AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AWG, Ltd.
(Name of small business issuer in its
charter)
NEVADA 2084 38-0685631
---------------- ------------------------- ---------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
or organization) Code Number) Number)
4162 Big Ranch Road
Napa, CA 94558
(707) 259-6777
(Address and telephone number of principal
executive offices and principal place of business)
JOSEPH E. ANTONINI
CHAIRMAN
AWG, Ltd.
1800 West Maple Road
Troy, MI 48084
(248) 614-3880
(Name, address and telephone number of agent
for service)
COPIES TO:
Michael J. Eizelman, Esq. Ronald Brescia, Esq.
Lawrence S. Jackier, Esq. Doros & Brescia
Jackier, Gould, Bean, Upfal, 1140 Avenue of the Americas
Eizelman & Goldman Penthouse 22nd Floor
1533 North Woodward New York, NY 10036
Suite 250 (212) 921-0550
Bloomfield Hills, MI 48304
(248) 642-0500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH OFFERING AGGREGATE AMOUNT OF
SERIES OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES REGISTERED SHARE (1) PRICE (1) FEE (1)
- ---------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Series A 6%, No
Par Value
Preferred Stock 1,000,000 $10 $10,000,000 $2,950
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
<PAGE>
AWG, Ltd.
CROSS REFERENCE SHEET SHOWING LOCATION IN
PROSPECTUS OF PART I OF FORM SB-1
HEADING CAPTION OR LOCATION IN PROSPECTUS
------- ---------------------------------
1. Inside Front and Outside Back
Cover Pages of Prospectus . . . . . Inside Front Cover Page;
Outside Back Cover Page
2. Significant Parties . . . . . . . . . Prospectus Summary; The Company;
Risk Factors
3. Relationship with Issuer of
Experts Named in Registration
Statement . . . . . . . . . . . . . N/A
4. Selling Security Holders. . . . . . . Principal Stockholders
5. Changes in and Disagreements with
Accountants . . . . . . . . . . . . N/A
6. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities. . . . . Management Relationships,
Transactions and Remuneration
7. Executive Compensation. . . . . . . . Management Relationships,
Transactions and Remuneration
8. Financial Statements. . . . . . . . . Consolidated Financial Statements
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
AWG, LTD.
1,000,000 Shares of Series A Preferred Stock
500,000 shares (the "Shares") of Series A 6% Preferred Stock (the
"Preferred Stock") offered hereby is being offered for sale on a best
efforts basis by AWG, Ltd. ("AWG" or the "Company"). An additional 500,000
shares of Preferred Stock are being registered on behalf of a single
shareholder. It is currently estimated that the initial public offering
price per share of Series A 6% Preferred Stock will be $10.
The Company has two classes of stock, the Preferred Stock which is
offered hereby and Common Stock. Holders of the Preferred Stock do not have
voting rights except as may be required by applicable law. The holders of the
Common Stock are entitled to 1 vote per share. The Preferred Stock and the
Common Stock will be freely transferrable. The Preferred Stock will entitle
the holders thereof to a Preferred Annual Return of 6% per annum payable in
additional shares of Preferred Stock in an amount equivalent to 6% of the
number of Shares of Preferred Stock registered in the name of each of the
holders as of the close of business on December 31 of each year (the "Record
Date"), which shall be issued to each holder within thirty (30) days after
the Record Date, and will have a preference upon liquidation of the Company
in the amount of $10 per share. Other than for the foregoing, the Preferred
Stock will not share in any profits of the Company. INVESTORS SHOULD BE AWARE
THAT AS A RESULT OF THE FOREGOING, THEY WILL NOT BE ENTITLED TO ANY CASH
DISTRIBUTIONS WHATSOEVER FROM THE COMPANY UNTIL SUCH TIME AS THE COMPANY IS
LIQUIDATED, SOLD OR THE SHARES OF PREFERRED STOCK ARE REDEEMED BY THE COMPANY.
Prior to this Offering, there has been no public market for the
Preferred Stock of the Company. The Common Stock of the Company is traded in
the "pink sheets" under the trading symbol "VINE".
The offering will terminate on , 1998, unless earlier
terminated in the sole discretion of the management of the Company.
SEE "RISK FACTORS" beginning on page 5 for a discussion of certain risks that
should be considered by prospective purchasers of the Preferred Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds To
Price To Public Commissions(1) Company(2)
--------------- ------------- -----------
<S> <C> <C> <C>
Per Share $10 1 9
Total Minimum $3,000,000 $300,000 $2,700,000
Total Maximum $5,000,000 $500,000 $4,500,000
<FN>
- ---------
(1) Excludes 3% non-accountable expense allowance payable by the Company to
the underwriter. Company has agreed to indemnify the underwriter against
certain liabilities, including liabilities under the Securities Act of
1933. See "Plan of Distribution"
(2) Before deducting offering expenses payable by the Company estimated to
be at $175,000 including, among other expenses, legal and accounting
fees, printing, mailing, and marketing expenses. This is in addition to
fees and expenses payable to the underwriters as set forth in Footnote 1
above.
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
KLEIN MAUS AND SHIRE
The date of this prospectus is , 1998.
<PAGE>
AWG, Ltd. is not a reporting company pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). However, subsequent to the
offering, the Company will be required to register pursuant to Section 15(d)
of the Exchange Act and will provide security holders with such annual and
quarterly reports as required under the Exchange Act.
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form SB-1 pursuant to the rules
and regulations under the Securities Act of 1933, as amended, in connection
with the shares offered hereby. This prospectus omits certain information
contained in the registration statement and reference is hereby made to the
registration statement and exhibits thereto for further information with
respect to the Company and the shares to which the prospectus relates. A copy
of the registration statement may be obtained from the public reference
section of the Commission at: Judiciary Plaza, 450 5th Street, N.W.,
Washington, D.C. 20549; and at the Commission's Regional Office located at:
1400 Citicorp Center, 500 West Madison Street, Chicago, IL 60661 upon payment
of prescribed fees. In addition, the Commission maintains a web site on the
Internet at the address HTTP;//www.sec.gov that contains reports, proxy
information statements and other information regarding registrants that file
electronically with the Commission.
<PAGE>
AWG, LTD.
(Exact name of Company as set forth in Charter)
Type of securities offered: Class A 6% Preferred Stock
Maximum number of securities offered on behalf of the Company: 500,000 shares
Minimum number of securities offered on behalf of the Company: 300,000 shares
Price per security: $10 per share
Total proceeds: If maximum sold: $5,000,000
If minimum sold: $3,000,000
In addition to the foregoing, 500,000 shares will be registered for the
account of a single shareholder who currently owns 500,000 shares of Class A
6% Preferred Stock. (See Question 37)
(See Questions 9 and 10)
Is a commissioned selling agent selling the securities in this offering?
[x] Yes [ ] No
If yes, what percent is commission of price to public? 10%.
Is there other compensation to selling agent(s)? [x] Yes [ ] No
Is there a finder's fee or similar payment to any person?
[ ] Yes [x] No (See Question No. 22)
Is there an escrow of proceeds until minimum is obtained?
[x] Yes [ ] No (See Question No. 26)
Is this offering limited to members of a special group, such as employees
of the Company or individuals?
[ ] Yes [x] No (See Question No. 25)
Is transfer of the securities restricted? [ ] Yes [x] No (See Question No. 25)
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR INVESTMENT IN ITS ENTIRETY. SEE QUESTION NO. 2 FOR THE RISK FACTORS
THAT MANAGEMENT BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN
THIS OFFERING.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF
ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON
THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR SELLING LITERATURE.
THESE SECURITIES ARE OFFERED UNDER AN EXEMPTION FROM REGISTRATION; HOWEVER,
THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THESE
SECURITIES ARE EXEMPT FROM REGISTRATION.
This Company:
[ ] Has never conducted operations.
[ ] Is in the development stage.
[x] Is currently conducting operations.
[ ] Has shown a profit in the last fiscal year
[ ] Other (Specify):
-------------------------
(Check at least one, as appropriate)
<PAGE>
This offering has been registered for offer and sale in the following states:
State State File No. Effective Date
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<PAGE>
TABLE OF CONTENTS
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . . . . . . 10
OFFERING PRICE FACTORS . . . . . . . . . . . . . . . . . . . . . . 19
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 23
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . 24
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 24
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS . . . . . . . . . . . . . 25
OFFICERS AND KEY PERSONNEL OF THE COMPANY. . . . . . . . . . . . . 26
DIRECTORS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 27
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . 29
MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION. . . . . . 30
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FEDERAL TAX ASPECTS. . . . . . . . . . . . . . . . . . . . . . . . 33
MISCELLANEOUS FACTORS . . . . . . . . . . . . . . . . . . . . . 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS .. 35
CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . F-1
EXHIBITS:
A - Description of Preferred Stock
THIS PROSPECTUS CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY CONCERNING
THIS OFFERING, AND NO PERSON SHALL MAKE DIFFERENT OR BROADER STATEMENTS THAN
THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY
INFORMATION NOT EXPRESSLY SET FORTH IN THIS PROSPECTUS.
This Prospectus, together with Financial Statements and other
Attachments, consists of a total of pages.
4
<PAGE>
THE COMPANY
1. Exact corporate name: AWG, Ltd.
State and date of incorporation: Nevada, June 7, 1995
Street address of principal office: 4162 Big Ranch Road
Napa, California 94558
Company Telephone Number: (707) 259-6777 or (248) 614-3880
Fiscal year: December 31
-------- --
(month) (day)
Person(s) to contact at Company with respect to offering:
Joseph E. Antonini
Mack H. Jennings
Telephone Number (if different from above): ( ) _________
RISK FACTORS
2. List in order of importance the factors which the Company considers to be
the most substantial risks to an investor in this Offering in view of all of
the facts and circumstances or which otherwise make the Offering one of high
risk or speculative
Lack of Profitability. As of the date of this Offering, the Company has not
yet realized a profit from operations. Moreover, the Company's auditors,
Deloitte & Touche, LLP issued an opinion with an emphasis paragraph in
connection with its audit of the Company related to the Company's ability to
continue as a going concern based upon working capital deficiency, limited
capital resources, ongoing cash flow deficits and violations of federal and
state securities laws which occurred under prior management. (See Question
45) While the Company believes that it will eventually achieve profitability,
it expects to realize additional near-term losses as it attempts to expand
its operations. There can be no assurance that the Company will ever succeed
in expanding its operations and sales or in limiting its expenses to the
extent necessary to achieve profitability.
Dependence Upon Offering. Wine making is a capital intensive business and the
Company presently has limited working capital. As the Company expands its
product lines and sales according to its development plan, the Company can
expect to incur additional expenses and capital costs to replant vineyards,
build inventory and acquire equipment and facilities for products which may
not reach the market for one to three years. If only the minimum number of
Shares are sold under this Offering, the Company may require additional
capital to fulfill its operating plan. Moreover, even if the maximum offering
amount is achieved, the Company may require additional capital as cash flow
deficits may continue beyond expected time periods. There is no assurance the
Company will be able to obtain financing when required or that such financing
will be available on terms acceptable to the Company. Should the necessary
additional financing not be available, the Company may elect to: (i) reduce
expansion to a level consistent with the net proceeds from this Offering; or
(ii) seek additional capital from alternative sources.
Possible Violations of Federal and State Securities Laws By Prior Management.
Under prior management, during the period from March 5, 1996 through November
27, 1996, the Company sold shares of its Common Stock to certain consultants
retained by the Company as well as to approximately seven (7) investors not
affiliated with the Company. The aggregate amount raised from such sales was
approximately One Million Three Hundred Sixty Thousand Dollars
($1,360,000.00). The securities were not registered. Moreover, it appears
that no federal exemption was available for such sales and that such sales
may have also violated the laws of one or more states including, California.
The Company is not currently able to determine what exposure, if any, the
Company has in connection with such sales. Any potential liabilities to
investors who acquired the shares of the stock of the Company could result in
a significant portion of the proceeds of this Offering being utilized to
satisfy such liabilities. As of the date of this Prospectus, no investor has
instituted any action against the Company nor has any such threat been
communicated to the Company. (See Question 45)
Distribution of Product. The Company currently sells its product principally
to distributors for resale to retail outlets and restaurants. These channels
of distribution have recently gone through rapid change including the
consolidation of many of the distributors. This decrease in distributors
lessens the number of distribution alternatives and decreases individual
5
<PAGE>
distributor's attention to smaller brand names. The Company has no written
contracts with any of its distributors. There can be no assurance that the
Company's distributors and retailers will continue to purchase the Company's
products or provide the Company's products with adequate levels of
promotional support.
Dram Shop Liability. The serving of alcoholic beverages to a person known to
be intoxicated may, under certain circumstances, result in the server being
held liable to third parties for injuries caused by the intoxicated customer.
The Company will serve wine to customers. If an intoxicated customer is
served wine and subsequently injures someone, the Company may be held liable
for damages to the injured persons. The Company will obtain host liquor
liability insurance coverage and will maintain such coverage as long as the
premiums remain financially reasonable. A large damage award against the
Company, if not adequately covered by insurance, could adversely affect the
Company's financial position and, perhaps, jeopardize its ability to operate.
Dependence on Key Personnel. The Company's success will be heavily dependent
upon the efforts of Mr. Mario Andretti and Mr. Joseph Antonini, both of whom
are contributing their efforts at modest compensation. The Company's
marketing strategy is dependent in large part on Mr. Andretti and his
continued association with the Company. In the event that Mr. Andretti left
the Company for any reason, it would have a materially adverse impact on the
Company's marketing strategy and its ability to sell its products. Mr.
Antonini has been instrumental in designing the Company's current financial,
operational and marketing strategy and is instrumental in its ongoing
implementation. In the event that Mr. Antonini for any reason discontinued
his relationship with the Company, it would have a materially adverse impact
on the ability of the Company to achieve its stated goals. Finally, the
Company is dependent to a certain degree on its wine maker Robert Pepi. While
the Company believes that other wine makers are available at similar
compensation and at relatively similar levels of competence, the loss of Mr.
Pepi would have a material short term adverse impact on the Company. The
Company currently has a Licensing Agreement in place with Mr. Andretti.
However, the Company does not have written Agreements with Mr. Antonini or
Mr. Pepi. (See Questions 39 and 40)
Lack of Director and Officer Liability Insurance. The Company has provisions
in its Bylaws providing indemnification by the Company to all directors and
officers to the maximum extent permitted under applicable law, including the
advancement of expenses incurred by a director or officer in any law suit in
which they may be involved. In addition, the Company's Bylaws contain
provisions limiting a director's liability for monetary damages for breach of
fiduciary duty, except in circumstances involving certain wrongful acts. The
cost associated with indemnifying a director or officer could be significant
and, if not covered by insurance, could adversely affect the Company's
financial performance. Furthermore, should the Company advance litigation
expenses to a director or officer and the director or officer is required to
repay the advanced expenses because it is ultimately adjudged that the
director or officer is not entitled to indemnification, the director or
officer may not have sufficient cash or assets to repay the expenses
advanced. The Company does not currently maintain officers and directors
liability insurance. (See "MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND
REMUNERATION")
Arbitrary Offering Price. There has been no public trading market for any of
the Company's Preferred Stock. The per share price in this Offering bears no
relationship to the assets, book value, or net worth of the Company, or to
any other recognized criteria of value. Share value has been determined
arbitrarily by the underwriter and management of the Company, and should not
be considered as an indication of the actual value of the Company.
Bridge Loan Financing. One investor ("Bridge Lender") has provided Fifty
Thousand Dollars ($50,000) in bridge loan financing to help the Company
maintain its operations pending completion of this Offering. As partial
consideration for the financing, the Bridge Lender has received 500,000
shares of Preferred Stock with a liquidation value of $10 per share or Five
Million Dollars ($5,000,000). As a result of this financing transaction, to
the extent the Company were sold or liquidated, the initial Five Million
Dollars ($5,000,000) worth of value (assuming Five Million Dollars
($5,000,000) of value could be obtained) would be payable solely to the
Bridge Lender. To the extent that all 500,000 shares of Preferred Stock
offered hereby are sold, such Purchasers would share in such liquidation or
sales proceeds on a pro rata basis with the Bridge Lender. Since it is highly
unlikely that the Company could generate proceeds of Ten Million Dollars
($10,000,000) in the event of a sale or liquidation in the next twelve (12)
months, the Bridge Lender will have obtained a disproportionate benefit in
the event of the sale or liquidation of the Company. If the Company were
liquidated at an amount equal to the shareholder's equity as of December 31,
1997, plus the net proceeds if all 500,000 shares of Preferred Stock offered
hereby were sold ($4,175,000), each share would be entitled to approximately
$4.82 per share. This would result in an immediate loss to Purchasers of the
Preferred Stock of $5.18 per share and an immediate gain to the Bridge Lender
of $4.82 per share or an aggregate of Two Million Three Hundred and Seventy
Thousand Dollars ($2,410,000).
<PAGE>
Agricultural Risks. Wine grape production is subject to many risks common to
agriculture that can materially and adversely affect the quality and quantity
of grapes produced. These hazards include, among other things, adverse
6
<PAGE>
weather such as drought, frost, excessive rain, excessive heat or prolonged
periods of cold weather. These weather conditions can materially and
adversely affect the quality and quantity of grapes produced by the Company
and its profitability.
Vineyards are also susceptible to certain diseases, insects and pests, which
can increase operating expenses, reduce yields or kill vines. In recent years
phylloxera, a louse that feeds on the roots of grape vines, has infested many
vineyards in the wine grape producing regions of California and caused grape
yields to decrease. Within a few years of the initial infestation, phylloxera
can leave a vine entirely unproductive. Phylloxera infestation has been
widespread in California, particularly in Napa County. As a result of this
widespread problem, thousands of vineyard acres throughout the State of
California have been or in the case of the Company, will be replanted with
phylloxera-resistant rootstock. It takes approximately 4 to 5 years for a
replanted vineyard to bear grapes in quantities sufficient for profitable
operations. The Company estimates that it currently costs approximately
$11,200 per acre to replant vineyards. All of the Company's approximately 43
net vine acres (i.e., excluding acreage devoted to roads, storage areas,
equipment yards or uses other than vineyards) were infested and will be
planted with rootstock believed to be resistant to phylloxera. Currently,
approximately 12 acres have been replanted. (See "BUSINESS")
Other pests that may infest vineyards include leafhoppers, thrips, nematodes,
mites, insects, orange tortrix, twigbore, microflora and various grapevine
diseases. Pesticides and the selection of resistant rootstocks reduce losses
from these pests, but do not eliminate the risk of such loss. Gophers,
rabbits, deer, wild hogs and birds can also pose a problem for vineyards, and
wine grape vines are also susceptible to certain virus infections which may
cause reduction of yields. None of these currently poses a major threat to
the Company's vineyard, although they could do so in the future and, at that
time, will have the potential to subject the vineyard to severe damage.
Grape Supply. While the Company believes that it can secure an adequate
supply of grapes from its own vineyards and from available suppliers to meet
its forecasted production needs, there can be no assurance that grape
shortages will not occur. A shortage in the supply of wine grapes could
result in an increase in the price of such grapes and, therefore, increase
the cost to the Company of its wine production. This would have a
particularly adverse effect on the Company since the Company will be
dependent, for the next several years, on significant third-party sources for
its grape needs. Moreover, while the Company does have contracts to acquire
wine grapes, such contracts are all short term and can be terminated by the
supplier at any time. In 1997, approximately 58% of the Company's wine
production represented bulk wine and wine grapes purchased from independent
growers and wineries. (See "BUSINESS")
Fixed Costs and Revenue Fluctuations; Uncertainty of Profitability. The
Company incurs annual farming costs averaging approximately $1,500 to $2,500
per acre in production, depending upon the specific characteristics of the
vineyards, including vine spacing and the viticultural characteristics of
specific varieties, among other factors. These costs are incurred throughout
the year preceding harvest and are relatively fixed. Vineyard productivity
varies from year to year depending upon a number factors, and significant
variations in annual yields should be expected from time to time.
Furthermore, grape prices have fluctuated significantly in the past and
should be expected to continue to fluctuate from year to year and to increase
at times in the future. Because production costs are not significantly
adjustable in light of productivity or revenue levels, weak harvests and
higher grape prices cannot be mitigated by cost reductions and could have
significant adverse effects upon profitability. Since the Company intends on
purchasing a significant amount of grapes from third party growers in order
to bottle additional wine, a drop in grape prices may in fact, increase
profitability to the Company with respect to wine production which is made
from grapes purchased from third parties. Assuming that the Company was able
to fully utilize its wine production permit of 42,000 cases per year,
approximately 2/3 of the wine produced by the Company would be from grapes
acquired from third parties.
Competition; Industry Fragmentation. The wine industry is extremely
competitive. Many of the Company's current and prospective competitors have
substantially greater financial, production, personnel and other resources
than the Company. The Company competes with many other producers of premium
wine in California, including many small independent producers. This is in
addition to seven wineries, E and J Gallo, Canandaigua, The Wine Group,
Sutter Home, Sebastiani, Robert Mondavi and Heublein which accounted for
approximately 77 percent of the total California wine shipments of 1996.
Because of higher production costs in the United States and the high prices
of grapes in California, especially in comparison to the prices of years
past, some wineries can achieve significant cost savings, even after taking
into account shipping costs, by importing wine from abroad. Some countries,
such as France, have launched marketing campaigns to increase their sales in
the United States. Foreign competition can be expected to continue and
increase. Moreover, to a significant extent, wines of a particular variety
are fungible, and the ability of foreign producers to compete with the
Company on the basis of price due to their lower production costs may have a
negative impact upon the Company's profitability.
7
<PAGE>
Dependence on Consumer Demand. In recent years there has been substantial
publicity regarding the possible health benefits of moderate wine
consumption. Some studies suggest that moderate consumption of wine (or other
alcoholic beverages) could result in decreased mortality and other health
benefits. Other studies have suggested that alcohol consumption does not have
any health benefits and may, in fact, increase the risk of stroke, cancer and
other illnesses. Anti-alcohol groups have, in the past, successfully
advocated more stringent labeling requirements and other regulations designed
to discourage consumption of alcoholic beverages, including wine. More
restrictive regulations, negative publicity regarding alcohol consumption,
publication of studies that indicate a significant health risk from moderate
consumption of alcohol or changes in consumer perceptions of the relative
healthfulness or safety of wine generally could adversely affect the sale and
consumption of wine and the demand for wine and wine grapes and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Trends in consumer spending have a substantial impact on the wine industry
and the Company's business. Factors that influence consumer spending include
the general condition of the economy, federal, state and local taxation, the
deductibility of business entertainment expenses under federal and state tax
laws and general levels of consumer confidence. Imposition of excise or other
taxes on wine could negatively impact the wine industry by increasing wine
prices for consumers. These factors are especially relevant to premium wines,
which constitute the majority of wines for which the Company produces grapes.
The wine industry is also subject to changes in consumer tastes and
preferences. To the extent wine consumers reduce consumption of wine in favor
of other beverages, demand for wine grapes could decrease. Similarly, to the
extent wine consumers shift their preferences to different varieties of wines
or imports, the Company and other producers of certain grape varieties may
experience reduced demand for their grape production. Increasing demand for
wine products, and therefore wine grapes, may depend on advertising
expenditures and expanded new product introductions by the wineries.
Government Regulation; Taxes. The Company is subject to a broad range of
federal and state regulatory requirements regarding its operations and
practices. The Company's current operations and future expansion are subject
to regulations governing the storage and use of fertilizers, fungicides,
herbicides, pesticides, fuels, solvents and other chemicals. These regulations
are subject to change and conceivably could have a significant impact on
operating practices, chemical usage, and other aspects of the Company's
business. There can be no assurance that new or revised regulations
pertaining to the wine grape production industry will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Wine production and sales are subject to extensive regulation by the Federal
Bureau of Alcohol, Tobacco and Firearms ("BATF"), the California Department
of Alcohol Beverage Control and other state and federal government
authorities that regulate licensing, trade and pricing practices, labeling,
advertising and other activities. In recent years, federal and state
authorities have required warning labels on beverages containing alcohol.
Restrictions imposed by government authorities on the sale of wine could
increase the retail price of wine, which could have an adverse effect on
demand for wine in general. There can be no assurance that there will not be
new or revised laws or regulations pertaining to the wine industry which
could have an negative impact on the Company's business. On January 1, 1991,
the federal excise tax on table wine increased by over 500% from $0.41 per
case to $2.55 per case. Various states, including California, also impose
excise taxes on wine. Further increases in excise taxes on wine, if enacted,
could reduce demand for wine and wine grapes, which could materially and
adversely affect the Company's business, financial condition and results of
operations.
Broad Management Discretion Over Use of Proceeds. Management of the Company
will have broad discretion with respect to the use of the proceeds derived
from the Offering and there can be no assurance that management's actual use
of the proceeds will correlate exactly with the Company's intended use of
proceeds. See "Use of Proceeds."
No Payment of Dividends. The Company currently intends to retain its future
earnings, if any, to fund the development and growth of its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. See "Dividends, Distributions and Redemptions."
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Important Factors Related to Forward-Looking Statements and Associated Risks.
This Prospectus contains certain forward-looking statements. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the business
and future economic performance of the Company. The forward-looking
statements and associated risks set forth in this Prospectus may include or
relate to, among other things, (i) planting and harvesting of the Company's
vineyards, (ii) general health and social concerns regarding consumption of
wine and spirits, (iii) the size and growth rate of the California wine
industry, (iv) increases or changes in government regulations regarding
environmental impact, water use, labor or consumption of alcoholic beverages,
(v) competition from other producers and wineries and (vi) proposed expansion
of the Company's wine business.
"Blank Check" Preferred Stock. In addition to the Preferred Shares offered
hereby, the Board of Directors of the Company has the authority to issue up to
10,000,000 additional shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock and the existing Preferred Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any additional series of Preferred Stock other than the Preferred Stock
offered herein.
Environmental Risks. Ownership of real property creates a potential for
environmental liability on the part of the Company. If hazardous substances
are discovered on or emanating from any of the Company's vineyard and the
release of hazardous substances (including fuels and chemicals kept by the
Company on its properties for use in its business) presents a threat of harm
to public health or the environment, the Company may be held strictly liable
for the cost of remediation of these hazardous substances.
Underwriting Agreement. Pursuant to the Underwriting Agreement between the
Company and Klein Maus and Shire ("Underwriter"), the Company cannot issue any
capital stock other than pursuant to the Company's existing stock option plans
or in connection with compensation to the Board of Directors (See "Management
Relationships, Transactions and Remuneration") without the written consent of
the Underwriter. In the event the Company needs to obtain additional equity
financing, the ability of the Company to do so will be dependent, in part, on
obtaining the consent of the Underwriter to the transaction.
Voting Control of Management: Common Stock and Preferred Stock. The Company
has two classes of stock: Common Stock, which is entitled to one vote per
share and the Preferred Stock offered hereby, which has no voting rights other
than as provided by law. In addition, the Directors of the Company currently
own 4,478,791 shares of Common Stock, which represents 56.17% of the total
issued and outstanding shares of Common Stock of the Company. Therefore, the
existing Board of Directors will be able to continue to elect all of the
Company's Board of Directors and, as a result, continue to direct the
business, policies and management of the Company.
Risks of Leverage. As of December 31, 1997, the Company had indebtedness
outstanding in the principal amount of $3,119,400. Subsequent to December 31,
1997, the principal amount of indebtedness has increased by $200,000. Of this
amount, $1,604,000 is represented by either demand notes or notes which become
due and payable during fiscal year 1998. Moreover, pursuant to the
underwriting agreement, the Company may not, without the prior written
consent of the Underwriter, utilize the offering proceeds to repay more than
$550,000 of indebtedness until the expiration of 18 months from the completion
of the Offering. As a result, the Company will be forced to renegotiate and/or
extend the terms of the remaining indebtedness for an extended period of time.
All such indebtedness is either provided by or guaranteed by officers and/or
directors of the Company. It is believed that as long as the Company is
current on its interest payments (which is not prohibited by the underwriting
agreement) that it will be able to extend the maturities of such indebtedness.
However, since a significant portion of the indebtedness is provided by or
guaranteed by the Company's Chairman, Joseph E. Antonini, the ability of the
Company to negotiate extensions of such indebtedness will be dependent in
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large part on the ability of Mr. Antonini to continue to provide his financial
assistance. In the event that the Company is unable to extend maturity dates
of the indebtedness guaranteed by Mr. Antonini, the Company will be forced to
liquidate assets or request the consent of the underwriter to use additional
proceeds of this offering to repay such debt.
Absence of Prior Public Market for Preferred Stock;
Possible Volatility of Stock Price. Prior to this Offering, there has been
no public market for the Preferred Stock. Moreover, the initial public
offering price for Preferred Stock is substantially in excess of the current
liquidation value of the Company. As a result, there can be no assurance that
an active trading market will develop or be sustained for the Preferred Stock
or that the Preferred Stock will trade in the public market at or near the
initial public offering price. In addition, the Company is registering for
sale an additional 500,000 shares of Preferred Stock issued to the Bridge
Lender who acquired its shares of stock in consideration of the bridge loan
financing. Trading in these shares can be expected to further depress the
initial trading price of the Preferred Stock.
In addition to factors specifically affecting the Company, it should be noted
that the stock market has, during recent years, experienced extreme price and
volume volatility. In addition, the price of the Preferred Stock may be
influenced by factors including investor perception of comparable public
companies, changes in the condition or trends in the wine industry or changes
in the economy.
NOTE: In addition to the above risks, businesses are often subject to risks
not foreseen or fully appreciated by management. In reviewing this Offering
Circular potential investors should keep in mind other possible risks that
could be important.
BUSINESS AND PROPERTIES
3. With respect to the business of the Company and its properties:
(a) describe in detail what business the Company does and proposes to
do including what products or goods are or will be produced or services that
are or will be rendered.
AWG, Ltd. was formed in 1995 for the purpose of producing and
marketing wine initially under the name of Mario Andretti. The concept for
the product began in 1994 during the retirement tour of Mario Andretti, an
internationally known race car driver. During the tour, known as the
Arrivederci Mario Tour, the initial founders of the Company arranged to have
Louis Martini Winery bottle over ten thousand (10,000) cases of 1991 North
Coast Cabernet Sauvignon for sale in conjunction with the Tour under a
license agreement with Mr. Andretti. In 1995, the founders of the Company
bottled additional wine under the name of Mr. Andretti. Due to the success of
this venture, the founders formed AWG, Inc., a Delaware corporation on
November 30, 1995, which was subsequently merged into a wholly owned
subsidiary of the Company on December 14, 1995. The Company's predecessor was
incorporated in Utah on April 1, 1970 as ABC Development, Inc. Its name was
subsequently changed several times ultimately becoming American Aurum, Inc.
The predecessor company was involved in various businesses and by 1995 had
over one thousand (1,000) shareholders and no assets or liabilities. On June
7, 1995, the Company was organized under Nevada law also under the name of
American Aurum. On the same day of its organization, American Aurum of Utah
was merged into American Aurum of Nevada solely for the purpose of effecting
a change in the domicile. On December 18, 1995, the Company changed its name
to its current name, AWG, Ltd. All operations described herein are conducted
through AWG, Inc., the wholly owned subsidiary of the Company.
During 1996, the Company acquired a 53 acre vineyard and winery site
in the Napa Valley upon which the Company currently conducts its business.
During 1996 the Company bottled 5,500 cases of wine and harvested 50 tons or
8,000 gallons of Chardonnay grapes. In late 1996, the founders sold their
entire interest in the Company to Mario Andretti and Joseph Antonini who are
currently the largest shareholders of the Company. See "Directors of the
Company" and "Principal Stockholders". From the proceeds of this Offering,
the Company will repay certain indebtedness to officers and directors and
will seek to accomplish 4 specific goals:
a. increase inventory production through the acquisition of bulk wine
until such time as grape harvest from the Company's vineyards and grape
contracts are sufficient to meet the Company's needs;
b. complete a vineyard replanting and maintenance program;
c. complete a winery construction and refurbishment program which
will result in a fully productive crush, tank and barrel storage facility, a
tasting room and a hospitality center; and
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d. position itself to obtain additional capital to acquire other
wineries and vineyards. Set forth below is a more detailed discussion of
these foregoing goals of the Company.
(b) describe how these products or services are to be produced and
rendered and how and when the Company intends to carry out its activities.
Inventory Production
Until such time as the Company has completed its vineyard development
and maintenance program and its winery construction, it will purchase grapes
and bulk wine from other Napa Valley Growers with whom the Company is
developing long term grape contracts. These relationships will also supply on
a long term basis, ongoing grape requirements over and above those which can
be grown at the Company's existing facility. The Company currently has
contracts for 60-90 tons of Merlot and Cabernet Sauvignon grapes which will
produce enough wine for 4,000 to 6,000 cases of those varietals. Such
contracts are short term and can be canceled by the supplier at any time. In
addition, the Company will purchase wine on the bulk market through wine
brokers. The quality of the bulk wines will meet the standards set by the
Company and will be used to the extent needed in order to maintain the
Company's position in the market. This will also permit the Company to
generate income throughout the vineyard replanting program. It is anticipated
that at least $600,000 (up to $1,000,000 of the maximum offering amount is
achieved) of the amount raised from this Offering will be allocated to the
inventory production program. In 1997, approximately 58% of the Company's
wine production represented bulk wine and wine grapes purchased from
independent growers and wineries.
Vineyard Replanting Program
The Company currently has a 43 acre vineyard of which 12 acres have
been recently replanted. In 1996, the 43 planted acres yielded 50 tons of
Chardonnay, which the Company used to produce approximately 3,100 cases of
1996 Andretti Chardonnay and 15 tons of Pinot Noir, which were sold to a Napa
Valley producer of a premium sparkling wine. The 65 tons of harvest in 1996
is small compared to the anticipated harvest of 270 to 290 tons when the
entire vineyard has been replanted by 1999 and reaches maturity which is not
expected to occur until 2002.
The Company anticipates completing the replanting of the entire
vineyard over the next 2 year period. The replanting is due to the fact that
the vines are 25 years old and have 3 common diseases: phylloxera, Leaf Roll
and Pierce's disease. The Company is planting rootstock believed to be
resistant to the first 2 common diseases and will help prevent the
reoccurrence of these infestations. In order to avoid Pierce's disease in the
future, the Company is planting the 3 acres adjacent to the Napa River with
Sauvignon Blanc grape vines, a varietal known to be resistant to Pierce's
Disease infestations. As indicated above, the Company has already completed
the replanting of 12 acres. The Company anticipates that it will tear out and
replant an additional 16 acres in 1998 and 15 acres in 1999.
Replanting vineyards generally cost approximately $11,000 to $15,000
per acre, depending on ground cultivation requirements, irrigation systems
selection, rootstock selection, trellising materials and labor availability.
The Company estimates that the total vineyard replanting will cost
approximately $11,200 per acre for 43 acres or a total of $481,600 over the
entire replanting program. Once planted, it will be 2 years before the first
crop is harvested and a total of 3 to 5 years before the vines reach
commercial production levels. At that time, the Company expects to harvest
about 6.5 tons of grapes per acre or 270 to 290 tons per year. This harvest
will be sufficient for about 14,000 to 15,000 cases per year. As indicated
above, notwithstanding the increased production, the Company will still need
to acquire grapes from additional sources in order to meet its long term
production goals. In this regard, controlling grapes through ownership or
long term grape contracts with third parties is a critical factor in crafting
high quality wines. The wine maker who can influence the wine from the berry
to the bottle will have an advantage over the wine maker who does not have
that control. The Company will have as high a level of control as possible
over the grapes that make up its basic varietals.
Winery Development and Construction Plan
The Company operates under a use permit that allows for the
production of 100,000 gallons of wine annually which is equivalent to
approximately 42,000 cases. Also included in this permit is the right to
operate a tasting room with full "public tours and tastings access by the
public." This latter feature is not available to new wineries which generally
can only access the public market by "appointment only." The Company hopes to
ultimately have well over 100 visitors per day during the May-October season.
Typically under the "appointments only" category, visitors are limited to 2
groups with up to 4 people per group.
There are significant economic advantages to having a tasting room.
First, wine sales from a tasting room generally are priced at twice the price
of distributor sales, the normal channel of sales. This is done to protect
the
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distributor and the liquor store owner from being underpriced by the
manufacturer. Second, there is an opportunity to sell wine related
merchandise and in the case of the Company, an opportunity to sell Andretti
memorabilia. Third, the Company intends to create the "Andretti Wine Club"
which will hopefully create a source of higher price retail sales throughout
the year. The tasting room will provide a source for marketing membership in
the Club. The activation of the 100,000 gallon production facility, public
tours and tasting permit is dependent upon completion of the winery at a
level required by Napa County. This will require the following construction:
(a) refurbish an existing structure to become a barrel storage room/tasting
room facility; (b) construct on a pre-existing concrete pad a tank
storage/crush facility building; (c) install a septic system; and (d)
construct a new road to the winery from the main artery leading to the
property, Big Ranch Road. The total cost of these improvements is estimated
to be $600,000 exclusive of equipment and cooperage. The construction of the
improvements (other than the tank storage/crush facility building) have
commenced and is expected to be completed by April 30, 1998. Funds for
completing the construction project have been obtained through bank financing
guaranteed by Joseph E. Antonini, Chairman of the Company. In total, when all
improvements are completed, the Company will have a tasting room with full
public tours and tasting authority, a barrel storage facility, a tank storage
facility, offices, a private tasting facility, a hospitality and event center
and a 43 acre vineyard all on 53 acres of property that the Company owns.
Products and Operations
The Company will have 4 varietals as its base of wines to be offered
to the public. The Company will bottle Napa Valley grown grapes. The Company
will venture away from the Napa Valley for grape and wine sources when
required. Set forth below is a brief description of various varietals to be
offered by the Company:
Cabernet Sauvignon. Cabernet Sauvignon is one of the world's most renowned
grapes for production of fine, long lived red wine. Of Bordeaux origin, this
grape's remarkable concentration of tannin pigments and flavor compounds
produce a deeply colored wine worthy of long maceration and wood aging with a
strong affinity for french oak. Its fruit flavors are often likened to black
currant and its aroma ranges from bell peppers to ripe berries and even mint
and chocolate. It adapts well to varying wine making techniques. These grapes
will be purchased from other growers.
Merlot. Merlot is the most planted Bordeaux vine. Merlot's flavor can vary
from opulently plummy and fruitcake like to a gentler variation on the
Cabernet theme, but its texture is almost invariably less tannic and fuller
bodied. The Company's vineyard soils and climate are exceptionally well
suited for production of this grape and it is anticipated that the Company
will plant approximately 60-65% of its vineyard with this varietal. Merlot is
often blended with Cabernet as a compliment to its fruit fullness. Its early
maturation and shorter oak aging time make a wine which would be released a
full year earlier than the Cabernet grapes of the same vintage.
Chardonnay. Chardonnay has a relatively high level of alcohol, which combined
with the rich fruit can often taste slightly sweet which has probably played
a part in its popularity. This varietal's flavor is found to be nebulous with
tastes of vanilla, tropical fruits, peaches, tomatoes, tobacco, tea and rose
petals in the wine. Chardonnay grapes typically have higher yields.
Approximately 30-35% of the Company's vineyard will be planted with this
varietal.
Sauvignon Blanc. Sauvignon Blanc is another Bordeaux grape transported years
ago to regions outside of France. It is an aromatic, crisp dry wine. It is
generally described as grassy, herbaceous, musky, of green fruits and zesty
(but can also be reminiscent of tropical fruit or grapefruit). It is
extremely durable for white wine with up to 5 years in the bottle. The
Company may plant up to approximately 10% of its vineyard with this variety
of grape.
Complimentary Varietals. Other varietals will occasionally be produced by the
Company as the Company's wine maker discovers small quantities of bulk wine
or grapes available for purchase and bottling. The extra wines will be those
which have a particular high quality and suit the theme of the winery. Some
varietals which should be common for consideration are Pinot Noir, a burgundy
grape which grows in the climate found in the southern end of the Napa Valley
and Sangiovese, an Italian varietal which forms the base of most Chianti
wines.
Wine Sources and Production
As indicated above, the Company's vineyard, when replanted, will
yield between 270 and 290 tons of Merlot, Chardonnay and Sauvignon Blanc
grapes for crushing. These grapes will result in the production of
approximately 14,000-15,000 cases of wine, all of which will be eligible for
"estate designation" since the grapes will be crushed, fermented, stored and
bottled at the Company's own wine facility.
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However, it should be realized that the grapes that the Company
harvests in 1997 will provide wine for the 1997 vintage which will be
released as early as 1998 for Chardonnay but as late as 1999 for Merlot and
2000 for Cabernet
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Sauvignon. In the meantime, the Company will purchase wine on the bulk market
through wine brokers. The quality of the bulk wines will meet the standards
of the Company's winemaker and it will be used only to the extent needed to
maintain its position on the market. In addition, on a more long term basis,
the Company will attempt to enter into long term grape contracts with other
Napa Valley growers to provide additional grapes for additional wine
production. As indicated earlier, while the Company's production permit will
permit it to produce 42,000 cases of wine a year at its Big Ranch Road
facility, the Company's production after the vineyard has been totally
replanted and reaches maximum maturity, will only produce 14,000-15,000 case
of wine. Therefore, wine production in excess of that produced from grapes
grown by the Company's vineyard will have to come from other sources. The
Company currently has contracts for 60-90 tons of Merlot and Cabernet grapes
which will produce enough wine for approximately 4,000-5,000 cases of those
varietals.
Currently, the Company's facility requires that it harvests its own
grapes but that it crushes and ferments them at a neighboring facility. The
wine is then stored in oak barrels at the Company's winery and other
warehouses and then bottled at a neighboring facility or at the Company's
location using a mobile bottling line. The Company's wine maker, is present
for and closely supervises all phases of the operations. The Company uses an
outside warehouse service for storage of finished goods. Once the winery
construction is complete, the Company will be able to crush, ferment and age
wines at its winery and then have a mobile bottling line come to the winery
and bottle the product. The Company believes that such mobile bottling lines
are provided by several suppliers and will be available when needed and at a
cost acceptable to the Company. The bottled product will still be stored at a
local outside warehouse for ease of consolidation and shipping.
The Company has no current plans to install a bottling line. Though
the Company's permit allows it to produce 42,000 cases of wine, this can be
accomplished in 30-40 days per year. The under utilization of the bottling
line would be economically impractical.
Sources of Revenue
Sales revenue will come from four (4) primary areas: wholesale wine
sales, retail wine sales, wine and memorabilia merchandise sales and
hospitality/specialty events.
Wholesale Wine Sales. This will account for the bulk of the revenue. Wines
will be sold to distributors at price ranges typical of super premium wines
from the Napa Valley. Prices are a function of quality, varietal and vintage,
with the pricing of the Company's wines to be in the upper end of the super
premium price range. Super premium price range reflects market conditions and
supply and demand influences. Generally, for purposes of pricing wines,
premium wines are generally categorized as premium and popular premium which
have an average retail sales price of approximately $7; super premium which
have an average retail price of approximately $18 and ultra premium which
have an average retail price of approximately $25. As indicated, the Company
intends to produce and distribute wines in the super premium range. These
sales are expected to generate gross revenues of $1,500,000 to $1,800,000 in
1998. It should be noted that in 1997, 26% of the Company's sales were made
by one retailer, Trader Joe's, a California chain of food and liquor stores.
However, it is anticipated that neither this retailer nor any other entity
will account for as much as 25% of sales.
Retail Wine Sales. These sales will occur at the winery, mail order, through
the Andretti Wine Club, internet sales and other vehicles that could be made
available to the public. The Company hopes to ultimately sell 3,000 cases or
more of wine annually in this category although this is not expected to occur
for several years. Assuming the wine is sold at prices typical of the super
premium price range, this category of sales will account for additional gross
profits of up to $300,000 per year.
Wine and Memorabilia Merchandise Sales. These are products sold out of the
tasting room, through the Andretti Wine Club and Andretti Fan Club catalogue
and over the Internet. The source of revenue will not be significant and
estimated as ultimately approximately $1,000 to $2,000 per month.
Hospitality/Special Events. The winery has a 6,000 square foot hospitality
center surrounded by decks and a lawn that could be used for many types of
events for a service fee. The Company plans to have special events such as
weddings, rehearsal dinners, anniversary gatherings, gourmet food classes,
non-profit fundraisers, performances and car club events. Corporate events
such as board meetings, executive retreats, video conferencing, team
building, training, dinners, lunches and tours will also be available. In
addition, winery events such as food and wine pairings, an evening with the
wine maker, VIP and trade tours and tastings are possible. Gross profits for
the hospitality/special events could ultimately approach $300,000 per year.
However, this may not occur for several years.
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(c) Describe the industry in the which the Company is selling or
expects to sell its product or services and, where applicable, any recognized
trends within that industry. Describe that part of the industry and the
geographic area in which the business competes or will compete.
According to a study done by Gomberg, Frederickson and Associates, a
wine industry consulting firm in San Francisco ("Consultant"), the market for
California wines has grown at a compound annual rate of 14% over the past 17
years ending in 1996. This consultant also indicates that in 1996,
approximately 90% of all wine made in the United States was produced in
California and total California wine sales reached approximately $4.3 billion
of which $2.9 billion or 67% represented the premium wine segment.
Table wines, wines usually containing less than 14% alcohol and are
generally consumed with food or as cocktails. Table wines represent 84% of
the total U.S. wine consumption, with dessert and sparkling wines accounting
for most of the remaining 16%. Table wines are categorized as either
non-varietal or varietal. Non- varietal, also referred to as generic, include
wines named after European regions where similar types of wines were
originally produced such as burgundy or Bordeaux as well as wines labeled
simply red or white. Varietal wines are those named for the grape that
comprises the principal component of the wine such as Chardonnay or Merlot
and are generally considered premium wines and typically retail at a
substantially greater price than non-varietal wines. The Company's grapes are
used to produce super premium varietal table wines.
The market for California premium varietal table wines has grown
significantly over the last 17 years ending in 1996. Since 1980, sales have
increased at a 14% compounded annual rate according to the consultant. The
most popular California premium wine varieties are Chardonnay, Cabernet
Sauvignon, Sauvignon Blanc and Merlot. According to estimates by the
Consultant, case shipments for these varietal wines in 1996 were 22.5
million, 10.8 million, 4.8 million and 4.7 million cases respectively.
The California grape production industry is very fragmented and
consists of several thousand vineyard owners. Most wine grape producers have
small privately owned operations and sell their production to wineries. To
supplement the grapes they buy from independent producers, many wineries also
own or lease vineyards to supply some of their grape needs. There is no
published data regarding ownership or contractual relationships in the
California wine grape production industry and individual holdings of
properties are not publicly recorded. California wine is produced and
marketed by approximately 800 commercial wineries. However, 7 wineries, E and
J Gallo, Canandaigua, The Wine Group, Sutter Home, Sebastiani, Robert Mondavi
and Heublein, account for approximately 77% of the total California wine
shipments in 1996. Of the 800 commercial wineries (other than those mentioned
above), approximately half produce fewer than 5,000 cases per year.
In addition to U.S. producers, there are numerous wine producers in
Europe, South America, South Africa, Australia and New Zealand. All of these
regions export wine into the United States. California grape and wine supply
shortages, especially red wines, have prompted some domestic national brand
marketers to purchase wine from foreign sources. Most imports are bottled
wines; however, some wineries have imported bulk wine for bottling and sale
in the United States. Most of the bulk wine imported for this purpose came
from Chili and France.
As indicated under question 3(d), the Company plans to market its
wine throughout the country through various distributors. It is envisioned
that the name and reputations of Mario Andretti and Robert Pepi, Jr. (the
Company's wine maker) will create unique marketing opportunities and set the
Company's wine apart from other wineries. See "Question 3(d)."
Note: because this Prospectus focuses primarily on details concerning
the Company, rather than the industry in which the Company operates or will
operate, potential investors may wish to conduct their own separate
investigation of the Company's industry to obtain broader insight in
assessing the Company's prospects.
(d) describe specifically marketing strategies the Company is
employing or will employ in penetrating its market or developing a new
market.
The Company's market plan has 3 key elements:
a. to develop and nurture relationships with distributors and
principal customers;
b. insure placement of the product in the proper channels and
markets; and
c. educate and train the sales staff at the distributor and user
facilities.
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As indicated above, there is growing demand for wines, especially in
the premium categories. Super premium wine which have an average retail sales
price of approximately $18 per bottle will be the type of wine to be produced
and distributed by the Company. However, in the case of special volume or
promotional issues, lower prices may be provided periodically. The standard
lists of varietals will include Cabernet Sauvignon, Merlot, Chardonnay and
Sauvignon Blanc. Grapes for the latter three varieties will come from the
Company's own vineyards to the extent possible. The Company will occasionally
produce other special wines as they become available on the bulk market but
will generally not arrange for a long term grape contracts or plant other
varieties on its property.
The Company will aim consumer distributorship outlets at finer
restaurants, fine wine and liquor stores, Andretti Wine Club Members and
retail sales from the Wine Tasting. As wine production grows, the Company
will also look to chain liquor stores and grocery chains for distribution.
It is anticipated that the consumer of the Company's wine will be
fine food and wine connoisseurs who enjoy dining out with a bottle of wine
with dinner. However, the Company will encourage wine by glass presentations
in the bar areas of the restaurant and will make the price concessions for
that privilege. While many Napa Valley wineries concentrate 40% to 60% of the
business in California, the Company intends to distribute not more than 25%
of its wines in California with a significant effort on heavily populated
areas on East Coast and Midwest. Large population areas and cities that host
significant racing events will also be targeted. The Company has targeted
certain areas for initial distribution based on the quality/price of the
wine, the attraction of the Andretti name and demographics. The Company also
looks to areas where fine foods are served, where cosmopolitan atmosphere
exists and where there is a certain level of disposable income for a
significant portion of the population. The Company's initially targeted
segments, by state, are:
<TABLE>
<CAPTION>
STATES BROKER DISTRIBUTOR
------ ------ -----------
<S> <C> <C>
Arizona Multicarte, Dean Wilson Arizona Beverage
Colorado Multicarte To be determined
Connecticut New England Wine Brokers Hartley & Parker
Florida Northern Florida - Mike Paden Lion Wine & Spirits
Illinois Romano Bros.
Indiana Romano Bros.
Louisiana Multicarte, Dwayne Schockley Heritage House,
Reliable Lafayette
Maine New England Wine Brokers Colonial
Massachusett New England Wine Brokers M. S. Walker
Michigan Kathi Colli AHD Vintners
New Hampshire Jet Wine & Spirits
New Jersey Fedway/Washington Select
New Mexico Multicarte, Dean Wilson Bacchus Distributors
Ohio Superior Beverage
Oklahoma Multicarte, David Messer Gold Medal Marketing
Pennsylvania Common Walker Pennsylvania
Rhode Island New England Wine Brokers Providence Beverage
Texas (Dallas) Multicarte, Rick Sides Republic Beverages
16
<PAGE>
Texas (Houston) Multicarte, Michael Benedetti Republic Beverages
(Heritage House)
Texas (San
Antonio) Multicarte, Dean Wilson Block Distributing
Vermont New England Wine Brokers Calmont Beverage
W. Virginia Leonard George Jo's Globe
Wisconsin Badger Liquor
<CAPTION>
FOREIGN MARKETS
STATES BROKER DISTRIBUTOR
------ ------ -----------
<S> <C> <C>
Japan Mikio Kakihara Sunlit
</TABLE>
The Company is fully licensed, except in the states of Colorado,
Connecticut, Maine, Oklahoma, Pennsylvania, Rhode Island and Vermont (where
applications are pending).
Secondary market states will include California, Colorado, Georgia,
New York, Oregon and Washington. Ultimately, it is the goal of the Company to
expand its distribution to all fifty states, Canada and additional foreign
markets in China and Europe. As indicated above, certain characteristics make
the Company's winery a unique opportunity and set it apart from other
wineries. The prominence of Mario Andretti and Robert Pepi has increased the
interest of distributors who will handle the Company's product. Capitalizing
on the Andretti name, the Company will seek to establish distributorship
relationships with major wholesalers in target areas. In addition, the
Company will use its wine maker and executive staff to visit major
marketplaces and trade shows. The Company will also use Mario Andretti's
continued race circuit stops to raise the level of attention to its products.
The Company will also seek to increase revenues at its hospitality
center, develop an Internet presence, establish a tie to the Andretti racing
web page; promote the product through the Andretti Fan Club and, create
greater sales through business to the wine tasting room and through mail
order techniques.
(e) State the back log of written firm orders for products and/or
services as of the recent date (within the last ninety (90) days) and compare
it with the backlog of a year ago from that date
Not applicable.
(f) State the number of the Company's present employees and the
number of the employees it anticipates it will have in the next 12 months
The Company currently has 4 employees which consist of its chief
executive officer, Mr. Mack Jennings; and 3 supporting staff members. None of
the employees of the Company are covered by any collective bargaining
contracts. In the next 12 months, the Company anticipates expanding its staff
to include the following: (a) visitor center manager; (b) 8-10 part time
visitor center tour guides; (c) one (1) cellar worker/maintenance person; and
(d) and one (1) part time accountant.
(g) Describe generally the principal properties the Company owns
As indicated above, the Company owns a 53 acre parcel in Napa Valley,
California which consists of a 43 acre vineyard as well as a 6,000 square
foot winery, 6,000 square foot hospitality center plus the Company's offices.
16
<PAGE>
(h) Indicate the extent to which the Company's operations depend or
expected to depend on patents, copy rights, trade secrets, know-how, or other
proprietary information.
While the Company's operations are not dependent upon any patents,
trademarks or form of trade secrets, the quality of the Company's products as
with other wineries is dependent upon skills of their winemaker which are
skills developed over many years of wine making. The Company has no formal
contract with its winemaker Mr. Robert Pepi, Jr. and Mr. Pepi is not under
any confidentiality agreement or covenant not to compete. While the loss of
Mr. Pepi would have an adverse short term impact on the Company, the Company
does believe it would be able to retain the services of another competent
winemaker.
(i) Impact of government regulation
The Company is subject to a broad range of federal and regulatory
requirements regarding its operations and practices. The Company's current
operations and its future operations will be subject to regulations governing
the storage and use of fertilizers, fungicides, herbicides, pesticides and
other chemicals. In addition, wine production and sales are subject to
extensive regulation by the Federal Bureau of Alcohol, Tobacco and Firearms,
the California Department of Alcohol and Beverage Control and other state and
federal government authorities that regulate licensing, trade and pricing
practices, labeling, advertising and other activities. (See "RISK FACTORS".)
(j) State the names of any subsidiaries of the Company, their
business purposes and ownership, and indicate which are included in the
financial statements attached hereto
The only subsidiary of the Company is AWG, Inc., a Delaware
corporation, which holds all of the operating assets of the business. AWG,
Ltd., the parent company, is merely a holding company. All activities of both
AWG, Ltd. and AWG, Inc. are reflected on the Company's financial statements.
(k) Summarize material events in the development of the Company
during the past five years or for whatever lesser period the Company has been
in existence
The most significant event is the Company's brief history occurred in
1996 when it acquired the winery and vineyard upon which its business is
presently located.
The second most significant event in the Company's brief history is
the investment in the Company by Messrs. Andretti and Antonini in late 1996
which has provided marketing and operational direction for the Company. In
addition, Mr. Antonini has provided financial resources to the Company.
MILESTONES TO BE ACCOMPLISHED
4(a) If the Company was not profitable during its last fiscal year,
list below, in chronological order, the events which in Management's opinion
must or should occur or the milestones in which in Management's opinion, the
Company must or should reach in order for the Company to become profitable
and indicate the expected manner or the occurrence or the expected method by
which the Company will achieve its milestones.
<TABLE>
<CAPTION>
DATE OR NUMBER OF
MONTHS AFTER THE
EXPECTED MANNER OF RECEIPT OF PROCEEDS
OCCURRENCE OR METHOD WHEN MILESTONE SHOULD
EVENT OR MILESTONE OF ACHIEVEMENT BE ACCOMPLISHED
- ------------------ -------------------- ---------------------
<S> <C> <C>
Increase of inventory The Company will need to The Company has already
production initially buy wine in entered into modest
bulk from third parties contracts with existing
in order to establish a grape growers. As soon as
position in the additional funds are
marketplace. In addition, available, the Company
the Company will have to believes that it would be
obtain short term and able to immediately begin
long term contracts with entering into additional
the growers to acquire inventory production
grapes which can be contracts with grape
crushed, fermented and growers and distributors
stored and ultimately of bulk wine. The Company
bottled. believes that such
inventory will be
available in the quality
demanded by the Company,
with the only issue being
price.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DATE OR NUMBER OF
MONTHS AFTER THE
EXPECTED MANNER OF RECEIPT OF PROCEEDS
OCCURRENCE OR METHOD WHEN MILESTONE SHOULD
EVENT OR MILESTONE OF ACHIEVEMENT BE ACCOMPLISHED
- ------------------ -------------------- ---------------------
<S> <C> <C>
Vineyard development It is expected that the Replanting of the
and maintenance. Company will replant the remaining acreage will be
entire vineyard. accomplished in the
Replanting will cover a Spring of 1998 and Spring
three year period as of 1999.
follows: 12 acres in 1997
which has been
accomplished; 16 acres in
1998 and 15 acres in1999.
Winery construction and The Company already has Construction is
refurbishing program. commenced construction of anticipated to be
a barrel storage completed by April 30,
facility, a tasting room 1998.
and a refurbished
hospitality center.
</TABLE>
(b) State the probable consequences to the Company of delays in
achieving each of the events or milestones within the above time schedule and
particularly the effect of any delays upon the Company's liquidity in view of
the Company's anticipated level of operating costs
In the event the Company is unable to achieve its first milestone of
obtaining additional inventory production, the Company would have only very
limited capability of producing wine from its own vineyard during the
replanting process. It is anticipated that during the replanting process, the
Company will only be able to produce approximately 4,000 or 5,000 cases of
wine from its own grapes which would not be sufficient to fund its ongoing
operating costs. As a result, in the event that the Company is unable to
obtain sufficient inventory production, the Company would have to utilize
proceeds from this Offering that would otherwise be utilized for inventory
production to cover operating costs.
In the event that the Company is unable to proceed with its vineyard
replanting and maintenance program on schedule, the Company would be further
dependent on its ability to obtain grapes from other sources for the
production of wine or forced to increase its acquisition of bulk wines. While
the Company operations can still be profitable without production of wine
with grapes from its own vineyard, the Company would not be able to bottle
its "estate" product which would have an impact on profitability as the
Company is anticipating to be able to produce approximately 1/3 of its
maximum production from its own vineyards.
Finally, in the event that the Company is unable to complete
construction of the additional wine making facilities, tasting room and
hospitality center on a timely basis, the Company would be forced to utilize
other facilities for purposes of making the wine which would negatively
impact profitability and the Company would lose projected revenues on public
tours and special events which would also have a significant negative impact
on revenues.
Note: After reviewing the nature and timing of each event or
milestone, potential investors should reflect upon whether achievement of
each within the estimated time frame is realistic and should assess the
consequences of delays or failure of achievement in making an investment
decision.
COMPANY INDEBTEDNESS
Bank Indebtedness. The Company currently has indebtedness outstanding
in three (3) institutions; one of which is long term. Set forth below is a
brief description of each debt:
Indebtedness In Connection With Acquisition Of Winery. In connection with the
acquisition of the winery, the Company executed a Mortgage Note dated April
12, 1996. The current balance due on that Note is approximately $1,665,400.
The Mortgage Note bears interest at the rate of ten percent (10%) per annum
increasing one percent (1%) per year until it reaches twelve percent (12%) in
the year 2000. The Note is payable interest only until the year 2002, at
which time all principal plus accrued interest is due and payable.
Vintage Bank. The Company obtained a $200,000 line of credit from Vintage
Bank of Napa, California which is secured by the Company's accounts
receivable, inventory, supplies and general intangibles. The line of credit
requires monthly payments of interest only at the rate of 1% over the Vintage
Bank borrowing rate as adjusted from time to time. The current interest rate
on the line of credit is 9.5%. The principal portion of the line of credit
will be due and payable no later than July 15, 1998. Pursuant to the terms of
the line of credit, the Company is eligible to borrow up to 80% of eligible
accounts receivable (those accounts receivable that are 90 days or less) plus
60% of the Company's inventory value, provided, however, in no event may the
line of credit exceed $200,000. Currently, the Company has utilized $199,000
of the line of credit.
18
<PAGE>
Bank of Bloomfield Hills. The Company has an outstanding loan from Bank of
Bloomfield Hills in Bloomfield Hills, Michigan, in the amount of $950,000.
The loan which bears interest at the rate of .5% in excess of the prime rate
of Citibank, N.A. per annum is payable interest only on a monthly basis. The
current rate is 9% per annum. Interest is payable monthly with all principal
due and payable no later than December 23, 1998. The loan has been guaranteed
by Joseph Antonini, Chairman of the Company.
Indebtedness To Related Parties. The Company currently has outstanding
indebtedness to various related parties in the aggregate amount of $455,000.
This indebtedness will be partially repaid from the proceeds of the Offering.
A brief description of the indebtedness is as follows:
Demand Notes. The Company has borrowed $35,000 each from Mack Jennings, the
President and Chief Executive Officer of the Company and Robert Pepi, Sr.,
the father of Robert Pepi, Jr., the Company's winemaker. Each Note provides
for interest payments of 9% per annum payable monthly and permits the holder
to call the Notes at any time. The Note in favor of Mr. Jennings was executed
on August 18, 1997 and the Note in favor of Robert Pepi, Sr. was executed on
August 19, 1997. These notes will be partially repaid from the proceeds of
this Offering.
Term Notes. The Company has borrowed the sum of $85,000 from Mario Andretti,
the Vice Chairman of the Company and $50,000 from Sports Management Network,
Inc., a company controlled by John P. Caponigro, a Director of the Company
and its Secretary and General Counsel. Each of the Notes provide for interest
payments of 9% per annum payable monthly with the principal due upon demand
of the holder. Two (2) notes were executed by the Company on August 25, 1997
and one (1) note on September 23, 1997. These notes will be partially repaid
from the proceeds of this Offering.
Mortgage Notes. The Company has borrowed $250,000 (of which $100,000 was
outstanding as of December 31, 1997) from Joseph Antonini, Chairman of the
Company pursuant to a mortgage note dated December 24, 1997. The note
requires payment of interest only at the rate of 9% per annum, monthly, with
all principal due payable on July 1, 1998. The Company has the ability to
draw an additional $250,000 in loans pursuant to the terms of the mortgage
note.
Bridge Loan Financing. Pursuant to a note dated March 2, 1998, Colin
Frank Riseam (hereinafter referred to as "The Bridge Lender") loaned the
Company $50,000. The note bears interest at 6% per annum which is payable
quarterly commencing June 2, 1998 and each quarter thereafter until paid.
Principal and all accrued interest is due on the earlier of (a) January 1,
1999; (b) closing date of this Offering or (c) the completion of any other
debt or equity offering in the principal amount of $500,000 or more. The loan
is guaranteed by AWG, Inc., the Company's wholly owned subsidiary. In
addition to the interest payment, the Bridge Lender has received 500,000
shares of Preferred Stock, which is being registered as part of this
Offering. The bridge loan financing was placed by the Underwriter who
received a commission of 10% of the proceeds of the financing together with a
3% non-accountable expense allowance.
OFFERING PRICE FACTORS
5. What were net, after tax earnings for the last fiscal year?
Total loss of ($ 715,405) or ($0.13) per share.
6. If the Company had profits, show offering price as a multiple of earnings.
N/A
7. (a) What is the net tangible book value of the Company?
$270,377 or $0.54 per share computed solely with regard to the 500,000
shares of Preferred Stock issued in March, 1998. The per share price has
been determined arbitrarily by the underwriter and management based upon
the financial needs of the Company.
(b) State the dates on which the Company sold or otherwise issued
securities during the last twelve (12) months.
In connection with the bridge loan financing described above, the
Company issued 500,000 shares of Preferred Stock to the Bridge Lender.
The sale was made to a single investor who has no presence in the
United States. In addition, three investors two of which are directors of
the Company entered into an agreement in December, 1996 pursuant to which
they contributed an aggregate of $350,000 to the Company in exchange for a
yet-to-be-authorized class of preferred stock. The three investors were:
Joseph Antonini, Bruce Williams (each of which has been a Director of the
Company) and Carl Haas an associate of Messrs. Antonini and Andretti who
declined to become a director. In November, 1997, Messrs. Antonini,
Williams and Haas decided to acquire Common Stock of the Company in lieu
of Preferred Stock in order to facilitate this Offering. Finally, Mario
Andretti, a director of the Company agreed to exchange
19
<PAGE>
accrued but unpaid royalty fees for common stock in the Company. (See
"MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION")
8. (a) What percentage of the outstanding Preferred Shares of the Company
will the investors in this Offering have?
Investors will own an aggregate of 50% of the issued and outstanding
shares of Preferred Stock assuming all of the shares of Preferred Stock
offered hereby are sold. If only the minimum amount is sold, Investors
will own 37.5% of issued and outstanding Preferred Stock.
(b) What post-offering value has management implicitly attributing to the
entire Company by establishing the price per security set forth
herein? Based solely on the Preferred Stock and assuming all 500,000
shares of Preferred Stock are sold, the post offering value
implicitly attributed to the entire Company would be $10,000,000 (ten
million dollars). Assuming only the minimum offering amount is sold,
such value would be $8,000,000 (eight million dollars).
It should be noted in this regard that the current book value of the
Company is only $640,282. Assuming all 500,000 shares of Preferred Stock
offered hereby are sold with net proceeds of $4,175,000, the net tangible
book value per share computed solely with respect to the Preferred Stock
would be $4.82 per share. This will result in immediate dilution to
purchasers of the Preferred Stock offered hereby of $5.18. In the event
that only the minimum offering amount is sold with net proceeds of
$2,435,000, the net tangible book value per share would be $3.84, which
would result in immediate dilution to the holders of the Preferred Stock
purchased thereby of $6.16 per share. The holder of the Preferred Stock
issued in connection with the bridge loan financing would have an
immediate gain of $2,410,000 in the event that the maximum amount offered
is sold, and an immediate gain of $1,920,000 in the event that the minimum
offering amount is sold. The holder of the Preferred Stock issued in
connection with the bridge and loan financing did not pay any separate
consideration for such shares.
20
<PAGE>
USE OF PROCEEDS
9. (a) The following table sets forth the use of the proceeds from this
Offering:
<TABLE>
<CAPTION>
If Minimum Sold If Maximum Sold
--------------- ---------------
<S> <C> <C>
Total Proceeds ........................... $3,000,000 $5,000,000
Less: Offering Expenses .................. 300,000 500,000
Commissions & Finders Fees
Legal and Accounting ..................... 205,000 205,000
Copying and Advertising .................. 25,000 25,000
Other (Specify):
Underwriting Miscellaneous Expenses ...... 90,000 150,000
Net Proceeds from Offering ............... $2,380,000 $4,120,000
Use of Net Proceeds
Repayment of Loans (3) ................... $ 550,000 $ 550,000
Inventory Production (4) ................. 600,000 1,000,000
Equipment (5) ............................ 400,000 400,000
Reserve for Operating Deficits (6) ....... 830,000 2,170,000
Total Use of Net Proceeds ................ $2,380,000 $4,120,000
<FN>
- ---------
(3) This reflects repayment of the bridge loan financing in the principal
amount of $50,000 together with an aggregate of $500,000 in repayment of
loans to related parties.
(4) Reflects acquisition of wine grapes and bulk juice.
(5) Reflects acquisition of crush pad, fermentation tanks and storage
barrels.
(6) Assuming cash flow deficits were equal to those incurred in fiscal year
1997, the reserve would be sufficient for approximately an 18 month
period if the minimum offering amount is achieved and for a
significantly greater period of time than if the maximum offering amount
if achieved. Proceeds not utilized to fund operating deficit would be
held in reserve for the acquisition of additional vineyards.
</TABLE>
(b) If there is no minimum amount of proceeds that must be raised before
the Company may use the proceeds of the Offering, describe the order
of priority in which the proceeds set forth above in the column "If
Maximum Sold" will be used. N/A
NOTE: After reviewing the portion of the Offering allocated to the payment of
Offering expenses, and to the immediate payment to management and promoters
of any fees, reimbursements, past salaries or similar payments, a potential
investor should consider whether the remaining portion of his investment,
which would be that part available for future development of the Company's
business and operations, would be adequate.
10. (a) If material amounts of funds from sources other than this Offering
are to be used in conjunction with the proceeds from this Offering,
state the amounts and sources of such other funds, and whether funds
are firm or contingent. If contingent, explain. N/A
<PAGE>
(b) If any material part of the proceeds is to be used to discharge
indebtedness, describe the terms of such indebtedness, including
interest rates. If the indebtedness to be discharged was incurred
within the current or previous fiscal year, describe the use of the
proceeds of such indebtedness.
See Question 3 "Company Indebtedness". The proceeds of the
indebtedness was used to fund ongoing operations and to fund a
portion of the construction of improvements to the winery.
(c) If any material amount of the proceeds is to be used to acquire
assets, other than in the ordinary course of business, briefly
describe and state the cost of the assets and other material terms of
the acquisitions. If the assets are to be acquired from officers,
directors, employees or principal stockholders of the Company or
their associates, give the names of the persons from whom the assets
are to be acquired and set forth the cost to the Company, the method
followed in determining the cost, and any profit to such persons. N/A
(d) If any amount of the proceeds is to be used to reimburse any officer,
director, employee or stockholder for services already rendered,
assets previously transferred, or monies loaned or advanced, or
otherwise, explain:
Approximately $500,000 of the proceeds of the Offering will be
utilized to pay loans made by, or guaranteed by the Directors of the
Company.
11. Indicate whether the Company is having or anticipates having within the
next 12 months any cash flow or liquidity problems and whether or not it
is in default or in breach of any note, loan, lease or other indebtedness
or financing arrangement requiring the Company to make payments. Indicate
if a significant amount of the Company's trade payables have not been
paid within the stated trade term. State whether the Company is subject
to any unsatisfied judgements, liens or settlement obligations and the
amounts thereof. Indicate the Company's plans to resolve any such
problems.
The Company anticipates that, upon completion of this Offering, the
Company will have sufficient funds to allow it to achieve profitability
by the end of 1998 and will have a sufficient reserve for cash flow
deficits to cover any losses. The Company is currently not in default or
in breach of any note, loan or lease, and it is not anticipated that any
default will occur assuming successful completion of this Offering. In
this regard, the Company secured cooperation of its vendors who will be
paid in full from the proceeds of this Offering. In addition,
indebtedness to related parties have either been extended or have been
termed demand notes for which no demand for payment has been made. (See
"MANAGEMENT, DISCUSSION AND ANALYSIS OF CERTAIN FACTORS")
12. Indicate whether proceeds from this Offering will satisfy the Company's
cash requirements for the next 12 months and whether it will be necessary
to raise additional funds. State the source of additional funds, if
known. (See "MANAGEMENT, DISCUSSION AND ANALYSIS OF CERTAIN FACTORS")
22
<PAGE>
CAPITALIZATION
13. Indicate the capitalization of the Company as of the most recent balance
sheet date (adjusted to reflect any subsequent stock splits, stock
dividends, recapitalization or refinancing) and as adjusted to reflect
the sale of the minimum and maximum amount of securities in this Offering
and the use of the net proceeds therefrom:
<TABLE>
<CAPTION>
Amount Outstanding
-----------------------------------------
(As of As Adjusted As Adjusted
12/31/97) Minimum Maximum
--------- ----------- ------------
<S> <C> <C> <C>
Debt:
Short term debt (average
interest rate 9.1%) ................. $ 1,454,000 $ 1,104,000 $ 1,104,000
----------- ----------- -----------
Long-term debt (average
interest rate 10%) .................. 1,665,400 1,665,400 1,665,400
----------- ----------- -----------
Total debt ...................... 3,119,400 2,769,400 2,769,400
----------- ----------- -----------
Preferred stock-par or stated value
Series A Preferred Stock ....... -0- 2,435,000 4,175,000
----------- ----------- -----------
Common stock - Par or stated value .... 7,157 7,157 7,157
----------- ----------- -----------
Additional paid in capital ............ 2,112,473 2,112,473 2,112,473
----------- ----------- -----------
Additional capital-stock awards ....... 155,000 155,000 155,000
----------- ----------- -----------
Additional Capital-Underwriter Warrants
($.0001 per warrant) ................ -0- 3 5
----------- ----------- -----------
Receivable from stockholder ........... (75,000) (75,000) (75,000)
----------- ----------- -----------
Retained earnings (deficit) ........... (1,559,348) (1,559,348) (1,559,348)
----------- ----------- -----------
Total stockholders equity (deficit) 640,282 3,075,285 4,815,287
----------- ----------- -----------
Total Capitalization .................. $ 3,759,682 $ 5,844,685 $ 7,584,687
=========== =========== ===========
<CAPTION>
Number of Preferred
shares authorized to
be outstanding:
- --------------------
Number of Par Value
Class of Preferred Shares Authorized Per Share
------------------ ----------------- ---------
<S> <C> <C>
Series A 6% Preferred
1,600,000 1,600,000 $.001
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
</TABLE>
Number of common shares authorized: 50,000,000 shares. Par or stated value
per share, if any: $.001
Number of shares reserved to meet conversion requirements or for the issuance
upon exercise of options, warrants or rights: 2,000,000 shares.
23
<PAGE>
DESCRIPTION OF SECURITIES
14. The securities being offered hereby are:
[ ] Common Stock
[ x ] Preferred or Preference Stock
[ ] Notes or Debentures
[ ] Units of two or more types of securities, composed of:
---------------------------------------------------------
[ ] Other:
---------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
15. These securities have:
Common Stock
------------
Yes No
[ ] [x] Cumulative voting rights
[ ] [x] Other special voting rights
[ ] [x] Preemptive rights to purchase in new issues of shares
[x] [ ] Preference as to dividends or interest--Preferred
[x] [ ] Preference upon liquidation--Preferred
[ ] [ ] Other special rights or preferences
(specify): -------------------------------
16. Are the securities convertible? [ ] Yes [x] No
If so, state the conversion price or formula.
-----------------------------
Date when conversion becomes effective:__/__/___ __________
Date when conversion expires: __/__/___ ___________________
17. (a) If securities are notes or other types of debt securities: N/A
18. If securities are Preference or Preferred Stock:
Are unpaid dividends cumulative? [x] Yes [ ] No
Are securities callable? [x] Yes [ ] No Explain: The Company may redeem
the Preferred Stock at such price and upon such terms as may be agreed
upon by the Company and shareholders owning a majority of the outstanding
shares of Preferred Stock.
NOTE: Attached to this prospectus are copies of the Articles of Incorporation
of the Company that give rise to the rights of holders of the Preferred stock
being offered.
19. If securities are capital stock of any type, indicate restrictions on
dividends under loan or other financing arrangements or otherwise: N/A
20. Current amount of assets available for payment of dividends (if deficit
must be first made up, show deficit in parenthesis): Not applicable as
dividends are payable solely with shares of Preferred Stock.
PLAN OF DISTRIBUTION
21. The selling agents (that is, the persons selling the securities as agent
for the Company for a commission or other compensation) in this Offering
are:
Name: Klein Maus and Shire, Inc. Name:
-------------------------
Address: 110 Wall Street Address:
New York, NY 10005 -------------------------
Telephone No (212) 785-4545 Telephone No. ( )
--------------------
22. Klein Maus and Shire, Inc. (the "Underwriter") will offer the shares of
Preferred Stock on a best efforts basis for which it will receive a sales
commission equal to 10% of the proceeds of the Offering, $300,000 in the
event the minimum amount is sold, and $500,000 in the event the maximum
offering amount is sold. In addition, the Underwriter is entitled to a
non-accountable expense allowance equal to 3% of the proceeds of the
Offering ($90,000 in the event the minimum Offering is sold, and $150,000
in the event the maximum Offering is sold) of which $25,000 has been paid
by the Company. In addition, the Underwriter will
24
<PAGE>
receive warrants to purchase up to 10% of the number of shares of
Preferred Stock sold by the Underwriter at a price of $.0001 per warrant.
The warrants may be exercised at any time during the four (4) year period
commencing one year after the issuance of the Preferred Stock offered
hereby at an exercise price of $10 per share. The Underwriter has the
right to have the warrants and the underlying shares of Preferred Stock
registered any time the Company files a registration statement and, in
addition, may demand one additional registration at any time at their
discretion.
The Underwriter has the right to designate one person to be a member of
the Board of Directors for up to three (3) years after the effective date
of this registration statement or, alternatively, the right to designate
an individual to attend all board meetings.
For a period of three (3) years after the effective date of the
registration statement, the Underwriter will have a right of first
refusal to participate in any future Securities Offering conducted by the
Company. In addition, the Company may not offer any equity stock other
than the 2 million shares authorized under the current Stock Option Plans
and such additional stock as is necessary to compensate the Board of
Directors, without the prior consent of the Underwriter. Finally, current
officers and directors of the Company cannot sell their Common Stock for
a period of 24 months after the effective date of this registration
statement without the consent of the Underwriter.
23. Describe any material relationships between any of the selling agents or
finders and the Company or its management. N/A
24. If this Offering is not being made through selling agents, the names of
persons at the Company through which this Offering is being made:
Name: N/A
25. If this Offering is limited to a special group, such as employees of the
Company, or is limited to a certain number of individuals (as required to
qualify under Subchapter S of the Internal Revenue Code) or is subject to
any other limitations, describe the limitations and any restrictions on
resale that apply: N/A
26. (a) Name, address and telephone number of independent bank or savings and
loan association or other similar depository institution acting as escrow
agent if proceeds are escrowee until minimum proceeds are raised: Until
such time as a minimum offering amount is achieved, all investor funds
will be held in escrow at Chase Manhattan Bank whose address and
telephone number is _________________________________.
(b) Date which funds will be returned by escrow agent if minimum proceeds
are not raised. In the event the Minimum Offering Amount is not achieved
by _____________________, as such date may be extended by an additional
_______ days, all funds will be returned to investors without interest.
27. Explain the nature of any resale restrictions on presently outstanding
shares, and when those restrictions will terminate, if this can be
determined: There are no restrictions on any outstanding shares of
Preferred Stock. However, shares of Common Stock held by officers and
directors are restricted by agreement with the Underwriter such that no
officer or director may sell any stock for a period of twenty-four months
without the written consent of the Underwriter. Moreover any common stock
issuable pursuant to the Company Stock Option Plans will be
non-registered stock and, therefore, will be restricted by applicable
securities laws. In addition, any Common Stock to be sold through Rule
144 under the Securities Act of 1933, as amended, or otherwise by the
holders of the Common Stock shall be executed through the Underwriter.
NOTE: Equity investors should be aware that unless the Company is able to
complete a further public offering or the Company is able to be sold for
cash and merged with a public company that their investment in the
Company may be illiquid indefinitely.
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS
28. If the Company has within the last five (5) years paid dividends, made
distributions upon its stock or redeemed any securities, explain how much
and when: N/A
NOTE: After reviewing the amount of compensation to the selling agents or
finders for selling the securities, and the nature of any relationship
between the selling agents or finders and the Company, a potential investor
should assess the extent to which it may be inappropriate to rely upon the
recommendation by the selling agents or finders to buy the securities.
25
<PAGE>
OFFICERS AND KEY PERSONNEL OF THE COMPANY
29. Chief Executive Officer: Title: President
Name: Mack H. Jennings Age: 55
Office Street Address: 4162 Big Ranch Road, Napa, CA 94558
Telephone No.: (707) 259-6777
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities:
President of the Company - 1996 to Present
Stags' Leap Winery - Controller - 1996
Pokka Beverages, Inc., General Manager, Executive Vice President,
Director 1989-1996
Education (degrees, schools, and dates):
B.A. Westminster College, Fulton, MO 1964
M.B.A. (with honors) University of Oregon, 1970
Also a Director of the Company : [x] Yes [ ] No
Indicate amount of time to be spent on Company matters if less than full
time.
30. Chief Operating Officer: N/A Title:_________________
Name: Age:
Office Street Address: Telephone No.:
( ) -
----------------------- ------------------
31. Chief Financial Officer Title: President
Name: Mack H. Jennings Age: 55
Office Street Address: 4162 Big Ranch Road, Napa, CA 94558
Telephone No.: (707) 259-6777
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities:
President of the Company - 1996 to Present
Stags' Leap Winery - Controller - 1996
Pokka Beverages, Inc., General Manager, Executive Vice President,
Director 1989-1996
Education (degrees, schools, and dates):
B.A. Westminster College, Fulton, MO 1964
M.B.A. (with honors) University of Oregon, 1970
Also a Director of the Company : [x] Yes [ ] No
Indicate amount of time to be spent on Company matters if less than full
time.
32. Other Key Personnel:
(a) Name: John P. Caponigro Age: 41
Title: Secretary,
General Counsel
Office Street Address: 36800 Woodward Ave.,Suite 239,
Bloomfield Hills, MI 48304
Telephone No.: (248) 647-6860
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities:
Principal of The Law Firm of Frasco and Caponigro, P.C. from 1989 to
present.
President and CEO of Sports Management Network, a sports and
entertainment legal and marketing firm based in Bloomfield Hills,
Michigan; from 1989 to present.
26
<PAGE>
Education (degrees, schools, and dates):
BBA University of Toledo 1978
MBA University of Toledo 1982
JD University of Toledo 1982
Also a Director of Company? [X] Yes [ ] No
Indicate amount of time to be spent on Company matters if less than full
time:
As needed, less than 10 hours per week.
(b) Name: Robert L. Pepi, Jr. Age: 47
Title: Winemaker
Office Street Address: 4162 Big Ranch Road, Napa, CA 94558
Telephone No.: (707) 259-6777
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities:
Winery Consultant - 1995 - Present
Stinson Lane, Ltd. (winery) - General Manager of California Operations -
1991-1995
Robert Pepi Winery - General Partner and General Manager - 1980-1991
Education (degrees, schools, and dates):
B.A. Pomona College 1972
University of California at San Francisco
1975-1976 - Bus/Acctg. Courses
University of California at Davis -
1980-1983 - Enology and Vitacultural Courses
The Wine Lab - 1981-1984 -
Enology Courses
Also a Director of Company? [ ] Yes [x] No
Indicate amount of time to be spent on Company matters if less than full
time:
Approximately 1/2 time.
DIRECTORS OF THE COMPANY
33. Number of Directors: 5. If Directors are not elected annually, or are
elected under a voting trust or other arrangement, explain:
34. Information concerning outside or other Directors (i.e. those not
described above):
(a) Name: Joseph E. Antonini Age: 56
Office Street Address: 1800 West Maple Road, Troy, MI 48084
Telephone No.: (248) 614-3880
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities:
Consultant and Private Investor
Former Chairman, President and CEO of Kmart Corporation - 1986 - 1995
held various positions at Kmart Corporation - 1964-1986
Chairman of the Board - AWG, Ltd. - 1996 - Present
Director - Shell Oil Company
- Ziebart
- American Speedy Printing
Education (degrees, schools, and dates):
27
<PAGE>
B.S. in Business Administration from West Virginia University in 1964
(b) Name: Mario Andretti Age: 58
Office Street Address: 53 Victory Lane, Nazareth, PA 18064
Telephone No.: (610) 759-5118
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities:
Race car driver: 1956 - present
Consultant and private investor: 1996 - Present
Education (degrees, schools, and dates):
N/A
(c) Name: Bruce Williams Age: 37
Office Street Address: 141 West Jackson, Suite 4220-B,
Chicago, IL 60604
Telephone No.: (312) 341-7370
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities:
Since 1982, Mr. Williams has been a market maker at the Chicago Board of
Trade and specializes in agricultural products. Since 1988, he has been a
full member of the Chicago Board of Trade and a principal of Williams
Trading, a commodities trading company.
Vice Chairman of Chicago Board of Trade, Membership Committee (1996 -
present)
Chairman of the Dow Jones Futures Committee (1997-1998)
Education (degrees, schools, and dates):
N/A
35. (a) Have any of the Officers or Directors ever worked for or managed a
company (including a separate subsidiary or division of a larger enterprise)
in the same business as the Company?
[x] Yes [ ] No
Explain: Mr. Jennings previously served as General Manager, Executive Vice
President and Director of Pokka Beverages, Inc. from 1989 to 1996 and was
Controller of Stags' Leap Winery during a portion of 1996.
(b) If any of the Officers, Directors or other key personnel have ever
worked for or managed a company in the same business or industry as the
Company or in a related business or industry, describe what precautions, if
any, (including the obtaining of releases or consents from prior employers)
have been taken to preclude claims by prior employers for conversion or theft
of trade secrets, know-how or other proprietary information.
Mr. Jennings is not subject to any noncompetition Agreement. The Company
is not using any proprietary information obtained from his prior employers.
(c) If the Company has never conducted operations or is otherwise in the
development stage, indicate whether any of the Officers or Directors has ever
managed any other company in the start up or development stage and described
the circumstances, including relevant dates. N/A
(d) If any of the Company's key personnel are not employees but are
consultants or other independent contractors, state the details of their
engagement by the Company.
Robert Pepi is an independent contractor who is working without a written
contract. He is compensated at the rate of $2,000 per month. He has also been
awarded 25,000 shares of the Company's Common Stock.
(e) If the Company has key man life insurance policies on the any of its
Officers, Directors or key personnel, explain, including the names of the
persons insured, the amount of insurance, whether the insurance proceeds are
payable to the Company and whether there are arrangements that require the
proceeds to be used to redeem securities or pay benefits to the estate of the
insured person or a surviving spouse. N/A
28
<PAGE>
36. If a petition under the Bankruptcy Act or any State insolvency law was
filed by or against the Company or its Officers, Directors or other key
personnel, or a receiver, fiscal agent or similar officer was appointed by a
court for the business or property of any such persons, or any partnership in
which any of such persons was a general partner at or within the past five
years, or any corporation or business association of which any such person
was an executive officer at or within the past five years, set forth below
the name of such persons, and the nature and date of such actions. N/A
PRINCIPAL STOCKHOLDERS
37. Principal owners of the Company (those who beneficially own directly or
indirectly 10% or more of the common and Preferred Stock presently
outstanding) starting with the largest Common Stockholder. Include
separately all Common Stock issuable upon conversion of convertible
securities (identifying them by asterisk) and show average price per
share as if conversion has occurred. Indicate by footnote if the price
paid was for a consideration other than cash and the nature of any such
consideration.
<TABLE>
<CAPTION>
COMMON STOCK
Name Average No. of Shares
Office Street Address Price Held After
Telephone Number Per Shares % of Offering if % of
Principal Occupation Share Now Held Total All Securities Sold Total
- -------------------- ------- -------- ----- ------------------- -----
<S> <C> <C> <C> <C> <C>
Mario Andretti $.19-.33 1,944,211 24.38 1,944,211 24.38
53 Victory Lane
Nazareth, PA 18064
(610) 759-5118
Race Car Driver;
Investor
Joseph Antonini $.19-.33 1,196,158 15 1,196,158 15
1800 West Maple Road
Troy, MI 48084
(248) 614-3880
Consultant, Investor
Bruce Williams $.19-.33 884,211 11.09 884,211 11.09
141 West Jackson
Suite 4220-B
Chicago, IL 60604
Commodities trader;
investor
John P. Caponigro $.19-.27 284,211 3.56 284,211 3.56
26800 Woodward Avenue
Suite 239
Bloomfield Hills, MI 48304
Attorney; Consultant
Mack Jennings $.58 170,000 2.57 170,000 2.57
4162 Big Ranch Road $.25* 35,000 35,000
Napa, CA 94558
President of the Company
<FN>
*Assumes exercise of options to purchase 35,000 shares at $0.25 per share.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PREFERRED STOCK
Name Average No. of Shares
Office Street Address Price Held After
Telephone Number Per Shares % of Offering if % of
Principal Occupation Share Now Held Total All Securities Sold Total
- -------------------- ------- -------- ----- ------------------- -----
<S> <C> <C> <C> <C> <C>
Colin Frank Riseam -0- 500,000 100 500,000 50
110 Park Road
Hampton Hill
England TW12 1HR
</TABLE>
38. Number of shares beneficially owned by Officers and Directors as a group:
Before Offering: 4,478,791 (56.17% of total outstanding)
MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION
39. (a) If any of the Officers, key personnel or principal stockholders are
related by blood or marriage, please describe. N/A
(b) In connection with their initial acquisition of stock in the Company,
Messrs. Antonini and Andretti are currently indebted to the Company
in the amount of $84,190 each. The loan from Mr. Antonini is recorded
in the Company's financial statements as a receivable recorded in
equity. The other note is included in amounts due from stockholders.
The Company has entered into an informal oral consulting agreement
with Joseph Antonini pursuant to which Mr. Antonini has agreed to
provide consulting services to the Company. Compensation for such
consulting services shall be $50,000 per year payable in Common Stock
of the Company as of the end of each calendar year. The stock will be
valued based on the trading price of the stock as of December 31, of
each year. Subject to election by the Shareholders on an annual
basis, Mr. Antonini has also agreed to serve as Chairman of the Board
of the Company at no additional compensation. There is no minimum or
maximum amount of time in which Mr. Antonini has agreed to devote to
the Company's business. Currently, Mr. Antonini and the Company
estimate that he devotes approximately 20 hours per week to Company
affairs. There is no assurance that he will continue to devote this
amount of time to the Company and he is under no obligation to do so.
In addition, in 1998 the Company entered into a revised licensing
agreement with Mario Andretti to utilize the name and image of Mr.
Andretti in connection with the marketing of the Company's products.
The term of the License Agreement is indefinite unless otherwise
terminated for cause (as defined below). The License is exclusive as
to the business and products of the Company and the territory is
world wide. Pursuant to the License Agreement, Mr. Andretti has
agreed to participate in advertising and promotional activities on
behalf of the Company including, but not limited to, radio,
television and print media advertising spots, trade relations
activities and personal appearances. The Company will pay all
expenses of Mr. Andretti including, if requested by Mr. Andretti, the
expenses of his personal aircraft. Mr. Andretti will make himself
available at various auto race venues and will provide the Company
with his traveling itinerary so that the Company can coordinate
promotional activities.
In addition, Mr. Andretti shall receive a royalty equal to 5% of the
gross revenues and sales of all products bearing his name or
likeness. As to all other products sold by the Company, Mr. Andretti
shall be entitled to the lesser of 2% of Company profits on all other
wine sales or $150,000 per year. In the event of the death of Mr.
Andretti, the Company can either negotiate similar agreements with
his son, Michael or at its option, reduce royalty payments by 25%.
Mr. Andretti may terminate the Agreement for cause which is defined
to include failure to make royalty payments, solvency of the Company,
breach of Agreement, use of Mr. Andretti's likeness or name on any
product without his prior consent or the failure to maintain product
liability insurance. In addition, subject to approval by the
shareholders on a yearly basis, Mr. Andretti shall be entitled during
the term of the Agreement to a position on the Company's Board of
Directors and to be compensated at the same rate as other Directors.
Finally, in exchange for legal consulting services, Mr. Caponigro has
been granted 100,000 shares of the Company's Common Stock at no cost.
Mr. Caponigro is under no obligation to continue to provide legal
services for the Company in connection with the grant of the stock.
<PAGE>
(c) If any of the Company's Officers, Directors, key personnel or 10%
stockholders has guaranteed or co- signed any of the Company's bank
debt or other obligations, including any indebtedness to be retired
from the proceeds of this Offering, explain and state the amounts
involved.
30
<PAGE>
Joseph Antonini, the Chairman of the Board of the Company has
guaranteed $950,000 of the Company's indebtedness to Bank of
Bloomfield Hills, Michigan.
In December 1996, Messrs. Joseph Antonini, Bruce Williams (each of
whom are Directors of the Company) and Carl Haas loaned the Company
an aggregate amount of $350,000 in exchange for the right to receive
Convertible Preferred Stock of the Company at such time as such stock
was authorized by the shareholders. Such Preferred Stock would have
been Convertible into Common Stock of the Company at any time the
Company conducted a public offering of its Common Stock at a price
equal to eighty (80%) percent of the contemplated Offering price per
share. Since the Company has no plans to offer its Common Stock and
in order to alleviate the debt burden of the Company, Messrs.
Antonini, Williams and Haas agreed to convert their debt into Common
Stock at a price of $.33 per share which approximated the trading
price of the stock at the time of the conversion in early December
1997.
In addition, Mario Andretti, a Director of the Company, exchanged his
right to receive $220,000 worth of royalties for the years 1995 and
1996 for Common Stock of the Company at $.33 per share in early
December 1997.
40. (a) List all remuneration by the Company to Officers, Directors and key
personnel for the last fiscal year:
<TABLE>
<CAPTION>
Cash Other
---- -----
<S> <C> <C>
Chief Executive Officer: Mack Jennings $65,000 $ 58,000(1)
------- --------
Key Personnel: Robert Pepi, Jr. $24,000 $ 6,750(1)
------- --------
Others: Joseph Antonini $ -0- $ 50,000(2)
------- --------
Mario Andretti $ -0- $ 35,000(2)
------- --------
John P. Caponigro $ -0- $ 62,000(2)
------- --------
Bruce Williams $ -0- $ 35,000(2)
------- --------
Total $89,000 $246,750(2)
======= ========
Officers, Directors and Key
Personnel as a group (6 persons) $65,000 $246,750
<FN>
- ---------
(1) Estimated fair market value of 100,000 shares granted to Mack Jennings
and 25,000 shares granted to Robert Pepi. On January 13, 1998, Mr.
Jennings' salary was increased to $75,000 per annum and he was granted a
bonus of $20,000 contingent upon the Company reaching profitability
during 1998. In addition, in 1998 Mr. Jennings was granted options to
purchase 35,000 shares of the Company's Common Stock at an exercise price
of $0.25 per share.
(2) All the Directors are paid in Common Stock of the Company. Payment is
made as of December 31st of each year based on the fair market value of
the Common Stock of the Company as of that time. In addition, in exchange
for legal consultation services provided during 1997, Mr. Caponigro was
issued 100,000 shares of the Company's Common Stock. Such stock was
valued at $27,000.
</TABLE>
(b) The Company currently has an Employment Agreement with Mack Jennings
as its President and Chief Executive Officer. The Employment
Agreement which was executed on January 1, 1997 is for a term of 1
year renewable annually thereafter. In calendar year 1998, Mr.
Jennings is entitled to a base salary of $75,000 per annum plus a
bonus of $20,000 which is contingent upon the Company achieving
profitability in 1998. In addition to a salary, Mr. Jennings will be
entitled to participate in any health insurance provided to employees
of the Company, of which none is currently available. Mr. Jennings
shall be entitled to 1 week of vacation during his first year of
employment, 2 weeks of vacation during years 2-5, and 3 weeks of
vacation thereafter. Pursuant to the terms of the Employment
Agreement, Mr. Jennings was granted
31
<PAGE>
100,000 shares of the Common Stock which vested immediately. In the
event that the contract is terminated for any reason other than for
breach of the contract by the Company, Mr. Jennings shall be
restricted for a period of 6 months from competing with the Company.
In the event that the contract is terminated without cause, Mr.
Jennings shall be entitled to a severance payment equal to the
greater of the balance of the 1 year term remaining on the contract
or 6 months. There will be no severance payments in the event that
the Agreement is terminated for cause. Pursuant to the terms of the
Employment Contract, for cause is defined to include (1) employee's
willful material and irreparable breach of the Employment Agreement;
(2) employee's gross negligence on the performance or intentional
non-performance of his material duties and responsibilities; (3)
employee's willful dishonesty, fraud or misconduct with respect to
the business or affairs of the Company which conduct materially and
adversely affects the operations or reputation of the Company; (4)
employee's conviction of a felony; or (5) chronic alcohol abuse or
illegal drug abuse. Finally, the Company and employee have agreed to
settle any disputes under the Agreement by means of binding
arbitration.
In addition to his Employment Agreement, in January of 1998, Mr.
Jennings was granted options to purchase 35,000 shares of the
Company's Common Stock with an exercise price of $.25 per share
exercisable any time through January 13, 2008, assuming continuous
employment with the Company.
The Company has an oral consulting agreement with its winemaker
Robert Pepi, Jr. who manages the Company's wine making operations.
Mr. Pepi is being paid at the rate of $2,000 per month. In addition,
Mr. Pepi has been granted 25,000 shares of the Company's Common Stock
at no cost. The Company has also agreed to issue an additional 75,000
shares to Mr. Pepi in the event he terminates consulting activities
with other wineries.
41. (a) Number of shares subject to issuance under presently outstanding
stock purchase agreements, stock options, warrants or rights: 42,500
shares (.53% of total shares to be outstanding after the completion
of the Offering if all securities sold, assuming exercise of options
and conversion of convertible securities).
Indicate which have been approved by shareholders. State the
expiration dates, exercise prices and other basic terms for these
securities:
The Company currently has options outstanding for 42,500 shares under
its Incentive Stock Option Plan. The options were granted on January
13, 1998 and expire on January 13, 2008. The options are exercisable
at $0.25 per share as long as each of the recipients remain in the
employ of the Company. As of the date of this Prospectus, no options
have been exercised. The Company has outstanding The AWG, Inc.
Incentive Stock Option Plan ( "Incentive Stock Option Plan") and The
AWG, Inc. Nonqualified Stock Option Plan ("Nonqualified Plan"). These
plans were adopted by the Board of Directors of the Company in
November, 1997 and were approved by the shareholders of the Company
on January 13, 1998. Employees, directors and consultants of the
Company are eligible for the grant of options under the Nonqualified
Stock Option Plan. Only employees are eligible for the grant of
options under the Incentive Stock Option Plan. A total of 1,500,000
shares have been reserved for the Nonqualified Stock Option Plan, and
500,000 shares for the Incentive Stock Option Plan. Under each plan,
the Board of Directors determines the recipients and the number of
options granted to such recipients. Each plan is intended to comply
with Rule 16b-3 of the Securities Exchange Act of 1934, as amended
("Exchange Act"). The consideration for each option granted under
each plan will be established by the Board of Directors. The shares
issued under the Nonqualified Stock Option Plan will have such terms
and be exercisable at such times as the Board of Directors may
determine. Each option plan provides that, in the event of a merger
or reorganization of the Company, outstanding options shall be
subject to the Agreement of Merger or reorganization.
(b) Number of common shares subject to issuance under existing stock
purchase or option plans but not yet covered by outstanding purchase
agreements, options or warrants: 0 shares.
(c) Describe the extent to which future stock purchase agreements, stock
options, warrants or rights must be approved by shareholders.
Any amendments to the existing stock option plans or the adoption of
any future stock option plans will be subject to shareholder approval
as required in order to comply with the provisions of Rule 16b-3 of
the Exchange Act.
<PAGE>
42. If the business is highly dependent on the services of certain key
personnel, describe any arrangement to assure that these persons will
remain with the Company and not compete upon any termination:
See description of Employment Agreement of Mack Jennings in Question 40
(b).
32
<PAGE>
LITIGATION
43. Describe any past, pending or threatened litigation or administrative
action which has held or may have a material effect upon the Company's
business, financial condition, or operations, including any litigation or
action involving the Company's Officers, Directors or other key
personnel. State the names of the principal parties, the nature and
current status of the matters, and the amounts involved. Give an
evaluation by management or counsel, to the extent feasible, of the
merits of the proceedings or litigation and the potential impact on the
Company's business, financial condition or operations.
Below is a brief description of current litigation affecting the Company.
Each of the litigation matters set forth below occurred under prior
management.
Levine v. AWG, Ltd. Superior Court of the State of California, County of San
Francisco. This case involves a claim by Levine and Associates, an investment
related public relations firm for payment for 1996 services claimed to be due
and owing in the amount of approximately $67,000. The Company disputes the
claim for the reason that no Agreement was in place between the Company and
Levine and that services supposedly rendered by Mr. Levine are disputed. The
case is currently in trial. At this time, the Company intends to dispute the
matter through the trial process, if necessary.
Interrupt v. AWG, Ltd. Municipal Court of the State of California, County of
San Diego. This is a case for money damages to interrupt by the Company for
goods and services provided by Interrupt in relation to investment promotion.
The amount claimed is approximately $28,000. The Company is in settlement
discussions currently with Interrupt's counsel and has, in principal, reached
a verbal agreement of settlement of the matter for $22,000. It is anticipated
that this Agreement will be finalized shortly. The Company is seeking to pay
the sum over a six-month period.
Claim by Richard Gladstone. Richard Gladstone, an investor in the Company,
has made a claim for stock allegedly due and owing him in exchange of cash
payments and bartered services for and on behalf of the Company. Mr.
Gladstone has retained legal counsel and is in communication with the Company
for resolution of this issue. He seeks 500,000 shares of the Company's Common
Stock. The Company disputes the claim as a substantial portion of the
proceeds to which Mr. Gladstone claims to have been received by the Company
were, in fact, never received by the Company. The Company anticipates further
discussions with Mr. Gladstone's legal counsel with a view towards settlement
of this dispute.
FEDERAL TAX ASPECTS
44. This provision is not applicable as the Company is not a Subchapter S
Corporation.
MISCELLANEOUS FACTORS
45. Describe any other material factors, either adverse or favorable, that
will or could affect the Company or its business (for example, discuss
any defaults under major contracts, any breach of bylaw provisions, etc.)
or which are necessary to make any other information in this Prospectus
not misleading or incomplete.
Sales of Unregistered Securities
THE FOLLOWING DESCRIBES EVENTS WHICH OCCURRED UNDER PRIOR MANAGEMENT.
From March 5, 1996 through November 27, 1996, the Company sold shares of
its Common Stock to certain consultants retained by the Company
("Consultants") as well as to approximately seven (7) investors not
affiliated with the Company ("Investors"). It appears that approximately
$860,000 was raised from Investors and approximately $500,000 was raised from
the Consultants. The securities sold were not registered. According to
Company records, sales of the securities to Investors were sold pursuant to
the registration exemption afforded by Rule 504 under Regulation D adopted by
the Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "Act"). Although Company records do not discuss the
sale of securities to the Consultants, it is presumed that such sales were
made pursuant to the exemption afforded by Rule 701 adopted by the SEC
pursuant to the Act.
<PAGE>
Rule 504 exempts an offering of securities from federal registration
requirements if an issuer meets certain requirements including, among other
things, (1) that the Offering does not exceed $1,000,000 within a 12 month
period (less sales of certain other exempt securities but not including sales
pursuant to Rule 701); and the issuer is not a reporting company pursuant to
the Securities Exchange Act of 1934, as amended ("Exchange Act"). Rule 701
provides an exemption from the registration provisions under the Act for
sales of securities to, among others, consultants of an issuer if, among
other things, the issuer is not a reporting company; aggregate sales do not
exceed the greater of $500,000 or 15% of the outstanding Common Stock of the
issuer; and sales are made pursuant to a plan or an agreement with the
consultant. It appears from the Company records that approximately $500,000
in securities were sold to Consultants during the period in question. This
amount did not exceed the 15% limitation required by Rule 701.
33
<PAGE>
It further appears that the sales to the consultants were pursuant to a
consulting and stock option agreement between the Company and the Consultants
dated March 10, 1996.
It should be noted that with respect to the Rule 504 Offering, no Form D
was filed in connection therewith. The primary effect of failure to file this
form would not be to necessarily invalidate the Offering. Such failure may
prevent the Company from using certain exemptions for an indefinite time in
the future. In connection with the sales pursuant to Section 701, such
securities are restricted and cannot be resold by a party without an
applicable exemption from registration. It appears from the Company's stock
records that many of the shares of stock sold to the Consultants were in fact
resold shortly after the initial sale to such persons. As a result, it can be
argued that the exemption afforded by Rule 701 may not be available for those
sales. In the event that Rule 701 is not available, such shares would have
been issued without registration and without an applicable exemption
therefrom. Such shares, could in turn be added to the aggregate Offering
amount pursuant to the Rule 504 Offering thereby increasing the aggregate
Offering amount under Rule 504 beyond $1,000,000 and therefore potentially
invalidating the Rule 504 Offering.
In the event that the entire Offering is found to be invalid as a result
of the failure to qualify for an applicable exemption from registration under
the Act, the sale of such securities would violate Section 12(a)(1) of the
Act. Section 12(a)(1) of the Act provides that any person who offers or sells
a security in violation of Section 5 [Registration Provisions of the Act] is
liable to the person purchasing such security for an amount equal to the
consideration paid for such security together with interest thereon. Pursuant
to Section 13 of the Act, no action may be brought to enforce a liability
under Section 12(a)(1) unless such action is brought within one (1) year
after the violation upon which it is based. Since the last sale of the
securities occurred on November 19, 1996, the statute of limitations with
respect to any registration violations terminated on November 19, 1997.
Section 12(a)(2) of the Act prohibits the use of a prospectus or oral
communication which includes an untrue statement of material fact or omits to
state a material fact necessary in order to make the statements, in light of
the circumstances under which they were made, not misleading. As in the case
of a violation of 12(a)(1), in the event of a violation of 12(a)(2), a
purchaser would be entitled to seek the consideration for his or her
investment plus interest thereon. Such an action must be brought within one
(1) year of the date Purchaser discovered the untrue statement or omission
(or should have been discovered by the exercise of reasonable diligence) but
in no event beyond three (3) years after the sale. It is unclear from Company
records what information was given to Purchasers of the stock. However, it
appears that a business plan was prepared and was distributed. A copy of the
business plan is not available from the Company. Moreover, the Company did
have information in the marketplace pursuant to Rule 15c-2-11 under the
Exchange Act. Since it cannot be determined what information was provided
each investor, no determination can be made as to whether the information
provided an investor was misleading or whether any material information was
omitted. However, the Company has represented that no Investor or Consultant
has instituted any action against the Company nor has any such threat been
communicated to the Company. In connection with any securities offering, a
threat always exists, that a purchaser can bring an action under Section
12(a)(2) alleging that the information (whether written or oral) provided to
such investor is misleading or omits to statement of material fact. However,
in absence of any shareholder complaints nor any evidence that misleading
information was provided to an investor, the Company has no current liability
under Section 12(a)(2).
Based on the Company records, compliance with applicable state securities
laws is unclear. However, to the extent sales were made to the State of
California, it does not appear that any applicable exemption from
registration has been satisfied. In the event that the Company has been found
to violate the registration provisions of the California securities laws, any
action must be brought within two (2) years after the violation or one (1)
year after the discovery of the facts constituting such violation.
Notwithstanding the Company's possible exposure under California securities
laws, it should be noted that the Company believes that each of the
Consultants who acquired their shares in the Company are no longer
shareholders and are believed to have sold their stock at or above the prices
at which they were acquired. As to the other Investors who purchased stock in
the Company, most are believed to have sold their shares and the remaining
purchasers are not believed to be California residents or entities.
In addition to investor actions, there is an issue as to potential
penalties the Company could incur either from the SEC or from an applicable
state regulatory agency. In this regard, various exemptions from registration
adopted by the SEC as well as by various states do provide that such
exemptions may be unavailable to companies as a result of prior violations of
securities laws and for financial penalties. However, in most cases, such
prohibitions can be waived upon application by the Company for good cause. In
this case, since each of the potential violations alleged to have occurred
happened under former management and since current management has endeavored
to comply with the securities laws, it is possible that the Company would not
be prohibited from use of various exemptive provisions under applicable
federal and state laws. Moreover, since the individuals who were responsible
for any securities violations are no longer with the Company, there may be
strong, credible arguments that no financial penalties should be imposed on a
Company for any violations. There is no financial civil liability under the
Act. Under California law, a $2,500 fine can be imposed for any violation.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS
47. If the Company's financial statements show losses from operations,
explain the causes underlying these losses and what steps the Company has
taken to address these causes.
The Company has experienced losses from operations for several reasons.
First and foremost, the Company has not generated sufficient sales of its
wines. While in fiscal year 1997, the Company sold 7,300 cases of its
wine as compared to 250 cases in 1996, the Company must sell a minimum of
15,000 cases of wine and generate approximately $200,000 in operating
profits from its newly constructed tasting room and hospitality center in
order to break even in operations from a cash flow standpoint. The
Company did not derive any revenue from the tasting room and hospitality
center in 1997. To the extent that the Company does generate revenue from
the tasting room and hospitality center, this will have the effect of
reducing the pressure of achieving higher wine sales. Assuming at least
the Minimum Offering Amount is achieved, the Company believes it will be
able to secure sufficient wine grapes and bulk juice inventory to permit
it to produce sufficient wine to meet the 15,000 case threshold.
Moreover, the Company believes that its expanding distributor network
will help in achieving desired sales levels. This strategy has been
demonstrated by the increase in sales and revenues from fiscal year 1996
to fiscal year 1997.
In addition to insufficient sales, the Company also experienced unusual
legal and accounting expenses incurred as a result of a lack of
experience and organization of prior management and in connection with
the preparation of this offering. In future years, these expenses are
expected to be reduced from in excess of $150,000 in fiscal year 1997 to
less than one third of that in fiscal year 1998.
Finally, as a result of a lack of capital for operations, the Company was
forced to obtain a significant amount of debt financing to cover ongoing
cash flow deficits. This in turn has resulted in the Company incurring
excessive interest expenses, which expenses represented approximately 30%
of the negative cash flow experienced by the Company. Assuming at least
the Minimum Offering Amount is achieved, the Company believes it will be
able to refinance its existing indebtedness, reducing a portion of the
principal amount of the debt and reducing the interest rate resulting in
an overall savings of approximately $70,000 per year.
The Company believes that assuming at least the Minimum Offering Amount
is obtained that through increased production capability, an increased
distribution network together with the operation of the wine tasting room
and the hospitality center, it will be able to achieve a break even cash
flow prior to debt service by the end of fiscal year 1998.
48. Describe any trends in the Company's historical operating results.
Indicate any changes now occurring in the underlying economics of the
industry or the Company's business which, in the opinion of Management,
will have a significant impact (either favorable or adverse) upon the
Company's results of operations within the next 12 months, and give a
rough estimate of the probable extent of the impact, if possible.
Due to the fact that the Company has only minimal operating history, any
trends in the Company's historical operating results are not meaningful.
While the Company made great strides in fiscal year 1997 as compared to
fiscal year 1996, the difference in management and operations are so
different as to make any comparison meaningless. During fiscal year 1996,
the Company's management was very inexperienced and exhibited serious
operational and organizational problems. In the fiscal year 1997, the
Company, upon the acquisition of a controlling interest by Messrs.
Andretti and Antonini together with the retention of Messrs. Jennings and
Pepi experienced a turnaround on several levels. First, the Company began
a program of replanting its vineyard which is a necessary prerequisite in
order for the Company to achieve its long term goals. Second, the Company
began the process of securing sources for the acquisition of wine grapes
and bulk juice to enable it to produce wines and to enable it to
establish long term relationships with wine grape growers to assure a
supply of wine grapes in the future. This is a necessary component to
enable the Company to grow even after its vineyard is mature since the
vineyard will not produce enough wine grapes to allow the Company to
produce all of the wine it may produce under its permit. Third, the
Company has established a distributor network in over 20 states and in
Japan to not only sell the modest amount of wine that the Company is
currently producing but to establish a larger and more formidable
distribution network which will be able to handle the Company's wine
production as it increases over the next several years. Finally, the
Company has established what it believes is a strong organizational and
administrative structure which will support the Company through its
growth phases.
The Company's accomplishments during the 1997 fiscal year will, in the
opinion of management, have a favorable and significant impact on the
Company's results of operations during the fiscal year 1998 and beyond.
The development of the tasting room and hospitality facility will create
new avenues of revenue for the Company that were previously non-existent.
The Company believes that gross profits from the wine tasting room and
hospitality center could ultimately reach $600,000 per year, thereby
providing a potential significant contribution to the profitability of
the Company. However, since the Company has had no prior experience with
the wine tasting room or the hospitality center, it is uncertain as to
the results the Company will achieve in fiscal year 1998
35
<PAGE>
or in the future years. Moreover, it is not likely that the Company would
achieve the gross revenues stated above in fiscal year 1998 and it is
possible that the Company will not achieve such gross revenues for
several years. Through the Company's efforts in establishing its expanded
distribution network, the Company believes that it is in a position to
significantly increase its sales assuming that it is able to increase its
wine production levels. As indicated above, the Company now has a
presence in almost half of the United States as well as in Japan. In
addition, the Company intends on expanding its distributorship network to
the States of California, Colorado, Georgia, New York, Oregon and
Washington during fiscal year 1998, which, if achieved, would result in
the Company penetrating markets in over half of the United States and
more specifically, in the largest wine consuming states. Finally, the
Company believes that through the work of Robert Pepi, that it has made
significant progress in both the replanting of its vineyard and in
increasing its potential inventory of wine grapes and bulk juice. The
Company has replanted approximately one third (1/3) of its vineyard and
will complete the replanting of the remaining vineyard during fiscal
years 1998 and 1999. However, as indicated under "Business", the vineyard
will not achieve maturity until approximately three (3) to five (5) years
after the replanting is complete. Until such time, the Company will be
dependent upon its ability to obtain wine grapes at the harvest level as
well as bulk juice. It is hoped that the need to obtain bulk juice will
decrease as the replanted vineyard matures and as the Company's ability
to obtain grapes at the harvest level increases. In this connection, it
is expected that an improvement in the Company's profit margin will occur
when the Company moves the production of wine from bulk juice to purchase
grapes. In addition, a further increase in profit margin is expected when
the Company produces wine from grapes harvested in its own vineyard as
opposed to grapes purchased from third party sources. While the Company
will attempt to acquire as many grapes as possible at the harvest levels
as opposed to bulk juice, it can be anticipated that for the next several
years, the Company will continue to need to acquire bulk juice and
therefore it will continue to produce a significant amount of wine at
lower profit margins. However, as the Company's vineyard matures and the
Company is able to enter into longer term contracts with grape growers,
the Company will be able to increase its profit margin on its wine
production. It is likely that during fiscal year 1998, the Company will
make only modest progress in this regard.
Assuming at least the Minimum Offering Amount is met, the Company intends
on purchasing necessary equipment in order to produce wine at its Big
Ranch Road facility. This equipment would include a crush tank,
fermentation equipment and storage barrels. This equipment will serve the
Company's needs as the newly planted vineyard matures. The Company's
management information system is very modest and is not utilized to
communicate electronically either with its suppliers or distributors. As
a result, the Company does not need to update its operating systems to
address many of the complex year 2000 issues. While the Company's current
software used internally is not fully year 2000 compliant, the Company
believes that software that is fully compliant is available for purchase
on reasonable terms and such software can be implemented with only minor
expenditures.
49. If the Company sells a product or products and has had significant sales
during its last fiscal year, state the existing gross margin (net sales
less cost of such sales as presented in accordance with generally
accepted accounting principles) as a percentage of sales for the last
fiscal year: 29%. What is the anticipated gross margin for next year of
operations? Approximately 29%. If this is expected to change, explain.
Also, if reasonably current gross margin figures are available for the
industry, indicate these figures and the source or sources from which
they are obtained.
The Company is currently operating on a gross profit margin of
approximately 29%. As indicated in the discussion under Question 48, the
Company's long term goal is to obtain wine grapes first from its own
vineyard and secondarily from grapes at the harvest level from third
party growers. Assuming that the Company is able to produce 42,000 cases
of wine per year (which is the maximum allowed under its production
permit at the Big Ranch Road facility) and to the extent the grapes
utilizing such production come from its own vineyard and from third party
growers, the Company's profit margin could increase over time. This
further assumes the overall market for super premium wines remains
stable. However, it should be noted that such a level of gross profit
margin, if ever achieved, will not occur for approximately five (5)
years. It is hoped, however, that the Company will continue to move in
this direction commencing in fiscal year 1998 and each year thereafter
such that the Company will become more dependent on its own vineyard and
from grapes grown from third party sources and that profit margins in
each year will increase from current levels. However, the Company is
unable to project any specific increases in profit margins over the next
several years and anticipates that due to the fact that the Company is
still in the process of replanting its vineyard, that profit margins will
not increase in the short term.
50. Foreign sales as a percent of total sales for last fiscal year: 0.5%
Domestic government sales as a percent of total domestic sales for last
fiscal year: 0%. Explain the nature of these sales, including any
anticipated changes:
While the Company does have a distributor in Japan, sales in Japan during
the last fiscal year were insignificant and not expected to be material
in fiscal year 1998.
36
<PAGE>
AWG, LTD.
Consolidated Financial Statements for the
Years Ended December 31, 1997 and 1996
and Independent Auditors' Report
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of AWG, Ltd.
We have audited the accompanying consolidated balance sheets of AWG, Ltd. (a
Nevada corporation) and its subsidiary (the "Company") as of December 31,
1997 and 1996, and the consolidated related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note
10, claims may be made against the Company resulting from the sale of
unregistered stock. The Company has a working capital deficiency and limited
capital resources, has had negative cash flow from operations, and is having
difficulty sustaining its operations and meeting its obligations as they come
due, as discussed in Note 2. These circumstances raise substantial doubt
about the Company's ability to continue as a going concern. Management's
plans concerning these matters are also described in Notes 2 and 10. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Oakland, California
January 28, 1998
(February 23, 1998 as to the last paragraph of Note 13)
F-2
<PAGE>
AWG, LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 18,327 $ 18,776
Accounts receivable 74,037 3,427
Inventories 728,529 448,728
Receivables from stockholders 93,380 150,000
Other current assets 67,506 14,978
----------- -----------
Total current assets 981,779 635,909
PROPERTY, PLANT AND EQUIPMENT - Net 2,734,443 2,037,685
OTHER ASSETS - Net 369,905 352,814
----------- -----------
TOTAL ASSETS $ 4,086,127 $ 3,026,408
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 160,787 $ 78,726
Other accrued liabilities 165,658 83,745
Payable to stockholder -- 220,000
Current portion of long-term debt 1,149,000 14,600
Loans payable to related parties 305,000 350,000
----------- -----------
Total current liabilities 1,780,445 747,071
LONG-TERM DEBT 1,665,400 1,665,400
----------- -----------
Total liabilities 3,445,845 2,412,471
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value: 50,000,000 shares authorized;
7,157,337 and 5,222,337 shares issued and outstanding 7,157 5,222
Additional capital 2,112,473 1,452,658
Additional capital - employee stock awards 155,000 --
Due from stockholder (75,000) --
Accumulated deficit (1,559,348) (843,943)
----------- -----------
Stockholders' equity - net 640,282 613,937
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,086,127 $ 3,026,408
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
AWG, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUE:
Wine sales $ 513,676 $ 27,853
Cost of wine sold (363,929) (46,621)
Provision for loss on wine inventory -- (73,925)
--------- ---------
Gross profit (loss) 149,747 (92,693)
--------- ---------
OPERATING EXPENSES:
Administration 408,916 199,573
Marketing 239,346 120,197
--------- ---------
Total operating expenses 648,262 319,770
--------- ---------
OPERATING LOSS (498,515) (412,463)
OTHER EXPENSES (INCOME):
Abandoned acquisition costs -- 299,675
Interest (net of interest capitalized of $15,181 in 1997) 222,304 107,620
Other (6,214) 13,385
--------- ---------
LOSS BEFORE INCOME TAXES (714,605) (833,143)
STATE INCOME TAXES 800 800
--------- ---------
NET LOSS $(715,405) $(833,943)
========= =========
NET LOSS PER SHARE (BASIC AND DILUTED) $ (0.13) $ (0.21)
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
AWG, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Capital - Due
------------------------- Additional Employee from Accumulated Stockholders'
Shares Amount Capital Stock Awards Stockholder Deficit Equity
----------- ----------- ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1995 2,600,000 $ 2,600 $ 7,400 $ (10,000) $ --
ISSUANCE OF STOCK 2,622,337 2,622 1,445,258 1,447,880
NET (LOSS) (833,943) (833,943)
----------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1996 5,222,337 5,222 1,452,658 (843,943) 613,937
EMPLOYEE STOCK
AWARDS $ 246,750 246,750
ISSUANCE OF STOCK:
Stock awards 225,000 225 91,525 (91,750) -- --
Settlement of
liabilities 1,710,000 1,710 568,290 $ (75,000) 495,000
NET (LOSS) (715,405) (715,405)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1997 7,157,337 $ 7,157 $ 2,112,473 $ 155,000 $ (75,000) $(1,559,348) $ 640,282
=========== =========== =========== =========== =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
AWG, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (715,405) $ (833,943)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 81,254 62,554
Compensation expense - employee stock awards 240,000
Provision for loss on wine inventory -- 73,925
Changes in assets and liabilities:
Accounts receivable (70,610) (3,427)
Inventories (273,051) (522,653)
Other current assets (113,101) (14,978)
Accounts payable - trade 81,913 78,726
Other accrued liabilities 82,061 83,745
----------- -----------
Net cash used in operating activities (686,939) (1,076,051)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (734,530) (2,061,582)
Other assets -- (171,471)
----------- -----------
Net cash used in investing activities (734,530) (2,233,053)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party borrowings 305,000 350,000
Proceeds from long-term debt and bank line of credit 1,149,000 1,680,000
Proceeds from sale of stock -- 1,447,880
Payment of long-term debt (14,600) --
Advances to stockholders (18,380) (150,000)
----------- -----------
Net cash provided by financing activities 1,421,020 3,327,880
----------- -----------
INCREASE (DECREASE) IN CASH (449) 18,776
CASH AT BEGINNING OF YEAR 18,776 --
----------- -----------
CASH AT END OF YEAR $ 18,327 $ 18,776
=========== ===========
OTHER CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 232,585 $ 100,800
=========== ===========
Income taxes $ 800 $ 800
=========== ===========
Liability assumed upon acquisition of licensing agreement $ -- $ 220,000
=========== ===========
Loans payable to related parties cancelled in exchange for
issuance of common stock $ 570,000 $ --
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
AWG, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
1. ORGANIZATION AND OPERATIONS
AWG, Ltd. (the "Company") acquired property, plant and equipment
comprised of a 53-acre vineyard and winery site and began production of
premium wines in the Napa Valley of California in 1996. Wine is
currently produced at another facility on a contract basis.
Approximately 58% of 1997's production represents bulk wine and grapes
purchased from independent growers and wineries. The Company generally
markets and sells its wines through independent distributors located on
the East Coast, in the Midwest and in the Southwest. During 1997, sales
to one retailer totaled approximately 26% of total sales.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The Company's financial statements are prepared
using the accrual method of accounting in accordance with generally
accepted accounting principles and have been prepared on a going
concern basis which contemplates the realization of assets and the
settlement of liabilities in the normal course of business. The Company
is currently building its brand name and is in the process of
establishing contracts with distributors and grape growers. Management
has and expects to continue to incur substantial expenditures to
complete construction of a winery building and replant Phylloxera
infested vineyards. The Company has a working capital deficiency and
limited capital resources, has had negative cash flow from operations,
and is having difficulty sustaining its operations and meeting its
obligations as they come due. In addition, the Company expects that
operating expenses will again significantly exceed revenues in 1998.
The Company also faces potential claims from stockholders due to
violations of securities laws resulting from the sale of approximately
$1,360,000 of unregistered stock (see Note 10). These issues raise
substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments that may result from the outcome of these uncertainties.
Management plans to obtain the needed capital to enable the Company to
remain in business by raising equity capital in a public offering. The
Company has entered into a letter of intent with an underwriter to
conduct a "best efforts" public offering of the Company's proposed
Series A 6% Preferred Stock ("Preferred Stock"). The Company intends to
offer a maximum of 500,000 shares, and a minimum of 300,000 shares, of
Preferred Stock. The net proceeds from this public offering assuming it
is successful, after payment of underwriting commissions and offering
expenses, will be utilized to:
a. increase inventory production through the acquisition of bulk
wine until such time as grapes harvested from the Company's
vineyards and grape contracts are sufficient to meet the
Company's needs,
b. complete a vineyard replanting and maintenance program,
c. complete a winery construction and refurbishment program which
will result in a fully productive crush, tank and barrel storage
facility, a tasting room and a hospitality center
F-7
<PAGE>
d. position itself to obtain additional capital to acquire other
wineries and vineyards, and
e. repay certain indebtedness to officers and directors and a bank
loan guaranteed by a Director.
There are no assurances that management will be able to raise this
capital, and further, there can be no assurance, assuming the Company
successfully raises additional funds, that the Company will ultimately
achieve profitability and positive cash flow.
Principles of Consolidation - The consolidated financial statements
include AWG Ltd. and its wholly owned subsidiary AWG, Inc. All
significant intercompany balances and transactions have been
eliminated.
Inventories are recorded at lower of cost or market. Wine inventory is
determined by specific cost by vintage and variety. Costs include
grapes, purchased wine, winemaking and bottling costs. Wine inventories
are classified as current assets in accordance with industry practice
although some wine will be aged for periods longer than one year. Costs
associated with the next year's harvest are deferred and included in
wine inventory when the crop is harvested in the following year.
Property and equipment is stated at cost. Depreciation is computed by
the straight-line method over estimated useful lives of 3 to 20 years
for vineyards, 40 years for buildings and improvements, and 5 to 10
years for machinery and equipment. Interest capitalized during
construction of the winery facility totaled $15,181 in 1997.
Other assets consist primarily of licensing rights, organization and
label design costs that are amortized using the straight-line method
over the 10-year term of the agreement for licensing rights and 5 years
for organization costs and label design costs. Other assets also
include costs of $42,011 incurred in connection with the Company's
planned preferred stock offering. Such amounts will be charged to
stockholders' equity at the completion of offering.
Revenue Recognition - The Company recognizes wine sales at the time of
shipment. The Company evaluates customer credit terms on an ongoing
basis and provides for estimated credit losses.
Abandoned Acquisition Costs - During 1996, the Company incurred certain
due diligence and other costs in an attempt to acquire another winery.
The planned acquisition was unsuccessful and the related costs incurred
were charged to expense at the time the potential acquisition was
abandoned.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, ("FAS 109"). Under FAS 109, deferred income taxes are
provided for the temporary differences between the tax basis of assets
and liabilities and their related financial statement amounts using
current income tax rates. A valuation allowance is recorded, if, based
on the weight of available evidence, it is more likely than not that
some portion of the deferred tax assets will not be realized.
Use of Estimates - Preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts
reported in the financial statements and related notes. Actual results
could differ from those estimates.
Earnings Per Share - Earnings per share is computed by dividing the net
loss by the weighted average number of common shares outstanding during
each year. The weighted average number of shares outstanding used to
calculate earnings per share were 5,383,246 and 4,055,673 in 1997 and
1996,
F-8
<PAGE>
respectively. Diluted earnings per share have not been adjusted for the
effect of employee stock awards and convertible debt as their impact is
antidilutive.
3. INVENTORIES
Inventories at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Bulk wine $ 414,257 $ 185,964
Bottled wine 272,558 299,541
Merchandise inventory 41,714 37,148
Inventory valuation reserve -- (73,925)
--------- ---------
Total $ 728,529 $ 448,728
========= =========
</TABLE>
During 1996, the Company made a provision of $73,925 to reduce certain
wine inventories to their estimated net realizable value. These wines
were sold in 1997.
4. OTHER CURRENT ASSETS
Other current assets at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prepaid expenses $24,961 $ 5,144
Deferred farming costs 42,545 9,834
------- -------
Total $67,506 $14,978
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996 consist of
the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 1,445,880 $ 1,445,880
Vineyards 122,567 46,452
Buildings and improvements 492,164 492,164
Construction in progress 620,002 31,242
Machinery and equipment 100,015 45,844
----------- -----------
Total 2,780,628 2,061,582
Less accumulated depreciation (46,185) (23,897)
----------- -----------
Property and equipment, net $ 2,734,443 $ 2,037,685
=========== ===========
</TABLE>
Certain portions of the Company's vineyards are approximately 25 years
old and are infested with Phylloxera, leaf roll and Pierce's disease.
As a result, these vineyards will be replanted in order to remain
commercially productive. During 1997, approximately 15 acres were
removed from production
F-9
<PAGE>
and 12 were replanted using rootstalk management believes will be
resistant to these infestations in the future. It is expected that half
of the remaining vineyard acreage will be replanted in 1998 with the
remaining acreage replanted in 1999.
6. OTHER ASSETS
Other assets at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Licensing rights $ 337,320 $ 337,320
Organization costs 30,301 30,301
Printing dies 18,950 18,950
Deferred stock issuance costs 42,011
Other 19,561 4,900
--------- ---------
Total 448,143 391,471
Less accumulated amortization (78,238) (38,657)
--------- ---------
Other assets - net $ 369,905 $ 352,814
========= =========
</TABLE>
7. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage note dated April 12, 1996, renegotiated in 1997. Monthly interest
only payments at the rate of 9%, 10%, and 11% for the first
three years increasing to 12% until maturity in 2002 $ 1,665,400 $ 1,680,000
Bank line of credit agreement, dated January 28, 1997. Monthly
interest only payments at the rate of .5% in excess of the prime rate
of Citibank, N.A. (9% at December 31, 1997), maturing December 23,
1998, guaranteed by the Company's Chairman of the Board 950,000 --
Bank line of credit agreement, dated July 15, 1997. Monthly interest
only payments at 1% over the Vintage Bank borrowing rate (9.5% at December
31, 1997), borrowings collateralized by accounts receivable, inventory,
supplies, and general intangibles, principal
due and payable no later than July 15,1998 199,000 --
----------- -----------
Total 2,814,400 1,680,000
Less current portion (1,149,000) (14,600)
----------- -----------
Long-term portion $ 1,665,400 $ 1,665,400
=========== ===========
</TABLE>
The long-term portion of debt as of December 31, 1997 matures in 2002.
F-10
<PAGE>
8. LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties at December 31, 1997 and 1996 consist
of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Loans payable to stockholders - loaned to the Company in exchange for the
right to receive Convertible Preferred Stock of the Company,
noninterest-bearing through April 1997, interest at 9%, thereafter
converted to common stock in December 1997 $ -- $350,000
Notes payable to stockholders, officers and affiliates of the
Company - interest only at 9%, principal due upon demand 205,000 --
Second mortgage note payable to the Chairman of the Board, dated
December 24, 1997. Borrowings available of up to $500,000. Monthly
installments of interest only at 9%, principal due July 1, 1998 100,000 --
-------- --------
Total $305,000 $350,000
======== ========
</TABLE>
In December 1996, three of the Company's stockholders loaned the
Company an aggregate amount of $350,000 in exchange for the right to
receive Convertible Preferred Stock at such time as the stock was
authorized by the stockholders. In December 1997, these stockholders
agreed to cancel their loan in exchange for the issuance of 1,050,000
shares of common stock, valued at $.33 per share, the approximate
trading price of the stock at the time of the conversion.
9. RELATED PARTY TRANSACTIONS
Loans Receivable from Stockholders - In 1996, the Company loaned its
two principal stockholders each $75,000 from proceeds obtained from the
three stockholder loans totaling $350,000. These loans receivable are
due on demand. As discussed in Note 8, in 1997, the $350,000 in
stockholder loans were canceled in exchange for the issuance of common
stock. One of the receivables from a stockholder who received stock in
the exchange was reclassified and shown as a reduction in stockholder's
equity in 1997.
Licensing Rights - The Company has acquired and subsequently
renegotiated a License Agreement with Mario Andretti, a Director of the
Company, to utilize his name and image in conjunction with the
packaging, distribution and promotion of the Company's products. The
initial term of the License Agreement is 10 years, and may be extended
for two additional terms of 5 years, each at the option of the Company.
Pursuant to the License Agreement, Mr. Andretti has agreed to
participate in advertising and promotional activities on behalf of the
Company including, but not limited to, radio, television and print
media advertising spots, trade relations activities and personal
appearances.
As compensation for his services under the License Agreement, Mr.
Andretti receives a royalty equal to 5% of the gross revenues and sales
of all products bearing his name or likeness. As to all other products
sold by the Company, Mr. Andretti shall be entitled to the lesser of 2%
of Company profits on all other wine sales or $150,000 per year.
Licensing fees owed to Mr. Andretti in 1997 totaled $25,225, and
$13,286 of this amount was payable at December 31, 1997.
During 1997, Mr. Andretti exchanged $220,000 in royalties due him under
the License Agreement and assumed by the Company on the date of
acquisition for 660,000 shares of common stock, valued at $.33 per
share, which approximated the trading price of the stock at the time of
the exchange in December 1997.
F-11
<PAGE>
Consulting and Employment Contracts- The Company's Chairman of the
Board provides consulting services to the company pursuant to an
agreement effective as of January 1, 1997. Compensation for such
consulting services in 1997 was $50,000 payable in common stock. The
Company has also agreed to pay certain Company Directors $35,000 each
for services provided during 1997, payable in common stock. The number
of shares of stock to be issued to these Directors is based on the
trading price of the stock as of December 31, 1997. Compensation
expense of $155,000 was recognized in 1997 relating to these
agreements. The shares are expected to be issued in the first quarter
of 1998.
The Company has a one-year renewable employment contract with its Chief
Executive Officer. In addition to his base salary, he was issued
100,000 shares of Company common stock at no cost in December 1997.
Such shares became fully vested by action of the Board of Directors in
1997. As a result, compensation expense of $58,000 was recognized in
1997 based on the stock price on the date the contract was approved by
the Board.
In exchange for legal consultation services provided during 1997, a
Company Director was issued 100,000 shares of the Company's common
stock at no cost in December 1997. This Director is under no obligation
to continue to provide any additional legal services to the Company in
connection with this stock grant. Compensation expense of $27,000 was
recognized in 1997 as a result of this stock grant based on the stock
price at the date the stock was issued.
The Company has an unwritten agreement with its winemaker, who manages
the Company's wine making operations. In addition, to a fixed monthly
salary, the winemaker was issued 25,000 shares of the Company's common
stock at no cost in December 1997. As a result of this stock award,
compensation cost of $6,750 was recognized in 1997 based on the stock
price at the date the stock was issued.
10. STOCKHOLDERS' EQUITY
From March 5, 1996 through November 27, 1996, the Company sold shares
of its common stock to certain consultants retained by the Company
("Consultants") as well as to approximately seven investors not
affiliated with the Company ("Investors"). Approximately $860,000 was
raised from Investors and approximately $500,000 was raised from the
Consultants. In December 1996, the Company management was replaced in
connection with the acquisition of stock by two major stockholders. The
shares sold by former management were not registered, but, according to
Company records, sales to Investors were made pursuant to the
registration exemption afforded by Rule 504 under Regulation D adopted
by the Securities Exchange Commission ("SEC") pursuant to the
Securities Act of 1933 (the "Act"). Although Company records are not
clear with respect to the sale of securities to Consultants, the
Company believes that such sales may have been made pursuant to the
exemption afforded by Rule 701 adopted by the SEC pursuant to the Act.
Rule 504 exempts an offering of securities from federal registration
requirements if an issuer meets certain requirements including, among
other things, that (1) the offering does not exceed $1,000,000 within a
12-month period (less sales of certain other exempt securities but not
including sales pursuant to Rule 701); and (2) the issuer is not a
reporting company pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Rule 701 provides an exemption from the
registration provisions under the Act for sales of securities to, among
others, consultants of an issuer if, among other things, the issuer is
not a reporting company; aggregate sales do not exceed the greater of
$500,000 or 15% of the outstanding common stock of the issuer; and
sales are made pursuant to a plan or an agreement with the consultant.
Company records indicate that approximately $500,000 in
F-12
<PAGE>
securities were sold to Consultants during the period in question. This
amount did not exceed the 15% limitation required by Rule 701. In
addition, sales to the Consultants were pursuant to a consulting and
stock option agreement between the Company and the Consultants dated
March 10, 1996.
With respect to the Rule 504 offering, no Form D was filed with the
SEC. The primary effect of failure to file this form would not
necessarily be to invalidate the offering. Such failure may prevent the
Company from using certain exemptions for an indefinite time in the
future. In connection with the sales pursuant to Section 701, such
securities are restricted and cannot be resold by a party without an
applicable exemption from registration. Company stock records indicate
that many of the shares of stock sold to the Consultants were in fact
resold shortly after the initial sale to such persons. As a result, the
exemption afforded by Rule 701 may not be available for those sales. In
the event that Rule 701 is not available, such shares would have been
issued without registration and without an applicable exemption
therefrom. Such shares would, in turn, be added to the aggregate
offering amount pursuant to the Rule 504 offering, thereby increasing
the aggregate offering amount under Rule 504 beyond $1,000,000 and
therefore potentially invalidating the Rule 504 offering.
In the event that the entire offering is found to be invalid as a
result of the failure to qualify for an applicable exemption from
registration under the Act, the sale of such securities would violate
Section 12(a) of the Act. Section 12(a)(1) of the Act provides that any
person who offers or sells a security in violation of Section 5
[Registration Provisions of the Act] is liable to the person purchasing
such security, for an amount equal to the consideration paid for such
security together with interest thereon. Pursuant to Section 13 of the
Act, no action may be brought to enforce a liability under Section
12(a)(1) unless such action is brought within one (1) year after the
violation upon which it is based. Since the last sale of the securities
occurred on November 19, 1996, the statute of limitations with respect
to any registration violations terminated on November 19, 1997.
Additionally, Section 12(a)(2) of the Act prohibits the use of a
prospectus or oral communication which includes an untrue statement of
material fact or omits to state a material fact necessary in order to
make the statements, in light of the circumstances under which they
were made, not misleading. As in the case of a violation of 12(a)(1),
in the event of a violation of 12(a)(2), a purchaser would be entitled
to seek the consideration for his or her investment plus interest
thereon. Such an action must be brought within one (1) year of the date
Purchaser discovered any untrue statement or possible omission (or
should have been discovered by the exercise of reasonable diligence)
but in no event beyond three (3) years after the sale. It is unclear
from Company records what information was given to Purchasers of the
stock. However, management believes that a business plan was prepared
and was distributed. A copy of the business plan is not available from
the Company. Moreover, the Company did have information in the
marketplace pursuant to Rule 15c-2-11 under the Exchange Act. Since it
cannot be determined what information was provided each investor, no
determination can be made as to whether the information provided an
investor was misleading or whether any material information was
omitted. However, no investor or Consultant has instituted any action
against the Company nor has any such threat been communicated to the
Company. In connection with any securities offering, a threat always
exists that a purchaser can bring an action under Section 12(a)(2)
alleging that the information (whether written or oral) provided to
such investor is misleading or omits to state a material fact. However,
in absence of any shareholder complaints nor any evidence that
misleading information was provided to an investor, management believes
the Company has no current liability under Section 12(a)(2).
Based on the Company's records, compliance with applicable state
securities laws is unclear. However, to the extent sales were made in
the State of California, it does not appear that any applicable
exemption from registration has been satisfied. In the event that the
Company is found to have violated
F-13
<PAGE>
the registration provisions of the California securities laws, any
action must be brought within two years after the violation or one year
after the discovery of the facts constituting such violation.
Notwithstanding the Company's possible exposure under California
securities laws, the Company believes that each of the Consultants who
acquired their shares in the Company are no longer shareholders and are
believed to have sold their stock at or above the prices at which they
were acquired. As to the other investors who purchased stock in the
Company, most are believed to have sold their shares and the remaining
purchasers are not believed to be California residents or entities.
In addition to investor actions, there is an issue as to potential
penalties the Company could incur either from the SEC or from an
applicable state regulatory agency. In this regard, various exemptions
from registration adopted by the SEC as well as by various states do
provide that such exemptions may be unavailable to companies as a
result of prior violations of securities laws and for financial
penalties. However, in most cases, such prohibitions can be waived upon
application by the Company for good cause. In this case, since each of
the potential violations alleged to have occurred happened under former
management and since current management has endeavored to comply with
the securities laws, management believes that the Company would not be
prohibited from use of various exemptive provisions under applicable
federal and state laws. Moreover, since the individuals who were
responsible for any securities violations are no longer within the
Company, there may be strong credible arguments that no financial
penalties should be imposed on a Company for any violations. There is
no financial civil liability under the Act. Under California law, a
$2,500 fine can be imposed for any violation. The full financial impact
which may result from these potential violations is unknown at this
time but could include actions requiring the Company to return funds to
certain stockholders, along with interest and brokerage fees.
11. INCOME TAXES
Deferred tax assets and liabilities at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assets:
Operating loss carryforwards $ 579,983 $ 309,878
Inventory costs 24,419
Intangibles 13,244
Other 1,154
Valuation allowance (597,559) (304,181)
--------- ---------
Total 21,241 5,697
--------- ---------
Liabilities:
Accelerated depreciation (17,542) (5,697)
Other (3,699) --
--------- ---------
Total (21,241) (5,697)
--------- ---------
Deferred tax assets - net $ -- $ --
========= =========
</TABLE>
Due to current and expected future operating losses, a valuation
allowance equal to the net deferred tax assets has been recorded as of
December 31, 1997 and 1996 as it is more likely than not that such net
deferred tax assets will not be realized.
F-14
<PAGE>
The provision for income taxes for the years ended December 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current - state $800 $800
Deferred -- --
---- ----
Total $800 $800
==== ====
</TABLE>
A reconciliation of the statutory federal income tax rate with the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory rate 34% 34%
State income taxes, net of federal benefit 5 5
Other 2 (2)
Valuation allowance (41) (37)
--- ---
Effective tax rate 0% 0%
=== ===
</TABLE>
As of December 31, 1997, the Company had federal net operating loss
carryforwards which expire in taxable years ended December 31 as
follows:
<TABLE>
<S> <C>
2011 $ 716,678
2012 733,279
----------
Total $1,449,957
==========
</TABLE>
12. LEGAL PROCEEDINGS
As of December 31, 1997, two consultants allege that the Company owes
them certain amounts for services provided to the Company in 1996. The
Company is in settlement discussions with respect to one claim for
$28,000 and has a verbal agreement to settle the matter for $22,000.
This amount has been recognized as an expense in 1996. With respect to
the other claim, for $67,000, the Company believes it has no obligation
to the consultant and will dispute such claims. In addition, a
shareholder has made a claim for approximately 500,000 shares allegedly
due him in exchange for cash payments made and services provided to the
Company. The Company disputes the claim alleging that a substantial
portion of the proceeds allegedly paid to the Company were never
received. No amounts have been accrued with respect to the latter two
claims. The Company believes that the ultimate outcome of all these
matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
13. SUBSEQUENT EVENTS
In January 1998, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to authorize the issuance of up
to 1,600,000 shares of Series A, 6% preferred stock and up to
10,000,000 shares of an additional class of preferred stock in
contemplation of the Company's planned public stock offering in 1998.
In addition, the shareholders approved the Company's adoption of an
incentive stock option plan and a nonqualified stock option plan.
Pursuant to these plans, 42,500
F-15
<PAGE>
options, exercisable at $.25 per share, were granted to certain
employees on January 13, 1998. These options are exercisable through
January 13, 2008.
Also in January 1998, the Company borrowed an additional $150,000 on
its second mortgage note payable to the Chairman of the Board (see Note
8).
On February 23, 1998, the Company received $50,000 in bridge loan
financing to help the Company maintain its operations pending the
completion of the public offering referred to in Note 1. The terms of
this financing have been agreed to in principle. As partial
consideration for the financing, the lender will receive 500,000 shares
of Preferred Stock with a liquidation preference of $10.00 per share
($5,000,000 in total). This resulted in a substantial decrease in the
liquidation value available to other investors and potential investors.
Completion of the final loan documents is expected in the first quarter
of 1998.
******
F-16
<PAGE>
EXHIBIT A<PAGE>
DESCRIPTION OF PREFERRED STOCK
1. Series A 6% Preferred Stock. The Corporation shall have the authority to
issue one million six hundred thousand (1,600,000) shares of Series A 6%
Preferred Stock each having a par value of one-tenth of one cent ($0.001). A
statement of all or any of the relative rights, preferences and limitations
of the shares of the Series A 6% Preferred Stock is as follows:
A. Dividends. The holders of the Series A 6% Preferred Stock
are entitled to and shall receive Dividends as follows:
Cumulative, annual dividends at the rate of six percent
(6%) per annum, payable on or before January 30 of each
year that any Series A 6% Preferred Stock shall be
outstanding. The Corporation will pay Dividends to the
person who is the holder of record on the preceding
December 31. Dividends shall begin to accrue on the date a
written subscription for shares of Series A 6% Preferred
Stock is accepted by the Corporation. The Dividend shall be
payable in additional shares of Series A 6% Preferred Stock
only.
B. Redemption.
(1) The Corporation may, at any time and at the option of the
Board of Directors, and subject to the approval of the
holders of a majority of the issued and outstanding shares
of Series A 6% Preferred Stock, redeem all or part of the
outstanding shares of the Series A 6% Preferred Stock for
such consideration as the Company and the holders of Series
A 6% Preferred Stock may agree (the "Redemption Price").
The Corporation shall give written notice by mail, postage
prepaid, to the holders of the Series A 6% Preferred Stock
to be redeemed at least sixty (60) days prior to the date
specified for redemption (the "Redemption Date"). Such
notice shall be addressed to each such shareholder at the
address of such holder appearing on the books of the
Corporation or given by such holder to the Corporation for
the purpose of notice, or if no such address appears or is
so
<PAGE>
given, at the place where the principal office of the
Corporation is located. Such notice shall state the
proposed Redemption Date, the Redemption Price and the
number of shares of Series A 6% Preferred Stock of such
holder proposed to be redeemed and the date, time and place
of a meeting of the holders of the Series A 6% Preferred
Stock for purposes of approving such redemption, which date
shall be no less than twenty (20) days following the
mailing of the notice. On or after the Redemption Date, if
such redemption is approved by the holders of the Series A
6% Preferred Stock in the manner specified herein, each
holder of shares of Series A 6% Preferred Stock called for
redemption shall surrender the certificate evidencing such
shares to the Corporation at the place designated in such
notice and shall thereupon be entitled to receive payment
of the Redemption Price. If less than all of the
outstanding shares of Series A 6% Preferred Stock are to be
redeemed, then the Corporation shall redeem a pro rata
portion from each holder of Series A 6% Preferred Stock
according to the respective number of shares of Series A 6%
Preferred Stock held by such holder.
(2) From and after the Redemption Date (unless default shall be
made by the Corporation in duly paying the Redemption Price
in which case all the rights of the holders of such shares
shall continue) the holders of the shares of the Series A
6% Preferred Stock called for redemption shall cease to
have any rights as stockholders of the Corporation except
the right to receive, without interest, the Redemption
Price thereof upon surrender of certificates representing
the shares of Series A 6% Preferred Stock, and such shares
shall not thereafter be transferred (except with the
consent of the Corporation) on the books of the Corporation
and shall not be deemed outstanding for any purpose
whatsoever. Any money deposited for the redemption of
shares of Series A 6% Preferred Stock thereafter converted
shall be returned to the Corporation upon such conversion.
Any money so deposited which is unclaimed by a holder of
Series A 6% Preferred Stock for two (2) years after the
Redemption Date thereof shall be returned to this
Corporation.
(3) There shall be no redemption of any shares of Series A 6%
Preferred Stock of the Corporation where such action would
be in violation of applicable law.
C. Liquidation.
(1) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Company, the holders of
shares of the Series A 6% Preferred Stock then outstanding
shall be entitled to be paid, out of the assets of the
Company available for distribution to its stockholders,
whether from capital, surplus or earnings, before any
payment shall be made in respect of the Company's Common
Stock an amount equal to ten dollars
2
<PAGE>
($10.00) per share, plus all accumulated but unpaid
dividends thereon to the date fixed for distribution. After
setting apart or paying in full the preferential amounts
due the holders of the Series A 6% Preferred Stock, the
remaining assets of the Company available for distribution
to stockholders, if any, shall be distributed exclusively
to the holders of Common Stock, each such issued and
outstanding share of Common Stock entitling the holder
thereof to receive an equal proportion of said remaining
assets. If upon liquidation, dissolution, or winding up of
the Company, the assets of the Company available for
distribution to its shareholders shall be insufficient to
pay the holders of the Series A 6% Preferred Stock the full
amounts to which they respectively shall be entitled, the
holders of the Series A 6% Preferred Stock shall share
ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the
shares held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in
full.
(2) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the
Corporation shall within ten (10) days after the date the
Board of Directors approves such action, or within twenty
(20) days prior to any shareholder's meeting called to
approve such action, or within twenty (20) days after the
commencement of any involuntary proceeding, whichever is
earlier, give each holder of shares of Series A 6%
Preferred Stock initial written notice of the proposed
action. Such initial written notice shall describe the
material terms and conditions of such proposed action,
including a description of the stock, cash, and property to
be received by the holders of shares of Series A 6%
Preferred Stock upon consummation of the proposed action,
and the date of delivery thereof. If any material change in
the facts set forth in the initial notice shall occur, the
Corporation shall promptly given written notice to each
holder of shares of Series A 6% Preferred Stock of such
material change.
The Corporation shall not consummate any voluntary or
involuntary liquidation, dissolution, or winding up of the
Corporation before the expiration of thirty (30) days after
the mailing of the initial notice or ten (10) days after
the mailing of any subsequent written notice, whichever is
later.
(3) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will
involve the distribution of assets other than cash, the
Corporation shall promptly engage competent independent
appraisers to determine the value of the assets to be
distributed to the holders of shares of Series A 6%
Preferred Stock and the holders of shares of Common Stock
(it being understood that with respect to the valuation of
securities, the Corporation shall engage such appraiser as
shall be approved by the holders of a majority of shares of
the Corporation's outstanding Series A 6% Preferred Stock).
The Corporation shall, upon
3
<PAGE>
receipt of such appraiser's valuation, give prompt written
notice to each holder of shares of Series A 6% Preferred
Stock of the appraiser's valuation.
D. Voting. Except as otherwise expressly provided herein or in the
Nevada Revised Statutes, the holders of the Series A 6% Preferred
Stock shall have no voting powers and no holder thereof shall be
entitled to receive notice of any meeting of the shareholders.
E. Seniority. The dividend and liquidation rights of the Series A 6%
Preferred Stock shall be senior and superior to those of the Common
Stock. Unless and until all accumulated but unpaid dividends on the
Series A 6% Preferred Stock shall be paid in full, (a) no cash or
stock dividends, or other distributions of any kind, may be paid or
declared or set aside for payment upon the Common Stock, and (b) the
Company may not redeem, purchase, or otherwise acquire any shares of
Common Stock, for any consideration whatsoever.
2. Additional Preferred Stock. The Corporation shall have the authority to
issue ten million (10,000,000) shares of Additional Preferred Stock each
having a par value of one-tenth of one cent ($0.001). The Directors shall
have the power to designate the Additional Preferred Stock as being of one or
more series, to issue any such series, to fix the terms, preferences, voting
powers, restrictions and qualifications of any such series, and, without
limiting the generality of the foregoing, to fix, as to each series: (a) the
designation of the series and the number of the shares to constitute the
series, which number of shares may, from time to time, be increased (except
as otherwise provided by resolution of the Board of Directors providing for
the issue of the series) or decreased (to a number not less than the number
of shares then outstanding) by resolution of the Board of Directors; (b) the
dividend rate of the series, the conditions and dates upon which the
dividends shall be payable, the relation which the dividend shall bear to the
dividends payable on any other class or on any other series of any class of
shares, and whether the dividend shall be cumulative or non-cumulative; (c)
whether the shares of the series shall be redeemable by the Company and, if
subject to redemption, the times, prices and other terms and conditions of
the redemption and whether shares which have been redeemed may be reissued or
must be canceled; (d) the terms and amount of any sinking fund provided for
the purchase or redemption of the shares of the series; (e) whether or not
the shares of the series shall be convertible into or exchangeable for shares
of any other class or any other series of any other class of shares of the
Company, and, if provision is made for conversion or exchange, the times,
prices, rates of exchange, adjustment and other terms and conditions of the
conversion or exchange; (f) the extent of the voting powers, if any,
including shares entitled to more than one vote per share, of the shares of
the series; (g) whether, and if so the extent to which, shares of the series
may participate with the Common Shares or with any other series in any other
dividends in excess of the preferential dividend fixed for shares of the
series; (h) the rights of the holders of shares of the series upon the
dissolution of, or upon the distribution of the assets of, the Company, and
whether, and if so the extent to which, shares of a series may participate
4
<PAGE>
with the Common Shares or with any other series in any dissolution of, or
upon the distribution of the assets of, the Company, in excess of the
preferential amount fixed per shares of a series; and (i) any other
preferences and any relative optional or other special rights, and any
qualifications, limitations or restrictions of the preferences or rights of
shares of the series.
5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada Revised Statutes provides for the
indemnification of officers, directors, and other corporate agents for
actions taken by reason of the fact that such person is or was an officer,
director or other corporate agent, if such person acted in good faith and in
a manner reasonably believed to be in, or not opposed to the best interests
of the Corporation and had no reasonable cause to believe such conduct was
unlawful. These terms are sufficiently broad to indemnify such persons under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Article XI of the Company's Certificate of Incorporation (Exhibit 2.2 hereto)
and Article IV, Section 10 of the Company's Bylaws (Exhibit 2.3 hereto)
provide for indemnification of the Company's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Nevada Revised Statutes.
The Underwriting Agreement (Exhibit 1) provides for indemnification by the
Underwriters of the Company, its directors and officers, and by the Company
of the Underwriters, for certain liabilities, including liabilities arising
under the Act, and affords certain rights of contribution with respect
thereto.
Item 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Company in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions.
All amounts are estimated except for the Securities and Exchange Commission
registration fee, and the National Association of Securities Dealers, Inc.
filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
COMPANY
----------
<S> <C>
SEC registration fee ............................................ $ 2,000
National Association of Securities Dealers, Inc. filing fee ..... 1,500
Blue Sky fees and expenses ...................................... 5,000
Accounting fees and expenses .................................... 30,000
Legal fees and expenses ......................................... 120,000
Printing and engraving expenses ................................. 20,000
Registrar and Transfer Agent's fees ............................. 2,000
Miscellaneous fees and expenses ................................. 5,000
--------
Total............................................................ $185,500
========
</TABLE>
<PAGE>
Item 3. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Company hereby undertakes that it will provide to the
underwriters at the closing(s) specified in the underwriting agreement
certificates in such denomination and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Item 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR
Since March 1997, the issuer has sold and issued the following unregistered
securities:
(a) In February 1998, the Company issued 500,000 shares of preferred
stock in connection with bridge loan financing provided by a
single investor who has no presence in the United States.
(b) In December 1997, three investors who previously contributed an
aggregate of $350,000 to the Company in exchange for yet to be
authorized class of preferred stock elected to acquire common
stock of the Company in lieu of the preferred stock in order to
facilitate this offering. Three investors, Joseph Antonini, Bruce
Williams (each of which is a director of the Company) and Carl
Haas, an associate of Messrs. Antonini and Mario Andretti
received an aggregate of 1,050,000 shares of the common stock of
the Company. The Company relied on the exemption provided by
Section 4(2) of the Act.
(c) In December 1997, Mario Andretti, a director of the Corporation,
exchanged $220,000 of royalties due and payable to him for
660,000 shares of common stock in the Company. The Company relied
on the exemption provided by Section 4(2) of the Act.
<PAGE>
The recipients of the above-described securities received certificates which
are restricted as to sale. All recipients had adequate access, through
employment or other relationships, to information about the Company.
Item 5. INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
1* Form of Underwriting Agreement.
2.1 Certificate of Incorporation
2.2 Certificate of Amendment to Articles of Incorporation as
filed with the Secretary of State of the State of Nevada
on May 4, 1995, December 15, 1995 and February 12, 1998.
2.3 Bylaws of the Company as amended to date.
3* Form of Preferred Stock Certificate
4* Form of Subscription Agreement
6.1 License Agreement Between Mario Andretti and the
Company
6.2* Note and Mortgage dated April 12, 1996 by and
between the Company and Bar K, Inc. in connection
with the acquisition of the Company's winery
6.3* Line of Credit Agreement by and between the
Company and Vintage Bank
6.4* Line of Credit Agreement between the Company and
Bank of Bloomfield Hills, Michigan
6.5 Promissory Note on the Company in favor of Mack
Jennings
6.6 Promissory Note in favor of Robert Pepi
6.7 Two (2) Promissory Notes in favor of Mario Andretti
<PAGE>
6.8 Promissory Note in favor of Sports Management
Network, Inc.
6.9* Promissory Note and Mortgage in favor of Joseph
Antonini
6.10* Promissory Note and Registration Rights Agreement
in favor of Colin Frank Risiam
6.11 Employment Agreement by and between AWG, Ltd.
and Mack Jennings
6.12 Amendment to Employment Agreement by and
between AWG, Ltd. and Mack Jennings
6.13 AWG, Ltd. Incentive Stock Option Plan (ISO Plan)
6.14 Form of Incentive Stock Option Agreement under the
ISO Plan
6.15 AWG, Ltd. Non-Qualified Stock Option Plan ("Non-
Qualified Plan")
9.* Escrow Agreement by and between the Company, the
Underwriter and Chase Manhattan Bank
10.1 Consent of Deloitte and Touche, LLP
10.2* Consent of Jackier, Gould, Bean, Upfal, Eizelman &
Goldman
10.3* Consent of Underwriter
11.* Legal Opinion of Jackier, Gould, Bean, Upfal,
Eizelman & Goldman
- ------------
* To be filed by amendment.
<PAGE>
Item 6. DESCRIPTION OF EXHIBITS
See Item 5.
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing Form SB-1 and authorizes this Registration
Statement to be signed on its behalf by the undersigned in the City of Napa,
State of California on March 13, 1998.
AWG, LTD.
By:/s/ Mack Jennings
-------------------
Mack Jennings
Its: President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated:
NAME TITLE DATE
- ---- ----- -----
/s/ Joseph Antonini
Joseph Antonini Chairman of the Board March 13, 1998
Mario Andretti Vice Chairman of the Board
/s/ Mack Jennings
Mack Jennings President, Chief Executive
Officer (Its Principal
Executive Officer and
Principal Financial
Officer) and Director March 13, 1998
Bruce Williams Director
/s/ John Caponigro
John Caponigro Secretary, General Counsel
and Director March 13, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
2.1 Certificate of Incorporation
2.2 Certificate of Amendment to Articles of Incorporation
as filed with the Secretary of State of the State of
Nevada on May 4, 1995, December 15, 1995 and February
12, 1998.
2.3 Bylaws of the Company as amended to date.
6.1 License Agreement Between Mario Andretti and the
Company
6.5 Promissory Note on the Company in favor of Mack
Jennings
6.6 Promissory Note in favor of Robert Pepi
6.7 Two (2) Promissory Notes in favor of Mario Andretti
6.8 Promissory Note in favor of Sports Management
Network, Inc.
6.11 Employment Agreement by and between AWG, Ltd.
and Mack Jennings
6.12 Amendment to Employment Agreement by and
between AWG, Ltd. and Mack Jennings
6.13 AWG, Ltd. Incentive Stock Option Plan (ISO Plan)
6.14 Form of Incentive Stock Option Agreement under the
ISO Plan
6.15 AWG, Ltd. Non-Qualified Stock Option Plan ("Non-
Qualified Plan")
10.1 Consent of Deloitte and Touche, LLP
2.1 CERTIFICATE OF INCORPORATION
<PAGE>
ARTICLES OF INCORPORATION
OF
AMERICAN AURUM INC.
We, the undersigned natural persons of the age of eighteen years
or more, acting as incorporators of the corporation under the provisions of
the Nevada Business Corporation Act (hereinafter called the "Act"), do hereby
adopt the following Articles of Incorporation for such Corporation.
ARTICLE I
Name. The name of the corporation (hereinafter called the
"Corporation") is AMERICAN AURUM INC.
ARTICLE II
Period of Duration. The period of duration of the Corporation is
perpetual.
ARTICLE III
Purpose and Powers. The purpose for which this Corporation is
organized is to invest in all forms of investment, including real and
personal property, stocks and bonds, including, but not limited to, the
acquisition of a business opportunity in any industry including industries
such as manufacturing, finance, service, natural resources, high technology,
product development, medical, communications or any other industry, and to
engage in all other lawful business.
<PAGE>
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue
One Hundred Million (50,000,000) shares of stock each having a par value of
one-tenth of one cent ($.001). All stock of the Corporation shall have the
same rights and preferences. Fully paid stock of this Corporation shall not
be liable for further call or assessment. The authorized shares shall be
issued at the discretion of the Directors.
ARTICLE V
Commencement of Business. The Corporation shall not commence
business until at least One Thousand Dollars ($1,000.00) has been received by
the Corporation as consideration for the issuance of its shares.
ARTICLE VI
Initial Registered Office and Initial Registered Agent. The
address of the initial corporate office of the Corporation is 3046 Brighton
Place, Salt Lake City, UT 84121, and the initial registered Agent is Carousel
Capital, a Nevada Corporation, c/o John Muige, Esq.; 1st Interstate Bank
Building, 302 East Carson Avenue, Las Vegas, NV 89101.
ARTICLE VII
Directors. The Corporation shall be governed by a Board of
Directors consisting of no less than three (3) and no more than nine (9)
directors. Directors need not be stockholders of the Corporation. The number
of Directors constituting the initial Board of Directors is three (3) and the
names and post office addresses of the persons who shall serve as Directors
until their successors are elected and qualified are:
Brent Conradson 1825 East Lewis Street #212
Las Vegas, NV 84101
<PAGE>
Mark L. Meriwether 3046 East Brighton Place
Salt Lake City, UT 84121
Layne T. Meriwether 3046 East Brighton Place
Salt Lake City, UT 84121
ARTICLE VIII
Incorporators. The name and post office address of each incorporator is:
Mark L. Meriwether 3046 East Brighton Place
Salt Lake City, UT 84121
Layne T. Meriwether 3046 East Brighton Place
Salt Lake City, UT 84121
ARTICLE IX
Preemptive Rights. There shall be no preemptive rights to acquire
unissued and/or treasury shares of stock of the Corporation.
ARTICLE X
Voting of Shares. Each outstanding share of common stock of the
Corporation shall be entitled to one vote on each matter submitted to a vote
at the meeting of the stockholders. Each stockholder shall be entitled to
vote his or her shares in person or by proxy, executed in writing by such
stockholders, or by his duly authorized attorney-in-fact. At each election of
Directors, every stockholder entitled to vote in such election shall have the
right to vote, in person or by proxy, the number of shares owned by him or it
for as many persons as there are Directors to be elected and for whose
election he or it has the right to vote, but the Shareholder shall have no
right to accumulate his or its votes with regard to such election.
Carousel Capital, a Nevada corporation, located c/o John Muige,
Esq. 1st Interstate Bank Building, 302 East Carson Ave., Las Vegas, NV 89101
hereby accepts the
<PAGE>
appointment as Registered Agent for AMERICAN AURUM INC.
/s/ Mark Meriwether
-------------------
Registered Agent
STATE OF UTAH )
)SS
COUNTY OF SC )
On the 6 day of May, 1995, personally appeared before me, Mark L.
Meriwether, who being by me first duly sworn, severally declared that he is
the authorized agent for Carousel Capital, who, acting on their behalf, has
signed the foregoing document as the Registered Agent.
IN WITNESS WHERE, I have hereunto set my hand and seal this 6 day
of May, 1995.
/s/ Nicky Davis
--------------------------
NOTARY PUBLIC: Nicky Davis
Residing at:______________
My Commission Expires:
12/31/96
STATE OF UTAH )
)SS
COUNTY OF SC )
On the 6 day of May, 1995, personally appeared before me, Mark L.
Meriwether and Layne T. Meriwether who acknowledged to me that they are the
persons who signed the foregoing Articles of Incorporation as incorporators
and that they have read the foregoing Articles of Incorporation and know the
content thereof, and that the same is true of their
<PAGE>
knowledge as to those matters upon which they operate on information and
belief, and as to those matters believe them to be true.
/s/ Mark L. Meriwether
----------------------
Mark L. Meriwether
/s/ Layne T. Meriwether
-----------------------
Layne T. Meriwether
SUBSCRIBED AND SWORN to before me this 6 day of May, 1995.
/s/ Nicky Davis
--------------------------
NOTARY PUBLIC: Nicky Davis
Residing at:
My Commission Expires:
12/31/96
2.2 CERTIFICATE OF AMENDMENT TO ARTICLES OF
INCORPORATION AS FILED WITH THE SECRETARY OF STATE
OF THE STATE OF NEVADA ON MAY 4, 1995, DECEMBER 15,
1995 AND FEBRUARY 12, 1998
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
AMERICAN AURUM INC.
Mark L. Meriwether and Layne T. Meriwether certify that:
1. They are the President and the Secretary/Treasurer
respectively of American Aurum Inc., a Nevada corporation.
2. Article IV of the Articles of Incorporation is amended to
read:
ARTICLE IV
Capitalization. The corporation shall have the
authority to issue 50,000,000 (fifty million) shares of stock
each having a par value of one-tenth of one cent ($0.001). All
stock of the corporation shall not be liable for further call or
assessment. The authorized shares shall be issued at the
discretion of the Directors, for good and valuable consideration.
Upon the amendment of the Article, each issued and
outstanding share of common stock is split into one-five
hundredth of one share (0.002 share) of common stock.
3. The amendments herein set forth have been duly approved by the
required vote of shareholders in accordance with 78.320(2) of the Nevada
Domestic and Foreign Corporation Laws. The corporation has only one class of
voting shares and the number of outstanding shares at the time the amendment
was approved was 41,450610. The number of shares voting in favor of the
amendment was 21,000,000 which equaled or exceeded the vote required. The
percentage vote required for the approval of the amendment herein set forth
was more than 50%.
Dated this 4th day of May, 1995.
/s/ Layne T. Meriwether
---------------------------------
Layne T. Meriwether/Sec/Treasurer
/s/ Mark Meriwether
-------------------------
Mark Meriwether/President
<PAGE>
CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION
OF
AMERICAN AURUM INC.
Mark L. Meriwether and Layne T. Meriwether hereby certify that:
1. They are the President and Secretary, respectively, of
American Aurum, Inc., a Nevada Corporation (the "Corporation").
2. Article II of the Articles of Incorporation of the Corporation
is hereby amended in its entirety to read as follows:
"The name of the Corporation is AWG, Ltd."
3. The amendment herein set forth have been duly approved by the
required vote of the shareholders of the Corporation in accordance with
section 78.390 of the Nevada Revised Statutes. At the time of the adoption of
this amendment the Corporation had 3,083,738 shares of its common stock
issued and outstanding and entitled to vote thereupon. The number of shares
voting in favor of the amendment at a meeting of the shareholders held on
December 13, 1995 was 2,042,000 which equaled or exceeded the 50% vote
required.
Dated this 15th day of December, 1995.
/s/ Mark Meriwether
- --------------------------
Mark Meriwether, President
/s/ Layne T. Meriwether
- ------------------------------
Layne T. Meriwether, Secretary
State of Utah
ss.
County of Salt Lake
Acknowledged before me this 15th day of December, 1995, by Mark L.
Meriwether, President, and Layne T. Meriwether, Secretary, who executed the
foregoing document on behalf of the American Aurum, Inc. corporation in their
respective capacities as president and secretary.
/s/ Elaine MacFarlane
- ---------------------
Notary Public
My Commission Expires:
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
(After Issuance of Stock) File by:
AWG, Ltd.
Name of Corporation
We the undersigned Mack H. Jennings and John P. Caponigro of AWG, Ltd.
---------------- -------------------- ---------
President Secretary Name of
Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened, held on the 13th day of January, 1998, adopted a resolution to
amend the original articles as follows:
1. Article IV is hereby amended to read as follows:
See Rider A attached hereto.
2. Article XI is hereby added to read as follows:
See Rider B attached hereto.
The number of shares of the corporation outstanding and entitled
to vote on an amendment to the Articles of Incorporation is 7,157,337, that
the said change(s) and amendment have been consented to and approve by a
majority vote of the stockholders holding at least a majority of each class
of stock outstanding and entitled to vote thereon.
/s/ Mack H. Jennings
---------------------------
Mack H. Jennings, President
/s/ John P. Caponigro
----------------------------
John P. Caponigro, Secretary
State of Michigan )
)SS.
County of Oakland )
On February 2, 1998, personally appeared before me, a Notary
Public, Mack H. Jennings and John P. Caponigro, who acknowledged that they
executed the above instrument.
/s/ Carol Ann Voss
-----------------------------
Carol Ann Voss, Notary Public,
Oakland County, Michigan,
My Commission Expires 08-01-2000
<PAGE>
RIDER A TO CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION OF AWG, LTD.
ARTICLE IV
The Corporation shall have the authority to issue the following classes of
stock:
1. Common Stock. The Corporation shall have the authority to issue fifty
million (50,000,000) shares of Common Stock each having a par value of
one-tenth of one cent ($0.001). The Common Stock shall not liable for further
call or assessment. The authorized shares of Common Stock shall be issued at
the discretion of the Directors, for good and valuable consideration
2. Series A 6% Preferred Stock. The Corporation shall have the authority to
issue one million six hundred thousand (1,600,000) shares of Series A 6%
Preferred Stock each having a par value of one-tenth of one cent ($0.001). A
statement of all or any of the relative rights, preferences and limitations
of the shares of the Series A 6% Preferred Stock is as follows:
A. Dividends. The holders of the Series A 6% Preferred
Stock are entitled to and shall receive Dividends as follows:
Cumulative, annual dividends at the rate of six
percent (6%) per annum, payable on or before January
30 of each year that any Series A 6% Preferred Stock
shall be outstanding. The Corporation will pay
Dividends to the person who is the holder of record
on the preceding December 31. Dividends shall begin
to accrue on the date a written subscription for
shares of Series A 6% Preferred Stock is accepted by
the Corporation. The Dividend shall be payable in
additional shares of Series A 6% Preferred Stock
only.
B. Redemption.
(1) The Corporation may, at any time and at the option of
the Board of Directors, and subject to the approval
of the holders of a majority of the issued and
outstanding shares of Series A 6% Preferred Stock,
redeem all or part of the outstanding shares of the
Series A 6% Preferred Stock for such consideration as
the Company and the holders of Series A 6% Preferred
Stock may agree (the "Redemption Price"). The
Corporation shall give written notice by mail,
postage prepaid, to the holders of the Series A 6%
Preferred Stock to be redeemed at least sixty (60)
days prior to the date specified for redemption (the
"Redemption Date"). Such notice shall be addressed to
each such shareholder at the address of such holder
<PAGE>
appearing on the books of the Corporation or given by
such holder to the Corporation for the purpose of
notice, or if no such address appears or is so given,
at the place where the principal office of the
Corporation is located. Such notice shall state the
proposed Redemption Date, the Redemption Price and
the number of shares of Series A 6% Preferred Stock
of such holder proposed to be redeemed and the date,
time and place of a meeting of the holders of the
Series A 6% Preferred Stock for purposes of approving
such redemption, which date shall be no less than
twenty (20) days following the mailing of the notice.
On or after the Redemption Date, if such redemption
is approved by the holders of the Series A 6%
Preferred Stock in the manner specified herein, each
holder of shares of Series A 6% Preferred Stock
called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon
be entitled to receive payment of the Redemption
Price. If less than all of the outstanding shares of
Series A 6% Preferred Stock are to be redeemed, then
the Corporation shall redeem a pro rata portion from
each holder of Series A 6% Preferred Stock according
to the respective number of shares of Series A 6%
Preferred Stock held by such holder.
(2) From and after the Redemption Date (unless default
shall be made by the Corporation in duly paying the
Redemption Price in which case all the rights of the
holders of such shares shall continue) the holders of
the shares of the Series A 6% Preferred Stock called
for redemption shall cease to have any rights as
stockholders of the Corporation except the right to
receive, without interest, the Redemption Price
thereof upon surrender of certificates representing
the shares of Series A 6% Preferred Stock, and such
shares shall not thereafter be transferred (except
with the consent of the Corporation) on the books of
the Corporation and shall not be deemed outstanding
for any purpose whatsoever. Any money deposited for
the redemption of shares of Series A 6% Preferred
Stock thereafter converted shall be returned to the
Corporation upon such conversion. Any money so
deposited which is unclaimed by a holder of Series A
6% Preferred Stock for two (2) years after the
Redemption Date thereof shall be returned to this
Corporation.
(3) There shall be no redemption of any shares of Series
A 6% Preferred Stock of the Corporation where such
action would be in violation of applicable law.
C. Liquidation.
(1) In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the
Company, the holders of shares of the Series A 6%
Preferred Stock then outstanding shall be entitled to
be paid, out of the assets of the Company available
for distribution to its stockholders, whether
2
<PAGE>
from capital, surplus or earnings, before any payment
shall be made in respect of the Company's Common
Stock an amount equal to ten dollars ($10.00) per
share, plus all accumulated but unpaid dividends
thereon to the date fixed for distribution. After
setting apart or paying in full the preferential
amounts due the holders of the Series A 6% Preferred
Stock, the remaining assets of the Company available
for distribution to stockholders, if any, shall be
distributed exclusively to the holders of Common
Stock, each such issued and outstanding share of
Common Stock entitling the holder thereof to receive
an equal proportion of said remaining assets. If upon
liquidation, dissolution, or winding up of the
Company, the assets of the Company available for
distribution to its shareholders shall be
insufficient to pay the holders of the Series A 6%
Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of the
Series A 6% Preferred Stock shall share ratably in
any distribution of assets according to the
respective amounts which would be payable in respect
of the shares held by them upon such distribution if
all amounts payable on or with respect to said shares
were paid in full.
(2) In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the
Corporation, the Corporation shall within ten (10)
days after the date the Board of Directors approves
such action, or within twenty (20) days prior to any
shareholder's meeting called to approve such action,
or within twenty (20) days after the commencement of
any involuntary proceeding, whichever is earlier,
give each holder of shares of Series A 6% Preferred
Stock initial written notice of the proposed action.
Such initial written notice shall describe the
material terms and conditions of such proposed
action, including a description of the stock, cash,
and property to be received by the holders of shares
of Series A 6% Preferred Stock upon consummation of
the proposed action, and the date of delivery
thereof. If any material change in the facts set
forth in the initial notice shall occur, the
Corporation shall promptly given written notice to
each holder of shares of Series A 6% Preferred Stock
of such material change.
The Corporation shall not consummate any voluntary or
involuntary liquidation, dissolution, or winding up
of the Corporation before the expiration of thirty
(30) days after the mailing of the initial notice or
ten (10) days after the mailing of any subsequent
written notice, whichever is later.
(3) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation which will involve the distribution of
assets other than cash, the Corporation shall
promptly engage competent independent appraisers to
determine the value of the assets to be distributed
to the holders of shares of Series A 6% Preferred
Stock and the holders of shares of Common Stock (it
being understood that with respect to the valuation
of securities, the Corporation shall engage such
appraiser as shall be
3
<PAGE>
approved by the holders of a majority of shares of
the Corporation's outstanding Series A 6% Preferred
Stock). The Corporation shall, upon receipt of such
appraiser's valuation, give prompt written notice to
each holder of shares of Series A 6% Preferred Stock
of the appraiser's valuation.
D. Voting. Except as otherwise expressly provided herein or in
the Nevada Revised Statutes, the holders of the Series A 6%
Preferred Stock shall have no voting powers and no holder thereof
shall be entitled to receive notice of any meeting of the
shareholders.
E. Seniority. The dividend and liquidation rights of the Series A
6% Preferred Stock shall be senior and superior to those of the
Common Stock. Unless and until all accumulated but unpaid
dividends on the Series A 6% Preferred Stock shall be paid in
full, (a) no cash or stock dividends, or other distributions of
any kind, may be paid or declared or set aside for payment upon
the Common Stock, and (b) the Company may not redeem, purchase,
or otherwise acquire any shares of Common Stock, for any
consideration whatsoever.
4. Additional Preferred Stock. The Corporation shall have the authority to
issue ten million (10,000,000) shares of Additional Preferred Stock each
having a par value of one-tenth of one cent ($0.001). The Directors shall
have the power to designate the Additional Preferred Stock as being of one or
more series, to issue any such series, to fix the terms, preferences, voting
powers, restrictions and qualifications of any such series, and, without
limiting the generality of the foregoing, to fix, as to each series: (a) the
designation of the series and the number of the shares to constitute the
series, which number of shares may, from time to time, be increased (except
as otherwise provided by resolution of the Board of Directors providing for
the issue of the series) or decreased (to a number not less than the number
of shares then outstanding) by resolution of the Board of Directors; (b) the
dividend rate of the series, the conditions and dates upon which the
dividends shall be payable, the relation which the dividend shall bear to the
dividends payable on any other class or on any other series of any class of
shares, and whether the dividend shall be cumulative or non-cumulative; (c)
whether the shares of the series shall be redeemable by the Company and, if
subject to redemption, the times, prices and other terms and conditions of
the redemption and whether shares which have been redeemed may be reissued or
must be canceled; (d) the terms and amount of any sinking fund provided for
the purchase or redemption of the shares of the series; (e) whether or not
the shares of the series shall be convertible into or exchangeable for shares
of any other class or any other series of any other class of shares of the
Company, and, if provision is made for conversion or exchange, the times,
prices, rates of exchange, adjustment and other terms and conditions of the
conversion or exchange; (f) the extent of the voting powers, if any,
including shares entitled to more than one vote per share, of the shares of
the series; (g) whether, and if so the extent to which, shares of the series
may participate with the Common Shares or with any other series in any other
dividends in excess of the preferential dividend fixed for shares of the
series; (h) the rights of the holders of shares
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of the series upon the dissolution of, or upon the distribution of the assets
of, the Company, and whether, and if so the extent to which, shares of a
series may participate with the Common Shares or with any other series in any
dissolution of, or upon the distribution of the assets of, the Company, in
excess of the preferential amount fixed per shares of a series; and (i) any
other preferences and any relative optional or other special rights, and any
qualifications, limitations or restrictions of the preferences or rights of
shares of the series.
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RIDER B TO CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION OF AWG, LTD.
ARTICLE XI
No director or officer of the Company shall be personally liable
to the Company or its Shareholders for damages for breach of fiduciary duty
as a director or officer: provided, however, that nothing in this Article XI
shall be construed to eliminate or limit the personal liability of a director
or officer of the corporation for:
A. Acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law;
and/or
B. The payment of distributions in violation of Section
78.300 of Nevada Revised Statutes.
Any repeal or modification of this Article XI by the Shareholders
of the Corporation shall not adversely affect any right or protection of any
director of the Corporation pursuant to this Article XI existing at the time
of, or for or with respect to, any acts or omissions occurring before the
effective date of such repeal or modification.
2.3 BYLAWS OF THE COMPANY AS AMENDED TO DATE
<PAGE>
BYLAWS
OF
AWG, LTD.
ARTICLE I
PRINCIPAL OFFICES
The principal offices of the Corporation shall be located in the
State of California at 4162 Big Ranch Road, Napa, CA 94558, or such other
location as the Board of Directors shall, from time to time, designate.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders
shall be held on the 3rd Tuesday of the month of June or such other day and
month in each year as shall be designated by the Board of Directors (unless
that day is a legal holiday, and then on the next succeeding day that is not
a legal holiday), beginning with the year 1997, at the hour of 10:00 a.m.,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the election of directors shall
not be held on the day designated herein for any annual meeting of the
shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a special meeting of the shareholders.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, may be called by the President,
Chairman of the Board, the Board of Directors, or by any director, and shall
be called by the President at the request of the holders of not less than
one-tenth of all the outstanding shares of the Corporation entitled to vote
at the meeting.
Section 3. Place of Meeting. The place of meeting for all annual
meetings or for all special meetings shall be at the Corporation's registered
office in the State of California, unless the Board of Directors designates
another place, either within or without the State of California, or the
United States of America.
Section 4. Notice of Meeting. Written or printed notice stating
the place, day, and hour of the meeting, and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered
not less than ten (10) nor more than fifty (50) days before the date of the
meeting, either personally or by mail, by or at the direction
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of the President, the Secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid.
Section 5. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares is represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. Shares shall not be counted to make up a quorum for a meeting if
voting of them at the meeting has been enjoined or for any reason they cannot
be lawfully voted at the meeting.
Section 6. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder. Such
proxy shall be filed with the Secretary of the Corporation before or at the
time of the meeting. No proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided in the proxy.
Section 7. Voting of Shares. Each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
subject shall be the act of the shareholders, unless the vote of a greater
number or voting by class is required by the Nevada Revised Statutes or the
Articles of Incorporation.
Section 8. Fixing Record Date for Meeting. The stock transfer
books of the Corporation shall not be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of the
shareholders but, in lieu thereof, the date on which notice is given in
accordance with Section 4 above shall be the record date for those purposes.
Such date shall not be more than fifty (50) nor less then ten (10) days
before the date of the meeting. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made under this section, such
determination shall apply to any adjournment thereof.
Section 9. Voting List. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten
(10) days before each meeting of shareholders a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number
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of shares held by each, which list, for a period of ten (10) days prior to
the meeting, shall be kept on file at the registered office of the
Corporation and shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection
of any shareholder during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
Failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
Section 10. Informal Action by Shareholders. Any action required
to be taken at a meeting of the shareholders, or any other action which may
be taken at a meeting of the shareholders, may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors. The Board of
Directors shall determine matters of corporate policy and perform such duties
as are required of it, by law.
Section 2. Consideration for Shares. Shares may be issued for
such consideration expressed in dollars, not less than the par value thereof,
as shall be fixed from time to time by the Board of Directors.
The consideration for the issuance of shares may be paid, in
whole or in part, in money, promissory notes, or other property, tangible or
intangible, or in labor or services actually performed or to be performed for
the Corporation.
In the absence of fraud in the transaction, judgment of the Board
of Directors as to the value of the consideration received for shares shall
be conclusive.
Section 3. Number, Tenure, and Qualifications. The number of
directors of the Corporation shall be three. Each director shall hold office
until the next annual meeting of shareholders and until his successor shall
have been elected. Directors need not be residents of the State of
California, citizens of the United States, nor shareholders of the
Corporation.
Section 4. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately
after, and at the same place as,
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the annual meeting of shareholders. The Board of Directors shall provide, by
resolution, the time and place for the holding of regular meetings, either
within or without the State of California, without other notice than such
resolution.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or any two (2)
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
California, as the place for the holding of any special meeting of the Board
of Directors called by them.
Section 6. Notice. Notice of any special meeting shall be given
at least ten (10) days previously thereto by written notice delivered
personally or mailed to each director at his business address or by telegram.
If mailed, notice shall be deemed to be delivered when placed in the United
States mail or, if telegraphed, the telegram is delivered to the telegraph
company. Any director may waive notice of any meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need
be specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
these bylaws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice.
Section 8. Manner of Acting; Minutes. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. Minutes of the proceedings of Board of
Directors' meetings shall be prepared and shall be made available to
shareholders.
Section 9. Vacancies. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office and shall serve until his successor is duly chosen
and qualified. Any directorship to be filled by reason of an increase in the
number of directors shall be filled by election at an annual meeting or at a
special meeting of shareholders called for that purpose, unless at such a
meeting the shareholders delegate the filling of such vacancy to the Board of
Directors.
Section 10. Presumption of Assent. A director of the Corporation
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered
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<PAGE>
in the minutes of the meeting or unless he shall file his written dissent to
such action with the person acting as Secretary of the meeting before the
adjournment thereof or shall forward such dissent to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 11. Informal Action by Directors. Any action required to
be taken at a meeting of the directors, or any action which may be taken at a
meeting of the directors, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all the
directors.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the Corporation shall be a
Chief Executive Officer, a President, a Secretary and a Treasurer, each of
whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by
the Board of Directors. Any person may hold two or more offices except that
the President shall not also be the Secretary.
Section 2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. Each officer shall hold office
until his successor shall have been duly elected or until his death or until
he shall resign or shall have been removed in the manner hereinafter
provided.
Section 3. Removal. Any officer or agent elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Corporation would be served thereby,
but such removal shall be without prejudice to the contract rights, if any,
of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 5. President and Chief Executive Officer. The President
and the Chief Executive Officer shall be the principal executive officers of
the Corporation and, subject to the control of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
Corporation. The President and Chief Executive Office shall have power to
assign work, hire and discharge employees, determine the compensation of
employees, purchase supplies, allocate vacation periods, grant leaves to
employees, collect outstanding accounts, borrow money in the ordinary course
of business, and to do
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all acts necessary to the conduct of the business of the Corporation. They
shall, when present, preside at all meetings of the shareholders and of the
Board of Directors. They may sign, with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized
to be executed, except in cases where the signing and execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation, or shall be required by law to be
otherwise signed or executed; and in general shall perform all duties as may
be prescribed by the Board of Directors from time to time.
Section 6. Secretary. The Secretary shall:
(a) keep the minutes of the Shareholders' and of the
Board of Directors' meetings in one or more books provided for
that purpose;
(b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law;
(c) be custodian of the corporate records and of the
seal of the Corporation and see that the seal of the Corporation
is affixed to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized;
(d) keep a register of the post office address of
each shareholder which shall be furnished to the Secretary by
such shareholder;
(e) sign with the President certificates for shares
of the Corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors;
(f) have general charge of the stock record books of
the Corporation; and
(g) in general perform all duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the President or the Board of
Directors.
Section 7. Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall
determine. He shall have charge and custody of and be responsible for all
funds and securities of the Corporation; receive and give receipts for monies
due and payable to the Corporation from any source whatsoever, and deposit
all such monies in the name of the Corporation in such banks, trust companies
or
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other depositories as shall be selected in accordance with the provisions of
Article V of these bylaws.
Section 8. Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
Section 9. Indemnification. Every officer and director shall be
indemnified by the Corporation against reasonable expense and any liability
paid or incurred by such person in connection with any actual or threatened
claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the Corporation
or otherwise, in which he or she may be involved, as a party or otherwise, by
reason of such person being or having been a director or officer of the
Corporation as a director, officer, fiduciary or other representative of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity (such claim, action, suit or proceeding hereinafter being
referred to as "Action"). Such indemnification shall include advances of any
expense incurred by such person in connection with an Action prior to final
disposition of such Action, consistent with the provisions of any applicable
statute. Persons who are not director or officers of the Corporation may be
similarly indemnified in respect of service to the Corporation or to another
such entity at the request of the Corporation to the extent authorized at any
time by the Board of Directors. As used herein, "Expense" shall include fees
and expenses of counsel selected by such person, and "Liability" shall
include amounts of judgments, excise taxes, fines and penalties, and amounts
paid in settlement.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Corporation,
and such authority may be general or confined to specific instances.
Section 2. Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents, of the Corporation and in such manner as shall
from time to time be determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust
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companies, or other depositories as the Board of Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certification for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the President or
Vice President and by the Secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock record books of the
Corporation. All certificates surrendered to the Corporation for transfer,
shall be canceled and no new certificates shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed, or mutilated certificate,
a new one may be issued therefor upon such terms and indemnity to the
Corporation as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock records books of the Corporation
by the holder of record thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes.
ARTICLE VII
ACCOUNTING
Full and accurate books of account shall be kept in accordance
with good accounting practices. Such books of account shall be available for
inspection by any shareholder at all reasonable times. All corporate
purchases shall be made on account and all accounts shall be paid by check.
So far as possible, no cash outlays shall be be made.
The fiscal year of the Corporation shall begin on the 1st day of
January and end on the 31st day of December in each year.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and,
upon the terms and conditions provided by law and its articles of
incorporation.
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ARTICLE IX
SEAL
The Board of Directors will not use a Corporate Seal with respect
to all corporate documents and that the signatures and authorization of the
Chief Executive Officer or President of the Corporation are sufficient.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of these bylaws or under the
provisions of the articles of incorporation, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XI
AMENDMENTS
These Bylaws may be amended or repealed by the Board of Directors
at any meeting or by the shareholders at any meeting.
- -----------------------------------------------------------------------------
THESE BY-LAWS have been duly acknowledged on this 30th day of
August, 1996.
----------------------------------
Darla Perkins
9
6.1 LICENSE AGREEMENT BETWEEN MARIO ANDRETTI AND THE COMPANY
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") entered into this __ day of December,
1997 by and between AWG, Ltd., a Delaware corporation with offices at 4162
Big Ranch Road, Napa, California 94558 ("AWG") and MARIO ANDRETTI, an
individual whose address is c/o Sports Management Network, 36800 Woodward
Avenue, Suite 239, Bloomfield Hills, Michigan 48304 ("ANDRETTI").
W I T N E S S E T H
WHEREAS AWG is a company engaged in the worldwide distribution,
marketing and sale of wines and other related products;
WHEREAS, ANDRETTI is an internationally recognized celebrity whose
name, image, endorsement and services have taken on substantial goodwill and
value;
WHEREAS, ANDRETTI has by the maintenance of high standards of
quality and service, established a reputation, demand and goodwill for
products and organizations bearing the name, image, likeness and/or
endorsement of ANDRETTI, ("ANDRETTI Rights"); and
WHEREAS, AWG desires to utilize the ANDRETTI Rights to further its
marketing, sales and corporate objectives.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt of which is
hereby acknowledged, it is agreed as follows:
1. Prior License Agreements Superseded
This AWG Agreement shall supersede and replace all between ANDRETTI
and AWG dated with all obligations and responsibilities thereunder
on the part of both parties excused.
2. Grant and Scope of License
ANDRETTI hereby grants to AWG, subject to the approval of ANDRETTI,
the non-transferable, non-sublicensable right to use the ANDRETTI
Rights in conjunction with the packaging and promotion of AWG
products ("Products").
<PAGE>
3. Exclusivity
During the term of this Agreement, ANDRETTI shall not authorize the
use of the ANDRETTI Rights in connection with the manufacture,
distribution, marketing, and sale of any wine product or business
enterprise competitive with AWG or its Business Operations. It is
the intent of the parties that the license contained in Paragraph 1
hereof shall be exclusive with respect to Products and the Business
Operations in the Territory.
4. Term
Subject to termination provisions set froth in Paragraph 15 of this
Agreement, the term of this Agreement shall commence upon the
execution hereof and be continuous. For purposes of this Agreement,
each twelve (12) month period from January 1 through December 31
shall constitute one "Contract Year". This period shall hereinafter
be referred to as the "Term".
5. Territory
The license granted herein extends throughout the World
("Territory").
6. Marketing, Distribution and Promotion
A. AWG and the Board of Directors shall aggressively and
continuously make best efforts to distribute, market,
promote and sell the Products throughout the Territory,
including but not limited to Europe, Canada, South America,
Asia, Australia and the United States, and AWG shall use
its best efforts to make and maintain all necessary
arrangements for the distribution, marketing, promotion and
sale of the Articles throughout Territory. As used in this
Paragraph, "best efforts" shall include, but not be limited
to, developing and distributing point-of-sale and print
advertising materials and establishing and implementing a
defined public relations and sales plan to support AWG's
marketing and sales efforts undertaken with respect to the
Articles.
7. Services of ANDRETTI
During each Contract Year of this Agreement, AWG shall have the
right to utilize ANDRETTI's services for the production of
television and radio commercials, print advertisements, point of
sale executions, label designs, out-of-home advertisements, public
service announcements, trade relations activities, company and
wholesaler communications, and personal appearances or other media
forms now or hereafter known or created. While ANDRETTI will make
these appearances for no appearance fee, AWG shall be wholly
responsible for travel and related expenses incurred to perform
these services, including but not limited to the cost of first-class
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air fare for ANDRETTI and one guest. Additionally, to the extent
possible and where not conflicting or interruptive with other
professional activities, ANDRETTI will make himself available at
race venues for introductory visits with customers or guests at
AWG's request at no additional cost to AWG. ANDRETTI will provide
AWG with a calendar of available days as well as information as to
where he will be traveling in order to facilitate these appearances.
In the event ANDRETTI shall die during the Term of this Agreement,
AWG shall meet with ANDRETTI's personal representative to discuss
the option of having ANDRETTI's son, Michael, perform the services
to be performed by ANDRETTI pursuant to Paragraph 7 of this
Agreement. In the event the personal representative, AWG and
ANDRETTI's child or children mutually reach such an agreement, a
written amendment will be executed by the parties reflecting such
agreement.
8. Compensation
In consideration for ANDRETTI's services and grants as herein set
forth, AWG shall provide to ANDRETTI a royalty equal to five percent
(5%) royalty on AWG gross revenue from sales of Products bearing the
ANDRETTI Rights. In addition, an annual payment equal to the lesser
of two percent (2%) of Company profits or One Hundred Fifty Thousand
Dollars and 00/100 ($150,000.00) shall apply to all other wine label
sales. Payment of the five percent (5%) royalty shall be made on a
monthly basis on paid invoices and shall accompany the previous
month's status and sales report pursuant to Paragraph 10F. In the
event that ANDRETTI shall die during the Term of this Agreement and
AWG, ANDRETTI's personal representative and ANDRETTI's son Michael
are unable to reach an agreement regarding ANDRETTI's services as
set forth in Paragraph 7, AWG shall have the option to reduce the
above royalty by twenty-five (25%) percent. This option shall be
exercised by AWG, if at all, by written notice to ANDRETTI's
personal representative within ninety (90) days from the date of
this death.
9. Undertaking of AWG
The obligations of AWG shall include but not limited to:
A. The performance of all obligations required of AWG as
provided in this Agreement.
B. The payment to ANDRETTI of all royalties due based upon
sales in monthly periods. At the time for each payment, AWG
shall furnish ANDRETTI with a full and accurate statement
of Gross Sales during the immediately preceding month,
showing AWG's total distribution and sale of the Products
during the month, including an itemized list of the prices
and quantities of Products distributed and sold. Neither
the expiration nor the termination of this Agreement shall
relieve AWG from this obligation.
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For at least two (2) years following the termination or
expiration of this Agreement, AWG shall maintain such books
and records including, but not limited to, production,
inventory and sales records ("Books and Records") at AWG's
principal office as are necessary to substantiate that (i)
all statements submitted to ANDRETTI hereunder were true,
complete and accurate and (ii) all royalties and other
payments due ANDRETTI hereunder shall have been paid in
accordance with the provisions of this Agreement. All Books
and Records shall be maintained in accordance with
generally accepted accounting principles consistently
applied. During the term hereof, and for two (2) years
after the termination or expiration of this Agreement, the
Books and Records shall be open to inspection, audit and
copy by or on behalf of ANDRETTI during business hours.
10. Warranties and Representations of AWG and the AWG Board of Directors
AWG warrants, represents, covenants and agrees as follows:
A. That AWG has the right, power and authority to fulfill its
obligations under this Agreement and has not granted any
Rights that would interfere with the ANDRETTI Rights
granted to ANDRETTI under this Agreement;
B. The execution, delivery and performance of this Agreement
by AWG does not violate or in any way conflict with any
contract, agreement, judgment, award, law, rule or
regulation to which AWG is a part or is bound, and;
The above warranties and representations are in addition to, and
shall not be construed as restricting or limiting any warranties of
AWG, express or implied, which are provided by law or exist by
operation of law.
11. Ownership and Protection of the Rights and Properties
A. AWG acknowledges that the ANDRETTI Rights are the exclusive
property of ANDRETTI. AWG shall not use the ANDRETTI Rights
or Licensed Artwork bearing said Rights in any manner
whatsoever which, directly or indirectly, might derogate or
detract from their secondary meaning or goodwill.
B. AWG shall not at any time use, promote, advertise, display
or otherwise publish the ANDRETTI Rights or Licensed
Artwork bearing said Rights or any material utilizing or
reproducing any portion thereof, in such a manner as may
impair any of ANDRETTI's rights therein or reflect
adversely on the ANDRETTI, ANDRETTI Rights.
C. AWG shall use a registration indicator in the form of a
(R), "TM" as ANDRETTI directs in conjunction with the
ANDRETTI Rights.
4
<PAGE>
D. AWG shall provide all reasonable assistance and all
materials and execute all documents requested by ANDRETTI
to assist ANDRETTI in the maintenance and/or preservation
of the ANDRETTI Rights.
E. AWG shall not contest the validity of the ANDRETTI Rights,
nor will AWG willingly become an adverse party to
litigation in which others shall contest the validity of
the ANDRETTI Rights, Licensed Artwork bearing said Rights
or ANDRETTI's rights therein.
12. Promotional Articles
During the term of this Agreement and any renewal hereof, AWG shall
supply ANDRETTI, at no charge, reasonable quantities of the Products
as ANDRETTI may request.
13. Approval
A. All Products shall be of a style, appearance and quality
satisfactory to ANDRETTI as determined in his sole and
absolute discretion. AWG shall submit, prior to
manufacturing, distributing, marketing, promoting and
selling any of the Products, at no cost to ANDRETTI, two
(2) samples of each Product together with all tags, labels
and packaging materials to be used with the Products for
ANDRETTI's approval. Approval shall not be unreasonably
withheld. If ANDRETTI fails to give disapproval of any
sample submitted by AWG within five (5) days after the date
of ANDRETTI's receipt of AWG's submission, such failure
shall constitute an approval of the submission.
B. AWG shall submit, at least Fifteen (15) days prior to its
release to the general public, all promotional and
advertising materials relating to the Products and Business
Operations which utilize the ANDRETTI Rights including, but
not limited to, all copy and artwork prepared for use in
press releases, catalogs, point-of-sale, print and
electronic advertising for ANDRETTI's approval. Approval
shall not be unreasonably withheld. If ANDRETTI fails to
give disapproval of such promotional or advertising
materials submitted by AWG within five (5) days after the
date of ANDRETTI's receipt of AWG's submission, such
failure shall constitute an approval of the submission.
C. AWG shall maintain the same quality in the Products,
Business Operations and all point-of-sale materials
relating to the Products and Business Operations produced
as in the samples approved by ANDRETTI. AWG agrees to
provide upon demand a reasonable number of the Products and
of point-of-sale materials relating to the Products and
Business Operations at no cost to ANDRETTI for periodic
inspection and for the promotional use of ANDRETTI.
5
<PAGE>
D. If during the term of this Agreement there is to be any
change in the Products or the promotional or advertising
materials relating to the Products after the approval of
samples, AWG shall comply with the provisions of this
Paragraph for the changed item before the item's
manufacture, distribution, marketing or sale.
14. Compliance with Government Standards
AWG represents and warrants that the Products shall meet or exceed
all Federal, State and local standards, regulations and guidelines
pertaining to such products, including, but not limited to, those
pertaining to product safety, labeling, warnings, quality and
propriety. AWG agrees that it will not sell any Products or cause or
permit any Products to be manufactured, distributed, marketed or
sold in violation of Federal, State or local laws.
15. Termination
Without prejudice to any other rights which ANDRETTI may have,
ANDRETTI may at any time give notice of termination effective
immediately:
A. If AWG shall fail to make any payments due
hereunder or to deliver any of the statements
required hereunder; or
B. If AWG becomes subject to any voluntary or
involuntary order of any governmental agency
involving the recall of any Products or
promotional or advertising material because of
safety, health or other hazards or risks to the
public; or
C. If AWG fails to obtain or maintain adequate
product liability insurance as determined by the
AWG Board of Directors; or
D. If AWG commits any material breach of its
obligations under this Agreement. For purposes of
this Agreement, material breach shall include the
failure, in Andretti's reasonable discretion, to
maintain a high degree of quality in relation to
the products or materials bearing the Andretti
Rights.
16. Post-Termination and Expiration Rights and Obligations
A. After expiration of the term of this Agreement or the
termination of this Agreement, AWG may dispose of Products
which are on hand or in the process of manufacture at the
date of expiration or at the time notice of termination is
received for a period of sixty (60) days after the date of
expiration or the date of notice of termination, as the
case may be, provided that the royalties with respect to
that period are paid and the appropriate statements for
that period are furnished. Any Products not disposed of by
6
<PAGE>
AWG within this sixty (60) day period must be destroyed or
reprocessed so that the ANDRETTI Rights are no longer
present in whole or in part on the Products or on their
packaging material. Upon ANDRETTI's request, AWG shall
provide evidence satisfactory to ANDRETTI of such
destruction or reprocessing of remaining Articles or
packaging material. After termination of this Agreement
under any provision, AWG shall, within sixty (60) days
after the effective date of termination, make a final
statement and payment of royalties. If the term of this
Agreement expires AWG shall, within ninety (90) days after
expiration of the term, make a final statement and payment
of royalties.
B. After the expiration or termination of this Agreement,
all rights granted to the AWG shall forthwith revert to
ANDRETTI and AWG shall refrain from further use of the
ANDRETTI Rights and Licensed Artwork bearing said Rights,
or from use of any marks or designs similar to the ANDRETTI
Rights and Licensed Artwork in connection with the
manufacture, distribution, marketing or sale of Products.
AWG also shall turn over to ANDRETTI all molds, silkscreens
and other materials which reproduce the ANDRETTI Rights or
Licensed Artwork bearing said Rights or shall give evidence
satisfactory to ANDRETTI of their destruction. AWG shall be
responsible to ANDRETTI for any damages caused by the
unauthorized use by AWG of such molds, silkscreens or
reproduction materials which are not turned over to
ANDRETTI.
C. Within fifteen (15) days after expiration or notice of
termination of this Agreement, AWG shall deliver to
ANDRETTI a written statement indicating the number and
description of the Products which it had on hand or in the
process of manufacturing as of the date of expiration or
termination notice. ANDRETTI may conduct a physical
inventory in order to verify such statement.
17. Indemnity and Insurance
A. AWG acknowledges that it will not have any claims against
ANDRETTI for any damage arising out of the operation of
AWG's business. AWG agrees to indemnify, hold harmless and
defend ANDRETTI as well as his agents, attorneys, officers,
employees, successors and assigns from and against all
suits, actions, claims, injuries, damages, costs and
expenses including attorney's fees, court costs and other
legal expenses arising out of or connected with (i) the
manufacture, distribution, marketing or sale of the
Products; (ii) any promotional or advertising material
relating to the Products; (iii) AWG's methods of marketing,
selling or distributing the Products; (iv) any unauthorized
use of, or infringement of, any trademark, service mark,
copyright, patent, process, license, method or device by
AWG in connection with the Products; (v) any intentional
torts or criminal acts; (vi) any personal injury or death
resulting from the advertisement,
7
<PAGE>
manufacture distribution, sale or consumption of the
Products; (vii) agreements or alleged agreements made or
entered into by AWG to effectuate the terms of this
Agreement; or (viii) alleged defects or deficiencies in
said Products or the use thereof, or false advertising,
fraud, misrepresentation or other claims related to the
Products.
B. AWG's indemnity obligations under this Agreement shall
survive the term of this Agreement.
18. Assignment and Sublicense
AWG shall not assign, transfer nor sublicense any rights granted to
AWG under this Agreement without the prior written approval of
ANDRETTI. AWG shall make all requests for approval to assign rights
in writing to ANDRETTI.
19. Impossibility
AWG and ANDRETTI agree that, in the event of governmental regulation
or enactment which disallows or prohibits the use of ANDRETTI's name
and likeness being utilized as contemplated under this Agreement,
performance under this Agreement will be impossible at which point
all further obligations on the part of both parties shall be excused
and rights provided for hereunder shall cease.
20. Notices
Any notice which either of the parties desires or is required to
give to the other under the terms of this Agreement shall be deemed
given if sent registered, certified, or by courier, postage prepaid,
addressed to such party at the address specified below:
If to ANDRETTI: Mr. Mario ANDRETTI
c/o Sports Management Network, Inc.
36800 Woodward Avenue
Suite 239
Bloomfield Hills, Michigan 48304
ATTN: John P. Caponigro
If to AWG, Inc. AWG, Ltd.
4162 Big Ranch Road
Napa, California 94558
8
<PAGE>
21. Entire Agreement
This Agreement supersedes all prior writings, discussions,
negotiations and understandings of whatever kind or nature between
the parties and/or their representatives, and may be amended only by
a writing signed by the parties.
IN WITNESS WHEREOF, the parties have hereto set their hands and
seals on the day and year first above written.
ANDRETTI AWG, Ltd.
BY: _________________________ BY: ______________________
Mario Andretti Mack Jennings
DATE: ______________________ ITS:______________________
DATE:_____________________
9
6.5 PROMISSORY NOTE ON THE COMPANY IN FAVOR OF MACK JENNINGS
<PAGE>
PROMISSORY NOTE
$35,000.00 No. Date August 18, 1997
-----------
AWG, Ltd., without grace, a corporation organized and existing under the laws
of the State of Nevada with the principal office for the transaction of its
business located in Napa, County of Napa, State of California, promises to
pay to Mack H. Jennings or order, at Napa, California the sum of Thirty-Five
Thousand Dollars, payable only in lawful money of the United States of
America, for value received, with interest thereon in like lawful money at
the rate of nine percent (9%) per annum from date until paid, interest
payable monthly.
/s/ Mack Jennings
- ----------------------------- ---------------------
Secretary President
This document is only a general form which may be proper for use in simple
transaction and in no way acts, or is intended to act, as a substitute for
the advice of an attorney. The publisher does not make any warranty, either
express or implied, as to the legal validity of any provision or the
suitability of these forms in any specific transaction.
6.6 PROMISSORY NOTE IN FAVOR OF ROBERT PEPI
<PAGE>
PROMISSORY NOTE
$35,000.00 No. Date August 19, 1997
-----------
AWG, Ltd., without grace, a corporation organized and existing under the laws
of the State of Nevada with the principal office for the transaction of its
business located in Napa, County of Napa, State of California, promises to
pay to Robert Pepi or order, at Napa, California the sum of Thirty-Five
Thousand Dollars, payable only in lawful money of the United States of
America, for value received, with interest thereon in like lawful money at
the rate of nine percent (9%) per annum from date until paid, interest
payable monthly.
/s/ Mack Jennings
- ---------------------------- ----------------------
Secretary President
This document is only a general form which may be proper for use in simple
transaction and in no way acts, or is intended to act, as a substitute for
the advice of an attorney. The publisher does not make any warranty, either
express or implied, as to the legal validity of any provision or the
suitability of these forms in any specific transaction.
6.7 TWO (2) PROMISSORY NOTES IN FAVOR OF MARIO ANDRETTI
<PAGE>
PROMISSORY NOTE
$35,000.00
53 Victory Lane
Nazareth, PA 18064
September 23, 1997
FOR VALUE RECEIVED, the undersigned, AWG, Ltd. ("Obligor") promises to pay to
the order of Mario Andretti, ("Payee"), the principal amount of Thirty-Five
Thousand and 00/100 Dollars ($35,000.00) and interest on the unpaid principal
balance at a rate of nine percent (9%) per annum from the date of this note.
Interest only shall be payable monthly with the first interest only payment
commencing on October 1, 1997.
The principal of this note and the accrued interest on this note
shall be paid in full either upon the acquisition of capital funding by
Obligor or by January 1, 1998, whichever shall first occur. Obligor may
prepay all or part of the principal on this note at any time without penalty
of any kind.
Each payment upon this note shall be made at the Payee's address
as set forth above or at such other place as the holder of this note may
direct in writing.
If default occurs in the payment of any principal or interest and
if the default continues for thirty (30) days after Payee gives Obligor
written notice specifying the basis of the default, or if a voluntary or
involuntary case in bankruptcy, receivership, or insolvency is at any time
instituted by or against Obligor, then the indebtedness evidenced by this
note shall, at the option of the holder, become immediately due and payable,
without notice or demand.
Obligor agrees to pay any and all expenses, including reasonable
attorney fees and legal expense paid or incurred by the holder in attempting
to collect this note.
This note shall be governed by and interpreted according to the
law of the State of Michigan.
OBLIGOR:
AWG, Ltd.
Dated By:/s/ Mack Jennings
--------------------- -----------------
Mack Jennings
President
<PAGE>
PROMISSORY NOTE
$50,000.00
53 Victory Lane
Nazareth, PA 18064
September 23, 1997
FOR VALUE RECEIVED, the undersigned, AWG, Ltd. ("Obligor") promises to pay to
the order of Mario Andretti, ("Payee"), the principal amount of Fifty
Thousand and 00/100 Dollars ($50,000.00) and interest on the unpaid principal
balance at a rate of nine percent (9%) per annum from the date of this note.
Interest only shall be payable monthly with the first interest only payment
commencing on October 1, 1997.
The principal of this note and the accrued interest on this note
shall be paid in full either upon the acquisition of capital funding by
Obligor or by January 1, 1998, whichever shall first occur. Obligor may
prepay all or part of the principal on this note at any time without penalty
of any kind.
Each payment upon this note shall be made at the Payee's address
as set forth above or at such other place as the holder of this note may
direct in writing.
If default occurs in the payment of any principal or interest and
if the default continues for thirty (30) days after Payee gives Obligor
written notice specifying the basis of the default, or if a voluntary or
involuntary case in bankruptcy, receivership, or insolvency is at any time
instituted by or against Obligor, then the indebtedness evidenced by this
note shall, at the option of the holder, become immediately due and payable,
without notice or demand.
Obligor agrees to pay any and all expenses, including reasonable
attorney fees and legal expense paid or incurred by the holder in attempting
to collect this note.
This note shall be governed by and interpreted according to the
law of the State of Michigan.
OBLIGOR:
AWG, Ltd.
By:/s/ Mack Jennings
----------------------
Mack Jennings
Its: President
Dated: August 25, 1997
6.8 PROMISSORY NOTE IN FAVOR OF SPORTS MANAGEMENT NETWORK, INC.
<PAGE>
PROMISSORY NOTE
$50,000.00
1500 Woodward Avenue
Suite 239
Bloomfield Hills, Michigan 48304
August 25, 1997
FOR VALUE RECEIVED, the undersigned, AWG, Ltd. ("Obligor") promises to pay to
the order of Sports Management Network, Inc. ("Payee"), the principal amount
of Fifty Thousand and 00/100 Dollars ($50,000.00) and interest on the unpaid
principal balance at a rate of nine percent (9%) per annum from the date of
this note. Interest only shall be payable monthly with the first interest
only payment commencing on October 1, 1997.
The principal of this note and the accrued interest on this note
shall be paid in full either upon the acquisition of capital funding by
Obligor or by January 1, 1998, whichever shall first occur. Obligor may
prepay all or part of the principal on this note at any time without penalty
of any kind.
Each payment upon this note shall be made at the Payee's address
as set forth above or at such other place as the holder of this note may
direct in writing.
If default occurs in the payment of any principal or interest and
if the default continues for thirty (30) days after Payee gives Obligor
written notice specifying the basis of the default, or if a voluntary or
involuntary case in bankruptcy, receivership, or insolvency is at any time
instituted by or against Obligor, then the indebtedness evidenced by this
note shall, at the option of the holder, become immediately due and payable,
without notice or demand.
Obligor agrees to pay any and all expenses, including reasonable
attorney fees and legal expense paid or incurred by the holder in attempting
to collect this note.
This note shall be governed by and interpreted according to the
law of the State of Michigan.
OBLIGOR:
AWG, Ltd.
By:/s/ Mack Jennings
----------------------
Mack Jennings
Its: President
Dated: August 25, 1997
6.11 EMPLOYMENT AGREEMENT BY AND BETWEEN AWG, LTD. AND MACK JENNINGS
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and between AWG,
Ltd. ("Company") and Mack H. Jennings ("Employee") is hereby entered into and
to be effective as of the 1st day of January, 1997.
RECITALS
WHEREAS, the Company is engaged primarily in the business of
producing marketing and selling wine and wine-related products;
WHEREAS, Company desires to retain Employee as a principal executive
officer of Company;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as its President and
Chief Executive Officer. As such, Employee shall have responsibilities,
duties and authority commensurate with such position and will report to the
Board of Directors of the Company through its Chairman. Employee hereby
accepts this employment upon the terms and conditions herein contained and
agrees to devote Employee's time, attention and efforts to promote and
further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill
all policies established by the Company.
(c) Employee shall not, during the term of Employee's
employment hereunder, be engaged in any other business activity pursued for
gain, profit or other pecuniary advantage if such activity interferes with
Employee's duties and responsibilities hereunder. However, the foregoing
limitations shall not be construed as prohibiting Employee from making
personal investments in such form or manner as will neither require
Employee's services in the operation or affairs of the companies or
enterprises in which such investments are made nor violate the terms of
Paragraph 3 hereof.
(d) Subject to the By-Laws of the Company, Employee shall be
offered a seat on the Company's Board of Directors. Unless otherwise agreed
by the Board of Directors, the Directors
<PAGE>
shall receive no further compensation for participation as a Director.
2. Compensation. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) Base Salary. Beginning on the date of the execution hereof,
the base salary payable to Employee shall be Sixty-Five Thousand and 00/100
Dollars ($65,000.00), payable on a regular basis in accordance with the
Company's standard payroll procedures. Except for the first year of this
Agreement during which an initial review of the base salary payable to
Employee will be conducted after six (6) months, Employee's performance will
be reviewed on at least an annual basis and increases to such base salary may
be recommended if, in the discretion of the Compensation Committee of the
Company based upon Company and Employee's performance, any such increase is
warranted.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is
the Company's intent to develop a written Incentive Bonus Plan setting forth
the criteria under which Employee and other officers and key employees will
be eligible to receive year-end bonus awards.
(c) Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation in such
form and to such extent as specified below:
(1) In the event that the Company commences a health,
hospitalization, disability, dental or other insurance
plan or plans, Employee will be permitted to
participate in said plan or plans.
(2) Employee will be reimbursed for all business travel and
other out-of-pocket expenses reasonably incurred by
Employee in the performance of Employee's services
pursuant to this Agreement. All reimbursable expenses
shall be appropriately documented in reasonable detail
by Employee upon submission to the Company's Chairman
of any request for reimbursement, and in a format and
manner consistent with the Company's expense reporting
policy.
(3) Employee shall be entitled to take one (1) week of
vacation in the first year of his employment, two (2)
weeks of vacation per year in the second through fifth
years of his employment and three (3) weeks of vacation
per year for each year of his employment thereafter.
(4) Company will issue to Employee a total of One Hundred
Thousand (100,000) shares of Company's restricted
stock, par value $.001 per share ("Company Stock").
Pursuant to the Company's Stock Issuance Policy to be
determined by the Company's Board of Directors, these
shares will become vested and will be issued in lots of
1/3 (33,333 shares) each on the anniversary date of
this Agreement.
3. Non-Competition Agreement.
(a) In consideration of the employment of Employee by the
Company and the
<PAGE>
issuance to Employee of the Company Stock, Employee agrees
that he will not, during the period of Employee's employment by or with the
Company, and for a period of six (6) months immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, or on behalf of or in conjunction with
any other person, persons, company, partnership, corporation or business of
whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venture, or in a managerial capacity,
whether as an employee, independent contractor,
consultant or advisor, or as a sales representative, in
any business selling any products or services in direct
competition with Company or any of Company's
subsidiaries, within thirty (30) miles of Company or
where any of Company's subsidiaries conducts business,
including any territory serviced by Company or any of
such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Company (including its
subsidiaries) in a managerial capacity for the purpose
or with the intent of enticing such employee away from
or out of the employ of Company (including its
subsidiaries), provided that, after Employee has ceased
employment hereunder, Employee shall be permitted to
call upon and hire any member of Employee's immediate
family;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that
time, a customer of Company (including its subsidiaries)
within the Territory for the purpose of soliciting or
selling products or services in direct competition with
Company within the Territory.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Employee from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business, whose stock is
traded on a national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Company for which it
would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by Company in the event of breach by employee, by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in
this Paragraph 3 impose a reasonable restraint on Employee in light of the
activities and business of Company (including Company's other subsidiaries)
on the date of the execution of this Agreement and the current plans of
Company; but it is also the intent of Company and Employee that such
covenants be construed and enforced in accordance with the changing
activities and business of Company (including its subsidiaries) throughout
the term of this covenant, whether before or after the date of termination of
the employment of Employee. For example, if, during the term of this
Agreement, Company enters a new and different business in addition to that
enumerated under the Recitals above, then Employee will be precluded from
soliciting the customers or employees of such new business and from directly
competing with such new business within thirty (30) miles of its operating
location(s) through the term of this covenant.
<PAGE>
(d) The covenants in this Paragraph 3 are severable and
separate, and the unenforceability of any specific covenant shall not affect
the provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
(e) All of the covenants in this Paragraph 3 shall be construed
as an agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two (2) years stated at the beginning
of this Paragraph 3, during which the agreements and covenants of Employee
made in this Paragraph 3 shall be effective, shall be computed by excluding
from such computation any time during which Employee is in violation of any
provision of this Paragraph 3.
4. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the date hereof and continue for one (1) year (the
"Initial Term"), and, unless terminated sooner as herein provided, shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein. This Agreement and Employee's employment may be terminated
in any one of the following ways;
(a) Death. The death of Employee shall immediately terminate
this Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been absent from full-time
duties hereunder for three (3) consecutive months, then thirty (30) days
after receiving written notice (which notice may occur before or after the
end of such three (3) month period, but which shall not be effective earlier
than the last day of such three (3) month period), the Company may terminate
Employee's employment hereunder provided Employee is unable to resume
full-time duties at the conclusion of such notice period. Also, Company may
terminate Employee's employment hereunder if Employee's health should become
impaired to an extent that makes the continued performance of Employee's
duties hereunder hazardous to Employee's physical or mental health or
Employee's life, provided that Employee shall have furnished the Company with
a written statement from a qualified doctor to such effect and provided,
further, that, at the Company's request made within thirty (30) days of the
date of such written statement, Employee shall submit to an examination by a
doctor selected by Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the conclusion of
Employee's doctor. In the event this Agreement is terminated as a result of
Employee's disability, Employee shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for six (6) months, whichever
amount is greater.
(c) Good Cause. The Company may terminate this Agreement ten
(10) days after written notice to Employee for good cause, which shall be:
(1) Employee's willful, material and
<PAGE>
irreparable breach of this Agreement; (2) Employee's gross negligence in the
performance or intentional nonperformance (continuing for ten (10) days after
receipt of written notice of need to cure) of any of Employee's material
duties and responsibilities hereunder; (3) Employee's willful dishonesty,
fraud or misconduct with respect to the business or affairs of the Company
which materially and adversely affects the operations or reputation of the
Company; (4) Employee's conviction of a felony crime; or (5) chronic alcohol
abuse or illegal drug abuse by Employee. In the event of a termination for
good cause, as enumerated above, Employee shall have no right to any
severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company or Employee may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after written
notice is provided to the Company. Should Employee be terminated by the
Company without cause during the Initial Term, Employee shall receive from
the Company, in a lump-sum payment due on the effective date of termination,
the base salary at the rate then in effect for whatever time period is
remaining under the Initial Term of this Agreement or for six (6) months,
whichever amount is greater. If Employee resigns or otherwise terminated
Employee's employment without cause pursuant to this Paragraph 4(d), Employee
shall receive no severance compensation.
(e) Effect of Termination. Upon termination of this Agreement
for any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements due through the
effective date of termination. Additional compensation subsequent to
termination, if any, will be due and payable to Employee only to the extent
and in the manner expressly provided above. All other rights and obligations
of the Company and Employee under this Agreement shall cease as of the
effective date of termination, except that Employee's obligations under
Paragraphs 3, 5, 6, 7 and 8 herein shall survive such termination in
accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which employee is
entitled under this Agreement or as a result of any other breach of this
Agreement by the Company, as determined by a court of competent jurisdiction
or pursuant to the provisions of Paragraph 13 below, the Company shall pay
all amounts and damages to which Employee may be entitled as a result of such
breach, including interest thereon and all reasonable legal fees and expenses
and other costs incurred by Employee to enforce Employee's rights hereunder.
Further, none of the provisions of Paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
5. Return of Company Property. All records, designs, patents,
business plans, financial statements, manuals, memoranda, lists and other
property delivered to or compiled by Employee by or on behalf of the Company
or the representatives, vendors or customers thereof which pertain to the
business of Company shall be and remain the property of Company and be
subject at all times to the discretion and control thereof. Likewise, all
correspondence, reports, records, charts, advertising materials and other
similar data pertaining to the business, activities or future plans of
Company which is collected by Employee shall be delivered promptly to Company
without request by it upon termination of Employee's employment.
6. Inventions. Employee shall disclose promptly to Company any and
all significant
<PAGE>
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment or within one (1) year
thereafter, and which are directly related to the business or activities of
Company and which Employee conceives as a result of Employee's employment by
Company. Employee hereby assigns and agrees to assign all Employee's
interests therein to Company or its nominee. Whenever requested to do so by
Company, Employee shall execute any and all applications, assignments or
other instruments that Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect Company's interest therein.
7. Trade Secrets. Employee agrees that Employee will not, during or
after the term of this Agreement with the Company, disclose the specific
terms of Company relationships or agreements with its significant vendors or
customer or any other significant and material trade secret of Company,
whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
8. No Prior Agreements. Employee hereby represents and warrants o
the Company that the execution of this Agreement by Employee and Employee's
employment by the Company and the performance of Employee's duties hereunder
will not violate or constitute a breach of any agreement with a former
employer, client or any other person or entity. Further, Employee agrees to
indemnify the Company for any claim, including, but not limited to,
attorneys' fees and expenses of investigation, by any such third party that
such third party may now have or may hereafter come to have against the
Company based upon or arising out of any non-competition agreement, invention
or secrecy agreement between Employee and such third party which was in
existence as of the date of this Agreement.
9. Assignment; Binding Effect. Employee understands that Employee
has been selected for employment by the Company on the basis of Employee's
personal qualifications, experience and skills. Employee agrees, therefore,
Employee cannot assign all or any portion of Employee's performance under
this Agreement. Subject to the preceding two (2) sentences, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
parties hereto and their respective heirs, legal representatives, successors
and assigns.
10. Complete Agreement. Except as expressly provided herein, this
Agreement is not a promise of future employment. Employee has no oral
representations, understandings or agreements with the Company or any of
their officers, directors or representatives covering the same subject matter
as is covered by this Agreement. This Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company and
Employee and of all the terms of such agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral
or written agreements. This Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and
Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
11. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
<PAGE>
To the Company: AWG, Ltd.
C/o Joe Antonini
Chairman
1800 West Maple Road
Troy, Michigan 48084
(810) 614-3880
(810) 614-3882 (facsimile)
To the Employee: Mack H. Jennings
18 Canterbury Drive
Napa, California 94558
(707) 253-0505
(708) 253-0544 (facsimile)
Notice shall be deemed given and effective three (3) days after the deposit
in the United States mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party
of such change in accordance with this Paragraph 11.
12. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall
be given to the intent manifested by the portion held invalid or inoperative.
The paragraph headings herein are for reference purposes only and are not
intended in any way to describe, interpret, define or limit the extent or
intent of the Agreement or of any party hereof.
13. Arbitration. Any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three (3) arbitrators in Napa,
California, in accordance with the rules of the American Arbitration
Association then in effect. The arbitrators shall not have the authority to
add to, detract from, or modify any provision hereof nor to award punitive
damages to any injured party. The arbitrators shall have the authority to
order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs,
including those incurred to enforce this Agreement, and interest thereon in
the event the arbitrators determine that Employee was terminated without
disability or good cause, as defined in Paragraphs 4(b) and 4(C),
respectively, or that Company has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall
be borne by Company.
14. Relocation. Employee shall not be required by the Company to
relocate his principal residence from the Napa, California area.
15. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of California.
<PAGE>
AWG, LTD. EMPLOYEE:
By: _____________________________ ____________________________________
Joe Antonini Mack H. Jennings
ITS: Chairman
--------
6.12 AMENDMENT TO EMPLOYMENT AGREEMENT BY AND BETWEEN AWG, LTD.
AND MACK JENNINGS
<PAGE>
AWG, LTD.
AMENDMENT TO EMPLOYMENT AGREEMENT
- -----------------------------------------------------------------------------
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Agreement") is made as of this
13th day of January, 1998 by and between AWG, Ltd., a Nevada corporation (the
"Company") and MACK H. JENNINGS (the "Employee").
RECITALS:
A. Company and Employee are parties to a certain Employment
Agreement dated as of January 1, 1997 (the "Employment
Agreement").
B. Company and Employee desire to amend the Employment Agreement in
the manner set forth herein.
THEREFORE, in consideration of the recitals provided above and the mutual
benefits to be derived from the observance of the covenants provided below,
Employer and Employee mutually agree as follows:
1. Compensation. Paragraph 2(c)(4) shall be amended by deleting the
second sentence thereof and adding the following: "The shares of
the Company Stock shall be deemed vested immediately."
2. Ratification of Agreement. Other than as set forth in Paragraph 1
above, Company and Employee hereby ratify and confirm the terms
and conditions of the Employment Agreement.
IN THE PRESENCE OF these witnesses whose signatures appear below,
the parties hereto have caused this Amendment to Employment Agreement to be
duly executed as of the date first appearing above.
<PAGE>
WITNESSES: AWG, LTD.
a Nevada corporation
- -------------------------- ------------------------------
JOSEPH ANTONINI
Its: Chairman
- --------------------------
- -------------------------- ------------------------------
MACK H. JENNINGS
- --------------------------
6.13 AWG, LTD. INCENTIVE STOCK OPTION PLAN (ISO PLAN)
<PAGE>
AWG, Ltd. Incentive Stock Option Plan
=============================================================================
This Stock Option Plan (the "Plan") is made and entered into on January 13,
1998, by AWG, Ltd., a Nevada corporation (the "Company").
Recitals:
The following recitals form the underlying basis of this Agreement, and will
be construed as an integral part of this Plan:
A. Company desires to induce its eligible employees to have the
highest regard for the success of the Company, and to reward the
loyalty and efforts of its eligible employees.
B. This Plan is intended to qualify as an incentive stock option
plan under the provisions of Section 422 of the Internal Revenue
Code of 1986, as amended.
Therefore, the Company adopts the following Plan:
1. Number of Shares Available for Incentive Stock Options. The Plan
will make up to 500,000 shares of common stock of the Company available.
2. Annual Limit On Exercise of Options. To the extent that the
aggregate fair market value (determined at the time that the option is
granted) of stock which may be purchased under an ISO during any calendar
year exceeds $100,000.00, the options with respect thereto (only with respect
to the portion attributable to stock with a fair market value in excess of
$100,000) shall not be treated as incentive stock options. For example, if
the employee is granted an ISO to purchase 10,000 shares of the Company's
stock, and if the employee is permitted to exercise 2,500 shares in each of
four successive calendar years, and if the fair market value on the date of
exercise was $50 per share, only the first $100,000 (in value) of shares
issued in each year will be treated as stock acquired pursuant to an ISO. The
balance, of $25,000 (in value) of shares received in each calendar year will
not be treated as stock acquired pursuant to an ISO.
3. Administration of the Plan
3.1. The Board. The Plan shall be administered by the Board;
provided, however, that the Board shall have the right to amend the Plan, in
accordance with Section 20.1, to provide for the administration of the Plan
by a committee of the Board.
3.2. Powers of the Board. Subject to the terms and provisions of
the Plan, the Board shall have authority, in its discretion, to determine (i)
the employees to whom Options shall be granted (the "Optionees"), (ii) the
time when such Options shall be granted, (iii) the number of Options to be
granted to each Optionee, (iv) the exercise price of each Option, (v) the
period(s) during which such Options shall be exercisable (whether in whole or
in part), and (vi) the other provisions thereof (which need not be
identical). Subject to the terms and provisions of the Plan, the Board also
shall have the authority to construe the Plan and Options granted thereunder,
to amend the terms of the Plan and the "Option Agreements" (as that term is
hereinafter defined) entered into thereunder, to prescribe, amend and rescind
rules and regulations relating to the
<PAGE>
Plan, to determine the terms and provisions of the respective Option
Agreements (which need not be identical) and to make all other determinations
necessary or advisable for administering and effectuating the purposes of the
Plan. The Board shall have the authority to require, in its discretion, that
the Optionee agree not to sell or otherwise dispose of Common Stock acquired
pursuant to the exercise of any Option for a period of up to six months if
such sale or other disposition would subject the Optionee to liability under
Section 16 (b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
3.3. Outside Counsel. The Board may employ such legal counsel,
consultants and advisors as it may deem desirable for the administration of
the Plan and may conclusively rely upon any opinion or computation received
from any such counsel, consultant or advisor. Expenses incurred by the Board
in the engagement of such counsel, consultant or advisor shall be paid for by
the Company.
3.4. Liability of the Board. No member of the Board shall be
liable for any action, failure to act or determination made with respect to
the administration of the Plan or any Options granted hereunder; provided
that such action, failure to act or determination is made in good faith and
in accordance with terms and provisions of the Plan.
4. Employment. Notwithstanding anything to the contrary contained
herein, the Optionee must be employed by the Company, or any subsidiary of
the Company, at all times during the period beginning on the date that the
option is granted and through and including the date that the option is
exercised; except, however, that:
(a) in the case of an employee who is disabled (within
the meaning of Internal Revenue Code Section
22(e)(3)), the Optionee need not be employed by the
Company (or a parent or subsidiary of the Company)
upon the date of exercise, so long as the date of
exercise is within the one year period following the
Optionee's date of termination and so long as the
Optionee was disabled at the time that his employment
terminated;
(b) in the case of an employee's death, the employment
requirement is waived as to the date of exercise.
Employment is deemed to continue during any period in which the
employee is on military, sick, or other authorized leave of absence not in
excess of 90 days (or longer if the employee's right to return to work is
guaranteed by contract or by applicable law).
5. Death of Optionee. In the case of the death of the Optionee, his
option may be exercised after his death by the deceased Optionee's estate, or
by a person who acquires the right to exercise such option by bequest or
inheritance or by reason of the death of the Optionee, within the six month
period following the date of the Optionee's death. In such event, the
employment requirement for the date of exercise (see section entitled
"Employment") shall not apply and the holding period requirement (see section
entitled "Holding Period") shall not apply. The holding period does apply
where the employee dies after he exercises his option. Also, although the
employment requirement no longer applies, the employee must have satisfied
the employment
2
<PAGE>
requirement at the time of his death; accordingly, his death must have
occurred during his period of employment (or within one year after his period
of employment if he was disabled within the meaning of Internal Revenue Code
Section 22(e)(3) at the time that his employment terminated).
6. 10% Stock Ownership Rule. An employee will not be eligible to
receive an ISO if he owns more than 10% of the total combined voting power or
value of all classes of stock of the Company (or its parent or subsidiaries)
at the time that the option is granted. Since the 10% ownership limitation
applies at the time that the option is granted, an employee is not
disqualified if he acquires additional stock (including stock received upon
exercise of the option) after the date on which the ISO is granted.
7. Grant of Options
7.1. Shares Subject to the Plan. Shares of Common Stock issued
upon the exercise of outstanding Options may be (i) authorized but unissued
shares of Common Stock, (ii) issued shares of Common Stock which are held in
the Company's treasury or (iii) any combination thereof. If any Options
granted under the Plan shall expire, terminate or be canceled prior to their
exercise in full, the number of shares of Common Stock for which such Options
have not been exercised shall again become available for grant pursuant to
the terms and provisions of the Plan. The Board may grant more than one
Option to an individual during the term of the Plan. Subject to the general
terms and provisions of the Plan, Options shall be exercisable at the price,
during the period, and in accordance with any other terms or conditions,
specified by the Board at the time the Option is granted.
7.2. Period of Grant of Options. Options may be granted at any
time after the Plan has been duly adopted by the Shareholders of the Company.
7.3. Option Agreement. Each Option shall be evidenced by an
option agreement ("Option Agreement") containing terms and provisions (which
need not be identical) established by the Board and, in all cases, consistent
with the terms and provisions of the Plan.
7.4. Anti-dilution Provisions. In the event of any change in the
outstanding shares of Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination,
exchange of shares, or other like change in the capital structure of the
Company, an adjustment shall be made to each outstanding Option such that
each such Option shall thereafter be exercisable for such securities, cash
and/or other property as would have been received in respect of the Common
Stock subject to such Option had such Option been exercised in full
immediately prior to such change, and such an adjustment shall be made
successively each time any such change shall occur. The term "Common Stock"
after any such change shall refer to the securities, cash and/or property
then receivable upon the exercise of an Option. In addition, in the event of
any such change, the Board shall make any further adjustment as may be
appropriate to the maximum number of shares of Common Stock subject to the
Plan, the number of shares of Common Stock and the price per share of Common
Stock subject to outstanding Options as shall be equitable to prevent
dilution or enlargement of rights under such Options, and the determination
of the Board with respect to these matters shall be conclusive.
3
<PAGE>
7.5. Change in Control
7.5.1. Upon the occurrence of a "Change in Control"
(as defined below) of the Company, each outstanding Option which
is owned by an Optionee and which is not then exercisable in full
shall immediately become exercisable.
7.5.2. The Board, in its discretion, may determine
that, upon the occurrence of a Change in Control of the Company,
each Option outstanding hereunder shall terminate within a
specified number of days after notice to the Optionee, and such
Optionee shall receive, with respect to each share of Common
Stock subject to such Option, cash (or consideration which may be
the same consideration received by stockholders of the Company in
the transaction constituting the Change in Control) in an amount
equal to the excess of the fair market value of such Common Stock
immediately prior to the occurrence of the Change in Control, as
determined in good faith by the Board, over the exercise price
per share of Common Stock underlying such Option. The provisions
contained in this subsection 7.5.2 shall be inapplicable to an
Option granted within the six-month period next preceding the
occurrence of the applicable Change in Control if (i) the holder
of such Option is a director or officer of the Company or a
beneficial owner of the Company who is described in Section 16
(a) of the Exchange Act and (ii) Section 16 (b) of the Exchange
Act is applicable to such holder, unless such holder dies or
becomes disabled (as determined by the Board) prior to the
expiration of such six-month period.
7.5.3. For purposes of the Plan, a "Change in
Control" of the Company shall be deemed to have occurred if:
(i) A change in control of the direction
and administration of the Company's
business of a nature that would be
required to be reported in response to
Item 6 (e) of Schedule 14A of
Regulation 14A (or any successor rule
or regulation) promulgated under the
Exchange Act shall have occurred,
whether or not the Company is then
subject to such reporting requirement;
(ii) Any "person" (as such term is used in
Section 13 (d) and 14 (d) (2) of the
Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule
13d-3 under the Exchange Act),
directly or indirectly, of securities
of the Company representing 50% or
more of the combined voting power of
the Company's outstanding securities
then entitled (and apart from rights
accruing under special circumstances)
to vote generally for the election of
directors;
(iii) The Board shall approve a sale of all
or substantially all of the assets of
the Company and its Subsidiaries
(taken as a whole); or
(iv) The Board shall approve any merger,
consolidation, or like business
combination transaction or
reorganization of the Company, the
consummation of which would result in
the occurrence of any one or more of
the events described in clauses (i)
through (iii) above.
4
<PAGE>
The public offering and sale of Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall not be deemed to constitute a Change in Control of
the Company.
8. Exercise Period. Each option, granted under the Plan, must be
exercised prior to the 10- year anniversary of the date on which the option
is granted or the date this Plan is adopted by the shareholders of the
Company, whichever first occurs . Each option, granted under the Plan, may
not be exercised prior to the expiration of the six-month anniversary of an
employee's first day of employment.
9. Holding Period. Upon exercise of an ISO, no "Disposition" (as such
term is defined below) of the acquired stock may be made by the Optionee
either (a) within the two year period after the option is granted, and/or (b)
within one year after the stock is transferred to him. This holding period
requirement does not apply to options that are exercised after the employee's
death.
The term "Disposition" is defined as a lifetime transfer of legal
title, whether by sale, exchange, or gift, but not including:
(a) a transfer occurring as a result of the employee's
death, whether by bequest, inheritance, or from the
decedent to his estate;
(b) a transfer from an employee to a joint tenancy (with
the right of survivorship), of which the employee is
a joint tenant;
(c) a pledge or hypothecation;
(d) a transfer to a reversionary trust where the trustee
has no authority to sell or otherwise dispose of the
stock and where the trustee must redeliver the stock
to the grantor upon expiration of the trust term;
(e) a transfer to a spouse, or to a former spouse if
incident to divorce, (or in trust for the benefit of
the spouse or former spouse);
(f) a transfer by an insolvent Optionee to a trustee,
receiver, or any other similar fiduciary in any
proceeding under title 11 or any similar insolvency
proceeding, and/or any other transfer for the benefit
of creditors in such proceeding;
(g) any other transfers which may be permitted from time
to time under Internal Revenue Code Section 422, the
effect of which does not cause the option to be other
than an ISO.
10. Non-Transferability. Each option will be non-transferable by the
Optionee otherwise than by will or the laws of descent and distribution. An
option may only be exercised by the Optionee; except, however, in the event
of the Optionee's death (as reviewed above).
5
<PAGE>
11. Exercise of Option. An Optionee may exercise his option by written
notice to the Company (which notice must indicate the number of shares, up to
the then remaining and unexercised number of option shares exercisable by
him).
12. Option Exercise Price. The exercise price of each share of the
option shares (without regard to the date of exercise) shall be equal to and
not less than the fair market value thereof as of the date the Option is
granted (the "Exercise Price"). Fair market value shall be determined in good
faith by the Board, using any reasonable valuation method, without regard to
any restriction other than a restriction which, by its terms, will never
lapse.
13. Payment of Exercise Price. Upon exercise of the Optionee's Option,
the Optionee shall pay to the Company an amount equal to the product of the
per share Exercise Price, multiplied by the number of option shares which the
Optionee then elects to purchase. The aggregate Exercise Price for all of the
option shares which the Optionee elects to purchase will be payable to the
Company in immediately available funds (either cash, or by certified or
cashier's check made payable to the Company), or by tendering of shares of
Common Stock of the Company owned by the Optionee.
14. No Registration. Neither the Plan, nor the shares of Common Stock
of the Company which may be purchased under the Plan have been registered
under the Securities Act, nor pursuant to any state securities laws, and may
not be sold, transferred, pledged, or otherwise disposed of other than
pursuant to an effective registration statement under the Securities Act or
upon receipt of an opinion of counsel for the Company to the effect that such
disposition is in compliance with the Act and applicable state securities
laws. By exercise of an employee's rights to purchase the Common Stock of the
Company, the Optionee thereby agrees that the shares of common stock of the
Company to be acquired by him will be acquired for investment purposes only
and not with a view to or for resale in connection with the distribution
thereof.
15. Endorsement of Certificates. Each stock certificate representing
the option shares (when issued) shall conspicuously bear the following
legend:
The shares of stock represented by this Certificate are subject
to the terms and conditions of an Incentive Stock Option Plan, a
copy of which is on file in the office of the Secretary of the
Company. This Plan provides, among other things, for certain
restrictions on the disposition of the shares represented by this
Certificate.
The shares have not been registered under the Securities Act of
1933 (the "Securities Act") or applicable state securities laws.
Accordingly, in addition to such other restrictions, the shares
(including any lesser number thereof) may not be sold or offered
for sale, pledged, hypothecated or otherwise transferred except:
(a) pursuant to Rule 144 of the Securities Act,
(b) if such shares shall be covered by a registration
statement effective under the Securities Act and
applicable state securities laws, or
6
<PAGE>
(c) if the Company has received an opinion of counsel,
satisfactory to the Company, that registration under
the Securities Act and/or applicable state securities
laws is not required to effectuate such transaction.
16. Withholding Taxes. At any time that the Company becomes subject
to a withholding obligation under applicable law with respect to the exercise
of an Option (the "Tax Date"), except as set forth below, the Optionee may
elect to satisfy, in whole or in part, the Optionee's related personal tax
liabilities (an "Election") by (i) directing the Company to withhold from the
shares of Common Stock having a specified value (in each case not in excess
of such related personal tax liabilities), (ii) tendering shares of Common
Stock issued pursuant to the exercise of an Option or other shares of the
Company's Common Stock owned by the Optionee, or (iii) combining any or all
of the foregoing options in any fashion. An Election shall be irrevocable.
The withheld shares of Common Stock and other shares tendered in payment
should be valued at their fair market value on the Tax Date. The Board may
disapprove of any Election, suspend or terminate the right to make Elections
or provide that the right to make Elections shall not apply to particular
grants, shares of Common Stock or exercises. Unless otherwise permitted by
the Board, if an Optionee is a person subject to Section 16 of the Exchange
Act then (1) any Election by such Optionee must be made (i) at least six
months prior to the relevant Tax Date or (ii) on or prior to the relevant Tax
Date and during a period that begins on the third business day following the
date of release of publication of the Company's quarterly or annual summary
statements of revenues and income and that ends on the twelfth business day
following such date, and (2) the Election may not be made with respect to an
exercise, or the withholding obligation arising thereon, if the relevant
Option was granted six months or less prior to the date of Election. The
Board may impose any other conditions or restrictions on the right to make an
Election as it shall deem appropriate.
17. Issuance of Shares. No shares of Common Stock shall be issued and
delivered upon exercise of any Option unless and until, in the opinion of the
Board, any applicable registration requirements of the Securities Act (or
exemptions therefrom), any applicable listing or quotation requirements of
any national securities exchange or inter-dealer quotation system of a
registered national securities association on which shares of the same class
of stock is then listed (or admitted to unlisted trading privileges) or
authorized to be quoted, and any other requirements of law or any regulatory
bodies having jurisdiction over such issuance and delivery, shall have been
fully satisfied.
18. Other Conditions. If at any time counsel to the Company shall be
of the opinion that any sale or delivery of shares of Common Stock pursuant
to an Option granted under the Plan is or may in the circumstances be
unlawful under the statutes, rules or regulations of any applicable
jurisdiction, the Company shall have no obligation to make such sale or
delivery until, in the opinion of said counsel, such sale or delivery shall
be lawful. At the time of any grant or exercise of any Option, the Company
may, if it shall deem it necessary or desirable for any reason connected with
any law or regulation of any governmental authority relative to the
regulation of securities, condition the grant and/or exercise of such Option
upon the Optionee making appropriate representations and warranties to the
Company and the satisfaction of the Company with the correctness of such
representations.
7
<PAGE>
19. Purchase for Investment. Except as hereinafter provided, the
Board may require an Optionee, upon the grant of any Option hereunder and
upon the exercise of any Option granted hereunder to execute and deliver to
the Company a written statement, in form and substance satisfactory to the
Board, in which the Optionee represents and warrants that the shares of
Common Stock are being acquired for such person's own account, for investment
purposes only and not with a view to the resale or distribution of all or any
portion thereof. The Optionee shall, at the request of the Board, be required
to represent and warrant in writing that, to the extent permitted by the
terms of the award, any subsequent resale or distribution of shares of Common
Stock by the Optionee shall be made only pursuant to either (i) a
registration statement on an appropriate form under the Securities Act, which
registration statement has become effective and is current with regard to the
shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such
exemption the Optionee shall, prior to any offer of sale or sale of such
shares of Common Stock, obtain a prior favorable written opinion of counsel,
in form and substance satisfactory to counsel for the Company, as to the
application of such exemption thereto. The foregoing restriction shall not
apply to (i) issuances by the Company so long as the shares Securities Act
and a prospectus in respect thereof is current or (ii) reofferings of shares
of Common Stock by "Affiliates" of the Company (as defined in Rule 144 (a)
(1) or any successor rule or regulation promulgated under the Securities Act)
if the shares of Common Stock being reoffered are registered under the
Securities Act and a prospectus in respect thereof is current.
20. General Provisions
20.1. Amendment. This Plan may be modified or terminated at
any time by the Company, without prior notice to any
employee; except, no such modification or
termination:
(a) will affect any rights of any employee
pursuant to any options already granted
by the Company prior to the effective
date thereof, and
(b) such modification or termination will
require the ratification of the Company's
stockholder(s) within one year after the
effective date, to the extent required
under Section 422 of the Internal Revenue
Code of 1986, as amended.
20.2. Governing Law. This Plan will be governed by,
construed, interpreted and enforced in accordance
with the laws of the State of Nevada and the Internal
Revenue Code of 1986, as amended.
20.3. No Guarantee of Employment. Neither the Plan, the
grant of any Options hereunder nor the execution and
delivery of any Option Agreement shall confer on any
Optionee any right to continue as an employee of the
Company or any of its Subsidiaries, nor shall it
interfere in any respect with an Optionee's right or
the right of the Company (or any of its Subsidiaries)
to terminate at any time such employment.
8
<PAGE>
20.4. Indemnification. Service on the Board shall
constitute service as a director of the Company, and
members of the Board shall be entitled to
indemnification and reimbursement as directors for
the Company pursuant to its Certificate of
Incorporation or By-laws, as in effect from time to
time, and applicable statutes and common law.
20.5. Compliance with Exchange Act. With respect to persons
subject to Rule 16b-3 under the Exchange Act,
transactions under the Plan are intended to comply
with all applicable conditions of such regulation or
its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Board
fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable
by the Board.
Signature
In the presence of the witnesses whose signatures appear below, Company has
caused this Plan to be duly executed on the date first written above.
Witness: Company:
AWG, Ltd.
By:
- --------------------------- -------------------------------
Mack H. Jennings
Its: President
- ---------------------------
9
6.14 FORM OF INCENTIVE STOCK OPTION AGREEMENT UNDER THE ISO PLAN
<PAGE>
THIS STOCK OPTION AGREEMENT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF
THE EMPLOYEE/GRANTEE'S OPTION RIGHTS HEREUNDER (THE "STOCK") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER THE
SECURITIES LAWS OF ANY STATE (COLLECTIVELY THE "SECURITIES LAWS"); NEITHER
THIS STOCK OPTION AGREEMENT NOR THE STOCK ARE TRANSFERABLE EXCEPT IN
COMPLIANCE WITH THE SECURITIES LAWS AND IN COMPLIANCE WITH THE CONDITIONS
SPECIFIED IN THIS STOCK OPTION AGREEMENT
- -----------------------------------------------------------------------------
A.W.G., Ltd. Incentive Stock Option Plan
Stock Option Agreement
Option Number 001
Employee _______________
Number of Option Shares _______________
Exercise Price $______________
Option Grant Date 00-00-00
Expiration Date 00-00-00 (Tenth Anniversary of Option Grant Date)
=============================================================================
This Stock Option Agreement (the "Agreement") is made by A.W.G., Ltd., a
Nevada corporation (the "Company"), effective as of the "Option Grant Date".
The Option Grant Date is the date on which the Option is granted to the
Employee.
Recitals:
A. On , 1998, the Company established the A.W.G., Ltd. Stock
Incentive Plan (the "Plan"). The terms and conditions of the Plan
are incorporated herein by reference; in the event of any
conflict between the terms and conditions of the Plan and this
Agreement, the Plan will supersede any conflicting term or
condition of this Agreement.
B. The authorized capital stock of the Company consists of 60,000
shares of common stock.
C. _______________ (the "Employee") is eligible, under the Plan, to
receive the option to purchase common stock from the Company. The
Company desires to grant to Employee the option to purchase
common stock in accordance with the terms and conditions of this
Agreement.
Therefore, the Company agrees as follows:
1. Option to Acquire Company Shares
1.1 Grant of Option. Company grants to Employee the option (the
"Option") to purchase up to (but not exceeding) ________________ (____)
shares of the authorized common stock of the Company. The shares of common
stock of the Company, which will be issued upon exercise of the Option, are
referred to as the "Option Shares".
<PAGE>
1.2 Right to Exercise Option; Exercise Period. Subject to Section
1.7 and the other terms and conditions of this Agreement, Employee may
exercise Employee's Option to acquire all or any number of (but not exceeding
the number of) Option Shares, in one or any number of series of purchases, at
any time from and after the later of the Option Grant Date or the six-month
anniversary of the Employee's employment date with the Company and continuing
thereafter for a period of ten (10) years until the Expiration Date
(indicated above) (such period being referred to as the "Option Period").
1.3 Exercise of Option. Employee may exercise the Employee's
Option by written notice from Employee to the Company (which notice must
indicate the number of Option Shares to be purchased, up to the then
remaining and unexercised number of Option Shares) together with payment (in
accordance with Sections 1.4 and 1.5 below) in full for the Option Shares to
be purchased.
1.4 Option Exercise Price. The purchase price for each share of
the Option Shares (without regard to the date of exercise) shall be equal to
(and not less than) the fair market value thereof as of the Option Grant
Date; fair market value shall be determined by using any reasonable valuation
method, without regard to any restriction other than a restriction which, by
its terms, will never lapse. Based on this standard, the Board of Directors
of the Company has determined, in good faith and in accordance with the
requirements of Internal Revenue Code Section 422(c), that the purchase price
is __________ dollar ($_____) per share (the "Exercise Price").
1.5 Payment of Exercise Price. Upon exercise of the Employee's
Option, the Employee shall pay to the Company an amount equal to the product
of (a) the per share Exercise Price, multiplied by (b) the number of Option
Shares which the Employee then elects to purchase. The aggregate Exercise
Price, for all of the Option Shares which the Employee elects to purchase,
will be payable to the Company in immediately available funds (either cash,
or by certified or cashier's check made payable to the Company).
1.6 Annual Limit On Exercise of Options. To the extent that the
aggregate fair market value (determined as of the Option Grant Date) of the
Option Shares which may be purchased under this Option during any calendar
year exceeds $100,000.00, the Options with respect thereto (only with respect
to the portion attributable to Option Shares with a fair market value in
excess of $100,000) shall not be treated as incentive stock options. For
example, if the Employee is granted an option to purchase 10,000 shares of
the Company's stock, and if the employee is permitted to exercise 2,500
shares in each of four successive calendar years, and if the fair market
value on the date of exercise was $50 per share, only the first $100,000 (in
value) of shares issued in each year will be treated as stock acquired
pursuant to an incentive stock option. The balance, of $25,000 (in value) of
shares received in each calendar year will not be treated as stock acquired
pursuant to an incentive stock option.
2. Adjustment of Number of Option Shares; Merger or Consolidation
2.1 Adjustment of Number of Shares Which May Be Purchased. If, at
any time or from time to time, the number of issued common shares of the
Company shall be increased or
2
<PAGE>
reduced by a recapitalization, reclassification, distribution of a dividend
payable in shares, or if the common stock of the Company shall be
reclassified or converted into a different number or class of shares, the
number and class of Option Shares shall be equitably and proportionately
adjusted.
2.2 Merger or Consolidation. If, at any time during the Option
Period, the Company shall consolidate with, or merge into, another
corporation, the Employee shall thereafter be entitled, upon exercise hereof,
to purchase, with respect to each share of common stock then purchasable
hereunder immediately prior to the date upon which such consolidation or
merger shall become effective (i.e., with respect to each then remaining and
unexercised Option Share) the securities or property to which a holder of one
share of common stock of the Company would have been entitled upon such
consolidation or merger, without any change in, or payment in addition to,
the Exercise Price in effect immediately prior to such merger or
consolidation, and the Company shall take such steps in connection with such
consolidation or merger as may be necessary to ensure that all of the
provisions of this Agreement shall thereafter be applicable, as nearly as is
reasonably practicable, in relation to any securities or property thereafter
deliverable upon the exercise of this Agreement. The Employee shall have no
cause or standing to block, delay, or otherwise interfere with or prevent any
such merger or consolidation transaction.
3. Termination; Death; Forfeiture of Option
3.1 Termination of Employment. Except as otherwise expressly
provided to the contrary in this Section 3, the Employee must be employed by
the Company (or an "Affiliate"; as such term is defined below) at all times
during the period beginning on the Option Grant Date and continuing through
and including the date that the Option (whether in whole or in part) is
exercised. In the event that Employee's employment with the Company is
terminated for any reason whatsoever, or without reason, whether voluntary or
involuntary, whether with cause or without cause, other than by reason of
Employee's death or disability, the entire unexercised portion of the Option
shall terminate immediately, in which event, and at such time, the Employee
shall not be entitled to thereafter purchase any further unexercised Option
Shares.
Employee's employment shall be deemed to continue during any period in which
the Employee is on military, sick, or other authorized leave of absence not
in excess of 90 days (or longer if the Employee's right to return to work is
guaranteed by contract or by applicable law). The Employee's employment with
the Company shall not be deemed terminated if the Employee, without lapse,
thereafter is employed by an "Affiliate" of the Company; the term "Affiliate"
means a wholly-owned subsidiary and/or parent corporation of the Company.
3.2 Disability. In the event that Employee's employment with the
Company is terminated by reason of Employee's disability, within the meaning
of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended,
Employee may exercise Employee's Option with respect to any remaining and
unexercised Option Shares at any time prior to the expiration of the three
month period following the Employee's effective date of termination.
3
<PAGE>
3.3 Employee's Death. In the case of the Employee's death, his
Option up to the then remaining and unexercised number of Option Shares may
be exercised after his death by his estate, or by a person who acquires the
right to exercise such Option by bequest or inheritance or by reason of the
death of the Employee, at any time prior to the expiration of the six (6)
month period following the Employee's death. In such event, the employment
requirement for the date of exercise (pursuant to Section 3.1) shall not
apply and the holding period requirement (pursuant to Section 4.2) shall not
apply. The holding period does apply where the Employee dies after he
exercises his Option (as to the exercised number of Option Shares). Also,
although the employment requirement no longer applies, the Employee must have
satisfied the employment requirement at the time of his death; accordingly,
his death must have occurred prior to the expiration of the three-month
period following the date on which his employment terminated.
3.4 Forfeiture of Option. The Employee's Option to purchase any
remaining and unexercised Option Shares shall automatically forfeit without
further action or notice upon the first to occur of the Expiration Date; or
the expiration of any period of permitted exercise following termination of
employment as expressly provided above.
4. Shareholder Rights; Holding Period; Restrictions on Disposition
4.1 No Voting, Dividend, or Other Shareholder Rights. This
Agreement shall not entitle the Employee to any voting, dividend, or other
rights as a shareholder of the Company, or to any other rights whatsoever,
except the rights herein set forth, until or unless the Employee shall
exercise Employee's purchase rights in accordance with the terms of this
Agreement. Subject to Section 4.2, upon the exercise of the Employee's
Option, and the purchase and issuance of the Option Shares pursuant thereto,
Employee shall acquire with respect to the exercised and purchased Option
Shares all rights and privileges of a holder of common stock of the Company.
4.2 Holding Period; Restrictions on Disposition. Except as
expressly provided to the contrary in the Plan, the Employee may not make or
permit to be made any "Disposition" (as such term is defined below) of any
Option Shares acquired upon exercise of his Option; accordingly, no such
Disposition shall be binding or valid if made in violation of any of the
terms or conditions of the Plan. Without limitation on the foregoing, in
addition, upon exercise of his Option, no Disposition of the acquired Option
Shares may be made by the Employee either (a) within the two year period
after the Option Grant Date, and/or (b) within one year after the stock is
transferred to him. This holding period requirement does not apply to options
that are exercised after the Employee's death.
4.3 Disposition Defined. The term "Disposition" is defined as a
lifetime transfer of legal title, whether by sale, exchange, or gift, but not
including:
(a) a transfer occurring as a result of the Employee's death, whether
by bequest, inheritance, or from the decedent to his estate;
4
<PAGE>
(b) a transfer from the Employee to a joint tenancy (with the right
of survivorship), of which the Employee is a joint tenant;
(c) a pledge or hypothecation;
(d) a transfer to a reversionary trust where the trustee has no
authority to sell or otherwise dispose of the stock and where the
trustee must redeliver the stock to the grantor upon expiration
of the trust term;
(e) a transfer to a spouse, or to a former spouse if incident to
divorce, (or in trust for the benefit of the spouse or former
spouse);
(f) a transfer by an insolvent option holder to a trustee, receiver,
or any other similar fiduciary in any proceeding under title 11
or any similar insolvency proceeding, and/or any other transfer
for the benefit of creditors in such proceeding;
(g) any other transfers which may be permitted from time to time
under Internal Revenue Code Section 422, the effect of which does
not cause the option to be other than an incentive stock option.
4.4 Non-Transferability. The Employee's Option is
non-transferable by the Employee otherwise than by will or the laws of
descent and distribution. The Option may only be exercised by the Employee;
except, however, in the event of the Employee's death (as provided in Section
3.3).
5. No Registration. Neither this Agreement, nor the shares of stock of the
Company which may be purchased under this Agreement, nor any other shares of
stock of the Company (a) have been registered under the Securities Act of
1933, as amended (the "Act"), nor pursuant to any state securities laws, and
(b) may be sold, transferred, pledged, or otherwise disposed of other than
pursuant to an effective registration statement under the Act or upon receipt
of an opinion of counsel for the Company to the effect that such disposition
is in compliance with the Act and applicable state securities laws. By
exercise of Employee's rights to purchase the common stock of the Company,
the Employee thereby agrees that the shares of common stock of the Company to
be acquired by Employee will be acquired for investment purposes only and not
with a view to or for resale in connection with the distribution thereof.
6. Reservation of Shares. The Company agrees at all times to reserve and make
available a sufficient number of shares of its common stock to permit
issuance of the number of shares which may be purchased under this Agreement.
7. Endorsement of Certificates. Each stock certificate representing the
Option Shares (when issued) shall conspicuously bear the following legend:
"The shares of stock represented by this Certificate are subject to the terms
and conditions of a certain Incentive Stock Option Plan, dated , 1998,
a copy of which is on file in the
5
<PAGE>
office of the Secretary of the Company. This Plan provides, among other
things, for certain restrictions on the sale, pledge or other disposition of
the shares represented by this Certificate.
"The shares have not been registered under the Securities Act of 1933 (the
"Securities Act") or applicable state securities laws. Accordingly, in
addition to such other restrictions, the shares (including any lesser number
thereof) may not be sold or offered for sale, pledged, hypothecated or
otherwise transferred except:
(a) pursuant to Rule 144 of the Securities Act,
(b) if such shares shall be covered by a registration statement
effective under the Securities Act and applicable state
securities laws, or
(c) if the Company has received an opinion of counsel, satisfactory
to the Company, that registration under the Securities Act and/or
applicable state securities laws is not required to effectuate
such transaction."
8. General Provisions
8.1 Governing Law. This Agreement shall be governed by,
construed, interpreted, and enforced in accordance with the laws of the State
of Nevada and applicable federal law.
8.2 Incorporation of Plan. As indicated in Recital Paragraph A,
the terms and conditions of the Plan are incorporated herein by reference; in
the event of any conflict between the terms and conditions of the Plan and
this Agreement, the Plan will supersede any conflicting term or condition of
this Agreement. Employee acknowledges receipt of a copy of the Plan, by
Employee's signature below. The Company agrees to notify Employee, in
writing, of any amendments to or the termination of the Plan.
8.3 Descriptive Headings. Titles to paragraphs and subparagraphs
are intended only for convenience of reference and shall be given no effect
in the construction or interpretation of this Agreement.
8.4 10% Stock Ownership Rule. The Employee will not be eligible
to receive this Option if he owns more than 10% of the total combined voting
power or value of all classes of stock of the Company (or an "Affiliate") on
the Option Grant Date. Since the 10% ownership limitation applies on the
Option Grant Date, the Employee is not disqualified if he acquires additional
stock (including stock received upon exercise of the Option) after the Option
Grant Date.
[signatures on following page]
6
<PAGE>
Signatures
In the presence of the witnesses whose signatures appear below, Company and
Employee have caused this Agreement to be duly executed effective as of the
Option Grant Date.
Witness: Company:
A.W.G., Ltd.
By:
- ----------------------------- -----------------------------
Mack Jennings
Its: President
Witness: Employee:
- ----------------------------- ----------------------------------
Name:
7
6.15 AWG, LTD. NON-QUALIFIED STOCK OPTION PLAN ("NON-QUALIFIED PLAN")
<PAGE>
AWG, Ltd. Non-Qualified Stock Option Plan
=============================================================================
This Non-Qualified Stock Option Plan (the "Plan") is made and entered into on
January 13, 1998, by AWG, Ltd., a Nevada corporation (the "Company").
Recitals:
The following recitals form the underlying basis of this Agreement, and will
be construed as an integral part of this Plan:
A. The Company desires to retain persons with significant training,
experience and ability as directors, executives, employees and
consultants of the Company, induce its directors, executives,
employees and consultants to have the highest regard for the
success of the Company, and reward the loyalty and efforts of its
directors, executives, employees and consultants.
B. This Plan is not intended to qualify as an incentive stock option
plan under the provisions of Section 422 of the Internal Revenue
Code of 1986, as amended.
Therefore, the Company adopts the following Plan:
1. Number of Shares Available for Stock Options. The Plan will make
up to one million five hundred thousand (1,500,000) shares of the common
stock of the Company (the "Common Stock") available for the rights granted
pursuant to the Plan to purchase shares of Common Stock (the "Option(s)").
The maximum aggregate number of shares which may be issued, transferred or
sold upon the exercise of Options shall not exceed five hundred thousand
(500,000) shares annually, except as such number may be adjusted in
accordance with the provisions of Section 3.4 hereof. The maximum aggregate
number of shares which may be issued, transferred or sold upon the exercise
of Options to any one individual shall not exceed one hundred thousand
(100,000) shares annually, except as such number may be adjusted in
accordance with the provisions of Section 3.4 hereof.
2. Administration of the Plan
2.1. The Board. The Plan shall be administered by the Board;
provided, however, that the Board shall have the right to amend the Plan, in
accordance with Section 14.1, to provide for the administration of the Plan
by a committee of the Board.
2.2. Powers of the Board. Subject to the terms and provisions of
the Plan, the Board shall have authority, in its discretion, to determine (i)
the persons to whom Options shall be granted (the "Optionees"), (ii) the time
when such Options shall be granted, (iii) the number of Options to be granted
to each Optionee, (iv) the exercise price of each Option, (v) the period(s)
during which such Options shall be exercisable (whether in whole or in part),
and (vi) the other provisions thereof (which need not be identical). Subject
to the terms and provisions of the Plan, the Board also shall have the
authority to construe the Plan and Options granted thereunder, to amend the
terms of the Plan and the "Option Agreements" (as that term is hereinafter
defined) entered into thereunder, to prescribe, amend and rescind rules and
regulations relating to the
<PAGE>
Plan, to determine the terms and provisions of the respective Option
Agreements (which need not be identical) and to make all other determinations
necessary or advisable for administering and effectuating the purposes of the
Plan. The Board shall have the authority to require, in its discretion, that
the Optionee agree not to sell or otherwise dispose of Common Stock acquired
pursuant to the exercise of any Option for a period of up to six months if
such sale or other disposition would subject the Optionee to liability under
Section 16 (b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
2.3. Outside Counsel. The Board may employ such legal counsel,
consultants and advisors as it may deem desirable for the administration of
the Plan and may conclusively rely upon any opinion or computation received
from any such counsel, consultant or advisor. Expenses incurred by the Board
in the engagement of such counsel, consultant or advisor shall be paid for by
the Company.
2.4. Liability of the Board. No member of the Board shall be
liable for any action, failure to act or determination made with respect to
the administration of the Plan or any Options granted hereunder; provided
that such action, failure to act or determination is made in good faith and
in accordance with terms and provisions of the Plan.
3. Grant of Options
3.1. Shares Subject to the Plan. Shares of Common Stock issued
upon the exercise of outstanding Options may be (i) authorized but unissued
shares of Common Stock, (ii) issued shares of Common Stock which are held in
the Company's treasury or (iii) any combination thereof. If any Options
granted under the Plan shall expire, terminate or be canceled prior to their
exercise in full, the number of shares of Common Stock for which such Options
have not been exercised shall again become available for grant pursuant to
the terms and provisions of the Plan. The Board may grant more than one
Option to an individual during the term of the Plan. Subject to the general
terms and provisions of the Plan, Options shall be exercisable at the price,
during the period, and in accordance with any other terms or conditions,
specified by the Board at the time the Option is granted.
3.2. Period of Grant of Options. Options may be granted at any
time after the Plan has been duly adopted by the Shareholders of the Company.
3.3. Option Agreement. Each Option shall be evidenced by an
option agreement ("Option Agreement") containing terms and provisions (which
need not be identical) established by the Board and, in all cases, consistent
with the terms and provisions of the Plan.
3.4. Anti-dilution Provisions. In the event of any change in the
outstanding shares of Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination,
exchange of shares, or other like change in the capital structure of the
Company, an adjustment shall be made to each outstanding Option such that
each such Option shall thereafter be exercisable for such securities, cash
and/or other property as would have been received in respect of the Common
Stock subject to such Option had such Option been exercised in full
immediately prior to such change, and such an adjustment shall be made
successively each time any such change shall occur. The term "Common Stock"
after any such
2
<PAGE>
change shall refer to the securities, cash and/or property then receivable
upon the exercise of an Option. In addition, in the event of any such change,
the Board shall make any further adjustment as may be appropriate to the
maximum number of shares of Common Stock subject to the Plan, the number of
shares of Common Stock and the price per share of Common Stock subject to
outstanding Options as shall be equitable to prevent dilution or enlargement
of rights under such Options, and the determination of the Board with respect
to these matters shall be conclusive.
3.5. Change in Control
3.5.1. Upon the occurrence of a "Change in Control"
(as defined below) of the Company, each outstanding Option which
is owned by an Optionee and which is not then exercisable in full
shall immediately become exercisable.
3.5.2. The Board, in its discretion, may determine
that, upon the occurrence of a Change in Control of the Company,
each Option outstanding hereunder shall terminate within a
specified number of days after notice to the Optionee, and such
Optionee shall receive, with respect to each share of Common
Stock subject to such Option, cash (or consideration which may be
the same consideration received by stockholders of the Company in
the transaction constituting the Change in Control) in an amount
equal to the excess of the fair market value of such Common Stock
immediately prior to the occurrence of the Change in Control, as
determined in good faith by the Board, over the exercise price
per share of Common Stock underlying such Option. The provisions
contained in this subsection 3.5.2 shall be inapplicable to an
Option granted within the six-month period next preceding the
occurrence of the applicable Change in Control if (i) the holder
of such Option is a director or officer of the Company or a
beneficial owner of the Company who is described in Section 16
(a) of the Exchange Act and (ii) Section 16 (b) of the Exchange
Act is applicable to such holder, unless such holder dies or
becomes disabled (as determined by the Board) prior to the
expiration of such six-month period.
3.5.3. For purposes of the Plan, a "Change in
Control" of the Company shall be deemed to have occurred if:
(i) A change in control of the direction and
administration of the Company's
business of a nature that would be
required to be reported in response to
Item 6 (e) of Schedule 14A of
Regulation 14A (or any successor rule
or regulation) promulgated under the
Exchange Act shall have occurred,
whether or not the Company is then
subject to such reporting requirement;
(ii) Any "person" (as such term is used in
Section 13 (d) and 14 (d) (2) of the
Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly
or indirectly, of securities of the
Company representing 50% or more of the
combined voting power of the Company's
outstanding securities then entitled
(and apart from rights accruing under
special circumstances) to vote
generally for the election of
directors;
3
<PAGE>
(iii) The Board shall approve a sale of all
or substantially all of the assets of
the Company and its Subsidiaries (taken
as a whole); or
(iv) The Board shall approve any merger,
consolidation, or like business
combination transaction or
reorganization of the Company, the
consummation of which would result in
the occurrence of any one or more of
the events described in clauses (i)
through (iii) above.
The public offering and sale of Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall not be deemed to constitute a Change in Control of
the Company.
4. Death of Optionee. In the case of the death of the Optionee, his
Option may be exercised after his death by the deceased Optionee's estate, or
by a person who acquires the right to exercise such Option by bequest or
inheritance or by reason of the death of the Optionee, within the six month
period following the date of the Optionee's death.
5. Non-Transferability. Each Option will be non-transferable by the
Optionee otherwise than by will or the laws of descent and distribution. An
Option may only be exercised by the Optionee; except, however, in the event
of the Optionee's death as provided in Section 4 above.
6. Exercise of Option. An Optionee may exercise his Option by
written notice to the Company (which notice must indicate the number of
shares, up to the then remaining and unexercised number of option shares
exercisable by him).
7. Option Exercise Price. The exercise price of each share of the
option shares (without regard to the date of exercise) shall be equal to and
not less than the fair market value thereof as of the date the Option is
granted (the "Exercise Price"). Fair market value shall be determined in good
faith by the Board, using any reasonable valuation method, without regard to
any restriction other than a restriction which, by its terms, will never
lapse.
8. Payment of Exercise Price. Upon exercise of the Optionee's Option,
the Optionee shall pay to the Company an amount equal to the product of the
per share Exercise Price, multiplied by the number of option shares which the
Optionee then elects to purchase. The aggregate Exercise Price for all of the
option shares which the Optionee elects to purchase will be payable to the
Company in immediately available funds (either cash, or by certified or
cashier's check made payable to the Company), or by tendering of shares of
the Common Stock of the Company owned by the Optionee.
9. No Registration. Neither the Plan, nor the shares of Common Stock
of the Company which may be purchased under the Plan have been registered
under the Securities Act, nor pursuant to any state securities laws, and may
not be sold, transferred, pledged, or otherwise disposed of other than
pursuant to an effective registration statement under the Securities Act or
upon receipt of an opinion of counsel for the Company to the effect that such
disposition is in compliance with the Act and applicable state securities
laws. By exercise of an employee's rights to purchase the common stock of the
Company, the Optionee thereby agrees that the shares of
4
<PAGE>
Common Stock of the Company to be acquired by him will be acquired for
investment purposes only and not with a view to or for resale in connection
with the distribution thereof.
10. Withholding Taxes. At any time that the Company becomes subject to
a withholding obligation under applicable law with respect to the exercise of
an Option (the "Tax Date"), except as set forth below, the Optionee may elect
to satisfy, in whole or in part, the Optionee's related personal tax
liabilities (an "Election") by (i) directing the Company to withhold from the
shares of Common Stock having a specified value (in each case not in excess
of such related personal tax liabilities), (ii) tendering shares of Common
Stock issued pursuant to the exercise of an Option or other shares of the
Company's Common Stock owned by the Optionee, or (iii) combining any or all
of the foregoing options in any fashion. An Election shall be irrevocable.
The withheld shares of Common Stock and other shares tendered in payment
should be valued at their fair market value on the Tax Date. The Board may
disapprove of any Election, suspend or terminate the right to make Elections
or provide that the right to make Elections shall not apply to particular
grants, shares of Common Stock or exercises. Unless otherwise permitted by
the Board, if an Optionee is a person subject to Section 16 of the Exchange
Act then (1) any Election by such Optionee must be made (i) at least six
months prior to the relevant Tax Date or (ii) on or prior to the relevant Tax
Date and during a period that begins on the third business day following the
date of release of publication of the Company's quarterly or annual summary
statements of revenues and income and that ends on the twelfth business day
following such date, and (2) the Election may not be made with respect to an
exercise, or the withholding obligation arising thereon, if the relevant
Option was granted six months or less prior to the date of Election. The
Board may impose any other conditions or restrictions on the right to make an
Election as it shall deem appropriate.
11. Issuance of Shares. No shares of Common Stock shall be issued and
delivered upon exercise of any Option unless and until, in the opinion of the
Board, any applicable registration requirements of the Securities Act (or
exemptions therefrom), any applicable listing or quotation requirements of
any national securities exchange or inter-dealer quotation system of a
registered national securities association on which shares of the same class
of stock is then listed (or admitted to unlisted trading privileges) or
authorized to be quoted, and any other requirements of law or any regulatory
bodies having jurisdiction over such issuance and delivery, shall have been
fully satisfied.
12. Other Conditions. If at any time counsel to the Company shall be
of the opinion that any sale or delivery of shares of Common Stock pursuant
to an Option granted under the Plan is or may in the circumstances be
unlawful under the statutes, rules or regulations of any applicable
jurisdiction, the Company shall have no obligation to make such sale or
delivery until, in the opinion of said counsel, such sale or delivery shall
be lawful. At the time of any grant or exercise of any Option, the Company
may, if it shall deem it necessary or desirable for any reason connected with
any law or regulation of any governmental authority relative to the
regulation of securities, condition the grant and/or exercise of such Option
upon the Optionee making appropriate representations and warranties to the
Company and the satisfaction of the Company with the correctness of such
representations.
13. Purchase for Investment. Except as hereinafter provided, the
Board may require an Optionee, upon the grant of any Option hereunder and
upon the exercise of any Option granted
5
<PAGE>
hereunder to execute and deliver to the Company a written statement, in form
and substance satisfactory to the Board, in which the Optionee represents and
warrants that the shares of Common Stock are being acquired for such person's
own account, for investment purposes only and not with a view to the resale
or distribution of all or any portion thereof. The Optionee shall, at the
request of the Board, be required to represent and warrant in writing that,
to the extent permitted by the terms of the award, any subsequent resale or
distribution of shares of Common Stock by the Optionee shall be made only
pursuant to either (i) a registration statement on an appropriate form under
the Securities Act, which registration statement has become effective and is
current with regard to the shares of Common Stock being sold, or (ii) a
specific exemption from the registration requirements of the Securities Act,
but in claiming such exemption the Optionee shall, prior to any offer of sale
or sale of such shares of Common Stock, obtain a prior favorable written
opinion of counsel, in form and substance satisfactory to counsel for the
Company, as to the application of such exemption thereto. The foregoing
restriction shall not apply to (i) issuances by the Company so long as the
shares Securities Act and a prospectus in respect thereof is current or (ii)
reofferings of shares of Common Stock by "Affiliates" of the Company (as
defined in Rule 144 (a) (1) or any successor rule or regulation promulgated
under the Securities Act) if the shares of Common Stock being reoffered are
registered under the Securities Act and a prospectus in respect thereof is
current.
The Company may endorse such legend or legends upon the
certificates for shares of Common Stock issued pursuant to Options exercised
under the Plan and may issue such "stop transfer" and related instruction to
its transfer agent in respect of such shares of Common Stock as it determines
to be necessary or appropriate to (i) prevent a violation of, or to perfect
an exemption from, the registration requirements of the Securities Act or
(ii) implement the provisions of the Plan and any agreement between the
Company and the Optionee with respect to such shares of Common Stock.
14. General Provisions
14.1. Amendment and Discontinuance of the Plan. For the purpose
of meeting any provisions or changes in pertinent law or
governmental regulations, or from any other purposes
which at the time may be permitted by law, the Board may,
from time to time, amend or revise the terms of the Plan,
but in no event shall there be any amendment or revision
of the Plan without the approval of the holders of at
least a majority of the outstanding shares of Common
Stock of the Company if such amendment would (i)
materially increase (except as authorized by Section 3.4)
the number of securities which may be issued under the
Plan, (ii) materially increase the benefits accruing to
participants under the Plan, or (iii) materially modify
the requirements as to eligibility for participation
under the Plan. No amendment or modification of the Plan
may impair the rights of any Optionee under Options
(whether or not presently exercisable) granted prior to
such amendment or modification without the consent of
such Optionee.
14.2. Governing Law. This Plan will be governed by, construed,
interpreted and enforced in accordance with the laws of
the State of Nevada.
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14.3. No Guarantee of Employment. Neither the Plan, the grant
of any Options hereunder nor the execution and delivery
of any Option Agreement shall confer on any Optionee any
right to continue as an employee of the Company or any of
its Subsidiaries, nor shall it interfere in any respect
with an Optionee's right or the right of the Company (or
any of its Subsidiaries) to terminate at any time such
employment.
14.4. Indemnification. Service on the Board shall constitute
service as a director of the Company, and members of the
Board shall be entitled to indemnification and
reimbursement as directors for the Company pursuant to
its Certificate of Incorporation or By-laws, as in effect
from time to time, and applicable statutes and common
law.
14.5. Compliance with Exchange Act. With respect to persons
subject to Rule 16b-3 under the Exchange Act,
transactions under the Plan are intended to comply with
all applicable conditions of such regulation or its
successors under the Exchange Act. To the extent any
provision of the Plan or action by the Board fails to so
comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Board.
Signature
In the presence of the witnesses whose signatures appear below, Company has
caused this Plan to be duly executed on the date first above written.
Witness: Company:
AWG, Ltd.
By:
- ---------------------------------- ---------------------
Mack H. Jennings
Its: President
- ----------------------------------
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10.1 CONSENT OF DELOITTE & TOUCHE LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AWG, Ltd. on Form
SB-1 of our report dated January 28, 1998 (February 23, 1998) as to the last
paragraph of Note 13, which report expresses an unqualified opinion and
includes an explanatory paragraph relating to substantial doubt about the
Company's ability to continue as a going concern) with respect to the
consolidated financial statements of AWG, Ltd for the years ended December
31, 1997 and 1996, appearing in the Prospectus, which is part of this
Registration Statement.
March 12, 1998
Deloitte & Touche LLP
San Francisco, California
March 12, 1998
