<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
COMMISSION FILE NUMBER: 000-22855
NEW DIRECTIONS MANUFACTURING, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 86-0671974
(State or other Jurisdiction of (I.R.S.
Incorporation or Organization) Employer Identification No.)
2940 W. WILLETTA STREET, PHOENIX, ARIZONA 85009
(Address of principal executive offices) (Zip Code)
(602) 352-1165
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports),and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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The issuer's revenues for its most recent fiscal year were $6,702,353.
As of September 1, 1999, the issuer had 5,052,270 shares of it $.001 par
value Common Stock issued and outstanding. Based upon the closing price of
$0.156 per share on September 1, 1999, the aggregate market value of the Common
Stock, the issuer's only class of voting stock, held by non-affiliates was
$408,918.
The following documents are incorporated herein by reference: (1) Form
10-KSB for the fiscal year ended June 30, 1998, filed with the SEC on September
15, 1998 (File No. 000-22855), is incorporated in Part III, Item 13(A); (2)
Proxy Statement for Annual Meeting to be held on October 8, 1999, filed with the
SEC concurrently with this Form 10-KSB, is incorporated in Part III, Items 9,
10, 11, and 12; and (3) Registration Statement on Form SB-2, filed with the SEC
on July 2, 1997 as amended (Registration No. 333-30583), is incorporated in Part
III, Item 13(A).
Transitional Small Business Disclosure Format Yes No X
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NEW DIRECTIONS MANUFACTURING, INC.
TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. BUSINESS 1
HISTORY 1
DEVELOPMENT OF THE BUSINESS 1
MARKETING AND DISTRIBUTION 1
SOURCES AND AVAILABILITY OF RAW MATERIALS 1
INTELLECTUAL PROPERTY 1
CUSTOMERS 2
GOVERNMENT CONTRACTS 2
COMPETITION 2
ENVIRONMENTAL COMPLIANCE 2
MANAGEMENT 2
EMPLOYEES 2
ITEM 2. PROPERTIES 2
ITEM 3. LEGAL PROCEEDINGS 3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 3
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 3
MARKET INFORMATION 3
HOLDERS 3
DIVIDENDS 3
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3
GENERAL 4
RESULTS OF OPERATIONS 4
LIQUIDITY AND CAPITAL RESOURCES 5
SEASONALITY 5
BACKLOG 5
YEAR 2000 ISSUE 5
ITEM 7. FINANCIAL STATEMENTS 6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT 22
ITEM 10. EXECUTIVE COMPENSATION 22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 22
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS 22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 22
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PART I
ITEM 1. BUSINESS
HISTORY
New Directions Manufacturing, Inc. ("the Company") was incorporated under the
laws of Nevada on January 9, 1997. The wholly owned operating subsidiary of the
Company, New Directions-Manufacturers of Contemporary Furniture, Inc., an
Arizona corporation ("New Directions-Arizona") was established in 1989 by the
Horner family. The Company purchased New Directions - Arizona from the Horner
family in January 1997.
The Company manufactures quality oak furniture using no particleboard. Its
product line consists mainly of entertainment centers, wall units, and home
office products; 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, Puerto Rico, and Bermuda.
On January 15, 1997, the Company exercised the Option to purchase New
Directions-Arizona with a cash payment of $1,280,000. The Company paid the cash
payment of $1,280,000 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. There remains due and owing $329,936 under the
note as of June 30, 1999.
The address of the Company's principal executive offices is 2940 West
Willetta Street, Phoenix, AZ 85009. The Company's telephone number is (602)
352-1165. Unless otherwise noted, the "Company" as used in this 10-KSB, will
refer to the consolidated entities described above.
DEVELOPMENT OF THE BUSINESS
The Company operates two showrooms, one in San Francisco, California, and one
in High Point, North Carolina. The showroom in High Point opened in October
1997. Each showroom is open twice each year as part of the National Furniture
Market, at which time new products, together with the Company's stable line of
entertainment centers, wall units, bedroom sets, and other products are
presented. Management believes these showrooms offer an excellent opportunity to
present the Company's products now and into the future.
MARKETING AND DISTRIBUTION
The Company sells its products through retailers throughout the United States
including the East and West Coasts, Alaska, and Hawaii. Products are also sold
through retailers in Puerto Rico, Canada, and Bermuda.
The Company currently has seven sales representatives throughout the United
States who call on current customers and potential customers in the industry.
Additionally, a full color catalog is published which is sent to current and
potential customers. The Company displays its products as part of the National
Furniture Market twice a year at each of its showrooms in High Point, North
Carolina, and San Francisco, California.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company purchases the raw materials used in the production of its
furniture from a variety of sources. The Company believes that none of the
materials required for its furniture manufacturing operations are proprietary in
nature and that an adequate supply of raw materials is available from multiple
sources.
INTELLECTUAL PROPERTY
The Company neither owns nor has applied for any trade names or trademarks in
the United States or abroad, for use with its furniture product lines.
1
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CUSTOMERS
In July 1998, the Company had one customer that accounted for approximately
17% of its sales. The Company did not extend credit to this company and lost it
as a customer. The Company has during 1999 replaced all the sales of this
customer. The Company currently has one customer that exceeds 10% of its sales.
Further, while loss of any substantial customer could have a material short-term
impact on the Company's business, the Company believes that its diverse
furniture distribution channels would minimize the long-term impact of any such
loss.
GOVERNMENT CONTRACTS
The Company has no Government contracts.
COMPETITION
The furniture market is highly competitive, and includes numerous entities,
some of which may have substantially greater financial and marketing resources
than the Company. The Company believes that the principal competitive factors in
the furniture industry marketplace are price, quality, function, innovative
product design, style, prompt delivery, and the ability to offer customers a
full product line. The Company's varied product line is designed based on the
foregoing factors to achieve customer satisfaction and, accordingly, the Company
believes that its products effectively compete in such marketplace.
ENVIRONMENTAL COMPLIANCE
Environmental aspects of the Company's business are regulated primarily by
federal and state laws and by the ordinances of the localities where the
Company's facilities are located. The Company believes it is in compliance with
all of these laws and ordinances.
MANAGEMENT
On August 1, 1999, Sean Lee replaced Donald Metke as Chief Executive
Officer of the Company. This change was made in order to concentrate on sales,
margin, and operating expenses of the Company. The Company accepted the
resignation of Donald Metke, agreed to buy back all of his stock, and entered
into short-term and long-term consulting agreements with Mr. Metke to secure a
smooth management transition. As part of this transition, the Company awarded
900,000 stock options to Jack Horner, Jr. Mr. Horner's options were awarded in
order to secure his services and make his potential ownership equal to that of
Sean Lee.
EMPLOYEES
As of the 1999 fiscal year end, the Company employed a total of approximately
75 full-time employees. There are no collective bargaining agreements covering
any of the Company's employees. The Company believes it has good employee
relations.
ITEM 2. PROPERTIES
The Company leases a 34,000 square foot facility in Phoenix, Arizona that
includes offices and manufacturing space, pursuant to a lease agreement renewed
as of July 1, 1998. The term of the lease renewal covers the period of July 1,
1998 through June 30, 2003. Monthly payments are as follows: July 1, 1998
through June 30, 1999 - $8,490/NNN; July 1, 1999 through June 30, 2001 -
$9,509/NNN; July 1, 2001 through June 30, 2002 - $10,189/NNN; and July 1, 2002
through June 30, 2003 - $10,494/NNN (plus applicable rental tax). The Company
also leases showrooms in San Francisco, California and High Point, North
Carolina that require approximate monthly lease payments of $2,246 and $7,200,
respectively. The facilities are in good condition and are adequate for the
Company's current needs.
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ITEM 3. LEGAL PROCEEDINGS
As previously reported, on November 10, 1997, the Company was served with a
Complaint, which alleged claims for strict liability and negligence in
connection with an accident with a piece of furniture. This litigation was
forwarded to the Company's insurance carrier who handled the defense of this
claim on behalf of the Company. On March 5, 1999, the Company and its insurance
carrier entered into a settlement agreement with Plaintiff for an undisclosed
amount fully releasing all parties from the litigation. Management of the
Company believes that there are no other litigation matters pending or
threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company during
the fourth quarter of the fiscal year ended June 30, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(A) MARKET INFORMATION. The Company's Common Stock is traded on the
Over-the-Counter ("OTC") Bulletin Board Quotation System. The following table
sets forth the high and low sales prices of the Company's Common Stock, as
reported on the OTC Bulletin Board for the periods indicated. The prices
presented are bid prices, which represent prices between broker-dealers and
don't include retail mark-ups and mark-downs or any commission to the dealer.
Therefore, the prices may not reflect actual transactions.
<TABLE>
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Quarter Ended High Low
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<S> <C> <C>
1997
Third $4.50 $1.00
Fourth $5.00 $1.125
1998
First $4.375 $1.00
Second $4.0625 $1.75
Third $2.125 $0.4375
Fourth $0.53125 $0.1875
1999
First $0.65625 $0.171875
Second $0.203125 $0.15625
</TABLE>
(B) HOLDERS. As of September 1, 1999, the number of holders of record of the
Company's Common Stock was approximately 103. The Company believes that there
are approximately an additional 398 holders who own shares of the Company's
Common Stock in street name.
(C) DIVIDENDS. The Company has paid no cash dividends.
ITEM 6. 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.
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GENERAL
New Directions Manufacturing, Inc. (the "Company") is a manufacturer of
quality oak furniture. The Company produces oak contemporary home furnishing
items such as television stands, stereo towers, entertainment centers, wall
systems, bookcases, home office, and both adult and youth bedroom units. The
Company sells its product through retailers on both the East and West Coasts of
the United States, and Alaska, Hawaii, Puerto Rico, Canada, and Bermuda. The
Company includes New Directions Manufacturing, Inc., a Nevada corporation, and
its wholly owned subsidiary, New Directions Manufacturing, Inc., an Arizona
corporation, which was founded in 1989.
RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1999 as Compared to the Fiscal Year Ended June
30, 1998
NET SALES
Net sales of $6,702,353 for fiscal 1999 ending June 30, 1999 compared to
the sales for the previous fiscal year ended June 30, 1998 of $6,813,316
decreased by $110,963 or 1.6%. The 1999 loss can be attributed to the loss of
two customers which represented over 20% of sales. New customers and the
introduction and placement of new products offset this almost in total. Other
factors which also attributed to our offset of lost sales were our current
strong economy and the commensurate increase in housing starts over the last
year. Additionally, the Company's new products were well received by our
established customers as well as our new customers. In 1998, there was a gain
that could mainly be attributed to strong retail sales, new products, and new
customers.
COST OF SALES AND GROSS PROFIT
The gross profit was $1,088,921 or 16.2% in the year ending June 30, 1999
in comparison with $1,390,737 or 20.4% for the previous year, which ended June
30, 1998. As a percentage of sales, cost of sales was 83.8% compared to 79.6%
during the same aforementioned time periods. The 1999 decrease in gross profit
margin was primarily due to an increase in material and overhead costs. The
decrease in the 1998 gross profit margin was mainly a result of inventory
adjustments and higher manufacturing payroll costs partly due to a higher
minimum wage.
OPERATING EXPENSES
Operating expenses were $1,782,290 or 26.6% of net sales during the year
ended June 30, 1999. This compares with $1,421,603 or 20.9% for the year ended
June 30, 1998. The difference in 1999 was primarily due to adjustments for
severance, stock compensation, and increased write-off of covenants and
goodwill. In the 1998 fiscal year, the difference was mainly a result of
adjustments for commissions and showroom costs.
DOMESTIC SALES VERSUS EXPORT SALES
For the 1999 fiscal year ended June 30, 1999, the Company generated
domestic sales of approximately $6,595,324 or approximately 98.4% of total
sales. Export sales were approximately $107,029 or 1.6% of total sales. For the
fiscal year ended June 30, 1998, the Company generated domestic sales of
approximately $6,717,930 or approximately 98.6% of total sales. Export sales
were approximately $95,386 or 1.4% of total sales.
INTEREST
Net interest expense for the year ended June 30, 1999 increased $10,025 or
21.5% compared to the year ended June 30, 1998. The increase was primarily due
to a reduction of interest income for the fiscal year ended June 30, 1999 and
the utilization of our bank credit line. For the fiscal year ended June 30,
1998, net interest expense increased due to a decrease in interest income.
4
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital expenditures and
operating expenses, including labor costs, raw materials purchases, and funding
of accounts receivable. The Company's primary sources of cash have been from
operations and bank loans since its acquisition in January 1997.
Accounts receivable-net at June 30, 1999 increased $475,288, or 84.2% from
June 30, 1998. This represents 39.1% of total assets at June 30, 1999 versus
20.5% at June 30, 1998. The increase is due to the change in customer base and
does not represent a change in uncollectible accounts. The increase in accounts
receivable -- net for the 1998 fiscal year was due to an increase in sales
volume. The Company has not recognized any significant bad debt expense in any
of the periods represented.
The Company spent $42,067 on capital expenditures during the fiscal year
ended June 30, 1999, which was financed primarily with net cash flow from
operating activities. Capital expenditures forecast for the fiscal year ending
June 30, 2000 include upgrading the Company's equipment, computer system and
software, and are currently estimated to be $20,000. The Company believes that
current unused balances available under the existing credit agreements, along
with net cash flow generated from operating activities, will be adequate to fund
these capital expenditures during the fiscal year ending June 30, 2000.
In June 1999, the Company opened a $700,000 line of credit with First
Community Financial Corporation ("FCFC"). The line bears interest at prime plus
5% and is secured by the accounts receivable. Advances on the line may not
exceed 75% of the eligible accounts receivable. The line contains various
restrictive covenants, including working capital and tangible net worth. The
Company was in default of certain of those covenants at June 30, 1999. However,
FCFC has indicated its intention to renegotiate those covenants.
SEASONALITY
The nature of the business in which the Company is engaged traditionally
has less volume during the summer months (May, June, July, and August) than in
the other eight months of the year. Therefore, quarterly results are not
indicative of the Company's yearly performance and should not be relied upon.
Yearly financial statements present a more complete picture of the Company's
overall results of operations.
BACKLOG
The Company believes that order backlog at any particular point in time is
not predictive of future sales performance since, as is standard in the
furniture industry, a customer may cancel a product order prior to shipment
without penalty. The Company has historically filled orders within approximately
three to five weeks of the receipt of a purchase order.
YEAR 2000 ISSUE
The Company is addressing possible remedial efforts in connection with
computer software that could be affected by the Year 2000 problem. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations.
After reasonable investigation, the Company has not yet identified any
Year 2000 problems but will continue to monitor the issue. The Company believes
its software and hardware are currently Year 2000 compliant. There can be no
assurances, however, that Year 2000 problems will not occur with respect to the
Company's computer systems.
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The suppliers of substantially all of the Company's software have informed
the Company that all of those suppliers' software that is used by the Company is
Year 2000 compliant. The Company has no internally generated software. The Year
2000 problem may impact other entities with which the Company transacts
business, and the Company cannot predict the effect of the Year 2000 problem on
such entities. However, the Company has received notification from a number of
suppliers, vendors, and our payroll service that their systems are currently
Year 2000 compliant. Also, the Company is not directly linked to any supplier or
vendor by computer.
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Independent Auditors Report 7
Consolidated Balance Sheets - June 30, 1999 and 1998 8
Consolidated Statements of Operations - For the Years Ended June 30,
1999 and June 30, 1998 9
Consolidated Statement of Changes in Shareholders' Equity - For the
Years Ended June 30, 1999 and June 30, 1998 10
Consolidated Statements of Cash Flows - For the Years Ended June 30,
1999 and June 30, 1998 11-12
Notes to Consolidated Financial Statements 13-21
</TABLE>
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Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of New Directions
Manufacturing, Inc. and subsidiary as of June 30, 1999 and 1998 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the years then ended. 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 upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Directions Manufacturing, Inc. and subsidiary as of June 30, 1999 and 1998 and
the results of operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As described in Note 2 to the financial
statements, the Company has suffered losses from operations and has significant
commitments for the repayment of debt and other obligations at June 30, 1999,
which raise substantial doubt about its ability to continue as a going concern.
Management's plans with regard to these matters are also discussed in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Phoenix, Arizona
September 14, 1999
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NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 676 232,203
Accounts receivable, net of allowance for doubtful
accounts of $50,000 in 1999 and $31,040 in 1998 1,039,853 564,565
Inventory 313,905 287,893
Income tax refunds receivable 4,700 --
Other 26,812 29,361
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Total current assets 1,385,946 1,114,022
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Goodwill, net of accumulated amortization of $631,534
in 1999 and $46,800 in 1998 -- 584,734
Covenant not-to-compete, net of accumulated amortization
of $533,331 in 1999 and $240,000 in 1998 266,669 560,000
Property and equipment, net 434,932 474,915
Other 16,936 16,926
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$ 2,104,483 2,750,597
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 215,767 199,231
Current portion of capital lease obligations 25,713 26,132
Line of credit 522,712 --
Accounts payable 303,293 168,455
Accrued expenses 181,623 87,477
Income taxes payable 100 20,000
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Total current liabilities 1,249,208 501,295
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Long-term debt, net of current portion 114,169 329,936
Accrued severance 51,250
Deferred income taxes -- 17,000
Capital lease obligations, net of current portion 50,801 77,071
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216,220 424,007
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Commitments, contingencies and subsequent events (see notes)
Shareholders' equity:
Common stock, par value $.001; 25,000,000 shares
authorized, 5,052,270 shares issued and outstanding
in 1999 and 1998 5,052 5,052
Additional paid-in-capital 1,950,575 1,923,575
Accumulated deficit (1,316,572) (103,332)
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639,055 1,825,295
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$ 2,104,483 2,750,597
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</TABLE>
See accompanying notes to consolidated financial statements
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NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Sales, net of returns and allowances $ 6,702,353 6,813,316
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Cost of sales
Materials 4,114,044 4,039,008
Payroll costs 1,134,066 1,093,758
Overhead 365,322 289,813
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5,613,432 5,422,579
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Gross profit 1,088,921 1,390,737
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Selling, general and administrative expenses
Advertising and show expenses 116,581 75,349
Writedown of goodwill 551,974 --
Stock issued to director 27,000 --
Severance costs 95,765 --
Amortization of goodwill and covenant-not-to-compete 326,091 192,800
Other 1,162,853 1,153,454
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2,280,264 1,421,603
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Net loss from operations (1,191,343) (30,866)
----------- ----------
Other income (expense)
Interest and other income 2,852 17,746
Interest expense (59,545) (64,414)
----------- ----------
(56,693) (46,668)
----------- ----------
Net loss before income tax benefit (1,248,036) (77,534)
Income tax benefit (34,796) (19,000)
----------- ----------
Net loss $(1,213,240) (58,534)
=========== ==========
Loss per common share $ (0.24) (0.01)
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
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NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional
Number of Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1997 4,987,770 $ 4,988 1,907,248 (44,798) 1,867,438
Exercise of stock options 14,500 14 32,611 -- 32,625
Issuance of stock to director 50,000 50 450 -- 500
Additional costs related to
offering and registration -- -- (16,734) -- (16,734)
Net loss -- -- -- (58,534) (58,534)
---------- --------- ---------- ---------- ----------
Balance, June 30, 1998 5,052,270 5,052 1,923,575 (103,332) 1,825,295
Stock compensation earned
by director 27,000 27,000
Net loss (1,213,240) (1,213,240)
---------- --------- ---------- ---------- ----------
Balance, June 30, 1999 5,052,270 $ 5,052 1,950,575 (1,316,572) 639,055
========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
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NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,213,240) (58,534)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of goodwill and covenant 326,091 192,800
Writedown of goodwill 551,974
Depreciation 82,050 64,187
Stock issued to director as compensation 27,000 --
Deferred income taxes (17,000) (38,727)
Increase in accounts receivable (475,288) (9,686)
Increase in inventory (26,012) (51,025)
Increase in other assets (2,161) (9,599)
Increase (decrease) in accounts payable 134,838 (139,245)
Increase in accrued expenses 145,396 13,545
Increase (decrease) in income taxes payable (19,900) 18,000
--------- --------
Net cash used in operating activities (486,252) (18,284)
--------- --------
Cash flows from investing activities:
Purchase of property & equipment (42,067) (113,059)
--------- --------
Cash flows from financing activities:
Proceeds from line of credit 522,712 --
Repayment of debt (199,231) (184,215)
Payment of capital lease obligations (26,689) (39,116)
Proceeds from issuance of stock -- 16,391
--------- --------
Net cash provided by (used in)
financing activities 296,792 (206,940)
--------- --------
Net decrease in cash (231,527) (338,283)
Cash, beginning of year 232,203 570,486
--------- --------
Cash, end of year $ 676 232,203
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
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NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Year Ended June 30, 1999 and 1998
Supplementary Disclosure of Cash Flow Information
<TABLE>
<S> <C> <C>
Cash paid during the period for interest $59,545 64,414
======= ======
Cash paid during the period for taxes $19,750 6,100
======= ======
</TABLE>
Summary of Non-cash Investing and Financing Activities
During 1998, the Company leased equipment for $98,400 under a capital lease
obligation.
See accompanying notes to consolidated financial statements
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NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
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. At June 30, 1999, the
goodwill was written off (Note 2).
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.
13
<PAGE> 16
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
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 by dividing the loss attributable to common
shareholders by the weighted average number of shares outstanding
during the period, which was assumed to be 5,013,374 and 5,002,171 for
the years ended June 30, 1999 and 1998, respectively. Stock options and
awards are considered antidilutive and were not considered in the
calculation. The stock issued to a director (Note 9) has been included
in the computation of weighted average shares outstanding as those
shares are vested.
k. Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its employee stock options. Under APB
25, no compensation expense is recorded when the exercise price of the
option equals the market price of the underlying stock on the date of
the grant. The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation".
14
<PAGE> 17
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
2. Operations
The Company experienced significant operating losses during 1999 and 1998. A
portion of the losses can be attributed to increases in material, labor
and administrative costs. The Company also lost several customers,
including one that accounted for 17% of sales in 1998 (Note 8). In order
to replace the lost sales, the Company paid larger commissions to its
sales representatives, thus increasing selling costs. Of the total net
loss of $1,200,000 in 1999, approximately $900,000 relates to non-cash
expenses for the amortization of goodwill and writedown of goodwill and
the covenant and the issuance of stock to a director. Additionally, the
loss included an accrual for $95,000 related to a severance agreement with
its former president (Note 9).
Effective August 1, 1999, the chairman also assumed the position of
president. The Company also negotiated a new line of credit in June 1999
to provide working capital. The Company had approximately $175,000 of
availability under the line at year-end; however, the Company is currently
in default of certain loan covenants. Management is currently negotiating
to revise those covenants and has also implemented procedures, which it
believes will increase sales and reduce costs. The violations were waived
at June 30, 1999. There can be no assurance that these actions will be
successful. Because of the uncertainties described above, management
believes that the goodwill no longer has value. With this exception, the
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
3. Inventory
Inventory consists of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $219,646 259,220
Work-in-process 83,308 13,592
Finished goods 10,951 15,081
-------- -------
$313,905 287,893
======== =======
</TABLE>
4. Property and Equipment
Property and equipment consists of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Machinery and equipment $504,273 473,015
Showroom fixtures 25,425 23,236
Office furniture & equipment 54,097 45,477
-------- -------
583,795 541,728
Less: accumulated depreciation 148,863 66,813
-------- -------
$434,932 474,915
======== =======
</TABLE>
15
<PAGE> 18
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
5. Debt
Debt consists of an 8% promissory note to the former shareholders of NDMCF,
due January 2001. The unpaid balance of the note was $329,936 at June 30,
1999.
Future minimum principal payments required in accordance with the terms of
this agreement are:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
2000 $215,767
2001 114,169
--------
$329,936
========
</TABLE>
The Company obtained a new two-year line of credit in June 1999, which allows
for maximum borrowings of $700,000 or 75% of eligible accounts receivable
as defined in the loan agreement. The line bears interest at prime plus
5%(12.75% at June 30, 1999), with minimum monthly interest of $2,500. The
line is secured by accounts receivable, inventory, cash and intangibles.
In conjunction with the line, the Company paid a commitment fee of
approximately $11,000 and is required to pay an annual renewal fee equal
to 1% of the credit facility. The initial commitment fee is being
amortized over the first year of the loan agreement. The line also
contains various restrictive covenants, including minimum tangible net
worth and working capital ratios. The Company is currently in default of
certain loan covenants and management is negotiating to revise the
covenants. The violations were waived at June 30, 1999.
6. Income Taxes
Deferred income taxes consist of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Difference in basis of covenant-not-to-compete $ 160,000 64,000
Start-up costs 65,000 88,000
Net operating loss carryforwards 135,000 4,000
Liability for severance benefits 38,000 --
Allowance for doubtful accounts 20,000 13,000
Difference in basis of property and equipment (85,000) (98,000)
Valuation allowance (333,000) (88,000)
--------- -------
$ -- (17,000)
========= =======
</TABLE>
16
<PAGE> 19
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
6. Income Taxes, continued
A reconciliation of expected to actual taxes follows:
<TABLE>
<S> <C> <C>
Expected tax recovery at rate of 34% $(425,000) (27,000)
Stock issued to director 9,000 --
Amortization and writedown of goodwill 199,000 11,000
State income taxes, net (37,000) (3,000)
Tax benefits not realized - valuation allowance 219,204 --
--------- -------
Financial statement recovery of income taxes $ (34,796) (19,000)
========= =======
</TABLE>
The Company has recorded valuation allowances to offset the value of deferred
tax assets, since it has recorded losses from operations since 1997 and
the utilization of those assets is uncertain. Tax benefits derived from
the amortization of start up costs for tax purposes will be credited to
goodwill.
The Company has net operating loss carryforwards of approximately $320,000 at
June 30, 1999, which may be used to offset future federal taxable income
through 2019 and state income through 2004. Additionally, the Company has
state net operating loss carryforwards of approximately $100,000 that
expire in 2001.
7. 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 $211,000 and accumulated depreciation
of approximately $47,000 and $19,000 at June 30, 1999 and 1998. Certain
leases contain purchase options. The leases require the Company to pay all
operating expenses and taxes related to the equipment.
17
<PAGE> 20
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
7. Lease Commitments, continued
Future minimum lease obligations at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Capital Operating
-------------------- ------- ---------
<S> <C> <C>
2000 $32,340 199,336
2001 27,501 143,116
2002 24,926 137,119
2003 3,966 125,931
------- -------
88,733 605,502
=======
Less amounts representing interest (10% to 19%) 12,219
-------
Present value of capital lease obligations 76,514
Current portion 25,713
-------
Capital lease obligations, long-term portion $50,801
=======
</TABLE>
Rent expense for the years ended June 30, 1999 and 1998 was approximately
$210,000 and $166,000, respectively.
8. Significant Customer and Supplier
During the year ended June 30, 1999, the Company had a customer, which
accounted for approximately 16% of net sales. No other single customer
accounted for more than 10% of sales for the year.
For the year ended June 30, 1998, there was one customer that accounted for
17% of sales. In July 1998, this customer informed the Company that they
had selected another manufacturer.
The Company also acquired materials from a single supplier, which accounted
for approximately 57% of total materials cost in 1999 and 63% in 1998.
However, management believes that these materials are readily available
from other suppliers.
18
<PAGE> 21
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
9. 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. During 1998, the Company entered into agreements with its
principal stockholders and directors, whereby the Company is obligated to
repurchase their stock with the proceeds from life insurance policies on
the individuals. During 1999, the Board of Directors voted to extend the
terms of the employment contracts until December 31, 2002. Consulting fees
paid to the Company's chairman were $60,000 for the years ended June 30,
1999 and 1998. The Company cancelled the insurance policies subsequent to
year-end.
The Company's vice president was also an officer and stockholder of NDMCF,
prior to the acquisition. As such, he received his pro-rata share of all
principal and interest payments made through June 30, 1999. Total
principal and interest payments to all former shareholders during 1999 and
1998 were $234,364 each year. As a result of the extension of his
employment contract and the subsequent issuance of 900,000 stock options
to him, the remaining portion of the original covenant-not-to-compete with
the vice president has been superceded and therefore all remaining costs
fully amortized.
In May, 1998, the Company issued 50,000 shares of unregistered, restricted
common stock to a new director at $.01 per share, in conjunction with a
three-year consulting agreement which became effective in May, 1998. The
consulting agreement required the director to return a pro-rata portion of
the stock at its acquisition price of $.01 per share, based upon length of
service. Compensation of $27,000 has been recorded in 1999 based upon the
estimated fair market price of the Company's restricted stock on the date
of issuance. Compensation expense in 1998 was negligible.
In conjunction with the private placement and subsequent registration
statement of the Company's stock in 1997, the Company's legal counsel
received options to acquire 50,000 shares at $2.25 per share. During the
year ended June 30, 1998, legal counsel exercised options to acquire
14,500 shares for proceeds of $32,625.
During the fourth quarter of 1999, the President and the Company negotiated
the terms of the president's resignation to be effective August 1, 1999.
The board of directors formally accepted his resignation in July 1999. In
conjunction with the former president's resignation, he will receive
monthly payments of $7,153 through December 31, 1999 and $1,250 per month
for a period of 48 months thereafter. Additionally, the Company has agreed
to acquire his stock for $200,000, payable in monthly installments of
$4,166, without interest, over four years. The purchase price of his stock
is subject to an upward adjustment in the event of a sale, merger or
consolidation of the Company. The Company has accrued a liability of
$95,765 at June 30, 1999, as part of the former president's severance
arrangement. The acquisition of the stock will be recorded during the year
ending June 30, 2000.
19
<PAGE> 22
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
10. Stock Option Plan
In January 1999, the Board of Directors adopted the 1999 Incentive and
Non-statutory Stock Option Plan, subject to shareholder approval. Under
terms of the plan, options may be granted to employees, directors and
consultants of the Company. The plan is to be administered by the Board of
Directors, which has total discretion in granting stock options. The
exercise price of the options is to be no less than the fair market value
of the options on the date of the grant. Generally, the options shall
become exercisable over a period of no longer than ten years and no less
that 20% of the shares shall become exercisable annually.
Effective August 1, 1999, the Company granted options for 900,000 shares to
an officer and director at $.10 per share. The options vest 25%
immediately and 25% each year for the following three years.
11. Year 2000 disclosures
The Year 2000 issue results from computer hardware or software programs
written using two digits to identify the year. These computer programs and
hardware were designed and developed without consideration of the impact
of the upcoming change in the century. If not corrected, such hardware and
software programs could create erroneous information by or at the year
2000.
The Company has obtained representation from its software vendor that its
software is Year 2000 compliant. However, there can be no assurance that
problems will not be encountered or that there will not be increased costs
associated with Year 2000 issues. These issues may have an adverse effect
on future results of operations.
The Company may also be impacted by the ability of third parties to become
Year 2000 compliant. Those parties include suppliers, customers and other
third party business partners. If the Company's suppliers, customers,
business partners and others are unable to remediate their own Year 2000
issues, the Company may be exposed to financial risk.
12. 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.
20
<PAGE> 23
NEW DIRECTIONS MANUFACTURING, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
12. Disclosures about fair value of financial instruments
Since the fair value is estimated as of June 30, 1999, the amounts that will
actually be realized or paid at settlement of the instruments could be
significantly different.
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.
21
<PAGE> 24
PART II (CONTINUED)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The information required by Items 9, 10, 11, and 12 are omitted because the
Company will file a definitive Proxy Statement pursuant to Regulation 14A under
the Securities Exchange Act of 1934 not later than September 28, 1999. The
information required by such items will be included in the definitive Proxy
Statement to be so filed for the Company's Annual Meeting of Stockholders
scheduled for October 8, 1999 and is hereby incorporated by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 Articles of Incorporation of New Directions Manufacturing, Inc., a
Nevada corporation, dated January 9, 1997 (incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form SB-2,
filed on July 2, 1997, as amended (Registration No. 333-30583) (the
"1997 SB-2)).
3.2 Amendment to Articles of Incorporation of New Directions
Manufacturing, Inc., a Nevada corporation, dated May 29, 1997
(incorporated by reference to 3.2 to the 1997 SB-2).
3.3 Bylaws of New Directions Manufacturing, Inc., dated May 29, 1997
(incorporated by reference to 3.3 to the 1997 SB-2).
3.4 Amended and Restated Bylaws of New Directions Manufacturing, Inc.,
dated July 20, 1998 (incorporated by reference to Exhibit 3.2 to the
Company's Form 10-KSB for the fiscal year ended June 30, 1998, filed
on September 15, 1998 (File No. 000-22855) (the "1998 10-KSB")).
4.1 Option Agreement between New Directions Manufacturing, Inc. and
Horwitz & Beam, Inc., dated June 9, 1997 (incorporated by reference
to 4 to the 1997 SB-2).
4.2 Option Agreement between New Directions Manufacturing, Inc. and
Horwitz & Beam, Inc., dated September 15, 1997 (incorporated by
reference to 4.1 to the 1997 SB-2).
10.1 Employment Agreement, dated December 31, 1996, between New
Directions Manufacturing, Inc. and Donald A. Metke (incorporated by
reference to 10.1 to the 1997 SB-2).
10.2 Employment Agreement, dated December 31, 1996, between New
Directions Manufacturing, Inc. and Jack Horner, Jr. (incorporated by
reference to 10.2 to the 1997 SB-2).
10.3 Consulting Agreement, dated December 31, 1996, between New
Directions Manufacturing, Inc. and Sean F. Lee (incorporated by
reference to 10.3 to the 1997 SB-2).
10.4 Lease Agreement, dated November 11, 1992 (incorporated by reference
to 10.4 to the 1997 SB-2).
10.5 Plan of Merger between Premier Ventures, Inc. and New Directions
Manufacturing, Inc., dated February 25, 1997 (incorporated by
reference to 10.5 to the 1997 SB-2).
22
<PAGE> 25
10.6 Articles of Merger between Premier Ventures, Inc. and New Directions
Manufacturing, Inc., dated March 14, 1997 (incorporated by reference
to 10.6 to the 1997 SB-2).
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 (incorporated by reference to 10.7 to the 1997 SB-2).
10.8 Exchange Agreement between New Directions Manufacturing, Inc., a
Nevada corporation, and Premier Ventures & Explorations, Inc., a
Louisiana corporation, dated January 10, 1997 (incorporated by
reference to 10.8 to the 1997 SB-2).
10.9 Repurchase Agreement between New Directions Manufacturing, Inc. and
shareholders Donald A. Metke, Sean F. Lee, and Jack Horner, Jr.,
dated March 17, 1998 (incorporated by reference to Exhibit 10 to the
Company's Form 10-QSB, as amended, for the quarter ended March 31,
1998, filed on May 11, 1998 (File No. 000-22855)).
10.10 Consulting Agreement with Michael D. Dunn, dated May 1, 1998
(incorporated by reference to Exhibit 10 to the 1998 10-KSB).
10.11 Amendment to Repurchase Agreement between New Directions
Manufacturing, Inc. and shareholders Donald A. Metke, Sean F. Lee,
and Jack Horner, Jr., dated December 10, 1998 (incorporated by
reference to Exhibit 10 to the Company's Form 10-QSB for the quarter
ended December 31, 1998, filed on February 3, 1999 (File No.
000-22855)).
10.12 Amendment to Employment Agreement between New Directions
Manufacturing, Inc. and Donald A. Metke, dated January 22, 1999
(incorporated by reference to Exhibit (10(i) to the Company's Form
10-QSB for the quarter ended March 31, 1999, filed on May 10, 1999
(File No. 000-22855) (the "March 31, 1999 10-QSB")).
10.13 Amendment to Employment Agreement between New Directions
Manufacturing, Inc. and Jack Horner, Jr., dated January 22, 1999
(incorporated by reference to Exhibit 10(ii) to the March 31, 1999
10-QSB).
10.14 Amendment to Consulting Agreement between New Directions
Manufacturing, Inc. and Sean F. Lee, dated January 22, 1999
(incorporated by reference to Exhibit 10(iii) to the March 31, 1999
10-QSB).
10.15 New Directions Manufacturing, Inc. 1999 Incentive and Nonstatutory
Stock Option Plan, dated January 22, 1999 (incorporated by reference
to Exhibit 10(iv) to the March 31, 1999 10-QSB).
10.16 Accounts Receivable Security Agreement dated June 23, 1999.
10.17 Inventory Rider, dated June 23, 1999.
10.18 Guaranty and Subordination, dated June 23, 1999.
10.19 Multiple Advance Promissory Note, dated June 23, 1999.
10.20 Separation Agreement between New Directions Manufacturing, Inc. and
Donald A. Metke, dated July 28, 1999.
10.21 Short Term Consulting Agreement between New Directions
Manufacturing, Inc. and Donald A. Metke, dated August 1, 1999.
10.22 Long Term Consulting Agreement between New Directions Manufacturing,
Inc. and Donald A. Metke, dated January 1, 2000.
10.23 Employment Agreement between New Directions Manufacturing, Inc. and
Sean F. Lee, dated August 1, 1999.
27 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K for the period of
April 1, 1999 through the date of this report:
<TABLE>
<CAPTION>
Item Reported Date Financial Statements
------------- ---- --------------------
<S> <C> <C> <C>
(1) 5 August 5, 1999 None - Not Applicable
</TABLE>
23
<PAGE> 26
SIGNATURE PAGE
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEW DIRECTIONS MANUFACTURING, INC.
<TABLE>
<S> <C>
Date: September 27, 1999 /s/ Sean F. Lee
---------------------------------------
SEAN F. LEE
President, Chief Executive Officer,
Chief Financial Officer, Chief
Operating Officer, Chairman
</TABLE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<S> <C>
Date: September 27, 1999 /s/ Sean F. Lee
---------------------------------------
SEAN F. LEE
President, Chief Executive Officer,
Chief Financial Officer, Chief
Operating Officer, Chairman
Date: September 27, 1999 /s/ Jack Horner, Jr.
---------------------------------------
JACK HORNER, JR.
Executive Vice President, Secretary,
Director
Date: September 27, 1999 /s/ Donald A. Metke
---------------------------------------
DONALD A. METKE
Director
Date: September 27, 1999 /s/ Michael D. Dunn
---------------------------------------
MICHAEL D. DUNN
Director
</TABLE>
24
<PAGE> 27
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Articles of Incorporation of New Directions Manufacturing, Inc., a
Nevada corporation, dated January 9, 1997 (incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form SB-2,
filed on July 2, 1997, as amended (Registration No. 333-30583) (the
"1997 SB-2)).
3.2 Amendment to Articles of Incorporation of New Directions
Manufacturing, Inc., a Nevada corporation, dated May 29, 1997
(incorporated by reference to 3.2 to the 1997 SB-2).
3.3 Bylaws of New Directions Manufacturing, Inc., dated May 29, 1997
(incorporated by reference to 3.3 to the 1997 SB-2).
3.4 Amended and Restated Bylaws of New Directions Manufacturing, Inc.,
dated July 20, 1998 (incorporated by reference to Exhibit 3.2 to the
Company's Form 10-KSB for the fiscal year ended June 30, 1998, filed
on September 15, 1998 (File No. 000-22855) (the "1998 10-KSB")).
4.1 Option Agreement between New Directions Manufacturing, Inc. and
Horwitz & Beam, Inc., dated June 9, 1997 (incorporated by reference
to 4 to the 1997 SB-2).
4.2 Option Agreement between New Directions Manufacturing, Inc. and
Horwitz & Beam, Inc., dated September 15, 1997 (incorporated by
reference to 4.1 to the 1997 SB-2).
10.1 Employment Agreement, dated December 31, 1996, between New
Directions Manufacturing, Inc. and Donald A. Metke (incorporated by
reference to 10.1 to the 1997 SB-2).
10.2 Employment Agreement, dated December 31, 1996, between New
Directions Manufacturing, Inc. and Jack Horner, Jr. (incorporated by
reference to 10.2 to the 1997 SB-2).
10.3 Consulting Agreement, dated December 31, 1996, between New
Directions Manufacturing, Inc. and Sean F. Lee (incorporated by
reference to 10.3 to the 1997 SB-2).
10.4 Lease Agreement, dated November 11, 1992 (incorporated by reference
to 10.4 to the 1997 SB-2).
10.5 Plan of Merger between Premier Ventures, Inc. and New Directions
Manufacturing, Inc., dated February 25, 1997 (incorporated by
reference to 10.5 to the 1997 SB-2).
<PAGE> 28
10.6 Articles of Merger between Premier Ventures, Inc. and New Directions
Manufacturing, Inc., dated March 14, 1997 (incorporated by reference
to 10.6 to the 1997 SB-2).
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 (incorporated by reference to 10.7 to the 1997 SB-2).
10.8 Exchange Agreement between New Directions Manufacturing, Inc., a
Nevada corporation, and Premier Ventures & Explorations, Inc., a
Louisiana corporation, dated January 10, 1997 (incorporated by
reference to 10.8 to the 1997 SB-2).
10.9 Repurchase Agreement between New Directions Manufacturing, Inc. and
shareholders Donald A. Metke, Sean F. Lee, and Jack Horner, Jr.,
dated March 17, 1998 (incorporated by reference to Exhibit 10 to the
Company's Form 10-QSB, as amended, for the quarter ended March 31,
1998, filed on May 11, 1998 (File No. 000-22855)).
10.10 Consulting Agreement with Michael D. Dunn, dated May 1, 1998
(incorporated by reference to Exhibit 10 to the 1998 10-KSB).
10.11 Amendment to Repurchase Agreement between New Directions
Manufacturing, Inc. and shareholders Donald A. Metke, Sean F. Lee,
and Jack Horner, Jr., dated December 10, 1998 (incorporated by
reference to Exhibit 10 to the Company's Form 10-QSB for the quarter
ended December 31, 1998, filed on February 3, 1999 (File No.
000-22855)).
10.12 Amendment to Employment Agreement between New Directions
Manufacturing, Inc. and Donald A. Metke, dated January 22, 1999
(incorporated by reference to Exhibit (10(i) to the Company's Form
10-QSB for the quarter ended March 31, 1999, filed on May 10, 1999
(File No. 000-22855) (the "March 31, 1999 10-QSB")).
10.13 Amendment to Employment Agreement between New Directions
Manufacturing, Inc. and Jack Horner, Jr., dated January 22, 1999
(incorporated by reference to Exhibit 10(ii) to the March 31, 1999
10-QSB).
10.14 Amendment to Consulting Agreement between New Directions
Manufacturing, Inc. and Sean F. Lee, dated January 22, 1999
(incorporated by reference to Exhibit 10(iii) to the March 31, 1999
10-QSB).
10.15 New Directions Manufacturing, Inc. 1999 Incentive and Nonstatutory
Stock Option Plan, dated January 22, 1999 (incorporated by reference
to Exhibit 10(iv) to the March 31, 1999 10-QSB).
10.16 Accounts Receivable Security Agreement dated June 23, 1999.
10.17 Inventory Rider, dated June 23, 1999.
10.18 Guaranty and Subordination, dated June 23, 1999.
10.19 Multiple Advance Promissory Note, dated June 23, 1999.
10.20 Separation Agreement between New Directions Manufacturing, Inc. and
Donald A. Metke, dated July 28, 1999.
10.21 Short Term Consulting Agreement between New Directions
Manufacturing, Inc. and Donald A. Metke, dated August 1, 1999.
10.22 Long Term Consulting Agreement between New Directions Manufacturing,
Inc. and Donald A. Metke, dated January 1, 2000.
10.23 Employment Agreement between New Directions Manufacturing, Inc. and
Sean F. Lee, dated August 1, 1999.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10.16
ACCOUNTS RECEIVABLE SECURITY AGREEMENT
DATE: June 23, 1999
BORROWER: New Directions FCFC: FIRST COMMUNITY
Manufacturing, Inc., FINANCIAL CORPORATION,
an Arizona corporation an Arizona corporation
ADDRESS: 2940 West Willetta ADDRESS: 3550 N. Central Avenue
Phoenix, Arizona 85009 Suite 102
Phoenix, Arizona 85012
Borrower is desirous of obtaining a Credit Facility and other financial
accommodations from FCFC, and FCFC is willing to make such Credit Facility
available to Borrower on the following terms and conditions to be secured by
the Collateral hereinafter described:
1. Definitions.
1.1 "Accounts" means and includes all of Borrower's presently existing
and hereafter arising accounts, instruments, contract rights, documents, chattel
paper (including security agreements and leases), and all other forms of
obligations owing to Borrower, all guaranties of such Accounts and other
security therefor, the proceeds of such Accounts, all Inventory returned to or
reclaimed by Borrower and the Borrower's Books relating to any of the foregoing.
1.2 "Agreement" means and includes this Accounts Receivable Security
Agreement, any concurrent or subsequent Rider hereto and any extensions,
supplements, amendments or modifications thereto.
1.3 "Borrower's Books" means and includes all of Borrower's books and
records including but not limited to: all customer lists and lists of account
debtors; all ledgers; records reflecting, summarizing or evidencing Borrower's
assets, accounts, business operations or financial condition; computer programs,
computer discs, computer printouts, and other computer prepared information and
computer equipment of any kind.
1.4 "Collateral" means and includes all of Borrower's existing and
hereafter acquired Accounts, Inventory, money, deposit accounts, and general
intangibles (including tax refunds, and all trademarks and trade names of
Borrower), and any and all other property of Borrower in which FCFC now has or
hereafter receives a security interest or which hereafter come into the
possession, custody or control of FCFC, and the proceeds thereof, including
<PAGE> 2
proceeds of insurance covering the Collateral and the proceeds resulting from
the sale, rental, or other disposition of the Collateral.
1.5 "Credit Facility" shall mean a revolving line of credit granted by
FCFC to Borrower in the amount of $700,000, in accordance with the terms and
conditions set forth in this Agreement.
1.6 "Eligible Accounts" means Accounts on selling terms of net 30 days
or less, which have been validly assigned to FCFC and strictly comply with all
of Borrower's warranties and representations set forth in this Agreement, but
excluding those Accounts: (a) which are not paid within 90 days of their invoice
date; (b) which are owed by a single account debtor, if 25% of the amount owing
by said account debtor remains unpaid for more than 90 days after its invoice
date; (c) where the total indebtedness owed by an account debtor to Borrower
exceeds 10% of all Eligible Accounts; (d) which represent the sale of goods
delivered on consignment, guaranteed sale or on other conditional terms; (e)
which are subject to any defense, setoff or counterclaim claimed or asserted by
the account debtor; (f) which are evidenced by an instrument; (g) which are owed
by an account debtor who is not a resident of the United States; (h) where the
account debtor is the United States or any department, agency or instrumentality
of the United States, or any state, city, town, municipality or division
thereof; (i) where the account debtor is a subsidiary of, related to, affiliated
or has common shareholders, officers or directors with Borrower; (j) where the
account debtor is an officer, employee or agent of Borrower; (k) which represent
goods sold and/or transferred where possession and/or control is held,
maintained or retained by Borrower (or its agent) for the account of or subject
to further and/or future direction from the account debtor thereof; or (1)
Accounts which are not creditworthy, in the sole opinion of FCFC.
1.7 "FCFC's Costs" means and includes: filing, recording, publication
and search fees incurred by FCFC relating to Borrower; all costs and expenses
incurred by FCFC in the enforcement of its rights and remedies under this
Agreement, or defending this Agreement or its security interest in the
Collateral; long distance telephone and facsimile charges, the expenses of field
examiners; all expenses for travel, lodging and food incurred by FCFC's
personnel in collecting the Accounts or realizing upon the Collateral; all costs
and expenses incurred in gaining possession of, maintaining, handling,
preserving, storing, repairing, shipping, selling, preparing for sale and
advertising to sell the Collateral, whether or not a sale is consummated; all
expenses involved in fulfilling in whole or in part any purchase order from an
account debtor; and reasonable attorney's fees and expenses incurred by FCFC as
provided for in this Agreement.
1.8 "Inventory" means and includes all of Borrower's goods held for
sale or lease, raw materials, components, work in process, finished merchandise,
and packing and shipping materials, now owned or hereafter acquired, wherever
located; all patents, blueprints and drawings related thereto; all other items
hereafter acquired by Borrower by way of substitution, replacement, return,
repossession or otherwise, and all additions and accessions thereto; and the
resulting product or mass, and any documents of title representing any of the
above.
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<PAGE> 3
1.9 "Obligations" means and includes all loans, advances (whether
evidenced by promissory note(s) or not), indebtedness, liabilities, obligations,
lease payments, guaranties, covenants and duties of Borrower to FCFC of every
kind, nature and description, (whether arising out of this Agreement, or any
other security agreement, mortgage, lease, instrument, document, contract or
similar agreement now or hereafter executed by Borrower and delivered to FCFC,
or by oral agreement or operation of law and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due,
liquidated or unliquidated, now existing or hereafter arising, including without
limitation any debt, liability or obligation owing by Borrower to others which
FCFC may have acquired by assignment or otherwise, and further including,
without limitation, all interest and FCFC's Costs which Borrower is required to
pay or reimburse by this Agreement, by law or otherwise. The term "Obligations"
also includes all amounts which would become due but for the operation of the
automatic stay under Section 362(a) of the United States Bankruptcy Code, 11
U.S.C. 362(a), and the operation of Section 502(b) and 506(b) of the United
States Bankruptcy Code, 11 U.S.C. 502(b) and 506(b), and including indebtedness
of Borrower arising under successive transactions which renew, continue,
refinance or refund the Obligations of Borrower.
1.10 "Prime Rate" means the Prime Rate publicly announced by Bank One,
Phoenix, Arizona, from time to time (which may not necessarily be the lowest
rate charged by such bank to its customers).
1.11 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definitions set forth herein or, to
the extent not inconsistent herewith, as such terms are defined in the Arizona
Uniform Commercial Code, as amended from time to time (hereinafter referred to
as the "Code").
2. Advances and Charges.
2.1 Upon request of Borrower, from time to time during the term
hereof, provided the representations and warranties of paragraph 5. hereof are
then true, and so long as no event of default hereunder has occurred and
Borrower is in full, faithful and timely compliance with each and all of the
covenants, conditions, warranties, and representations, contained in this
Agreement or in any other agreement between FCFC and Borrower, FCFC agrees to
make advances to Borrower in an amount which when added to the advances then
outstanding does not exceed the lesser of the Credit Facility or 75% of the
amount of Eligible Accounts of Borrower (less discounts, credits, allowances,
service charges, commissions, and freight charges which may be granted to or
taken by the account debtors). FCFC may at any time and from time to time change
the percentage of Eligible Accounts to be advanced to Borrower.
FCFC is hereby authorized to make said advances based upon telephonic
or other instructions received from anyone purporting to be an officer,
employee, or representative of Borrower.
2.2 The Obligations of Borrower to FCFC shall bear interest, for the
actual days outstanding at the rate equal to the Prime Rate plus 5.00% per
annum, computed on the basis
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<PAGE> 4
of a 360-day year for actual days elapsed. The Prime Rate of 7.75%, is the rate
in effect as of this date. In the event of a change in the Prime Rate from time
to time, the rate of interest to be charged to Borrower shall be correspondingly
adjusted as of the date of the Prime Rate change. Notwithstanding the foregoing,
in no event shall the interest rate chargeable hereunder be less than the Prime
Rate plus 5.00% per annum. Interest is due and payable to FCFC under this
Agreement on the first day of each month. Any interest not paid when due shall
become a part of Borrower's Obligations under this Agreement, and shall
thereafter bear interest as provided herein.
FCFC shall render statements to Borrower of the Obligations, including
all principal, interest and FCFC's Costs owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and FCFC unless, within thirty (30) days after receipt
thereof by Borrower, Borrower notifies FCFC in writing specifying the error or
errors, if any, contained in any such statements.
2.3 Upon the default by Borrower under any provision of this Agreement,
and for as long as Borrower is in default, interest shall accrue on the
Obligations from and after such default at a rate of interest which is four
percent per annum greater than the rate which is then being charged.
2.4 In consideration for establishing the Credit Facility on the terms
and conditions provided for herein, Borrower agrees to pay to FCFC a commitment
and funding fee, which shall be deemed earned and non-refundable upon payment
thereof, (i) in the amount of one and one-half percent (1 1/2%) of the Credit
Facility upon the execution hereof; and (ii) in the amount of one percent (1%)
of the Credit Facility upon each annual anniversary of the date of this
Agreement until such time as the Credit Facility has been terminated. In the
event that the term of this Agreement is renewed as provided in paragraph 4
below, Borrower shall pay within ten days prior to the anniversary date to FCFC
a renewal fee of 1% of the Credit Facility each renewal period. In the event
that the amount under the Credit Facility is increased, Borrower shall pay to
FCFC a 1% line increase fee on the additional commitment amount, which shall be
deemed earned and non-refundable upon payment thereof.
2.5 In order to further induce FCFC to grant the Credit Facility to
Borrower, Borrower agrees that the minimum amount of interest to be paid monthly
by Borrower to FCFC, during the original and each renewal term of this
Agreement, shall not be less than $2,500 per month. Notwithstanding any default
by Borrower, or a termination of this Agreement by FCFC because of such
default, this minimum interest shall be charged to and paid by Borrower for the
unexpired term of this Agreement. In the event the monthly interest earned by
FCFC on advances made by FCFC to Borrower under this Agreement is less than the
minimum set forth above, Borrower will pay to FCFC such difference at the same
time as such accrued interest is due and payable.
2.6 It is the intention of the parties hereto that the interest
required to be paid by Borrower to FCFC, plus all charges imposed upon Borrower
hereunder which may be construed by a court of law to be interest, shall not
exceed the maximum rate of interest allowed by the laws of the State of Arizona
and if a court of law construes the same to exceed such
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<PAGE> 5
maximum rate, then the excess so determined shall be applied against the
principal balance of Obligations owing to FCFC.
3. Creation of Security Interest.
3.1 Borrower hereby grants to FCFC a continuing security interest in
the Collateral to secure the prompt payment and performance by Borrower of all
Obligations under this Agreement or otherwise created.
3.2 Borrower shall execute and deliver to FCFC concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter at
the request of FCFC, financing statements, continuation statements, security
agreements, mortgages, assignments, certificates of title, affidavits, reports,
notices, schedules of accounts, letters of authority and all other documents
that FCFC may request, in form satisfactory to FCFC, to perfect and maintain
FCFC'S security interest in the Collateral and fully comply with this Agreement.
Borrower hereby makes, constitutes and appoints FCFC (and any of FCFC's
officers, employees or agents designated by FCFC) as Borrower's true and lawful
attorney (which shall be irrevocable until all Obligations are fully paid and
satisfied) with power to sign the name of Borrower on any financing statement,
continuation statement, security agreement, mortgage, assignment, certificate of
title, affidavit, letter of authority, or notice or other similar document
necessary to perfect or continue the perfection of FCFC's security interest in
the Collateral. Borrower shall make appropriate entries in Borrower's Books
disclosing FCFC's security interest in the Accounts. FCFC (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter during Borrower's usual business hours to inspect the Collateral.
3.3 To further evidence the security interest of FCFC in the Accounts,
Borrower shall, from time to time, provide FCFC with schedules and written
assignments of its Accounts, in form satisfactory to FCFC. Borrower's failure to
execute and deliver such schedules and/or assignments shall not affect or limit
FCFC's security interest or any other rights in and to the Accounts. Together
with each schedule, Borrower shall furnish FCFC with true and correct copies of
Borrower's customers' invoices or the equivalent and original shipping or
delivery receipts for all Inventory sold.
3.4 FCFC, or its agents, may at any time (and whether or not Borrower
is in default under this Agreement) and without notice thereof to Borrower: (a)
notify the account debtors of Borrower that the Accounts have been assigned to
FCFC and that FCFC has a security interest therein; (b) direct all account
debtors to make payment of all Accounts to FCFC; (c) demand, collect (by legal
means or otherwise), receive, receipt for, sue for, compromise, adjust, settle
or extend the time for payment of any Account upon such terms as FCFC may
reasonably determine under the circumstances, in its own name or in the name of
Borrower (crediting Borrower's Accounts with only the net amount received by
FCFC in payment of the Accounts, after deducting all FCFC's Costs in connection
therewith); and (d) take control of all proceeds from said Accounts. In this
regard, Borrower agrees that it will cooperate with FCFC (and execute such forms
or notices as FCFC may request) in notifying the account debtors that the
Accounts have been assigned to FCFC and that FCFC has a security interest
therein. Until such
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<PAGE> 6
time as FCFC exercises such right, Borrower shall collect the Accounts,
receiving in trust all proceeds therefrom as FCFC's trustee and each day deliver
said proceeds to FCFC in their original form as received from the account
debtors, together with a remittance report, in form satisfactory to FCFC. The
receipt of any check or other item of payment by FCFC shall not be considered
payment to FCFC until such check or other item of payment is actually paid. For
the purpose of computing the interest to be charged to Borrower under paragraph
2.2 hereof all checks, and other items of payment delivered to FCFC from time to
time shall be treated as being paid four business days after the date FCFC
actually receives such check or other item of payment, subject to reversal of
entry in the event such remittance is not paid upon presentment to the drawee
bank. It is further understood that for the purpose of computing interest to be
charged to Borrower, the amount of any credit balance which Borrower may have
with FCFC shall be treated as an advance by FCFC to Borrower under this
Agreement.
3.5 Borrower authorizes FCFC and FCFC shall have the right at any time
or times to verify the Accounts by mail, telephone, or otherwise in the name of
Borrower or FCFC. In addition, Borrower authorizes FCFC to obtain information
from Borrower's suppliers and customers and, in this regard, Borrower waives any
right or claim against any such supplier or customer for furnishing information
to FCFC.
3.6 Borrower shall promptly provide FCFC with all information relating
to the financial condition of any account debtor, and shall notify FCFC of the
rejection of goods by any account debtor, delay in the delivery of goods, or any
returns or recoveries of goods, nonperformance of contracts, or the assertion by
an account debtor of any claim, offset or counterclaim, and the settlement or
adjustment of any dispute or claim with an account debtor on terms approved by
FCFC.
3.7 Borrower agrees to keep all goods returned by any account debtor
and all goods repossessed or stopped in transit by Borrower, segregated from
other property of Borrower, holding the same as trustee for FCFC, outside the
ordinary course of business, until otherwise directed in writing by FCFC.
3.8 Borrower does hereby irrevocably designate, make, constitute and
appoint FCFC, and any agent of FCFC, as Borrower's true and lawful attorney,
with power, without notice to Borrower, and at such time or times (except as
otherwise provided herein) as FCFC may, in its sole election, determine, in
Borrower's or FCFC's name and at Borrower's expense, to:
(a) Endorse Borrower's name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into FCFC's
possession.
(b) Exercise all of Borrower's rights and remedies with respect to
the collection of Accounts.
(c) Sign Borrower's name on any invoice, freight bill or bill of
lading relating to any Account, on any draft against an account debtor, on any
schedule assignment of Accounts, verification of Accounts or on any notice to
account debtors.
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<PAGE> 7
(d) Prepare, file and sign Borrower's name on any proof of claim in
bankruptcy or similar document against an account debtor.
(e) Prepare, file and sign Borrower's name on any notice of lien,
claim of mechanic's lien or similar document or waiver or satisfaction thereof
in connection with an Account.
(f) Execute any other documents which may facilitate the collection,
liquidation or disposition of the Collateral.
FCFC shall not be obligated to do any of the acts or exercise any of
the powers hereinabove authorized, but, if FCFC elects to collect said Accounts,
do any such act or exercise any of the foregoing powers, it may do so in any
manner or means as it may determine, and shall not be liable to Borrower for any
error in judgment or mistake of fact or law, excepting willful misconduct or bad
faith. This power, being coupled with an interest, is irrevocable until all
Obligations of Borrower to FCFC are fully paid and satisfied. All acts by or on
behalf of FCFC pursuant hereto are hereby ratified and approved by Borrower.
4. Term. This Agreement shall have a term of two years from the date
hereof and shall be automatically renewed from year to year thereafter, unless
terminated by either party on any anniversary date of this Agreement by written
notice to this effect given not less than 30 days, nor more than 45 days, prior
to said anniversary date. Notwithstanding the foregoing, Borrower may terminate
this Agreement at any time prior to the anniversary date of this Agreement, by
giving written notice to FCFC to this effect not less than 30 days, nor more
than 45 days, prior to the effective date of such termination, provided that
Borrower pays to FCFC on the date of termination, in addition to all Obligations
of Borrower to FCFC, the minimum amount of interest required to be paid by
Borrower to FCFC during the remainder of the original or renewal term of this
Agreement, as provided in paragraph 2.5 above. In the event Borrower defaults in
the performance of any provision of this Agreement, FCFC may, at its election,
terminate this Agreement at any time, without notice. On the date of
termination, all Obligations, including but not limited to, obligations arising
by reason of the termination of this Agreement, shall become immediately due and
payable without notice or demand. Notwithstanding such termination, until all
Obligations have been fully satisfied, FCFC shall retain its security interest
in all existing Collateral and Collateral arising thereafter, and Borrower shall
continue to turn over all collections from the Accounts to FCFC. It is
understood and agreed that if Borrower has given notice of termination, pursuant
to the provisions of this paragraph, and fails to pay all Obligations to FCFC on
the specified date, or within 10 days thereafter, then this Agreement shall be
automatically renewed for an additional one year term.
5. Representations and Warranties. Until all Obligations of Borrower to
FCFC have been fully paid and satisfied, Borrower does hereby warrant and
represent that:
(a) If Borrower is a corporation or a limited liability company, it is
duly organized and is and all times hereinafter will be in good standing under
the laws of the state of
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<PAGE> 8
its incorporation and is duly qualified and in good standing in every other
state in which the nature of its business requires such qualification.
(b) Borrower is the true and lawful owner of the Collateral and has the
right, power and authority to grant a security interest therein to FCFC.
(c) Borrower's chief place of business (or if it has more than one
place of business its chief executive office) and the office where Borrower's
Books are kept is at Borrower's address as set forth in this Agreement.
(d) Borrower is not doing business and has not done business during the
last six years under any trade name or style, except its name as set forth in
this Agreement or under the name New Directions -Manufacturer's of Contemporary
Furniture, Inc.
(e) The execution, delivery and performance hereof does not constitute
a default under any indenture, agreement or undertaking to which Borrower is now
or hereafter a party or by which it is or will be bound and, if Borrower is a
corporation or a limited liability company, the same are within Borrower's
corporate powers, have been duly authorized and are not in contravention of its
articles, bylaws, or operating agreement.
(f) All financial statements and information relating to Borrower or
any guarantor of Borrower's Obligations or with respect to the Accounts which
have been or may hereafter be delivered by Borrower to FCFC are true and correct
in all material respects and have been prepared in accordance with generally
accepted accounting principles consistently applied, and there has not been any
material adverse change in the financial condition of Borrower or any guarantor
since the last submission of such financial information to FCFC.
(g) There are no actions or proceedings pending by or against Borrower
or any guarantor of Borrower's Obligations in any court or administrative
agency and Borrower has no knowledge of any pending, threatened or imminent
litigation, governmental investigation or claim, complaint, action or
prosecution involving Borrower or any guarantor of Borrower, except as may have
been specifically disclosed in writing to FCFC and if any of the foregoing arise
during the term of this Agreement, Borrower shall immediately notify FCFC in
writing with respect thereto.
(h) Borrower has duly filed all federal, state and other governmental
tax returns which it is required by law to file and that all taxes and other
sums which may be due to the United States, any state or other governmental
authority have been fully paid and that Borrower now has and shall hereafter
maintain reserves adequate in amount to fully pay all such tax liabilities which
may hereafter accrue.
(i) All assessments and taxes whether real, personal or otherwise due
and payable by or imposed, levied or assessed against Borrower or any of its
assets have been paid and shall hereafter be paid in full before delinquency.
Borrower shall make due and timely payment or deposit of all federal, state and
local taxes, assessments or contributions required of it by law (including
timely payment or deposit of all F.I.C.A. payments and withholding taxes) and
will
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<PAGE> 9
execute and deliver to FCFC on demand appropriate certificates attesting to the
payment or deposit thereof.
(j) Borrower is now and shall be at all times hereafter solvent and
able to pay its debts as they mature.
(k) With respect to all Collateral, FCFC's security interest therein is
now and shall hereafter at all times constitute a perfected, choate, and first
security interest in the Collateral and is not now and will not hereafter become
subordinate or junior to the security interest, lien, encumbrance or claim of
any person.
(l) All information furnished to FCFC at any time by or on behalf of
Borrower was, and will be when furnished, true, complete and correct in all
material respects.
(m) With respect to each Account now and from time to time hereafter
created:
(i) It is genuine, in all respects what it purport to be and
represents a bona fide, existing, valid and legally enforceable
indebtedness of the account debtor named therein, payable in the amount,
time and manner stated in the invoice therefor, and is absolutely owing to
Borrower and not contingent for any reason.
(ii) The delivery receipt and invoice therefor represents bona fide
sale in the ordinary course of Borrower's business, represents the kind,
quality and quantity of the goods or services described therein, and that
the goods or services described herein have been completely delivered,
installed or performed and at the time of delivery or installation have
been accepted by the account debtor without condition.
(iii) No payments have been or shall be made thereon, except
payments which are turned over to FCFC by Borrower.
(iv) There is no setoff, counterclaim or dispute existing or
asserted with respect to the Account and Borrower has not made any
agreement with the account debtor thereof for any deduction or discount of
the sum payable thereunder, except regular discounts allowed by Borrower
in the ordinary course of its business for prompt payment.
(v) The goods sold or transferred or the services rendered as
evidenced by the Account are not subject to any lien, claim, encumbrance
or security interest, except that of FCFC.
(vi) Borrower has no knowledge of the insolvency of the account
debtor or of any action or proceeding involving the account debtor under
any federal or state debtor's relief statute.
(vii) Borrower has no knowledge of any fact or circumstance which
would impair the validity or collectibility of the Account.
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(viii) Borrower has not made any assignment of the Account or
granted a security interest in the Account to any other party other than
FCFC.
(ix) All of Borrower's Books, and all records and documents relating
to the Account are and will be genuine and in all respects what they
purport to be, and accurately reflect the amounts owing or to be owing at
maturity by the account debtor.
Each warranty, representation and agreement contained in this Agreement shall be
automatically deemed repeated with each advance and shall be conclusively
presumed to have been relied upon by FCFC regardless of any investigation made
or information possessed by FCFC. The warranties, representations and agreements
set forth herein shall be cumulative and in addition to any other warranties,
representations and agreements which Borrower shall now or hereafter give, or
cause to be given to FCFC.
6. Affirmative Covenants. Until all Obligations of Borrower to FCFC are
fully paid and satisfied, Borrower will:
(a) At all times fully comply with all federal, state and local laws,
rules, orders or regulations pertaining to the conduct of its business,
including, but not limited to all applicable federal, state and local
environmental laws and regulations relating to the storage, usage and disposal
of hazardous substances or toxic chemicals by Borrower in its business. In this
regard, Borrower agrees to defend, indemnify and hold FCFC harmless for and
against any and all costs, claims, demands, damages including attorneys fees,
court costs, and investigatory and laboratory fees which FCFC may suffer or
incur in connection with any such violation which indemnification shall survive
the termination of this Agreement.
(b) Maintain Borrower's Books at the address set forth in this
Agreement (which is Borrower's place of business or, if it has more than one
place of business, its chief executive office) and will not, without prior
written consent of FCFC relocate its place of business (or if it has more than
one place of business, its chief executive office) or move Borrower's Books
outside the State of Arizona.
(c) Maintain a standard and modern system of accounting in accordance
with generally accepted accounting principles which contain such information as
may be requested by FCFC, and permit FCFC or any of its agents, during
Borrower's usual business hours or during the usual business hours of any third
party having control over the records of Borrower, to have access to and have
the right to examine all of Borrower's Books and in connection therewith and
permit FCFC or any of its agents to copy and make extracts therefrom.
(d) Promptly furnish to FCFC such records, data and other information
with respect to the financial condition of Borrower, the Collateral and any
guarantor, as FCFC may request from time to time, and deliver to FCFC within 90
days after the end of each Borrower's fiscal year, a detailed report in form
satisfactory to FCFC containing a statement of the financial condition and
operation of Borrower for each such fiscal year, and within 20 days, after
demand
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by FCFC, deliver to FCFC copies of any financial report or statement prepared by
or for Borrower. Each such statement and report shall be reviewed or compiled by
an independent CPA or, with the consent of FCFC, prepared by an authorized
officer of Borrower certifying that such report, statement or document delivered
or caused to be delivered to FCFC is complete, correct and thoroughly presents
the financial condition of Borrower and that on the date of said certification
no event or condition exists which constitutes a breach or event of default
under this Agreement. In addition, Borrower shall deliver to FCFC within 30 days
after the end of each month, a detailed report in form satisfactory to FCFC
containing a statement of the financial condition and operation of Borrower for
each such month.
(e) Allow FCFC to possess, remove to FCFC's premises or the premises of
any agent of FCFC, copies of Borrower's Books, for so long as FCFC may desire in
connection with the enforcement of FCFC's rights under this Agreement.
(f) Notify FCFC of any material adverse change in Borrower's financial
condition.
(g) Make timely payment or deposit of all taxes (including F.I.C.A.
payments and deposits of withholding taxes) and assessments required to be paid
by Borrower and deliver to FCFC, as requested, evidence of such payment or
deposit.
(h) Pay all rent when due and otherwise abide by the terms under which
Borrower leases or occupies the premises at which the Collateral is located; if
Borrower fails to do so, FCFC may, without any obligation, pay such rent and any
sum so paid shall be part of FCFC's Costs, secured by the Collateral and payable
on demand.
(i) Cause to be paid all amounts necessary to fund, in accordance with
their terms, all pension plans presently in existence or hereafter created and
Borrower will not withdraw from participation in, permit the termination or
partial termination of, or permit the occurrence of any other event with respect
to any deferred compensation plan maintained for the benefit of its employees
under circumstances that could result in liability to the Pension Benefit
Guarantee Corporation, or any of its successors or assigns, or to the entity
which provides funds for such deferred compensation plan.
(j) Maintain a working capital ratio of 1.0:1 and a tangible net
worth at least equal to 80% of that set forth in the financial statements of
Borrower dated April 30, 1999.
(k) Maintain itself in good standing in all jurisdictions in which
Borrower is doing business, and at the request of FCFC, furnish to FCFC evidence
of its good standing in all such jurisdictions.
(l) Maintain all Collateral at the address set forth in this Agreement
or at: Center Point Building, 401 South Hamilton, Spaces A103 & A104, High
Point, NC 27261 and 1355 Market Street, Mart 2, Space 721, San Francisco, CA
94103 and will not, without the prior written consent of FCFC, move said
Collateral to any other address.
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<PAGE> 12
(m) Promptly deliver to FCFC all documents and instruments relating to
the Collateral, including invoices, original orders, shipping documents,
delivery receipts, as FCFC may request from time to time.
(n) Furnish to FCFC daily or less frequently as FCFC shall permit from
time to time, written schedules and reports of the status of Borrower's Accounts
in such form as shall be required by FCFC.
(o) On request of FCFC, execute and deliver to FCFC any and all
additional documents which FCFC may request from time to time to evidence the
advances made hereunder or the security interest granted hereby.
7. Negative Covenants. Until all Obligations of Borrower to FCFC are fully
paid and satisfied, Borrower will not, without the prior written consent of
FCFC:
(a) Grant a security interest in the Accounts or the Inventory or
permit a lien, claim or encumbrance to be imposed on any of the Collateral.
(b) Sell, lease, rent or otherwise dispose of, move, transfer or
relocate outside the State of Arizona, whether by sale or other-wise, any of
Borrower's property or any interest therein, including the Collateral, but
excluding Inventory which may be sold, leased, or otherwise disposed of in the
ordinary course of Borrower's business, provided that FCFC shall nevertheless
continue to have a security interest in the proceeds thereof.
(c) Permit any Collateral to become affixed to real property, become an
accession to any property or be used in violation of any applicable law,
regulation or policy of insurance.
(d) Permit any levy, or attachment to be made on any of Borrower's
assets.
(e) Permit any receiver, trustee, custodian, assignee for the benefit
of creditors or any other person or entity having similar powers or duties to be
appointed or to take possession of any or all of Borrower's assets.
(f) Change its corporate or trade name, business structure, corporate
identity or structure, do business under any additional trade name, or
liquidate, merge or consolidate with or into any other business organization.
(g) Acquire any entity or purchase the stock or securities of any
entity (other than securities of any state or federal government).
(h) Permit any sale or disposition of a controlling interest in
Borrower or permit a change in the management of Borrower, except as previously
disclosed to FCFC.
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<PAGE> 13
(i) Enter into any transaction or incur any debts not in the usual
course of Borrower's business, except as previously disclosed to FCFC.
(j) Guarantee or otherwise become in any way liable with respect to the
obligations of any person except by endorsement of instruments or items of
payment for deposit to the account of Borrower or which are transmitted or
turned over to FCFC on account of Borrower's Obligations.
(k) Pay or declare any dividends upon Borrower's capital stock.
(l) Redeem, retire, purchase or otherwise acquire directly or
indirectly any of Borrower's capital stock, except as previously disclosed to
FCFC.
(m) Make any distribution of Borrower's property or assets.
(n) Not Used.
(o) Make any advance, loan, contribution or payment of money (other
than compensation for personal services), goods or credit to, or guarantee any
obligation of any subsidiary, affiliate or parent corporation, or any officer,
shareholder or employee, or cause or permit any such advance, loan, contribution
or guarantee to be made by any subsidiary corporation other than the guaranty
executed in connection herewith with this Agreement.
8. Insurance. Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, and all other hazards and risks
ordinarily insured against by owners in similar businesses for the full
insurable value thereof, business interruption insurance and public liability
and property damage insurance relating to Borrower's ownership and use of its
assets. All such policies of insurance shall be. in such form, with such
companies and in such amounts as may be satisfactory to FCFC. Borrower shall
deliver to FCFC certified copies of such policies of insurance and evidence of
the payment of all premiums therefor. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement in a
form satisfactory to FCFC showing FCFC as the loss payee. All proceeds payable
thereunder shall be payable to FCFC and upon receipt by FCFC shall, at FCFC's
option, be applied on the account of Borrower's Obligations, whether or not then
due, or to the repair or replacement of the Collateral. To secure the payment of
Borrower's Obligations, Borrower grants FCFC a security interest in and to all
such policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers under
such policies of insurance to pay all proceeds thereof directly to FCFC.
Borrower hereby irrevocably appoints FCFC (and any of FCFC's officers, employees
or agents designated by FCFC) as Borrower's attorney for the purpose of making,
settling and adjusting claims under such policies of insurance, endorsing the
name of Borrower on any check, draft, instrument or other item of payment for
the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. Each such insurer shall
agree, by endorsement upon the policy or
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<PAGE> 14
policies of insurance issued by it to Borrower as required above, or by
independent instruments furnished to FCFC, that it will give FCFC at least 10
days written notice before any such policy or policies of insurance shall be
altered or canceled, and that no act of Borrower or any other person or the
default hereunder by Borrower, shall affect the right of FCFC to recover under
such policy or policies of insurance. FCFC, without waiving or releasing any
Obligations or default by Borrower hereunder, may, but shall have no obligation
to do so, obtain and maintain such policies of insurance and pay such premiums
and take any other action with respect to such policies which FCFC deems
advisable. All sums so disbursed by FCFC, as well as reasonable attorneys fees,
court costs, expenses and other charges relating thereto, shall be a part of
FCFC's Costs, secured by the Collateral and payable on demand.
9. Events of Default. The occurrence of any one or more of the following
shall constitute an event of default by Borrower under this Agreement (each an
"Event of Default"):
(a) Borrower fails to pay any of Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of FCFC's Costs, or otherwise) when
due and payable or is declared to be due and payable.
(b) Borrower fails or neglects to perform, keep or observe any term,
provision, condition, or covenant contained in this Agreement, or any other
present or future agreement between Borrower and FCFC.
(c) Any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers or agents, (either individually or
as an officer or agent of Borrower) to FCFC proves to be untrue or incorrect in
any material respect.
(d) Any Collateral cannot be located within five days after FCFC makes
demand upon Borrower to inspect the same or any Collateral has been moved
outside the State of Arizona, without the consent of FCFC.
(e) There is a material impairment in the prospect of repayment of
Borrower's Obligations or a material impairment in the value of the Collateral
or that the priority of FCFC's security interest in the Collateral is contested.
(f) Any of Borrower's assets are attached, seized, or are levied upon,
and the same are not released, discharged or bonded against within ten days
thereafter.
(g) Any proceeding under the Bankruptcy Act is filed by or against
Borrower.
(h) A notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States Government, or
any department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien,
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<PAGE> 15
whether choate or otherwise, upon any or all of the Borrower's assets and the
same is not paid on the payment date thereof.
(i) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs.
(j) Borrower ceases normal business operations.
(k) A material portion of the Collateral is stolen, damaged or
destroyed.
(l) A judgment or other claim becomes a lien or encumbrance upon any or
all of Borrower's assets and the same is not satisfied, dismissed or bonded
against within 10 days thereafter.
(m) If any of Borrower's records are prepared and kept by an outside
computer service at any time during the term of this Agreement, and said
computer service fails to provide FCFC with any requested information or
financial data pertaining to the Collateral, Borrower's financial condition or
the results of Borrower's operations.
(n) If there is a default in any agreement to which Borrower is a party
with any third party resulting in a right by such third party to accelerate the
maturity of any indebtedness of Borrower to such third party.
(o) Borrower makes any payment on account of indebtedness which has
been subordinated to Borrower's Obligations to FCFC, without FCFC's consent, or
if any person subordinating such indebtedness terminates or in any way limits
his subordination.
(p) The chief executive officer of Borrower dies, or is no longer
associated with the Borrower in that capacity, except as previously disclosed to
FCFC, with respect to Donald A. Metke.
(q) Not Used.
10. FCFC's Rights and Remedies.
10.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, FCFC may, at its election, without notice of its election and without
demand upon Borrower or any guarantor, do any one or more of the following, all
of which are authorized by Borrower:
(a) Declare any or all of Borrower's Obligations, whether evidenced
by note(s), or otherwise, immediately due and payable.
(b) Terminate this Agreement, but without affecting FCFC's rights
and security interests in the Collateral, and the Obligations of Borrower to
FCFC.
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<PAGE> 16
(c) Cease making advances to or for benefit of Borrower under the
Credit Facility or reduce the Credit Facility.
(d) Continue making advances to Borrower in such amounts as FCFC may
determine, in its sole discretion, without waiving any default by Borrower under
this Agreement.
(e) Proceed to collect the Accounts, pursuant to A.R.S. Section
47-9502, and, in this regard, notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated by FCFC, and
receive, open and distribute all mail addressed to Borrower, retaining all mail
relating to Collateral and forwarding all other mail to Borrower.
(f) Exercise any and all of the rights accruing to a secured party
under the Code and any other applicable law.
(g) Enter, with or without process of law, upon any premises where
the Collateral is or believed by FCFC to be located (the "Premises"), using all
necessary force to accomplish the same without committing a breach of the peace
(Borrower hereby waives all claims for damages or otherwise due to, arising from
or connected with such entry and/or seizure); and:
(i) Take possession of the Premises and of the Collateral located
therein;
(ii) Place a custodian in exclusive control of the Premises and of
any of the Collateral located therein;
(iii) Remove from the Premises the Collateral (and any of Borrower's
Books, materials and supplies) in any way relating to the Collateral or
useful by FCFC in enforcing its rights hereunder;
(iv) Remain upon the Premises and use the same (together with said
Borrower's Books, materials and supplies) for the purpose of collecting
the Collateral and/or preparing the Collateral for disposition and/or
disposing of the Collateral.
(h) Make (without any obligation to do so) any payment and take such
action as FCFC considers necessary or reasonable to protect or preserve the
Collateral or its security interest therein, including paying, purchasing,
contesting or compromising any encumbrance, charge or lien which, in the opinion
of FCFC, interferes with the enforcement of its security interests or the
liquidation or disposition of the Collateral.
(i) Require Borrower to assemble the Collateral and, at Borrower's
expense, deliver the same to FCFC or to a third party as FCFC's bailee at a
place or places to be designated by FCFC which is reasonably convenient to the
parties.
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<PAGE> 17
(j) Ship, reclaim, recover, store, finish, maintain, repair and
prepare for sale the Collateral.
(k) Sell the Collateral (whether or not the Collateral is present at
any such sale) in its then condition, or after further manufacturing, processing
or preparation thereof (utilizing, in connection therewith, without charge or
liability to FCFC therefor, any of Borrower's assets), at either public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as is commercially reasonable, in the opinion of FCFC. In such event, FCFC shall
(unless notice has been waived after default pursuant to the provisions of the
Code) give notice to Borrower in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, the time after which the private sale or
other disposition is to be made, at least five days before the date fixed for
the sale, or at least five days before the date after which the private sale or
other disposition is to be made, unless the Collateral is perishable or
threatens to decline speedily in value. FCFC may purchase all or any portion of
the Collateral at any public sale.
(1) Seek temporary or permanent injunctive relief without the
necessity of proving actual damages, as no remedy at law will provide adequate
relief to FCFC and, in this regard, the bond which FCFC may be required to post
shall be no more than $500.00.
(m) Require Borrower to pay all FCFC's Costs incurred in connection
with FCFC's enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by FCFC.
Any deficiency which exists after disposition of the Collateral, as provided
above, shall be due and payable by Borrower upon demand, with any excess to be
paid by FCFC to Borrower.
10.2 FCFC's rights and remedies under this Agreement and all other
agreements shall be cumulative and may be exercised simultaneously or
successively, in such order as FCFC shall determine. In addition, FCFC shall
have all other rights and remedies not inconsistent herewith as provided by law
or in equity. No exercise by FCFC of one right or remedy shall be deemed an
election, and no waiver by FCFC of any default on Borrower's part shall be
deemed a continuing waiver. No delay by FCFC shall constitute a waiver, election
or acquiescence by it.
11. Taxes and Expenses Regarding Borrower's Property.
If Borrower fails to pay any assessments, taxes, contributions, or make
any deposits, or furnish any required proof thereof as set forth in paragraph
6(g) hereof or in any other provision of this Agreement, FCFC may, in its sole
and absolute discretion and without notice to Borrower (a) make payment of the
same or any part thereof, or (b) set up such reserves in Borrower's account as
FCFC deems necessary to satisfy the liability therefor, or both. If Borrower
fails to promptly pay when due to any other person or entity, any sum which
Borrower is required to pay by reason of any provision in this Agreement, FCFC
may, but is not obligated to, advance any sums which it deems appropriate for
the protection or preservation of the
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<PAGE> 18
Collateral or its security interest therein, and the amount so advanced by FCFC
shall bear interest at the highest rate provided for in paragraph 2.3 above and
shall constitute FCFC's Costs, payable on demand, and shall be secured by the
Collateral. Any payment made by FCFC shall not constitute (a) an agreement by it
to make similar payments in the future, or (b) a waiver by FCFC of any default
under this Agreement. FCFC need not contest nor inquire as to the validity of
any such expense, tax, security interest, encumbrance or lien, and the receipt
of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.
12. Waivers By Borrower.
12.1 FCFC shall not be deemed to have waived any provision of this
Agreement, or any right or remedy which it may have hereunder, or at law or
equity, unless such waiver is in writing and signed by FCFC.
12.2 Borrower waives the right to direct the application of any
payments at any time or times received by FCFC on account of Borrower's
Obligations and Borrower agrees that FCFC shall have the continuing exclusive
right to apply and reapply such payments in any manner as FCFC may deem
advisable.
12.3 Except as otherwise provided for in this Agreement, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, documents, instruments, chattel paper and guaranties at any
time held by FCFC on which Borrower may in any way be liable.
12.4 Failure or delay by FCFC in exercising or enforcing any right,
power, privilege, lien, option or remedy hereunder shall not operate as a waiver
thereof and a waiver by FCFC of any default by Borrower under this Agreement
shall not be construed to create any right or expectation of future waiver of
any subsequent breach or default by Borrower under this Agreement.
12.5 FCFC shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All such risk or loss, damage or
destruction of the Collateral shall be borne by Borrower.
12.6 Borrower waives (to the extent the same may be lawfully waived):
any and all causes of action and claims which it may now or ever have against
FCFC for failing to protect any Collateral in its possession, or failing to
collect or sell any of the Collateral, notwithstanding the effect of such
possession, collection or sale upon the business of Borrower. In addition,
Borrower hereby releases FCFC of and from (a) any and all liabilities or
penalties for failure of FCFC to perfect or maintain the priority of its
security interest or to comply with any statutory or other requirement imposed
on FCFC; and (b) any error of judgment or mistake of fact or law.
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<PAGE> 19
12.7 In the event FCFC seeks to obtain possession of any of the
Collateral by replevin or other judicial process, Borrower hereby waives (a) any
bond or security required to be posted by any statute, court rule or otherwise
as an incident to such possession and (b) any demand for possession of the
Collateral prior to the commencement of any suit or action to recover possession
thereof.
12.8 Not Used.
13. Notices.
Unless otherwise provided in this Agreement, all notices, demands or
other communications to either party shall be in writing and shall be mailed,
telecopied or communicated by means of facsimile transmission (followed by a
mailed or delivered hard copy), or delivered by hand or courier service, at
their respective addresses set forth in this Agreement, or at such other
addresses as shall be designated by such party in a written notice to the other
party. All notices and other communications shall be effective on three business
days after deposit in the mail (postage prepaid in the case of mail), upon
telecopy or other facsimile transmission or upon hand delivery.
14. Destruction of Borrower's Documents.
Any documents, schedules, invoices or other papers delivered to FCFC,
may be destroyed or otherwise disposed of by FCFC five months after they are
delivered to or received by FCFC, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. Release.
Only at such time as all Obligations of Borrower to FCFC shall have been
fully paid and satisfied and Borrower and all guarantors of Borrower's
obligations execute and deliver to FCFC a release acknowledging that Borrower
does not have any claims against FCFC and provides FCFC with an appropriate
indemnity indemnifying FCFC for any remittances for which Borrower has received
credit and which are not paid, shall FCFC release its security interest in the
Collateral and deliver to Borrower an appropriate termination statement.
16. General Provisions.
16.1 The parties intend and agree that their respective rights, duties,
powers, liabilities, obligations and discretions shall be performed, carried
out, discharged and exercised reasonably and in good faith.
16.2 If at any time or times hereafter FCFC employs counsel for advice
or other representation (a) with respect to any of the Collateral or this
Agreement or modification thereof, (b) to represent FCFC in any litigation,
contest, dispute, suit or proceeding or to commence, defend, or intervene or to
take any other action in or with respect to any litigation, contest, dispute,
suit or proceeding (whether instituted by FCFC, Borrower or any other party) in
any way
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<PAGE> 20
relating to any of the Collateral, this Agreement or Borrower's affairs, (c) to
protect, collect, lease, sell, take possession of or liquidate any of the
Collateral, (d) to attempt to enforce any security interest of FCFC in any of
the Collateral or (e) to enforce any rights of FCFC against Borrower or against
any other person which may be obligated to FCFC by virtue of this Agreement
including Borrower's account debtors, then, in any of the foregoing events, all
of the reasonable attorneys' fees arising from such services and all expenses,
costs and charges in any way arising in connection therewith or relating thereto
shall constitute a part of FCFC's Costs secured by the Collateral and be payable
on demand.
16.3 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against FCFC or Borrower, whether under any rule
of construction or otherwise; on the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
16.4 The validity of this Agreement, its construction, interpretation
and enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined under and according to the laws of Arizona. In
any litigation involving FCFC and Borrower, Borrower does hereby irrevocably
submit itself to the process, jurisdiction and venue of the courts of the State
of Arizona in Maricopa County or to the process, jurisdiction and venue of the
U.S. District Court for Arizona for the purposes of suit, action or other
proceedings arising out of or relating to this Agreement or the subject matter
hereof, and without limiting the generality of the foregoing, hereby waives and
agrees not to assert by way of motion, defense or otherwise in any such suit,
action or proceeding any claim that Borrower is not personally subject to the
jurisdiction of such courts, that such suit, action or proceeding is brought in
an inconvenient forum or that the venue of such suit, action or proceeding is
improper.
16.5 The provisions of this Agreement are independent of and separate
from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, it is the intent of the parties that such invalidity or
unenforceability shall not affect the validity or unenforceability of any other
provision hereof and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.
16.6 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
16.7 This Agreement cannot be changed or terminated orally. All prior
agreements, understandings, representations, warranties, and negotiations, if
any, are merged into this Agreement.
16.8 FCFC shall have the right, without the consent of or notice to
Borrower to grant participation interests in the Credit Facility and in this
regard may provide the participant with any and all information with respect to
Borrower and the Credit Facility. In addition, FCFC may assign this Agreement
and its rights and duties hereunder at any time, without the consent of or
notice to Borrower. This Agreement shall inure to the benefit of FCFC, its
successors and
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<PAGE> 21
assigns. Borrower may not assign this Agreement or any rights hereunder, without
FCFC's prior written consent and any such assignment shall be void and of no
effect whatsoever. No consent to any assignment by FCFC shall, without the
written consent of FCFC, release Borrower or any guarantor of its Obligations to
FCFC.
16.9 This Agreement shall inure to the benefit of FCFC and any
successors or assigns of FCFC, including any participant in the Credit Facility.
This Agreement shall bind and inure to the benefit of the respective successors
and assigns of each of the parties; however, Borrower may not assign this
Agreement or any rights hereunder without FCFC'S prior written consent and any
prohibited assignment shall be absolutely void. No consent to any assignment by
FCFC shall release Borrower or any guarantor of its Obligations to FCFC. FCFC
may assign this Agreement and its rights and duties hereunder.
17. Additional Provisions.
17.1 Notwithstanding the provisions of paragraph 3.4 and 3.8 hereof,
FCFC shall only exercise the rights or powers set forth in said paragraphs if:
(a) FCFC reasonably believes, in the exercise of its best judgment and in good
faith, that there has been a material impairment in the value of its Collateral
or in the prospect of repayment of Borrower's Obligations, that the priority of
its security interest in the Collateral is being contested, or that Borrower has
defaulted under any provision of this Agreement; and (b) after FCFC: (i) gives
Borrower written notice that it intends to exercise such rights and/or powers;
(ii) agrees to meet with Borrower within twenty-four (24) hours after such
notice is given to discuss the action which FCFC contemplates taking, and (iii)
subsequently gives Borrower written notice that it nevertheless intends to
exercise the rights or powers set forth in this Agreement.
17.2 By way of clarification, but not by way of limitation, examples of
a "material impairment," for purposes of paragraph 9(e) and 17.1, would
include:
(a) The collection of the Accounts during any thirty (30) day period
substantially diminishes as compared with the previous thirty-day
period.
(b) Accounts receivable turnover substantially increases within a
thirty (30) day period as compared with the previous thirty-day
period.
(c) Borrower's financial statement reflects a deficit net worth.(d)
Borrower sustains a net operating loss for four consecutive
months, that exceed $147,000.
(e) Borrower uses a substantial amount of funds from the business for
a non-business purpose.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Phoenix, Arizona, as of the date written above.
FCFC: BORROWER:
FIRST COMMUNITY FINANCIAL New Directions Manufacturing, Inc.,
CORPORATION, an Arizona an Arizona corporation
corporation
By: /s/ James C. Adamany By: /s/ Donald A. Metke
------------------------------ --------------------------------
James C. Adamany Donald A. Metke
Title: President Title: President
By: /s/ Sean F. Lee
--------------------------------
Sean F. Lee
Title: Chairman of the Board
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<PAGE> 1
Exhibit 10.17
INVENTORY RIDER
DATE: June 23, 1999
BORROWER: New Directions FCFC: FIRST COMMUNITY FINANCIAL
Manufacturing, Inc., CORPORATION,
an Arizona corporation an Arizona corporation
ADDRESS: 2940 West Willetta ADDRESS: 3550 N. Central Avenue
Phoenix, Arizona 85009 Suite 102
Phoenix, AZ 85012
THIS INVENTORY RIDER (the "Rider") is made a part of and incorporated into the
Accounts Receivable Security Agreement dated June 23, 1999 between Borrower and
FCFC (the "Agreement") as follows:
1. Loans. Upon the performance and satisfaction by Borrower of all of the
provisions contained in the Agreement and this Rider, and in addition to the
loans or advances made or to be made to Borrower by FCFC pursuant to the
Agreement, FCFC shall loan or make advances to Borrower in such amount or
according to such formula and on such terms and conditions as is set forth in
Exhibit "A".
2. Representations and Warranties. Until all obligations of Borrower to FCFC
are fully paid and satisfied, Borrower does hereby warrant and represent to and
covenant with FCFC (in addition to the representations, warranties and covenants
set forth in the Agreement) as follows:
(a) The Inventory Value is now and shall at all times hereafter be
at least N/A% of the foregoing indebtedness (including principal, interest,
cost and expenses) of Borrower to FCFC; provided, however, notwithstanding the
foregoing in any event the Inventory Value is and shall at all times hereafter
be at least $N/A.
(b) All Inventory is presently kept and shall not be removed from
the following locations, outside the ordinary course of business, without prior
written notice to FCFC:
2940 West Willetta Center Point Building 1355 Market Street,
Phoenix, AZ 85009 401 South Hamilton Mart 2, Space 721
Spaces A103 & A104 San Francisco, CA 94103
High Point, NC 27261
(c) All Inventory is now and hereafter at all times shall be new
inventory of good and saleable quality, free from defects.
<PAGE> 2
(d) Borrower is, and will continue to be, the sole and complete
owner of the Inventory free and clear of any liens, security interests
(including purchase money security interest) encumbrances and claims.
(e) No Inventory is now, nor shall any Inventory at any time
hereafter be stored with a bailee, warehousemen or similar party, without FCFC's
prior written consent, and in such event will concurrently therewith cause any
such bailee, warehousemen or similar party to issue and deliver to FCFC in form
acceptable to FCFC warehouse receipts in FCFC's name evidencing the storage of
Inventory.
(f) Borrower has paid and shall hereafter continue to pay when due
all rent and other impositions upon any leased premises where any Inventory of
Borrower is kept, all expenses of storing, warehousing, handling and shipping
the Inventory and all taxes and licenses imposed by any lawful authority upon
the Inventory.
(g) Until default by Borrower under the Agreement, Borrower may,
subject to the provisions of the Agreement, sell the Inventory but only in the
ordinary course of its business.
3. Books and Records. Borrower shall at all times keep correct and accurate
records itemizing and describing the kind, type, quality and quantity of
Inventory, Borrower's cost thereof and selling price thereof and the daily
withdrawals therefrom and additions thereto. All of such records shall be
available to FCFC and its agents upon demand for inspection and photocopying
thereof. In addition FCFC shall have the right upon demand during Borrower's
usual business hours to inspect and examine the Inventory and to check and test
the same as to quality, quantity, value and condition and Borrower agrees to
reimburse FCFC for FCFC's reasonable costs and expenses incurred in inspecting
the Inventory. At least every 12 months or more often when requested by FCFC,
Borrower shall make a physical listing of all Inventory containing a description
of each item of Inventory, the cost per unit, the wholesale market value per
unit, the quantity of each item, the extended costs thereof and the extended
wholesale market value thereof and deliver such report to FCFC within 30 days
thereafter together with a certificate affixed thereto by an authorized officer
of Borrower to the effect that the listing is complete and correct and
accurately presents the value of the Inventory of goods as of the date of such
listing.
4. Inspection of Collateral. Borrower will permit FCFC access, at all
reasonable times, to the premises of Borrower for the purpose of inspecting,
examining or taking possession of the Inventory and shall have the right to use
any of Borrower's lifts, hoists, trucks and other facilities for handling or
removing said Inventory, without cost to FCFC.
5. Default. Upon a default by Borrower under the Agreement or this Rider,
FCFC shall have such remedies as are set forth in the Agreement. In addition,
upon FCFC's request, Borrower shall, at its expense, assemble and deliver the
Inventory to FCFC or to a third party as FCFC's bailee, at such place to be
designated by FCFC as is reasonably convenient to the parties; or hold the same
in trust for FCFC's account; or store the same in a warehouse in FCFC's name; or
deliver to FCFC documents of title representing said Inventory.
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<PAGE> 3
6. Risk of Loss. All risk of loss, damage or destruction of Inventory shall
be borne by Borrower, specifically, FCFC shall not in any way or manner be
liable or responsible for:
(a) The safekeeping of the Inventory;
(b) Any loss of damage thereto incurred or arising in any manner or
fashion from any cause;
(c) Any diminution in the value thereof; or
(d) Any act or default of any carrier, warehousemen, bailee or
forwarding agency thereof or any other person whomsoever.
7. Interpretation. Except as specifically amended or supplemented hereby,
all of the terms of the Agreement are hereby confirmed and shall continue in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Rider to the Accounts
Receivable Security Agreement the date first above written.
FIRST COMMUNITY FINANCIAL
CORPORATION, an Arizona corporation
By: /s/ James C. Adamany
------------------------
James C. Adamany
Its: President
------------------------
New Directions Manufacturing, Inc.,
an Arizona corporation
By: /s/ Donald A. Metke
------------------------
Donald A. Metke
Its: President
------------------------
By: /s/ Sean F. Lee
------------------------
Sean F. Lee
Its: Chairman of the Board
------------------------
3
<PAGE> 1
Exhibit 10.18
GUARANTY AND SUBORDINATION
IN ORDER TO INDUCE First Community Financial Corporation, an Arizona corporation
("FCFC"), to enter into that certain Accounts Receivable Security Agreement, as
well as any Riders which may be attached thereto (the "Agreements"), all dated
June 23, 1999 with New Directions Manufacturing, Inc., an Arizona corporation
("Borrower"), and in consideration of any credit, advances or financial
accommodations now or hereafter granted to or on behalf of Borrower, and subject
to the limitations set forth in the next sentence, the undersigned and each of
them ("Guarantors") do hereby jointly and severally unconditionally guarantee
the full and prompt payment of all Obligations (as that term is defined in the
Agreements) due or to become due, whether created or incurred before or after
default, absolute or contingent, now existing or hereafter created or arising
out of said Agreements or any other agreement, now or hereafter executed between
Borrower and FCFC as and when the same become due and payable, as well as the
due performance of each and all terms, covenants and conditions contained in
said Agreements, in any other agreement now or hereafter executed between
Borrower and FCFC, or in any supplements or amendments thereto, and further
Guarantors do hereby jointly and severally indemnify FCFC and agree to hold it
harmless against all obligations, demands, losses or other liabilities and
expenses, including attorneys' fees, by whomsoever asserted, suffered, incurred
or paid by FCFC arising out of or in any way related to any transactions under
said Agreements or otherwise. In the event of any default by Borrower in the
payment of any sums or performance of any Obligations arising out of the
Agreements to FCFC, Guarantors, jointly and severally, agree to pay and perform
the same on demand.
Guarantors, and each of them, jointly and severally, agree that: (a)
this guaranty shall be continuing and absolute and shall not be affected or
impaired by any modification, extension or amendment of the Agreements or of any
agreement now or hereafter executed between Borrower and FCFC, nor by any
modification, extension of time for the payment of, forbearance, settlement,
release, surrender, exchange or discharge of any obligation herein guaranteed,
or any collateral therefor, or the extension of additional credit after default
or the release of any security after default, whether material or otherwise, nor
by the death or release of any of the Guarantors; and (b) the liability of each
Guarantor hereunder is direct and unconditional and may be enforced without
requiring FCFC first to exercise, enforce, or exhaust any right or remedy
against Borrower, any other Guarantor or collateral, and shall continue in full
force and effect until all Obligations of Borrower to FCFC shall have been fully
paid, satisfied and performed. Each Guarantor acknowledges receipt of separate
consideration for the execution of this Guaranty.
Each Guarantor hereby waives: (a) notice of acceptance hereof, notice
of extensions of credit from time to time by FCFC to Borrower, presentment for
payment, demand, protest, notice of dishonor, notice of default, notice of
nonpayment and all other notices to which the Guarantors might otherwise be
entitled, (b) any defense which the Guarantors may have by reason of any defense
which Borrower may have against FCFC other than payment and performance of all
1
<PAGE> 2
Obligations of Borrower to FCFC, (c) any and all right to assert against FCFC
any claims or defenses based upon any failure of FCFC to furnish to Guarantors
any information or facts relating to the ability of Borrower to pay and to
perform Borrower's Obligations under the Agreements, (d) all defenses,
counterclaims and setoffs of any kind or nature in connection with the validity
and/or enforceability of this Guaranty arising directly or indirectly from the
nonperfection, insufficiency, invalidity or nonenforceability of the Agreements,
(e) any and all right to assert against FCFC any claim or defense based upon any
election of remedies by FCFC, which in any manner impairs, affects, reduces,
releases or extinguishes Guarantors' subrogation rights or Guarantors' right to
proceed against Borrower for reimbursement or any other rights of Guarantors
against Borrower or against any other person or security, and (f) any right,
title or interest, whether by subrogation or otherwise, in any collateral
however or whenever assigned to FCFC until all Obligations of Borrower to FCFC
have been fully paid, satisfied and performed; and (g) all defenses by reason of
any extensions of time given by FCFC to Borrower, any failure of FCFC to pursue
Borrower or Borrower's property or to resort to other security, guarantees or
remedies. Guarantors agree that FCFC shall be under no obligation to marshall
any assets in favor of Guarantors or any of them, or against or in payment of
any or all of the indebtedness of Borrower to FCFC.
If Borrowers or any of the Guarantors should at any time become
insolvent, or make as assignment of the benefit of creditors, or if a petition
in bankruptcy or any insolvency or reorganization proceedings be commenced by or
against Borrower or any of the Guarantors, all obligations of each Guarantor
shall, at the option of FCFC, forthwith become due and payable without notice.
Guarantors hereby subordinate the payment of all present and future
indebtedness of Borrower to Guarantors or any of them to the payment of any and
all Obligations of Borrower to FCFC, and Guarantors hereby subordinate in favor
of FCFC all present and future interest of Guarantors, and any of them, in and
to any and all property and assets now owned or hereafter acquired by Borrower.
Guarantors agree that they shall not demand, sue for, take, receive payment of,
conveyance of or any transfer of (including the grant of a security or security
interest) money, property or assets of Borrower, without the prior written
consent of FCFC. Guarantors agree that in the event of any distribution,
division or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the assets of Borrower
among its creditors, or upon any indebtedness of Borrower, accruing by reason of
the liquidation, dissolution or other winding up of Borrower, or by reason of
any foreclosure or execution sale, or receivership, insolvency or bankruptcy
proceedings, or proceedings for reorganization or readjustment of Borrower or
its properties, or otherwise, then in any such event, FCFC shall be preferred in
the payment of its claims over any claims of any Guarantors against Borrower or
any of its assets or properties, and the Obligations owing to FCFC shall be
first paid and satisfied in full before any payment or distribution of any kind
or character, whether in cash, property or securities, shall be made to
Guarantors or any of them. Guarantors represent that no indebtedness of Borrower
to Guarantors is or shall be evidenced by negotiable instruments unless any
existing negotiable instrument has been endorsed and delivered to FCFC and
unless any future negotiable instrument shall be endorsed and delivered to FCFC
forthwith upon execution thereof. As security for this
2
<PAGE> 3
guaranty, Guarantors do hereby assign, transfer and set over to FCFC all
indebtedness of Borrower to Guarantors with full power of attorney to make,
present, file and vote proofs of claims and to receive and collect any and all
dividends or other payments incident to any liquidation, bankruptcy,
receivership or assignment for the benefit of creditors of Borrower. This power,
being coupled with an interest, is irrevocable until all Obligations of Borrower
to FCFC are paid in full. Nothing herein shall be construed as an undertaking on
the part of FCFC to make any loan to Borrower.
Guarantors hereby represent that they were not induced to give this
Guaranty by the fact that there are or may be other guarantors either under this
instrument or otherwise. FCFC shall have the right to seek recourse against
Guarantors to the full extent provided for herein and in any other document or
instrument evidencing obligations of Guarantors to FCFC, and against Borrower,
to the full extent provided for in any agreement between FCFC and Borrower. No
election to proceed in one form of action or proceeding, or against any party,
or on any obligation, shall constitute a waiver of FCFC's right to proceed in
any other form of action or proceeding or against other parties, unless FCFC has
expressly waived such right in writing. Specifically, but without limiting the
generality of the foregoing, no action or proceeding by FCFC against Borrower
under any document or instrument evidencing or securing the Obligations of
Borrower to FCFC shall serve to diminish the liability of Guarantors except to
the extent FCFC realizes payment from such action or proceeding, notwithstanding
the effect of any such action or proceeding upon Guarantors' right of
subrogation against Borrower. Guarantors are fully aware of the financial
condition of the Borrower. Guarantors deliver this Guaranty and Subordination
based solely upon their own independent investigation and in no part upon any
representation or statement of FCFC with respect thereto. Guarantors are in a
position to and hereby assume full responsibility for obtaining any additional
information concerning Borrower's financial condition as Guarantors may deem
material to their obligations hereunder and Guarantors are not relying upon, nor
expecting FCFC to furnish them any information in FCFC's possession concerning
Borrower's financial condition. By acceptance hereof, FCFC and Guarantors agree
that Guarantors hereby knowingly accept the full range of risk encompassed
within a contract of "continuing guaranty" which risk includes, but without
limitation, the possibility that Borrower will contract additional indebtedness
for which Guarantors may be liable hereunder after Borrower's financial
condition or ability to pay its lawful debts when they fall due has deteriorated
and Guarantors understand that the amount of the Obligations may be increased or
decreased and the ratios of the Obligations to collateral may be changed
adversely to Guarantors at the sole discretion of FCFC.
This Guaranty may be terminated as to any Guarantor only as of the
anniversary of the effective date of said Agreement by giving FCFC sixty (60)
days prior written notice by registered or certified mail; such termination
shall be applicable only to transactions having their inception after the
effective date of said termination and shall not affect the rights and
obligations arising out of transactions having their inception prior to such
date. Neither the death, incompetency, bankruptcy, receivership, release of, or
revocation by any Guarantor shall affect the continuing liability of any of the
Guarantors remaining hereunder.
3
<PAGE> 4
This is a guarantee by the parent corporation of the obligations of the
subsidiary corporation and is not a personal guarantee by any officer, director
or other individual.
The Guarantors agree to pay all expenses incurred by FCFC in connection
with the enforcement of its right under this Guaranty, including, but not
limited to, court costs, collection charges and attorneys' fees.
The separate property of each Guarantor shall be liable for the payment
of all Obligations herein guaranteed. Guarantor represents and warrants that
Guarantor is married.
This Guaranty shall be binding upon the respective heirs,
representatives, successors and assigns of each Guarantor and shall inure to
FCFC its successors, assigns and affiliates.
This Guaranty is delivered and made in and shall be construed pursuant
to the laws of the State of Arizona.
IN WITNESS WHEREOF, the undersigned do hereby jointly and severally execute
this Guaranty and Subordination this 23rd day of June, 1999.
Guarantor
New Directions Manufacturing, Inc.,
a Nevada corporation
By: /s/ Donald A. Metke
----------------------------
Donald A. Metke
Its: President
--------------------------
By: /s/ Sean F. Lee
----------------------------
Sean F. Lee
Its: Chairman of the Board
----------------------------
4
<PAGE> 1
Exhibit 10.19
June 23, 1999
Phoenix, Arizona
MULTIPLE ADVANCE PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to
pay upon "demand" (as defined below) to the order of First Community Financial
Corporation, an Arizona corporation ("FCFC"), at its office located in
Phoenix, Arizona, or at such other place as the holder hereof may from time to
time designate in writing, such principal sum, up to the maximum amount of
**Seven Hundred Thousand and NO/100** Dollars ($700,000.00), as the holder
hereof may advance to or for the benefit of the undersigned in accordance with
the terms of that certain Accounts Receivable Security Agreement dated June 23,
1999 between the undersigned and FCFC. Absent default or "demand", interest
shall be charged on the unpaid principal balance hereof, to the date of maturity
on a daily basis for the actual number of days any portion of said principal is
outstanding, at the rate (the "Note Rate") equal to the prime rate announced
from time to time by Bank One, Phoenix, Arizona (whether or not it is the lowest
rate actually charged by such bank) plus 5.00% per annum. The current Note Rate
under the note is 12.75% per annum based upon a prime rate of 7.75%. In the
event such prime rate is from time to time hereafter changed, the Note Rate of
interest shall correspondingly be adjusted as of the effective date of the prime
rate change; provided, however, that the Note Rate payable hereunder shall in no
event be less than the prime rate plus 5.00% per annum.
Interest shall be payable monthly on the first day of each month,
commencing with the first day of the month following the initial advance
hereunder until all principal and interest hereunder have been fully paid, and
shall be fully paid at the maturity. The first interest payment shall include
all interest accrued to the date thereof. Interest shall be computed on the
basis of a 12-month, 360-day year. All obligations hereunder (including
principal, interest, costs and fees) not discharged when due or upon "demand"
shall bear interest, until paid in full, at a per annum rate equal to four
percent (4%) per annum higher than the Note Rate set forth above.
The unpaid principal balance of this obligation at any time shall be
the total amount advanced hereunder by the holder hereof, less the amount of
payments made hereon by or for the undersigned.
At the option of the holder hereof, any of the following shall
constitute a "demand" hereunder, and, upon the occurrence of any of the
following, all obligations hereunder shall, at the option of the holder hereof,
become immediately due and payable, without presentment for payment, diligence,
grace, exhibition of this Note, protest, further demand or notice of any kind,
all of which are hereby expressly waived: (i) any sum owing hereunder is not
paid as agreed; (ii) the undersigned defaults in the payment of any sum owing
under, or in the event of a event of default under, or a breach in any
representation, warranty or covenant by the undersigned as set forth in the
Accounts Receivable Security Agreement dated June 23, 1999, executed by the
undersigned and FCFC or any Rider attached thereto, as the same may be amended,
modified or extended from time
1
<PAGE> 2
to time (the "Security Agreements"); (iii) the undersigned defaults in the
payment of any sum or breaches any representation, warranty or covenant under
any other financing agreement now or hereafter executed between the undersigned
and FCFC; or (iv) the holder in good faith believes that there is a material
impairment of the prospect of repayment of its obligations or that there is a
material impairment of the value or priority of FCFC's security interest.
No provision of this Note or any other aspect of the transaction of
which this Note is a part is intended to or shall require or permit the holder,
directly or indirectly, to take, receive, contract for or reserve, in money,
goods or things in action, or in any other way, any interest (including amounts
deemed by law to be interest, such amounts to then be deemed to be an addition
to the rate of interest agreed upon) in excess of the maximum rate of interest
permitted by law in the State of Arizona as of the date hereof. If any such
excess shall nevertheless be provided for, or be adjudicated by a federal or
state court of competent jurisdiction to be provided for, the undersigned shall
not be obligated to pay such excess, but, if paid, then such excess shall be
applied against the unpaid principal balance hereunder or, to the extent that
the principal balance has been paid in full by reason of such application or
otherwise, such excess shall be remitted to the undersigned.
The undersigned hereby agrees: (a) to any and all extensions and
renewals hereof, from time to time, without notice, and that no such extension
or renewal shall constitute or be deemed a release of any obligation of any of
the undersigned to the holder hereof; (b) that the acceptance by the holder
hereof of any performance which does not comply strictly with the terms hereof
shall not be deemed to be a waiver or bar of any right of said holder, nor a
release of any obligation of any of the undersigned to the holder hereof; (c) to
offsets of any sums or property owed to them or any of them by the holder hereof
any time; (d) to pay the holder hereof upon demand any and all costs, expenses
and fees in enforcing payment hereof, including reasonable attorneys' fees,
incurred before, after or irrespective of whether suit is commenced, and, in the
event suit is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suit shall be determined by a court sitting without
a jury; (e) that this Note shall be governed by the laws of the State of
Arizona.
The undersigned represents and warrants that the indebtedness
represented by this Note is for commercial or business purposes.
This Note is and shall be secured by a security interest granted or to
be granted by the undersigned to FCFC in certain assets of the undersigned as
set forth in the Security Agreements or pursuant to any other financing
agreement now or hereafter executed between the undersigned and FCFC.
New Directions Manufacturing, Inc.,
an Arizona corporation
By: /s/ Donald A. Metke By: /s/ Sean F. Lee
--------------------------- -------------------------
Donald A. Metke Sean F. Lee
Its: President Its: Chairman of the Board
--------------------------- -------------------------
2
<PAGE> 1
Exhibit 10.20
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT ("Agreement") is made this 28 day of July,
1999 by and between DONALD A. METKE ("Mr. Metke"), and NEW DIRECTIONS
MANUFACTURING, INC., a Nevada corporation ("New Directions" or the "Company")
(collectively, the "Parties").
RECITALS
WHEREAS, Mr. Metke became employed by New Directions on January 1,
1997, as its President, Chief Operating Officer, and Chief Financial Officer.
WHEREAS, as of the Effective Date, the Company and Mr. Metke agree that
Mr. Metke shall resign from all officer positions held with the Company,
including President, Chief Executive Order and Chief Financial Officer.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Parties hereto agree as follows:
1 . Effective Date. August 1, 1999 is the Effective Date of this
Agreement.
2. Termination. Upon the terms and conditions set forth herein, the
Employment Agreement and corresponding employment of Mr. Metke is hereby
terminated as of the Effective Date as specified in paragraph 1 hereof.
3. Director Status. Mr. Metke is currently a director on the board of
directors of New Directions. Mr. Metke will remain a director of the Company
until the next annual meeting of the shareholders when his successor shall be
nominated and elected.
4. Compensation Through the Effective Date. Until the Effective Date,
Mr. Metke will continue to receive his current monthly compensation, benefits,
and $10,000 additional annual compensation payment. All such compensation,
including the $10,000 additional annual compensation payment, shall be paid to
Mr. Metke no later than July 30, 1999.
5. Short Term Consultant Status. From August 1, 1999 through and
including December 31, 1999, Mr. Metke will be engaged as a consultant to the
Company and will be paid a consulting fee of $7,153.80 per month beginning on
August 1, 1999. The form of Short Term Consulting Agreement between Mr. Metke
and New Directions is attached hereto as Exhibit A and incorporated herein by
this reference.
6. Long Term Consultant Status. Beginning on January 1, 2000 and
continuing for a term of forty-eight months, Mr. Metke will be engaged as a
consultant to the Company and Mr Metke or his designee will be paid a monthly
consulting fee of $1,250 per month. The form of Long Term Consulting Agreement
between Mr. Metke and New Directions is attached hereto as Exhibit B and
incorporated herein by this reference.
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7. Stock Repurchase. On August 1, 1999, the Company will purchase all
of the shares of common stock beneficially owned by Mr. Metke for a flat sum of
$200,000 payable as follows: Beginning on January 1, 2000 and continuing on the
first day of each month for a total of forty-eight months, the Company shall
make installment payments of $4,166.67 to Mr. Metke for the purchase of his
stock. The amount of these payments is not subject to adjustment for any reason,
including but not limited to any future reverse stock splits of the Company.
8. Premium Payment. If there is a change in control of the Company,
defined as a sale, merger or consolidation in which Company is not the
consolidated or surviving corporation, or a transfer of all or substantially all
of the assets of Company, Mr. Metke will receive a premium in the form of the
dollar amount over and above the per share price paid in the change in control
as set forth below, on the purchase price of his stock.
<TABLE>
<CAPTION>
Effective Date of Change in Control Per Share Sale Price
- ----------------------------------- -------------------
<S> <C>
08/01/99-12/31/00 $0.50
01/01/01-12/31/01 $1.00
01/01/02-12/31/02 $1.50
01/01/03-12/31/03 $2.00
</TABLE>
For example, if the Company is sold on June 1, 2000, for a purchase price that
equals $0.70 per share, Mr. Metke will receive a premium of $0.20 per share for
his original number of shares sold to the Company.
The Company shall use good faith and fair dealing in negotiating any
change in control of the Company. Further, the Company shall not issue any
securities for the sole purpose of diluting Mr. Metke's premium. No additional
shares or options shall be granted prior to December 31, 2003 to Sean Lee or
Jack Horner without an adjustment to Mr. Metke's premium, except for the 900,000
options to Mr. Horner.
9. Payments Upon Demise. In the event of death of Mr. Metke, all sums
due and owing to Mr. Metke shall be paid to Mr. Metke's estate, including the
total amount of compensation payable under the Short Term Consulting Agreement
as set forth in section 5 hereof, the total amount payable under the Long Term
Consulting Agreement as set forth in section 6 hereof, the total amount of
compensation payable under the Stock Repurchase as set forth in section 7, and
the Premium Payment, if any, as set forth in section 8 hereof.
10. Life Insurance Policy. The life insurance policy currently held by
the Company on Mr. Metke will be cancelled. Any cash value payable upon
cancellation of the policy will be retained by the Company.
11. Late Payments/Defaults. Any amount not paid by the Company within
ten days of its due date shall be a late payment. All such late payments shall
be charged interest at the rate of one and one-half percent (1.5%) per month on
the outstanding balance or at the highest rate allowed by law, whichever is
lower. Such interest charge shall be cumulative to all other remedies. Any
amount not paid by the Company within thirty days of its due date shall
constitute an event of
2
<PAGE> 3
default under this Agreement. Any breach of any other provision of this
Agreement shall also constitute an event of default. If an event of default
occurs, the Company shall have ten business days from the date of notice of the
event of default to cure. If the Company fails to cure the event of default
within ten business days from the date of notice, Mr. Metke may pursue any and
all legal remedies available, including the acceleration of all sums due under
this Agreement such that the total of all sums due hereunder become immediately
due and payable.
12. Mutual Release. Except for the provisions of this Agreement and the
Short Term Consulting Agreement and the Long Term Consulting Agreement, for good
and valuable consideration, receipt of which is hereby acknowledged, each Party,
being of lawful age, fully and forever releases, waives, surrenders, acquits and
discharges the other Party and its officers, directors, agents, employees,
lawyers, accountants, representatives, and all other persons, firms,
corporations, associations and/or partnerships related to them of and from any
and all claims, demands, actions causes of action, rights, costs, expenses and
compensation of any nature whatsoever, hereafter accruing on account of, or
arising out of or relating to any and all known and unknown, foreseen and
unforeseen financial loss, personal and other incidental related expenses,
and/or violation of any personal, contractual, statutory or other legal rights
or privilege and the consequences thereof which were in any known or unknown
manner caused or occasioned to or sustained by either Party at any point in
time, arising out of Mr. Metke's employment, directorship, engagement, or
association with New Directions.
13. Indemnification. Each Party (the Indemnifying Party) agrees to
indemnify, defend, and hold harmless the other Party (the Indemnified party)
from and against any and all liability for injury to persons or damage to or
loss of property to the extent caused by the negligent act or omission of the
Indemnifying Party, its subcontractors, agents, or employees, including any and
all expense and costs, legal or otherwise, incurred by the Indemnified Party in
the investigation and defense of any claim, demand, or action arising out of the
work performed under this Agreement; provided, however, that the Indemnifying
Party shall not be liable for injury to persons or damage to or loss of property
caused by the sole negligence of the Indemnified Party, its subcontractors,
agents, or employees.
The Indemnified Party shall notify promptly the Indemnifying Party of
the existence of any claim, demand, or other matter to which the Indemnifying
Party's indemnification obligations would apply, and shall give them a
reasonable opportunity to settle or defend the same at their own expense and
with counsel of their own selection, provided that the Indemnified Party shall
at all times also have the right to fully participate in the defense. If the
Indemnifying Party, within a reasonable time after this notice, fails to take
appropriate steps to settle or defend the claim, demand, or the matter, the
Indemnified Party shall, upon written notice, have the right, but not the
obligation, to undertake such settlement or defense and to compromise or settle
the claim, demand, or other matter on behalf, for the account, and at the risk,
of the Indemnifying Party.
The rights and obligations of the Parties under this section shall be
binding upon and inure to the benefit of any successors, assigns, and heirs of
the Parties.
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<PAGE> 4
14. Miscellaneous
14.1 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior or contemporaneous agreements, understandings, negotiations
and discussions, whether oral or written, of the parties in connection with the
subject matter hereof, except as specifically set forth herein. No supplements
or modifications or waivers or terminations of this Agreement shall be binding
unless executed in writing by the parties to be bound thereby. No waiver of any
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision herein (whether or not similar, nor shall such waiver constitute
a continuing waiver unless otherwise expressly provided.
14.2 Interpretation. The parties hereto acknowledge and agree that
each has been given the opportunity to independently review this Agreement with
legal counsel, and/or has the requisite experience and sophistication to
understand, interpret, and agree to the particular language of the provisions
hereof. In the event of an ambiguity in or dispute regarding the interpretation
of same, the interpretation of this Agreement shall not be resolved by any rule
of interpretation providing for interpretation against the party who causes the
uncertainty to exist or against the draftsman.
14.3 Execution of Documents. Each party agrees to execute and
deliver such other documents and instruments and to take such further actions as
may be reasonably necessary to fully carry out the intent and purposes of this
Agreement.
14.4 Counterparts; Facsimile Signatures. 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.
14.5 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the heirs, legatees, estate, executors, legal
representatives, successors and assigns of the parties hereto.
14.6 Attorneys' Fees. In the event either party hereto shall
commence legal proceedings against the other to enforce the terms hereof, or to
declare rights hereunder, as the result of a breach of any covenant or condition
of this Agreement, the prevailing party in any such proceeding shall be entitled
to recover from the losing party its costs of suit, including reasonable
attorneys' fees, as may be fixed by the Court.
14.7 Governing Law; Jurisdiction. This Agreement has been entered
into and executed in the State of California and shall be interpreted in
accordance with the laws of said State. The parties hereby agree that the
jurisdiction for any dispute arising out of this Agreement shall be in Orange
County, California.
14.8 Conflict Waiver: The Parties hereto agree and acknowledge that
Horwitz & Beam ("H&B" or "the Firm") represents New Directions. This Agreement
was drafted by H&B. The Parties hereto further acknowledge that they have been
informed of the inherent conflict of
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<PAGE> 5
interest associated with the drafting of this Agreement by the H&B and waive any
action they may have against 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 have caused this Agreement to be
entered into as of the date first written above.
"New Directions"
New Direction Corporation, a Nevada corporation
/s/ Sean F. Lee /s/ Jack F. Horner, Jr.
- --------------------------------- ----------------------------------
BY: Sean F. Lee BY: Jack F. Horner, Jr.
ITS: Chairman ITS: Secretary, Vice President,
and Director
"Mr. Metke"
/s/ Donald A. Metke
- ---------------------------------
Donald A. Metke
5
<PAGE> 1
Exhibit 10.21
EXHIBIT A
SHORT TERM CONSULTING AGREEMENT
THIS SHORT TERM CONSULTING AGREEMENT (this "Agreement") is entered into
as of August 1, 1999 (the "Effective Date"), by and between New Directions
Manufacturing, Inc., a Nevada corporation (the "Company"), and Donald A. Metke
("Consultant").
RECITALS
WHEREAS, the Company desires to retain the Consultant to provide the
services set forth in Exhibit A hereto for the benefit of the Company (the
"Consulting Services"); and
WHEREAS, Consultant desires to provide the Consulting Services to the
Company in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
AGREEMENT
1. Appointment and Duties. The Company hereby engages Consultant
to perform the Consulting Services commencing upon the date of this Agreement
and terminating in accordance with the terms set forth in Exhibit A. Consultant
agrees to accept such engagement upon the terms and conditions set forth herein.
Consultant shall faithfully and diligently perform the Consulting Services.
2. Compensation. Subject to the termination of this Agreement as
provided herein, the Company shall compensate Consultant for the performance of
the Consulting Services hereunder upon the terms and conditions set forth in
attached Exhibit B hereto.
3. Non-Exclusive: Non-Disclosure.
3.1 Consultant agrees to perform Consultant's Consulting
Services efficiently and to the best of Consultant's ability. It is anticipated
that the Consultant shall spend as much time as deemed necessary by the
Consultant in order to perform the obligations of Consultant hereunder.
Notwithstanding the foregoing, the Company acknowledges and agrees that
Consultant's engagement with the Company is not exclusive and that Consultant is
engaged in other business endeavors and reserves the right to continue to do so
throughout the terms of this Agreement.
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<PAGE> 2
3.2 Consultant acknowledges that Consultant may have access to
proprietary information regarding the business operations of the Company and
agrees to keep all such information secret and confidential and not to use or
disclose any such information to any individual or organization without the
Company's prior written consent.
4. Independent Contractor. Both the Company and the Consultant
agree that the Consultant will act as an independent contractor in the
performance of its duties under this Agreement. Nothing contained in this
Agreement shall be construed to imply that Consultant, or any employee, agent or
other authorized representative of Consultant, is a partner, joint venturer,
agent, officer or employee of the Company.
5. Term; Termination.
(a) The term of this Agreement begins on August 1, 1999 and
ends at the close of business on December 31, 1999.
(b) Consultant may terminate this Agreement immediately for
cause at any time without notice. For purposes of this subsection (b), "cause"
for termination by Consultant shall be (i) a breach by the Company of any
material covenant or obligation hereunder; or (ii) the voluntary or involuntary
dissolution of the Company.
(c) The Company may terminate this Agreement for cause at any
time without notice. For purposes of this subsection (c), "cause" for
termination shall be: (i) any felonious conduct or material fraud by Consultant
in connection with the Company; (ii) any embezzlement or misappropriation of
funds or property of the Company by Consultant; (iii) any material breach of or
material failure to perform any covenant or obligation of Consultant under this
Agreement; or (iv) gross negligence by Consultant in the performance of his
duties under this Agreement.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto their respective devisees, legatees, heirs,
legal representatives, successors, and permitted assigns. The preceding sentence
shall not affect any restriction on assignment set forth elsewhere in this
Agreement.
7. Notices. Any notice, request, instruction, or other document
required by the terms of this Agreement, or deemed by any of the Parties hereto
to be desirable, to be given to any other Party hereto shall be in writing and
shall be given by facsimile, personal delivery, overnight delivery, or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:
If to the Company: Sean F. Lee, President
New Directions Manufacturing, Inc.
2940 W. Willetta
Phoenix, AZ 85009
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<PAGE> 3
With copy to: Lynne Bolduc, Esq.
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, California 92618
If to Consultant: Mr. Donald A. Metke
11059 West Irma Lane
Sun City, Arizona 85373
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by facsimile, personal
delivery, or overnight delivery in accordance with the provisions of this
Section, said notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the provisions of this
Section, such notice shall be conclusively deemed given seven business days
after deposit thereof in the United States mail.
8. Entire Agreement. Except as provided herein, this Agreement
contains the entire agreement of the parties, and supersedes all existing
negotiations, representations, or agreements and all other oral, written, or
other communications between them concerning the subject matter of this
Agreement.
9. Counterparts; Facsimile Signatures. 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.
10. Modification. No change, modification, addition, or amendment to
this Agreement shall be valid unless in writing and signed by all parties
hereto.
11. Attorneys' Fees. Except as otherwise provided herein, if a dispute
should arise between the parties including, but not limited to arbitration, the
prevailing party shall be reimbursed by the non-prevailing party for all
reasonable expenses incurred in resolving such dispute, including reasonable
attorneys' fees exclusive of such amount of attorneys' fees as shall be a
premium for result or for risk of loss under a contingency fee arrangement.
12. Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of California which would
apply if both Parties were residents of California and this Agreement was made
and performed in California. In any legal action involving this Agreement or the
Parties' relationship, the Parties agree that the exclusive venue for any
lawsuit shall be in the state or federal court located within the County of
Orange, California. The Parties agree to submit to the personal jurisdiction of
the state and federal courts located within Orange County, California.
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<PAGE> 4
13. Assignment. Neither party shall assign its rights or obligations
under this Agreement without the express prior written consent of the other
party.
14. Conflict Waiver: The Parties hereto agree and acknowledge that
Horwitz & Beam ("H&B" or "the Firm") represents New Directions. This Agreement
was drafted by H&B. 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 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.
15. Indemnification. Each Party (the Indemnifying Party) agrees to
indemnify, defend, and hold harmless the other Party (the Indemnified party)
from and against any and all liability for injury to persons or damage to or
loss of property to the extent caused by the negligent act or omission of the
Indemnifying Party, its subcontractors, agents, or employees, including any and
all expense and costs, legal or otherwise, incurred by the Indemnified Party in
the investigation and defense of any claim, demand, or action arising out of the
work performed under this Agreement; provided, however, that the Indemnifying
Party shall not be liable for injury to persons or damage to or loss of property
caused by the sole negligence of the Indemnified Party, its subcontractors,
agents, or employees.
The Indemnified Party shall notify promptly the Indemnifying Party of
the existence of any claim, demand, or other matter to which the Indemnifying
Party's indemnification obligations would apply, and shall give them a
reasonable opportunity to settle or defend the same at their own expense and
with counsel of their own selection, provided that the Indemnified Party shall
at all times also have the right to fully participate in the defense. If the
Indemnifying Party, within a reasonable time after this notice, fails to take
appropriate steps to settle or defend the claim, demand, or the matter, the
Indemnified Party shall, upon written notice, have the right, but not the
obligation, to undertake such settlement or defense and to compromise or settle
the claim, demand, or other matter on behalf, for the account, and at the risk,
of the Indemnifying Party.
The rights and obligations of the Parties under this section shall be
binding upon and inure to the benefit of any successors, assigns, and heirs of
the Parties.
16. Separation Agreement. The Parties have entered into a Separation
Agreement, dated July 28, 1999, which provides for this Agreement. The complete
terms and provisions of that Separation Agreement are incorporated herein by
this reference. In the event of a conflict of provisions, the Separation
Agreement shall control.
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<PAGE> 5
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
to be duly executed as of the Effective Date.
"New Directions"
New Directions Corporation, a Nevada corporation
/s/ Sean Lee /s/ Jack F. Horner, Jr.
- -------------------------------- ---------------------------------
BY: Sean Lee BY: Jack F. Horner, Jr.
ITS: Chairman ITS: Secretary, Vice President, and Director
"Mr. Metke"
Donald A. Metke
/s/ Donald A. Metke
- --------------------------------
Donald A. Metke
5
<PAGE> 6
EXHIBIT "A"
Description of Consulting Services
During the period of time commencing upon the date of this Agreement
and continuing up through and including December 31, 1999, upon request of the
Company, the Consultant shall provide general business advice to the Company,
specifically for the transition of new management of the Company.
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<PAGE> 7
EXHIBIT "B"
Compensation
The Consultant shall receive the following Compensation for the
provision of the Consulting Services:
1. Cash compensation. A consulting fee of $7,153.80 per month beginning
on August 1, 1999 and continuing through December 31, 1999.
2. Reimbursement of expenses. The Consultant shall also be entitled to
reimbursement of all pre-approved expenses beginning on August 1, 1999 and
continuing through December 31, 1999.
7
<PAGE> 1
Exhibit 10.22
EXHIBIT B
LONG TERM CONSULTING AGREEMENT
THIS LONG TERM CONSULTING AGREEMENT (this "Agreement") is entered into
as of January 1, 2000 (the "Effective Date"), by and between New Directions
Manufacturing, Inc., a Nevada corporation (the "Company"), and Donald A. Metke
("Consultant").
RECITALS
WHEREAS, the Company desires to retain the Consultant to provide the
services set forth in Exhibit A hereto for the benefit of the Company (the
"Consulting Services"); and
WHEREAS, Consultant desires to provide the Consulting Services to the
Company in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
AGREEMENT
1. Appointment and Duties. The Company hereby engages Consultant
to perform the Consulting Services commencing upon the date of this Agreement
and terminating in accordance with the terms set forth in Exhibit A. Consultant
agrees to accept such engagement upon the terms and conditions set forth herein.
Consultant shall faithfully and diligently perform the Consulting Services.
2. Compensation. Subject to the termination of this Agreement as
provided herein, the Company shall compensate Consultant for the performance of
the Consulting Services hereunder upon the terms and conditions set forth in
attached Exhibit B hereto.
3. Non-Exclusive; Non-Disclosure.
3.1 Consultant agrees to perform Consultant's Consulting
Services efficiently and to the best of Consultant's ability. It is anticipated
that the Consultant shall spend as much time as deemed necessary by the
Consultant in order to perform the obligations of Consultant hereunder.
Notwithstanding the foregoing, the Company acknowledges and agrees that
Consultant's engagement with the Company is not exclusive and that Consultant is
engaged in other business endeavors and reserves the right to continue to do so
throughout the terms of this Agreement.
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<PAGE> 2
3.2 Consultant acknowledges that Consultant may have access to
proprietary information regarding the business operations of the Company and
agrees to keep all such information secret and confidential and not to use or
disclose any such information to any individual or organization without the
Company's prior written consent.
4. Independent Contractor. Both the Company and the Consultant
agree that the Consultant will act as an independent contractor in the
performance of its duties under this Agreement. Nothing contained in this
Agreement shall be construed to imply that Consultant, or any employee, agent or
other authorized representative of Consultant, is a partner, joint venturer,
agent, officer or employee of the Company.
5. Term; Termination.
(a) The term of this Agreement begins on January 1, 2000 and
ends at the close of business on December 31, 2003.
(b) Consultant may terminate this Agreement immediately for
cause at any time without notice. For purposes of this subsection (b), "cause"
for termination by Consultant shall be (i) a breach by the Company of any
material covenant or obligation hereunder; or (ii) the voluntary or involuntary
dissolution of the Company.
(c) The Company may terminate this Agreement for cause at any
time without notice. For purposes of this subsection (c), "cause" for
termination shall be: (i) any felonious conduct or material fraud by Consultant
in connection with the Company; (ii) any embezzlement or misappropriation of
funds or property of the Company by Consultant; (iii) any material breach of or
material failure to perform any covenant or obligation of Consultant under this
Agreement; or (iv) gross negligence by Consultant in the performance of his
duties under this Agreement.
6. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto their respective devisees, legatees, heirs,
legal representatives, successors, and permitted assigns. The preceding sentence
shall not affect any restriction on assignment set forth elsewhere in this
Agreement.
7. Notices. Any notice, request, instruction, or other document
required by the terms of this Agreement, or deemed by any of the Parties hereto
to be desirable, to be given to any other Party hereto shall be in writing and
shall be given by facsimile, personal delivery, overnight delivery, or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:
If to the Company: Sean F. Lee, President
New Directions Manufacturing, Inc.
2940 W. Willetta
Phoenix, AZ 85009
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<PAGE> 3
With copy to: Lynne Bolduc, Esq.
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, California 92618
If to Consultant: Mr. Donald A. Metke
11059 West Irma Lane
Sun City, Arizona 85373
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by facsimile, personal
delivery, or overnight delivery in accordance with the provisions of this
Section, said notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the provisions of this
Section, such notice shall be conclusively deemed given seven business days
after deposit thereof in the United States mail.
8. Entire Agreement. Except as provided herein, this Agreement contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
9. Counterparts; Facsimile Signatures. 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.
10. Modification. No change, modification, addition, or amendment to
this Agreement shall be valid unless in writing and signed by all parties
hereto.
11. Attorneys' Fees. Except as other-wise provided herein, if a dispute
should arise between the parties including, but not limited to arbitration, the
prevailing party shall be reimbursed by the non-prevailing party for all
reasonable expenses incurred in resolving such dispute, including reasonable
attorneys' fees exclusive of such amount of attorneys' fees as shall be a
premium for result or for risk of loss under a contingency fee arrangement.
12. Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of California which would
apply if both Parties were residents of California and this Agreement was made
and performed in California. In any legal action involving this Agreement or the
Parties' relationship, the Parties agree that the exclusive venue for any
lawsuit shall be in the state or federal court located within the County of
Orange, California. The Parties agree to submit to the personal jurisdiction of
the state and federal courts located within Orange County, California.
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<PAGE> 4
13. Assignment. Neither party shall assign its rights or obligations
under this Agreement without the express prior written consent of the other
party.
14. Conflict Waiver: The Parties hereto agree and acknowledge that
Horwitz & Beam ("H&B" or "the Firm") represents New Directions. This Agreement
was drafted by H&B. 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 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.
15. Indemnification. Each Party (the Indemnifying Party) agrees to
indemnify, defend, and hold harmless the other Party (the Indemnified party)
from and against any and all liability for injury to persons or damage to or
loss of property to the extent caused by the negligent act or omission of the
Indemnifying Party, its subcontractors, agents, or employees, including any and
all expense and costs, legal or otherwise, incurred by the Indemnified Party in
the investigation and defense of any claim, demand, or action arising out of the
work performed under this Agreement; provided, however, that the Indemnifying
Party shall not be liable for injury to persons or damage to or loss of property
caused by the sole negligence of the Indemnified Party, its subcontractors,
agents, or employees.
The Indemnified Party shall notify promptly the Indemnifying Party of
the existence of any claim, demand, or other matter to which the Indemnifying
Party's indemnification obligations would apply, and shall give them a
reasonable opportunity to settle or defend the same at their own expense and
with counsel of their own selection, provided that the Indemnified Party shall
at all times also have the right to fully participate in the defense. If the
Indemnifying Party, within a reasonable time after this notice, fails to take
appropriate steps to settle or defend the claim, demand, or the matter, the
Indemnified Party shall, upon written notice, have the right, but not the
obligation, to undertake such settlement or defense and to compromise or settle
the claim, demand, or other matter on behalf, for the account, and at the risk,
of the Indemnifying Party.
The rights and obligations of the Parties under this section shall be
binding upon and inure to the benefit of any successors, assigns, and heirs of
the Parties.
16. Separation Agreement. The Parties have entered into a Separation
Agreement, dated 28 July, 1999, which provides for this Agreement. The complete
terms and provisions of that Separation Agreement are incorporated herein by
this reference. In the event of a conflict of provisions, the Separation
Agreement shall control.
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<PAGE> 5
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"New Directions"
New Directions Corporation, a Nevada corporation
/s/ Sean Lee /s/ Jack F. Horner, Jr.
- ------------------------------- -------------------------------------------
BY: Sean Lee BY: Jack F. Horner, Jr.
ITS: Chairman ITS: Secretary, Vice President, and Director
"Mr. Metke"
Donald A. Metke
/s/ Donald A. Metke
- --------------------------------
Donald A. Metke
5
<PAGE> 6
EXHIBIT "A"
Description of Consulting Services
During the period of time commencing upon the date of this Agreement
and continuing up through and including December 31, 2003, upon request of the
Company, the Consultant shall provide general business advice to the Company.
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<PAGE> 7
EXHIBIT "B"
Compensation
The Consultant shall receive the following Compensation for the
provision of the Consulting Services:
1. Cash compensation. A consulting fee of $1,250.00 per month beginning
on January 1, 2000 and continuing through December 31, 2003.
2. Reimbursement of expenses. The Consultant shall also be entitled to
reimbursement of all pre-approved expenses beginning on beginning on January 1,
2000 and continuing through December 31, 2004.
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<PAGE> 1
Exhibit 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made this 1st day of
August, 1999, by and between NEW DIRECTIONS MANUFACTURING, INC., a Nevada
corporation with offices located at 2940 West Willetta, Phoenix, Arizona 85009
("Employer"), and SEAN F. LEE, a natural person ("Employee") (collectively, the
"Parties").
PREMISES
WHEREAS, Employer is in the business of manufacturing, distributing and
marketing contemporary oak wood furniture throughout the United States and
Canada;
WHEREAS, Employee has the requisite skills and experience to manage a
company in a business such as Employer and desires to enter into a written
agreement to serve as President and Chief Executive Officer of Employer; and
WHEREAS, Employer desires to secure the services of Employee pursuant
to the terms and conditions of an employment agreement and to protect its
interest by obtaining certain covenants from Employee.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Parties agree as follows:
1. Employment. Employer employs Employee and Employee accepts
employment as President and Chief Executive Officer of Employer upon the terms
and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall commence August 1, 1999
(the "Effective Date"), and shall continue until the close of business on
December 31, 2002 (the "term"). This Agreement may be renewed at the end of the
term for an additional term upon the written agreement of the Parties. If there
is no written agreement for any additional term(s) then Employee's employment
will continue on a month to month basis subject to termination pursuant to the
terms of this Agreement.
3. Compensation. In consideration of the services rendered to
Employer by Employee during the term of this Agreement, Employer shall provide
Employee the following compensation:
a. Monthly Salary.
i. From the period beginning on August 1, 1999
and ending upon the close of business on December 31, 1999, Employer shall pay
Employee a salary at the monthly rate of $7,153.80 (the "Monthly Salary"), such
salary to be subject to all applicable local, state and federal withholding
taxes, fees, and other assessments. The Monthly Salary shall be payable to
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<PAGE> 2
Employee in accordance with the normal payroll practices of Employer then in
effect. Employee shall be solely responsible for income taxes, fees or other
assessments imposed on employee by reasons of any cash or non-cash compensation
and benefits provided by this Agreement.
ii. From the period beginning on January 1, 2000
and ending upon the close of business on December 31, 2002, Employer shall pay
Employee a salary at the monthly rate of $8,333.00 (the "Monthly Salary"), such
salary to be subject to all applicable local, state and federal withholding
taxes, fees, and other assessments. The Monthly Salary shall be payable to
Employee in accordance with the normal payroll practices of Employer then in
effect. Employee shall be solely responsible for income taxes, fees or other
assessments imposed on employee by reasons of any cash or non-cash compensation
and benefits provided by this Agreement.
b. Other Compensation. In addition to the Monthly
Salary, Employee shall be entitled to the following:
i. all legal and religious national holidays,
and 21 days paid vacation/sick leave per annum commencing in the first year of
this Agreement. All vacation time and paid sick leave shall be earned on a
trimester basis. Employee shall arrange for vacations in advance at such time or
times as shall be mutually agreeable to Employee and Employer. Employee may not
receive pay in lieu of vacation/sick leave;
ii. participation in a bonus plan to be
established by Employer;
iii. participation in all employee benefit plans
and arrangements adopted by Employer and provided to Employee relating to
pensions, hospital, medical, dental, disability and life insurance, deferred
salary and savings plans, and other similar employee benefit plans or
arrangements (each, an "Employee Benefit Plan"), to the extent that Employee
meets the eligibility requirements for any such Employee Benefit Plan in
accordance with the provisions of each Employee Benefit Plan as in effect from
time to time; provided, however, that nothing in this paragraph shall require
Employer to provide health or medical insurance benefits to Employee or any
dependent of Employee with respect to any condition existing prior to the
Effective Date of this Agreement, except as may be covered by Employer's health
and medical insurance plans sponsored for employees in general; and
iv. payment or reimbursement by Employer for
budgeted expenses incurred by Employee in connection with the performance by
Employee of his duties under this Agreement in accordance with Employer's
policies and practices for reimbursement of such expenses with respect to
Employer's practices for reimbursement of such expenses with respect to
Employer's executive officers (e.g. class of travel, hotel, spousal travel
allowances, etc.), as in effect from time to time, including, without
limitation, reasonable and necessary travel, lodging, entertainment and meals
incurred by Employee in furtherance of Employer's business and at Employer's
request (including, without limitation, expenses associated with any required
travel exceeding 100 miles measured from Employer's current principal place of
business in Phoenix, Arizona).
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<PAGE> 3
4. Duties. During the term of this Agreement, Employee shall
initially serve as the President and Chief Executive Officer of Employer.
Employee shall perform the tasks and have the rights, powers and obligations
normally associated with the offices of President and Chief Executive Officer.
Subject to Employee's consent and agreement, such agreement not to be
unreasonably withheld by Employee, Employee agrees to serve in such other
offices or positions with Employer that Employer's Board of Directors shall
reasonably request.
a. Throughout the term of this Agreement, Employee shall
devote his full business time, best efforts, attention and skill to, and shall
perform faithfully, loyally and efficiently his duties as president of Employer.
Employee will not, without the prior written approval of the Board of Directors,
engage in any other business activity which would interfere with the performance
of Employee's duties, services and responsibilities or which is in violation of
either the terms of this Agreement or the policies established from time to time
by Employer (unless specifically permitted by this Agreement or other writing
signed by or on behalf of Employer); and
b. Employee will punctually and faithfully perform and
observe any and all rules and regulations which Employer may now or shall
hereafter reasonably establish governing Employee's conduct and the conduct of
Employer's business which are consistent with this Agreement.
5. Extent of Services/Conduct. Employee may perform services for
other organizations and volunteer for one or more charitable organizations
provided that, in the reasonable judgment of the Board of Directors, such
services do not interfere and are not inconsistent with Employee's duties and
obligations under this Agreement. Employee may invest his assets in such form or
manner as will not require his services in the operation of the affairs of the
companies in which such investments are made, and provided further that Employee
shall not make a "direct" investment in any specific company which, in the
reasonable judgment of the Board of Directors, is in direct competition with the
business of Employer. For the purposes of this Section 5, an investment in a
mutual fund registered under the Investment Company Act of 1940, as amended,
shall not be considered a "direct" investment in any specific company. Employee
pledges his careful avoidance of all persona acts, habits, usages, and statement
which might injure, in any manner, directly or indirectly, the personal or
business or reputation of Employer.
6. Covenant Not to Compete. Except as may be expressly consented
to by the Board of Directors, Employee covenants and agrees for the benefit of
Employer and Employer's successors and assigns that during the term of this
Agreement or for a period of five (5) years following the Effective Date,
whichever shall be longer (the "Restrictive Period"), Employee 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, own (legally or beneficially) or have the right or
option to acquire, any direct or indirect interest in any business which, in the
reasonable judgment of the Board of Directors, engages, directly or indirectly,
in the business of manufacturing, distributing or marketing like product, or
otherwise competes with Employer's business or business prospects.
3
<PAGE> 4
Additionally, during the Restrictive Period Employee will not without
the written consent of Employer, directly or indirectly: (i) call on, solicit,
or use any of the customers or suppliers of Employer or its successors and
assigns either for Employee or for any other person, association or entity; or
(ii) solicit or hire employees of Employer or its successors and assigns either
for Employee or for any other person, association or entity. Employee
specifically acknowledges and agrees that the foregoing covenants are reasonable
in content and scope and are given for adequate consideration. Employer shall
have the option to reduce the scope and extent of the foregoing covenants, by
written notice to Employee, either before or after any adjudication of the
legality of said covenants, whereupon said covenants, as so reduced, shall be
binding and enforceable against Employer.
6. Non-Disclosure of Information. In further consideration of
employment and the continuation of employment by Employer, Employee will not,
directly or indirectly, during or after the term of employment, disclose to any
person not authorized by Employer to receive or use such information except, for
the sole benefit of Employer, any of Employer's confidential or proprietary
data, information, or techniques, or give to any person not authorized by
Employer to receive it, any information that is not generally known to anyone
other than Employer or that is designated by Employer as "Limited," "Private,"
"Confidential," or similarly designated.
7. Termination of Employment. Employee's employment hereunder
shall terminate upon the earliest to occur of any of the following events, on
the dates and at the times specified below:
a. the close of business on the last day of the term of
this Agreement and any extension thereof (the "Expiration Date");
b. the close of business on the date of Employee's death
("Death");
c. the close of business on the Termination Date (as
defined below) specified in the Notice of Termination (as defined below) which
Employer shall have delivered to Employee due to Employee's Disability.
"Disability" shall refer to any situation in which (i) Employee is absent from
work for 180 calendar days in any twelve-month period by reason of illness or
incapacity whether physical or otherwise; or (ii) the Board of Directors
reasonably determines that Employee is unable to perform his duties, services
and responsibilities by reason of illness or incapacity (whether physical or
otherwise) for a total of 180 calendar days in any twelve-month period during
the term of this Agreement. Employee agrees, in the event of any dispute under
this Subsection 8(c), and after receipt by Employee of such Notice of
Termination from Employer, to submit to a physical examination by a licensed
physician selected by Employer. Employee may seek a second opinion from a
licensed physician acceptable to Employer. If the results of the first
examination and the second examination are different, a licensed physician
selected by the physicians who have performed the first and second examinations
shall perform a third physical examination of Employee, the result of which
shall be determinative for purposes of this Subsection 8(c);
d. the close of business on the Termination Date
specified in the Notice of Termination which Employee shall have delivered to
Employer to terminate his employment ("Voluntary Termination:); and
4
<PAGE> 5
e. the close of business on the Termination Date
specified in the Notice of Termination which Employer shall have delivered to
Employee to terminate Employee's employment for Cause. "Cause" as used herein
shall include termination based on (i) Employee's material breach of this
Agreement; (ii) conviction of Employee for any crime constituting a felony in
the jurisdiction in which committed, any crime involving moral turpitude whether
or not a felony, or any other criminal act against Employer involving dishonesty
or willful misconduct intended to injure Employer (whether or not a felony);
(iii) substance abuse by Employee; (iv) the failure or refusal of Employee to
follow one or more lawful and proper directives of the Board of Directors
delivered to Employee in writing; (v) willful malfeasance or gross misconduct by
Employee which discredits or damages Employer; or (vi) unauthorized disclosure
of confidences of Employer.
9. Notice of Termination. Any purported termination of Employee's
employment hereunder by either Employer or Employee (other than by reason of
Death or on the Expiration Date) shall be communicated by written Notice of
Termination to the other party. As used herein, "Notice of Termination" shall
mean a notice which indicates the specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment herein.
10. Termination Date. As used herein, the term "Termination Date"
shall mean (i) the date of Employee's death; or (ii) the Expiration Date; or
(iii) the date specified in the Notice of Termination.
11. Accrued Salary, Benefits. Upon termination of this Agreement,
all unpaid but earned or accrued salary as of the Termination Date, shall be due
and payable to Employee, Employee's designee(s), or in the absence of such
designation, Employee's estate, within thirty (30) days after the Termination
Date.
12. Disability. If the Employee is unable to perform his services
by reason of illness or incapacity, the compensation payable to him under
Section 3 herein shall continue only in accordance with decision unilaterally
reached by the Board of Directors or pursuant to any written policy of the
Company.
13. Sale of Business. The provisions of this Agreement shall
survive the sale or transfer of Employer or Employer's business, and Employer's
successor-in-interest or the purchaser of Employer's business, whichever shall
be the case, shall be subject to and bound by the terms of this Agreement. This
provision shall apply in the event of any of the following events:
a. The sale, by the Employer, of substantially all of
its assets to a single purchaser or group of associated purchasers;
b. The sale, exchange or other disposition to a single
entity or group of entities under common control in one transaction or series of
related transactions of greater than fifty percent (50%) of the outstanding
shares of the Employer's common stock; or
5
<PAGE> 6
c. The merger or consolidation of the Employer in a
transaction in which the shareholders of the Employer receive less than fifty
percent (50%) of the outstanding voting shares of the new or continuing
corporation.
14. Employee Not Restricted by Other Agreement. The Employee
hereby expressly represents, warrants, and covenants to the Employer that he is
not bound, in any manner, by any agreement, whether written or oral, which would
restrict him from performing any duties under this Agreement.
15. Survival. The provisions of this Agreement including,
specifically, the Employee's representation, covenants, and agreements set forth
in Sections 6, 7, and 13 shall survive the termination of this Agreement.
16. Entire Agreement. This Agreement constitutes the entire
understanding between the parties and there are no covenants, conditions,
representation, or agreements, oral or written, or any nature whatsoever, other
than those herein contained.
17. Amendments. No amendment, alteration, or modification of this
Agreement shall be binding upon the parties hereto unless said amendment,
alteration, or modification is in writing and signed by all Parties hereto.
18. Waiver. The waiver of any term, condition, clause, or
provision of this Agreement shall in no way be deemed or considered a waiver of
any other term, condition, clause or provision of this Agreement.
19. Severability. If any term, condition, clause or provision of
the Agreement shall be deemed to be void or invalid then that term, condition,
clause or provision shall be stricken from this Agreement to the extent it is
held to be void or invalid, to be void or invalid and in all other respects this
Agreement shall be valid and in full force and operation.
20. Notices. Any notice, request, instruction, or other document
required by the terms of this Agreement, or deemed by any of the Parties hereto
to be desirable, to be given to any other Party hereto shall be in writing and
shall be given by facsimile, personal delivery, overnight delivery, or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:
To Employer: New Directions Manufacturing, Inc.
2940 W. Willetta
Phoenix, AZ 85009
With copy to: Lynne Bolduc, Esq.
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, California 92618
6
<PAGE> 7
To Employee: Mr. Sean F. Lee
6305 West Hill Lane
Glendale, AZ 85310
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by facsimile, personal
delivery, or overnight delivery in accordance with the provisions of this
Section, said notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the provisions of this
Section, such notice shall be conclusively deemed given seven business days
after deposit thereof in the United States mail.
21. Additional Documents. The Parties hereto agree to execute any and
all additional papers and documents reasonably necessary or appropriate to
effectuate the terms of this Agreement.
22. Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of California which would
apply if both Parties were residents of California and this Agreement was made
and performed in California. In any legal action involving this Agreement or the
parties' relationship, the Parties agree that the exclusive venue for any
lawsuit shall be in the state or federal court located within the County of
Orange, California. The Parties agree to submit to the personal jurisdiction of
the state and federal courts located within Orange County, California.
23. Assignment. This Agreement shall not be assignable by any party to
this Agreement, except upon the written consent of all parties hereto. The
Employee shall not have the right to pledge, encumber, or dispose of the right
to receive any payments under this Agreement, which payments and right thereto
are expressly declared to be nonassignable and nontransferable and, in the event
of any attempted assignment or transfer, the Employer shall have no further
liability hereunder.
24. Counterparts; Facsimile Signatures. 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.
25. Conflict Waive. The Parties hereto agree and acknowledge that
Horwitz & Beam ("H&B" or "the Firm") represents Employer. This Agreement was
drafted by H&B. 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 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.
26. Indemnification. Each Party (the Indemnifying Party) agrees to
indemnify, defend, and hold harmless the other Party (the Indemnified party)
from and against any and all liability for injury to persons or damage to or
loss of property to the extent caused by the negligent act or omission of the
Indemnifying Party, its subcontractors, agents, or employees, including any and
all expense and costs, legal or otherwise, incurred by the Indemnified Party in
the investigation and defense of any claim,
7
<PAGE> 8
demand, or action arising out of the work performed under this Agreement;
provided, however, that the Indemnifying Party shall not be liable for injury to
persons or damage to or loss of property caused by the sole negligence of the
Indemnified Party, its subcontractors, agents, or employees.
The Indemnified Party shall notify promptly the Indemnifying Party of
the existence of any claim, demand, or other matter to which the Indemnifying
Party's indemnification obligations would apply, and shall give them a
reasonable opportunity to settle or defend the same at their own expense and
with counsel of their own selection, provided that the Indemnified Party shall
at all times also have the right to fully participate in the defense. If the
Indemnifying Party, within a reasonable time after this notice, fails to take
appropriate steps to settle or defend the claim, demand, or the matter, the
Indemnified Party shall, upon written notice, have the right, but not the
obligation, to undertake such settlement or defense and to compromise or settle
the claim, demand, or other matter on behalf, for the account, and at the risk,
of the Indemnifying Party.
The rights and obligations of the Parties under this section shall be
binding upon and inure to the benefit of any successors, assigns, and heirs of
the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
under seal the day and year first above written.
"Employer"
New Directors Corporation, a Nevada corporation
/s/ Sean Lee /s/ Jack F. Horner
- --------------------------- ---------------------------------------------
BY: Sean Lee BY: Jack F. Horner, Jr.
ITS: Chairman ITS: Secretary, Vice President, and Director
"Employee"
Sean F. Lee
/s/ Sean F. Lee
- ----------------------------
Sean F. Lee
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-KSB
OF NEW DIRECTIONS MANUFACTURING, INC. FOR THE FISCAL YEAR ENDED JUNE 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 676
<SECURITIES> 0
<RECEIVABLES> 1,089,853
<ALLOWANCES> 50,000
<INVENTORY> 313,905
<CURRENT-ASSETS> 1,385,946
<PP&E> 583,796
<DEPRECIATION> 148,863
<TOTAL-ASSETS> 2,104,483
<CURRENT-LIABILITIES> 1,249,208
<BONDS> 0
0
0
<COMMON> 5,052
<OTHER-SE> 634,003
<TOTAL-LIABILITY-AND-EQUITY> 2,104,483
<SALES> 6,702,353
<TOTAL-REVENUES> 6,702,353
<CGS> 5,613,432
<TOTAL-COSTS> 5,613,432
<OTHER-EXPENSES> 2,280,264
<LOSS-PROVISION> 34,252
<INTEREST-EXPENSE> 59,545
<INCOME-PRETAX> (1,248,036)
<INCOME-TAX> (34,796)
<INCOME-CONTINUING> (1,213,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,213,240)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
