<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarter Ended Commission File Number 0-23705
June 30, 1998
Automotive Performance Group, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 86-0850090
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1207 N. Miller Road, Tempe, Arizona 85281
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(Address of principal executive offices) (Zip Code)
(602) 967-5990
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(Registrant's telephone number, including area code)
SAME
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(Former name, former address and former fiscal year, if
changed since last report.)
Check whether the registrant (1) has 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 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)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. 5,838,239 shares of Common
Stock, par value $.0001 on August 12, 1998.
<PAGE> 2
Part I. Financial Information
<PAGE> 3
Item 1. Financial Statements
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
June 30, 1998 1997
------------- ------------
CURRENT ASSETS (unaudited)
<S> <C> <C>
Cash $ 1,309,866 $ 3,510,537
Accounts receivable, net of allowance for
doubtful accounts of $40,600 in 1998 474,639 410,346
Inventories 991,880 --
Prepaid expenses and other 9,392 124,223
Notes receivable 1,572,926 2,205,738
------------ ------------
Total current assets 4,358,703 6,250,844
PROPERTY, PLANT AND EQUIPMENT, net 5,791,720 4,290,041
OTHER ASSETS 603,501 726,616
------------ ------------
$ 10,753,924 $ 11,267,501
============ ============
LIABILITIES
CURRENT LIABILITIES
Line of credit $ 939,200 $ --
Note payable to affiliate -- 287,907
Current maturities of long-term obligations 958,378 1,463,125
Accounts payable 2,813,713 1,045,140
Accrued liabilities 244,434 140,000
------------ ------------
Total current liabilities 4,955,725 2,936,172
LONG-TERM OBLIGATIONS, less current maturities 1,284,578 81,570
RELATED PARTY NOTES PAYABLE -- 16,305,500
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock - authorized 13,000,000 shares
of $.0001 par value; 500,000 issued and
outstanding at June 30, 1998 50 --
Common stock - authorized, 130,000,000 shares
of $.0001 par value; 5,838,239 and 2,121,692
shares issued and outstanding, respectively 584 212
Additional contributed capital 34,238,933 14,656,620
Cumulative translation adjustment (118,819) (116,504)
Accumulated deficit (29,607,127) (22,596,069)
------------ ------------
4,513,621 (8,055,741)
------------ ------------
$ 10,753,924 $ 11,267,501
============ ============
</TABLE>
<PAGE> 4
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 3,203,082 $ 3,905,978 $ 4,325,541 $ 5,111,693
Expenses
Direct expenses 2,308,858 1,440,804 4,792,204 2,792,695
Selling, general and administrative 4,138,941 3,235,301 4,771,858 4,066,482
Depreciation expense 521,824 361,105 1,083,608 1,203,703
Loss on investments in affiliates 143,318 -- 146,016 --
------------ ------------ ------------ ------------
7,112,941 5,037,210 10,793,686 8,062,880
------------ ------------ ------------ ------------
Operating loss (3,909,859) (1,131,232) (6,468,145) (2,951,187)
Other income (expense)
Interest expense (203,132) (157,883) (521,892) (188,361)
Interest income (15,597) -- 30,563 --
------------ ------------ ------------ ------------
Loss from continuing operations
before discontinued operations
and extraordinary item (4,128,588) (1,289,115) (6,959,474) (3,139,548)
Discontinued operations
Loss from operations of discontinued
venue and race sanctioning divisions (143,369) (1,741,752) (345,247) (1,846,752)
------------ ------------ ------------ ------------
Loss before extraordinary item (4,271,957) (3,030,867) (7,304,721) (4,986,300)
Extraordinary item
Gain from extinguishment of debt -- -- 293,663 --
------------ ------------ ------------ ------------
NET LOSS $ (4,271,957) $ (3,030,867) $ (7,011,058) $ (4,986,300)
============ ============ ============ ============
Loss per common share
Loss before discontinued operations
one extraordinary item $ (.72) $ (2.48) $ (1.75) $ (9.06)
Discontinued operations (.02) (3.35) (.08) (5.33)
Extraordinary item -- -- .07 --
------------ ------------ ------------ ------------
$ (.74) $ (5.83) $ (1.76) $ (14.39)
============ ============ ============ ============
</TABLE>
<PAGE> 5
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net cash used in operating activities $ (4,242,981) $ (6,438,180)
Cash flows from investing activities
Purchase of equipment (81,756) (2,125,514)
Proceeds from disposition of equipment 978,617 8,000
Net investment in subsidiaries -- (3,090,910)
------------ ------------
Net cash provided by (used in)
investing activities 896,861 (5,208,424)
Cash flows from financing activities
Payments on long-term obligations (793,751) (227,736)
Proceeds from long-term obligations -- 3,843,866
Conversion of preferred stock -- (1,080,000)
Proceeds from issuance of common stock -- 7,104,000
Proceeds from issuance of preferred stock 1,000,000 --
Capital contributions -- 966,826
Proceeds from related party notes payable, net -- 691,760
Borrowings under line of credit, net 939,200 --
------------ ------------
Net cash provided by financing activities 1,145,449 11,298,716
------------ ------------
Net decrease in cash (2,200,671) (347,888)
Cash at beginning of period 3,510,537 1,007,008
------------ ------------
Cash at end of period $ 1,309,866 $ 659,120
============ ============
Cash paid during the period for interest $ 186,976 $ 188,361
============ ============
</TABLE>
<PAGE> 6
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the Company and its
subsidiaries have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The results of
operations for interim periods are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31, 1998.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market and consisted of the following at:
<TABLE>
<CAPTION>
June 30, 1998
(unaudited) December 31, 1997
------------- -----------------
<S> <C> <C>
Raw materials $475,037 $ --
Finished goods 516,843 --
-------- --------
$991,880 $ --
======== ========
</TABLE>
NOTE 3 - LOSS PER COMMON SHARE
Loss per share is based on the weighted average number of shares outstanding
during each period. The weighted average number of common shares outstanding
was 5,769,370 and 519,621 for the three months ended June 30, 1998 and 1997,
respectively, and 3,973,977 and 346,522 for the six months ended June 30,
1998 and 1997, respectively. The computations for loss per share assuming
dilution for the periods ended June 30, 1998 and 1997, respectively, were
anti-dilutive; and therefore, are not included.
NOTE 4 - ACQUISITION
Effective April 17, 1998 through a series of mergers, International Motor
Sports Group, Inc. (IMSG) exchanged 108,930,887 shares of its common stock
for an equal number of shares of Automotive Performance Group, Inc.'s (APGI
and the Company) common stock and Klein Engines and Competition Components,
Inc. (Klein) exchanged 7,833,902 shares of its common stock for an equal
<PAGE> 7
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - ACQUISITION - Continued
number of shares of APGI. These transactions resulted in IMSG being the
accounting acquirer in the transaction. The acquisition has been accounted
for under the purchase method of accounting.
NOTE 5 - CONVERSION OF RELATED PARTY NOTES PAYABLE
Effective March 31, 1998, IMSG and its subsidiary, Team Scandia, Inc.,
converted unsecured demand notes payable to related parties into shares of
IMSG's common stock. The demand notes of $15,938,000 plus imputed interest of
$686,259 were converted into 66,497,036 shares of IMSG's common stock or
3,324,852 shares giving effect to the 20 to 1 reverse stock split. On March
30, 1998, the shareholders increased the number of authorized shares of
common stock from 50,000,000 to 130,000,000 and the number of authorized
shares of preferred stock from 5,145,000 to 13,000,000. The shareholders also
approved a 20-for-1 reverse stock split effective April 17, 1998, the
effective date of the business combination described in note 4. All per share
losses and references to common stock, warrants and options have been
retroactively restated to reflect the decreased number of common shares
outstanding.
NOTE 6 - PREFERRED STOCK
In June 1998, the Company issued 500,000 shares of Series A Preferred Stock
at $2 per share to a related party in conjunction with a private placement of
1,650,000 preferred shares which are convertible to Common shares of the
Company at a conversion rate of one share of Common stock for each share of
Preferred stock.
NOTE 7 - YEAR 2000 COMPUTER SOFTWARE CONVERSION
The Company regularly updates its information systems capabilities, and has
evaluated all significant computer software applications for compatibility
with the year 2000. With the system changes implemented to date and other
planned changes, the Company anticipates that its computer software
applications will be compatible with the year 2000. Expenditures specifically
related to software modifications for year 2000 compatibility are not
expected to have a material effect on the Company's operations or financial
position. However, the Company is dependent on numerous vendors and customers
which may incur disruptions as a result of year 2000 software issues.
Accordingly, no assurance can be given that the Company's results of
operations will not be impacted by this industry-wide issue.
<PAGE> 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This discussion summarizes the operating results and financial
condition of the Company during the period ended June 30, 1998. This discussion
should be read in conjunction with the financial statements contained elsewhere
in this financial report.
The Company has yet to report a profit. Losses were incurred as a
result of the planned expenditures in its Team Scandia racing platform as well
as increased marketing expenses for Royal Purple Motor Oil.
The objective of Management is to profit from the synergistic benefits
of offering a broad line of mutually supportive branded goods and services. The
strategy Management plans is to continue to pursue its measured program of
affiliation with and acquisition of high performance automotive related
companies. The recent merger with Klein Engines and Competition Components is an
example of the implementation of the above strategy. Klein Engines' reputation
for producing high-quality, dependable and competitive racing engines and
components dovetails well with the reputations earned by the Company's other
enterprises. Klein's association with Team Scandia has already resulted in Klein
receiving work from various Indy Car Racing teams, rebuilding and refreshing
Aurora engines which is more profitable work than the bulk of engine work done
by Klein in recent years. Klein intends to sell all of its real estate. As part
of the mutual benefits enjoyed by both companies, the merger has brought to
Klein Engines the capital resources that will enable it, among other things, to
continue its development of core business lines.
The interest of consumers and spectators in APG's offerings is expected
by Management to continue to grow, inspiring more and more interest from team
sponsors and high performance automotive related companies, both looking to
strengthen their brand images through affiliation with the winners at APG and
its enterprises.
Team Scandia continues to refine and consolidate racing team
activities. It has purchased a Taurus stock car to be driven by Jimmy Kite if
appropriate sponsorship can be secured.
The Company is in the process of developing a marketing plan to promote
its high performance synthetic lubricant Royal Purple in the mass markets where
it believes that the profit potential for the product is exceptional. The
Company has an aggressive search underway for additional chemical product
acquisitions as well as profitable brand licenses, which will add to its mix of
companies that support high performance motor sports.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 1998, the company closed on $1 million of
a planned $3.3 million private placement of Series A Preferred stock priced at
$2.00 per share. The company has spent over $1.3 million on inventory and
advertising for Royal Purple Motor Oil during the second quarter.
<PAGE> 9
The company reduced the number of employees at Team Scandia from 40
persons in the first quarter of 1998 to 20 persons at the end of the second
quarter. Klein Engines also reduced its staff from 25 persons in the first
quarter to 13 persons at the end of the second quarter. However, this led to
increased severance payments in the second quarter but will allow for smaller
losses at each of the respective companies in the third and fourth quarters of
1998.
The goal of APG management is to reduce the negative EBITDA at the
company to below $3 million in the second half of 1998 versus the cash losses of
$5.4 million on continuing operations in the first half of 1998.
The company closed on an additional $1,560,000 of additional capital
from the sale of Series A Preferred Stock on August 5, 1998. The remaining
$740,000 will close on or about August 17, 1998. Plans for raising more equity
capital are already under way which will enable the continued reduction in
payables, increased advertising and marketing, as well as enabling further
acquisitions of profitable brand licenses during 1998. The company is also
attempting to secure a $2 million revolving line of credit to manage inventory
and accounts receivable.
RESULTS OF OPERATIONS
Results of operations for six months, ending June 30, 1998, resulted in
Revenue of $4,356,104 and Net Losses of $7,011,058. Many of these losses
occurred in Team Scandia and Klein Engines, which are planned to be reduced as a
result from the changes discussed earlier. Royal Purple Motor Oil is expected to
continue to lose money during the rest of 1998.
RACE TEAM OPERATIONS
Team Scandia qualified two Royal Purple Motor Oil sponsored IRL cars
for the Indy 500 in 1998. This aggressive program contributed substantially to
the operating losses of the Company in the first half of 1998. At the present
time, Team Scandia is only campaigning a top fuel dragster for Cristen Powell as
well as maintaining the stock car program at Scandia Bodine Racing. A great deal
of publicity was achieved with a corresponding increase in revenue at Royal
Purple Motor Oil, which sponsored Jimmy Kite and Billy Roe in the Indy 500.
During the rest of 1998, Jimmy Kite will participate in a number of racing
events with minimal Team Scandia expenditures unless outside sponsorship can be
generated.
Race team asset sales have funded some of the company's losses during
the second quarter of 1998. Further sale of these assets are intended to reduce
Team Scandia payables as well as fund daily operating cash flow needs.
HIGH PERFORMANCE ENGINES / SPECIALTY ENGINE COMPONENTS
During 1997, Klein Engines and Competition Components, Inc. incurred an
extraordinarily high increase in operating expenses due to the acquisition of
real estate, the introduction of new products, and additions to payroll
associated with the Company's preparation to become a fully
<PAGE> 10
reporting public company. During the first half of 1998, the Company also
incurred unusual non-recurring professional fees of approximately $100,000
associated with the pending merger and filing its Form-10, to become a full
reporting company with the Securities and Exchange Commission. Payroll has now
been reduced by approximately $20,000 per month and the pending sale of all real
estate acquired in 1997 will reduce cash requirements by approximately $10,000
per month. Klein Engines is expected to reduce its payables upon the sale of all
of its real estate assets. Klein Engines expects to reach a break-even position
by year-end.
HIGH PERFORMANCE SYNTHETIC LUBRICANTS
In 1997, the Company acquired worldwide, exclusive rights to market and
retail a variety of high-performance synthetic lubricants developed by Royal
Purple, Inc. These products have been received enthusiastically in retail
markets as well as in the high performance motor racing arena. While the Company
continues to believe that the products have great promise, they have yet to
contribute to profitability and Royal Purple Motor Oil is expected to continue
operating at a loss until the products achieve a significant market share. The
next two years will see the company's cash flow dedicated to increased marketing
and advertising to establish the Royal Purple brand worldwide.
PROPERTIES AND BRANDED PRODUCTS
Cristen Powell and Jimmy Kite are showing great promise. They are very
competitive on the racetrack and receive a great deal of press attention at each
event. However, anticipated revenue from product licenses will take some time to
develop. The leverage from this area is considerable when and if either driver
wins a championship.
RISK AND UNCERTAINTIES
Matters discussed herein contain forward-looking statements that
involve risk and uncertainties. The Company's results may differ significantly
from results indicated by forward-looking statements. Factors that might cause
some differences include, but are not limited to changes in general economic
conditions, including but not limited to the public's interest in racing, and
shifts in leisure time pursuit preferences; changes in government regulations
affecting racing, sponsors, customers, and/or the Company and/or its
subsidiaries; risks generally involved in the high performance automotive
business; competition; the ability of the Company to successfully exploit its
properties, develop markets for products produced by its subsidiaries, control
costs and inventories, and continue to satisfy its customers; the Company's
ability to raise sufficient debt and equity capital to perfect business plans
and to enable it to continue in existence; the occurrences of incidents which
could subject the Company to liability or fines.
<PAGE> 11
Part II. Other Information
<PAGE> 12
ITEM 2. -- CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) In June 1998, the Company commenced a private placement of 1,650,000 shares
of its Series A Preferred Stock at $2 per share convertible to common shares
with registration rights. The Series A Preferred Stock is senior to common stock
and has the rights and preferences relative to common stock set forth hereunder.
CONVERSION PROVISIONS
The holder of a share of Series A Preferred Stock is entitled to
convert such share into 1 share of Common Stock at any time subsequent to the
close of the placement referred to in Item 5 hereunder, but not later than June
30, 1999.
In the event holders of 51% of the Preferred Shares notify the Company
of election to convert (which may include the shares purchased herein by an
Affiliate), all holders of Preferred Shares will be notified and will be
required to convert as well. In addition, unless previously converted to Common
Stock at the option of the holder, Preferred Shares may be converted by the
Company at any time if a merger acquisition or consolidation occurs to which the
Company is a party; after June 30, 1999, or sooner at the sole option of the
Company at such time as the Company shall have been listed on NASDAQ for a
period of not less than three months, or have a net worth of not less than
$10,000,000, or the Company shall have either a firm underwriting at $10,000,000
or more or shall have completed a "best efforts" underwriting of $10,000,000 or
more.
The conversion rates reflected above are subject to adjustment as
appropriate in certain circumstances.
DIVIDEND PREFERENCE, LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the holders of the Preferred Stock (unless subject
to conversion or converted) will be entitled to a liquidation preference in the
amount of $2.00 per share less cumulative dividends. In the event of a dividend,
Preferred Shares (unless subject to conversion or converted) will be entitled to
a ten percent preference (on a share to share not class to class basis), but not
after cumulative dividends per Share of $2.00 have been received. The balance of
the dividend will be shared pro rata on a share for share basis with common
shares; thus, if all Preferred Shares are sold, (unless additional shares are
sold at the option of the Company) 1,500,000 Shares, and no more Common Shares
are sold, the Preferred Shareholders as a group would have a $3,000,000
preference on liquidation (less cumulative dividends) and would as a group share
dividends with Common Shareholders on a ratio of 1,500,000 to 5,800,000 or
approximately 20.5%. After Preferred Shares are converted at 1-1, they
participate with other Common Shareholders in dividends or distributions pro
rata, and there is no liquidation or dividend preference.
<PAGE> 13
VOTING RIGHTS
The holders of the Preferred Stock will be entitled to vote share for
share with Common Shares. Thus, all Preferred Shareholders (until conversion)
would vote approximately 12% of the shares relative to Common Shares if no
additional Common Shares are sold.
REGISTRATION RIGHTS
Registration rights may only be exercised by Holders of Preferred
Shares if the majority of Preferred Shares request a conversion to Common
Shares, and at the time of notification of conversion also request registration
of Shares to be received in the conversion. In addition, in the event of a
mandatory conversion by the Company, Holders of Preferred Shares will be given
the opportunity for the majority thereof to request registration of the Shares
to be received. The Company will use its best efforts to register all the Common
shares to be received.
To exercise the conversion and registration election, Preferred
Shareholders must send their Shares to the Transfer Agent of the Company,
together with the election for registration. Said shares will be held by the
Transfer Agent until the Registration is effected. Preferred Shares will retain
voting rights while the Registration is being effected, but will not be entitled
to any other rights, such as dividends or preferences. Costs of registration
will be borne by the Company. Preferred Shareholders may be required by the
Company to execute documents required for the Registration.
(b) see (a) above
(c) Effective June 30, 1998, the Company issued 500,000 shares of Preferred
Stock for total consideration of $1,000,000 to affiliates of a director and
officer. The Company relied upon the exemption provided by Rule 506 of
Regulation D in connection with issuance of shares. The investors represented to
the Company that they were accredited investors as defined in Rule 501 of
Regulation D, that they were acquiring shares for investment intent and not with
a view to distribution. Each investor represented that they were acquiring the
securities for themselves and not for other persons and acknowledged that they
had been advised in writing that the securities were not registered under the
Securities Act and could not be resold unless registered under the Act or an
exemption was available. The certificates representing the shares issued in
connection with the Private Placement contained a legend setting forth
restrictions on transferability and resale of the securities.
ITEM 5. -- OTHER INFORMATION
Effective June 30,1998, the Company commenced a private placement of
1,650,000 shares of its Series A Preferred Stock at $2 per share to accredited
investors. As of June 30,1998, 500,000 shares had been sold to affiliates of a
director and officer of the Company. On August 5, 1998 the Company sold an
additional 780,000 shares to investors. As of August 12, 1998, the Company has
received subscriptions for the additional 370,000 shares and plans to close
<PAGE> 14
escrow by August 17, 1998. Net proceeds to the Company are estimated to be
$3,000,000 (after deduction of the Placement Agent Fee of $230,000 and other
Offering Expenses estimated at $70,000). Proceeds received are proposed to be
applied first to legal, accounting and printing costs estimated at $70,000, and
after said expenses are satisfied, to other working capital uses.
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits to Part II
<TABLE>
<S> <C>
Exhibit 1 Placement Agreement
Exhibit 4 Certificate of Designation of Rights of Series A Preferred Shares of Automotive Performance
Group, Inc.
Exhibit 10 Loan Agreement - Royal Purple Motor Oil, Inc.
Exhibit 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company filed an Amended Current Report on Form 8-K dated July 1, 1998
containing amended information related to the Form 8-K dated May 5, 1998
announcing the merger of International Motor Sports Group, Inc. (IMSG) and Klein
Engines and Competition Components, Inc. (Klein) into Automotive Performance
Group, Inc.
The Company filed a Current Report on Form 8-K dated May 5, 1998 announcing the
merger of International Motor Sports Group, Inc. with Klein Engines and
Competition Components, Inc. into Automotive Performance Group, Inc. and
containing the related merger agreement and unaudited pro forma financial
information.
The Company filed a Current Report on Form 8-K dated May 5, 1998 announcing the
Successor Issuer pursuant to the merger of IMSG and Klein into APGI.
The Company filed a Current Report on Form 8-K dated May 1, 1998 discussing
management's description of the business with discussion and analysis of the
Company post merger.
The items omitted are either inapplicable or are items to which the answer is
negative.
<PAGE> 15
AUTOMOTIVE PERFORMANCE GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOMOTIVE PERFORMANCE GROUP, INC.
August 13, 1998 /s/ ANDREW L. EVANS
-----------------------------------
Andrew L. Evans
Chairman of the Board and President
<PAGE> 1
Exhibit 1
[CIBC OPPENHEIMER LETTERHEAD]
June 17, 1998
Automotive Performance Group, Inc.
1207 N. Miller Road
Tempe, AZ 85234
PERSONAL AND CONFIDENTIAL
Attention: Mr. Andrew L. Evans
Chairman
Dear Mr. Evans:
This letter agreement ("Agreement") confirms the terms and conditions of
the engagement of CIBC Oppenheimer Corp. ("CIBC Oppenheimer") by Automotive
Performance Group, Inc., ("APG" or the "Company"), to render certain financial
advisory and investment banking services on an exclusive basis to the Company in
connection with the evaluation of the Company's financial and strategic
alternatives and one or more possible Transaction(s) (as hereinafter defined)
involving the Company.
1. Services. CIBC Oppenheimer agrees to perform services that include, but are
not limited to, the following:
(a) review the Company's overall business strategy, core competencies,
historical financial information and business operations, prospects
and forecasts of future financial results in order to render financial
advice and assistance to the Company with regard to its financial and
strategic alternatives and to Transaction opportunities;
(b) prepare a presentation for the Company's Board of Directors outlining
strategic and financial alternatives for the Company and relevant
valuation considerations;
(c) assist the Company in identifying and evaluating Transaction
opportunities with a view towards maximizing shareholder value;
(d) with the assistance of the Company, develop, update and review on an
ongoing basis a list of parties which might be interested in a
Transaction with the Company ("Interested Parties") and, with the
approval of the Company, contact such Interested Parties;
<PAGE> 2
(e) assist the Company in negotiating a Transaction with any Interested
Party(ies); and
(f) if a Financing (as hereinafter defined) is proposed by the Company,
assist the Company with (i) the preparation of a prospectus (in the
event of a public offering) or a descriptive memorandum (in the event
of a private placement), (ii) the dissemination of such materials to
prospective investors identified by CIBC Oppenheimer and the Company,
and (iii) the negotiations of the terms of a Financing.
In the context of this Agreement, "Transaction" is defined and understood
to include (i) the purchase by the Company, either through a direct acquisition
or other arrangement, in whole or in part, of all or a substantial portion of a
business operation from any party ("Acquisition"); (ii) any joint venture or
partnership arrangement or other similar transaction with any party(ies)
regarding joint marketing or business development arrangements (a "Strategic
Partnering Arrangement"); (iii) the sale of common shares or securities
convertible into common shares of the Company representing less than 50% of the
fully diluted shares outstanding of the Company to any third party ("Minority
Interest"); (iv) a merger or consolidation, or any other business combination of
the Company with another party involving the disposition of a significant or
material portion of the common shares or securities convertible into common
shares representing 50% or more of the fully diluted shares outstanding,
businesses or assets of the Company (a "Merger"); (v) any financing of the
Company, or its subsidiaries, including the sale of equity and/or debt
securities (including, without limitation, senior or subordinated secured or
unsecured debt as well as bank loan arrangements) through a private placement or
public offering (a "Financing"); and (vi) any other fundamental corporate
transaction (an "Other Transaction") including, without limitation, a
reorganization or recapitalization of the Company; the acquisition by the
Company of any other company, business or product; or any other meaningful
corporate arrangement entered into by the Company that is outside of the normal
course of business.
2. Exclusivity. The Company agrees to retain CIBC Oppenheimer on an exclusive
basis during the term of this Agreement to perform the services described
in Paragraph 1 in connection with a Transaction involving any Interested
Party(ies). If the Company or any of its management or directors receives
an inquiry concerning a possible Transaction that the Company is interested
in pursuing, they will promptly inform CIBC Oppenheimer of the party's
prospective interest in order that CIBC Oppenheimer can assess that party's
interest and assist the Company in any resulting negotiations.
3. Term. The term of this engagement shall extend for twelve (12) months from
the date of this Agreement and will be renewed automatically for successive
monthly periods unless either party informs the other in writing, that it
chooses to terminate the Agreement. Either party may terminate this
Agreement at any time during the initial or renewal periods by giving the
other party at least thirty (30) business days prior written notice of such
termination at which time, subject to the limitations set forth herein, the
Company shall pay CIBC Oppenheimer (i) any and all reasonable out-of-pocket
expenses incurred up to the date thereof, as set forth in Paragraph 8, and
(ii) any remaining amount of the Retainer, as described in Paragraph 7(a),
that was to be paid during the initial or renewal periods, as the case may
be, of the engagement. The Company agrees to pay CIBC Oppenheimer a
Transaction Fee if the Company enters into a Transaction with any
Interested Party which was identified and contacted in connection with a
possible Transaction during the term of this Agreement or within twelve
(12) months of the termination or expiration of this Agreement. Any
obligation pursuant to this Paragraph 3 shall survive the termination or
expiration of this Agreement.
<PAGE> 3
4. Due Diligence. It is understood that CIBC Oppenheimer's assistance in any
Financing will be subject to the satisfactory completion of such
investigation and inquiry into the affairs of the Company as CIBC
Oppenheimer deems appropriate under the circumstances (such investigation
hereinafter to be referred to as "Due Diligence"), absence of material
adverse changes in the Company, and the approval of Oppenheimer's
Commitment Committee. CIBC Oppenheimer shall have the right in its sole
discretion not to participate in a Financing if the outcome of the Due
Diligence is not satisfactory to CIBC Oppenheimer or if approval of the
Commitment Committee is not obtained ("Early Termination"). In addition,
neither the Company nor CIBC Oppenheimer will be obligated to proceed with
any public Financing unless and until the underwriting agreement is
executed.
5. Best Efforts. It is understood that Oppenheimer's involvement in any
Transaction is strictly on a best efforts basis and that the consummation
of any Transaction will be subject to, among other things, market
conditions.
6. Information. The Company recognizes and confirms that in providing it
services under this Agreement, CIBC Oppenheimer will be using and relying
upon data, material and other information furnished by the Company, its
employees and representatives ("Information") without independent
verification thereof or independent evaluation of any of the assets or
liabilities of the Company. The Company hereby agrees and represents that
all Information furnished to CIBC Oppenheimer in connection with this
Agreement shall be accurate and complete in all material respects at the
time furnished and that if such Information, in whole or in part, becomes
materially inaccurate, misleading or incomplete during the term of
Oppenheimer's engagement hereunder the Company shall so advise CIBC
Oppenheimer in writing and correct any such inaccuracy or omission.
Financial projections or estimates provided to CIBC Oppenheimer will be
reasonable and will be based on the Company's best estimate of the future
results of operations of the Company. Accordingly, CIBC Oppenheimer assumes
no responsibility for the accuracy and completeness of such Information and
financial projections. All Information that is not publicly available will
be treated in strict confidence and will not be revealed by CIBC
Oppenheimer unless legally compelled, as determined in good faith by
counsel to CIBC Oppenheimer and only upon reasonable prior notice to the
Company.
Inasmuch as it may be necessary to prepare and disseminate a memorandum
(the "Memorandum") describing, among other things, the Company and its
operations, historical and projected performance and product development
status, in order to consummate a Transaction, the Company is responsible
for preparing such Memorandum with the assistance of its counsel and CIBC
Oppenheimer, and will provide CIBC Oppenheimer a copy of such Memorandum
prior to dissemination. The Company will advise CIBC Oppenheimer in writing
that the Memorandum is accurate in all material respects and does not
contain an untrue statement of material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements
therein in light of the circumstances under which they are made, not
misleading. Such Memorandum will not be distributed without the Company's
prior approval of the prospective recipients of the Memorandum.
7. Fees. The Company agrees to pay CIBC Oppenheimer non-refundable cash fees
(the "Fees") as follows:
(a) a non-refundable retainer (the "Retainer") equal to $250,000 and
payable as follows: (i) $50,000 upon the signing of this Agreement,
and (ii) $100,000 on December, 1998 and $100,000 on June 1, 1999; and
<PAGE> 4
(b) a transaction fee (the "Transaction Fee") payable upon closing of a
Transaction involving Interested Parties as calculated using the
Transaction Fee schedule contained in Appendix A, attached hereto.
If this Agreement is renewed pursuant to Paragraph 3 herein, the Company
will pay to CIBC Oppenheimer an additional Retainer of $20,000 per month.
Such payment will be due on the first day of each month of the renewal
period. All retainer payments in excess of $200,000 shall be creditable
against any Transaction Fee(s).
If a Transaction is not consummated, but the Company receives a "break-up"
fee or any other payment as a result of the termination or cancellation of
the Company's or an Interested Party's efforts to effect a Transaction, a
judgment for damages or an amount in settlement of any dispute relating to
a Transaction or an Interested Party's investment in the Company, or any
payment to the Company not otherwise described in this Paragraph 7, then
the Company shall also pay to CIBC Oppenheimer a cash fee equal to 20% of
such fee, payment, judgment or amount.
8. Expenses. In addition to any fees that may be payable to CIBC Oppenheimer,
and regardless of whether a Transaction is consummated during the term of
this Agreement, the Company hereby agrees to reimburse CIBC Oppenheimer for
all of its reasonable out-of-pocket expenses arising out of Oppenheimer's
engagement hereunder. Reasonable out-of-pocket expenses include, but are
not limited to such costs as, telephone, telex, courier service, copying,
accommodations, travel, and fees and disbursements for consultants and
legal counsel.
All such fees and expenses will be billed monthly and are payable when
invoiced. Upon the earlier of the termination or expiration of this
Agreement, or the consummation of a Transaction, any outstanding fees and
expenses shall be due and payable as provided for in Paragraph 3 herein.
9. Indemnification. In addition to the payment of fees and reimbursement of
expenses provided for above, and regardless of whether a Transaction is
consummated, the Company agrees to indemnify CIBC Oppenheimer with regard
to matters contemplated herein, as set forth in Appendix B, attached
hereto, which is incorporated by reference as if fully set forth herein.
This Paragraph 9 shall survive the termination or expiration of this
Agreement.
10. Disclosure. The services or advice to be provided by CIBC Oppenheimer under
this Agreement shall not be disclosed publicly or made available to third
parties not affiliated with the Company without Oppenheimer's prior written
approval, except as required by law. Notwithstanding, CIBC Oppenheimer
shall be permitted to advertise the services it provided in connection with
a Transaction subsequent to the consummation of a Transaction.
11. Governing Law. This agreement shall be governed by, and construed in
accordance with, the laws of the state of New York and may not be amended
or modified except in writing signed by both parties.
12. Independent Contractor. CIBC Oppenheimer is an independent contractor and
has no authority, nor will CIBC Oppenheimer represent that CIBC Oppenheimer
has any authority, to bind the Company or to assume or to create any
obligation or responsibility, express or implied, on behalf of the Company
or in the Company's name.
<PAGE> 5
13. Successors. This Agreement and all rights and obligations thereunder
shall be binding upon and inure to the benefit of each party's successors,
but may not be assigned without the prior written consent of the other
party, which shall not be unreasonably withheld or delayed.
14. No Brokers. The Company represents and warrants to CIBC Oppenheimer that
there are no brokers, representatives, or other persons which have an
interest in fees due to CIBC Oppenheimer from any Transaction contemplated
herein.
Please confirm that the foregoing is in accordance with your understanding
by signing the enclosed letters in the space provided and returning them to us
for execution, whereupon we will send you a fully executed original letter
which shall constitute a binding agreement as of the above date.
We look forward to working with you on this assignment.
Very truly yours,
CIBC Oppenheimer Corp.
By: /s/KARL C. JOHNSON, JR.
-------------------------------------
Karl C. Johnson, Jr.
Executive Director
Agreed and Accepted
as of the above date
Automotive Performance Group, Inc.
By: /s/ ANDREW L. EVANS
-----------------------------------
Mr. Andrew L. Evans
Chairman
<PAGE> 6
APPENDIX A
Transaction Fee Schedule
The following represents the fees to be paid by the Company to CIBC
Oppenheimer upon the successful completion of any of the respective Transactions
with Interested Parties. All Transaction Fees shall be due and payable at the
earlier of the consummation of the Transaction and the first time any
Consideration, which is used to calculate such Fees, is paid to or received by
the Company or its shareholders.
Public Financing/Private Financing
In the event that CIBC Oppenheimer assists the Company with a Financing,
the Company agrees to pay CIBC Oppenheimer the following fees:
(a) A "gross spread" of six percent (6%)(non-IPO) of the gross
proceeds raised by the Company through the public sale of any of
its equity securities.
(b) Four percent (4%) of the gross proceeds raised by the Company
through a private placement of any of its equity securities;
(c) Three percent (3%) of the gross proceeds raised by the Company
through the sale of any subordinated debt securities; and
(d) Mutually agreeable fees based on correct market conditions of the
gross proceeds raised by the Company in the form of senior
secured debt.
If, within twelve (12) months following the termination or expiration of
this Agreement, the Company sells any of its securities to any party contracted
by CIBC Oppenheimer, CIBC Oppenheimer will be due a Transaction Fee equal to the
amounts provided for in (a) and (b) above.
Acquisition, Strategic Partnering Arrangement, Minority Interest or Merger
In the event that CIBC Oppenheimer assists the Company in consummating
a(n) Acquisition, Strategic Partnering Arrangement, Minority Interest or Merger,
the Company agrees to pay to CIBC Oppenheimer the following fees based on the
Transaction Value (as hereinafter defined) paid to, received by or paid by the
Company or its shareholders equal to the greater of:
(a) $250,000 or;
(b) One percent (1%) of the Transaction Value.
Other Transactions
If the Company requests CIBC Oppenheimer to provide financial advisory or
financial consulting services (including a fairness opinion) or assist in
arranging a transaction that is not otherwise covered by the provisions of this
Agreement, the Company agrees to pay CIBC Oppenheimer mutually acceptable
compensation taking into account, among other things, the results obtained and
the custom and practice among investment bankers acting in similar transactions.
CIBC Oppenheimer will not perform services not covered by the provisions of this
Agreement unless first so requested by the Company, but in any event shall not
be compelled to provide such services.
<PAGE> 7
Definition of Transaction Value
In the context of this Agreement, "Transaction Value" means the
aggregate value of the Consideration (as hereinafter defined) paid to, payable
to, received by, receivable by, paid by or payable by the Company or its
stockholders upon the closing of a Transaction which occurs during the term of
this Agreement. "Consideration" means cash, securities (including, but not
limited to stock, warrants or notes) and any other form of consideration
(including earnout payments, royalty interests, non-competition payments,
licensing payments, consulting payments, the assumption, directly or indirectly
(by operation of law or otherwise), or refinancing of debt, the fair market
value of any other property and any other form of consideration or compensation)
paid to, payable to, received by, receivable by, paid by, or payable by the
Company or its stockholders. If part of the Consideration is contingent upon the
occurrence of some event subsequent to the closing of the Transaction
(including, but not limited to, the realization of earnings projections and
actual product sales and the meeting of certain milestones), then the Company
will pay to CIBC Oppenheimer in cash that portion of the Transaction Fee related
to such contingency based upon the present value of the reasonably expected
maximum amount of such contingent future payments (as such amount is determined
in good faith between the Company and CIBC Oppenheimer) using a discount rate of
10% (the "Contingency Payment Calculation").
If part or all of the Consideration paid or received in a Transaction is
represented by securities (the "Securities") publicly traded prior to the
consummation of such Transaction, the value thereof shall be determined by the
average last sale price for such securities for the twenty (20) trading days
prior to the consummation of the Transaction. If part or all of the
Consideration paid or received is newly-issued Securities, the average last sale
price for such Securities for the first twenty (20) trading days subsequent to
the consummation of such Transaction shall be used in determination of the
Consideration for the purpose of computing that portion of the Transaction Fee
which shall be due and payable on the twenty-first trading day subsequent to the
consummation of such Transaction. In the event that part or all of the
Consideration paid is newly-issued Securities for which no market exists, the
fair value of such Securities as determined in good faith by the parties shall
be used in the determination of the Consideration, for the purpose of computing
that portion of the Transaction Fee. In the event that the value of the
Securities component of the Consideration is valued subsequent to such closing
pursuant hereto, then the Transaction Fee will be adjusted accordingly. Any such
adjustment will be due and payable upon demand. Any inability to agree upon the
value of the Securities described in the foregoing or the Contingency Payment
Calculation will be resolved through submission to binding arbitration in New
York City before the New York Stock Exchange, Inc. or the National Association
of Securities Dealers Inc.
All payment made hereunder to CIBC Oppenheimer shall be made in U.S.
dollars to Oppenheimer's account in New York City or as CIBC Oppenheimer shall
otherwise designate.
<TABLE>
<S> <C>
Automotive Performance Group, Inc. CIBC Oppenheimer Corp.
By: /s/ ANDREW L. EVANS By: /s/ KARL C. JOHNSON, JR.
----------------------------- -----------------------------
Mr. Andrew L. Evans Karl C. Johnson, Jr.
Chairman Executive Director
</TABLE>
<PAGE> 8
APPENDIX B
Indemnification
The Company agrees to indemnify CIBC Oppenheimer, its employees, directors,
officers, agents, affiliates, and each person, if any, who controls it within
the meaning of either Section 20 of the Securities Exchange Act of 1934 or
Section 15 of the Securities Act of 1933 (each such person, including CIBC
Oppenheimer, is referred to as "Indemnified Party") from and against any
losses, claims, damages and liabilities, joint or several (including all legal
or other expenses reasonably incurred by any Indemnified Party in connection
with the preparation for or defense of any threatened or pending claim, action
or proceeding, whether or not resulting in any liability) ("Damages"), to which
such Indemnified Party, in connection with its services or arising out of its
engagement hereunder, may become subject under any applicable Federal or state
law or otherwise, including, but not limited to, liability (i) caused by or
arising out of an untrue statement or an alleged untrue statement of a material
fact or the omission or the alleged omission to state a material fact necessary
in order to make a statement not misleading in light of the circumstances under
which it was made (ii) caused by or arising out of any act or failure to act or
(iii) arising out of Oppenheimer's engagement or the rendering by any
Indemnified Party of its services under this Agreement; provided, however, that
the Company will not be liable to the Indemnified Party hereunder to the extent
that any Damages are found in a final non-appealable judgement by a court of
competent jurisdiction to have resulted from the gross negligence, bad faith or
willful misconduct of the Indemnified Party seeking indemnification hereunder.
These indemnification provision shall be in addition to any liability which the
Company may otherwise have to any Indemnified Party.
If for any reason other than a final non-appealable judgment finding an
Indemnified Party liable for Damages for its gross negligence, bad faith or
willful misconduct the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then the Company
shall contribute to the amount paid or payable by an Indemnified Party as a
result of such Damages in such proportion as is appropriate to reflect not only
the relative benefits received by the Company and its shareholders on the one
hand and CIBC Oppenheimer on the other, but also the relative fault of the
Company and the Indemnified Party as well as any relevant equitable
considerations. subject to the limitation that in no event shall the total
contribution of all Indemnified Parties to all such Damages exceed the total
amount of fees actually received and retained by CIBC Oppenheimer hereunder.
Promptly after receipt by the Indemnified Party of notice of any claim or of
the commencement of any action in respect of which indemnity may be sought, the
Indemnified Party will notify the Company in writing of the receipt or
commencement thereof and the Company shall have the right to assume the defense
of such claim or action (including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of fees and expenses of
such counsel), provided that the Indemnified Party shall have the right to
control its defense if, in the opinion of its counsel, the Indemnified Party's
defense is unique or separate to it as the case may be, as opposed to a defense
pertaining to the Company. In any event, the Indemnified Party shall have the
right to retain counsel reasonably satisfactory to the Company, at the
Company's expense, to represent the Indemnified Party in any claim or action in
respect of which indemnity may be sought and agrees to cooperate with the
Company and the Company's counsel in the defense of such claim or action, it
being understood, however, that the Company shall not, in connection with any
one such claim or action or separate but, substantially similar or related
claims or action in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for all the Indemnified Parties
unless the defense of one Indemnified Party is unique or separate from that of
another Indemnified Party subject to the same claim or action. In the event
that the Company does not promptly assume the defense of a claim or action, the
Indemnified Party shall have the right to employ counsel reasonably satisfactory
to the Company, at the Company's expense, to defend such claim or action. The
omission by an Indemnified Party to promptly notify the Company of the receipt
or commencement of any claim or action in respect of which indemnity may be
sought will relieve the Company from any liability the Company may have to
such Indemnified Party only to the extent that such a delay in notification
materially prejudices the Company's defense of
<PAGE> 9
such claim or action. The Company shall not be liable for any settlement of any
such claim or action effected without its written consent, which shall not be
unreasonably withheld or delayed. Any obligation pursuant to this Appendix
shall survive the termination or expiration of this Agreement.
Automotive Performance Group, Inc. CIBC Oppenheimer Corp.
By: /s/ ANDREW L. EVANS By: /s/ KARL C. JOHNSON, JR.
----------------------------------- -------------------------------------
Mr. Andrew L. Evans Karl C. Johnson, Jr.
Chairman Executive Director
<PAGE> 1
EXHIBIT 4
AMENDED
CERTIFICATE OF DESIGNATION OF RIGHTS OF SERIES A PREFERRED SHARES OF
AUTOMOTIVE PERFORMANCE GROUP, INC.
Pursuant to Section 151 (g) of Title 8 of the General Corporate Law of the State
of Delaware and Article V of the Articles of Incorporation, the Directors hereby
designate
The voting powers, designations, preferences, rights and qualifications,
limitations and restrictions of:
"SERIES A PREFERRED SHARES"
And there is authorized to be issued 1,650,000 shares thereof with the
following rights, terms and preferences:
1. DIVIDENDS.
Right to Preferential Dividends. The Holders of the then outstanding
Series A Preferred Shares {except when there shall have been either a
notification of election for conversion by the Holders under Section 5(a),
hereunder, or the conditions shall have been fulfilled for a conversion by the
Company as provided in Section 5(b) hereunder, whether or not notification
thereof has been made by the Company, (unless the Company shall expressly give
notice it elects not to require such conversion)} shall be entitled to receive,
if, when, and as declared by the Board, out of any funds legally available
therefor, a non-cumulative preference of 10% on cash dividends up to $2.00
maximum total accumulated dividends per Series A Preferred Share held thereby.
These dividends shall be payable, when and as declared by the Board, in equal
quarterly installments on March 1, June 1, September 1, and December 1.
Dividends on the Series A Preferred Shares shall be non-cumulative, there shall
be no minimum dividends, and no rights shall accrue to the Holders of the Series
A Preferred Shares in the event that the Company shall fail to declare or pay
dividends on the Series A Preferred Shares, whether or not the earnings of the
Company in that previous fiscal year were sufficient to pay such dividends in
whole or in part.
2. LIQUIDATION RIGHTS OF SERIES A PREFERRED SHARES.
(a) Preference. In the event of any liquidation, dissolution, or
winding-up of the Company, whether voluntary or involuntary, {except when there
shall have been either a notification of election for conversion by the Holders
under Section 5(a), hereunder, or the conditions shall have been fulfilled for a
conversion by the Company as provided in Section 5(b) hereunder, whether or not
notification thereof has been made by the Company, (unless the Company shall
expressly give notice it elects not to require such conversion)} the Holders of
the Series A Preferred Shares then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders,
whether such assets are capital, surplus, or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of the Common Stock, an amount equal to $2.00 per Series A Preferred Share held
thereby plus
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<PAGE> 2
an amount equal to all declared and unpaid dividends thereon, less accumulated
total dividends paid thereto (but not less than zero). If upon any liquidation,
dissolution, or winding up of the Company, whether voluntary or involuntary, the
assets to be distributed to the Holders of the Series A Preferred Shares shall
be insufficient to permit the payment to such shareholders of the full
preferential amount aforesaid, then all of the assets of the Company to be
distributed shall be distributed ratably to the Holders of the Series A
Preferred Shares on the basis of the number of shares of Series A Preferred
Shares so held.
(b) Dividend Payments to Common Stock. After the preferred payment of
$2.00 per Series A Preferred Share is made to Holders of the Series A Preferred
Shares the Holders of the Series A Preferred Shares and Holders of Common Stock
then outstanding shall be entitled to receive ratable with Common Shares, with
all Series A Preferred Shares treated on a share to share basis without
allowance for conversion, all remaining assets of the Company to be distributed.
3. MERGER, CONSOLIDATION.
(a) Preference. In the event of any merger or share exchange of the
Company, or a sale or other disposition of all or substantially all of the
assets of the Company {except when there shall have been either a notification
of election for conversion by the Holders under Section 5(a), hereunder, or the
conditions shall have been fulfilled for a conversion by the Company as provided
in Section 5(b) hereunder, whether or not notification thereof has been made by
the Company, (unless the Company shall expressly give notice it elects not to
require such conversion)} the Holders of the Series A Preferred Shares then
outstanding shall be entitled to receive, before any payment or declaration and
setting apart for payment of any amount shall be made in respect of the Common
Stock, for each share of such Series A Preferred Stock so held, in cash or in
securities (including, without limitation, debt securities) received from the
acquiring corporation, at the closing of any such transaction, an amount equal
to $2.00 per Series A Preferred Share, plus an amount equal to all declared and
unpaid dividends thereon, less total accumulated dividends paid thereto (but not
less than zero).
(b) Remaining Proceeds. After the payment or distribution to the
Holders of the Series A Preferred Shares of the full preferential amount, the
Holders of the Series A Preferred Shares and Holders of Common Stock then
outstanding shall be entitled to receive ratably, with all Series A Preferred
Shares treated as if it had been converted into Common Stock pursuant to Section
6 hereof, all remaining proceeds of the Company to be distributed.
(c) Valuation of securities received pursuant to a merger, share
exchange, sale of substantially all the assets or similar transaction. In the
event that a transaction occurs pursuant to which non-cash assets are received
and to which this Section applies, the assets received for the purposes of this
Section shall be valued as follows:
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<PAGE> 3
(i) If the assets received are securities that are listed on
NASDAQ or an exchange, the value shall be deemed to be the 3 day high
average closing price (or average between bid/ask if OTC) on such
exchange or NASDAQ over the 30 day period prior to the closing of the
transaction by which the securities are received.
(ii) If the assets received are of readily ascertainable
market value, then that value shall be used.
(iii) If the assets are unlisted securities or other assets
that do not have a readily ascertainable value, the Board in good faith
will value said assets.
(iv) The fact that assets which may require a valuation
process as described herein shall not delay closing the transaction by
which the assets are being received.
(d) Notice. With respect to any transaction which involves a merger or
exchange of shares, or a sale of substantially all the assets not in
the ordinary course of business, the Series A shareholders shall
receive not less than ten days notice of the transaction and the terms
and conditions thereof.
4. VOTING RIGHTS.
(a) Each Holder of Series A Preferred Shares shall be entitled to vote
on all matters including election of the Board of Directors and, except as
otherwise expressly provided herein, shall be entitled to the number of votes
equal to the number of Common Shares to which said Series A Preferred Shares
could be converted.
(b) Unless otherwise required by law, Series A Preferred shareholders
and Common shareholders shall vote together on all matters upon which
shareholders are permitted to vote and not as separate classes. In those cases
where Series A Preferred shareholders are required by law to vote as a separate
class, the vote required by said class for approval of the proposed action shall
be a simple majority of the class.
5. CONVERSION.
The Company and the Holders of Series A Preferred Shares shall have the
following conversion rights:
(a) Right to Convert. Each share of Series A Preferred Shares shall be
convertible, at any time after the closing of the Offering of Preferred Shares
which commenced pursuant to the Offering Memorandum dated June 30, 1998, at the
Closing Date provided in that Memorandum, but not after June 30, 1999, at the
option of the Holder thereof, into fully paid and non assessable shares of
Common Stock at the
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<PAGE> 4
Conversion Rate set forth in Section 5(c) hereunder (as adjusted). The Company
will notify Holders of Series A Preferred Shares promptly after said Closing
occurs.
(b) Automatic Conversion at Election of Company.
(i) Each share of Series A Preferred Shares shall automatically
at the election of the Company be converted into shares of
Common Stock based on the then effective Conversion Rate
set forth in Section 5(c) hereunder (as adjusted) if any
one of the following shall occur: (A) The Holders of 51% of
the Preferred Shares have given notice of election to
convert as provided herein in Section 6; (B) The Board of
Directors of the Company shall have approved a plan of
reorganization, exchange, merger or consolidation to which
the Company is a party, or an acquisition of the Company;
(C) Immediately upon the closing of an underwritten public
offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, with respect
to the Common Stock of the Company (including shares
registered by selling Series A Preferred shareholders)
where the amount of such securities sold is $10,000,000. or
more; (D) When the Company shall have a net worth of
$10,000,000 or more; (E) After June 30, 1999; or (F) After
the Common Shares shall have been listed on NASDAQ for a
period of not less than three months.
(ii) Upon the occurrence of any of the events specified in
paragraph 5(b)(i) and the election (if applicable) being so
made by the Company, the outstanding shares of Series A
Preferred Shares shall be converted automatically without
any further action by the Holders of such Series A
Preferred Shares and whether or not the certificates
representing such Series A Preferred Shares are surrendered
to the Company or its transfer agent; provided however,
that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable
upon the conversion unless the certificates evidencing such
Series A Preferred Shares are either delivered to the
Company or its transfer agent, or the Holder notifies the
Company or its transfer agent that such certificate have
been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such
certificates. The conversion shall be deemed to have
occurred immediately prior to the business day on which the
Series A certificates are to be surrendered, and the person
entitled to receive the Common shares upon such a
conversion shall be deemed a Common Shareholder of record
as of that date.
(iii) In the event said Series A Preferred Shares are subject to
a right of registration as provided in Section 6 hereunder,
(aa) Common Shares subject to the conversion shall not be
delivered until the registration is
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<PAGE> 5
effected by the Company using its best efforts, or (bb) in
the event the registration can not, in the judgment of the
Board be effected, after notification of abandonment
thereof. Series A Preferred Shares which are subject to
conversion and registration under either Section 5(a) or
5(b), until Common Shares have been delivered after
registration, shall retain voting rights, but shall have no
other rights or preferences of Series A Preferred Shares
and shall have no rights other than Common Shares and shall
be treated in all respects as if they were Common
shareholders.
(c) Conversion Rate, adjustments. The Conversion Rate is one Common
Share for One Series A Preferred Share. The Conversion Rate shall be subject to
adjustment from time to time as provided below; no adjustment shall apply after
Series Preferred Shares have been converted.
(d) Mechanics of Conversion. Each Holder of Series A Preferred Shares
who desires to convert the same into shares of Common Stock shall surrender the
certificate, duly endorsed, at the office of the Company or of any transfer
agent for the Series A Preferred Shares or Common Stock, and shall give written
notice to the Company at such office that such Holder elects to convert the same
and shall state therein the number of shares of Series A Preferred Shares being
converted. Thereupon the Company shall promptly issue and deliver to such Holder
a certificate or certificates for the number of shares of Common Stock to which
such Holder is entitled unless said Common Share is to be registered as provided
in Section 6. Subject to Section 6, such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the certificate representing the Series A Preferred Shares to be converted, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record Holder of such shares
of Common Stock on such date.
(e) Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time effects a subdivision of the outstanding Common Stock,
the Conversion Rate then in effect immediately before that subdivision shall be
proportionately increased, and conversely, if the Company at any time or from
time to time combines the outstanding shares of Common Stock into a smaller
number of shares, the Conversion Rate then in effect immediately before the
combination shall be proportionately decreased. Any adjustment under this
subsection (e) shall become effective at the close of business on the date
subdivision or combination becomes effective. Subdivisions or combinations of
Series A Preferred Shares shall be similarly considered to compute the final
adjustment to the Conversion Rate to reflect stock splits and combinations.
(f) Adjustments for Reclassification, Exchange and Substitution. In the
event that at any time or from time to time, the Common Stock issuable upon the
conversion of the Series A Preferred Shares is changed into the same or a
different number of shares of any
Page 5
<PAGE> 6
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, exchange of shares, or sale of assets, provided for
elsewhere in this Section), then and in any such event each Holder of Series A
Preferred Shares shall have the right thereafter to convert such stock into the
kind and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change, by Holders of the maximum
number of shares of Common Stock into which such shares of Series A Preferred
Shares could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(g) Reorganizations, Mergers, Consolidations or Sales of Assets. If at
any time or from time to time there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section) or a merger or
exchange of shares of the Company with or into another corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person, then as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the Holders of the Series A Preferred Shares
shall have the right thereafter to convert such stock into the number of shares
of stock or other securities or property to which a Holder of the number of
shares of Common Stock deliverable upon conversion would have been entitled on
such capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section with respect to the right of the Holders of the Series A Preferred
Shares after the reorganization, merger, consolidation or sale to the end that
the provisions of this Section (including adjustment of the Conversion Rate then
in effect and the number of shares receivable upon conversion of the Series A
Preferred Shares) shall be applicable after that event and be as nearly
equivalent as may be practicable.
(h) Sale of Common Shares Below $2.00 per Share.
(i) If at any time or from time to time, the Company issues or
sells, or is deemed by the express provisions of this
subsection (i) to have issued or sold, additional shares of
Common Stock (as hereinafter defined), for an effective
price (as hereinafter defined) that is less than $2.00
Share, or that of the then existing Conversion Rate, then
and in each such case the then existing Conversion Rate
shall be increased, the increase being computed to reflect
the proportionate decrease in price over all of the
previously existing Common Shares such lower price would
produce. Thus, if there were 10,000,000 Shares of Common
Stock outstanding and 1,000,000 Common Shares were sold at
$1.00/ share, the 10,000,000 Common Shares would be valued
at $2/share ($20,000,000), plus the 1,000,000 Common Shares
newly sold at $1,000,000, and the result, 11,000,000 Common
Shares would be divided into $21,000,000. The resultant
difference between such number and $2.00 per Common Share
would be the basis to adjust the Conversion Rate to reflect
the dilution.
Page 6
<PAGE> 7
(ii) For the purpose of making any adjustment required under
subsection 5(h)(i), the consideration received by the
Company for any issue or sale of securities shall (aa) to
the extent it consists of cash be computed at the amount of
cash for which the securities are sold, (bb) to the extent
it consists of property other than cash, be computed at the
fair value of that property as determined in good faith by
the Board.
(i) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred Shares. In lieu of any fractional
share to which the Holder would otherwise be entitled, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of Common Stock on the date of conversion, as determined in good
faith by the Board.
(j) Reservation of Stock Issuable Upon Conversion. The Company shall at
all time reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Shares, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
the Series A Preferred Shares; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Shares, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose. Should this action
require the affirmative vote of the Holders of Series A Preferred Shares,
whether as a Class or voted with Common Shares, said Holders of Series A
Preferred Shares shall be deemed solely for this purpose to have consented
thereto, and shall be deemed to irrevocably constituted management of the
Company as their proxy and attorney in fact solely for this purpose to execute
such documents as may be required to effect this consent.
6. REGISTRATION RIGHTS
(a) At any time after Series A Preferred Shares shall have become subject
to be converted into Common Shares at the election of the Company as provided in
Section 5(b) and the Company shall have exercised its right to require
conversion thereunder, or if the Holders of a majority of the Series A Preferred
Shares shall have given notice of election for Conversion as provided in Section
5(a), the Holders of a majority of the Series A Preferred Shares may request
registration of the Shares to be received on conversion for a single
registration of the converted Common Shares. Registration shall be of Common
Shares to be received in the conversion, and shall not apply, unless waived by
the Company, to Common Shares received upon prior conversions.
Page 7
<PAGE> 8
(b) Upon such a request being made by the Holders of a majority of the
Series A Preferred Shares, the Company will notify all of the remaining Holders
of Series A Preferred Shares, and they shall be deemed to have requested the
registration and shall be fully subject thereto.
(c) The Company will use its best efforts to effect a single public
registration on the appropriate form available thereto of all converted shares
before delivery to the Holder. The Company will be under no obligation to secure
an underwriter or other seller for the shares and sales of shares after the
registration will be solely the responsibility of the Holder thereof.
(d) To the extent required to effect the registration, converting
shareholders shall fully cooperate with the Company and its counsel. Failure to
cooperate will entitle the Company to exclude a Holder from the registration.
(e) The Company may effect these rights by piggyback registration on a
Company offering if it so elects, or a piggyback registration by another company
if made in conjunction with an issuance of shares by that company to the
shareholders of the Company or if the Company is subject to an acquisition, plan
of reorganization, consolidation, exchange or merger, and registered shares are
to be issued in conjunction therewith.
Dated this 4th Day of August, 1998
By: __________________________
Andrew L. Evans
President
Designated Officer
Page 8
<PAGE> 1
PROMISSORY NOTE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 06-15-1998 12-15-1998 1000009501 401 502 N3113554544 ARW07 [ILLEG]
- --------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: ROYAL PURPLE MOTOR OIL, INC. Lender: KEYBANK NATIONAL ASSOCIATION
15302 25TH DRIVE SE BELLEVUE PRIVATE BANKING
MILLCREEK, WA 98012 500 - 108TH AVE. N.E.
SUITE 390
WA-31-18-0390
BELLEVUE, WA 98004
- --------------------------------------------------------------------------------
Principal Amount: $500,000.00 Interest Rate: 5.830%
Date of Note: June 15, 1998
PROMISE TO PAY. ROYAL PURPLE MOTOR OIL, INC. ("Borrower") promises to pay to
KEYBANK NATIONAL ASSOCIATION ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Five Hundred Thousand &
00/100 Dollars ($500,000.00) or so much as may be outstanding, together with
interest at the rate of 5.830% per annum on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on
December 15, 1998. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning July 15, 1998, and all subsequent interest
payments are due on the same day of each month after that. Interest on this
Note is computed on a 365/360 simple interest basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, times the
outstanding principal balance, times the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $50.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender,
demanding cure of such default: (a) cures the default within fifteen (15) days;
or (b) if the cure requires more than fifteen (15) days, immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note 5.000 percentage
points. The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of Washington. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to this jurisdiction of the courts of King or Pierce
County, the State of Washington. Lender and Borrower hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Borrower against the other. This Note shall be governed by and
construed in accordance with the laws of the State of Washington.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: ANDREW L. EVANS, PRESIDENT.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Note or any other
loan with Lender; or (d) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender.
ADDITIONAL PROVISION. Any advance that Lender in its sole discretion may permit
after the final payment date provided in this Note will be due on demand and
otherwise subject to the terms of this Note.
<PAGE> 2
06-15-1998 PROMISSORY NOTE PAGE 2
LOAN NO 1000009501 (CONTINUED)
- --------------------------------------------------------------------------------
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether
as maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by
Lender without the consent of or notice to anyone. All such parties also agree
that Lender may modify this loan without the consent of or notice to anyone
other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROW OR READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
- --------------------------------------------------------------------------------
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
- --------------------------------------------------------------------------------
BORROWER:
ROYAL PURPLE MOTOR OIL, INC.
BY: /s/ ANDREW L. EVANS
-------------------------------
ANDREW L. EVANS, PRESIDENT
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,309,866
<SECURITIES> 0
<RECEIVABLES> 474,639
<ALLOWANCES> 40,600
<INVENTORY> 991,880
<CURRENT-ASSETS> 4,358,703
<PP&E> 14,202,808
<DEPRECIATION> (8,411,088)
<TOTAL-ASSETS> 10,753,924
<CURRENT-LIABILITIES> 4,955,725
<BONDS> 0
0
50
<COMMON> 584
<OTHER-SE> 4,512,987
<TOTAL-LIABILITY-AND-EQUITY> 10,753,924
<SALES> 4,325,541
<TOTAL-REVENUES> 4,356,104
<CGS> 4,792,204
<TOTAL-COSTS> 10,793,686
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 521,892
<INCOME-PRETAX> (6,959,474)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (345,247)
<EXTRAORDINARY> 293,663
<CHANGES> 0
<NET-INCOME> (7,011,058)
<EPS-PRIMARY> (1.76)
<EPS-DILUTED> (1.76)
</TABLE>
