<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended: May 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
-------- ---------
Commission File Number
000-23615
AMERICAN DIVERSIFIED HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 86-0854150
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12100 Wilshire Boulevard
Suite 680
Los Angeles, California 90025
(Address of principal executive offices)
Issuer's telephone number, including area code: (310) 442-2660
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months(or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 10,302,700 shares of Common Stock
outstanding as of June 30, 1998.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
AMERICAN DIVERSIFIED HOLDINGS, INC.
Form 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets at
May 31, 1998 and August 31, 1997........................... 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended May 31, 1998 and the
period from February 4, 1997 (inception) to August 31,
1997 and
May 31, 1998............................................... 4
Condensed Consolidated Statements of Cash Flows
for the three months and nine months ended May 31, 1998
and the period from February 4, 1997 (inception)
to August 31,1997 and May 31, 1998......................... 5
Notes to Condensed Consolidated
Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 9
Item 2. Changes in Securities...................................... 9
Item 3. Defaults Upon Senior Securities............................ 9
Item 4. Submission of Matters to a Vote of Security Holders........ 9
Item 5. Other Information.......................................... 9
Item 6. Exhibits and Reports on Form 8-K........................... 9
</TABLE>
<PAGE> 3
AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, 1998 and August 31, 1997
<TABLE>
<CAPTION>
May 31, 1998 August 31, 1997
------------ ---------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents .............. $ 901,773 $ 2,264
Receivables (Note 3) ................... 11,584,186
Debt Securities ........................ 1,193,049
Stock subscriptions received ........... 789,112 117,000
Prepaid expenses ....................... 209,348 4,220
Property and Equipment net ............. 273,670 14,320
Goodwill ............................... 318,860
Other .................................. 195,794
------------ ------------
TOTAL ASSETS ........................... $ 15,465,792 $ 137,804
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accruals ............................... $ 234,030 $ 7,600
Accounts payable ....................... 216,096 55,977
Dividends payable ...................... 225,000
------------ ------------
TOTAL LIABILITIES ...................... $ 675,126 63,577
============ ============
EQUITY
Preferred stock;
Series A, par value $1.00
9% cumulative, convertible
5,000,000 shares ....................... 5,000,000 150,545
Unpaid subscriptions ................... (33,545)
Common Stock;
10,302,700 and 1,000,000 shares
issued and outstanding ................. 11,861,710 96,754
Accumulated deficit .................... (2,071.044) (139,527)
------------ ------------
Total Shareholders' Equity ............. 14,790,666 74,227
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY ................... $ 15,465,792 $ 137,804
============ ============
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
3
<PAGE> 4
AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
Three months Nine months February 4, 1997 February 4, 1997
Ended ended (inception) to (inception) to
May 31, 1998 May 31, 1998 May 31, 1998 August 31, 1997
------------ ------------ ------------ ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE ......................... $ 13,758 $ 13,758 $ 13,758 $
---------------------------------------------------------------------
EXPENSES
Salaries and wages .............. 159,414 354,316 375,157 20,841
Travel and entertainment ........ 38,203 109,048 131,534 22,486
Administration .................. 70,849 189,354 211,860 22,506
Advertising ..................... 538,538 633,837 641,057 7,220
Professional services ........... 127,017 288,539 355,013 66,474
Other operating expenses ........ 90,535 98,684 98,684
Depreciation .................... 16,386 19,915 19,915
Amortization .................... 7,791 7,791 7,791
Interest ........................ 18,792 18,792 18,792
---------------------------------------------------------------------
Expenses ........................ 1,067,524 1,720,275 1,859,802 139,527
(Loss) before income taxes ...... (1,053,766) (1,706,517) (1,846,044) (139,527)
Income Taxes .................... -- -- -- --
---------------------------------------------------------------------
NET (LOSS) ...................... $ (1,053,766) $ (1,706,517) $ (1,846,044) $ (139,527)
---------------------------------------------------------------------
Average common shares outstanding 10,172,000 10,128,000 7,138,400 1,000,000
Net loss per common share ....... (0.13) (0.19) (0.29) (0.14)
---------------------------------------------------------------------
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
4
<PAGE> 5
AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Periods from inception (February 4, 1997) through August 31,1997
from September 1, 1997 to May 31, 1998 and from Inception to May 31, 1998
<TABLE>
<CAPTION>
Period from Period from
Three months Nine months February 4, 1997 February 4, 1997
Ended Ended (inception) to (inception) to
May 31, 1998 May 31, 1998 May 31, 1998 August 31, 1997
------------ ------------ ------------ ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) ........................ $(1,053,766) $(1,706,517) $(1,846,044) $ (139,527)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Noncash expenses:
Professional fees ........................ -- 56,100 105,059 48,959
Depreciation and amortization expense .... 24,177 27,706 27,708
Changes in assets and liabilities:
Increase (decrease) in accounts payable
and accruals ............................. (164,912) 386,549 450,126 63,577
Increase in receivables .................. (128,380) (128,380) (128,380)
Decrease in bank overdrafts .............. (419,911)
Decrease (increase) in prepaid
expenses and other ....................... (35,824) (329,196) (333,416) (4,220)
-----------------------------------------------------------------
Net cash (used in) provided
from operating activities ................ (1,778,616) (1,693,738) (1,724,949) (31,211)
Cash Flows from Investing Activities:
Acquisition of J.B. Rea, Inc. ............ (160,875) (160,875) (160,875)
Purchase of Equipment .................... (256,084) (279,265) (293,585) (14,320)
-----------------------------------------------------------------
(416,959) (440,140) (454,460) (14,320)
Cash Flows from Financing Activities:
Proceeds from Issuance of Preferred
Stock .................................... 2,790,686 3,017,837 3,017,837
Proceeds from Issuance of Common
Stock .................................... 15,550 63,345 47,795
-----------------------------------------------------------------
2,790,686 3,033,387 3,081,182 47,795
-----------------------------------------------------------------
Increase in cash and cash equivalents .... 595,111 899,509 901,773 2,264
Cash and Cash equivalents
Beginning of the period .................. 306,662 2,264 -- --
End of the period ..................... $ 901,773 $ 901,773 $ 901,773 $ 2,264
=========== =========== =========== ===========
Supplemental schedule of noncash
financing activities
Issuance of 51,000, 813,500 and 762,500
common shares in exchange for
services rendered ........................ $ 56,100 $ 105,059 $ 48,959
----------- ----------- -----------
Issuance of 1,193,051 shares of
preferred stock in exchange for
debt securities .......................... $ 1,193,051 $ 1,193,051
----------- -----------
Issuance of 9,000,000 common
shares in exchange for debt
securities ............................... $ 9,939,025 $ 9,939,025
----------- -----------
Capital contribution associated with
sale of note receivable to unrelated
investors ................................ $ 1,516,781 $ 1,516,781 $ 1,516,781
----------- ----------- -----------
Issuance of 237,500 common shares
in connection with the acquisition
of J.B. Rea, Inc. ........................ $ 237,500 $ 237,500
----------- -----------
Dividends declared on preferred stock .... $ 225,000 $ 225,000
----------- -----------
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
5
<PAGE> 6
AMERICAN DIVERSIFIED HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ending May 31, 1998
NOTE 1: QUARTERLY INFORMATION
- -----------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with SEC requirements for interim financial statements. The
statements do not necessarily include all disclosures that would be presented in
the Annual Report on Form 10-SB of American Diversified Holdings, Inc. (the
"Company"). These statements should be read in conjunction with the financial
statements contained in the Company's Annual Report on Form 10-SB as of and for
the period from February 4,1997 (inception) to August 31, 1997.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of Company's financial position and operations for the interim
period. The results are not necessarily indicative of results to be expected for
the fiscal year.
NOTE 2: NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------
The Company was organized on February 4, 1997 as a provider of financial
services in the United States and Europe. As a development stage enterprise, the
Company has devoted most of its resources since inception to raising capital and
implementing the first stages of its business plan. The Company's fiscal year
ends on the last day of each August.
The Company has established two wholly owned subsidiaries since inception:
Planned Operations
------------------
American Diversified AG Wertpapierhandelsbank ("ADAG") Provider of financial
services in Germany
American Diversified Asset Management, Inc. ("ADAM") Investment advisor to
planned mutual funds
Effective March 31,1998 the ADAM merged with and into James Buchanan Rea, Inc.,
the investment advisor and distributor of the Rea-Graham Balanced Fund. The
merger was recorded as a purchase transaction which resulted in the exchange of
237,500 shares of the Company's common stock for the common stock of Rea, Inc.
(Note 5). Goodwill of $327,000 is being amortized over seven years.
A summary of the Company's significant accounting policies follows:
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All material intercompany
accounts and transactions are eliminated in consolidation.
Cash and cash equivalents
- -------------------------
Cash equivalents include highly liquid debt instruments which have a maturity of
three months or less from the date of purchase and other highly liquid
investments which are readily convertible into cash. Cash equivalents are stated
at cost which approximates market value.
Equipment
- ---------
Equipment is reported at cost and includes expenditures for major improvements.
Depreciation is determined using accelerated methods based on estimated useful
lives of between three and five years.
Foreign Currency Translation
- ----------------------------
The Company has agreed to fund any cash flow deficits incurred by ADAG, its
European subsidiary. Until such time that ADAG generates sales revenue, the
Company's functional currency (U.S. $) will be considered ADAG's functional
currency for financial reporting purposes.
6
<PAGE> 7
Income Taxes
- ------------
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carry forwards. Under the liability method, tax liabilities are recorded
for taxable temporary differences. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, all or a portion of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Fair value of financial instruments
- -----------------------------------
The fair value of cash and cash equivalents and capital stock subscriptions
receivable approximates carrying amounts because of the short term nature of
these assets. The Company's debt securities were sold in June for an amount in
excess of the carrying value of $1,193,049.
Net income (loss) per common share
- ----------------------------------
The net income (loss) per common share is based on the net loss from operations
and the weighted average number of shares of common stock outstanding during the
period.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and expenses and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 3: RELATED PARTY TRANSACTIONS
- -----------------------------------
In connection with the Company's founding, a group of stockholders contributed
their ownership of a "Bearer Note" secured by a first mortgage on certain real
property in Berlin. The note, with a face value of 17.5 million Deutschmarks, is
due on December 31, 1999. The note was sold, on a non-recourse basis to a group
of unrelated investors on May 29, 1998 for 20.2 million Deutschmarks resulting
in an economic gain of $1,517,000. For U.S. accounting purposes the gain is
reported as an adjustment to the issuance price of share capital. The
transaction was handled through escrow agents in Berlin. Management expects that
payment will occur during the fourth quarter of fiscal 1998.
Stock Option and Incentive Plan
- -------------------------------
The 1998 Stock Option and Incentive Plan was approved at the May 26, 1998 Board
of Directors meeting and 1,000,000 million shares of common stock were reserved
for issuance under the Plan.
Other
- -----
Legal and other services provided by the Company's stockholders and reported as
operating expenses totaled $117,422 during the nine month period ending May 31,
1998.
NOTE 4: PREFERRED STOCK OFFERING
- ---------------------------------
The Company's completed the sale of 5,000,000 shares of Series A redeemable 9%
cumulative convertible preferred stock in Germany during the third quarter. The
offering occurred under Regulation S guidelines established under the Securities
Act of 1933 for Securities offers made outside of the United States. The
offering is registered with the "Bundesaufsichtsamt fuer Wertpapierhandel," the
German governmental agency which regulates German securities transactions.
Cumulative dividends are payable semi-annually, when declared, at an annual rate
of $.09 per share.
NOTE 5: MERGER WITH JAMES BUCHANAN REA, INC.
- ---------------------------------------------
The investment management business acquired through the merger of the Company's
subsidiary American Diversified Asset Management into James Buchanan Rea, Inc.,
generated operating revenue and expenses of $13,758 and $59,897 respectively
during the third quarter. The purchase price of $413,375 consisted of a cash
payment of $160,875, the issuance of common shares valued at $237,500 and the
assumption of certain liabilities.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
- -------
The Company was organized on February 4, 1997 as a provider of financial
services in the United States and Europe. As a development-stage enterprise, the
Company has devoted most of its resources since inception to raising capital and
implementing the first stages of its business plan. The Company has established
two wholly-owned subsidiaries through which it conducts its business operation:
American Diversified AG Wertpapierhandelsbank ("ADAG"), a provider of financial
services in Germany; and American Diversified Asset Management, Inc. ("ADAM"), a
registered broker-dealer and registered investment advisor to mutual funds in
the United States.
ADAM merged with and into James Buchanan Rea, Inc., a California
corporation effective March 31, 1998 ("JBRI"). Since its inception in 1982, JBRI
served as the investment advisor and distributor to the Rea-Graham Balanced Fund
(the "Fund"), a series mutual fund of American Diversified Funds, Inc. (formerly
named "Rea-Graham Funds, Inc.") a diversified open-end investment company
registered under the Investment Company Act of 1940. ADAM has succeeded JBRI as
a registered broker-dealer and registered investment advisor and the
shareholders of the Fund have approved ADAM as investment advisor to the Fund.
RESULTS OF OPERATIONS
- ---------------------
For the three months ended May 31, 1998, the Company reported operating
revenue of $13,758 all of which is attributable to ADAM. ADAM reported revenues
and operating expenses of $13,758 and $59,897, respectively during the quarter
ended May 31, 1998. ADAG is still in the organizational stage and did not
commence any significant business operations during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Initial promotional costs associated with marketing efforts in Germany
and costs associated with operating ADAG in Germany increased the Company's
monthly liquidity requirements to approximately $350,000 during the period ended
May 31, 1998 as opposed to $100,000 and $20,000 during the periods ended
February 28, 1998 and the fiscal year ending August 31,1997. As such, costs
incurred for employee compensation and advertising increased from $116,993 and
$52,831 in the second quarter to $159,414 and $538,538 in the third quarter.
Cash inflows from the sale of 2,791,00 shares of Series A Preferred Stock
provided the working capital.
8
<PAGE> 9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Effective May 26, 1998, the Company effected a 1:10 reverse
stock split reducing its common stock to 10,302,700 shares
outstanding. The Company also filed an amendment to its Articles
of Incorporation changing the par value of its authorized Common
Stock and Preferred Stock to "no par value" and reducing the
authorized shares of Common Stock to 20,000,000 and the shares
of preferred Stock to 10,000,000.
(c)(1) The Company sold 1,490,989 shares of Series A Preferred Stock
during the period covered by this report, in reliance on the
exemption provided under Regulation S from registration under
the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective May 26, 1998, a majority of Shareholders, representing
95,000,000 (pre-reverse split) or 92.2% of total shares outstanding
executed written consents authorizing the Amendment to the Articles of
Incorporation of the Company which is filed on Exhibit 3.1.5 below.
ITEM 5. OTHER INFORMATION
(a) Changes in Officers and Directors. Effective May 26, 1998, Mr.
Thomas Corcovelos resigned as Secretary of the Company and was
replaced by Michael B. Jeffers, with Mr. Corcovelos remaining as
a Director of the Company. Also effective May 26, 1998, Mr.
Klaus Conradi resigned as a Director and was replaced by Mr.
Thomas H. Fitzgerald, Jr.
The present officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Officers Directors
-------- ---------
<S> <C> <C> <C>
President/CEO James B. Rea, Jr. Chairman Peter Hartmann
Exec. V.P. - International Development Peter Hartmann Director Tom Corcovelos
CFO/Treasurer Roland Kuettner Director Thomas H. Fitzgerald
Secretary Michael B. Jeffers Director Roland Kuettner
Assistant Secretary Isabel Bautista Director James Buchanan Rea, Jr.
</TABLE>
(b) Sale of Control Shares. In May 1998, American Diversified
Corporation sold all of its 9,000,000 (post reverse split)
shares of the Company to unrelated third-party purchasers, in
private transactions pursuant to the exemption provided under
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1.5 Amendment to Articles of Incorporation of the Company
filed May 29, 1998
9.1.3 Form of Employment Contract between the Company and
Peter Hartmann
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the applicable period
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, therefore duly authorized.
AMERICAN DIVERSIFIED HOLDINGS, INC.
Date: July 13, 1998 By: /s/ Peter Hartmann
--------------------------------------
Peter Hartmann
Chairman of the Board
Date: July 13, 1998 By: /s/ Roland Kuettner
--------------------------------------
Roland Kuettner
Principal Financial and Accounting Officer
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
3.1.5 Amendment to Articles of Incorporation of the Company
filed May 29, 1998
9.1.3 Form of Employment Contract between the Company and
Peter Hartmann
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1.5
CERTIFICATE OF AMENDMENT
(AFTER ISSUANCE OF STOCK)
TO
ARTICLES OF INCORPORATION
OF
AMERICAN DIVERSIFIED HOLDINGS, INC.
The undersigned, being the President and Secretary of American
Diversified Holdings, Inc., (the "Corporation") hereby declare that the original
Articles of Incorporation were filed with the Secretary of State of the State of
Nevada on February 5, 1997 under the name AMERICAN DIVERSIFIED HOLDINGS, INC.
The Board of Directors has subsequently amended the Articles of Incorporation on
April 1, 1997, November 20, 1997 and January 12, 1998. The Board of Directors
adopted a resolution on May 26, 1998 to further amend the Articles of
Incorporation. The number of shares of the Corporation's outstanding common
stock entitled to vote on the amendment to the Articles is 10,302,700. The
following change and amendment have been consented to and approved by a majority
vote of the common stock outstanding and entitled to vote thereon.
The first paragraph of Article Third, Section 1 of the Corporation's
Articles of Incorporation is hereby amended and restated in its entirety as
follows:
"THIRD:
Section 1. Authorized Shares. This Corporation is authorized to
issue two classes of shares designated respectively "Common
Stock" and "Preferred Stock." The authorized number of shares of
Common Stock is 20,000,000 shares, having no par value per share,
and the authorized number of shares of Preferred Stock is
10,000,000 shares, having no par value per share."
THE UNDERSIGNED, being the President and Secretary of AMERICAN
DIVERSIFIED HOLDINGS, INC. hereby declare and certify that the facts herein
stated are true, and, accordingly, have each set their hand this 30th day of
May, 1998.
1
<PAGE> 2
American Diversified Holdings, Inc.
Executed May 28, 1998 By: /s/ JAMES B. REA, JR.
---------------------
James B. Rea, Jr.
President
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On 5/28/98, before me, the undersigned, a notary public, personally
appeared James B. Rea, Jr., known to me, or proved to me on the basis of
satisfactory evidence, to be the person whose name is subscribed to this
instrument and acknowledged that he executed it.
By: /s/ IVANA MUNOZ-CRISPO
-----------------------
Ivana Munoz-Crispo
Notary Public
2
<PAGE> 3
American Diversified Holdings, Inc.
Executed May 28, 1998 By: /s/ MICHAEL B. JEFFERS
-----------------------
Michael B. Jeffers
Secretary
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On 5/28/98, before me, the undersigned, a notary public, personally
appeared Michael B. Jeffers, known to me, or proved to me on the basis of
satisfactory evidence, to be the person whose name is subscribed to this
instrument and acknowledged that he executed it.
By: /s/ IVANA MUNOZ-CRISPO
---------------------------
Ivana Munoz-Crispo
Notary Public
3
<PAGE> 1
EXHIBIT 9.1.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
July 1, 1998, by and between American Diversified Holdings. Inc., its
subsidiaries and Peter Hartmann ("Executive").
1. EMPLOYMENT
ADH (hereinafter referred to collectively as the "Employers") hereby
employs Executive and Executive hereby accepts employment upon the terms and
conditions set forth below.
2. TERM AND RENEWAL
2.1 TERM. The term of this Agreement shall commence on the date
of this Agreement (the "Effective Date"), and shall continue for thirty months
from the Effective Date (the "Original Employment Term"), on the terms and
conditions set forth below, unless sooner terminated as provided in Section 5.
2.2 EXTENSION. Following the expiration of the Original
Employment Term and provided that this Agreement has not been terminated
pursuant to Section 5, and every year thereafter, the Agreement shall be
automatically renewed for an additional 12-month period, effective on each
anniversary date of the Effective Date.
3. COMPENSATION
3.1 BASE COMPENSATION. For the services to be rendered by
Executive under this Agreement, Executive shall be entitled to receive,
commencing as of the Effective Date, an initial annual base compensation ("Base
Compensation") of $180,000 payable in 12 equal monthly installments of $15,000.
3.2 ANNUAL DISCRETIONARY BENEFITS FUND. Executive shall be
entitled to an annual discretionary benefits fund of $40,000 which shall be used
for such benefits and perquisites as the Executive shall determine in his sole
discretion, including medical insurance and expenses for the Executive as well
as his spouse and children, life and disability insurance, car allowances and
club memberships. The Executive and Employer shall agree on the amounts, payment
and allocations of the benefits. Any shortfall in the amount of the benefits of
less than $40,000 shall be paid to Executive as a bonus. The Employee may not
carry over unused portions of the annual discretionary benefits fund from year
to year.
3.3 PENSION/PROFIT SHARING PLANS, ETC. The Executive shall be
entitled to participate in all pension, profit sharing, 401(k) and other
employee plans and benefits established by the Employers.
3.4 METHOD OF PAYMENT. The monetary compensation payable and any
benefits due to Executive hereunder may be paid or provided in whole or in part,
from time to time,
1
<PAGE> 2
by the Employers and/or their respective subsidiaries and affiliates, but shall
at all times remain the responsibility of the Employers.
4. POSITION AND DUTIES
4.1 POSITION. Executive shall serve as Chairman of the Board and
Executive Vice President - International Development of the Company and its
Subsidiaries. Executive shall have such duties as are the usual and customary
duties of the such offices. Executive shall have such executive power and
authority as shall reasonably be required to enable Executive to discharge the
duties of such offices. Executive may, at Executive's discretion, serve the
Employers and/or their respective subsidiaries and affiliates in such other
offices and capacities as they shall mutually agree. In the event the Employers
and Executive mutually agree that Executive shall terminate Executive's service
in any one or more of the aforementioned capacities, or Executive's service in
one or more of the aforementioned capacities is terminated, Executive's
compensation, as specified in this Agreement, shall not be diminished or reduced
in any manner.
4.2 DEVOTION OF TIME AND EFFORT. Executive shall use Executive's
good faith best efforts and judgment in performing Executive's duties as
required hereunder and in the best interests of the Employers. Executive shall
devote such time, attention and energies to the business of the Employers as are
reasonably necessary to satisfy Executive's required responsibilities and duties
hereunder.
4.3 OTHER ACTIVITIES. Executive may engage in other personal and
civic activities while employed hereunder, including without limitation
charitable, community and other business activities, provided that such other
activities do not interfere with the performance of Executive's duties
hereunder.
4.4 VACATION. It is understood and agreed that Executive shall be
entitled to four weeks vacation per year. During such vacation periods,
Executive shall not be relieved of Executive's duties under this Agreement and
there will be no abatement or reduction of Executive's compensation hereunder.
4.5 BUSINESS EXPENSES. The Employers shall promptly, but in no
event later than ten days after submission of a claim of expenditure, reimburse
Executive for all reasonable business expenses including, without limitation,
business seminar fees, professional association dues and other reasonable
entertainment expenses incurred by Executive in connection with the business of
the Employers and/or their respective subsidiaries and affiliates, upon
presentation to the Employers of written receipts for such expenses. Such
reimbursement shall also include, but not be limited to, reimbursement for all
reasonable travel expenses, including all airfare, hotel and rental car
expenses, incurred by Executive in traveling in connection with the business of
the Employers.
2
<PAGE> 3
4.6 EMPLOYERS' OBLIGATIONS. The Employers shall provide Executive
with any and all necessary or appropriate current financial information and
access to current information and records regarding all material transactions
involving the Employers and/or their representative subsidiaries and affiliates,
including but not limited to acquisition of assets, personnel contracts,
dispositions of assets, service agreements and registration statements or other
state or federal filings or disclosures, reasonably necessary for Executive to
carry out Executive's duties and responsibilities hereunder. In addition, the
Employers agree to provide Executive, as a condition to Executive's services
hereunder, such staff, equipment and office space as is reasonably necessary for
Executive to perform Executive's duties hereunder.
5. TERMINATION
5.1 BY EMPLOYERS WITHOUT CAUSE. The Employers may terminate this
Agreement without "cause" (as hereinafter defined) at any time following the
third anniversary of the Effective Date, provided that the Employers first
deliver to Executive the Employers' written election to terminate this Agreement
at least 90 days prior to the effective date of termination.
5.2 SEVERANCE PAYMENT.
(a) AMOUNT. In the event the Employers terminate Executive's
services hereunder pursuant to Section 5.1, Executive shall continue to render
services to the Employers pursuant to this Agreement until the date of
termination and shall continue to receive compensation, as provided hereunder,
through the termination date. In addition to other compensation payable to
Executive for services rendered through the termination date, the Employers
shall pay Executive no later than the date of such termination, as a single
severance payment, an amount equal to the sum of: (i) one-quarter of the
Executive's average annual Base Compensation paid hereunder for the preceding
thirty-six month period; plus (ii) an amount equal to one-quarter of the highest
annual bonus or profit sharing received by Executive during the preceding
thirty-six month period (the "Severance Amount").
(b) BENEFITS. In the event Executive's employment hereunder
is terminated by the Employers without cause pursuant to Section 5.1 or by
Executive pursuant to Section 5.4 or 5.6, then in addition to paying Executive
the Severance Amount, the Employers shall continue to provide to Executive and
Executive's spouse and children, as applicable, all of the benefits described in
Section 3.3 for a period one year commencing on the date of such termination
(the "Severance Benefits").
(c) LIMITATION. The total of such severance payments shall be
reduced to the extent that the payment of such amount would cause Executive's
total termination benefits (as determined by Executive's tax advisor) to
constitute an "excess" parachute payment under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and by reason of such excess
parachute payment Executive would be subject to an excise tax under Section
4999(a) of the Code, but only if Executive determines that the after-tax value
of the termination benefits calculated with the foregoing restriction exceed
those calculated without the foregoing restriction.
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<PAGE> 4
5.3 BY THE EMPLOYERS FOR CAUSE. The Employers may terminate
Executive for cause at any time, upon written notice to Executive. For purposes
of this Agreement, "cause" shall mean:
(a) Executive's conviction for commission of a felony or a
crime involving moral turpitude;
(b) Executive's willful commission of any act of theft,
embezzlement or misappropriation against the Employers which, in any such case,
is materially and demonstrably injurious to the Employers;
(c) Executive's willful and continued failure to
substantially perform Executive's duties hereunder (other than such failure
resulting from Executive's incapacity due to physical or mental illness), which
failure is not remedied within a reasonable time after demand for substantial
performance is delivered by the Employers which specifically identifies the
manner in which the Employers believe that Executive has not substantially
performed Executive's duties; or
(d) Executive's death or Disability (as hereinafter defined).
In the event Executive is terminated for cause pursuant to this Section 5.3,
Executive shall have the right to receive Executive's compensation as otherwise
provided under this Agreement through the effective date of termination.
Executive shall have no further right to receive compensation or other
consideration from the Employers or have any other remedy whatsoever against the
Employers as a result of this Agreement or the termination of Executive pursuant
to this Section 5.3, except as set forth below with respect to a termination due
to Executive's Disability.
In the event Executive is terminated by reason of Executive's Disability
(but not death), the Employers shall immediately pay Executive a single
severance payment equal to the Severance Amount. Said payment shall be in
addition to any disability insurance payments to which Executive is otherwise
entitled and any other compensation earned by Executive hereunder. For purposes
of this Agreement, the term "Disability" shall mean a physical or mental
incapacity as a result of which Executive becomes unable to continue the proper
performance of Executive's duties hereunder for six consecutive calendar months
or for shorter periods aggregating 180 business days in any 12 month period, but
only to the extent that such definition does not violate the Americans with
Disabilities Act.
5.4 BY EXECUTIVE FOR GOOD REASON. Executive may terminate this
Agreement for good reason upon at least 30 days prior written notice to the
Employers. For purposes of this Agreement, "good reason" shall mean:
(a) the Employers' material breach of any of their respective
obligations hereunder and either such breach is incurable or, if curable, has
not been cured within fifteen (15) days following receipt of written notice by
Executive to the Employers of such breach by either of the Employers;
4
<PAGE> 5
(b) any removal of Executive from the office specified in the
first sentence of Section 4.1 without cause and without Executive's prior
written consent; or
(c) any material decrease in Executive's authority or
responsibilities hereunder without Executive's prior written consent.
In the event that Executive terminates this Agreement for good reason
pursuant to this Section 5.4, Executive shall have the right to receive
Executive's compensation as provided hereunder through the effective date of
termination and shall also have the same rights and remedies against the
Employers as Executive would have had if the Employers had terminated
Executive's employment without cause pursuant to Section 5.1 (including the
right to receive the Severance Amount payable and the Severance Benefits to be
provided under Section 5.2).
5.5 EXECUTIVE'S VOLUNTARY TERMINATION. Executive may, at any
time, terminate this Agreement without good reason upon written notice delivered
to the Employers at least ninety (90) days prior to the effective date of
termination. In the event of such voluntary termination of this Agreement by
Executive: (i) Executive shall have the right to receive Executive's
compensation as provided hereunder through the effective date of termination,
and (ii) the Employers on the one hand, and Executive, on the other hand, shall
not have any further right or remedy against one another except as provided in
Sections 6, 7 and 8 hereof which shall remain in full force and effect.
5.6 CHANGE OF CONTROL. Executive may terminate this Agreement,
upon at least ten (10) days' prior written notice to the Employers at any time
within one (1) year after a "change in control" (as hereinafter defined) of
either of the Employers. In the event Executive terminates this Agreement within
one (1) year after a change in control pursuant to this Section 5.6, (i)
Executive shall continue to render services pursuant hereto and shall continue
to receive compensation, as provided hereunder, through the termination date,
(ii) the Employers shall pay Executive no later than the date of such
termination, as a single severance payment, an amount equal to the Severance
Amount and (iii) following such termination, the Employers shall provide the
Severance Benefits as required by Section 5.2. For purposes of this Agreement,
(a "change in control") shall mean the occurrence of any of the following
events:
(a) a merger, consolidation, share exchange or reorganization
involving the Parent, unless
(i) the stockholders of the Parent, immediately before
such merger, consolidation, share exchange or reorganization, own, directly or
indirectly immediately following such merger, consolidation, share exchange or
reorganization, at least 55% of the combined voting power of the outstanding
voting securities of the corporation that is the successor in such merger,
consolidation, share exchange or reorganization (the "Surviving Company") in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation, share exchange or reorganization;
5
<PAGE> 6
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation, share exchange or reorganization constitute at least
two-thirds (2/3rds) of the members of the board of directors of the Surviving
Company;
(b) a complete liquidation or dissolution of the Parent; or
(c) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company or the Parent.
6. CONFIDENTIALITY
During the term of Executive's employment under this Agreement,
Executive will have access to and become acquainted with various information
relating to the Employers' business operations, marketing data, business plans,
strategies, employees, contracts, financial records and accounts, projections
and budgets, and similar information. Executive agrees that to the extent such
information is not generally available to the public and gives either of the
Employers an advantage over competitors who do not know of or use such
information, such information and documents constitute "trade secrets" of the
Employers. Executive further agrees that all such information and documents
relating to the business of the Employers whether they are prepared by Executive
or come into Executive's possession in any other way, are owned by the Employers
and shall remain the exclusive property of the Employers. Executive shall not
misuse, misappropriate or disclose any trade secrets of the Employers directly
or indirectly, or use them for Executive's own benefit, either during the term
of this Agreement or at any time thereafter, except as may be necessary or
appropriate in the course of Executive's employment with the Employers unless
such action is either previously agreed to in writing by the Employers or
required by law.
7. NON-SOLICITATION
For a period of one (1) year following the date Executive's employment
hereunder is terminated, Executive shall not solicit or induce any of the
Employers' employees, agents or independent contractors to end their
relationship with either of the Employers, or recruit, hire or otherwise induce
any such person to perform services for Executive, or any other person, firm or
company. The restrictions set forth in this Section 7 shall not apply if
Executive's employment is terminated pursuant to Section 5.1, 5.4 or 5.6.
8. INDEMNIFICATION
To the fullest extent permitted under applicable law, the Employers
shall indemnify, defend and hold Executive harmless from and against any and all
causes of action, claims, demands, liabilities, damages, costs and expenses of
any nature whatsoever (collectively, "Damages") directly or indirectly arising
out of or relating to Executive discharging Executive's duties hereunder on
behalf of the Employers and/or their respective subsidiaries and affiliates, so
long as Executive acted in good faith within the course and scope of Executive's
duties with respect to the matter giving rise to the claim or Damages for which
Executive seeks indemnification.
6
<PAGE> 7
9. PAYMENT OF FINANCIAL OBLIGATIONS BY EMPLOYERS
The payment or provision to the Executive by the Employers of any
remuneration, benefits or other financial obligations pursuant to this
Agreement, including, without limitation, the payment of Executive's Base
Compensation, any cash bonuses or profit sharing, the provision of benefits and
perquisites set forth in Section 3.3, the reimbursement of business expenses
pursuant to Section 4.5, the payment (if applicable) of the Severance Amount and
provision of the Severance Benefits and any indemnification obligations, shall
be the joint and several obligations of the Employer.
10. GENERAL PROVISIONS
10.1 ASSIGNMENT; BINDING EFFECT. None of the Employers or
Executive may assign, delegate or otherwise transfer this Agreement or any of
their respective rights or obligations hereunder without the prior written
consent of the other party. Any attempted prohibited assignment or delegation
shall be void. This Agreement shall be binding upon and inure to the benefit of
any permitted successors or assigns of the parties and the heirs, executors,
administrators and/or personal representatives of Executive.
10.2 NOTICES. All notices, requests, demands and other
communications that are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method with electronic confirmation of receipt; the day
after it is sent, if sent for next-day delivery to a domestic address by
recognized overnight delivery service (E.G., FEDEX); and upon receipt, if sent
by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to the Company or ADH:
American Diversified Holdings, Inc.
12000 Wilshire Blvd., Suite 680
Los Angeles, California
Attention: Peter Hartmann
Telephone: (310) 442-2660
Telecopy: (310) 442-2661
If to Executive:
Peter Hartmann
127 Via Coronado
Rancho Santa Fe, CA 92091
Telephone: (619) 759-3552
Telecopy: (619) 759-3563 fax
7
<PAGE> 8
Any party may change its address for the purpose of this Section 10.2 by
giving the other party written notice of its new address in the manner set forth
above.
10.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties, and supersedes all prior agreements, understandings
and negotiations, whether written or oral, between the Employers and Executive
with respect to the employment of Executive by the Employers.
10.4 AMENDMENTS; WAIVERS. This Agreement may be amended or
modified, and any of the terms and covenants may be waived, only by a written
instrument executed by the parties hereto, or, in the case of a waiver, by the
party waiving compliance. Any waiver by any party in any one or more instances
of any term or covenant contained in this Agreement shall neither be deemed to
be nor construed as a further or continuing waiver of any such term or covenant
of this Agreement.
10.5 PROVISIONS SEVERABLE. In case any one or more provisions of
this Agreement shall be invalid, illegal or unenforceable, in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not, in any way, be affected or impaired thereby. If any provision
hereof is determined by any court of competent jurisdiction to be invalid or
unenforceable by reason of such provision extending the covenants and agreements
contained herein for too great a period of time or over too great a geographical
area, or being too extensive in any other respect, such provision shall be
interpreted to extend only over the maximum period of time and geographical
area, and to the maximum extent in all other respects, as to which it is valid
and enforceable, all as determined by such court in such action.
10.6 ATTORNEY'S FEES. If any legal action, arbitration or other
proceeding, is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach or default in connection with any of the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, including
any appeal of such action or proceeding, in addition to any other relief to
which that party may be entitled.
10.7 GOVERNING LAW. This Agreement shall be construed, performed
and enforced in accordance with, and governed by the laws of the State of
California without giving effect to the principles of conflict of laws thereof.
10.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement
AMERICAN DIVERSIFIED HOLDINGS, INC.,
By: /s/ JAMES BUCHANAN REA, JR.
---------------------------
James Buchanan Rea, Jr.
President
EXECUTIVE:
By: /s/ PETER HARTMANN
-----------------------
Peter Hartmann
9
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