Donald A. Metke
-------------------------- ------------------------------------
Secretary Donald A. Metke
President
2
<PAGE>
EXHIBIT 10.4
LEASE AGREEMENT DATED
NOVEMBER 11, 1992
<PAGE>
12/5/91
STANDARD FORM
MULTI-TENANCY INDUSTRIAL LEASE
(GROSS -- BASE YEAR)
Landlord CH Westside Associated, an Arizona General Partnership
---------------------------------------------------------
Tenant New Directions, Inc., an Arizona Corporation
----------------------------------------------------------------------
Dated as of 11-11-92
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
NO. PAGE NO.
- ------ --------
<S> <C>
1. Defined Terms..................................... 1
2. Leased Premises................................... 2
(a) Property to be Leased........................ 2
(b) Common Areas................................. 3
(c) Reserved Rights of Landlord.................. 3
3. Completion of Premises............................ 4
(a) Plans........................................ 4
(b) Scheduled Commencement Date.................. 4
(c) Remedy....................................... 4
(d) Changes...................................... 4
(e) Ready for Occupancy.......................... 5
(f) Construction Representative.................. 5
(g) Early Entry.................................. 5
(h) Quality of Construction...................... 5
4. Term.............................................. 5
5. Rent.............................................. 6
(a) Fixed Rent................................... 6
(b) (Intentionally omitted.)..................... 6
(c) Pro Rata Rent................................ 6
(d) Base Year; Limitation on Amount of
Landlord's Expenses Payable by Tenant....... 6
(e) Payment of Excess Reimbursable Expenses...... 6
(f) Net Rent..................................... 8
6. Security.......................................... 8
(a) Security Deposit............................. 8
(b) Lien and Security Interest................... 9
7. Use............................................... 9
(a) General...................................... 9
(b) Compliance with Law.......................... 9
(c) Existing Title and Condition of Premises..... 9
(d) Signs....................................... 10
(e) Governmental Regulation..................... 10
(f) Security Devices............................ 10
8. Maintenance, Repairs and Property Management..... 10
(a) Common area and building maintenance........ 10
(b) Tenant's Maintenance........................ 11
(c) Landlord's Obligations to Repair............ 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(d) Surrender................................... 12
(e) Property Management......................... 12
9. Utilities........................................ 12
10. Alterations and Additions........................ 12
(a) Limitation.................................. 12
(b) Liens....................................... 13
(c) Removal..................................... 13
11. Insurance........................................ 13
(a) General Liability........................... 13
(b) Extended Coverage........................... 13
(c) Policies.................................... 14
(d) Waiver of Subrogation....................... 14
(e) Tenant's Contents........................... 14
(f) Workmen's Compensation...................... 15
12. Indemnity; Exemption of Landlord from Liability.. 15
(a) General..................................... 15
(b) Tenant's Business........................... 15
13. Damage or Destruction; Obligation to Rebuild..... 16
(a) Landlord's Obligation to Rebuild............ 16
(b) Abatement of Rent........................... 16
(c) Option to Terminate......................... 16
(d) Uninsured Casualties........................ 17
(e) Tenant's Waiver............................. 17
14. Taxes............................................ 17
(a) Tenant's Share of Property Taxes............ 17
(b) Tenant's Personal Property.................. 17
(c) Rent Tax.................................... 18
15. Condemnation..................................... 18
(a) Rent Reduction or Lease Termination......... 18
(b) Award....................................... 18
(c) Temporary Condemnation...................... 19
16. Assignment and Subletting........................ 19
(a) Consent..................................... 19
(b) Tenant's Continuing Liability............... 19
(c) Information................................. 20
(d) Excess Sublease Rental...................... 20
(e) Release..................................... 20
(f) Controlled Entity........................... 20
(g) Attorneys' Fees............................. 21
17. Defaults; Remedies............................... 21
(a) Defaults.................................... 21
(b) Remedies.................................... 22
(c) Late Charges................................ 25
(d) Payment or Performance by Landlord.......... 25
18. Miscellaneous.................................... 25
(a) Estoppel Certificate........................ 26
(b) Landlord's Liability........................ 26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(c) Construction................................ 26
(d) Interest on Past-Due Obligations............ 27
(e) Time of Essence............................. 27
(f) Counterparts................................ 27
(g) Incorporation of Prior Agreements;
Amendments................................. 27
(h) Notices..................................... 27
(i) Waivers..................................... 27
(j) Recording................................... 27
(k) Holding Over................................ 27
(l) Covenants and Conditions.................... 28
(m) Binding Effect.............................. 28
(n) Subordination............................... 28
(o) Attorneys' Fees............................. 28
(p) Landlord's Access........................... 28
(q) Auctions.................................... 29
(r) Merger...................................... 29
(s) Joint and Several Liability................. 29
(t) Individual Liability........................ 29
(u) Attornment.................................. 29
(v) Lender's Right to Cure...................... 29
(w) Revisions to Lease.......................... 30
(x) Administrative Charge....................... 30
(y) Substituted Premises........................ 30
19. Toxic Materials.................................. 30
(a) Definitions................................. 30
(b) Prohibition on Hazardous Materials.......... 31
(c) Exception to Prohibition.................... 32
(d) Compliance with Environmental Laws.......... 32
(e) Environmental Notices....................... 32
(f) Environmental Indemnity..................... 33
(g) Remedial Work............................... 33
(h) Landlord's Option........................... 33
(i) Injunctive Relief........................... 34
(j) Self-Help................................... 34
(k) Other Tenants............................... 34
(l) Environmental Inspection.................... 34
(m) Surrender of Premises -- Environmental
Considerations............................. 35
</TABLE>
<PAGE>
1. Defined Terms. Each reference in this Lease to any of the following
terms shall incorporate the data stated for that term. Other terms are as
defined in the Lease.
(a) Landlord and Landlord's CH WESTSIDE ASSOCIATES
---------------------------------------------
Address (subparagraph C/O THE HEWSON COMPANY
-------------------------------------
18(h)): 4635 E. University, #265
---------------------------------------------
Phoenix, AZ 85034
-------------------------------------
-------------------------------------
(b) Tenant and Tenant's NEW DIRECTIONS
---------------------------------------------
Address for Notices 2940 W. Willetta
-------------------------------------
(subparagraph 18(h)): Phoenix, AZ 85009
-------------------------------------
-------------------------------------
(c) Street Address of 2940 W. Willetta
---------------------------------------------
Premises (paragraph 2): Phoenix, AZ 85009
-------------------------------------
-------------------------------------
(d) Approximate Square 33,962
---------------------------------------------
Footage of Premises
-------------------------------------
(paragraph 2):
-------------------------------------
(e) Project in which Premises CH Westside Associates
-------------------------------------
are located (paragraph 2):
-------------------------------------
(f) Landlord's Construction Alan Gillespie
-------------------------------------
Representative (subparagraph 3(f))
-------------------------------------
-------------------------------------
(g) Tenant's Construction Jack Horner, Sr.
-----------------------------------------------
Representative
(subparagraph 3(f))
-----------------------------------------------
-------------------------------------
(h) Term (paragraph 4): Sixty (60)
-----------------------------------------------
months.
----------------------------------------
(i) Scheduled Commencement 12:01 a.m. on March 1, 1993
-------------------------------------
Date (paragraph 4):
-------------------------------------
(j) Fixed Rent (subpara- Months 1-6 @ $5,407.38
-------------------------------------
Months 7-12 @ $7,471.64
-------------------------------------
Month 13 @ $0.00
-------------------------------------
Months 14-24 @ $7,471.64
-------------------------------------
Month 25 @ $0.00
-------------------------------------
Months 26-30 @ $7,471.64
-------------------------------------
Months 31-60 @ $7,471.64
-------------------------------------
per month
----------------------------
(k) Rental Period
(subparagraph 5(a)) Monthly
-----------------------------------------------
(l) Security Deposit
(subparagraph 6(a)) $5,000.00
-------------------------------------
(m) Permitted Uses
(paragraph 7) Manufacture wood products
-----------------------------------------------
(n) Cleaning Deposit
(subparagraph 8(e)) N/A
-----------------------------------------------
1
<PAGE>
(o) Property Management Fee One and one-half percent (1 1/2%) of gross
-----------------------------------------------
(subparagraph 8(f)): rental receipts
-------------------------------------
(p) Tenant's Share of
Insurance Expenses 100%; provided, however, if any such Expenses
-----------------------------------------------
(paragraph 11) and
Property Taxes or Taxes are not specifically identifiable as
-----------------------------------------------
(paragraph 14) attributable solely to the Building and the
-----------------------------------------------
real property immediately adjacent to the
-----------------------------------------------
Building but are attributable to the Project,
-----------------------------------------------
Tenant's Share of such Expenses and Taxes shall
-----------------------------------------------
be N/A%
-----------------------------------------------
(q) Liability Insurance $2,000,000.00
-----------------------------------------------
(subparagraph 11(a)):
-------------------------------------
2. Leased Premises.
(a) Property to be Leased. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, subject to the terms and conditions contained
herein certain floor space (the "Premises") located in the building (the
"Building") located (or to be constructed) on that certain real property located
at the street address set forth in paragraph 1 hereof (the "Property"). The
Building is located in Landlord's Project set forth in paragraph 1 above. The
Premises, which are more particularly described on Exhibit A attached hereto and
incorporated herein by this reference, shall be deemed to extend from the top
surface of subfloor to the bottom surface of ceilings above but shall not
include the common stairways, stairwells, hallways, accessways, and pipes,
ducts, conduits, wires and appurtenant fixtures serving exclusively or in common
other parts of the Building, and (if the Premises include less than the entire
rentable area of any floor) shall not include the remainder of the Floor Common
Area (as defined below). The approximate square footage of the Premises is set
forth in paragraph 1 above.
(b) Common Areas. Tenant shall have, as appurtenant to the Premises,
rights to use in common, subject to reasonable rules from time to time made by
Landlord of which Tenant is given notice:
(i) The common stairways and accessways, loading docks and platforms
and any passageways thereto, and the common pipes, ducts, conduits, wires and
appurtenant equipment serving the Premises;
(ii) If the Premises include less than the entire rentable area of
any floor, the common lobbies, hallways, toilets and other common facilities
(the "Floor Common Area"); and
(iii) Common walkways, sidewalks, and driveways necessary for
access to the Building; greenbelt areas; and, except for parking spaces which
may be reserved for persons other than Tenant, parking spaces or area from time
to time maintained on the Project for use by tenants in and visitors to the
Building and, to the extent from time to time arranged by Landlord, maintained
on adjacent real property for such use.
(c) Reserved Rights of Landlord. Notwithstanding the foregoing, Landlord
reserves the right from time to time, without unreasonable interference with
Tenant's use:
(i) To install, use, maintain, repair and replace pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other parts
of the Building above the ceiling surfaces, below the floor surfaces, within the
walls and in the central core areas, and to replace any pipes, ducts, conduits,
wires and appurtenant meters and equipment included in the Premises which are so
located or located elsewhere outside the Premises:
(ii) To alter or relocate any other common facility; provided,
however, that substitutions are substantially equivalent or better in quality;
and
(iii) To alter the boundaries of the Property, grant easements
on the Property and dedicate for public use portions thereof without Tenant's
consent, provided that no such grant or dedication shall unreasonably interfere
with Tenant's use of the Premises or otherwise cause Tenant to incur cost or
expense.
2
<PAGE>
3. Completion of Premises.
(a) Plans. Landlord and Tenant have approved the preliminary plans and
outline specifications (the "Preliminary Plans") identified in Exhibit B for the
construction of improvements in and to the Premises. If necessary, Landlord
shall cause to be prepared final plans and specifications (the "Final Plans")
substantially in conformity with the Preliminary Plans, which need not include
working detail drawings. The term "Plans" shall hereinafter mean the Preliminary
Plans and, if and when prepared, the Final Plans. The Final Plans, if necessary,
shall be delivered to Tenant as soon as reasonably possible from the date
hereof, subject to any period of delay encountered by Landlord in such
preparation as a result of requests by Tenant for changes in the Final Plans
subsequent to the date hereof. Within ten (10) days after delivery of the Final
Plans, Tenant shall set forth in writing, with particularity and precision, any
corrections or changes necessary to bring the Final Plans into substantial
conformity with the Preliminary Plans, except that Tenant may not object to any
logical development or refinement of the Preliminary Plans. Failure to deliver
to Landlord written notice of any such corrections or changes within said ten
(10) day period shall constitute approval of the Final Plans by Tenant.
Following such approval of the Final Plans, both parties shall endorse approval
for filing purposes thereon, in duplicate, and thereafter changes may be made
only in accordance with subparagraph (d) below.
(b) Scheduled Commencement Date. Landlord, at its sole expense, shall
proceed diligently with construction and completion of the Premises
substantially in accordance with the Plans. Landlord shall complete the Premises
and they shall be Ready for Occupancy (as defined below) by Tenant not later
than the Scheduled Commencement Date set forth in paragraph 1 above; provided,
however, that such Scheduled Commencement Date shall be extended for a period of
time equal to the period of any delay or delays encountered by Landlord
affecting construction because of fire, earthquake, inclement weather, or other
acts of God, acts of the public enemy, riot, insurrection, governmental
regulations of the sales of materials or supplies or the transportation thereof,
strikes or boycotts, shortages of material or labor, Tenant's early entry under
the provisions of subparagraph (g) below, changes in the Plans pursuant to
subparagraph (d) below, or any other cause beyond the control of Landlord.
(c) Remedy. If the Premises are not completed on or before the Scheduled
Commencement Date as extended pursuant to subparagraph (b) above, the sole
remedy of either party shall be the option to terminate this Lease by the
delivery to the other party of written notice within ten (10) days after the day
three (3) months following the Scheduled Commencement Date, as extended.
(d) Changes. Tenant shall have the right to request changes in the Plans,
which request shall not be unreasonably denied, provided, however, that: (i)
such right shall not be exercised unreasonably, (ii) no such request shall
affect any structural change in the Premises, (iii) Tenant shall pay any
additional cost incurred by Landlord required to implement such change,
including without limitation loss of rents, architecture fees, increase in
construction costs and any other charges payable hereunder caused by delay, with
all said costs to be paid immediately upon demand by Landlord, and (iv) such
requests shall constitute an agreement on the part of Tenant to accept any delay
in completion caused by reviewing, processing and implementing any such changes.
(e) Ready for Occupancy. The Premises shall be deemed to be ready for
occupancy ("Ready for Occupancy") when the architect or engineer in charge of
the work of construction certifies: (i) that the work of construction has been
substantially completed in accordance with the Plans; and (ii) the date of such
completion. Landlord shall diligently complete, as soon as reasonably possible,
any items of work and adjustment not completed when the Premises are Ready for
Occupancy.
(f) Construction Representative. In connection with the original
construction of the Premises each party shall be bound by its Construction
Representative set forth in paragraph 1 above. A party may designate a
substitute Construction Representative by giving written notice to the other
party.
(g) Early Entry. With the prior written consent of Landlord, Tenant may,
at any time prior to the commencement of the Term, at its sole risk, enter upon
and install such trade fixtures and equipment in the Premises as it may elect;
provided, however, that (i) Tenant's early entry shall not interfere with
Landlord's work of construction or cause labor difficulties; (ii) Tenant shall
execute an indemnity agreement in favor of Landlord in form and substance
satisfactory to Landlord; (iii) Tenant shall pay for and provide evidence of
insurance satisfactory to Landlord; and (iv) Tenant shall pay utility charges
reasonably allocated to Tenant by Landlord. Tenant shall not use the Premises
for the
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storage of inventory or otherwise commence the operation of business prior to
the commencement of the term without the express prior written consent of
Landlord.
(h) Quality of Construction. All work shall be done in a good and
workmanlike manner and in compliance with all applicable laws and lawful
ordinances, bylaws, regulations and orders of governmental authority and of the
insurers of the Improvements. Landlord assumes no liability for special,
consequential or incidental damages of any kind. There are no representations,
warranties or guaranties, express or implied, including warranties of
merchantability or use of the Premises, except as are expressly set forth
herein. Tenant hereby waives the benefit of any rule that disclaimers of
warranty shall be construed against Landlord.
4. Term. The Term of this Lease, which shall be for the period set forth in
paragraph 1 above, shall commence on the first to occur of the following dates
(the "Commencement Date") (it being agreed that if the Term of this Lease shall
not commence within one (1) year of the Scheduled Commencement Date this Lease
shall terminate and be of no further force and effect):
(a) The Scheduled Commencement Date set forth in paragraph 1 above (as it
may be extended pursuant to the terms of paragraph 3 above);
(b) The date on which the Premises are Ready for Occupancy; or
(c) The date upon which Tenant actually commences to do business in the
Premises.
5. Rent.
(a) Fixed Rent. Tenant shall pay Landlord as fixed rent for the Premises
a sum equal to the Fixed Rent set forth in paragraph 1 on or before the first
day of each and every calendar month during the Term of this Lease, except that
Fixed Rent for the first full calendar month of the Term shall be payable
simultaneously with the execution of this Lease by Tenant.
(b) (Intentionally omitted.)
(c) Pro Rata Rent. Rent for any period during the Term which is for less
than one month shall be a pro rata portion of the Rental Period installment.
Rent shall be payable, without deduction or offset, in lawful money of the
United States to Landlord at the address stated herein or to such other persons
or at such other places as Landlord may designate in writing.
(d) Base Year; Limitation on Amount of Landlord's Expenses Payable by
Tenant. Anything in subparagraphs 5(e), 11(b) or 14(a) of this Lease to the
contrary notwithstanding, Tenant shall be obligated to pay for any calendar year
only that portion of Tenant's Share of those Operating Expenses, Insurance
Expenses and Property Taxes (hereinafter sometimes cumulatively referred to as
"Landlord's Expenses") which are in excess of the Landlord' s Expenses incurred
by the Landlord during the "Base Year," as such Base Year is determined below.
For purposes of this subparagraph 5(d),(i) the Base Year for Insurance Expenses
shall be 1993; and (ii) the Base Year for Property Taxes shall be 1993;
provided, however, if the Building has not been assessed for property tax
purposes in such year (and only the land upon which the Building is located has
been assessed), then the Base Year for Property Taxes shall be the first year
for which the Landlord's property tax assessment contains an assessment for the
Building. In addition, if the Building or Project (as applicable) does not have
an average occupancy of at least seventy-five percent (75%) during the entire
Base Year for Operating Expenses, each of the Operating Expenses for such Base
Year shall be estimated and determined by Landlord as if the Building or Project
(as applicable for determining the amount of such Operating Expense under
subparagraph l(p) above) were seventy-five percent (75%) occupied and the total
of the Operating Expenses as so estimated and determined shall be deemed to be
the Operating Expenses under this subparagraph (d) for such Base Year.
(e) Payment of Excess Reimbursable Expenses. The sums payable by Tenant
(the "Excess Reimbursable Expenses") for Landlord's Expenses under subparagraphs
5(d), 11(b) and 14(a) of this Lease shall be paid in accordance with the
following procedures:
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(i) Landlord shall prepare an annual statement (the "Annual
Statement") setting forth the sum of the Landlord's Expenses for the
applicable Base Year, the estimated Landlord's Expenses that will be
incurred by Landlord during the current calendar year ending on the
next following December 31, the portion of the estimated Landlord's
Expenses which will be Excess Reimbursable Expenses and Tenant's
Share thereof.
(ii) Landlord shall endeavor to give to Tenant such Annual
Statement on or before March 1 of each calendar year throughout the
Term of the Lease, but Landlord's failure to provide Tenant with an
Annual Statement by said date shall not constitute a waiver by
Landlord of its right to require payment by Tenant of Tenant's Share
of estimated Excess Reimbursable Expenses or actual Excess
Reimbursable Expenses.
(iii) Tenant's Share of estimated Excess Reimbursable Expenses
for the calendar year in which the Annual Statement is received shall
be divided by twelve (12) and one such installment shall be paid
concurrently with each rental payment thereafter until receipt by
Tenant of the next Annual Statement. In addition, Tenant shall pay in
full concurrently with the first monthly rent payment due following
receipt of the Annual Statement an amount equal to the excess of the
monthly installment required to be paid under the most current Annual
Statement over the monthly installment made under the preceding Annual
Statement (or the amount specified in subparagraph (v) below, as
applicable) multiplied by the number of months from January through
the month in which the Annual Statement is received by Tenant.
(iv) If Tenant's Share of actual Excess Reimbursable Expenses for
the past calendar year as shown on the Annual Statement is greater
than the payments made by Tenant for that calendar year, then
concurrently with the first monthly rent payment due following receipt
by Tenant of the Annual Statement, Tenant shall pay in full an amount
equal to such excess. If Tenant's Share of actual Reimbursable
Expenses for the past calendar year as shown on the Annual Statement
is less than the payments made by Tenant for that calendar year, the
amount of such overpayment shall be credited against the next monthly
rent payment(s) falling due.
(v) An Annual Statement need not be given during the Base Year.
In addition, if the Base Year is prior to the year in which the
Commencement Date occurs, an Annual Statement need not be given during
the period from the Commencement Date (or implementation of this
monthly payment program) until December 31 of the year in which the
Commencement Date (or implementation of this monthly payment program)
occurs and estimated payments of Excess Reimbursable Expenses during
such period and until the first Annual Statement is issued to Tenant
in the next calendar year shall be in the amount specified by
Landlord.
(vi) Even though the Term has expired and the Tenant has vacated
the Premises when the final determination is made of Tenant's Share
for the calendar year in which the Lease expires, Tenant shall
immediately pay the excess of Tenant's Share for the portion of such
year in which Tenant was in occupancy over the estimated payments made
by Tenant for that calendar year and, conversely, any overpayment made
shall be immediately rebated by Landlord to Tenant.
(vii) An administrative charge equal to five percent (5%) of the
Excess Reimbursable Expenses shall be added to each installment
payment due under this subparagraph (e) (including the estimated
payments and any reconciliation payment), which administrative charge
shall be reflected in the Annual Statement, shall be payable in
addition to the Excess Reimbursable Expenses and shall be intended to
compensate Landlord for supervision, administrative and clerical
costs.
(viii) Each Annual Statement shall be prepared in accordance
with generally recognized and established accounting practices and
each determination and Annual Statement, certified by Landlord, shall
be final and conclusive on both parties, including any determination
made by Landlord of the appropriate estimated payment during the
period prior to issuance of the first Annual Statement to Tenant.
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(f) Net Rent. Landlord shall receive the Rent set forth in this paragraph
free and clear of any and all impositions, taxes, liens, charges or expenses of
any nature whatsoever in connection with its ownership and leasing of the
Premises except for that portion of the Landlord's Expenses to be borne by
Landlord as a result of the limitations contained in subparagraph 5(d) above. In
addition to the Rent provided in this paragraph, Tenant, except for that portion
of the Landlord's Expenses to be borne by Landlord as a result of the
limitations contained in subparagraph 5(d) above, shall pay all impositions,
taxes, insurance premiums, operating charges, costs and expenses which arise or
may be contemplated under any provisions of this Lease during the Term. All of
such charges, costs and expenses shall constitute additional rent, and upon the
failure of Tenant to pay any of such costs, charges or expenses, Landlord shall
have the same rights and remedies as otherwise provided in this Lease for the
failure of Tenant to pay Rent. It is the intention of the parties hereto that
Tenant shall in no event be entitled to any abatement of or reduction in Rent or
additional rent payable hereunder, except as expressly provided herein. Any
present or future law to the contrary shall not alter this agreement of the
parties.
6. Security.
(a) Security Deposit. Tenant shall deposit with Landlord upon execution
hereof the Security Deposit set forth in paragraph 1 above as security for
Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails
to pay Rent or any other charges payable by Tenant hereunder, or otherwise
defaults with respect to any provision of this Lease, Landlord may at its option
use, apply or retain all or any portion of the Security Deposit (i) to remedy
Tenant's defaults in the payment of Rent or any other sums payable by Tenant
pursuant to the terms hereof, (ii) to repair any damage to the Premises, (iii)
to clean and otherwise maintain the Premises, or (iv) to compensate Landlord for
any other loss or damage which Landlord may suffer thereby. If Landlord so uses
or applies all or any portion of the Security Deposit, Tenant shall, within ten
(10) days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to the full amount hereinabove stated
and Tenant's failure to do so shall be a breach of and a default under this
Lease. Landlord shall not be required to keep the Security Deposit separate from
its general accounts. If Tenant performs all of Tenant's obligations hereunder,
the Security Deposit, or so much thereof as has not theretofore been applied by
Landlord, shall be returned, without payment of interest or other increment for
its use, to Tenant (or, at Landlord's option, to the last assignee, if any, of
Tenant's interest hereunder) at the expiration of the Term hereof, after Tenant
has vacated the Premises.
(b) Lien and Security Interest. Tenant hereby grants to Landlord a lien
and security interest upon all property of Tenant now or hereafter placed in or
about the Premises to secure payment of all rents and other sums payable to
Landlord hereunder and the payment of any damages or losses suffered by Landlord
by reason of Tenant's breach of this Lease. Landlord, as secured party, shall be
entitled to all rights and remedies afforded a secured party under the Arizona
Uniform Commercial Code, such rights and remedies to be in addition to and
cumulative of any landlord's lien granted by law or elsewhere in this Lease.
Tenant shall execute appropriate UCC forms upon request by Landlord.
7. Use.
(a) General. The Premises shall be used and occupied only for the
Permitted Uses set forth in paragraph 1 above and for no other purpose.
(b) Compliance with Law. Tenant shall, at Tenant's sole cost and expense,
comply with all present and future laws, ordinances, orders, declarations of
covenants and restrictions, rules, regulations and requirements of all federal,
state and municipal governments, courts, departments, commissions, boards and
officers, and any national or local Board of Fire Underwriters, or any other
body exercising functions similar to those of any of the foregoing, foreseen or
unforeseen, ordinary as well as extraordinary, which may be applicable to the
Premises, the Building, and the Property or to the use or manner of use of the
Premises. Tenant shall obtain any required certificate of occupancy with respect
to its use of the Premises, the Building and the Property within thirty (30)
days from the Commencement Date and shall deliver a copy thereof to Landlord
within such thirty (30) day period; provided, however, Landlord shall obtain any
certificate of occupancy required for the shell of the Building and any
improvements to the Premises to be made by Landlord pursuant to paragraph 3
above. Tenant shall not use or permit the use of the Premises in any manner that
will tend to create waste or a nuisance.
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(c) Existing Title and Condition of Premises. Tenant hereby accepts the
Premises in their condition existing as of the Commencement Date and also
accepts the Premises and this Lease subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, subject to all covenants, conditions and restrictions
affecting the Property, Project or Premises and subject to all liens, claims and
encumbrances currently existing against the Premises or any part thereof,
including all matters disclosed by any of the foregoing or by any exhibits
attached hereto. Landlord, in accordance with (and except as otherwise provided
in) subparagraph 8(c) below, shall be responsible for causing the roof and
bearing walls of the Premises to be in good condition and repair at the
Commencement Date and shall also cause the heating, ventilating and air
conditioning system, the plumbing system and the electrical system to be in
operating condition as of the Commencement Date. All such systems shall be
deemed in the condition required at the Commencement Date unless Tenant gives
Landlord written notice of any defect in such systems on or before ten (10) days
after the Commencement Date. Except for any representation or warranty which
may be specifically set forth in this Lease, Tenant acknowledges that neither
Landlord nor Landlord's agent have made any representations or warranties as to
the Premises, including without limitation, any representation or warranty as to
condition or fitness of the Building or the suitability of the Building for the
conduct of Tenant's business.
(d) Signs. Tenant shall not erect or install on any exterior or interior
window, any door, or any exterior wall any signs, advertising media, placards,
trademarks, drapes, screens, tinting materials, shades, blinds or similar items,
without first securing Landlord's written permission. All signs shall comply
with all applicable governmental requirements, shall conform to the design,
motif and decor of the Property and shall be in good taste, as determined in
Landlord's reasonable discretion. Landlord may also establish such sign criteria
as Landlord deems appropriate for the Property and Tenant shall cause all signs
which are located on the Premises and are visible from outside the Premises to
conform to such sign criteria. Tenant shall properly maintain all approved
signs. Upon expiration of the Lease, Tenant promptly shall remove all signs
placed in and around the Premises by Tenant and shall repair any damage to the
Premises, Building or other portions of the Project caused by the removal of
such signs. Landlord may also require Tenant to erect an exterior identifying
sign in form and substance satisfactory to Landlord, which sign shall also be
subject to all of the other provisions of this subparagraph (d).
(e) Governmental Regulation. In addition to the general obligation of
Tenant to comply with laws and without limitation thereof, Landlord shall not be
liable to Tenant nor shall this Lease be affected if any parking privileges
appurtenant to the Premises, the Building and the Property are impaired by
reason of any moratorium, initiative, referendum, statute, regulation, or other
governmental decree or action which could in any manner prevent or limit the
parking rights of Tenant hereunder. Any governmental charges or surcharges or
other monetary obligations imposed relative to parking rights with respect to
the Premises, the Building and the Property shall be considered as Property
Taxes and shall be payable by Tenant under the provisions of paragraph 14
hereof.
(f) Security Devices. Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without Landlord's
prior written consent.
8. Maintenance, Repairs and Property Management.
(a) Common area and building maintenance. Tenant shall at Tenant's sole
cost and expense, perform and be responsible for the operation, cleaning,
maintenance (including but not limited to preventive maintenance) and repair of
the Building and the Property and, if applicable, the Project, including,
without limitation, the roof and walls (other than for the structural repair of
such roof and walls) and all walks, driveways, parking areas, loading areas,
lawns and landscaping and shall keep all such items and areas in good condition
and repair, Tenant shall also pay before delinquent for all utilities furnished
to the common areas of the Building and Property. If Tenant fails to perform its
obligations under this subparagraph, Landlord may perform such work or make such
payments as provided in subparagraph 17(d) below and the last four sentences of
subparagraph 8(b) below shall be construed to also apply to the work performed
or to be performed, and the costs incurred, under this subparagraph.
(b) Tenant's Maintenance. Tenant shall, at Tenant's sole cost and
expense, keep and maintain the Premises, subfloors and floor coverings in good
repair and in a clean and safe condition, casualties covered by insurance
coverage excepted to the extent of proceeds received by Landlord. Tenant shall,
at Tenant's own expense, immediately replace all interior, exterior or other
glass in or about the Premises that may be broken during the Term with glass at
least
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equal to the specification and quality of the glass so replaced. If Tenant fails
to perform Tenant's obligations under this subparagraph, Landlord may at its
option enter upon the Premises after ten (10) days' prior written notice to
Tenant and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the rate of eighteen percent (18%) per
annum shall become due and payable as additional rental to Landlord together
with Tenant's next monthly Rent payment. Nothing herein shall imply any duty
upon the part of Landlord to do any such work and the performance thereof by
Landlord shall not constitute a waiver of Tenant's default in failing to perform
the same. Landlord may, during the progress of any such work in or on the
Premises, keep and store therein all necessary materials, tools, supplies and
equipment. Landlord shall not be liable for the inconvenience, annoyance,
disturbance, loss of business or other damage of Tenant by reason of making such
repairs or the performance of any such work, or on account of bringing
materials, tools, supplies or equipment into or through the Premises during the
course thereof, and the obligations of Tenant under this Lease shall not be
affected thereby.
(c) Landlord's Obligations to Repair. Landlord shall, at its expense,
after written notice from Tenant, repair in a prompt and diligent manner any
damage to structural portions of the roof and bearing walls of the Premises;
provided, however, that if such damage is caused by an act or omission of Tenant
or Tenant's agents, invitees, employees or contractors, then such repairs shall
be at Tenant's expense, payable to Landlord pursuant to this paragraph. There
shall be no abatement or Rent during the performance of such work. Landlord
shall not be liable to Tenant for injury or damage that may result from any
defect in the construction or conditions of the Premises and Tenant shall seek
recovery for such injury or damage solely from Tenant's insurance and/or any
other persons or entities which may be liable to Tenant. Tenant waives any right
to make repairs at the expense of Landlord under any law, statute or ordinance
now or hereafter in effect unless Tenant has given Landlord written notice of
the need for such repairs, such repairs are the obligation of Landlord under
this Lease and Landlord has failed to make the needed repairs within a
reasonable period of time after the receipt of such notice.
(d) Surrender. On the last day of the Term, or on any sooner termination
of this Lease, Tenant shall surrender the Premises to Landlord in the same
condition as when received, broom clean, ordinary wear and tear alone excepted.
Tenant shall repair any damage to the Premises, the Building and the Project
occasioned by the removal of Tenant's alterations and improvements (including,
without limitation, its trade fixtures, furnishings and equipment), which repair
shall include, without limitation, the patching and filling of holes and repair
of structural damage.
(e) Property Management. Tenant shall also pay to Landlord a sum which
will reimburse Landlord for a portion of the management fee which Landlord pays
to its property manager for the Project. The amount of such fee payable by
Tenant shall be equal to one and one-half percent (1.5%) of the gross receipts
received by Landlord from Tenant under this Lease including, but not limited to,
all items of Fixed Rent, Excess Reimbursable Expenses and other charges or sums
(other than rent tax) required to be paid by Tenant under this Lease. Sums
payable by Tenant under this subparagraph 8(f) shall be paid simultaneously with
the payment by Tenant to Landlord of the Fixed Rent or other gross receipt item
upon which such management fee is calculated.
9. Utilities. Tenant shall pay for water, gas, heat, light, power, telephone
and other utilities and services supplied to the Premises, together with any
taxes thereon. If any such services are not separately metered to Tenant, Tenant
shall pay a reasonable proportion to be determined by Landlord of all charges
jointly metered with other premises, and Landlord's determination thereof, in
good faith, shall be conclusive. Landlord reserves the right to grant easements
on the Premises, and to dedicate for public use portions thereof, without
Tenant's consent provided that no such grant or dedication shall interfere with
Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense.
From time to time upon Landlord's demand, Tenant shall execute, acknowledge and
deliver to Landlord, in accordance with Landlord's instructions, any and all
documents or instruments necessary to effect Tenant's covenants herein.
10. Alterations and Additions.
(a) Limitation. Tenant shall not, without Landlord's prior written
consent, make any alterations, improvements, additions, or utility installations
(which term "utility installations" shall include ducting, power panels,
fluorescent fixtures, space heaters, conduits and wiring) in, on or about the
Premises, except for interior nonstructural alterations to the Premises costing
less than Ten Thousand Dollars ($10,000) in the aggregate over any one (1) year
period. As a condition to giving such consent, Landlord may require that Tenant
agree to (i) remove any such alterations, improvements, additions or utility
installations at the expiration of the Term and restore the Premises to their
prior
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condition, or, in the alternative, (ii) require that such alterations,
improvements, additions or utility installations shall become the property of
Landlord and shall be left by Tenant upon the expiration of the Term. As a
further condition to giving such consent, Landlord may require Tenant to provide
Landlord, at Tenant's sole cost and expense, lien and completion bonds in an
amount equal to one and one-half (1 1/2) times the estimated cost of such
improvements to insure Landlord against any liability for mechanics' and
materialmen's liens and to insure completion of the work.
(b) Liens. Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use on or
in connection with the Premises, which claims are or may be secured by any
mechanics' or materialmens' lien against the Premises or any interest therein.
Tenant shall give Landlord not less than ten (10) days' notice prior to the
commencement of any work on the Premises, and Landlord shall have the right to
post notices of non-responsibility in or on the Premises as provided by law.
(c) Removal. Unless Landlord requires their removal as set forth in
subparagraph (a) above or otherwise consents to such removal, all alterations,
improvements, additions and utility installations which may be made on or to the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the Term. Notwithstanding the
provisions of this subparagraph (c), Tenant's machinery and equipment, other
than that which is affixed to the Premises so that it cannot be removed without
material damage to the Premises, shall remain the property of Tenant and may be
removed by Tenant subject to the provisions of paragraph 8(d) above.
11. Insurance.
(a) General Liability. Tenant at its sole cost and expense shall maintain
comprehensive general liability insurance ("Liability Insurance") on an
"occurrence basis" against claims for "personal injury," including without
limitation, bodily injury, death or property damage, occurring upon, in or about
the Premises, the Building and the Property, such insurance to afford immediate
minimum protection, at the time of the inception of this Lease, and at all times
during the Term, to a limit of not less than Two Million Dollars ($2,000,000)
with respect to personal injury or death to any one or more persons or to damage
to property. Such insurance shall designate, and be for the benefit of, Tenant
as the named insured and Landlord as an additional insured. Such insurance shall
also include coverage against liability for bodily injury or property damage
arising out of the use, by or on behalf of Tenant, or any other person or
organization, of any owned, non-owned, leased or hired automotive equipment in
the conduct of any and all operations called for under this Lease. The limits of
said insurance shall not, however, limit the liability of Tenant hereunder.
(b) Extended Coverage. During the Term, Landlord may procure and maintain
in full force and effect with respect to the Building, a policy or policies of
fire insurance with extended coverage endorsement attached, including vandalism
and malicious mischief coverage, and any other endorsements (such as earthquake
coverage) which Landlord may elect to obtain or which may be required by the
holder of any fee or leasehold mortgage, which insurance coverage may be in an
amount up to one hundred percent (100%) of the full insurance replacement value
(replacement cost new, including debris removal and demolition) thereof.
Landlord may further obtain, if it shall so elect, rental abatement insurance
against abatement or loss of Rent in case of fire or other casualty, in an
amount at least equal to the amount of the Rent payable by Tenant during one (1)
year next ensuing as reasonably determined by Landlord. Subject to the
limitation contained in subparagraph 5(d) above, Tenant shall pay to Landlord,
in accordance with the provisions of subparagraph 5(e) above, an amount equal to
Tenant's Share of Insurance Expenses multiplied by the premium or premiums on
insurance maintained by Landlord pursuant to this subparagraph ("Insurance
Expenses"), with appropriate proration at the beginning and end of the Term.
(c) Policies. Insurance required hereunder shall be by companies rated AX
or better in "Best's Insurance Guide" licensed to do business in the state in
which the Premises are located and acceptable to Landlord and the holder of any
mortgage or deed of trust on the Premises or any part or portion thereof. Tenant
shall deliver to Landlord copies of policies of such insurance or certificates
evidencing the existence and amounts of such insurance with loss payable clauses
satisfactory to Landlord. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days
written notice to Landlord. Tenant shall, within ten (10) days of the expiration
of such policies, furnished Landlord with renewals or "binders" thereof, or
Landlord may order such insurance and charge the cost thereof to Tenant, which
amount shall be payable by Tenant upon demand. Each such policy or certificate
therefor issued by the insurer shall to the extent obtainable contain (i) a
provision that no act or omission of Tenant which would otherwise result in
forfeiture or reduction of the insurance therein provided shall affect or limit
the obligation of the
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insurance company to pay the amount of any loss sustained and (ii) an agreement
by the insurer that such policy shall not be canceled without at least thirty
(30) days prior written notice by registered mail to Landlord. Tenant shall not
do or permit to be done anything which shall invalidate the insurance policies
referred to herein. If Tenant shall fail to procure and maintain any insurance
required to be maintained by it by virtue of any provision of this paragraph,
Landlord may, but shall not be required to, procure and maintain the same, but
at the expense of Tenant.
(d) Waiver of Subrogation. Landlord and Tenant each hereby waive any and
all rights of recovery against the other, or against the partners, officers,
employees, agents and representatives of the other, for loss of or damage to
such waiving party or its property or the property of the other under its
control to the extent that such loss or damage is insured against under any
insurance policy in force at the time of such loss or damage. Tenant shall, upon
obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
(e) Tenant's Contents. Tenant shall assume the risk of damage to any
fixtures, goods, inventory, merchandise, equipment, furniture and leasehold
improvements which remain the property of Tenant or as to which Tenant retains
the right of removal from the Premises, and Landlord shall not be liable for
injury to Tenant's business or any loss of income therefrom relative to such
damage. Tenant shall maintain the following insurance coverage with respect to
such items during the Term:
(i) Against fire, extended coverage, and vandalism and malicious
mischief perils in an amount not less than ninety percent (90%) of the
full replacement cost thereof;
(ii) Broad form boiler and machinery insurance on a blanket
repair and replacement basis with limits per accident not less than
the replacement cost of all leasehold improvements and of all boilers,
pressure vessels, air conditioning equipment, miscellaneous electrical
apparatus and all other insurable objects owned or operated by the
Tenant or by others (other than Landlord) on behalf of Tenant in the
Premises, or relating to or serving the Premises; and;
(iii) Business interruption insurance in such an amount as will
reimburse Tenant for direct or indirect loss of earnings attributable
to all such perils insured against in subparagraphs 11(e)(i) and (ii)
hereinabove.
(f) Workmen's Compensation. Tenant shall, at its own cost and expense,
keep and maintain in full force and effect during the Term, a policy or policies
of workmen's compensation insurance covering all Tenant's employees working in
the Premises, and shall furnish Landlord with certificates thereof.
12. Indemnity; Exemption of Landlord from Liability.
(a) General. In addition to any other obligations of Tenant hereunder,
including the obligations of Tenant to provide insurance, Tenant shall indemnify
and hold Landlord harmless for, from and against any and all claims arising from
Tenant's use of the Premises, or from the conduct of Tenant's business or from
any activity, work or things done, permitted or suffered by Tenant in or about
the Premises or elsewhere and shall further indemnify and hold Landlord harmless
for, from and against any and all claims arising from any breach or default in
the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any negligence of Tenant, or any of
Tenant's agents, contractors, or employees, and for, from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
satisfactory to Landlord; provided, however, the foregoing indemnity shall not
apply to claims made as a result of the sole negligence or intentional
misconduct of Landlord. Tenant, as a material part of the consideration to
Landlord for Landlord's execution of this Lease, also hereby assumes all risk of
damage to property or injury to persons in, upon or about the Premises arising
from any cause whatsoever; hereby waives all claims in respect thereof against
Landlord; and agrees that all claims with respect thereto shall be made solely
against any insurance carried by Tenant and/or against any other persons or
entities which may be liable for such claims.
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(b) Tenant's Business. In addition to any other obligation of Tenant
hereunder, including any obligation of Tenant to provide insurance, Tenant
hereby agrees that Landlord shall not be liable for injury to Tenant's business
or any loss of income therefrom or for damage to the goods, wares, merchandise
or other property of Tenant, Tenant's employees, invitees, customers, or any
other person in or about the Premises, nor shall Landlord be liable for injury
to the person of Tenant or Tenant's employees, agents or contractors, whether
such damage or injury is caused by or results from fire, steam, electricity,
gas, water or rain, or from the breakage, leakage, obstruction or other defects
of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause whatsoever, resulting from conditions arising
upon the Premises, or from other sources or places, and regardless of whether
the cause of such damage or injury or the means of repairing the same is
inaccessible to Tenant. Instead, Tenant shall seek recovery for any such injury,
loss or damage solely from any insurance carried by Tenant and/or from any other
persons or entities which may be liable to Tenant for such injury, loss or
damage.
13. Damage or Destruction; Obligation to Rebuild.
(a) Landlord's Obligation to Rebuild. If the Premises are damaged or
destroyed during the Term, Landlord shall, except as hereinafter provided,
diligently repair or rebuild them to substantially the condition in which they
existed immediately prior to such damage or destruction; provided that any
damage which is estimated in good faith by Landlord to be under Five Thousand
Dollars ($5,000.00) shall be repaired by Tenant, and Landlord shall reimburse
Tenant upon demand for expenses incurred in such repair work to the extent of
any proceeds received by Landlord from extended coverage insurance maintained
pursuant to paragraph 11 above.
(b) Abatement of Rent. Rent due and payable hereunder shall be abated,
but only to the extent of any proceeds received by Landlord from rental
abatement insurance maintained pursuant to paragraph 11 above, during the period
commencing with such damage or destruction and ending with a substantial
completion by Landlord of the work of repair or reconstruction which Landlord is
obligated or undertakes to do.
(c) Option to Terminate. If the Building or the Premises are damaged or
destroyed to the extent that Landlord determines that the same cannot, with
reasonable diligence, be fully repaired or restored by Landlord within one
hundred eighty (180) days after the date of the damage or destruction, the sole
right of both Landlord and Tenant shall be the option to terminate this Lease as
hereinafter provided; provided, however, Tenant shall not have the right to
terminate this Lease unless Landlord determines that the Premises cannot be so
repaired or restored within such one hundred eighty (180) day period of time.
Landlord shall determine whether the Building and, if applicable, the Premises
can be fully repaired or restored within the one hundred eighty (180) day
period, and Landlord's determination shall be conclusive on Tenant. Landlord
shall notify Tenant of its determination, in writing, within thirty (30) days
after the date of the damage or destruction. If Landlord determines that the
Building, including the Premises, can be fully repaired or restored within the
one hundred eighty (180) day period, or if it is determined that such repair or
restoration cannot be made within said period but no party having the right to
do so elects to terminate within thirty (30) days from the date of said
determination, this Lease shall remain in full force and effect and Landlord
shall diligently repair and restore the damage as soon as reasonably Possible.
(d) Uninsured Casualties. Notwithstanding anything contained herein to
the contrary, in the event of damage to or destruction of all or any portion of
the building which is not fully covered (except for deductible amounts) by the
insurance proceeds received by Landlord under the insurance policies required to
be maintained pursuant to paragraph 10 above, or in the event that any portion
of such insurance proceeds must be paid over to or are retained by the holder of
any mortgage or deed of trust on the Property or Premises, Landlord may
terminate this Lease by written notice to Tenant, given within thirty (30) days
after the date of notice to Landlord that said damage or destruction is not so
covered or that the proceeds are not available for repair of the damage or
destruction. If Landlord does not elect to terminate this Lease, the Lease shall
remain in full force and effect and the Building shall be repaired and rebuilt
in accordance with the provisions for repair set forth in paragraph 8 above.
(e) Tenant's Waiver. With respect to any destruction which Landlord is
obligated to repair or may elect to repair under the terms of this paragraph,
Tenant hereby waives all right to terminate this Lease pursuant to rights
otherwise presently or hereafter accorded by the provisions of Arizona Revised
Statutes Section 33-343 or other applicable laws to tenants, except as expressly
otherwise provided herein.
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14. Taxes.
(a) Tenant's Share of Property Taxes. Subject to the provisions of
subparagraph 5(d) above, Tenant shall pay to Landlord Tenant's Share of Property
Taxes (as set forth in paragraph 1 hereof) multiplied by the sum of the
following: all real estate taxes and all other taxes relating to the Premises,
the Building and the Property, all other taxes which may be levied in lieu of
real estate taxes, assessments, and other governmental charges, or levies,
general and special, ordinary and extraordinary, unforeseen as well as foreseen,
of any kind and nature for public improvements, services or benefits
(collectively, "Property Taxes"), which are assessed, levied, confirmed, imposed
or become a lien upon the Premises, the Building or the Property, or become
payable during the Term; provided, however that:
(i) any Property Taxes shall be prorated between Landlord and
Tenant so that Tenant shall pay only that proportion thereof which the
part of such period within the Term bears to the entire period; and
(ii) any such sum payable by Tenant, which would not otherwise be
due until after the date of the termination of this Lease, shall be
paid by Tenant to Landlord upon such termination.
Any sum payable by Tenant pursuant to this subparagraph for any period during
the Term shall be paid by Tenant in accordance with the provisions of
subparagraph 5(e) above.
(b) Tenant's Personal Property. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Tenant contained on the Premises or
elsewhere. Tenant shall cause such trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the
Premises, the Building and the Property.
(c) Rent Tax. Tenant shall pay to Landlord a sum equal to the amount
which Landlord is required to pay or collect by reason of any privilege tax,
sales tax, gross proceeds tax, rent tax, or like tax levied, assessed or imposed
by any governmental authority, or subdivision thereof, upon or measured by any
Rent, Excess Reimbursable Expense, management fee, or other charges or sums
required to be paid or improvements to be made by Tenant under this Lease. Such
sum shall be paid simultaneously with the payment by Tenant to Landlord of the
Fixed Rent or other charge to which such tax is attributable or, in the case of
a tax not attributable to Fixed Rent or other charges, at such time as Landlord
shall demand payment thereof. Nothing contained in this Lease shall require
Tenant to pay any franchise, corporate, estate, inheritance, succession, or
transfer tax of Landlord or any tax upon the net income of Landlord.
15. Condemnation.
(a) Rent Reduction or Lease Termination. If the Premises or any portion
thereof is taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs (the "Condemnation
Date") and the Rent shall be reduced (as of the Condemnation Date) as provided
below. If (i) more than ten percent (10%) of the Premises is taken by
condemnation and (ii) if the balance of the Premises remaining after such
condemnation is not reasonably suitable for the use to which the Premises were
being put immediately prior to the condemnation, Landlord or Tenant may, at
either's option, to be exercised in writing only within ten (10) days after
Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within ten (10) days of the Condemnation Date) terminate
this Lease as of the Condemnation Date. If neither Landlord nor Tenant
terminates this Lease in accordance with the foregoing, or in the event that
portion of the Premises taken by condemnation is not sufficiently large so as to
give rise to the right to terminate this Lease as above provided, this Lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the Fixed Rent shall be reduced (as of the Condemnation
Date) in the proportion that the area taken by condemnation bears to the total
area of the Premises.
(b) Award. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Landlord, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Tenant
shall be entitled to any award specifically attributed by the condemning
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authority to loss or damage to Tenant's trade fixtures and removable personal
property or to Tenant's relocation costs. In the event that this Lease is not
terminated by reason of such condemnation, Landlord shall, to the extent of
severance damages received by Landlord in connection with such condemnation and
not paid to or retained by the holder of any mortgage or deed of trust on the
Property or the Premises, repair any damage to the Premises caused by such
condemnation except to the extent that Tenant has been reimbursed therefor by
the condemning authority (in which event such reimbursement to Tenant shall also
be applied to such repair). Tenant shall pay any amount in excess of such
severance damages required to complete such repair; provided, however, if the
severance damages are not sufficient to pay all of the repair costs and if any
specific item of repair work shall be expected to have a useful life which
extends beyond the term of this Lease (including the term of any options which
Tenant may have the right to exercise), then Tenant shall be obligated to pay
with respect to the identifiable cost of such item of repair only the portion of
the total cost of such item of repair which bears the same ratio to the total
cost of such item of repair as the remaining term of this Lease (as determined
on the Condemnation Date and including the term of any options which the Tenant
may have the right to exercise) bears to the reasonably anticipated useful life
of such item of repair.
(c) Temporary Condemnation. If the temporary use of the whole or any part
of the Premises shall be taken by condemnation, the Term shall not be reduced or
affected in any way, and Tenant in such event shall continue to pay in full the
Rent and other charges herein reserved, without reduction or abatement, and,
except to the extent that Tenant is prevented from so doing by reason of any
order of the condemning authority, shall continue to perform and observe all of
the other covenants, conditions and agreements of this Lease to be performed or
observed by Tenant as though such taking had not occurred. In the event of any
such temporary condemnation Tenant shall, so long as it is otherwise in
compliance with the provisions of this Lease, be entitled to receive for itself
any and all awards or payments made for such use of that portion of the Premises
so taken; provided, however, that Tenant shall repair any and all damages to the
Premises (whether or not covered by any award to Tenant) caused by such
temporary condemnation.
16. Assignment and Subletting.
(a) Consent. Tenant shall not voluntarily or by operation of law assign,
transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Premises without Landlord's prior
written consent, which consent Landlord shall not unreasonably withhold.
Landlord may, however, withhold its consent to such assignment, transfer,
mortgage, subletting or other transfer or encumbrance pursuant to the preceding
sentence for substantive reasons including, without limitation, the financial
condition of the proposed assignee or transferee. Any attempted assignment,
transfer, mortgage, subletting or encumbrance without such consent shall be void
and shall constitute a breach of this Lease. The consent of Landlord to any one
assignment, transfer, mortgage, subletting, or encumbrance shall not be deemed
to be a consent to any subsequent assignment, transfer, mortgage, subletting, or
encumbrance. The transfer of more than twenty-five percent (25%) of the stock or
other ownership interest in Tenant, or the merger or consolidation of Tenant
with or into another firm or entity, shall be deemed to be a transfer of
Tenant's interest under this Lease and shall be subject to the provisions of
this subparagraph (a).
(b) Tenant's Continuing Liability. Regardless of Landlord's consent, no
subletting or assignment shall alter the primary liability of Tenant to pay the
Rent or release Tenant of Tenant's obligation to perform all other obligations
to be performed by Tenant hereunder unless Landlord's written consent shall so
specifically provide, and Landlord under no circumstances shall be obligated to
release Tenant from any such liability. The acceptance of rent by Landlord from
any other person shall not be deemed to be a waiver by Landlord of any provision
hereof.
(c) Information. In connection with any proposed assignment or sublease,
Tenant shall submit to Landlord in writing:
(i) The name of the proposed assignee or sublessee;
(ii) Such information as to the financial responsibility and
standing of said assignee or sublessee as Landlord may reasonably
require; and
(iii) All of the terms and conditions upon which the proposed
assignment or subletting is to be made.
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(d) Excess Sublease Rental. If for any sublease or assignment, Tenant
receives rent or other consideration, either directly or indirectly (by
performance of Tenant's obligations or otherwise) and either initially or over
the Term of the sublease or assignment, in excess of the Fixed Rent, Adjustments
and additional rent called for hereunder, or in the case of the sublease or
assignment of a portion of the Premises, in excess of such Fixed Rent,
Adjustments and additional rent fairly allocable to such portion, after
appropriate adjustments to assure that all other payments called for hereunder
are appropriately taken into account, Tenant shall pay to Landlord, at the same
time as Fixed Rent is due hereunder, one-half (1/2) of the excess of each such
payment of rent or other consideration received by Tenant promptly after its
receipt.
(e) Release. Whenever Landlord conveys its interest in the Premises,
Landlord shall be automatically released from the further performance of
covenants on the part of Landlord herein contained, and from any and all further
liability, obligations, costs and expenses, demands, causes of action, claims or
judgments arising from or growing out of, or connected with this Lease after the
effective date of said release. The effective date of said release shall be the
date the assignee executes an assumption of such an assignment whereby the
assignee expressly agrees to assume all of Landlord's obligations, duties,
responsibilities and liabilities with respect to this Lease. If requested,
Tenant shall execute a form of release and such other documentation as may be
required to effect the provisions of this paragraph.
(f) Controlled Entity. Notwithstanding the provisions of this paragraph
16, Tenant may assign or sublet the Premises, or any portion thereof, without
Landlord's consent, after written notice to Landlord, to any entity which
controls, is controlled by, or is under common ownership with Tenant, or to any
entity resulting from the merger or consolidation with Tenant, or to any person
or entity which acquires all the assets of Tenant as a going concern of the
business that is being conducted on the Premises, provided that said assignee
assumes, in full, the obligations of Tenant under this Lease. Any such
assignment shall not, in any way, affect or limit the liability of Tenant under
the terms of this Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent of Tenant, the
consent of whom shall not be necessary for such change or alteration.
(g) Attorneys' Fees. In the event that Landlord shall consent to a
sublease or assignment under subparagraph (a) above, Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with the giving of such
consent and review of the information submitted by Tenant.
17. Defaults; Remedies.
(a) Defaults. The occurrence of any one or more of the following events
shall constitute a material default and material breach of this Lease by Tenant:
(i) The vacating or abandonment of the Premises by Tenant;
(ii) The failure by Tenant to make any payment of Rent or any
other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of three (3) days
after written notice thereof from Landlord to Tenant;
(iii) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Tenant, other than those described in subparagraph (ii)
above, where such failure shall continue for a period of ten (10) days
after written notice thereof from Landlord to Tenant; provided,
however, that if the nature of Tenant's default is such that it is
capable of being cured but more than ten (10) days are reasonably
required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within such ten (10) day period
and thereafter diligently prosecutes such cure to completion; or
(iv) The making by Tenant of any general assignment for the
benefit of creditors, the filing by or against Tenant of a petition
for order of relief in bankruptcy for the purpose of bankruptcy
liquidation or reorganization under any law relating to bankruptcy
whether now existing or hereafter enacted (including, without
limitation, any petition filed by or against Tenant under any one or
more of the following Chapters of the Bankruptcy Reform Act of 1978,
11 U.S.C. (S)(S)101-1330 ("Bankruptcy Code") as amended: Chapter 7 or
Chapter 9 or Chapter 11 or Chapter 12 or Chapter 13) except that,
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in the case of a filing against Tenant of such a petition, such filing
shall not be a default if the petition is dismissed or discharged on
or before sixty (60) days after the filing thereof; the appointment of
a trustee or receiver to take possession of all or substantially all
of Tenant's assets located at the Premises or of Tenant's interest in
this Lease, where possession is not restored to Tenant within sixty
(60) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where such seizure is not discharged
within sixty (60) days. Unless Landlord's express written consent
thereto is first obtained, in no event shall this Lease, or any
interest herein or hereunder or any estate created hereby, be assigned
or assignable by operation of law or by, in or under voluntary or
involuntary bankruptcy liquidation or reorganization proceedings or
otherwise and in no event shall this Lease or any rights or bankruptcy
liquidation or reorganization proceedings. Any purported assignment
or transfer in violation of the provisions of this subparagraph (iv)
shall constitute a material default and breach of this Lease by Tenant
and in connection with any such default and breach Landlord shall have
the rights and remedies described in subparagraph (b) below,
including, without limitation, the election to terminate this Lease.
As used in this subparagraph (iv) the words "bankruptcy liquidation or
reorganization proceedings" shall include any proceedings under any
law relating to bankruptcy whether now existing or hereafter enacted
(including, without limitation, proceedings under any one or more of
the Bankruptcy Code as amended: Chapter 7 or Chapter 9 or Chapter 11
or Chapter 12 or Chapter 13).
(b) Remedies.
(i) In the event of any default and breach by Tenant of any of
its obligations under this Lease and notwithstanding the vacation or
abandonment of the Premises by Tenant, this Lease shall continue in
effect so long as Landlord does not expressly terminate Tenant's right
to possession in any of the manners specified in this paragraph and
Landlord may, at Landlord's option and without limiting Landlord in
the exercise of any other rights or remedies which it may have by
reason of any other rights or remedies which it may have by reason of
such default and breach, exercise all of its rights and remedies
hereunder, including, without limitation:
(A) The right to declare the Term ended and to reenter the
Premises and take possession thereof and remove all persons
therefrom, and Tenant shall have no further claim in or to the
Premises or under this Lease; or
(B) The right without declaring this Lease ended to reenter
the Premises, take possession thereof, remove all persons
therefrom and occupy or lease the whole or any part thereof for
and on account of Tenant and upon such terms and conditions and
for such rent as Landlord may deem proper and to collect such
rent or any other rent that may hereafter become payable and ap-
ply the same as provided in subparagraph (ii) below; or
(C) The right, even though Landlord may have relet the
Premises or brought an action to collect Rent and other charges
without terminating this Lease, to thereafter elect to terminate
this Lease and all of the rights of Tenant in or to the
Premises; or
(D) The right, without terminating this Lease, to bring an
action or actions to collect Rent and other charges hereunder
which are from time to time past due and unpaid or to enforce
any other provisions of this Lease imposing obligations on
Tenant, it being understood that the bringing of any such action
or actions shall not terminate this Lease unless written notice
of termination is given.
(ii) Should Landlord relet the Premises under the provisions of
subparagraph (b)(i)(B) above, Landlord may execute any lease either in
its own name or in the name of Tenant, but Tenant hereunder shall have
no right or authority whatever to collect any rent from the new
tenant. The proceeds of any such reletting shall first be applied to
the payment of the costs and expenses of reletting the Premises,
including without limitation, reasonable brokerage commissions and
alterations and repairs which Landlord, in its sole discretion, deems
reasonably necessary and advisable and to the
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payment of reasonable attorneys' fees incurred by Landlord in
connection with the Tenant's default, the retaking of the Premises and
such reletting and, second, to the payment of any indebtedness, other
than Rent, due hereunder, including, without limitation, storage
charges owing from Tenant to Landlord. When such costs and expenses
of reletting have been paid, and if there is no such indebtedness or
such indebtedness has been paid, Tenant shall be entitled to a credit
for the net amount of rental received from such reletting each month
during the unexpired balance of the Term, and Tenant shall pay
Landlord monthly on the first day of each month as specified herein
such sums as may be required to make up the rentals provided for in
this Lease. Nothing contained herein shall be construed as obligating
Landlord to relet the whole or any part of the Premises.
(iii) Should Landlord elect to terminate this Lease under the
provisions of subparagraphs (b)(i)(A) or (C) above, Landlord shall be
entitled to recover immediately from Tenant (in addition to any other
amounts recoverable by Landlord as provided by law), the following
amounts:
(A) The worth at the time of award of the unpaid rent which
had been earned at the time of termination;
(B) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided;
(C) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Term after the time of
award exceeds the amount of such rental loss that Tenant proves
could be reasonably avoided; and
(D) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to
perform its obligations under the Lease or which in the ordinary
course of things would be likely to result therefrom.
For purposes of computing "the worth at the time of the award" of the amount
specified in subparagraph (b)(iii)(C) above, such amount shall be discounted at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award. For purposes of computing "the worth at the time of the award" under
subparagraphs (b)(iii)(A) and (b)(iii)(8) above, an interest rate of ten percent
(10%) per annum shall be utilized.
(iv) If Landlord shall elect to reenter the Premises as provided
above, Landlord shall not be liable for damages by reason of any
reentry. Tenant hereby waives all claims and demands against Landlord
for damages or loss arising out of or in connection with any
reentering and taking possession of the Premises and waives all claims
for damages or loss arising out of or in connection with any
destruction of or damage to the Premises, or for any loss of property
belonging to Tenant or to any other person, firm or corporation which
may be in or upon the Premises at the time of such reentry.
(v) Landlord shall not be deemed to have terminated this Lease,
Tenant's right to possession of the Premises or the liability of
Tenant to pay Rent thereafter to accrue or its liability for damages
under any of the provisions hereof by any reentry hereunder or by any
action in unlawful detainer or otherwise to obtain possession of the
Premises, unless Landlord shall notify Tenant in writing that Landlord
has so elected to terminate this Lease. Tenant agrees that the service
by Landlord of any notice pursuant to the unlawful detainer statutes
or comparable statutes of the state or locality in which the Premises
are located and the surrender of possession pursuant to such notice,
shall not (unless Landlord elects to the contrary at the time of or at
any time subsequent to the service of such notice and such election
shall be evidenced by a written notice to Tenant) be deemed to be a
termination of this Lease or of Tenant's obligations hereunder. No
reentry or reletting under this paragraph shall be deemed to
constitute a surrender or termination of this Lease, or of any of the
rights, options, elections, powers and remedies reserved by Landlord
hereunder, or a release of Tenant from any of its obligations
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hereunder, unless Landlord shall specifically notify Tenant, in
writing, to that effect. No such reletting shall preclude Landlord
from thereafter at any time terminating this Lease as herein provided.
(vi) All fixtures, furnishings, goods, equipment, chattels or
other personal property of Tenant remaining on the Premises at the
time that Landlord takes possession thereof may at Landlord's election
be stored at Tenant's expense or sold or otherwise disposed of by
Landlord in any manner permitted by applicable law.
(vii) All rights, options, elections, powers and remedies of
Landlord under the provisions of this Lease are cumulative of each
other and of every other right, option, election, power or remedy
which Landlord may otherwise have at law or in equity and all or any
of which Landlord is hereby authorized to exercise. The exercise of
one or more rights, options, elections, powers or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other
rights or remedies Landlord may have upon a breach and default under
this Lease and shall not be deemed to be a waiver of Landlord's rights
or remedies thereupon or to be a release of Tenant from Tenant's
obligations thereon unless such waiver or release is expressed in
writing and signed by Landlord.
(viii) In the event of the exercise by Landlord of any one or
more of its rights and remedies hereunder, Tenant hereby expressly
waives any and all rights of redemption, if any, granted by or under
any present or future laws.
(c) Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent and other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
ten percent (10%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
(d) Payment or Performance by Landlord. Landlord may, at Landlord's
option and without any obligation to do so, pay any sum or do any act which
Tenant has failed to pay or do at the time Tenant was obligated to make such
payment or perform such act and Landlord shall be entitled to recover from
Tenant, upon demand, all sums expended by Landlord in making such payment or
performing such act, together with interest thereon at the rate provided in
subparagraph 18(d) from the date of expenditure until repaid by Tenant. Such sum
and interest shall be deemed additional rent under this Lease.
18. Miscellaneous.
(a) Estoppel Certificate.
(i) Tenant shall at any time upon not less than ten (10) days'
prior written notice from Landlord execute, acknowledge, and deliver to
Landlord a statement in writing certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the Rent and other charges are
paid in advance, if any, and acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by any person to whom it shall
be delivered by Landlord including any prospective purchaser or
encumbrancer of the Premises, the Building, the Property, or any part
thereof.
(ii) Tenant's failure to deliver such statement within such time
shall be conclusive upon Tenant that this Lease is in full force and
effect, without modification except as may be represented by
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Landlord; that there are no uncured defaults in Landlord's
performance; and that not more than one month's Rent has been paid in
advance.
(iii) If Landlord desires to finance or refinance the Premises,
the Building, the Property, or any part thereof, Tenant hereby agrees
to deliver to any lender designated by Landlord such financial
statements of Tenant as may be reasonably required by such lender.
Such statements shall include the past three years financial
statements of Tenant. All such financial statements shall be received
by Landlord in confidence and shall be used only for the purposes
herein set forth.
(b) Landlord's Liability. The term "Landlord" as used herein shall
mean only the owner or owners at the time in question of the fee title (or the
lessee's interest in any ground or master lease) to the Premises and in the
event of any transfer of such title, Landlord herein named (and in case of any
subsequent transfers, then grantor) shall be relieved from and after the date of
such transfer of all liability as respects Landlord's obligations thereafter to
be performed, provided that any funds in the hands of Landlord or the then
grantor at the time of such transfer in which Tenant has an interest shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assigns only during their respective periods of ownership.
(c) Construction. Paragraph captions are solely for the convenience of
the parties and shall not be deemed to or be used to define, construe, or limit
the terms hereof. As used in this Lease, the masculine, feminine and neuter
genders shall be deemed to include the others, and the singular number shall be
deemed to include the plural, whenever the context so requires. The invalidity
of any provisions of this Lease as determined by a court of competent
jurisdiction shall in no way affect the validity of any other provision hereof.
This Lease shall be governed by the laws of the state in which the Premises are
located.
(d) Interest on Past-Due Obligations. Except as expressly herein
provided, any amount due to Landlord not paid when due shall bear interest at
the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate
permitted by law, from the date due until the date such amount is paid. Payment
of such interest shall be made when such amount is paid. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
(e) Time of Essence. Time is of the essence of this Lease and all of
the covenants and obligations hereof.
(f) Counterparts. This Lease may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same Lease.
(g) Incorporation of Prior Agreements; Amendments. This Lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, which writing shall be
signed by the parties in interest at the time of the modification.
(h) Notices. Any notices, approvals, agreements, certificates, other
documents or communications between the parties hereto required or permitted
under this Lease shall be in writing. Any such communications shall be deemed to
have been duly given or served if delivered in hand or forty-eight (48) hours
after deposit in the United States mail, certified or registered, postage and
fees prepaid, return receipt requested, addressed to the parties at the
addresses set forth in paragraph 1 of this Lease. The address to which any such
communications shall be sent may be changed by either party hereto from time to
time by a notice mailed as aforesaid.
(i) Waivers. No waiver by Landlord of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Tenant of the same or any other provision. Landlord's consent to or approval of
any act shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The acceptance
of Rent hereunder by Landlord shall not be a waiver of any preceding breach by
Tenant of any provision hereof, other than the failure of Tenant to pay the
particular Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent.
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(j) Recording. Tenant shall not record this Lease without Landlord's
prior written consent and such recordation shall, at the option of Landlord,
constitute a noncurable default of Tenant hereunder. Landlord and Tenant shall,
upon the request of either party, execute, acknowledge and deliver to the other
a "short form" memorandum of this Lease for recording purposes.
(k) Holding Over. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the Term or sooner termination of this
Lease with the express written consent of Landlord and without executing a new
lease, such occupancy shall be construed as a tenancy from month-to-month at a
rental equal to one hundred fifty percent (150%) of the last monthly Rent plus
all other charges payable hereunder, and upon all the terms hereof insofar as
the same are applicable to a month-to-month tenancy. Nothing contained in this
subparagraph shall be construed to grant Tenant the right to holdover without
the express written consent of Landlord.
(l) Covenants and Conditions. Each provision of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
(m) Binding Effect. Subject to any provisions hereof restricting
assignment or subletting by Tenant and subject to the provision of subparagraph
(b) above, this Lease shall bind the parties and their personal representatives,
successors and assigns.
(n) Subordination.
(i) This Lease, at Landlord's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation for
security now or hereafter placed upon the Premises, the Building or the
Property, or any part or parts thereof, and to any and all advances made
on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. If any present or
future mortgagee, trustee or ground lessor shall at any time elect to
have this Lease prior to the lien of its mortgage, deed of trust or
ground lease, and written notice of such election shall be given to
Tenant, this Lease shall be deemed prior to such mortgage, deed of trust,
or ground lease, whether this Lease is dated priori or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(ii) Tenant agrees to execute any documents required to
effectuate such subordination or to make this Lease prior to the lien
of any mortgage, deed of trust or ground lease, as the case may be,
and failing to do so within ten (10) days after written demand, does
hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney in fact and in Tenant's name, place and stead, to do so.
(o) Attorneys' Fees. If either party brings an action to enforce the
terms hereof or declare rights under this Lease, the prevailing party in the
final adjudication of any such action, on trial or appeal, shall be entitled to
its costs and expenses of suit, including, without limitation, its actual
attorneys' fees, to be paid by the losing party as fixed by the court. In any
situation in which a dispute is settled other than by action or proceeding,
Tenant shall pay all Landlord's costs and attorneys' fees relating thereto.
(p) Landlord's Access. Landlord and Landlord's agents shall have the
right to enter the Premises at reasonable times for the purpose of inspecting
the same, showing the same to prospective purchasers or lenders, and making such
alterations, repairs, improvements or additions to the Premises or the
improvements as Landlord may deem necessary or desirable. Landlord may at any
time place on or about the Premises any ordinary "For Sale" signs and Landlord
may at any time during the last one hundred twenty (120) days of the Term place
on or about the Premises any ordinary "For Lease" signs, all without rebate of
rent or liability to Tenant.
(q) Auctions. Tenant shall not conduct any auction on the Premises
without Landlord's prior written consent.
(r) Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subtenancies or may,
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at the option of Landlord, operate as an assignment to Landlord of any or all of
such subtenancies. During any period while Tenant is in default under this
Lease, Landlord, in addition to any other rights and remedies it may have under
this Lease, shall have the right to collect directly from any subtenant all
rentals owing to Tenant under any subtenancy and to apply such rentals to any
amounts owing to Landlord by Tenant and the payment of such amounts by the
subtenant directly to Landlord shall not be a default under the subtenancy.
(s) Joint and Several Liability. Each party signing this Lease as Tenant
shall be jointly and severally liable for the failure on the part of Tenant to
pay any sums due under the terms of this Lease or for the breach by Tenant or
any of the covenants or obligations of Tenant contained herein.
(t) Individual Liability. The obligations of Landlord under this Lease do not
constitute personal obligations of the individual partners, directors, officers,
or shareholders of Landlord, and Tenant shall look solely to the real estate
that is the subject of this Lease and to no other assets of Landlord for
satisfaction of any liability in respect of this Lease and will not seek
recourse against the individuals partners, directors, officers or shareholders
of Landlord or any of their personal assets for such satisfaction.
(u) Attornment. Tenant shall, in the event any proceedings are brought for
the foreclosure of, or in the event of exercise of the power of sale under any
mortgage or deed of trust made by the Landlord, its successors or assigns,
encumbering the Premises, or any part thereof, or in the event of termination of
the ground lease, if any, and if so requested, attorney to the purchaser upon
such foreclosure or sale or upon any grant of a deed in lieu of foreclosure and
shall recognize such purchaser as the Landlord under this Lease.
(v) Lender's Right to Cure. Tenant agrees to give the holder of any mortgage
or trust deed encumbering the Premises, by registered mail, a copy of any notice
of default or nonperformance served upon Landlord, provided that prior to such
notice, Tenant has been notified in writing (by way of Assignment of Rents and
Leases or otherwise) of the address of such mortgagee or trust deed holder.
Tenant further agrees that Landlord shall not be in default under this Lease
unless (i) Tenant has given a written notice to Landlord stating that Landlord
has failed to perform Landlord's obligations under this Lease, and (ii)
specifying with particularity the obligations which Landlord has failed to
perform, and Landlord thereafter fails to perform any of its obligations so
specified within a reasonable time after Landlord's receipt of such notice. If
Landlord shall fail to cure such nonperformance in a timely manner, then such
mortgagee or trust deed holder shall have an additional thirty (30) days within
which to cure the default, or, if such default cannot be cured within that time,
then such additional time as may be necessary if within such thirty (30) days
such mortgagee or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary, to effect such cure), in
which event this Lease shall not be terminated by Tenant while such remedies are
being so diligently pursued.
(w) Revisions to Lease. Tenant hereby agrees to make any reasonable revisions
to this Lease which may be required in good faith by a bona fide construction,
interim or permanent lender in connection with the financing of the Premises.
(x) Administrative Charge. In addition to Fixed Rent, Adjustments and other
charges hereunder, Tenant shall pay to Landlord an overall administrative charge
of five percent (5%) of any charge which is Tenant's responsibility to pay,
which Landlord pays on behalf of Tenant and for which Landlord subsequently
bills Tenant.
(y) Substituted Premises. Landlord reserves the right on not less than thirty
(30) days' prior written notice to Tenant to substitute other rentable premises
within the Project for the Premises. The substituted premises shall be equal in
size to the Premises (subject to a variation of ten percent (10%)) and shall
contain comparable tenant improvements. The Fixed Rent and Adjustments for the
substituted premises shall be the same as set forth in subparagraphs 5(a) and
5(b) above (using the same Commencement Date), except that the amount thereof
shall be proportionately adjusted to correspond to any increase or decrease in
the size of the substituted premises as compared to the Premises. All other
provisions of this Lease shall remain in full force and effect with respect to
the substituted premises, with the substituted premises thereafter being deemed
the "Premises" and the building in which the substituted premises are located
thereafter being deemed the "Building;" provided, however, Tenant's Share of
Operating Expenses, Insurance Expenses and Property Taxes shall be adjusted to
the percentage which the square footage of the substituted premises is of the
total rentable (i.e. non-common area) square footage (i) of the Building in
which the substituted
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premises are located, or (ii) of the Project, as applicable. Landlord shall pay
all reasonable moving expenses of Tenant incidental to such substitution of
premises.
19. Toxic Materials.
(a) Definitions.
(i) As used in this Lease, the term "Hazardous Material(s)" means
any oil, flammable items, explosives, radioactive materials, hazardous or
toxic substances, material or waste or related materials including,
without limitation, any substances that pose a hazard to the Premises or
to persons on or about the Premises and any substances defined as or
included in the definition of "hazardous substance," "hazardous waste,"
"hazardous material," "toxic substance," "extremely hazardous waste,"
"restricted hazardous waste" or words of similar import, now or
subsequently regulated in any way under applicable federal, state or
local laws or regulations, including without limitation, petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos,
PCBs, urea formaldehyde foam insulation, transformers or other equipment
containing dielectric fluid, levels of polychlorinated biphenyls, or
radon gas, and similar compounds, and including any different products
and materials which are subsequently found to have adverse effects on the
environment or the health and safety of persons.
(ii) As used herein, the term "Environmental Law(s)" means any
one or all of the following: the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (42 U.S.C. (S)(S)9601 et seq.); the
-------
Resource Conservation and Recovery Act as amended (42 U.S.C.
(S)(S)6901, et seq.); the Safe Drinking Water Act as amended (42
-------
U.S.C. (S)(S)300f et seq.); the Clean Water Act as amended (33 U.S.C.
-------
(S)(S)1251 et seq.); the Clean Air Act as amended (42 U.S.C.
-------
(S)(S)7401 et seq.); the Toxic Substances Control Act as amended (15
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U.S.C. (S)(S)136 et seq.); the Solid Waste Disposal Act as amended (42
-------
U.S.C. (S)(S)3251 et seq.); the Hazardous Materials Transportation Act
-------
(49 U.S.C. (S)(S)1801 et seq.); the regulations promulgated under any
-------
of the foregoing; and all other laws, regulations, ordinances, standards,
policies, and guidelines now in effect or hereinafter enacted by any
governmental entity (whether local, state or federal) having jurisdiction
or regulatory authority over the Premises or the Project or over
activities conducted therein and which deal with the regulation or
protection of human health, industrial hygiene or the environment,
including the soil, subsurface soil, ambient air, groundwater, surface
water, and land use.
(iii) As used herein, the term "Environmental Activity(ies)"
means any generation, manufacture, production, pumping, bringing upon,
use, storage, treatment, release, discharge, escaping, emitting,
leaching, disposal or transportation of Hazardous Materials.
(b) Prohibition on Hazardous Materials. Except as specifically provided
in subparagraph (c) below, Tenant shall not cause or permit any Environmental
Activities in, on or about the Premises by Tenant or Tenant's agents, employees,
contractors, assignees, sublessees or invitees (hereinafter cumulatively
referred to as "Tenant's Agents") without the prior written consent of Landlord.
Landlord shall be entitled to take into account such factors or facts as
Landlord may reasonably determine to be relevant in determining whether to
consent to Tenant's proposed Environmental Activity and Landlord may attach
conditions to any such consent if such conditions are reasonably necessary to
protect Landlord's interests in avoiding potential liability upon Landlord or
damage to Landlord's property arising from any Environmental Activity by Tenant
or Tenant's Agents. In no event shall Landlord be required to consent to the
installation or use of any storage tanks on the Property.
(c) Exception to Prohibition. Notwithstanding the prohibition set forth
in subparagraph (b) above, but subject to Tenant's covenant to comply with all
Environmental Laws and with the other provisions of this paragraph 19, Tenant
may bring upon, keep and use in the Premises (but not outside the Premises) (i)
general office supplies typically used in an office or warehouse in the ordinary
course of business, such as copier toner, liquid paper, glue, ink and janitorial
supplies, so long as such supplies are used in the manner for which they were
designed and in such amounts as may be normal for the business operations
conducted by Tenant in the Premiss, and (ii) those Hazardous Materials, if
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any, described on Exhibit D attached hereto and by this reference made a part
hereof so long as Tenant has delivered to Landlord a description of the
handling, storage, use and disposal procedures to be utilized by Tenant with
respect thereto.
(d) Compliance with Environmental Laws. Tenant shall keep and maintain the
Premises in compliance with, and shall not cause or permit the Premises to be in
violation of, any Environmental Laws. All Tenant's activities at the Premises
shall be in accordance with all Environmental Laws. Additionally, Tenant shall
obtain any and all necessary permits for Tenant's activities at the Premises.
Tenant's obligations and liabilities under this paragraph 19 shall continue so
long as Landlord bears any liability or responsibility under the Environmental
Laws for any action that occurs on the Premises during the term of this Lease.
(e) Environmental Notices. Tenant shall immediately notify Landlord of, and
upon Landlord's request shall provide Landlord with copies of, the following:
(i) Any correspondence, communication or notice, oral or written,
to or from any governmental entity regarding the application of
Environmental Laws to the Premises or Tenant's operations on the
Premises including, without limitation, notices of violation, notices
to comply and citations;
(ii) Any reports filed pursuant to any Environmental Law or self-
reporting requirements;
(iii) Any permits and permit applications; and
(iv) Any change in Tenant's operations on the Premiss that will
change or has the potential to change Tenant's or Landlord's
obligations or liabilities under Environmental Laws.
Tenant shall also notify the Landlord of the release of any Hazardous Material
in, on, under, about or above the Premises, the Building, the Property or the
Project.
(f) Environmental Indemnity. Tenant shall protect, indemnify, defend (with
counsel satisfactory to Landlord) and hold harmless Landlord and its directors,
officers, partners, employees, agents, lenders, and ground lessees, if any, and
their respective successors and assigns for, from and against any and all
losses, damages, claims, costs, expenses, penalties, fines and liabilities of
any kind (including, without limitation, the cost of any investigation,
remediation and cleanup, and attorneys' fees) which, in Landlord's reasonable
opinion, are attributable to (i) any Environmental Activity on the Property or
Project or in the Building or Premises undertaken or committed by Tenant or
Tenant's Agents or caused by the negligence of such persons during the Term of
this Lease, (ii) any remedial or clean-up work undertaken by or for Tenant in
connection with Tenant's Environmental Activities or Tenant's compliance with
Environmental Laws, or (iii) the breach by Tenant of any of its obligations and
covenants set forth in this paragraph 19. Landlord shall have the right but not
the obligation to join and participate in, and control, if it so elects, any
legal proceedings initiated in connection with the Environmental Activities of
Tenant or Tenant's agents. Landlord may also negotiate, defend, approve and
appeal any action taken or issued by any applicable governmental authority with
regard to contamination of the Premiss or any portion of the Property or Project
by a Hazardous Material. Any costs or expenses incurred by Landlord for which
Tenant is responsible under this paragraph 19 or for which Tenant has
indemnified Landlord shall be reimbursed by Tenant on demand, as additional rent
and with interest thereon, as provided by subparagraph 17(d) of this Lease.
This indemnity shall survive the termination of this Lease.
(g) Remedial Work. If (i) any Environmental Activity undertaken by Tenant or
Tenant's Agents results in contamination of the Premises, Building, Property or
Project or any portion thereof, or the soil or groundwater thereunder, or (ii)
any investigation, site monitoring, containment, cleanup, removal, restoration
or other remedial work of any kind or nature ("Remedial Work") is necessary or
appropriate due to or in connection with Tenant's use or occupancy of the
Premises, then, subject to Landlord's prior written approval and any conditions
imposed by Landlord, Tenant shall promptly perform all Remedial Work, at
Tenant's sole expense and without abatement of rent, as is necessary to return
the affected portion of the Premises, Building, Property and/or Project and the
soil and groundwater to the condition existing prior to the introduction of the
contaminating Hazardous Material and to otherwise comply with all applicable
Environmental Laws. Landlord's approval of such Remedial Work shall not be
unreasonably withheld so long as such actions will not cause a material adverse
effect on the Premises, Building, Property or Project after expiration of
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the Lease Term or any material adverse effect on the Premises, Building,
Property or Project. Landlord shall also have the right to approve any and all
contractors hired by Tenant to perform such Remedial Work. All such Remedial
Work shall be performed in compliance with all applicable laws, ordinances and
regulations and in such a manner as to minimize any interference with the use
and enjoyment of the Premiss, Building, Property and Project. All costs and
expenses of such Remedial Work shall be paid by Tenant including, without
limitation, the charges of such contractor(s), and the reasonable fees and costs
of the attorneys and consultants for Landlord incurred in connection with
monitoring or review of such Remedial Work.
(h) Landlord's Option. Landlord may elect, at Landlord's sole discretion, to
perform any Remedial Work. Landlord and Landlord's agents shall have the right
to enter the Premiss at all reasonable times to inspect, monitor and/or perform
Remedial Work. All expenses incurred by Landlord in connection with performing
Remedial Work are payable by Tenant, upon Landlord's demand, with interest
thereon, as provided by subparagraph 17(d).
(i) Injunctive Relief. Tenant's failure to abide by the terms of this
paragraph 19 shall be restrainable by injunction.
(j) Self-Help. Landlord shall have the right of "self-help" or similar remedy
in order to minimize any damages, expenses, penalties and related fees or costs
arising from or related to a violation of any Environmental Law with respect to
the Premise or the Project.
(k) Other Tenants. Other tenants of the Project may be using, handling or
storing certain Hazardous Materials in connection with such tenants' use of
their premises. The failure of another tenant to comply with applicable laws
and procedures could result in a release of Hazardous Materials and
contamination to improvements within the Project or the soil and groundwater
thereunder. In the event of such a release, the tenant responsible for the
release, and not Landlord, shall be responsible for any claim, damage or expense
incurred by Tenant by reason of such contamination and Tenant shall exhaust all
its remedies against such other tenant without any right to seek any recovery
against Landlord.
(l) Environmental Inspection. Tenant shall, if reasonably required by
Landlord on account of the activities or suspected activities of Tenant or
Tenant's agents, retain a recognized environmental consultant (the "Consultant")
acceptable to Landlord to conduct an investigation of the Premises and of other
portions of the Project deemed appropriate by Landlord ("Environmental
Assessment") (i) for Hazardous Materials contamination in, about or beneath the
Premises, the Building or the Project as a result of such activities, and (ii)
to assess all Environmental Activities of Tenant and Tenant's Agents on the
Premiss or the Project for compliance with all applicable laws, ordinances and
regulations and for the use of procedures intended to reasonably reduce the risk
of a release of Hazardous Materials. The Environmental Assessment shall be
performed in a manner reasonably calculated to discover the presence of
Hazardous Materials contamination and shall be of a scope and intensity
reflective of the general standards of professional environmental consultants
who regularly provide environmental assessment services in connection with the
transfer or leasing of real property. Additionally, the Environmental
Assessment shall take into full consideration the past and present uses of the
Property and Project and other factors unique to the Property and Project. If
Landlord obtains the Environmental Assessment because of the activities of
Tenant or Tenant's Agents, Tenant shall pay Landlord on demand the cost of the
Environmental Assessment, with interest thereon, as additional rent and in
accordance with subparagraph 17(d). If Landlord so requires, Tenant shall
comply, at its sole cost and expense, with all recommendations contained in the
Environmental Assessment, including any recommendation with respect to the
precautions which should be taken with respect to Environmental Activities on
the Premiss or the Project or any recommendations for additional testing and
studies to detect the presence of Hazardous Materials. Tenant covenants to
reasonably cooperate with the Consultant and to allow entry and reasonable
access to all portions of the Premiss for the purpose of Consultant's
investigation.
(m) Surrender of Premises -- Environmental Considerations. Prior to or after
the expiration or termination of the Lease Term, Landlord may have an
Environmental Assessment of the Property performed in accordance with
subparagraph (l) above. Tenant shall perform, at its sole cost and expense, any
Remedial Work recommended by the Consultant which is necessary to remove,
mitigate or remediate any Hazardous Materials contamination of the Premises,
Building, Property or Project in connection with any Environmental Activities of
Tenant or Tenant's Agents. Prior to surrendering possession of the Premises,
Tenant shall also, unless otherwise directed by Landlord, remove any personal
property, equipment, fixture (except for any fixture installed by Landlord)
and/or storage
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device or vessel on or about the Premises, Building, Property and/or Project
which is contaminated by or contains Hazardous Materials as a result of the
activities of Tenant or Tenant's Agents and repair all damage to the Premises,
the Building and the Project caused by such removal.
IN WITNESS WHEREOF, the undersigned have executed this Lease as of the date
and year first above written.
"LANDLORD" "TENANT"
CH WESTSIDE ASSOCIATES, NEW DIRECTIONS, INC.,
an Arizona General Partnership an Arizona corporation
BY: HEWSON PROPERTIES, INC. BY: /s/ JACK HORNER, SR.
a California Corporation --------------------
Jack Horner, Sr.
Its President
BY: /s/ ERNEST F. MODZELEWSKI
-------------------------
Ernest F. Modzelewski
Its President and Chief Operating Officer
CH WESTSIDE ASSOCIATES, a California
General Partnership, Copley Properties, Inc.,
a Delaware Corporation, General Partner
BY: /s/ STEPHEN H. ANTHONY
----------------------------------
Stephen H. Anthony
Its Vice President
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EXHIBIT 10.7
STOCK PURCHASE AGREEMENT BETWEEN
NEW DIRECTIONS, INC., AN ARIZONA CORPORATION,
AND THE LEE FAMILY PARTNERSHIP, A LIMITED PARTNERSHIP
ORGANIZED UNDER THE LAWS OF THE STATE OF ARIZONA,
DATED JULY 17, 1996
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STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT ("Agreement"), is entered into this 17th day of
July, 1996, (the "Effective Date"), by and among the shareholders of New
Directions, offices and manufacturing facilities located at 2940 West Willetta,
Phoenix, Arizona 85009 (collectively referred to hereinafter as "Shareholders");
New Directions, Inc., an Arizona corporation ("New Directions", "Company" or
"Seller"); and Lee Family Limited Partnership, a limited partnership organized
under the laws of the State of Arizona with offices located at 7113 West Sack
Drive, Glendale, Arizona 85308 ("Lee") or the nominee(s) of Lee (Lee and such
nominee(s) shall collectively be referred to hereinafter as "Buyer").
The parties recite and declare that:
13. Seller is in the business of manufacturing, distributing and marketing
contemporary oak wood furniture throughout the United States and Canada.
14. The Shareholders identified in Schedule A hereto which is incorporated
herein by this reference and made a part of this Agreement, collectively own
100% of the issued and outstanding capital stock of New Direction.
15. Buyer desires to acquire the shares from New Directions upon the terms
and conditions hereinafter set forth, and Seller desires to sell the same to
Buyer upon such terms and conditions.
16. Buyer desires to pay for the shares, and Seller desires to accept as
payment for the shares, the total consideration of $2,280,000.00 to be paid on
an installment basis as provided herein.
For the reasons set forth above, and in consideration of the mutual covenants
herein contained, the parties agree:
SECTION ONE
SALE AND PURCHASE
Subject to the terms and conditions herein set forth, each of the Sellers
shall individually and severally sell his respective shares to Buyer, and Buyer
shall purchase such shares form Sellers. Each Seller owns a beneficial interest
in the share corresponding exactly with the number of shares appearing with his
name as it appears in this Agreement. Buyer shall not be obligated to purchase
any of the shares of common stock of New Direction unless all the shares shall
be delivered to Buyer the \closing in accordance with the provisions of this
Agreement and in proper form for transfer.
SECTION TWO
CONSIDERATION
Seller hereby sells, assigns, transfers, and sets over to the buyer, seller's
____ shares of common stock of New Directions. Buyer hereby purchases said
stock and agrees to pay in consideration thereof:
1. Purchase Price. Buyer shall pay to seller the total purchase price of
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Two Million Two Hundred Eighty Thousand Dollars ($2,280,000.00), said terms to
be as follows:
(a) Cash Payment. One Million Two Hundred Eighty Thousand Dollars
------------
($1,280,000.00) at closing;
(b) Promissory Note. The balance of the purchase price in the amount of
---------------
Eight Hundred Thousand Dollars ($800,000.00) shall be satisfied by note executed
by Buyer and by Company, payable on the basis of sixty (60) equal monthly
installments of principal and interest. Interest at the rate of eight (8%)
percent per annum shall be paid monthly; the first such monthly payment shall be
due on or before October 1, 1996, and each payment thereafter shall be due on or
before the first day of each month for a period of sixty (60) months.
(c) Purchase price shall be allocated as follows: (i) $1,280,000 (the
cash payment) as consideration for the stock; and (ii) $800,000.00 (the
installment payment) as consideration for the non-compete agreement.
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2. Rights Concerning Note. Buyer and comakers upon the above-mentioned note
----------------------
shall have the right during the term thereof, but not before ____, 199_ , to
make prepayments on the unpaid balance without penalty, provide, however, that
such payments shall not act as a release from any obligation to make monthly
payments provided in Section (b) hereof, but hall reduce The principal balance
due. Only the unpaid principal shall bear interest and all payments shall first
be applied upon accrued interest and the balance upon principal.
3. Adjustments to Purchase Price. The total Purchase Price shall be
-----------------------------
adjusted as follows:
(a) Cash Payment. The total amount of the Cash Payment shall be increased
------------
or decreased, respectively, by the identical amount by which the accounts
receivable of New Directions, net of the accounts payable, if any, at Closing,
shall be greater than, or less than, Three Hundred Thousand Dollars
($300,000.00). In addition, it is expressly understood between the parties that
the Seller shall be responsible for any payables existing on the day of closing
and shall from their Cash Payment pay said obligations of the company.
4. Additional Adjustment. the outstanding principal amount of indebtedness
---------------------
subject to the installment purchase as set forth above, shall be decreased on
the first yearly anniversary of the closing date by the sum of (i) the total
amount of accounts receivable of seller as determined by the parties at closing,
which have not been collected by the Seller as of said anniversary date; and
(ii) the total amount of accounts payable and/or any other claims against the
Seller outstanding as of the Closing Date which were not disclosed in writing to
Buyer or in the event were unknown to the Buyer at the time of the Closing.
Additionally, in the event of excess of accounts receivable of New Directions
over accounts payable, if any, (net receivables) at the time of Closing exceeds
$300,000.00, Buyer agrees to pay the full amount of the excess to the Seller as
receivables are collected subsequent to Closing. The Buyer shall pay this
excess to the Seller every 30 days in amounts equal to 50% of total receivables
collected (including those billed subsequent to Closing) until such time as the
amount of the excess is paid in full. In the event net receivables are less
than $300,000.00, the cash payment at the time of closing shall be reduced by
the deficiency.
5. Assets of the Company. As of the Closing Date, the assets of the Seller
---------------------
(the "Assets") including without limitation, all operating and non-operating
assets, all tangible and intangible assets, personal and real property wherever
located, leasehold interests, accounts receivable, bank accounts, customer
deposits, prepaid expenses, contracts, inventory, office and manufacturing
equipment and supplies, business records, customer lists, patents, trademarks,
copyrights, software, computer system designs and documentation, and such other
items as may be identified on Schedule C hereto which is incorporated herein and
----------
made a part of this Agreement by this reference shall be free and clear of all
debts, liens, incumbrances and any other liabilities, except as noted on
Schedule B hereto which is incorporated herein and made a part of this Agreement
- ----------
by this reference.
New company to assume leases on machinery.
6. Closing. The closing ("Closing") of the transaction contemplated by this
-------
Agreement shall take place in New Directions' executive offices in Phoenix, or
at such other place as the parties shall mutually determine, on a date and at
such time as the parties may agree (the "Closing Date"), on or before August 30,
1996 unless the parties agree in writing to such other date later in time than
August 30, 1996.
7. Closing Events.
--------------
(a) Shareholder's Deliveries. Subject to fulfillment or waiver of the
------------------------
conditions set forth in Section Five, at Closing, Shareholders shall deliver to
Buyer all of the following:
(i) Certificates representing all shares, duly endorsed in blank
with signatures guaranteed to the satisfaction of Buyer and any other documents
of transfer and title reasonably requested by Buyer;
(ii) All stock books, stock ledgers, seals, minute books and other
records and other documents required of Seller for closing the sale and purchase
hereunder;
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(iii) The certificate contemplated by Section Five-1, duly executed
by an authorized Officer of New Directions; and
(iv) The certificate contemplated by Section Five-2, dated the
Closing Date, signed by the Chief executive officer and principal accounting and
financial transaction contemplated hereby.
8. Effect of Purchase. As of the Closing Date and until such time as Buyer
------------------
or the authorized representative(s) of Buyer may elect to make any changes
thereto:
(a) The Company. The Shareholders shall relinquish and Buyer shall
-----------
acquire all right, title and interest to and in the Shares of the Company. The
members of the board of directors of the Company shall each resign and be
replaced by the nominee(s) of Buyer.
(b) Management and Employees. Prior to Closing, Buyer shall negotiate
------------------------
an employment contract and bonus plan with Jack Horner, Jr. and other selected
employees of the Company. All other managers and employees of the Company as of
the Closing Date shall continue in their roles, duties and responsibilities
pursuant to their respective employment agreement(s), whether written or oral,
with the Company, and the Company shall continue to be bound by the terms of
such agreement(s) including any enforceable severance provisions which have not
been violated, waived or otherwise invalidated by the respective beneficiary
thereof, but may negotiate new agreement with such managers and/or employees
which may include non-disclosure and/or noncompete provisions. In addition,
Buyer may cause additional managers and/or employees to be hired by the Company
for various offices and/or responsibilities.
(c) Operations. The Company shall continue its operations in all
----------
material respects as it did prior to the Closing Date except that the officers
of the Company shall report to and be responsible to the board of directors
nominated by Buyer.
(d) Covenant Not to Compete. Except as may be expressly consented to by
-----------------------
Buyer, Shareholders covenant and agree for the benefit of Buyer and their
successors and assigns that for a period of five (5) years after Closing,
Shareholders will not engage or participate, directly or indirectly, as
principal, agent, employee, employer, consultant or in any other individual or
representative capacity whatever, in the conduct or management of, or own
(legally or beneficially) or have the right or option to acquire, any direct or
indirect interest in any business of manufacturing, distributing or marketing
like product; however, it is expressly agreed and understood by the parties that
the Shareholders may engage, directly or indirectly, in the business of retail
furniture sales and/or the manufacture, distribution and marketing of furniture
components, and this noncompete provision shall not apply to such activities or
enterprises if engaged or participated in by any Shareholder.
Additionally, for a period of five (5) years following Closing,
Shareholders will not either directly or indirectly: (i) call on, solicit, or
take away any of the customers or suppliers of the Company or its successors and
assigns either for any Shareholder or for any other person, association or
entity; or (ii) solicit or take away any employees of the Company or its
successors and assigns either for any Shareholder or for any other persons,
association or entity. Shareholders specifically acknowledge and agree that the
foregoing covenants are reasonable in content and scope and are given for
adequate consideration. Buyer shall have the option to reduce the scope and
extent of the foregoing covenants, by written notice to Shareholders, either
before or after any adjudication of the holders, either before or after any
adjudication of the legality of said covenants, whereupon said covenants, as so
reduced, shall be binding and enforceable against Shareholders.
9. Termination.
-----------
(a) This Agreement may be terminated by Buyer at any time prior to the
Closing Date if:
(i) A review of all financial and corporate information, proof of
ownership of assets, accounts receivable, bank statements and copies of deeds,
liens, mortgages, a certificate of good standing dated on or after the date of
this Agreement, and any other documents that may be reasonably required by Buyer
to make an accurate determination of the status and value of the Company and to
discharge Buyer's obligation of due diligence causes Buyer
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to make a reasonable determination that this transaction is not in its best
interests. Should Buyer so determine, Buyer may propose an amendment hereto
agreeable to both parties or may terminate this Agreement with no further
obligation;
(ii) There shall be any actual or threatened action or proceeding
before any court or any governmental body which shall seek to restrain,
prohibit, or invalidate the transaction contemplated by this Agreement and
which, in the judgment of Buyer, made in good faith and based upon the advise of
its legal counsel, makes it inadvisable to proceed with the acquisition
contemplated by this Agreement; or
(iii) Any of the transactions contemplated hereby are disapproved by
any regulatory authority whose approval is required to consummate such
transactions or in the judgment of Buyer, made in good faith and based on the
advice of counsel, there is substantial likelihood that any such approval will
not be obtained or will be obtained only on a condition or conditions which
would be unduly burdensome, making it inadvisable to proceed with the
acquisition.
In the event of termination pursuant to this Subsection 8(a), no obligation,
right, or liability shall arise hereunder, and each party shall bear all of the
expenses hereunder, and each party shall bear all of the expenses incurred by it
in connection with the negotiation, preparation, and execution of this Agreement
and the transaction contemplated hereby.
(b) This Agreement may be terminated at any time prior to the Closing Date
by action of Buyer if the Shareholders shall fail to comply with any material
respect with any of its covenants or agreements contained in this Agreement or
if any of the representations or warranties of Buyer contained herein shall be
inaccurate or incomplete in any material respect. In the event of termination
pursuant to this Subsection 9(b), no obligation, right, remedy, or liability
shall arise hereunder. Shareholders and Buyer shall each bear their own costs
incurred in connection with the negotiation, preparation, and execution of this
Agreement and the transaction contemplated hereby.
(c) This Agreement may be terminated at any time prior to the Closing Date
by action of the board of directors of Shareholders if Buyer shall fail to
comply in any material respect with any of its covenants or agreements contained
in this Agreement, or if any of the representations or warranties of Buyer
contained herein shall be inaccurate in any material respect. In the event of
termination pursuant to this Subsection 9(c), no obligation, right, remedy, or
liability shall arise hereunder. Shareholders and Buyer shall each bear their
own costs incurred in connection with the negotiation, preparation and execution
of this Agreement and the transaction contemplated hereby.
SECTION THREE
REPRESENTATIONS, COVENANTS AND
WARRANTIES OF SHAREHOLDERS
As an inducement to and to obtain the reliance of Buyer, Shareholders
represent and warrant as follows:
1. Organization. The Company is, and will be on the Closing Date, a
------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Arizona and has the corporate power, and is and will be
duly authorized, qualified, franchised, and licensed under all applicable laws,
regulations, ordinances, and orders of public authorities, to own all of its
properties and assets and to carry on its business in all material respects as
it is now being conducted, and there are no other jurisdictions in which it is
not so qualified in which the character and location of the assets owned by it
or the nature of the material business transacted by it requires qualification,
except where failure to do so would not have a material adverse effect on its
business, operations, properties, assets, or condition. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof will not,
violate any provision of Shareholder's articles of incorporation or bylaws, or
other agreement to which it or the Company is a party or by which it or the
Company is bound.
2. Approval of Agreements.
----------------------
(a) Shareholders have full power, authority, and legal right and has
taken, or shall take, all action required by law, the Company's articles of
incorporation, bylaws, and otherwise to execute and deliver this Agreement and
to consummate the transaction herein contemplated. The board of directors of the
Company have authorized and
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approved the execution, delivery, and performance of this Agreement and the
transaction contemplated hereby. Included in Schedule _______ is a certified
copy of resolutions duly adopted by the board of directors of the Company
evidencing such approval. This Agreement has been duly authorized, executed,
and delivered by Shareholders and is the legal, valid and binding obligation of
Shareholders, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, or other laws affecting
enforcement of creditors' rights generally and by general principles of equity.
(b) Likewise, each of the Shareholders has full power, authority and
legal right to consummate the transaction herein contemplated and does so with a
full and complete understanding of said transaction. Each Shareholder will have
and deliver to Buyer at Closing good and marketable title to his or her
respective Shares free and clear of all security interests, financing
statements, pledges, liens, conditional sales agreements, encumbrances, charges,
proxies, agreements among shareholders, claims, restrictions, qualifications,
limitations or rights of any kind and will have at Closing the right, power and
authority to transfer his or her Shares without breach or default with respect
to any contract, agreement, commitment, or undertaking by which Shareholders or
the Shares are bound.
(c) The execution and deliver of this Agreement, the consummation of the
transaction contemplated hereby, and the fulfillment of the terms hereof by
Shareholders and the Company, (i) do not violate or conflict with, and will not
result in a breach or default, or in any occurrence that, with a lapse of time
or action by a third party or both, could result in a breach of default with
respect to any Agreement or any contract, agreement, commitment, or undertaking,
either written or oral, by which any of the Shareholders are a party or are
bound; (ii) will not violate any applicable foreign or domestic law or public
policy; (iii) will not result in an acceleration or increase of any amounts due
from the Company; and (iv) will not result in an alteration to the detriment of
the Company of the terms or conditions of any agreement, insurance policy or
registration. No contract, agreement, commitment, or undertaking, either oral
or written, or judgment, order, writ, injunction or decree exists that in any
other or performance of this Agreement, the transferability of the Shares, or
the business or assets of the Company.
3. Capitalization. The authorized capitalization of the Company consists of
--------------
_______________ (______) shares of preferred stock, par value $__________ per
share, __________ of which are issued and outstanding as of the Closing Date and
_________________ (__________) shares of Common Stock, par value $___________
per share. __________________ (________) shares of which shall be issued and
outstanding as of the Closing Date, (collectively referred to herein as the
"Shares"). All issued and outstanding shares of the Company shall be legally
issued, fully paid, and nonassessable and not issued in violation of the
preemptive or other right of any person as of the Closing Date. There are no
dividends or other amounts due or payable with respect to any of the shares of
the Company.
4. Financial Statements.
--------------------
(a) Included in Schedule _____ are the unaudited balance sheets of the
Company as of _________________, 1995 and 1994, and the statements of
operations, stockholders' equity and cash flows for the years ended
______________ 31, 1995 and 1994, including the notes thereto. The information
referred to in Section ________ also includes the unaudited balance sheet of the
Company as of ___________ _____, 1996, and the related statements of operations,
cash flows, and stockholders' equity for the _____ months ended _____________
31, 1996, and 1995, together with the notes thereto and representations by the
principal accounting and financial officer of the Company to the effect that
such financial statements contain all adjustments (all of which are normal
recurring adjustments) necessary to present fairly the results of operations and
financial position for the periods and as of the dates indicated.
(b) All such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved as explained in the notes to such financial statements. The
Company's balance sheets present fairly, in all material respects, as of their
respective dates, the financial position of the Company. The Company did not
have, as of the date of any such balance sheets, except as and to the extent
reflected or reserved against therein, any liabilities or obligations (absolute
or contingent) which should be reflected in a balance sheet or the notes thereto
and all assets reflected therein present fairly assets of the Company in
accordance with generally accepted accounting principles under which they were
prepared. The consolidated statements of operations, shareholders' equity and
cash flows present fairly the consolidated financial position and results of
operations of the Company as of the respective dates and for the respective
periods covered thereby. The Company shall continue
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to maintain a standard system of accounting established and maintained in a
manner permitting the preparation of the financial statements in accordance with
generally accepted accounting principles under which they were prepared.
(c) The books and records, financial and otherwise, of the Company are in
all material respects complete and correct and have been maintained in
accordance with sound business and bookkeeping practices so as to the accurately
and fairly reflect, in reasonable detail, the transactions in and dispositions
of the assets of the Company. The Company has maintained a system of internal
accounting controls sufficient to provide reasonable assurances that (i) any
transactions have been and are executed in accordance with management's general
or specific authorization; (ii) such transactions are recorded as necessary to
permit the preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such
statements and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
(d) The Company has filed or will have filed as of the Closing Date all
tax returns required to be filed by it from inception to the Closing Date. All
such returns and reports are accurate and correct in all material respects. The
Company has no liabilities with respect to the payment of any federal, state,
county, local, or other taxes (including any deficiencies, interest, or
penalties) accrued for or applicable to the period ended on the date of the most
recent unaudited balance sheet of the Company, except to the extent reflected on
such balance sheet and adequately provided for, and all such dates and years and
periods prior thereto and for which the Company may at said date have been
liable in its own right or as transferee of the assets of, or as successor to,
any other corporation or entity, except for taxes accrued but not yet due and
payable, and no deficiency assessment or proposed adjustment of any such tax
return is pending, proposed or contemplated. Proper and accurate amounts of
taxes shall have been withheld by or on behalf of the Company with respect to
all compensation paid to employees of the Company for all periods ending on or
before the Closing Date, and all deposits required with respect to compensation
paid to such employees shall have been made, in complete compliance with the
provisions of all applicable federal, state, and local tax and other laws.
Shareholders have not made any election pursuant to the provisions of any
applicable tax laws (other than elections that relate solely to methods of its
financial condition, its business as presently conducted or proposed to be
conducted, or any of their respective properties or material assets. There are
no tax liens upon any of the assets of the Company. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return to the Company.
5. Information. The information concerning the Company set forth in this
-----------
Agreement and in the Schedules, Exhibits and other information delivered by
Shareholders pursuant hereto was, as of the respective dates of such
information, complete and accurate in all material respects and did not contain
any untrue statement of a material fact or omit to state a material fact
required to make the statements made, in light of the circumstances under which
they were made, not misleading. Shareholders shall cause the schedules
delivered by it pursuant hereto and the instruments and data delivered to Buyer
hereunder to be updated after the date hereto up to and including the Closing
Date.
6. Options or Warrants. There shall be no warrants or options, other calls,
-------------------
or commitments of any character relating to the authorized and unissued Company
Stock as of the Closing Date.
7. Absence of Certain Changes or Events. Except as set forth in Schedule
------------------------------------
________ herein, since the date of the Company's most recent balance sheet
described in Section Three-4 and included in the information referred to in
Section Three-5:
(a) There has not been (i) any material adverse change in the business,
operations, properties, level of inventory, assets, or condition of the Company
taken as a whole or (ii) any damage, destruction, or loss to the Company
(whether or not covered by insurance) materially and adversely affecting the
business, operations, properties, assets, or conditions of the Company taken as
a whole.
(b) Shareholders have not (i) amended the Company's articles of
incorporation or bylaws; (ii) declared or made, or agreed to declare or make,
any payment of dividends or distributions of any assets of any kind whatsoever
to stockholders or purchased or redeemed, or agreed to purchase or redeem, any
of the Company's capital stock; (iii) waived any rights of value which in the
aggregate are extraordinary or material considering the business of
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the Company; (iv) made any material change in the Company's method of
management, operation, or accounting; (v) entered into any other material
transactions; (vi) made any accrual or arrangement for or payment of bonuses or
special compensation of any kind or any severance or termination pay to any
present or former officer or employee; (vii) increased the rate of compensation
payable or to become payable by it to any of the Company's officers or directors
or any of its employees whose monthly compensation exceeds $1,000.00; or (viii)
made any increase in any profit-sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with the Company's officers, directors, or
employees. New Company understands that all bank accounts will have less than
($21.00) Twenty One Dollars at the time of Closing.
(c) Shareholders have not (i) granted or agreed to grant any options,
warrants, or other rights for their stocks, bonds, or other corporate securities
calling for funds or incurred, or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the ordinary
course of business; (iii) paid any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the
Company's most recent balance sheet and current liabilities incurred since that
date in the ordinary course of business; (iv) sold or transferred, or agreed to
sell or transfer, any of the Company's assets, properties, or rights (except
assets, properties, or rights not used or useful in its business which , in the
aggregate have a value of less than $5,000) or canceled, or agreed to cancel,
any debts or claims (except debts and claims which in the aggregate are of a
value of less than $5,000); (v) made or permitted any amendment or termination
of any contract, agreement, or license to which the Company is a party is such
amendment or termination is material, considering the business of the Company;
or (vi) issued, delivered, or agreed to issue or delivery any stock, bonds, or
other corporate securities including debentures (whether authorized and unissued
or held as treasury stock); and
(d) To the best knowledge of Shareholders, the Company is not subject to
any law or regulation which materially and adversely affects, or in the future
may adversely affect, the business, operations, properties or assets of the
Company.
8. Title and Related Matters. Except as disclosed in Schedule _____ hereto
-------------------------
or the Company's most recent unaudited balance sheet and the notes thereto, the
Company has good marketable title to all of its properties, inventory, interests
in properties, and assets, which are reflected in the Company's most recent
balance sheet or acquired after that date (except those sold or otherwise
disposed of since such date in the ordinary course of business), free and clear
of all mortgages, security interests, royalties, liens, pledges, charges, or
encumbrances, except (i) statutory liens or claims not yet delinquent; and (ii)
such imperfections of title and easements as do not, and will not, materially
detract from, or interfere with, the present or proposed use of the properties
subject thereto or affected thereby or otherwise materially impair present
business operations on such properties.
9. Litigation and Proceedings. Except as set forth in Schedule ______
--------------------------
hereto, there are no actions, suits, administrative or other proceedings pending
or, to the knowledge of Shareholders, threatened by or against the Company or
affecting the Company or its properties, at law or in equity, before any court
or other governmental agency or instrumentality, domestic or foreign, or before
any arbitrator of any kind. Shareholders do not have any knowledge of any
default on its part with respect to any judgment, order, writ, injunction,
decree, award, rule, or regulation of any court, arbitrator, or governmental
agency or instrumentality.
10. Contracts. Except as set forth in Schedule ______ hereto:
---------
(a) All contracts, agreements, franchises, license agreements, and other
commitments to which the Company is a party or by which their properties are
bound and which are material to the operations or financial condition of the
Company are valid and enforceable by Shareholders in all material respects.
(b) The Company is not a party to or bound by, and its properties are not
subject to, any material contract, agreement, other commitment or instrument;
any charter or other corporate restriction; or any judgment, order, writ,
injunction, decree, or award which materially and adversely affects, or in the
future may (as far as Shareholders can now foresee) materially and adversely
affect, the business, operations, properties, assets, or condition of the
Company.
(c) The Company is not a party to any oral or written (i) contract for
the employment of any officer, director, or employee which is not terminable on
30 days (or less) notice; (ii) profit-sharing, bonus, deferred
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compensation, stock option, severance pay, pension benefit or retirement plan,
agreement, or arrangement covered by Title IV of the Employment Retirement
Income Security Act, as amended; (iii) agreement contract, or indenture relating
to the borrowing of money; (iv) guarantee of any obligation, other than one on
which the Company is a primary obligor, for the borrowing of money or otherwise,
excluding endorsements made for collection and other guarantees of obligations,
which, in the aggregate do not exceed $1,000; (v) consulting or other similar
contract with an unexpired term or more than one year or providing for payments
in excess of $1,000 in the aggregate; (vi) collective bargaining agreement;
(vii) agreement with any present or former officer or director of the Company;
or (viii) contract, agreement, or other commitment involving payments by it of
more than $1,000 in the aggregate.
11. Material Contract Defaults. The Company is not in default in any
--------------------------
material respect under the terms of any outstanding contract, agreement, lease,
or other commitment which is material to the business, operations, properties,
assets, or condition of the Company taken as a whole, and there is no event of
default or other event which, with notice or lapse of time or both, would
constitute a default in any material respect under any such contract, agreement,
lease, or other commitment in respect of which Shareholders have not taken
adequate steps to prevent such a default from occurring.
12. No Conflict With Other Instruments. The execution of this Agreement and
----------------------------------
the consummation of the transaction contemplated by this Agreement will not
result in the breach of any term or provision of, or constitute an event of
default under, any material indenture, mortgage, deed of trust, or other
material contract, agreement, or instrument to which the Company is a party or
to which any of its properties or operations are subject.
13. Governmental Authorizations. The Company has all licenses, franchises,
---------------------------
permits, and other governmental authorizations that are legally required to
enable it to conduct its businesses in all material respects as conducted on the
date of this Agreement. Except for the satisfaction of requirements of federal
and state securities and corporation laws, as hereinafter provided, no
authorization, approval, consent, or order of, or registration, declaration, or
filing with, any court or other governmental body is required in connection with
the execution and delivery by Shareholders of this Agreement and the
consummation by Shareholders of the transaction contemplated hereby.
14. Compliance With Laws and Regulations. The Company has complied with all
------------------------------------
applicable statutes and regulations of any federal, state, or other governmental
entity or agency thereof, except to the extent that noncompliance would not
materially and adversely affect the business, operations, properties, assets, or
condition of the Company taken as a whole or except to the extent that
noncompliance would not result in the occurrence of any material liability for
the Company.
15. Insurance. All of the insurable properties of the Company are insured
---------
for its benefit in the amount of full replacement value (subject to reasonable
deductibles) against losses due to fire and other casualty, with extended
coverage, and other risks customarily insured against by persons operating
similar properties in the localities where such properties are located and under
valid and enforceable policies issued by insurers of recognized responsibility.
Such policy or policies containing substantially equivalent coverage will be
outstanding and in full force at the closing Date, and copies of said policy or
policies will have been delivered to Buyer prior to Closing.
16. Employee Relations. The Company has complied in all material respects
------------------
with all applicable laws, rules and regulations that relate to prices, wages,
hours harassment, disabled access, and discrimination in employment and
collective bargaining and to the operation of its business and is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. Shareholders believe that its relations with its employees are
satisfactory.
17. Indemnification. Officers and Directors of the Company will be
---------------
indemnified as provided for in the Company's Articles of Incorporation and/or
Bylaws.
18. Environmental Matters. Attached hereto as Schedule ___ is a complete and
---------------------
accurate written disclosure with respect to all environmental matters under
federal, state or local law relating to the assets or the business operations of
the Company, or arising from the Company's use or occupancy of property,
directly or indirectly, including without limitation any matters relating to
air, ground, and water pollution or regulation, soil monitoring, occupational
health or safety or the storage, treatment, disposal, release, discharge or
emission of any solid waste, pollutant or contaminant of
8
<PAGE>
any kind, including without limitation any hazardous substance or any hazardous
waste, together with a list of all permits, licenses, authorizations,
agreements, injunctions, decrees and orders relating thereto, and copies of any
and all written communications with federal, state and local environmental
regulatory agencies and the Occupational Safety and Health Administration. The
assets and business operations of the Company have been, and are being, used and
operated in compliance with all applicable local, state and federal laws,
ordinances, rules, regulations, permits, licenses, authorizations, agreements,
injunctions, decrees and orders relating to air, ground and water pollution or
regulation; soil monitoring; occupational health or safety; or the storage,
treatment, disposal, release, discharge or emission of any hazardous substances.
No hazardous substances have been disposed of on the properties leased by the
Company and no hazardous substances have been transported by or on behalf of the
Company or in connection with its business operations. Except as expressly
provided in Schedule ______ hereto, the Company and its assets are not, directly
or indirectly, subject to any obligations, liabilities (contingent or
otherwise), claims, judgments, orders, settlements, resolutions of disputes,
writs, injunctions or decrees relating to any product or service sold or
available for sale by the Company, or arising from its use or occupancy of its
properties. There are no threatened or pending litigation, proceedings,
investigations, citations, or notices of violation resulting from the business
activities of the Company, or arising from its use or occupancy of property,
relating to the treatment, storage, disposal, release, discharge or emission of
any economic poisons, hazardous wastes, toxic substances and/or any similar such
pollutants or contaminants. Schedule _____ hereto contains a complete list of
all agreements, contracts, commitments and undertakings involving the Company
and its business or assets relating to the treatment, storage, disposal or
discharge of any economic poisons, hazardous wastes, toxic substances and/or any
similar such pollutants or contaminants. There are no proceedings,
investigations, citations, or notices of violations resulting from the business
activities of the Company, or from or relating to the properties occupied by the
Company, directly or indirectly, relating to the treatment, storage, disposal,
release, discharge or emission of any economic poisons, hazardous wastes, toxic
substances and/or any similar such pollutants or contaminants.
SECTION FOUR
SPECIAL COVENANTS TO BE
SATISFIED PRIOR TO CLOSING
1. Activities of Shareholders and Buyer.
------------------------------------
(a) From and after the date of this Agreement until the Closing Date and
except as set forth in the respective schedules to be delivered by Shareholders
and Buyer pursuant hereto Company and Buyer shall each:
(i) Carry on its business in substantially the same manner as it
has heretofore;
(ii) Maintain in full force and effect insurance comparable in
amount and in scope of coverage to that now maintained by it;
(iii) Perform in all material respects all of its obligations under
material contracts, leases, and instruments relating to or affecting its assets,
properties, and business;
(iv) Use its best efforts to maintain and preserve its business
organization intact, to retain its key employees, and to maintain its
relationships with its material supplies and customers;
(v) Duly and timely file for all taxable periods through 6/30/96 on
or prior to the Closing Date, all federal, state, county, and local tax returns
required to be filed by or on behalf of such entity or for which such entity may
be held responsible and shall pay, or cause to pay, all taxes required to be
shown as due and payable on such returns, as well as all installments of tax due
and payable during the period commencing on the date of this Agreement and
ending on the Closing Date. All such tax returns shall be prepared in a manner
consistent with the preparation of prior years' tax returns except as required
by law or as agreed to by the parties hereto prior to the filing thereof;
(vi) Withhold from each payment made on or prior to the Closing Date
to each employee of such corporation the amount of all taxes required to be
withheld therefrom and will pay the same, before becoming delinquent, to the
proper tax receiving officers; and
9
<PAGE>
(vii) Fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal, state, county and local
laws and all rules, regulations, and orders imposed by federal, state, county
and local governmental authorities.
(b) From and after the date of this Agreement, and except as provided herein
until the Closing Date, Shareholders shall not:
(i) Make any change in the articles of incorporation or bylaws of the
Company;
(ii) Take any action described in Section Three-7.;
(iii) Enter into or amend any contract, agreement, or other instrument
of any of the types described in Shareholders schedules hereto, except that the
Company may enter into or amend any contract, agreement, or other instrument in
the ordinary course of business; or
(iv) Enter into any agreement, waiver, or other arrangement providing
for an extension of time with respect to payment by, or assessment against, such
entity or any of its subsidiaries of any tax due and payable with respect to the
period commencing on the date of this Agreement and ending on the Closing Date.
2. Shareholders Approval. Subsequent to the execution and delivery of this
---------------------
Agreement, Shareholders shall, either by a unanimous consent or at a meeting
fully called by the board of directors of the Company to be held as soon as
practicable, present this Agreement for the authorization and approval of the
Shareholders of the Company, in accordance with the applicable provisions of the
laws of the State of Arizona and all applicable federal and state securities
laws and this Agreement.
3. Access to Properties and Records. Shareholders will afford to the
--------------------------------
officers and authorized representatives of Buyer full access to the properties,
books, and records of the Company in order that Buyer may have full access to
the properties, books, and records of the Company in order that Buyer may have
full opportunity to make such reasonable investigation as it shall desire to
make of the affairs of the Company and will furnish Buyer with such additional
financial and operating data and other information as to the business and
properties of the Company as Buyer shall from time to time reasonably request.
4. Indemnification By Buyer. Buyer shall indemnify and hold Shareholders and
------------------------
its directors and officers, and each person, if any, who controls the Company
within the meaning of the Securities Act, harmless from and against any and all
losses, claims, damages, expenses, liabilities, or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any application or statement filed with a governmental body or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary in order to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information furnished
in writing by Shareholders expressly for use therein. Buyer agrees at any time
upon the request of Shareholders to furnish to them a written letter or
statement confirming the accuracy of the information with respect to Buyer
contained in any report or other application or statement referred to in this
Section four, or in any draft of any such documents, and confirming that the
information with respect to Buyer contained in such document or draft was
furnished by Buyer, indicating the inaccuracies or omissions contained in such
document or draft or indicating the information not furnished by Buyer expressly
for use therein. The indemnity agreement continued in this Section Four-5 shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of Shareholders and shall survive the consummation of the
transaction contemplated by this Agreement.
5. Indemnification by Shareholders. Shareholders shall indemnify and hold
-------------------------------
harmless Buyer, its directors and officers, and each person, if any, who
controls Buyer within the meaning of the Securities Act, from and against any
and all losses, claims, damages, expenses, liabilities, or actions to which any
of them may become subject under applicable law (including the Securities Act
and the Exchange Act) and will reimburse them for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
claims or actions, whether or not resulting in liability, insofar as such
losses, claims, damages, expenses, liabilities, or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any application or statement filed with a
10
<PAGE>
governmental body or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing by Shareholders expressly for
use therein. Shareholders agree at any time upon the request of Buyer to
furnish to it a written letter or statement confirming the accuracy of the
information with respect to the company contained in any information/proxy
statement, report, or other application or statement referred to in this Section
Four, on in any draft of any such document, and confirming that the information
with respect to the company contained in such document or draft was furnished by
the Company, indicating the inaccuracies or omissions contained in such document
or draft or indicating the information not furnished by Shareholders expressly
for use therein. the indemnity agreement contained in this Section Four-6 shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of Buyer and shall survive the consummation of the
transaction contemplated in this agreement.
6. Third-Party Consents. Shareholders and Buyer agree to cooperate with
--------------------
each other in order to obtain any third-party consents to this agreement and the
transaction herein contemplated that are required.
SECTION FIVE
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the satisfaction,
at or before the Closing Date, of the following conditions:
1. Accuracy of Representations. The representations and warranties made
---------------------------
by Shareholders in this Agreement were true when made and shall be true at the
Closing Date with the same force and effect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement), and Shareholders shall have preformed or complied
with all covenants and conditions required by this Agreement to be performed or
complied with by Shareholders prior to or at the Closing. Buyer shall be
furnished with certificates, signed by duly authorized officers of the Company
and dated the Closing Date, to the foregoing effect.
2. Officer's Certificates. Buyer shall have been furnished with
----------------------
certificates dated the Closing Date and signed by the duly authorized chief
executive officer and principal accounting and financial officer of the Company
to the effect that, except as set forth herein, no litigation, proceeding,
investigation, or inquiry is pending or, to the best knowledge of Shareholders,
threatened, which might result in an action to enjoin or prevent the
consummation of the transaction contemplated by this Agreement. Furthermore,
based on certificates of good standing, representations of government agencies,
and Shareholder's own documents, the certificate shall represent that:
(a) This Agreement has been duly approved by the Company's board of
directors and has been duly executed and delivered in the name and on behalf of
the Company by its duly authorized officers pursuant to, and in compliance with,
authority granted by the board of directors of the Company;
(b) The representations and warranties of Shareholders set forth in this
Agreement are true and correct as of the date of the certificate;
(c) There have been no material adverse changes in the Company up to and
including the date of the certificate;
(d) All conditions required by this Agreement to have been met, satisfied,
or performed by Shareholders have been met;
(e) The consummation of the transaction contemplated by this Agreement
does not violate any law, regulation, order, writ, injunction, or decree of any
court of governmental body or result in the creation or imposition of any
mortgage, lien, charge, or encumbrance of any nature upon any of the properties
of the Company, pursuant to any mortgage, resolution, agreement, or instrument
to which the Company is a party;
(f) All authorizations, consents, approvals, registrations, and/or filings
with any governmental body, agency, or court required in connection with the
execution and delivery of the documents by Shareholders have
11
<PAGE>
been obtained and are in full force and effect or, if not required to have been
obtained, will be in full force and effect by such time as may be required; and
(g) There are no legal actions, lawsuits, proceedings, inquiries, or
investigations at law or in equity by any public board or body pending or
threatened against the Company, wherein an unfavorable decision, ruling, or
finding would have an adverse effect on the financial condition of the company,
the operation of the Company, or the acquisition and reorganization contemplated
herein, or any material agreement or instrument by which the Company is bound or
would in any way contest the existence of the Company. In an abundance of
caution, Buyer is advised that on June 7, 1996, Seller received notice of an
injury as a result of a furniture item falling on an individual in the State of
Florida. This matter has been submitted to the insurance liability company of
the Seller for their adjusting.
3. No Material Adverse Change. Prior to the Closing Date, there shall not
--------------------------
have occurred any material adverse change in the financial condition, business,
or operations of the Company, nor shall any event have occurred with, with the
lapse of time or the giving of notice, may cause or create any material adverse
change in the financial condition, business, or operations of the Company.
4. Good Standing. Buyer shall have received certificates of good standing
-------------
from the appropriate authorities, dated as of a date within thirty (30) days
prior to the Closing Date, or any other date satisfactory to Buyer, certifying
that the Company is in good standing as a corporation in the State of Arizona.
5. Shareholder Approval. The Shareholders of the Company shall have
--------------------
approved this Agreement and the transaction contemplated therein in the manner
required by the Company's articles of incorporation and bylaws and the Arizona
Business Corporation Act, as applicable.
6. Due Diligence. Buyer shall have completed a due diligence review of
-------------
the Company and be satisfied as to the Company's documentation and financial
position.
7. Other Items. Buyer shall have received such further documents,
-----------
certificates, or instruments relating to the transaction contemplated hereby as
Buyer may reasonably request.
SECTION SIX
CONDITIONS PRECEDENT TO
OBLIGATIONS OF SHAREHOLDERS
The obligations of Shareholders under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
1. Accuracy of Representations. The representations and warranties made
---------------------------
by Buyer in this Agreement were true when made and shall be true at the Closing
date with the same force and effect as if such representations and warranties
were made at and as of the Closing Date (except for changes therein permitted by
this Agreement), and Buyer shall have performed or complied with all covenants
and conditions required by this Agreement to be performed or complied with by
Buyer prior to or at the Closing. Shareholders shall be furnished with a
certificate, signed by a duly authorized officer of Buyer and dated the Closing
Date, to the foregoing effect.
2. Officer's Certificates. Shareholders shall have been furnished with
----------------------
certificates dated the Closing Date and signed by a duly authorized agent of
Buyer to the effect that no litigation, proceeding, investigation, or inquiry is
pending or, to the best knowledge of Buyer, threatened, which might result in an
action to enjoin or prevent the consummation of the transaction contemplated by
this Agreement. Furthermore, based on certificates of good standing,
representations of government agencies, and Buyer's own documents, the
certificate shall represent that:
(a) This Agreement has been duly approved by Buyer and has been duly
executed and delivered in the name and on behalf of Buyer by its duly authorized
representative pursuant to, and in compliance with, authority granted by the
Buyer;
12
<PAGE>
(b) The representations and warranties of Buyer set forth in this Agreement
are true and correct as of the date of the certificate;
(c) Except as provided or permitted herein, there have been no material
adverse changes in Buyer up to and including the date of the certificate;
(d) All conditions required by this Agreement to have been met, satisfied,
or performed by Buyer have been met;
(e) The consummation of the transaction contemplated by this Agreement does
not violate any law, regulation, order, writ, injunction or decree of any court
of governmental body or result in the creation or imposition of any mortgage,
lien, charge, or encumbrance of any nature upon any of the properties of Buyer,
pursuant to any mortgage, resolution, agreement, or instrument to which Buyer is
a party;
(f) All authorizations, consents, approvals, registrations, and/or fillings
with any governmental body, agency, or court required in connection with the
execution and delivery of the documents by Buyer have been obtained and are in
full force and effect or, if not required to have been obtained will be in full
force and effect by such time as may be required; and
(g) There is no action, suit, proceeding, inquiry, or investigation at law
or in equity by any public board or body pending or threatened against Buyer
herein an unfavorable decision, ruling or finding would have an adverse effect
on the financial condition of Buyer the operation of Buyer, or the acquisition
and reorganization contemplated herein, or any material agreement or instrument
by which Buyer is bound or would in any way contest the existence of Buyer.
3. No Material Adverse Change. Except as provided or permitted herein,
--------------------------
prior to the Closing Date, there shall not have occurred any material adverse
change in the financial condition, business, or operations of Buyer, nor shall
any event have occurred which, with the lapse of time or the giving of notice,
may cause or create any material adverse change in the financial condition,
business, or operations of Buyer.
4. Other Items. Shareholders shall have received such further documents,
-----------
certificates, or instruments relating to the transaction contemplated hereby as
Shareholders may reasonably request.
SECTION SEVEN
MISCELLANEOUS
1. Brokers. Shareholders and Buyer agree that there were no finders or
-------
brokers involved in bringing the parties together or who were instrumental in
the negotiations, execution, or consummation of this Agreement. Further,
Shareholders and buyer each agree to indemnify the other against any claim by
any third person for any commission, brokerage, or finder's fee or other payment
with respect to this Agreement or the transaction contemplated hereby based on
any alleged agreement or understanding between such party and such third person,
whether express or implied, from the actions of such party.
2. No Representation Regarding Tax Treatment. No representation or
-----------------------------------------
warranty is being made by any party to any other regarding the treatment of this
transaction for federal or state income taxation. Each party has relied
exclusively on its own legal, accounting, and other tax adviser regarding the
treatment of this transaction for federal and state income taxes and on no
representation, warranty, or assurance from any other party or such other
party's legal, accounting, or other adviser.
3. Governing Law. This Agreement shall be governed by, enforced and
-------------
construed under and in accordance with the laws of the State of Arizona. Any
legal action brought in connection herewith shall be properly brought only in a
court of competent jurisdiction in Maricopa County, Arizona, or in the United
States District Court for the District of Arizona.
13
<PAGE>
4. Notices. All notices, demands, requests, or other communications
-------
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and postage
prepaid; or if sent by overnight express delivery;
If to Shareholders: New Directions, Inc.
Attn: Jack Horner, Sr. or Jr.
2940 West Willetta
Phoenix, Arizona 85009
Telephone: (602) 352-1165
Facsimile: (602)
If to Buyer: Lee Family Limited Partnership
Attn: Sean Lee
7113 West Sack Drive
Glendale, Arizona 85308
Telephone: (602) 561-1134
Facsimile: (602)
or such other addresses and facsimile numbers as shall be furnished by any party
in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or one day after the date so sent by overnight delivery.
5. Attorneys' Fees. In the event that any party institutes any action or
---------------
suit to enforce this Agreement or to secure relief from any default hereunder or
breach hereof, the breaching party or parties shall reimburse the non-breaching
party or parties for all costs, including reasonable attorneys' fees, incurred
in connection therewith and in enforcing or collecting any judgment rendered
therein.
6. Schedules; Knowledge. Whenever in any section of this Agreement
--------------------
reference is made to information set forth in the schedules provided by
Shareholders, or Buyer, such reference is to information specifically set forth
in such schedules and clearly marked to identify the section of this Agreement
to which the information relates. Whenever any representation is made to the
"knowledge" of any party, it shall be deemed to be a representation that no
officer or director of such party, after reasonable investigation, has any
knowledge contrary to the statements made (or omitted) regarding such matters.
7. Third-Party Beneficiaries. This contract is solely between New
-------------------------
Directions, Shareholders and Buyer, except as specifically provided, no
director, officer, stockholder, employee, agent, independent contractor, or any
other person or entity shall be deemed to be third party beneficiary of this
Agreement.
8. Entire Agreement. This Agreement represents the entire agreement
----------------
between the parties relating to the subject matter hereof. All previous
agreements between the parties, whether written or oral, have been merged into
this Agreement. This Agreement alone fully and completely expresses the
agreement of the parties relating to the subject matter thereof. There are no
other courses of dealing, understandings, agreements, representations, or
warranties, written or oral, except as set forth herein.
9. Survival; Termination. The representations, warranties, and covenants
---------------------
of the respective parties shall survive the Closing Date and the consummation of
the transaction herein contemplated.
10. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
11. Amendment or Waiver. Every right and remedy provided herein shall be
-------------------
cumulative with every other right and remedy, whether conferred herein, at law,
or in equity, and such remedies may be enforced concurrently, and no waiver by
any part of the performance of any obligation by the other shall be construed as
a waiver of the same or any
14
<PAGE>
other default then, theretofore, or thereafter occurring or existing. At any
them prior to the Closing Date, this Agreement may be amended by a writing
signed by all parties hereto, with respect to any of the terms contained herein,
and any term or condition of this Agreement may be waived or the time for
performance thereof may be extended by a writing signed by the party or parties
for whose benefit the provision is intended.
12. Confidentiality. Each party will use good, faith efforts to keep
---------------
confidential, (i) all agreements, whether final or preliminary, between the
parties; (ii) the transaction contemplated by this Agreement; and (iii) the
matters pertaining to the other party - including the amount and nature of the
assets disclosed by the other party for the purposes of this transaction -
disclosed to such other party in the course of such other party's due diligence
inspection and review of the proposed transaction (other than information which
is a matter of public knowledge or may be obtained from sources readily
available to the public). Such matters may be disclosed (i) to the party's
directors, officers, employees, legal counsel, accountants, financial advisors,
and similar professionals and consultants to the extent such party deems it
necessary or appropriate in connection with the evaluation of the proposed
transaction; (ii) to potential or existing sources of financing, including
without limitation, potential or existing equity owners of such party (inclusive
of investors, underwriters, or other appropriate persons in connection with the
offering of equity or debt securities); (iii) to the extent required by law; or
(iv) as may subsequently be approved in writing by both parties. In addition,
in the event that this Agreement is terminated prior to consummation of the
transaction contemplated herein, the parties agree to return the entirety of
such documentation provided by such other party, together with all copies made
thereof, upon receipt of a written request for such documentation from the
other party.
13. Restriction on Stock Transfer. The parties to this agreement
-----------------------------
acknowledge the Buyer's indebtedness as a result of the installment purchase of
Seller's stock. Buyer expressly agrees to not encumber, sell, transfer, or in
any other way affect the ownership of the stock without the express written
approval of Seller or the satisfaction and payment in full of all indebtedness
owed to Seller.
14. Time of Essence. Time shall be of the essence in the performance of
---------------
this Agreement and each and every provision hereof. Any extension of time
granted for the performance of any duty under this Agreement shall not be
considered an extension of time for the performance of any other duty under this
Agreement.
15. Publicity. Without prior consultation and agreement with the other
---------
parties hereto, no party, nor the employees or agents of any party, shall make
any public disclosure of the facts of this transaction or the existence of this
Agreement (although disclosure of the existence of this Agreement may be made by
the Company to creditors and suppliers in form satisfactory to Buyer and may be
made by Buyer), the parties hereto, the terms hereof, or any related matter.
IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement
to be executed by their respective agents, hereunto duly authorized, as of the
date first above written.
SHAREHOLDERS:
/s/ Jack Horner, Sr.
----------------------------
JACK HORNER, SR.
/s/ Jack Horner, Jr.
----------------------------
JACK HORNER, JR.
/s/ Daryl Horner
-----------------------------
DARYL HORNER
15
<PAGE>
BUYER:
LEE FAMILY LIMITED PARTNERSHIP
/s/ Sean F. Lee
-------------------------------
Name: Sean F. Lee
Title: Manager
NEW DIRECTIONS, INC.:
/s/ Jack Horner, Sr.
-------------------------------
Name: Jack Horner, Sr.
Title: President
CONSENT AND JOINDER OF SPOUSE
The undersigned, being the spouse of Jack Horner, Sr., one of the
Shareholders, hereby agrees to join in and be bound by the terms of the
foregoing Stock Purchase Agreement and the Exhibits thereto, including without
limitation the indemnification of the Buyer provisions, as one of the
Shareholders.
/s/ Karen Horner
-------------------------------
Name: Karen Horner
CONSENT AND JOINDER OF SPOUSE
The undersigned, being the spouse of Jack Horner, Jr., one of the
Shareholders, hereby agrees to join in and be bound by the terms of the
foregoing Stock Purchase Agreement and the Exhibits thereto, including without
limitation the indemnification of the Buyer provisions, as one of the
Shareholders.
/s/ Leslie Horner
--------------------------------
Name: Leslie Horner
16
<PAGE>
SCHEDULE A
(Shareholders-Shareholders)
Name Address Type/No. of shares
- ---------------------------------------------------------
Jack Horner, Sr.
Jack Horner, Jr.
Daryl Horner
SCHEDULE B
(Debts, Liabilities-New Directors)
A. Accounts Payable
B. Customer Deposits
C. Payroll Taxes Withheld
D. Commissions Payable
E. Accrued Employment Compensation
F. Accrued Rent
G. Accrued Interest
H. Sales Taxes Payable
I. Contracts Payable
J. Notes Payable
K. Loans Payable
17
<PAGE>
EXHIBIT C
(Assets-New Directions)
A. Personal Property
B. Receivables
C. Inventory
D. Leasehold Improvements
E. Deposits and Prepaid Expenses
F. Business Records
G. Intangible Assets
H. Contracts
I. Other Assets
SCHEDULE _____
(Resolutions-Shareholders)
SCHEDULE _____
(Financial Statement-New Directions)
SCHEDULE _____
(Certain Changes or Events-New Directions)
SCHEDULE _____
(Title and Related Matters-New Directions)
SCHEDULE _____
(Litigation and Proceedings-New Directions)
SCHEDULE _____
(Contracts-New Directions)
SCHEDULE _____
(Environmental Matters-New Directions)
18
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SCHEDULE _____
(Certain Changes or Events-Buyer)
19
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ADDENDUM
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THIS ADDENDUM ("Addendum") to the Stock Purchase Agreement (the "Agreement")
dated June ___, 1996 by and among the Shareholders of New Directions, Inc., an
Arizona corporation with principal executive offices and manufacturing
facilities located at 2940 West Willetta, Phoenix, Arizona 85009 (collectively
referred to hereinafter as "Shareholders"); New Directions, Inc., an Arizona
corporation ("New Directions", "Company", or "Seller"); and Lee Family Limited
Partnership, a limited partnership organized under the laws of the state of
Arizona with offices located at 7113 West Sack Drive, Glendale, Arizona 85308
("Lee") or the nominee(s) of Lee (Lee and such nominee(s) shall collectively be
referred to hereinafter as "Buyer"), is made and effective this ___ day of June
1996.
AGREEMENT
---------
NOW THEREFORE, for and in consideration of the mutual covenants and agreements
contained within the Agreement and in reliance on the representations and
warranties set forth therein, and the benefits to be derived therefrom, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree to amend the Agreement as follows:
Subsection Seven-One shall be amended to read in its entirety as follows:
- --------------------
1. Brokers. The Parties acknowledge and understand that Gary Swallows, a
-------
representative of Swallows & Associates ("Swallows"), acted as dual broker for
the purposes of this transaction and is to be compensated by Seller as agreed by
Seller and Swallows. The parties further acknowledge that with the exception of
Swallows, there were no other finders or brokers involved in bring the parties
together or who were instrumental in the negotiation, execution, or consummation
of this Agreement. The parties each agree to indemnify the other against any
claim by any third person for any commission, brokerage, or finder's fee or
other payment with respect to this Agreement or the transaction contemplated
hereby based on any alleged agreement or understanding between such party and
such third person, whether express or implied, from the actions of such party.
Subject to the effect of this addendum, all other terms, covenants, and
provisions of the Agreement shall remain in full force and effect as provided
therein.
IN WITNESS WHEREOF, the parties hereto have executed or caused this Addendum
to the Agreement to be effective the date provided above.
SHAREHOLDERS:
/s/ Jack Horner, Sr.
--------------------------
JACK HORNER, SR.
/s/ Jack Horner, Jr.
--------------------------
JACK HORNER, JR.
/s/ Daryl Horner
---------------------------
DARYL HORNER
BUYER:
LEE FAMILY LIMITED PARTNERSHIP
/s/ Sean F. Lee
--------------------------
Name: Sean Lee
Title: Chairman
20
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NEW DIRECTIONS, INC.:
/s/ Jack Horner, Sr.
----------------------------
Name: Jack Horner, Sr.
Title: President
21
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AGREEMENT TO EXTEND THE STOCK PURCHASE AGREEMENT
Manhattan West, Inc. will provide $100,000 by Friday, October 11, 1996 as an
option purchase under the following terms:
In exchange for the $100,000 the New Directions, Inc. ("Company") will extend
the closing date to January 30, 1997 contained in paragraph of page 4 of the
Stock Purchase Agreement between the Company and the Lee Family Limited
Partnership, which is hereby incorporated by reference. It is agreed that the
Company will make reasonable and good faith efforts to timely close the stock
purchase agreement.
Should the transaction not close on the Stock Purchase Agreement, the $100,000
option purchase will be forfeited to New Directions, Inc. I.
It is further understood that the $100,000 will be deducted from the purchase
price of the Company at closing.
It is also agreed that the $800,000 note, contained in the Stock Purchase
Agreement, both principal and interest will be paid over a 4 year period.
By signing this agreement the parties accept the above terms.
/s/ Jack Horner, Sr. 10/9/96
- -------------------- -------
JACK HORNER, SR. Date
/s/ Jack Horner, Jr. 10/9/96
- -------------------- -------
JACK HORNER, JR. Date
/s/ Daryl Horner 10/9/96
- -------------------- -------
DARYL HORNER Date
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EXHIBIT 10.8
EXCHANGE AGREEMENT BETWEEN
NEW DIRECTIONS MANUFACTURING, INC.
A NEVADA CORPORATION AND
PREMIER VENTURES & EXPLORATIONS, INC.,
A LOUISIANA CORPORATION, DATED JANUARY 10, 1997
<PAGE>
EXCHANGE AGREEMENT
AGREEMENT entered into January 10, 1997, by and between New Directions
Manufacturing, Inc. (hereinafter "NDM"), a Nevada corporation, the stockholders
of New Directions Manufacturing, Inc. (hereinafter "Stockholders"), and Premiere
Ventures & Exploration, Inc., a Louisiana corporation (hereinafter "Premiere").
Background of Agreement
-----------------------
Premiere and Stockholders agree that it would be to their mutual benefit for
Premiere to acquire all of the outstanding stock of NDM from Stockholders in
exchange for 3,550,000 shares of Premiere common stock.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:
The Agreement
-------------
1. Terms and Conditions.
(a) The Stockholders will exchange their shares of New Directions
Manufacturing, Inc. on a one for one basis for shares in Premiere.
(b) Premiere will issue Three Million Five Hundred Fifty Thousand
(3,550,000) shares of common stock in exchange for Three Million Five Hundred
Fifty Thousand (3,550,000) of Premiere. One Million shares of NDM stock has been
issued and placed in escrow in connection with a private stock offering. These
shares will be exchanged at a later date, but Premiere will issue sharers to be
placed in escrow for this later exchange transaction.
2. Representations and Warranties of NDM and Stockholders.
NDM and Stockholders hereby represent and warrant to Premiere that:
(a) Stockholders own on the date hereof, and on the Closing Date
hereinafter provided will own, free and clear of all liens, charges and
encumbrances, all of the issued and outstanding shares of common stock of NDM.
(b) NDM is a corporation duly organized and validly existing and in good
standing under the laws of the State of Nevada; is duly qualified to transact
business as a foreign corporation and in good standing in the States in which it
is presently doing business; has all corporate power necessary to engage in the
business in which it is presently engaged; and has an authorized capital
consisting of 25,000,000 shares of common stock, par value $0.001 per share, of
which 3,550,000 shares are issued and outstanding.
(c) NDM has entered into an agreement to acquire all of the issued and
outstanding stock of New Directions, Inc., an Arizona corporation, in the
business of manufacturing, distributing and selling oak furniture.
3. Representations and Warranties of Premiere.
Premiere represents and warrants on information and belief to the best of its
knowledge to the Stockholders that:
(a) Premiere is a corporation duly organized and is validly existing and
in good standing under the laws of the State of Louisiana; is not qualified to
transact business in any other State, and has an authorized capitalization of
50,000,000 shares of which there are issued and outstanding 1,450,000 shares of
common stock, no par value per share.
(b) Premiere has delivered to Stockholders is audited financial
statements, which are attached hereto and marked Exhibit 1. These financial
statements accurately set forth the financial condition of Premiere as of the
dates specified, and the results of operation applied.
1
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4. Date and Time of Closing.
The closing shall be held on January 13, 1997 local time, at Phoenix, Arizona,
or at such other time and place as may be mutually agreed upon between the
parties in writing (hereinafter "the Closing"). The manner of carrying into
effect the exchange provided for in this Exchange Agreement shall be as follows:
(a) Premiere will prepare a written unanimous consent of its board of
directors for the following purposes:
(1) To ratify, approve and carry out the terms of this Exchange
Agreement.
(2) To authorize the issue and to effect delivery by the officers of
Premiere to the shareholders of NDM of Three Million Five Hundred Fifty Thousand
(3,550,000) shares of Premiere common stock in exchange for delivery of all of
the outstanding stock of NDM.
(3) The present board of directors will tender their resignations
effective on the closing of this transaction. The present board of directors
will nominate three (3) Stockholders listed below to be seated as the new board
of directors of Premiere filling the vacancies created by their resignations.
The nominees are (1) Sean Lee, Chairman; (2) Jack Horner, Jr., Director; and (3)
Donald A. Metke, Director.
(4) The present board of directors will nominate to be the Donald A.
Metke, President, Sean Lee, Chief Executive Officer and Jack Horner, Jr.,
Executive Vice President, Secretary and Treasurer.
6. Closing Conditions.
The NDM, Stockholders and Premier's obligations to complete the transactions
provided herein shall be subject to the performance by them of all their
respective agreements to be performed hereunder at the Closing, to the material
truth and accuracy of the respective representations and warranties of NDM,
Stockholders and Premiere contained herein, and to the further conditions that:
(a) All representations and warranties by NDM, Stockholders and Premiere
contained in this Exchange Agreement are substantially true and correct on
and as of the Closing with the same effect as if made on and as of said date.
(b) As of the Closing there shall have been no material adverse change in
the affairs, business, property or financial condition of NDM and Premiere.
(c) All of the agreements and covenants contained in this Exchange
Agreement that are to be complied with, satisfied and performed by each of the
parties hereto on, or before the Closing, shall, in all material respects, have
been complied with, satisfied and performed.
(d) NDM will have closed the transaction whereby it acquires all of the
issued and outstanding shares of New Directions, Inc.
7. Counterparts.
This Exchange Agreement may be executed in any number of counterparts, each of
which when executed and delivered shall be an original, but all such
counterparts shall constitute one and the same instrument.
8. Merger Clause.
This Exchange Agreement supersedes all prior agreements and understandings
between the parties and may not be changed or terminated orally, and no
attempted change, termination or waiver of any of the provisions hereof shall be
binding unless in writing and signed by the parties hereto.
2
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8. Governing Law.
This Agreement shall be governed by and construed according to the laws of the
State of Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to
be executed the day and year first written above.
9. Signatures.
This Exchange Agreement has been accepted by the Boards of both corporations
and signed by their respective officers and in the case of NDM signed by all
directors and shareholders.
OFFICERS AND DIRECTORS
----------------------
Premiere Ventures & Exploration, Inc.: New Directions Manufacturing, Inc.
/s/ Robert S. Kallfelz /s/ Donald A. Metke
- -------------------------------------- -----------------------------------
By: Robert S. Kallfelz By: Donald A Metke
Title: Secretary Title: President
/s/ Kim Kallfelz /s/ Jack Horner, Jr.
- -------------------------------------- -----------------------------------
By: Kim Kallfelz By: Jack Horner, Jr.
Title: President Title: Ex. V.P., Secretary/Treas
/s/ Sean Lee
-----------------------------------
By: Sean Lee
Title: Chief Executive
SHAREHOLDERS NO. OF SHARES
- ------------ -------------
/s/ Sean Lee 1,530,000
- --------------------------------------
Lee Family Limited Partnership
By: Sean Lee
/s/ Jack Horner, Jr. 510,000
- --------------------------------------
Jack Horner, Jr.
- --------------------------------------
Leslie S. Horner
/s/ Donald A. Metke 510,000
- --------------------------------------
Jack Horner, Jr.
/s/ Joanne B. Metke
- --------------------------------------
Joanne B. Metke
/s/ Donald A. Mekte 1,000,000
- --------------------------------------
Private Placement Escrow Acct.
By: Don Metke, Trustee
3
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EXHIBIT 24.2
CONSENT OF EVERS & COMPANY, LTD.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment #1 to the Registration Statement of New
Directions Manufacturing, Inc. on Form SB-2 of our reports dated September 8,
1997 and November 20, 1996, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ EVERS & COMPANY, LTD.
Phoenix, Arizona
September 25, 1997
