<PAGE> 1
As filed with the Securities and Exchange Commission on August 21, 1998
Registration No. _______________
==============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
QUILL INDUSTRIES, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
Nevada 87-0476117
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2415 Avenue J, Suite 114, Arlington, Texas 76006
-------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (817) 649-7722
--------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class)
==============================================================================
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QUILL INDUSTRIES, INC.
FORM 10-SB
TABLE OF CONTENTS
PART I Page
Item 1. Description of Business ..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation ... 6
Item 3. Description of Property...................................... 10
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 11
Item 5. Directors, Executive Officers, Promoters
and Control Persons......................................... 11
Item 6. Executive Compensation....................................... 12
Item 7. Certain Relationships and Related Transactions............... 13
Item 8. Description of Securities.................................... 14
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 16
Item 2. Legal Proceedings............................................ 17
Item 3. Changes in and Disagreements with Accountants................ 17
Item 4. Recent Sales of Unregistered Securities...................... 17
Item 5. Indemnification of Directors and Officers.................... 19
PART F/S
Financial Statements......................................... 20
PART III
Item 1. Index to Exhibits............................................ 41
Signatures................................................... 42
<PAGE>
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
- -----------------
Quill Industries, Inc. (the "Company" or "Registrant"), was incorporated
on November 16, 1988, in the state of Nevada under the name Starlight
Resources, Inc. The Company was formed for the purpose of providing a vehicle
which could be used to raise capital and seek business opportunities believed
to hold a potential for profit. In connection with its formation, a total of
500,000 shares of its common stock were issued to the founders of the Company.
In June 1989, the Company sold shares of its common stock in connection with a
public offering pursuant to an effective Offering Statement filed under
Regulation A of the Securities Act of 1933, as amended, with the Denver
Regional Office of the United States Securities and Exchange Commission (the
"Commission").
In October 1989, the Company acquired all of the outstanding shares of
Essential Technologies, Inc., a California corporation ("ETI")in exchange for
the issuance of shares of the Company's common stock pursuant to an agreement
and plan of reorganization. ETI was located in Huntington Beach, California
and was in the business of providing technology based training solutions to
government, business, industry, and education. Following the acquisition, the
Company changed its name to Essential Technologies, Inc.
In October 1993, ETI entered into an agreement with ITA Corporation
("ITA") whereby ITA agreed to purchase all of the assets of ETI and to assume
certain of the debts of ETI. ETI received shares of ITA preferred stock which
were distributed to the Company's shareholders.
From October 1993 through April 1995, the Company has no operating
activities. In January 1995, the Company changed its name to Forbidden City
Holdings, Inc.
In April 1995, the Company determined to undertake business operations in
fields relating to manufacturing, food distribution, energy, environment and
water purification. In May 1995, the Company changed its name to Life
Industries, Inc. In June 1995, through investments in unconsolidated
subsidiaries, the Company acquired 18.58 acres of land in Tepic, Mexico,
certain water purification resources (consisting of two artesian wells and
U.S. Patent No. 5.342,529), and certain technology relating to PCB remediation
and asbestos abatement. The Company's interests in these subsidiaries was
subsequently disposed and the Company ceased operations until July 1997.
From May 1995 to July 1997, the Company had no operations until it
acquired Quill Industries, Inc, a Texas corporation ("Quill"), which is in the
business of breeding, raising and harvesting ostriches. In connection with
the acquisition of the Quill, the Company issued 3,500,000 shares of its post-
split common stock after implementing a plan of recapitalization that called
for a 100-for-1 reverse split of its issued and outstanding shares. In
addition, the Company changed its name to Quill Industries, Inc. The
acquisition was accounted for as a recapitalization of Quill because the
shareholders of Quill controlled the Company after the acquisition.
Therefore, for accounting purposes, Quill has been treated as the acquiring
entity.
<PAGE> 4
On completion of the acquisition of Quill, the Company became focused on
the hatching, grow-out and processing ostriches. The primary asset of the
Company was the ostrich breeder herd and 38 independent farms that form a
network of facilities that housed and cared for the Company's 426 make and 938
female breeders. These breeders produce eggs each season that the Company
hatches and grows-out to produce finished ostrich meat and leather products.
In March 1998, the Company acquired all of the assets of Ostrich
Products America ("OPA") for 100,000 shares of the Company's 1998 Series A
Convertible Preferred Stock and $500,000 cash, and a promissory note for
$250,000, payable within 30 days of the date of acquisition. The acquisition
provided the Company with both real and personal property in Ector County,
Texas, including an operational USDA approved slaughter facility specifically
designed to process ostrich. See ITEM 3. DESCRIPTION OF PROPERTY.
In May 1998, the Company acquired from Stariad Investments Limited, a
Cyprus corporation, additional real and personal property in Ector County,
Texas, known as the "Yellow Rose Ranch" which included several buildings,
water wells, equipment and other fixtures appurtenant to the property, in
exchange for a non-interest bearing $1,000,000 promissory note (the "Note").
The Note is subject to the following further terms and material provisions:
(a) A payment of $500,000 on or before the first anniversary date
(the "First Payment"), unless the holder gives the Company written notice of
the holder's intent to convert the First Payment to 200,000 shares of the
Company's common stock, $0.001 par value (the "Common Stock");
(b) A payment of $250,000 on or before the second anniversary date
(the "Second Payment"), unless the holder gives the Company written notice of
the holder's intent to convert the Second Payment to 100,000 shares of the
Company's Common Stock; and
(c) A payment of $250,000 on or before the third anniversary date
(the "Third Payment"), unless the holder gives the Company written notice of
the holder's intent to convert the Third Payment to 100,000 shares of the
Company's Common Stock.
Subject to, and in compliance with, the provisions contained in the
Note, the holder of the Note is entitled, at the holder's option, within 15
days prior to the First, Second or Third Payment Date of the Note to convert
the Note or any portion of the face amount then due, into fully paid and
nonassessable Common Stock at a conversion price of $2.50 per share. See ITEM
3. DESCRIPTION OF PROPERTY.
The Company's Products
- ----------------------
The Company is in the agricultural business of hatching and raising
ostrich and processing ostrich into finished meat and leather products for
sale to wholesale and retail markets. The Company currently markets finished
ostrich meat products under the brand name "Ostrich Products America". The
Company slaughters and packs premium ostrich muscle cuts and fibremix molded
products, as well as sausage and jerky products for retail markets. The
Company packs the finished meat products at its 6,000 square foot packing
facility outside Odessa, Texas. All ostrich product is inspected by a USDA
meat inspector, packaged, and labeled at the Company's slaughter and packing
facility. All ostrich hides are prepared by the Company for sale in the
leather hide market.
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Customers
- ---------
During the six month period ended June 30, 1998, the Company's largest
customer has been Blackwing Ostrich Meats, Inc., Antioch, Illinois, which
accounted for 47% of the Company's total sales during that period. No other
customer or distributor accounted for more than 20% of the Company's sales
during the period. The Company had not sold any of its leather products as of
June 30, 1998. During the year ended December 31, 1997, no customer exceeded
20% of the Company's sales.
Competition
- -----------
Ostrich meat is considered an "exotic" meat and must compete directly
with all segments of the food service and retail food industry. Competition
among the food service and retail food industry is very aggressive and there
are thousands of companies of varying sizes and financial capabilities. Many
of these companies have established product lines and channels of distribution
for their products that give them a more competitive position within the
industry than that of the Company.
Government Regulation
- ---------------------
The Company sells its finished meat products to wholesale distributors
and retail outlets and all meat products are subject to federal United States
Department of Agriculture ("USDA") inspection. When the Company sells its
finished meat products to certain other countries in the Pacific Rim or
European community, the Company's products must undergo additional inspections
that may be required by the various jurisdictions. The Company's meat
processing plant has been approved in those jurisdictions where it currently
ships product and has proper evidence of those approvals on location.
Employees
- ---------
The Company currently employs 18 persons (one executive, a controller, an
administrative assistant, a ranch associate director, a ranch manager, a hatch
manager, a meat salesman, a plant foreman, and 10 full-time laborers).
Facilities
- ----------
The Company currently leases a 2,366 square foot office facility at 2415
Avenue J, Suite 114, Arlington Texas. The terms of the lease are triple net
with rent at $11.38 per square foot or $26,904 per year. The lease expires at
the end of June, 1999. See DESCRIPTION OF PROPERTY.
Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
<PAGE> 6
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Year 2000 Disclosure
- --------------------
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
Item 2. Management's Discussion and Analysis or Plan of Operation
Plan of Operation
- -----------------
In July 1997, the Company completed a recapitalization and reorganization
in which it acquired Quill Industries, Inc, a Texas corporation ("Quill"),
which is in the business of breeding, raising and harvesting ostriches. In
connection with the acquisition of Quill, the Company issued 3,500,000 shares
of its post-split common stock after implementing a plan of recapitalization
that called for a 1-for-100 reverse split of its issued and outstanding
shares. Immediately prior to the Agreement and Plan of Reorganization, the
Company had 469,174 shares of common stock issued and outstanding.
The acquisition was accounted for as a recapitalization of Quill because
the shareholders of Quill controlled the Company after the acquisition.
Therefore, Quill is treated as the acquiring entity. There was no adjustment
to the carrying value of the assets or liabilities of Quill in the exchange.
On September 9, 1997, the shareholders of the Company authorized a reverse
stock split of 1-for-100. All references to shares of common stock have been
retroactively restated. The Company is the acquiring entity for legal
purposes and Quill is the surviving entity for accounting purposes.
On completion of the recapitalization, the Company became focused on the
hatching, grow-out and processing of ostriches. The primary asset of the
Company was the ostrich breeder herd and 38 independent farms that form a
network of facilities that housed and cared for the Company's 426 male and 938
female breeders. These breeders produce eggs each season that the Company
hatches and grows-out to produce finished ostrich meat and leather products.
In March 1998, the Company acquired all of the assets of Ostrich Products
America ("OPA") for 100,000 shares of the Company's 1998 Series A Convertible
Preferred Stock and $500,000 cash, and a promissory note for $250,000, payable
within 30 days of the date of acquisition. The acquisition provided the
<PAGE> 7
Company with both real and personal property in Ector County, Texas, including
an operational USDA approved slaughter facility specifically designed to
process ostrich. See ITEM 3. DESCRIPTION OF PROPERTY.
In May 1998, the Company acquired from Stariad Investments Limited, a
Cyprus corporation, additional real and personal property in Ector County,
Texas, known as the "Yellow Rose Ranch" which included several buildings,
water wells, equipment and other fixtures appurtenant to the property, in
exchange for a non-interest bearing $1,000,000 convertible promissory note
(the "Note"). The Note is payable over a period of three (3) years or
convertible into 400,000 shares of the Company's common stock. The Note will
be discounted at the Company's incremental borrowing rate for accounting
purposes. See ITEM 1. DESCRIPTION OF BUSINESS.
The Company currently markets finished ostrich meat products under the
brand name "Ostrich Products America". The Company slaughters and packs
premium ostrich muscle cuts and fibremix molded products, as well as sausage
and jerky products for retail markets. The Company packs the finished meat
products at its 6,000 square foot packing facility outside Odessa, Texas. All
ostrich product is inspected by a USDA meat inspector, packaged, and labeled
at the Company's slaughter and packing facility. All ostrich hides are
prepared by the Company for sale into the leather hide market.
During the six month period ended June 30, 1998, the Company's largest
customer has been Blackwing Ostrich Meats, Inc., Antioch, Illinois, which
accounted for 47% of the Company's total sales during that period. No other
customer or distributor accounted for more than 20% of the Company's sales
during the period. The Company had not sold any of its leather products as of
June 30, 1998. During the year ended December 31, 1997, no customer exceeded
20% of the Company's sales.
Ostrich meat is considered an "exotic" meat and must compete directly
with all segments of the food service and retail food industry. Competition
among the food service and retail food industry is very competitive and there
are thousands of companies of varying sizes and financial capabilities. Many
of these companies have established product lines and channels of distribution
for their products that give them a more competitive position within the
industry than that of the Company.
The Company sells its finished meat products to wholesale distributors
and retail outlets and all meat products are subject to federal United States
Department of Agriculture ("USDA") inspection. When the Company sells its
finished meat products to certain other countries in the Pacific Rim or
European community, the Company's products must undergo additional inspections
that may be required by the various jurisdictions. The Company's meat
processing plant has been approved in those jurisdictions where it currently
ships product and has proper evidence of those approvals on location.
The Company believes that the proprietary techniques and recipes used in
the manufacture of its products, and the reputation the Company has developed
for producing consistently high-quality products will allow it to be
competitive in this industry. The Company intends to expand its current
ostrich products lines and seek markets for its leather products in the next
twelve months.
<PAGE>
<PAGE> 8
Liquidity and Capital Resources
- -------------------------------
At June 30, 1998, the Company had total current assets of $120,827 and
total current liabilities of $287,954, resulting in a working capital deficit
of $167, 127. While the Company has been in the development stage, the Company
has had an operating loss since inception of $2,616,879, has limited working
capital and limited internal financial resources. In addition, the report of
the Company's independent auditor at December 31, 1997, contained a going
concern modification expressing substantial doubt as to the ability of the
Company to continue as a going concern.
In March 1998, with the acquisition of OPA the Company acquired both real
and personal property, including an operational USDA approved slaughter
facility specifically designed to process ostrich. Further, in May 1998, the
Company acquired additional real and personal property known as the "Yellow
Rose Ranch" which included several buildings, water wells, equipment and other
fixtures appurtenant to the property. All of the capital acquisitions have
placed the Company in the position to begin receiving income from the sale of
its ostrich products. The Company is currently operating at a loss of
approximately $55,000 per month and expects operating expenses to continue at
such rate until such time as the Company begins to receive substantial
revenues from the sale of its products.
The Company has entered into agreements with various ranchers in various
parts of the United States to raise and breed ostriches. Under certain of
these agreements the Company must pay to the ranchers a feed allowance equal
to $250 per breeder bird each year for up to four years not to exceed in any
one year, 25% of the participation fee paid by the rancher at the time the
agreement was signed. This feed allowance is to be paid annually and may be
offset by any earned egg commissions paid to the rancher for fertile eggs
produced and provided to the Company. The unpaid feed allowance has been
accrued in the accompanying financial statements and totaled $169,700 at
December 31, 1997.
The Company has entered into other agreements with individuals or
entities designated as Ranching Associates. These agreements provide for the
Company to provide to the Ranching Associate a stock of ostriches that, once
grown, will breed and provide eggs that the Ranch Associate can sell back to,
or receive a commission, when the eggs are fertile and provided to the
Company. The Ranch Associate may also have the opportunity to sell the
ostriches once raised to maturity, for slaughter and share in the proceeds of
the meat, hide and other revenue generated from the sale of the ostrich. At
the time the agreements were signed, the Ranch Associate paid to the Company a
participation fee, the amount of which is determined principally by the number
of ostriches the Company commits to provide to the Ranch Associate. The
participation fee is earned back by the Ranch Associate through the egg
commissions and share of the proceeds from the sale of mature ostriches and
other forms of payment the Ranch Associate may receive from the Company,
including the feed allowance. The Company also provides various assistance
and services to the Ranch Associates over the term of the agreements which has
been determined to be 10 years. As of December 31, 1997, the Company had not
made significant payments to the Ranch Associates. Accordingly, the Company
has reflected the participation fees which the Ranch Associates have paid (for
which the Ranch Associates have not yet received payment or credits) as
deferred income in the accompanying financial statements. These amounts
totaled $1,854,164 and $1,322,764 at June 30, 1998 and December 31, 1997,
respectively. The Company will recognize the deferred income as revenue after
it fulfills all of its obligations under its agreements with the Ranch
Associates.
<PAGE> 9
The Company has been operating at a loss since inception and there is no
assurance that the Company will be able to obtain adequate additional equity
or debt financing to fund its operations. If the Company is unable to obtain
additional debt or equity financing from outside sources, it may be necessary
to seek additional financing or capital contributions from existing
shareholders. The Company has, from time to time, received loans from a
principal shareholder, however the Company does not have a formal commitment
from the shareholder to continue to make loans to the Company and there is no
assurance that the shareholder will continue to make loans to the Company.
Because of the Company's limited financial resources, the Company does
not anticipate expending any substantial sums outside the scope of the
Company's regular operating expenses during the balance of the fiscal year.
However, as financial resources are available to justify such additional
expenditures, the Company may elect to further expand the Company's ostrich
breeding program and product production facilities.
Results of Operations
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Revenues from product sales for the six months ending June 30, 1998
increased significantly to $56,334 from $7,778 for the same period in 1997.
However, large increases in operating expenses, especially general and
administrative expenses, from $370,545 for the six months ending June 30, 1997
to $550,621 for the same period in 1998, more than offset the increased sales.
Most of the operating expenses increase was due to the Company's
acquisitions of the OPA and Yellow Rose Ranch facilities and operations in
March and May 1998, described more fully above. The Company expects to hold
operating expenses at approximately the current level and hopes to continue to
rapidly increase product sales.
Because of the Company's recent acquisition of the OPA and Yellow Rose
properties and assets, a detailed comparison of the Company's operations for
the six-month period ended June 30, 1998, with the six-month period ended June
30, 1997, would not be conducive to the reader's understanding of the
Company's operating history.
<PAGE>
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Item 3. Description of Property
The Company operates its ostrich operations at a facility known as the
Yellow Rose Ranch, located approximately 15 miles south of Odessa, Ector
County, Texas. The Yellow Rose Ranch consists of the following:
<TABLE>
<CAPTION>
Type Purpose Description Services
- ----------- ----------- ----------------------------------------------- -------------------
<S> <C> <C> <C>
Land Improved 25.0 (estimated) N/A
Land Grazing 194.5 acres water
Land Grazing 35.345 acres water
Building Barn 40' x 70', 2,800 sq. ft., steel water, electricity
Building Barn 40' x 40', 1,600 sq. ft., steel heat, water, A/C
electricity
Building Barn 40' x 40', 1,600 sq. ft., steel water, electricity
Building Barn 60' x 40', 2,400 sq. ft., steel heat, water, A/C,
lab and office area electricity
Building Barn 60' x 270' 16,200 sq. ft., steel water, electricity
Building Barn 50' x 75', 3,750 sq. ft., steel frame with water, electricity,
galvanized tin siding propane heaters
Building Barn 80' x 75', 6,000 sq. ft., wooden frame water and electricity
Building Tool Shed 12' x 30', 360 sq. ft., galvanized tin electricity
Building Machine Shed 80' x 30', 2,400 sq. ft., steel frame with electricity
galvanized tin siding
Building Lean-to (32) 20' x 8', 160 sq. ft., steel frame with water
galvanized tin siding (3 sides)
Building Lean-to (2) 16' x 25', 400 sq. ft., steel frame with none
galvanized tin siding (3 sides)
Building House, 3,000 sq. ft., 4 bedroom, 3 bath heat, water, A/C
Manager kitchen, fireplace, covered patio electricity
Trailer Single 50', 2 bedroom, one bath heat, water, A/C
electricity, propane
Trailer Single 50', 2 bedroom, one bath heat, water, A/C
electricity, propane
Building Cottage 20' x 60', 1,200 sq. ft., single bedroom heat, water, A/C
one bath, kitchen electricity
Building House, Main 10,000 sq. ft., 4 bedroom, 5 baths, kitchen, heat, water, A/C
dining room, living room, 2 dens, 3 fireplaces, electricity
jacuzzi, screened porch, enclosed barbecue area,
tennis court, swimming pool, sprinkler system
Building Slaughter/ 40' x 150', 6,000 sq. ft., cinderblock, office, heat, water, A/C
Packing inspector office, dressing rooms, processing, electricity
freezer, cold storage, bathrooms
</TABLE>
<PAGE>
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth the number of shares of the Registrant's
Common Stock, par value $0.001, held by each person who is believed to be the
beneficial owner of 5% or more of the 6,420,390 shares of the Registrant's
common stock outstanding at June 30, 1998, based on the Registrant's transfer
agent's list, and the names and number of shares held by each of the
Registrant's officers and directors and by all officers and directors as a
group.
Title of Name and Address Amount and Nature of Percent
Class Of Beneficial Owner Beneficial Ownership (1) of Class
- -------- ------------------- ------------------------- --------
Common Philip R. Lacerte 1,500,000 D 23.36
13155 Noel Road, #2200
Dallas, TX 75240
Common Perkins International 1,000,000 D 15.57
P.O. Box 150
Provenciales, Turks &
Caicos, B.W.I. 546,000 D 8.50
Officers, Directors and Nominees
Common Robert L. Matzig, President -0- - -
and C.E.O., Director
Common Roman Isip, Secretary -0- - -
All Officers, Directors, and
Nominees as a Group (2 Persons) -0- - -
---------- -----
-0- -
========== =====
- --------------------------------
(1) All shares are owned directly (D) or indirectly (I), beneficially and of
record and the shareholder has sole voting, investment and dispositive power.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The names of the Registrant's executive officers and directors and the
positions held by each of them are set forth below:
Name Position
- ---- --------
Robert L. Matzig President, C.E.O. and Director
Roman Isip Secretary and Principal Accounting
Officer
The term of office of each director is two years and until his successor
is elected at the Registrant's annual shareholders' meeting and is qualified,
subject to removal by the shareholders. The term of office for each officer
is for one year and until a successor is elected at the annual meeting of the
board of directors and is qualified, subject to removal by the board of
directors.
<PAGE> 12
Biographical Information
Set forth below is certain biographical information with respect to each
of the Registrant's officers and directors.
Robert L. Matzig, age 41, joined the Company in September 1997 as its
President and C.E.O. Mr. Matzig began is professional career with Lacerte
Software Corporation, Dallas, Texas, in direct sales of software products. He
worked for three years with Arthur Andersen & Co., managing a direct sales
force selling software products to nationwide tax professionals. He held
similar positions with Accountants Micro Systems, Inc. and SCS/Compute before
joining Rosenthal Collins Group in 1993 to work with client development and
marketing programs for commodity traders and managed accounts. Mr. Matzig
graduated from Texas Christian University, Fort Worth, Texas in 1979.
Roman Isip, age 58, joined the Company in May 1997 as its Secretary and
principal accounting officer. From January 1992 to January 1997, Mr. Isip was
self employed as a medical personnel recruiter for Medical Personnel Systems,
Dallas, Texas, a recruiter of medical professionals for the health industry.
Mr. Isip received a B.S./B.A. in Accounting in 1963 from the University of the
East, in Manilla, Philippines.
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last three completed
fiscal years to the Registrant's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1997, the
end of the Registrant's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Matzig 1997 $ -0- -0- -0- 50,000 -0- -0- -0-
President and CEO 1996 $ -0- -0- -0- -0- -0- -0- -0-
1995 $ -0- -0- -0- -0- -0- -0- -0-
</TABLE>
<PAGE>
<PAGE> 13
Executive Compensation
Robert L. Matzig, the Company's President and C.E.O., has a 12-month
employment agreement with the Company, beginning January 1, 1998, renewable
annually by the Company's board of directors, wherein his initial salary is
$48,000 and the grant of 50,000 shares of restricted common stock per year.
Mr. Matzig's employment compensation would continue for a period of three
months if he is terminated by the Company without cause.
The Company has no other employment agreements with members of management
and each are treated as an employee-at-will. The Company may provides group
health and medical insurance for its officers and/or full time employees, and
reimburses each officer for expenses incurred in connection with the Company's
business.
Board Compensation
The Company's directors receive no compensation for attendance at board
meetings.
Options/SAR Grants in Last Fiscal Year
None.
Bonuses and Deferred Compensation
There are no compensation plans or arrangements, including payments to be
received from the Company, with respect to any person named as a director,
executive officer, promoter or control person above which would in any way
result in payments to any such person because of his resignation, retirement,
or other termination of such person's employment with the Company or its
subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities.
Compensation Pursuant to Plans
None.
Pension Table
Not Applicable.
Other Compensation
None.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
- ---------------------------------------
In September 1997, the Company borrowed $100,000 from a principal
shareholder of the Company, Mr. Philip R. Lacerte of Dallas, Texas. The loan
was repaid in full in December 1997.
In May, 1998, the Company borrowed $250,000 from Mr. Lacerte, pursuant to
a promissory note bearing interest at 6% per annum and payable in 90 days.
The loan was secured by the Company's assets in Odessa, Texas.
<PAGE> 14
Other than the transactions described above for the periods indicated,
there were no material transactions or series of similar transactions since
the beginning of the Company's last fiscal year, or any currently proposed
transactions, or series of similar transactions, to which the Company was or
is to be a party, in which the amount involved exceeds $60,000, and in which
any director, executive officer, or any security holder who is known by the
Company to own of record or beneficially more than 5% of any class of the
Company's common stock, or any member of the immediate family of any of the
foregoing persons, has an interest.
ITEM 8. DESCRIPTION OF SECURITIES
General
- -------
The Registrant is authorized to issue one hundred million shares of
common stock, par value $0.001 per share (the "Common Stock")and five million
shares of preferred stock, par value $0.001 per share (the "Preferred Stock").
The Company has 6,420,390 shares of Common Stock and 100,000 shares of
Preferred Stock issued and outstanding as of June 30, 1998.
Common Stock
- ------------
The holders of Common Stock are entitled to one vote per share on each
matter submitted to a vote at any meeting of shareholders. Shares of Common
Stock do not carry cumulative voting rights and, therefore, a majority of the
shares of outstanding Common Stock will be able to elect the entire board of
directors and, if they do so, minority shareholders would not be able to elect
any persons to the board of directors. The Registrant's bylaws provide that a
majority of the issued and outstanding shares of the Registrant constitutes a
quorum for shareholders' meetings, except with respect to certain matters for
which a greater percentage quorum is required by statute or the bylaws.
Shareholders of the Registrant have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption and carries no subscription or conversion rights.
In the event of liquidation of the Registrant, the shares of Common Stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities.
Holders of Common Stock are entitled to receive such dividends as the
board of directors may from time to time declare out of funds legally
available for the payment of dividends. The Registrant seeks growth and
expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay dividends in the foreseeable future
Preferred Stock
- ---------------
The authority to issue the Preferred Stock is vested in the board of
directors of the Company, which has authority to fix and determine the powers,
qualifications, limitations, restrictions, designations, rights, preferences,
or other variations of each class or series within each class which the
Company is authorized to issue.
<PAGE>
<PAGE> 15
In March 1998, the Company established a series of Convertible Preferred
stock designated as the "1998 Series A Convertible Preferred Stock" consisting
of 100,000 shares, $0.001 par value. The 1998 Series A Convertible Preferred
Stock" consisting of 100,000 shares, $0.001 par value, with the following
powers, preferences, rights, qualifications, limitations, and restrictions:
Liquidation. In the event of any voluntary or involuntary liquidation
(whether complete or partial), dissolution, or winding up of the Company, the
holders of the 1998 Series A Convertible Preferred Stock will be entitled to
be paid out of the assets of the Company available for distribution to its
shareholders, whether from capital, surplus, or earnings, an amount in cash
equal to $2.50 per share plus all unpaid dividends, whether or not previously
declared, accrued thereon to the date of final distribution.
Voting Rights. The 1998 Series A Convertible Preferred Stock shall be
voted with the Common Stock of the Corporation as a single class and each
share of the 1998 Series A Convertible Preferred Stock shall have a vote equal
to the same number of shares of Common Stock to which the 1998 Series A
Convertible Preferred Stock is convertible.
Subordination. Any payment of any dividends or any redemption hereunder
shall be subordinated to payment in full of all Senior Debt.
Dividends. The Company shall pay to the holders of the 1998 Series A
Convertible Preferred Stock out of the assets of the Company at any time
available for the payment of dividends, out of funds legally available
therefor, a non-cumulative cash dividends at the rate of $0.20 per share per
annum, when and if declared by the Company's board of directors.
Conversion. Each share of the 1998 Series A Convertible Preferred Stock
is convertible into Common Stock of the Company at the times, at the rate of
one (1) share of Common Stock for each shares of 1998 Series A Convertible
Preferred Stock, subject to adjustment in certain cases.
Redemption. Subject to the requirements and limitations of the
corporation laws of the state of Nevada, the Company shall have the right to
redeem shares of the 1998 Series A Convertible Preferred Stock at any time
after March 25, 1999, pursuant to written notice of redemption given to the
holders thereof on not less than 30 days, specifying the date on which the
1998 Series A Convertible Preferred Stock shall be redeemed (the "Redemption
Date"). Subsequent to notice of redemption and prior to the Redemption Date,
shares of 1998 Series A Convertible Preferred Stock may still be converted to
Common Stock. The Company may redeem a portion or all of the issued and
outstanding shares of 1998 Series A Convertible Preferred Stock; provided,
that in the event that less than all of the outstanding shares of 1998 Series
A Convertible Preferred Stock are redeemed, such redemption shall be pro rata
determined on the basis of the number of shares of 1998 Series A Convertible
Preferred Stock held by each holder reflected on the stock records of the
Company and the total number of shares of 1998 Series A Convertible Preferred
Stock outstanding. The redemption price for each share of 1998 Series A
convertible Preferred Stock shall be $2.50 per share plus any unpaid
dividends, if applicable, on such share as of the Redemption Date (the
"Redemption Price"). The Redemption Price shall be paid in cash.
The foregoing is a summary of the rights, preferences and privileges of
the 1998 Series A Convertible Preferred Stock, which summary does not purport
to be complete. For all the rights, preferences and privileges, reference is
made to a copy of the 1998 Series A Preferred Stock Designation, a copy
thereof is on file as an exhibit to this Registration Statement on Form 10-SB.
<PAGE> 16
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
Until September 1997, to the best of the Company's knowledge, there was
no "established trading market" for the Company's common stock. At June 30,
1998, the Company's common stock was quoted on the NASD's OTC Bulletin Board
under the symbol "QUIL". The table below sets forth, for the respective
periods indicated, the prices of the Company's common stock in the over-the-
counter market as reported by the NASD's OTC Bulletin Board. The bid prices
represent inter-dealer quotations, without adjustments for retail markups,
markdowns or commissions and may not necessarily represent actual
transactions.
Fiscal Year Ended December 31, 1997 High Bid Low Bid
- ----------------------------------- -------- --------
First and Second Quarter $ N/A $ N/A
Third Quarter $ 1.00 $ 0.50
Fourth Quarter $ 4.90 $ 0.50
Fiscal Year Ended December 31, 1998 High Bid Low Bid
- ----------------------------------- -------- --------
First Quarter $ 3.10 $ 2.50
Second Quarter $ 2.25 $ 0.91
As of July 25, 1998 there were 135 shareholders of record of the
Company's common stock and the reported bid or asked prices for the Company's
common stock was $0.6875 and $0.875, respectively.
As of July 25, 1998, the Company has issued and outstanding 6,420,390 of
common stock. Of this total.
Dividend Policy
- ---------------
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that it will
pay cash dividends or make distributions in the foreseeable future. The
Company currently intends to retain and reinvest future earnings, if any, to
finance its operations.
Transfer Agent
- --------------
The transfer agent for the Company's common stock is Florida Atlantic
Stock Transfer, Inc., 5701 North Pine Island Road, Suite 310-B, Tamarac,
Florida 33321.
<PAGE>
<PAGE> 17
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant has not changed nor had any disagreements with its
independent certified accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In July 1997, the Company acquired Quill Industries, Inc, a Texas
corporation ("Quill"), which is in the business of breeding, raising and
harvesting ostriches. In connection with the acquisition of the Quill, the
Company issued 3,500,000 shares of its post-split common stock after
implementing a plan of recapitalization that called for a 1-for-100 reverse
split of its issued and outstanding shares. The acquisition was accounted for
as a recapitalization of Quill because the shareholders of Quill controlled
the Company after the acquisition. Therefore, for accounting purposes, Quill
has been treated as the surviving entity. The securities issued in the
foregoing transactions were issued in reliance on the exemption from
registration and the prospectus delivery requirements of the Securities Act of
1933, as amended (the "Securities Act"), set forth in section 3(b) and/or
section 4(2) of the Securities Act and the regulations promulgated thereunder.
The individuals receiving the shares were principal shareholders of Quill and
are deemed to be an "accredited investor" as that term is defined under Rule
501 of the Regulation D of the Securities Act.
From July 1997 and August 1997, the Company issued approximately 523,205
shares its restricted Common Stock (after taking into account the 1-for-100
reverse split)for at approximately $0.11 per share, for a total value of
approximate $57,585 to a limited number of persons for in exchange for the
cash ($51,000)and the cancellation of debt ($6,585)owed by the Company for
services it had received.
In August 1997, the Company sold 6,000 shares of the Registrant's Common
Stock (after giving effect to the 1-for-100 reverse split) at a purchase price
of approximately $0.45 per share and issued 600,000 shares for services valued
at $600,000.
The Common Stock in the foregoing transactions was issued in reliance on
the exemption from registration and the prospectus delivery requirements of
the Securities Act provided in Section 4(2) thereof and applicable exemptions
thereunder. The individuals receiving the shares represented that they are
"accredited investors" as that term is defined under Rule 501 of the
Regulation D of the Securities Act. In addition, all persons received material
information concerning the Company's proposed business and financial affairs
at the time of the transactions and were in a position to obtain information
necessary to verify the information disclosed by the Registrant. All such
person acknowledged that they were obtaining "restricted securities" as
defined under Rule 144 under the Securities Act; that such shares cannot be
transferred without appropriate registration or an exemption therefrom; that
they must bear the economic risk of the investment for an indefinite period;
and that the Company would restrict the transfer of the securities in
accordance with such representations. No general advertising or solicitation
was used nor were any commissions paid in connection therewith.
<PAGE> 18
In November 1997, the Company sold 1,275,000 shares of its Common Stock
at a purchase price of $0.50 per share, for proceeds of approximately
$637,500, less stock offering costs of approximately $29,000. All such sales
where made to residents of the states of New York and Florida pursuant to an
exemption from registration under the federal securities laws pursuant to
Section 3(b) and Regulation D, Rule 504, promulgated under the Securities Act.
None of the purchasers were affiliated with the Company and no underwriter
participated in the offering.
Regulation D was adopted by the Commission effective as of April 15,
1982. It relates to both Section 3(b) and Section 4(2) of the Securities Act.
Regulation D, for purposes of federal law, sets forth rules under which an
issuer may claim exemption from the registration requirements of Section 5 of
the Securities Act. Such regulation does not exempt the issuer from the
antifraud, civil liability, or other provisions of the Securities Act.
The exemption under Rule 504, is available to any issuer who is not a
reporting company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended, or not a development stage company that
either has no specific business plan or purpose or has indicated that its
business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person. Rule 504, allows companies
to sell up to $1,000,000 of its securities within a 12-month period in an
exempt transaction to an unlimited number of investors without regard to the
investment sophistication of the investor. In the registration provisions
which require the delivery of a Prospectus before sale, there is no
restriction on resale of the securities by investors. Thus, the Common Stock
purchased in this offering are be "free-trading" and are not restricted
securities under federal law.
In September 1997, the Company issued approximately 47,011 shares of its
restricted common stock (after taking into account the 1-for-100 reverse
split)for at approximately $0.50 per share, for a total value of approximate
$23,500 to a limited number of persons for in exchange for the cancellation of
debt owed by the Company. The Common Stock was issued in reliance on the
exemption from registration and the prospectus delivery requirements of the
Securities Act provided in Section 4(2) thereof and applicable exemptions
thereunder. The individuals receiving the shares represented to the Registrant
that they were "accredited investors" as that term is defined under Rule 501
of the Regulation D of the Securities Act. In addition, all persons received
material information concerning the Company's proposed business and financial
affairs at the time of the transactions and were in a position to obtain
information necessary to verify the information disclosed by the Registrant.
All such person acknowledged that they were obtaining "restricted securities"
as defined under Rule 144 under the Securities Act; that such shares cannot be
transferred without appropriate registration or an exemption therefrom; that
they must bear the economic risk of the investment for an indefinite period;
and that the Company would restrict the transfer of the securities in
accordance with such representations. No general advertising or solicitation
was used nor were any commissions paid in connection therewith.
In March 1998, the Company acquired all of the assets of Ostrich Products
America ("OPA") for 100,000 shares of the Company's 1998 Series A Convertible
Preferred Stock and $500,000 cash, and a promissory note for $250,000, payable
within 30 days of the date of acquisition. The acquisition provided the
Company with both real and personal property in Ector County, Texas, including
an operational USDA approved slaughter facility specifically designed to
process ostrich.
<PAGE> 19
The purchase was an arms-length transaction negotiated between the
Company and the seller. The Common Stock was issued in reliance on the
exemption from registration and the prospectus delivery requirements of the
Securities Act provided in Section 4(2) thereof and applicable exemptions
thereunder. The seller was not affiliated with the Company and received
material information concerning the Company's proposed business and financial
affairs at the time of the transactions and were in a position to obtain
information necessary to verify the information disclosed by the Registrant.
The seller acknowledged that it was receiving "restricted securities" as
defined under Rule 144 under the Securities Act; that such shares cannot be
transferred without appropriate registration or an exemption therefrom; that
it must bear the economic risk of the investment for an indefinite period; and
that the Company would restrict the transfer of the securities in accordance
with such representations. No general advertising or solicitation was used
nor were any commissions paid in connection therewith.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada Revised Statutes confers on a director or
officer an absolute right to indemnification for expenses, including
attorneys' fees, actually and reasonably incurred by him to the extent he is
successful on the merits or otherwise in defense of any action, suit, or
proceeding. This section also entitles a director or officer to partial
indemnification against expenses to the extent that he has been successful in
defending any claim, issue, or matter asserted in such proceeding. The Nevada
indemnification section further permits the corporation to indemnify officers
and directors in circumstances where indemnification is not mandated by the
statute and certain statutory standards are satisfied. The Nevada statute
expressly makes indemnification contingent upon a determination that
indemnification is proper in the circumstances.
Such determination must be made by the board of directors, the
shareholders, or independent legal counsel. Nevada law also permits a
corporation, in its articles of incorporation, bylaws, or an agreement, to pay
attorneys' fees and other litigation expenses on behalf of a corporate
official in advance of the final disposition of the action upon receipt of an
undertaking by or on behalf of the corporate official to repay such expenses
to the corporation if it is ultimately determined that he is not entitled to
be indemnified by the corporation. The corporation may also purchase and
maintain insurance to provide indemnification. The Nevada statute also
provides that indemnification authorized by the statute is not exclusive of,
but is in addition to, indemnification rights granted under a corporation's
articles of incorporation, an agreement, or pursuant to a vote of shareholders
or disinterested directors.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to Section
78.751 of the Nevada Revised Statues.
The Company's articles of incorporation and bylaws do not contain
specific provisions relating to indemnification of directors, officers,
employees, and/or agents of the Company. However, it is anticipated that the
Company will indemnify its officers and directors to the full extent permitted
by the above referenced statute. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
<PAGE> 20
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person in connection
with the securities being registered), the small business issuer 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 the Company is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated balance sheets as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the three years ended December 31, 1997,
1996, and 1995, have been examined to the extent indicated in their reports by
Jones, Jensen & Company, independent certified accountants, and have been
prepared in accordance with generally accepted accounting principles and
pursuant to Regulation S-B as promulgated by the Securities and Exchange
Commission and are included herein.
<PAGE>
<PAGE> 21
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------------
June 30, December 31,
1998 1997
------------------ ------------------
CURRENT ASSETS
Cash $ 75,105 $ 10,298
Accounts receivable 2,500 -
Inventory 43,222 -
------------------ ------------------
Total Current Assets 120,827 10,298
------------------ ------------------
FIXED ASSETS, net 3,290,634 1,149,438
------------------ ------------------
OTHER ASSETS
Organization costs, net 250 350
------------------ ------------------
Total Other Assets 250 350
------------------ ------------------
TOTAL ASSETS $ 3,411,711 $ 1,160,086
================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
<PAGE> 22
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
June 30, December 31,
1998 1997
------------------ ------------------
CURRENT LIABILITIES
Accounts payable $ 100,245 $ 37,917
Accrued expenses 187,709 187,485
------------------ ------------------
Total Current Liabilities 287,954 225,402
------------------ ------------------
LONG-TERM DEBT - RELATED PARTY 1,259,000 -
------------------ ------------------
DEFERRED INCOME 1,854,164 1,322,764
------------------ ------------------
TOTAL LIABILITIES 3,401,118 1,548,166
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.001;
100,000 shares authorized;
100,000 issued and outstanding 100 -
Common stock, par value $0.001;
200,000,000 shares authorized;
6,420,390 shares issued
and outstanding, respectively 6,420 6,420
Additional paid-in capital 2,632,333 2,243,473
Stock subscription receivable - (504,000)
Treasury stock (11,381) (11,381)
Accumulated deficit (2,616,879) (2,122,592)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 10,593 (388,080)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 3,411,711 $ 1,160,086
================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 23
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
[CAPTION]
<TABLE>
STATEMENTS OF OPERATIONS
(Unaudited)
From
For the Three For the Six Inception on
Months Ended Months Ended June 1,
June 30, June 30, 1994 through
------------------ ------------------- June 30,
1998 1997 1998 1997 1998
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Bird Sales................... $ 56,334 $ 7,778 $ 34,765 $ 3,685 $ 64,112
--------- --------- --------- --------- ---------
Total Revenues 56,334 7,778 34,765 3,685 64,112
--------- --------- --------- --------- ---------
OPERATING EXPENSES
Depreciation and amortization 89,583 31,524 44,792 15,762 220,546
General and administrative... 461,038 339,021 264,351 108,350 2,336,676
--------- --------- --------- --------- ---------
Total Operating Expenses. 550,621 370,545 309,143 124,112 2,557,222
--------- --------- --------- --------- ---------
Loss From Operations.......... (404,287) (362,767) (274,378) (120,427) (2,493,110)
OTHER (EXPENSE)
Interest expense - (32,940) - (16,470) (65,880)
Loss on fixed assets - - - - (57,889)
--------- --------- --------- --------- ---------
Total Other (Expense) - (32,940) - (16,470) (123,769)
--------- --------- --------- --------- ---------
NET LOSS BEFORE INCOME TAXES.. - - - - (2,616,879)
INCOME TAXES.................. - - - - -
--------- --------- --------- --------- ---------
NET LOSS $(491,287) $(395,707) $(274,378) $(136,897) $(2,616,879)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING.......... 6,470,390 4,960,195 5,673,972 4,650,674
========= ========= ========= =========
NET LOSS PER SHARE............ $ (0.07) $ (0.08) $ (0.05) $ (0.03)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
<PAGE> 24
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
[CAPTION]
<TABLE>
Common Stock Preferred Stock Additional Stock
------------------- --------------- Paid-in Subscription Treasury Accumulated
Number Amount Number Amount Capital Receivable Stock Deficit
----------- ------- ------- ------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception on June 1,
1994 - - $ - - $ - $ - $ - $ - $ -
Contribution of capital
by shareholders 3,500,000 3,500 - - 299,877 - - -
Net loss for the year
ended December 31, 1994 - - - - - - - (58,945)
----------- ------- ------- ------- --------- ----------- ----------- -----------
Balance, December 31,
1994 3,500,000 3,500 - - 299,877 - - (58,945)
Contribution of capital
by shareholders - - - - 60,000 - - -
Net loss for the year
ended December 31, 1995 - - - - - - - (663,192)
----------- ------- ------- ------- --------- ----------- ----------- -----------
Balance, December 31,
1995 3,500,000 3,500 - - 359,877 - - (722,173)
Contribution of capital
by shareholders - - - - 71,381 - - -
Net loss for the year
ended December 31, 1996 - - - - - - - (216,497)
----------- ------- ------- ------- --------- ----------- ----------- -----------
Balance, December 31,
1996 3,500,000 3,500 - - 431,258 - - (938,634)
Common stock issued for
the acquisition of
Quill Industries, Inc. 469,174 469 - - 522,581 - (11,381) -
Common stock issued for
cash at approximately
$0.37 per share 1,791,000 1,791 - - 660,209 (504,000) - -
Common stock issued for
services at approximately
$0.95 per share 660,216 660 - - 629,425 - - -
Net loss for the year
ended December 31, 1997 - - - - - - - (1,183,958)
----------- ------- ------- ------- --------- ----------- ----------- -----------
Balance, December 31,
1997 6,420,390 $ 6,420 - - $2,243,473 $ (504,000) $ (11,381) $(2,122,592)
=========== ======= ======= ======= ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
<PAGE> 25
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)(Continued)
[CAPTION]
<TABLE>
Common Stock Preferred Stock Additional Stock
------------------- --------------- Paid-in Subscription Treasury Accumulated
Number Amount Number Amount Capital Receivable Stock Deficit
----------- ------- ------- ------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997 6,420,390 $ 6,420 - - $2,243,473 $ (504,000) $ (11,381) $(2,122,592)
----------- ------- ------- ------- ---------- ----------- ---------- -----------
Preferred stock issued
for assets at $2.50
per share (unaudited) - - 100,000 $ 100 249,900 - - -
Receipt of subscription
receivable (unaudited) - - - - 138,960 504,000 - -
Net loss for the six
months ended June 30,
1998 (unaudited) - - - - - - - (494,287)
----------- ------- ------- ------- ---------- ----------- ---------- -----------
Balance, June 30, 1997
(unaudited) 6,420,390 $ 6,420 - - $ 100,000 $ 2,632,333 $ - $(2,616,879)
=========== ======= ======= ======= ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 26
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
[CAPTION]
<TABLE>
From
For the Three For the Six Inception on
Months Ended Months Ended June 1,
June 30, June 30, 1994 through
------------------ ------------------- June 30,
1998 1997 1998 1997 1998
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $ (494,287) $ (395,707) $ (274,378) $ (136,897) $(2,616,879)
Adjustments to reconcile
net (loss) to net cash
provided by operating
activities:
Depreciation and amortization 89,583 31,524 44,792 15,762 220,546
Stock issued for services - - - - 630,085
Loss on disposition of fixed
assets - - - - 57,889
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable and inventory (45,722) - (15,970) - (45,722)
Increase (decrease) in deferred
participation fees 531,400 340,000 350,000 120,000 1,854,164
Increase (decrease) in accounts
payable 62,328 2,039 47,715 3,547 100,245
(Increase)decrease in accrued
expenses 224 33,543 118 4,643 187,709
---------- ---------- ---------- ---------- -----------
Net Cash Provided By
Operating Activities 143,526 11,399 152,277 7,055 388,037
---------- ---------- ---------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Payment of organization costs - - - - (1,000)
Purchase of fixed assets (1,980,679) (34,684) (1,980,679 (12,586) (3,221,329)
---------- ---------- ---------- ---------- ------------
Net Cash (Used) By
Investing Activities (1,980,679) (34,684) (1,980,679) (12,586) (3,222,329)
---------- ---------- ---------- ---------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Common stock issued for cash 642,960 - 642,960 - 800,960
Offering costs - - - - (119,123)
Capital contributions - 71,381 - 32,000 842,660
Proceeds received on note
payable-related 1,259,000 - 1,259,000 - 1,434,900
Payments made on note
payable-related - (47,500) - (26,000) (50,000)
---------- ---------- ---------- ---------- ------------
Net Cash Provided By
Financing Activities $1,901,960 $ 23,881 $1,901,960 $ 6,000 $ 2,909,397
========== ========== ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 27
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
</TABLE>
<TABLE>
For the Three For the Six Inception on
Months Ended Months Ended June 1,
June 30, June 30, 1994 through
------------------ ------------------- June 30,
1998 1997 1998 1997 1998
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ 64,807 $ 596 $ 73,558 $ 469 $ 75,105
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 10,298 149 1,547 276 -
---------- ---------- ---------- ---------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 75,105 $ 745 $ 75,105 $ 745 $ 75,105
========== ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ - $ - $ - $ - $ -
Income taxes paid $ - $ - $ - $ - $ -
SCHEDULE OF NON-CASH
FINANCING ACTIVITIES $ - $ - $ - $ - $ 630,085
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 28
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1998 and December 31, 1997
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1998 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with general accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
1997 audited consolidated financial statements. The results of operations for
the periods ended June 30, 1998 and 1997 are not necessarily indicative of the
operating results for the full year.
<PAGE>
<PAGE> 29
JONES, JENSEN & COMPANY, L.L.C.
---------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITORS' REPORT
---------------------------------------------------
Board of Directors and Stockholders
Quill Industries, Inc. and Subsidiary
(Formerly Life Industries, Inc.)
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Quill
Industries, Inc. and Subsidiary (formerly Life Industries, Inc.) (a
development stage company) as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Quill industries, Inc. and Subsidiary (formerly Life Industries, Inc.) (a
development stage company) as of December 31, 1997 and 1996 and the results of
its operations, stockholders' equity (deficit) and its cash flows for the
years ended December 31, 1997, 1996 and 1995 and from inception on June 1,
1994 through December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to
the consolidated financial statements, the Company is a development stage
company with no significant operating results to date that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ Jones, Jensen & Company
Salt Lake City, Utah
June 4, 1998<PAGE>
<PAGE> 30
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------------
December 31,
---------------------------------------
1997 1996
CURRENT ASSETS ------------------ ------------------
Cash $ 10,298 $ 149
------------------ ------------------
Total Current Assets 10,298 149
------------------ ------------------
FIXED ASSETS, net (Notes 2 and 4) 1,149,438 858,358
------------------ ------------------
OTHER ASSETS
Organization costs, net 350 550
------------------ ------------------
Total Other Assets 350 550
------------------ ------------------
TOTAL ASSETS $ 1,160,086 $ 859,057
================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
<PAGE> 31
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
December 31,
---------------------------------------
1997 1996
CURRENT LIABILITIES ------------------ ------------------
Accounts payable $ 37,917 $ 117,176
Accrued expenses 187,485 95,208
Due to related parties (Note 6) - 15,900
Current portion of note payable
- related entity (Note 7) - 160,000
------------------ ------------------
Total Current Liabilities 225,402 388,284
------------------ ------------------
DEFERRED INCOME (Note 8) 1,322,764 986,030
------------------ ------------------
TOTAL LIABILITIES 1,548,166 1,374,314
------------------ ------------------
COMMITMENTS AND CONTINGENCIES (Notes 6)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.001; 200,000,000 shares
authorized; 6,420,390 and 3,500,000 shares issued
and outstanding, respectively 6,420 3,500
Additional paid-in capital 2,243,473 431,258
Stock subscription receivable (504,000) -
Treasury stock (11,381) (11,381)
Accumulated deficit (2,122,592) (938,634)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (388,080) (515,257)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,160,086 $ 859,057
================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 32
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
[CAPTION]
<TABLE>
From
Inception on
June 1,
For the Years Ended 1994 Through
December 31, December 31,
-----------------------------------------------------
1997 1996 1995 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCOME
Bird sales $ 7,778 $ - $ - $ 7,778
--------------- --------------- --------------- ---------------
Total Revenues 7,778 - - 7,778
--------------- --------------- --------------- ---------------
OPERATING EXPENSES
Depreciation and amortization 79,767 10,077 37,733 130,963
General and administrative 988,200 206,420 625,459 1,875,638
--------------- --------------- --------------- ---------------
Total Operating Expenses 1,067,967 216,497 663,192 2,006,601
--------------- --------------- --------------- ---------------
(Loss) From Operations (1,067,189) (216,497) (663,192) (1,998,823)
OTHER (EXPENSE)
Interest expense (65,880) - - (65,880)
Loss on fixed assets (57,889) - - (57,889)
--------------- --------------- --------------- ---------------
Total Other (Expense) (123,769) - - (123,769)
--------------- --------------- --------------- ---------------
NET (LOSS) BEFORE INCOME
TAXES (1,183,958) (216,497) (663,192) (2,122,592)
INCOME TAXES - - - -
--------------- --------------- --------------- ---------------
NET (LOSS) $ (1,183,958) $ (216,497) $ (663,192) $ (2,122,592)
================ ================ ================ ===============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,307,407 3,500,000 3,500,000
================ ================ ================
NET LOSS PER SHARE $ (0.27) $ (0.06) $ (0.19)
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
<PAGE> 33
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
[CAPTION]
<TABLE>
Additional Stock
Common Stock Paid-in Subscription Treasury Accumulated
----------------------
Number Amount Capital Receivable Stock Deficit
----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inception on June 1, 1994 - $ - $ - $ - $ - $ -
Contribution of capital
by shareholders 3,500,000 3,500 299,877 - - -
Net loss for the year
ended December 31, 1994 - - - - - (58,945)
----------- ----------- ----------- ---------- ---------- -----------
Balance, December 31,
1994 3,500,000 3,500 299,877 - - (58,945)
Contribution of capital
by shareholders - - 60,000 - - -
Net loss for the year
ended December 31, 1995 - - - - - (663,192)
----------- ----------- ----------- ---------- ---------- -----------
Balance, December 31,
1995 3,500,000 3,500 359,877 - - (722,173)
Contribution of capital
by shareholders - - 71,381 - - -
Net loss for the year
ended December 31, 1996 - - - - - (216,497)
----------- ----------- ----------- ---------- ---------- -----------
Balance, December 31,
1996 3,500,000 3,500 431,258 - - (938,634)
Common stock issued for
the acquisition of
Quill Industries, Inc. 469,174 469 522,581 - (11,381) -
Common stock issued for
cash at approximately
$0.37 per share 1,791,000 1,791 660,209 (504,000) - -
Common stock issued for
services at approximately
$0.95 per share 660,216 660 629,425 - - -
Net loss for the year
ended December 31, 1997 - - - - - (1,183,958)
----------- ----------- ----------- ---------- ---------- -----------
Balance, December 31,
1996 6,420,390 $ 6,420 $ 2,243,473 $ (504,000) $ (11,381) $(2,122,592)
=========== =========== =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
<PAGE> 34
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
[CAPTION]
<TABLE>
From
Inception on
June 1,
For the Years Ended 1994 Through
December 31, December 31,
-----------------------------------------------------
1997 1996 1995 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $ (1,183,958) $ (216,497) $ (663,192) $ (2,122,592)
Adjustments to reconcile
net (loss) to net cash
provided by operating
activities:
Depreciation and amortization 79,767 10,077 37,733 130,963
Stock issued for services 630,085 - - 630,085
Loss on disposition of fixed
assets 57,889 - - 57,889
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable - - (125,184) (135,300)
Increase (decrease) in deferred
participation fees 336,734 103,000 840,030 1,322,764
Increase (decrease) in interest
payable 1,610 - - 1,610
(Increase)decrease in hatch
investment - 125,184 (125,184) -
Increase (decrease) in accounts
payable 34,065 (18,126) 114,431 151,241
Increase (decrease) in accrued
expenses 78,777 55,618 39,590 173,985
--------------- --------------- --------------- ---------------
Net Cash Provided By
Operating Activities 34,969 59,256 118,224 210,645
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Payment of organization costs - - - (1,000)
Purchase of fixed assets (432,980) (286,337) (256,643) (1,206,784)
--------------- --------------- --------------- ---------------
Net Cash (Used) By
Investing Activities (432,980) (286,337) (256,643) (1,207,784)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Common stock issued for cash 158,000 - - 158,000
Offering costs - - - (119,123)
Capital contributions 300,160 60,000 60,000 842,660
Proceeds received on note
payable-related - 166,733 3,940 175,900
Payments made on note
payable-related (50,000) - - (50,000)
--------------- --------------- --------------- ---------------
Net Cash Provided By
Financing Activities $ 408,160 $ 226,733 $ 63,940 $ 1,007,437
--------------- --------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 35
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
[CAPTION]
<TABLE>
From
Inception on
June 1,
For the Years Ended 1994 Through
December 31, December 31,
-----------------------------------------------------
1997 1996 1995 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ 10,149 $ (348) $ (74,479) $ 10,298
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 149 497 74,976 -
--------------- --------------- --------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 10,298 $ 149 $ 497 $ 10,298
=============== =============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ - $ - $ - $ -
Income taxes paid $ - $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 36
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of Quill Industries,
Inc. (Formerly Life Industries, Inc.) (a development stage company) (the
Company). The Company was incorporated in the State of Nevada on December 28,
1994 to carry on any lawful activity under the laws of Nevada. On August 26,
1997, Life Industries, Inc. changed its name to Quill Industries, Inc. prior
to the merger with Quill Industries, Inc., the Company had been seeking to
merger with an existing operating company.
Quill Industries, Inc. (premerger) (Quill) was incorporated in the State of
Texas on June 27, 1997. The Company was incorporated for the sole purpose of
acquiring Stone Ostrich Venture, LLC, which was in the business of breeding,
raising and harvesting ostriches.
On July 22, 1997, Life Industries, Inc. and Quill Industries, Inc. completed
an Agreement and Plan of Reorganization whereby the Company issued 3,500,000
shares of its common stock in exchange for all of the outstanding common stock
of Quill. Immediately prior to the Agreement and Plan of Reorganization, the
Company had 469,174 shares of common stock issued and outstanding.
The acquisition was accounted for as a recapitalization of Quill because the
shareholders of Quill controlled the Company after the acquisition. Therefore,
Quill is treated as the acquiring entity. There was no adjustment to the
carrying value of the assets or liabilities of Quill in the exchange. The
Company is the acquiring entity for legal purposes and Quill is the surviving
entity for accounting purposes. On September 9, 1997, the shareholders of the
Company authorized a reverse stock split of 1-for-100. All references to
shares of common stock have been retroactively restated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The financial statements are prepared using the accrual method of accounting.
The Company has elected a December 31 year end.
b. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
c. Uninsured Cash Balances
The Company's cash account at its bank is insured by the FDIC for up to
$100,000.
d. Concentration Risks
The Company does not believe that it is subject to any other unusual risks
beyond the normal risks attendant to operating its business.
<PAGE> 37
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
e. Fixed Assets
The Company has a policy whereby property additions below a minimum amount are
expensed as incurred. Depreciation on property and equipment in provided on
the MACRS method based on estimated useful lives of the assets as follows:
Estimated
Assets Useful Lives
------- ------------
Automobiles 5 years
Machinery and equipment 7 years
Hatchery equipment 7 years
f. Income Taxes
As of December 31, 1997, the Company had a net operating loss carryforward for
federal income tax purpose of approximately $2,100,000 that may be used in
future years to offset taxable income. The net operating loss carryforward
will begin to expire in 2012. The tax benefit of the cumulative carryforwards
has been offset by a valuation allowance of the same account.
g. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3 - DEVELOPMENT STAGE AND GOING CONCERN
The activities of the Company has not yet produced significant revenues form
operations. Accordingly, the Company is considered as still in the development
stage with the accompanying financial statements reflecting the results of
operations, changes in stockholders' equity (deficit) and cash flows for the
period from inception on June 1, 1994 through December 31, 1997. In addition,
the Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have significant cash or other
material assets, nor does it have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a going concern.
In the interim, shareholders of the Company have committed to meeting its
operating expenses.
NOTE 4 - OSTRICHES
Included in fixed assets is the value associated with ostriches owned by the
Company. The ostriches are located at various sites throughout the United
States pursuant to Ranch Associate agreements wherein the ostriches are
provided to the Ranch Associates to be raised and bred. The costs incurred by
<PAGE> 38
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
the Company associated with the purchase and raising of the ostriches have
been capitalized in the accompanying financial statements at the lower of cost
or market. At December 31, 1997 and 1996, the recorded value for the ostriches
was $1,207,723 and $788,810, respectively. The cost of the ostriches will be
depreciated using the straight-line method over a period of 10 years once they
have started breeding.
December 31,
---------------------------------------
1997 1996
------------------ ------------------
Office equipment $ 16,601 $ 16,034
Hatchery equipment - 125,034
Other equipment 13,500 -
Ostriches 1,207,723 788,810
Accumulated depreciation (88,386) (71,520)
------------------ ------------------
Balance $ 1,149,438 $ 858,358
================== ==================
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease
- -----
In July 1996, the Company entered into an agreement to lease office space
located in Arlington, Texas. The term of the lease is for 36 months and
provides for monthly lease payments of $1,600 from November 1996 through June
1997, increasing to $1,897 per month for the remaining term of the lease. The
Company is also obligated to pay a monthly common are charge of #345 per month
for the term of the lease.
Feed Allowance
- --------------
The Company has entered into agreements with various ranchers in various parts
of the United States to raise the breed ostriches. Eight of those agreements
executed in 1994, provide for the Company to pay to those ranchers a feed
allowance equal to $250 per breeder bird each year for up to four years not to
exceed in any one year, 25% of the participation fee paid by the rancher at
the time the agreement was signed. This feed allowance is to be paid annually
and may be offset by any earned egg commissions paid to the rancher for
fertile eggs produced and provided to the Company. The unpaid feed allowance
has been accrued in the accompanying financial statements and totaled $169,700
and $112,700 at December 31, 1997 and 1996, respectively.
Litigation
- ----------
An officer of the Company has answered an interrogatory concerning a suit
filed in Missouri against Stone Ostrich Ventures (SOV), an officer of SOV and
the Company. The suit alleges that the plaintiff was defrauded in 1994 when
SOV moved incubators from New York to Missouri. The Company has reduced its
<PAGE> 39
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
carrying value of the assets, which are subject of this issue, to zero.
Management believes the risk of loss in excess of the basis of the assets
written off to be remote.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company has, from time to time, received funds from related parties. As of
December 31, 1997 and 1996, $-0 and $15,900, respectively, was due as a result
of these advances.
NOTE 7 - NOTE PAYABLE - RELATED PARTIES
December 31,
---------------------------------------
1997 1996
------------------ ------------------
Note payable to an affiliated
company, 8% interest bearing note
payable on demand when adequate cash
flow exists $ - $ 160,000
------------------ ------------------
$ - $ 160,000
================== ==================
NOTE 8 - DEFERRED INCOME
The Company has entered into agreements with approximately 35 individual or
entities designated as Ranching Associates. These agreements provide for the
Company to provide to the Ranching Associate stock of ostriches that, once
grown, will breed and provide eggs that the Ranch Associate can sell back to,
or receive a commission, when the eggs are fertile and provided to the
Company. The Ranch Associate may also have the opportunity to sell the
ostriches once raised to maturity, for slaughter and share in the proceeds of
the meat, hide and other revenue generated from the sale of the ostrich. At
the time the agreement is signed, the Ranch Associate pays to the Company a
Participation Fee, the amount of which is determined principally by the number
of ostriches the Company commits to provide to the Ranch Associate. The
Participation Fee is earned back by the Ranch Associate through the egg
commissions and share of the proceeds from the sale of mature ostriches and
other forms of payment the Ranch Associate may receive from the Company,
including the feed allowance. The Company also provides various assistance
and services to the Ranch Associates over the term of the agreements which has
been determined to be 10 years. As of December 31, 1997 and 1996, the Company
had not made significant payments to the Ranch Associates. Accordingly, the
Company has reflected the Participation Fees for which the Ranch Associates
have not received payment or been credited, as a deferral in the accompanying
financial statements. These amounts totaled $1,322,764 and $986,0030 at
December 31, 1997 and 1996, respectively.
<PAGE> 40
QUILL INDUSTRIES, INC. AND SUBSIDIARY
(Formerly Life Industries, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 9 - SUBSEQUENT EVENTS
Acquisition #1
- --------------
The Company acquired the assets of Ostrich Products America, LLC (OPA) in
March of 1998. The purchase price was $1,000,000 of which $750,000 was paid
in cash; 100,000 shares of the Company's series A convertible preferred stock
were issued. The assets purchased include 33.345 acres of land, a
slaughterhouse and equipment and vehicles.
Acquisition #2
- --------------
In May 1998, the Company acquired the assets of Stariad Investments Limited
(Yellow Rose Ranch). The purchase price was $1,000,000 and was paid by
issuing a $1,000,000 convertible promissory note. The note is payable over a
period of 3 years or convertible into 400,000 shares of the Company's common
stock. The assets purchased include approximately 250 acres of ranch land, as
well as the houses, barns and improvements associated therewith.
<PAGE>
<PAGE> 41
PART III
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this Form
10-SB pursuant to item 601 of regulation S-B.
SEC
Exhibit Reference
No. No. Title of Document
- ------- --------- -----------------
1 3.01 Articles of Incorporation of the Registrant and related
Amendments
2 3.02 Bylaws of the Registrant
3 4.01 Specimen Common Stock Certificate
4.02 Specimen Preferred Stock Certificate
4.03 Designation of Rights, Preferences, and Privileges for the
1998 Series A Convertible Preferred Stock
4 10.01 Agreement for Sale and Purchase of Assets between the
Registrant and Ostrich Products America, LLC, without
exhibits
10.02 Agreement for Sale and Purchase of Assets between the
Registrant and Stariad Investments Limited, without
exhibits
10.03 Form of Quill Senior Ranching and Ranching Associate
Contract
10.04 Convertible Secured Promissory Note dated May 26, 1998
10.05 Promissory Note between the Registrant and Philip R.
Lacerte dated May 1, 1998.
5 21 Subsidiaries of the Registrant
6 27 Financial Data Schedule
<PAGE>
<PAGE> 42
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunder duly authorized.
QUILL INDUSTRIES, INC.
By: /S/ Robert L. Matzig, President
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf
by the undersigned in the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/S/ Robert L. Matzig President, C.E.O., Director August 21, 1998
<PAGE> 1
Exhibit 1
3.01 - Articles of Incorporation and Amendments
[stamp - FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA,
NOV 16 1988]
ARTICLES OF INCORPORATION OF STARLIGHT RESOURCES, INC.
We, the undersigned, having this day associated ourselves together for
the purpose of forming a corporation under and by virtue of the laws of the
State of Nevada, hereby adopt the following Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation is Starlight Resources, Inc.
ARTICLE II
DURATION
The duration of the Corporation shall be perpetual
ARTICLE III
PURPOSES
The Corporation is organized and authorized to pursue any lawful purpose
or purposes including, but not limited to, making a blind pool/blank check
public offering of securities and to acquire, consolidate, merger with or
into, or be acquired by, another business entity.
The Corporation shall further have all powers specified in Sections
78.060, 78.065 and 78.070 of the Nevada Revised Statutes, and any amendments
thereto.
ARTICLE IV
AUTHORIZED SHARES
The Corporation shall have the authority to issued one hundred million
(100,000,000) shares of common stock with a par value of $.001 per share, all
stock of the Corporation shall be of the same class common and shall have the
same rights and preferences, fully paid stock of this Corporation shall not be
liable to any further call or assessment.
ARTICLE V
SHAREHOLDER RIGHTS
No shareholder of the Corporation shall, because of his ownership of the
shares, have any preemptive or other rights to purchase, subscribe for, or
take all or part of any shares or all or part of any notes, debentures, bonds
or securities convertible into or carrying options for warrants to purchase
shares of the Corporation issued, optioned or sold by it after its
incorporation. Such shares may be sold or disposed of by the Corporation
pursuant to resolution of its Board of Directors to such persons and upon such
terms as may, to such Board of Directors, seem proper without first offering
such shares or securities or any part thereof to existing shareholders.
VI
VOTING OF SHARES
Each outstanding share of the common stock of the Corporation shall be
<PAGE> 2
entitled to one vote on each matter submitted to a vote at a meeting of the
shareholders, each shareholder being entitled to -vote his shares in person or
by proxy executed in writing by such shareholder or by his duly authorized
attorney-in-fact. At each election of directors, each shareholder entitled to
vote at such election shall have the right to vote in person or by proxy the
number of shares owned by him for as many persons as there are directors to be
elected and for whose election he has a right to vote, but the shareholder
shall have no right whatsoever to accumulate his votes with regard to such
election.
VII
OFFICE AND AGENT
The address of the initial registered office of the Corporation is 1 East
1st Street, Reno, Washoe County, Nevada, and the name of the Corporation's
initial registered agent at such address is Corporation Trust Company of
Nevada.
VIII
BOARD OF DIRECTORS
The management of the affairs, property and interest of the Corporation
shall be vested in a Board of Directors.
(a) The number of Directors constituting the initial board shall be three
(3) in number, provided, however, that the number of directors may be changed
from time to time by a provision of the Bylaws, but in no event shall the
number of directors be less than three (3) nor more than ten (10).
(b) The following shall be the names and addresses of the persons who are
to serve as directors until the first annual meeting of the shareholders, or
until their successors shall be elected and qualified:
John Waugaman 2561 Elm Avenue
Salt Lake City, Utah 84109
Diane L. Nicks 4170 South 530 East, #22F
Salt Lake City, Utah 84107
John E. Arko 774 Dry Creek Road
Sandy, Utah 84092
ARTICLE IX
INCORPORATORS
The name and address of each incorporator is as follows:
Ronald L. Poulton 9 Exchange Place, Suite 200
Salt Lake City, Utah 84111
Paul R. Lovell 9 Exchange Place, Suite 915
Salt Lake City, Utah 84111
David R. Blaisdell 51 East 400 South, Suite 200
Salt Lake City, Utah 84111
<PAGE>
<PAGE> 3
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify any and all persons who may serve at any
time as directors or officers or who at the request of the Board of Directors
of the Corporation may serve or at any time have served as directors or
officers of another corporation in which the Corporation at such time owned or
may own shares of stock or of which it was or may be a creditor, and their
respective heirs, administrators, successors, and assignees, against any and
all expenses, including amounts paid upon judgments, counsel fees and amounts
paid in settlement (before or after suit is commenced), actually and
necessarily incurred by such persons in connection with the defense or
settlement of any claim, action, suit or proceeding in which they, or any of
them are made parties, or a party, or which may be asserted against them or
any of them, by reason of being or having been directors or officers of a
director or officer of the Corporation, or such other corporation, except in
relation to matters as to which any such director or officer or former
director or officer or person shall be adjudged in any action, suit or
proceeding to be liable for his own negligence or misconduct in the
performance of his duty. Such indemnification shall be in addition to any
other rights to which those indemnified may be entitled under any law, bylaw,
agreement, vote of shareholders or otherwise.
ARTICLE XI
CONTRACTS
No contract or transaction entered into by the Corporation shall be
affected by the fact that any director, officer, employee or shareholder of
the Corporation may in any way be interested in or connected with any party to
such contract or transaction, provided that this interest be first disclosed
or have been known to the Board of Directors or by a majority of such members
thereof and that the contract or transaction be approved by a majority of the
directors or shareholders present at the meeting where such contract or
transaction is authorized or confirmed; nor shall any director or shareholder
be incapacitated from having his vote be counted in determining the existence
of the quorum at any meeting of the Board of Directors or shareholders which
shall authorize any such contract or transaction and any interested director
or shareholder may vote thereat to authorize any such contractor transaction.
IN WITNESS WHEREOF, the undersigned being the incorporators, execute
these Articles of Incorporation and certify to the truth of the facts herein
stated this 27th day of October, 1988.
/S/
-----------------------------------------
RONALD L. POULTON
/S/
-----------------------------------------
PAUL R. LOVELL
/S/
------------------------------------------
DAVID R. BLAISDELL
<PAGE> 4
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
We, the undersigned, being first duly sworn on oath, depose and say that:
We are the incorporators hereinbefore named; we have read the foregoing
Articles of Incorporation and know the contents thereof and the same are true
of our own knowledge, except as to matters therein stated upon information and
belief, and as to those, we believe them to be true.
/S/
-----------------------------------------
RONALD L. POULTON
/S/
------------------------------------------
PAUL R. DOVELL
/S/
------------------------------------------
DAVID R. BLAISDELL
On the 27th day of October, 1988, personally appeared before me, RONALD
L. POULTON, PAUL R. LOVELL and DAVID R. BLAISDELL, signers of the above
Articles of Incorporation, who duly acknowledged to me that they executed the
same.
/S/ Joan Loudon
-------------------------------------
NOTARY PUBLIC
Residing in Salt Lake County
My Commission Expires:
4-1-89
[notary public seal- My Commission expires April 1, 1989, Joan Loudon, 9
Exchange Place, Suite 200, Salt Lake City, UT 84111 STATE OF UTAH]
<PAGE>
<PAGE> 5
[FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA NOV. 15
1989]
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
STARLIGHT RESOURCES, INC.
Starlight Resources, Inc., a Nevada corporation organized under the lawn
of the State of Nevada, November 16, 1988, hereby adopts the following
Articles of Amendment to its Articles of Incorporation pursuant to the
provisions of Nevada Revised Statute, Chapter 78.385.
I
The Articles of Incorporation shall be amended to read as follows:
ARTICLES I
Name
The name of the Corporation (hereinafter called the"Corporation") is
Essential Technologies, Inc.
ARTICLE III
Purpose
The Corporation is organized and authorized to pursue any lawful purpose
or purposes including, but not limited to, providing technology-based training
solutions to governments, business & industry and education.
The Corporation shall further have all powers specified in Sections
78.060, 78.065 and 78.070 of the Nevada Revised Statutes, and any amendments
thereto.
II
The date of the adoption of the foregoing amendments by the shareholders
was October 31, 1989.
III
The number of Shares outstanding in the Corporation in 9,221,100. The
number of shares entitled to vote on the amendment is 9,221,100. All stock in
the Corporation is entitled to one vote per share for each matter coming
before the meeting of the shareholders.
IV
The number of shares that voted in favor of the above amendments was
7,388,400. The number of shares that voted against the above amendments was 0.
DATED this 31st day of October, 1989.
STARLIGHT RESOURCES, INC.
By: /S/
--------------------------------------
John Waugama, President
<PAGE> 6
Attest: /S/
-------------------------------
Diane L. Wicks, Secretary
STATE OF UTAH )
: ss
COUNTY OP SALT LAKE )
I, M. Eldudge, a Notary Public, do hereby certify that on this 31st day
of October, 1989, personally appeared before me John Haugaman and Diane L.
Wicks, who being by me first duly sworn, declared that they are respectively,
the President and Secretary of the Corporation, and that they signed the
foregoing document as President and Secretary, and that the statements therein
contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of October,
1989.
/S/ M. Eldudge
----------------------------------
NOTARY PUBLIC
Residing in Salt Lake Co., UT
My Commission Expires:
4-30-90
<PAGE>
<PAGE> 7
[stamp - FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA,
MAY 15, 1995]
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Forbidden City Holdings, Inc.
----------------------------
Name of Corporation
We the undersigned Gerald Haryman and Jose A. Esquivel
------------------ ----------------------------
President or Vice President Secretary or Assistant Secretary
of Forbidden City Holdings, Inc.
------------------------------
Name of Corporation
do hereby certify:
That the board of Directors of said corporation at a meeting duly convened and
held on the 7th day of April, 1995, adopted a resolution to amend the original
articles as follows:
The name of the corporation shall be: Life Industries, Inc.
The number of shares of the corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation are 999,074; that the said
change(s) and amendment has been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
Gerald Haryman /S/
-----------------------------------------------
Jose A. Equivel /S/
------------------------------------------------
State of Florida
County of Palm Beach
on May 9, 1995 appeared before me, a Notary Public, ----------------------,
who acknowledged that he/she executed the above document.
/S/ Susan Daley
-----------------------------------
Notary Public
Susan Daley
My Commission CC359937
Expires Mar. 28, 1998
Bonded by HAI
800-422-1555
<PAGE>
[stamp FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA,
SEP 04 1997 No. C9119-88 /S/ DEAN HELLER, SECRETARY OF STATE]
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Life Industries, Inc.
-----------------------
Name of Corporation
We the undersigned, Robert L. Matzig of Life Industries, Inc.
---------------- ---------------
President Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened and held on the 26th day of August 1997, adopted a resolution to
amend the original articles as follows:
Article I is hereby amended to read as follows:
The name of the corporation shall be Quill Industries, Inc.
Article IV is hereby amended to read as follows:
The corporation shall have the authority to issue two hundred million
(200,000,000) shares of common stock with a par value of $.001 per share.
The number of shares outstanding and entitled to vote on an amendment to the
Articles of Incorporation are 99,233,242; that the said changes and amendments
have been consented to and approved by a majority vote of the stockholders
holding at least a majority of each class of stock outstanding and entitled to
vote thereon, at a Special Meeting of the stockholders held on August 26,
1997.
Robert L. Matzig /S/
----------------------------
President & Secretary
State of Florida
County of Lee
On August 28, 1997, personally appeared before me, a Notary Public, Crystal
Ann Whidden, who acknowledged that they executed the above instrument.
/S/
-----------------------------
Signature of Notary
[Notary Public Seal - Crystal Ann Whidden
Notary Public, State of Florida
Commission No. CC642931
My Commission Exp. 04/28/2001]0
<PAGE> 1
Exhibit 2
3.02 - Bylaws RESTATED
BYLAWS
OF
LIFE INDUSTRIES, INC.
ARTICLE I
OFFICES
Section 1.01 Registered Office. The registered office shall be in
Reno, Washoe County, state of Nevada, or such other city within the state of
Nevada, as the board of directors may from time to time designate or require..
Section 1.02 Location of Offices. The corporation may maintain such
offices within or without the state of Nevada as the board of directors may
from time to time designate or require.
Section 1.03 Principal Office. The address of the principal office of
the corporation shall be at the address of the Registered office of the
corporation as so designated in the office of the Secretary of State of the
state of incorporation, or at such other address as the board of directors
shall from time to time determine.
ARTICLE II
SHAREHOLDERS
Section 2.01 Annual Meeting. The annual meeting of the stockholders
shall be held on the second Tuesday of the third month following the
anniversary of incorporation or at such other time designated by the board of
director and as is provided for in the notice of the meeting; provided, that
whenever such date falls on a legal holiday, the meeting shall be held on the
next succeeding business day, beginning with the year following the filing of
the articles of incorporation, 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 the
annual meeting of the stockholders, or at any adjournment thereof, the board
of directors shall cause the election to be held at a special meeting of the
stockholders as soon thereafter as may be convenient.
Section 2.02 Special Meetings. Special meetings of the stockholders may
be called at any time by the chairman of the board, the president, or by the
board of directors, or in their absence or disability, by any vice president,
and shall be immediately called by the president or, in his absence or
disability, by a vice president or by the secretary on the written request of
the holders of not less than one-tenth of all the shares entitled to vote at
the meeting, such written request to state the purpose or purposes of the
meeting and to be delivered to the president, each vice-president, or
secretary. In case of failure to call such meeting within 20 days after such
request, such shareholder or shareholders may call the same.
Section 2.03 Place of Meetings. The board of directors may designate
any place, either within or without the state of incorporation, as the place
of meeting for any annual meeting or for any special meeting called by the
board of directors. A waiver of notice signed by all stockholders entitled to
vote at a meeting may designate any place, either within or without the state
of incorporation, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be at the principal office of the corporation.
<PAGE> 2
Section 2.04 Notice of Meetings. The secretary or assistant secretary,
if any, shall cause notice of the time, place, and purpose or purposes of all
meetings of the shareholders (whether annual or special), to be mailed at
least ten days, but not more than 50 days, prior to the meeting, to each
shareholder of record entitled to vote.
Section 2.05 Waiver of Notice. Any stockholder may waive notice of any
meeting of shareholders (however called or noticed, whether or not called or
noticed and whether before, during, or after the meeting), by signing a
written waiver of notice or a consent to the holding of such meeting, or an
approval of the minutes thereof. Attendance at a meeting, in person or by
proxy, shall constitute waiver of all defects of call or notice regardless of
whether waiver, consent, or approval is signed or any objections are made.
All such waivers, consents, or approvals shall be made a part of the minutes
of the meeting.
Section 2.06 Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any annual meeting of
shareholders or any adjournment thereof, or shareholder entitled to receive
payment of any dividend or in order to make a determination of shareholders
for any other proper purpose, the board of directors of the corporation may
provide that the share transfer books shall be closed, for the purpose of
determining shareholders entitled to notice of or to vote at such meeting, but
not for a period exceeding fifty (50) days. If the share transfer books are
closed for the purpose of determining shareholders entitled to notice of or to
vote at such meeting, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
In lieu of closing the share transfer books, the board of directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) and, in
case of a meeting of shareholders, not less than ten (10) days prior to the
date on which the particular action requiring such determination of
shareholders is to be taken. If the share transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting or to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the board of directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof. Failure to comply with
this section shall not affect the validity of any action taken at a meeting of
shareholders.
Section 2.07 Voting Lists. The officer or agent of the corporation
having charge of the share 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
of shares held by each, which list, for a period of ten (10) days prior to
such meeting, shall be kept on file at the registered office of the
corporation and shall be subject to inspection by any shareholder during the
whole time of the meeting. The original share transfer book shall be prima
facia evidence as to the shareholders who are entitled to examine such list or
transfer books, or to vote at any meeting of shareholders.
<PAGE> 3
Section 2.08 Quorum. One-half of the total voting power of the
outstanding shares of the corporation entitled to vote, represent in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. If a
quorum is present, the affirmative vote of the majority of the voting power
represented by shares at the meeting and entitled to vote on the subject shall
constitute action by the shareholders, unless the vote of a greater number or
voting by classes is required by the laws of the state of incorporation of the
corporation or the articles of incorporation. If less than one-half of the
outstanding voting power is represented at a meeting, a majority of the voting
power represented by shares so present 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 noticed.
Section 2.09 Voting of Shares. Each outstanding share of the
corporation entitled to vote shall be entitled to one vote on each matter
submitted to vote at a meeting of shareholders, except to the extent that the
voting rights of the shares of any class or series of stock are determined and
specified as greater or lesser than one vote per share in the manner provided
by the articles of incorporation.
Section 2.10 Proxies. At each meeting of the shareholders, each
shareholder entitled to vote shall be entitled to vote in person or by proxy;
provided, however, that the right to vote by proxy shall exist only in case
the instrument authorizing such proxy to act shall have been executed in
writing by the registered holder or holders of such shares, as the case may
be, as shown on the share transfer of the corporation or by his attorney
thereunto duly authorized in writing. Such instrument authorizing a proxy to
act shall be delivered at the beginning of such meeting to the secretary of
the corporation or to such other officer or person who may, in the absence of
the secretary, be acting as secretary of the meeting. In the event that any
such instrument shall designate two or more persons to act as proxies, a
majority of such persons present at the meeting, or if only one be present,
that one shall (unless the instrument shall otherwise provide) have all of the
powers conferred by the instrument on all persons so designated. Persons
holding stock in a fiduciary capacity shall be entitled to vote the shares so
held and the persons whose shares are pledged shall be entitled to vote,
unless in the transfer by the pledge or on the books of the corporation he
shall have expressly empowered the pledgee to vote thereon, in which case the
pledgee, or his proxy, may represent such shares and vote thereon.
Section 2.11 Written Consent to Action by Stockholders. 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
DIRECTORS
Section 3.01 General Powers. The property, affairs, and business of the
corporation shall be managed by its board of directors. The board of
directors may exercise all the powers of the corporation whether derived from
law or the articles of incorporation, except such powers as are by statute, by
the articles of incorporation or by these Bylaws, vested solely in the
shareholders of the corporation.
<PAGE> 4
Section 3.02 Number, Term, and Qualifications. The board of directors
shall consist of at least one director until such time as the statutory
requirements of the state of incorporation require more than one director and
thereafter the board of directors shall consist of at least three person and
no more than nine persons. Increases or decreases to said number may be made,
within the numbers authorized by the articles of incorporation, as the board
of directors shall from time to time determine by amendment to these Bylaws.
An increase or a decrease in the number of the board of directors may also be
had upon amendment to these Bylaws by a majority vote of all of the
shareholders, and the number of directors to be so increased or decreased
shall be fixed upon a majority vote of all of the shareholders of the
corporation. Each director shall hold office until the next annual meeting of
shareholders of the corporation and until his successor shall have been
elected and shall have qualified. Directors need not be residents of the
state of incorporation or shareholders of the corporation.
Section 3.03 Classification of Directors. In lieu of electing the
entire number of directors annually, the board of directors may provide that
the directors be divided into either two or three classes, each class to be as
nearly equal in number as possible, the term of office of the directors of the
first class to expire at the first annual meeting of shareholders after their
election, that of the second class to expire at the second annual meeting
after their election, and that of the third class, if any, to expire at the
third annual meeting after their election. At each annual meeting after such
classification the number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected to hold office until
the second succeeding annual meeting, if there be two classes, or until the
third succeeding annual meeting if there be three classes.
Section 3.04 Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately
following, and at the same place as, the annual meeting of shareholders. The
board of directors may provide by resolution the time and place, either within
or without the state of incorporation, for the holding of additional regular
meetings without other notice than such resolution.
Section 3.05 Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president, vice president,
or any two 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 incorporation, as the place for holding any special meeting of
the board of directors called by them.
Section 3.06 Meetings by Telephone Conference Call. Members of the
board of directors may participate in a meeting of the board of directors or a
committee of the board of directors by means of conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to
this section shall constitute presence in person at such meeting.
Section 3.07 Notice. Notice of any special meeting shall be given at
least ten (10) days prior thereto by written notice delivered personally or
mailed to each director at his regular business address or residence,
telegram, facsimile transmission, word of mouth or by telephone. If mailed,
such notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any director may waive notice of any
<PAGE> 5
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting solely for
the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened.
Section 3.08 Quorum. A majority of the number of directors shall
constitute a quorum for the transaction of business at any meeting of the
board of directors, but if less than a majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
Section 3.09 Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the
board of directors, and the individual directors shall have no power as such.
Section 3.10 Vacancies and Newly created Directorship. If any vacancies
shall occur in the board of directors by reason of death, resignation or
otherwise, or if the number of directors shall be increased, the directors
then in office shall continue to act and such vacancies or newly created
directorships shall be filled by a vote of the directors then in office,
though less than a quorum, in any way approved by the meeting. Any
directorship to be filled by reason of removal of one or more directors by the
shareholders may be filled by election by the shareholders at the meeting at
which the director or directors are removed.
Section 3.11 Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors, and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 3.12 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 in the minutes of the meeting,
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof, or shall
forward such dissent by registered or certified mail 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 3.13 Resignations. A director may resign at any time by
delivering a written resignation to either the president, a vice president,
the secretary, or assistant secretary, if any. The resignation shall become
effective on its acceptance by the board of directors; provided, that if the
board has not acted thereon within ten days from the date presented, the
resignation shall be deemed accepted.
Section 3.14 Written Consent to Action by Directors. Any action
required to be taken at a meeting of the directors of the corporation or any
other action which may be taken at a meeting of the directors or of a
committee, may be taken without a meeting, if a consent in writing, setting
forth the action so taken, shall be signed by all of the directors, or all of
the members of the committee, as the case may be. Such consent shall have the
same legal effect as a unanimous vote of all the directors or members of the
committee.
<PAGE> 6
Section 3.15 Removal. At a meeting expressly called for that purpose,
one or more directors may be removed by a vote of a majority of the shares of
outstanding stock of the corporation entitled to vote at an election of
directors.
ARTICLE IV
OFFICERS
Section 4.01 Number. The officers of the corporation shall be a
president, one or more vice-presidents, as shall be determined by resolution
of the board of directors, a secretary, a treasurer, and such other officers
as may be appointed by the board of directors. The board of directors may
elect, but shall not be required to elect, a chairman of the board and the
board of directors may appoint a general manager.
Section 4.02 Election, Term of Office, and Qualifications. The officers
shall be chosen by the board of directors annually at its annual meeting. In
the event of failure to choose officers at an annual meeting of the board of
directors, officers may be chosen at any regular or special meeting of the
board of directors. Each such officer (whether chosen at an annual meeting of
the board of directors to fill a vacancy or otherwise) shall hold his office
until the next ensuing annual meeting of the board of directors and until his
successor shall have been chosen and qualified, or until his death, or until
his resignation or removal in the manner provided in these Bylaws. Any one
person may hold any two or more of such offices, except that the president
shall not also be the secretary. No person holding two or more offices shall
act in or execute any instrument in the capacity of more than one office. The
chairman of the board, if any, shall be and remain director of the corporation
during the term of his office. No other officer need be a director.
Section 4.03 Subordinate Officers, Etc. The board of directors from
time to time may appoint such other officers or agents as it may deem
advisable, each of whom shall have such title, hold office for such period,
have such authority, and perform such duties as the board of directors from
time to time may determine. The board of directors from time to time may
delegate to any officer or agent the power to appoint any such subordinate
officer or agents and to prescribe their respective titles, terms of office,
authorities, and duties. Subordinate officers need not be shareholders or
directors.
Section 4.04 Resignations. Any officer may resign at any time by
delivering a written resignation to the board of directors, the president, or
the secretary. Unless otherwise specified therein, such resignation shall
take effect on delivery.
Section 4.05 Removal. Any officer may be removed from office at any
special meeting of the board of directors called for that purpose or at a
regular meeting, by vote of a majority of the directors, with or without
cause. Any officer or agent appointed in accordance with the provisions of
section 4.03 hereof may also be removed, either with or without cause, by any
officer on whom such power of removal shall have been conferred by the board
of directors.
Section 4.06 Vacancies and Newly Created Offices. If any vacancy shall
occur in any office by reason of death, resignation, removal,
disqualification, or any other cause, or if a new office shall be created,
then such vacancies or new created offices may be filled by the board of
directors at any regular or special meeting.
<PAGE> 7
Section 4.07 The Chairman of the Board. The chairman of the board, if
there be such an officer, shall have the following powers and duties.
(a) He shall preside at all shareholders' meetings;
(b) He shall preside at all meetings of the board of directors; and
(c) He shall be a member of the executive committee, if any.
Section 4.08 The President. The president shall have the following
powers and duties:
(a) If no general manager has been appointed, he shall be the chief
executive officer of the corporation, and, subject to the direction of the
board of directors, shall have general charge of the business, affairs, and
property of the corporation and general supervision over its officers,
employees, and agents;
(b) If no chairman of the board has been chosen, or is such officer
is absent or disabled, he shall preside at meetings of the stockholders and
board of directors;
(c) He shall be a member of the executive committee, if any;
(d) He shall be empowered to sign certificates representing shares of
the corporation, the issuance of which shall have been authorized by the board
of directors; and
(e) He shall have all power and shall perform all duties normally
incident to the office of a president of a corporation, and shall exercise
such other powers and perform such other duties as from time to time may be
assigned to him by the board of directors.
Section 4.09 The Vice Presidents. The board of directors may, from time
to time, designate and elect one or more vice presidents, one of whom may be
designated to serve as executive vice president. Each vice president shall
have such powers and perform such duties as from time to time may be assigned
to him by the board of directors or the president. At the request or in the
absence or disability of the president, the executive vice president or, in
the absence or disability of the executive vice president, the vice president
designated by the board of directors or (in the absence of such designation by
the board of directors) by the president, the senior vice president, may
perform all the duties of the president, and when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the president.
Section 4.10 The Secretary. The secretary shall have the following
powers and duties:
(a) He shall keep or cause to be kept a record of all of the
proceedings of the meetings of the shareholders and of the board or directors
in books provided for that purpose;
(b) He shall cause all notices to be duly given in accordance with
the provisions of these Bylaws and as required by statute;
<PAGE>
<PAGE> 8
(c) He shall be the custodian of the records and of the seal of the
corporation, and shall cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the corporation prior to the
issuance thereof and to all instruments, the execution of which on behalf of
the corporation under its seal shall have been duly authorized in accordance
with these Bylaws, and when so affixed, he may attest the same;
(d) He shall assume that the books, reports, statements,
certificates, and other documents and records required by statute are properly
kept and filed;
(e) He shall have charge of the share books of the corporation and
cause the share transfer books to be kept in such manner as to show at any
time the amount of the shares of the corporation of each class issued and
outstanding, the manner in which and the time when such stock was paid for,
the names alphabetically arranged and the addresses of the holders of record
thereof, the number of shares held by each holder and time when each became
such holder or record; and he shall exhibit at all reasonable times to any
director, upon application, the original or duplicate share register. He
shall cause the share book referred to in section 6.04 hereof to be kept and
exhibited at the principal office of the corporation, or at such other place
as the board of directors shall determine, in the manner and for the purposes
provided in such section;
(f) He shall be empowered to sign certificates representing shares of
the corporation, the issuance of which shall have been authorized by the board
of directors; and
(g) He shall perform in general all duties incident to the office of
secretary and such other duties as are given to him by these Bylaws or as from
time to time may be assigned to him by the board of directors or the
president.
Section 4.11 The Treasurer. The treasurer shall have the following
powers and duties:
(a) He shall have charge and supervision over and be responsible for
the monies, securities, receipts, and disbursements of the corporation;
(b) He shall cause the monies and other valuable effects of the
corporation to be deposited in the name and to the credit of the corporation
in such banks or trust companies or with such banks or other depositories as
shall be selected in accordance with section 5.03 hereof;
(c) He shall cause the monies of the corporation to be disbursed by
checks or drafts (signed as provided in section 5.04 hereof) drawn on the
authorized depositories of the corporation, and cause to be taken and
preserved property vouchers for all monies disbursed;
(d) He shall render to the board of directors or the president,
whenever requested, a statement of the financial condition of the corporation
and of all of this transactions as treasurer, and render a full financial
report at the annual meeting of the stockholders, if called upon to do so;
(e) He shall cause to be kept correct books of account of all the
business and transactions of the corporation and exhibit such books to any
director on request during business hours;
<PAGE> 9
(f) He shall be empowered from time to time to require from all
officers or agents of the corporation reports or statements given such
information as he may desire with respect to any and all financial
transactions of the corporation; and
(g) He shall perform in general all duties incident to the office of
treasurer and such other duties as are given to him by these Bylaws or as from
time to time may be assigned to him by the board of directors or the
president.
Section 4.12 General Manager. The board of directors may employ and
appoint a general manager who may, or may not, be one of the officers or
directors of the corporation. The general manager, if any shall have the
following powers and duties:
(a) He shall be the chief executive officer of the corporation and,
subject to the directions of the board of directors, shall have general charge
of the business affairs and property of the corporation and general
supervision over its officers, employees, and agents:
(b) He shall be charged with the exclusive management of the business
of the corporation and of all of its dealings, but at all times subject to the
control of the board of directors;
(c) Subject to the approval of the board of directors or the
executive committee, if any, he shall employ all employees of the corporation,
or delegate such employment to subordinate officers, and shall have authority
to discharge any person so employed; and
(d) He shall make a report to the president and directors as often as
required, setting forth the results of the operations under his charge,
together with suggestions looking toward improvement and betterment of the
condition of the corporation, and shall perform such other duties as the board
of directors may require.
Section 4.13 Salaries. The salaries and other compensation of the
officers of the corporation shall be fixed from time to time by the board of
directors, except that the board of directors may delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
section 4.03 hereof. No officer shall be prevented from receiving any such
salary or compensation by reason of the fact that he is also a director of the
corporation.
Section 4.14 Surety Bonds. In case the board of directors shall so
require, any officer or agent of the corporation shall execute to the
corporation a bond in such sums and with such surety or sureties as the board
of directors may direct, conditioned upon the faithful performance of his
duties to the corporation, including responsibility for negligence and for the
accounting of all property, monies, or securities of the corporation which may
come into his hands.
<PAGE>
<PAGE> 10
ARTICLE V
EXECUTION OF INSTRUMENTS, BORROWING OF MONEY,
AND DEPOSIT OF CORPORATE FUNDS
Section 5.01 Execution of Instruments. Subject to any limitation
contained in the articles of incorporation or these Bylaws, the president or
any vice president or the general manager, if any, may, in the name and on
behalf of the corporation, execute and deliver any contract or other
instrument authorized in writing by the board of directors. The board of
directors may, subject to any limitation contained in the articles of
incorporation or in these Bylaws, authorize in writing any officer or agent to
execute and delivery any contract or other instrument in the name and on
behalf of the corporation; any such authorization may be general or confined
to specific instances.
Section 5.02 Loans. No loans or advances shall be contracted on behalf
of the corporation, no negotiable paper or other evidence of its obligation
under any loan or advance shall be issued in its name, and no property of the
corporation shall be mortgaged, pledged, hypothecated, transferred, or
conveyed as security for the payment of any loan, advance, indebtedness, or
liability of the corporation, unless and except as authorized by the board of
directors. Any such authorization may be general or confined to specific
instances.
Section 5.03 Deposits. All monies of the corporation not otherwise
employed shall be deposited from time to time to its credit in such banks and
or trust companies or with such bankers or other depositories as the board of
directors may select, or as from time to time may be selected by any officer
or agent authorized to do so by the board of directors.
Section 5.04 Checks, Drafts, Etc. All notes, drafts, acceptances,
checks, endorsements, and, subject to the provisions of these Bylaws,
evidences of indebtedness of the corporation, shall be signed by such officer
or officers or such agent or agents of the corporation and in such manner as
the board of directors from time to time may determine. Endorsements for
deposit to the credit of the corporation in any of its duly authorized
depositories shall be in such manner as the board of directors from time to
time may determine.
Section 5.05 Bonds and Debentures. Every bond or debenture issued by
the corporation shall be evidenced by an appropriate instrument which shall be
signed by the president or a vice president and by the secretary and sealed
with the seal of the corporation. The seal may be a facsimile, engraved or
printed. Where such bond or debenture is authenticated with the manual
signature of an authorized officer of the corporation or other trustee
designated by the indenture of trust or other agreement under which such
security is issued, the signature of any of the corporation's officers named
thereon may be a facsimile. In case any officer who signed, or whose
facsimile signature has been used on any such bond or debenture, should cease
to be an officer of the corporation for any reason before the same has been
delivered by the corporation, such bond or debenture may nevertheless be
adopted by the corporation and issued and delivered as through the person who
signed it or whose facsimile signature has been used thereon had not ceased to
be such officer.
<PAGE>
<PAGE> 11
Section 5.06 Sale, Transfer, Etc. of Securities. Sales, transfers,
endorsements, and assignments of stocks, bonds, and other securities owned by
or standing in the name of the corporation, and the execution and delivery on
behalf of the corporation of any and all instruments in writing incident to
any such sale, transfer, endorsement, or assignment, shall be effected by the
president, or by any vice president, together with the secretary, or by any
officer or agent thereunto authorized by the board of directors.
Section 5.07 Proxies. Proxies to vote with respect to shares of other
corporations owned by or standing in the name of the corporation shall be
executed and delivered on behalf of the corporation by the president or any
vice president and the secretary or assistant secretary of the corporation, or
by any officer or agent thereunder authorized by the board of directors.
ARTICLE VI
CAPITAL SHARES
Section 6.01 Share Certificates. Every holder of shares in the
corporation shall be entitled to have a certificate, signed by the president
or any vice president and the secretary or assistant secretary, and sealed
with the seal (which may be a facsimile, engraved or printed) of the
corporation, certifying the number and kind, class or series of shares owned
by him in the corporation provided, however, that where such a certificate is
countersigned by (a) a transfer agent or an assistant transfer agent, or (b)
registered by a registrar, the signature of any such president, vice
president, secretary, or assistant secretary may be a facsimile. In case any
officer who shall have signed, or whose facsimile signature or signatures
shall have been used on any such certificate, shall cease to be such officer
of the corporation, for any reason, before the delivery of such certificate by
the corporation, such certificate may nevertheless be adopted by the
corporation and be issued and delivered as though the person who signed it, or
whose facsimile signature or signatures shall have been used thereon, has not
ceased to be such officer. Certificates representing shares of the
corporation shall be in such form as provided by the statutes of the state of
incorporation. There shall be entered on the share books of the corporation
at the time of issuance of each share, the number of the certificate issued,
the name and address of the person owning the shares represented thereby, the
number and kind, class or series of such shares, and the date of issuance
thereof. Every certificate exchanged or returned to the corporation shall be
marked "Canceled" with the date of cancellation.
Section 6.02 Transfer of Shares. Transfers of shares of the
corporation shall be made on the books of the corporation by the holder of
record thereof, or by his attorney thereunto duly authorized by a power of
attorney duly executed in writing and filed with the Secretary of the
corporation or any of its transfer agents, and on surrender of the certificate
or certificates, properly endorsed or accompanied by proper instruments of
transfer, representing such shares. Except as provided by law, the
corporation and transfer agents and registrars, if any, shall be entitled to
treat the holder of record of any stock as the absolute owner thereof for all
purposes, and accordingly shall not be bound to recognize any legal,
equitable, or other claim to or interest in such shares on the part of any
other person whether or not it or they shall have express or other notice
thereof.
<PAGE>
<PAGE> 12
Section 6.03 Regulations. Subject to the provisions of this section VI
and of the articles of incorporation, the board of directors may make such
rules and regulations as they may deem expedient concerning the issuance,
transfer, redemption, and registration of certificates for shares of the
corporation.
Section 6.04 Maintenance of Stock Ledger at Principal Place of Business.
A share book (or books where more than one kind, class, or series of stock is
outstanding) shall be kept at the principal place of business of the
corporation, or at such other place as the board of directors shall determine,
containing the names, alphabetically arranged, of original shareholders of the
corporation, their addresses, their interest, the amount paid on their shares,
and all transfers thereof and the number and class of shares held by each.
Such share books shall at all reasonable hours be subject to inspection by
persons entitled by law to inspect the same.
Section 6.05 Transfer Agents and Registrars. The board of directors may
appoint one or more transfer agents and one or more registrars with respect to
the certificates representing shares of the corporation, and may require all
such certificates to bear the signature of either or both. The board of
directors may from time to time define the respective duties of such transfer
agents and registrars. No certificate for shares shall be valid until
countersigned by a transfer agent, if at the date appearing thereon the
corporation had a transfer agent for such shares, and until registered by a
registrar, if at such date the corporation had a registrar for such shares.
Section 6.06 Closing of Transfer Books and Fixing of Record Date.
(a) The board of directors shall have power to close the share books
of the corporation for a period of not to exceed 50 days preceding the date of
any meeting of shareholders, or the date for payment of any dividend, or the
date for the allotment of rights, or capital shares shall go into effect, or a
date in connection with obtaining the consent of shareholders for any purpose.
(b) In lieu of closing the share transfer books as aforesaid, the
board of directors may fix in advance a date, not exceeding 50 days preceding
the date of any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital shares shall go into effect, or a date in
connection with obtaining any such consent, as a record date for the
determination of the shareholders entitled to a notice of, and to vote at, any
such meeting and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent.
(c) If the share transfer books shall be closed or a record date set
for the purpose of determining shareholders entitled to notice of or to vote
at a meeting of shareholders, such books shall be closed for, or such record
date shall be, at least ten (10) days immediately preceding such meeting.
Section 6.07 Lost or Destroyed Certificates. The corporation may issue
a new certificate for shares of the corporation in place of any certificate
theretofore issued by it, alleged to have been lost or destroyed, and the
board of directors may, in its discretion, require the owner of the lost or
destroyed certificate or his legal representatives, to give the corporation a
bond in such form and amount as the board of directors may direct, and with
such surety or sureties as may be satisfactory to the board, to indemnify the
<PAGE> 13
corporation and its transfer agents and registrars, if any, against any claims
that may be made against it or any such transfer agent or registrar on account
of the issuance of such new certificate. A new certificate may be issued
without requiring any bond when, in the judgment of the board of directors, it
is proper to do so.
Section 6.08 No Limitation on Voting Rights; Limitation on Dissenter's
Rights. To the extent permissible under the applicable law of any
jurisdiction to which the corporation may become subject by reason of the
conduct of business, the ownership of assets, the residence of shareholders,
the location of offices or facilities, or any other item, the corporation
elects not to be governed by the provisions of any statute that (i) limits,
restricts, modified, suspends, terminates, or otherwise affects the rights of
any shareholder to cast one vote for each share of common stock registered in
the name of such shareholder on the books of the corporation, without regard
to whether such shares were acquired directly from the corporation or from any
other person and without regard to whether such shareholder has the power to
exercise or direct the exercise of voting power over any specific fraction of
the shares of common stock of the corporation issued and outstanding or (ii)
grants to any shareholder the right to have his stock redeemed or purchased by
the corporation or any other shareholder on the acquisition by any person or
group of persons of shares of the corporation. In particular, to the extent
permitted under the laws of the state of incorporation, the corporation elects
not to be governed by any such provision, including the provisions of the
Nevada Control Share Acquisition Act, section 78.378 et seq., of the
Corporation Law of the State of Nevada, as amended, or any statute of similar
effect or tenor.
ARTICLE VII
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 7.01 How Constituted. The board of directors may designate an
executive committee and such other committees as the board of directors may
deem appropriate, each of which committees shall consist of two or more
directors. Members of the executive committee and of any such other
committees shall be designated annually at the annual meeting of the board of
directors; provided, however, that at any time the board of directors may
abolish or reconstitute the executive committee or any other committee. Each
member of the executive committee and of any other committee shall hold office
until his successor shall have been designated or until his resignation or
removal in the manner provided in these Bylaws.
Section 7.02 Powers. During the intervals between meetings of the board
of directors, the executive committee shall have and may exercise all powers
of the board of directors in the management of the business and affairs of the
corporation, except for the power to fill vacancies in the board of directors
or to amend these Bylaws, and except for such powers as by law may not be
delegated by the board of directors to an executive committee.
Section 7.03 Proceedings. The executive committee, and such other
committees as may be designated hereunder by the board of directors, may fix
its own presiding and recording officer or officers, and may meet at such
place or places, at such time or times and on such notice (or without notice)
as it shall determine from time to time. It will keep a record of its
proceedings and shall report such proceedings to the board of directors at the
meeting of the board of directors next following.
<PAGE> 14
Section 7.04 Quorum and Manner of Acting. At all meeting of the
executive committee, and of such other committees as may be designated
hereunder by the board of directors, the presence of members constituting a
majority of the total authorized membership of the committee shall be
necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of such committee. The members of
the executive committee, and of such other committees as may be designated
hereunder by the board of directors, shall act only as a committee and the
individual members thereof shall have no powers as such.
Section 7.05 Resignations. Any member of the executive committee, and
of such other committees as may be designated hereunder by the board of
directors, may resign at any time by delivering a written resignation to
either the president, the secretary, or assistant secretary, or to the
presiding officer of the committee of which he is a member, if any shall have
been appointed and shall be in office. Unless otherwise specified herein,
such resignation shall take effect on delivery.
Section 7.06 Removal. The board of directors may at any time remove any
member of the executive committee or of any other committee designated by it
hereunder either for or without cause.
Section 7.07 Vacancies. If any vacancies shall occur in the executive
committee or of any other committee designated by the board of directors
hereunder, by reason of disqualification, death, resignation, removal, or
otherwise, the remaining members shall, until the filling of such vacancy,
constitute the then total authorized membership of the committee and, provided
that two or more members are remaining, continue to act. Such vacancy may be
filled at any meeting of the board of directors.
Section 7.08 Compensation. The board of directors may allow a fixed sum
and expenses of attendance to any member of the executive committee, or of any
other committee designated by it hereunder, who is not an active salaried
employee of the corporation for attendance at each meeting of said committee.
ARTICLE VIII
INDEMNIFICATION, INSURANCE, AND OFFICER AND DIRECTOR CONTRACTS
Section 8.01 Indemnification: Third Party Actions. The corporation
shall have the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees) judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with any such action,
suit or proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit, or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
<PAGE> 15
Section 8.02 Indemnification: Corporate Actions. The corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue, or matter as to which such a person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation, unless and only to the extent that the court in
which the action or suit was brought shall determine on application that,
despite the adjudication of liability but in view of all circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Section 8.03 Determination. To the extent that a director, officer,
employee, or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in section
8.01 and 8.02 hereof, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. Any other indemnification
under section 8.01 and 8.02 hereof, shall be made by the corporation upon a
determination that indemnification of the officer, director, employee, or
agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in sections 8.01 and 8.02 hereof. Such
determination shall be made either (i) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit, or proceeding; or (ii) by independent legal counsel on a written
opinion; or (iii) by the shareholders by a majority vote of a quorum of
shareholders at any meeting duly called for such purpose.
Section 8.04 General Indemnification. The indemnification provided by
this section shall not be deemed exclusive of any other indemnification
granted under any provision of any statute, in the corporation's articles of
incorporation, these Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, or agent, and
shall inure to the benefit of the heirs and legal representatives of such a
person.
Section 8.05 Advances. Expenses incurred in defending a civil or
criminal action, suit, or proceeding as contemplated in this section may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding upon a majority vote of a quorum of the board of directors
and upon receipt of an undertaking by or on behalf of the director, officers,
employee, or agent to repay such amount or amounts unless if it is ultimately
determined that he is to indemnified by the corporation as authorized by this
section.
Section 8.06 Scope of Indemnification. The indemnification authorized
by this section shall apply to all present and future directors, officers,
employees, and agents of the corporation and shall continue as to such persons
who ceases to be directors, officers, employees, or agents of the corporation,
and shall inure to the benefit of the heirs, executors, and administrators of
all such persons and shall be in addition to all other indemnification
permitted by law.
<PAGE> 16
8.07. Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against any such liability and under the laws of the state of
incorporation, as the same may hereafter be amended or modified.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE X
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 on the terms
and conditions provided by the articles of incorporation and these Bylaws.
ARTICLE XI
AMENDMENTS
All Bylaws of the corporation, whether adopted by the board of directors
or the shareholders, shall be subject to amendment, alteration, or repeal, and
new Bylaws may be made, except that:
(a) No Bylaws adopted or amended by the shareholders shall be altered
or repealed by the board of directors.
(b) No Bylaws shall be adopted by the board of directors which shall
require more than a majority of the voting shares for a quorum at a meeting of
shareholders, or more than a majority of the votes cast to constitute action
by the shareholders, except where higher percentages are required by law;
provided, however that (i) if any Bylaw regulating an impending election of
directors is adopted or amended or repealed by the board of directors, there
shall be set forth in the notice of the next meeting of shareholders for the
election of directors, the Bylaws so adopted or amended or repealed, together
with a concise statement of the changes made; and (ii) no amendment,
alteration or repeal of this section XI shall be made except by the
shareholders.
<PAGE> 1
EXHIBIT 3
4.01 - Specimen Common Stock Certificate
COMMON STOCK
NUMBER SHARES
XXX **XXX,XXX**
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
QUILL INDUSTRIES, INC.
200,000,000 SHARES OF COMMON STOCK @ $0.001 PAR VALUE
This Certifies that XXXXXXXXXXXXXXXXXXXXXXXXXXXXX is the registered
holder of ***XXXXXXXXXXXXXXXXXXXXXXXXXXXXX*** of the Common
Capital Stock of Quill Industries, Inc., transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of
this Certificate properly endorsed. In Witness Whereof, the said Corporation
has caused this certificate to be signed by its duly authorized officers and
its Corporate Seal to be hereunder affixed this XXX day of XXXXX A.D. XXXX.
President /S/ R. Lee Matzig Secretary /S/ Roman Isip
<PAGE>
<PAGE> 2
4.02 - Specimen Preferred Stock Certificate
PREFERRED STOCK
NUMBER SHARES
XXX **XXX,XXX**
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
QUILL INDUSTRIES, INC.
1998 SERIES A CONVERTIBLE PREFERRED STOCK @ $0.001 PAR VALUE
This Certifies that XXXXXXXXXXXXXXXXXXXXXXXXXXXXX is the registered
holder of *****XXXXXXXXXXXXXXXXXXXXXXXXXXX***** of the Preferred
Capital Stock of Quill Industries, Inc., transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of
this Certificate properly endorsed. In Witness Whereof, the said Corporation
has caused this certificate to be signed by its duly authorized officers and
its Corporate Seal to be hereunder affixed this XXX day of XXXXX A.D. 19XX.
President /S/ R. Lee Matzig Secretary /S/ Roman Isip
<PAGE>
<PAGE> 3
4.03 - DESIGNATION OF RIGHTS, PREFERENCES, AND PRIVILEGES FOR THE 1998 SERIES
A CONVERTIBLE PREFERRED STOCK OF QUILL INDUSTRIES, INC.
Pursuant to the provisions of the Nevada Revised Statutes, section 78.195
of the corporation laws of the state of Nevada, the undersigned corporation
hereby adopts the following Designation of Rights, Privileges, and Preferences
of the 1998 Series A Convertible Preferred Stock (the "Designation"):
FIRST: The name of the Corporation is QUILL INDUSTRIES, INC.
SECOND: The following resolution establishing a series of
Convertible Preferred stock designated as the "1998 Series A Convertible
Preferred Stock" consisting of 100,000 shares, $0.001 par value, was duly
adopted by the unanimous consent of the board of directors of the Corporation
on March 25, 1998, in accordance with the articles of incorporation of the
Corporation and the corporation laws of the state of Nevada:
RESOLVED, there is hereby created a series of preferred stock of the
Corporation to be designated as the "1998 Series A Convertible Preferred
Stock" consisting of 100,000 shares, $0.001 par value, with the following
powers, preferences, rights, qualifications, limitations, and restrictions:
1. Liquidation.
------------
1.01 In the event of any voluntary or involuntary liquidation
(whether complete or partial), dissolution, or winding up of the Corporation,
the holders of the 1998 Series A Convertible Preferred Stock shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its shareholders, whether from capital, surplus, or earnings, an amount in
cash equal to $2.50 per share plus all unpaid dividends, whether or not
previously declared, accrued thereon to the date of final distribution. No
distribution shall be made on any common stock or other series of preferred
stock of the Corporation by reason of any voluntary or involuntary liquidation
(whether complete or partial), dissolution, or winding up of the Corporation
unless each holder of any 1998 Series A Convertible Preferred Stock shall have
received all amounts to which such holder shall be entitled under this
subsection 1.01.
1.02 If on any liquidation (whether complete or partial),
dissolution, or winding up of the Corporation, the assets of the Corporation
available for distribution to holders of 1998 Series A Convertible Preferred
Stock shall be insufficient to pay the holders of outstanding 1998 Series A
Convertible Preferred Stock the full amounts to which they otherwise would be
entitled under subsection 1.01, the assets of the Corporation available for
distribution to holders of the 1998 Series A Convertible Preferred Stock shall
be distributed to them pro rata on the basis of the number of shares of 1998
Series A Convertible Preferred Stock held by each such holder.
2. Voting Rights. The 1998 Series A Convertible Preferred Stock shall be
-------------
voted with the Common Stock of the Corporation as a single class and each
share of the 1998 Series A Convertible Preferred Stock shall have a vote equal
to the same number of shares of Common Stock to which the 1998 Series A
Convertible Preferred Stock is convertible. (If an adjustment occurs pursuant
<PAGE> 4
to subsection 5.04, then the voting rights shall be changed in a like ratio in
the manner set forth in that subsection.) The 1998 Series A Convertible
Preferred Stock shall not be entitled to vote as a separate class, except to
the extent that the consent of the holders of the 1998 Series A Convertible
Preferred Stock, voting as a class, is specifically required by the provisions
of the corporate law of the state of Nevada, as now existing or as hereafter
amended.
3. Subordination. Any payment of any dividends or any redemption
-------------
hereunder shall be subordinated to payment in full of all Senior Debt as
defined herein. "Senior Debt" shall mean the principal of and premium, if
any, and interest on all indebtedness of the Corporation to any financial
institution, including, but not limited to, (i) banks whether currently
outstanding or hereinafter created and whether or not such loans are secured
or unsecured; (ii) any other indebtedness, liability, obligation, contingent
or otherwise of the Corporation to guarantee endorsement of the contingent
obligation with respect to any indebtedness, liability, or obligation whether
created, assumed, or occurred by the Corporation and after the date of the
creation of the 1998 Series A Convertible Preferred Stock, which is, when
created, specifically designated by the Corporation as Senior Debt; and (iii)
any refunding, renewals, or extensions of any indebtedness or similar
obligations described as Senior Debt in subparagraphs (i) and (ii) above.
4. Dividends.
----------
4.01 The Corporation shall pay to the holders of the 1998 Series A
Convertible Preferred Stock out of the assets of the Corporation at any time
available for the payment of dividends at the times and in the amounts
provided for in this section 4.
4.02 The holders of record of shares of the 1998 Series A Convertible
Preferred Stock shall be entitled to receive, out of funds legally available
therefor, a non-cumulative cash dividends at the rate of $0.20 per share per
annum, when and if declared by the Corporation's board of directors. Such
dividend, when declared, shall be in preference to pro rata dividends on the
Common Stock of the Corporation and all other shares of preferred stock of the
Corporation which by their terms are expressly made junior as to dividends to
this 1998 Series A Convertible Preferred Stock. No dividends shall be
declared or paid on the Common Stock of the Corporation during any period
which the Corporation has failed to pay the dividends on this 1998 Series A
Convertible Preferred Stock.
4.03 Any payment of dividends declared and due under this section 4
with respect to any shares of the 1998 Series A Convertible Preferred Stock
shall be made by means of a check drawn on funds immediately available for the
payment thereof to the order of the holder of such share at the address for
such record holder shown on the stock records maintained by or for the
Corporation, which check shall be mailed by United States first class mail,
postage prepaid. Any such payment shall be deemed to have been paid by the
Corporation on the date that such payment is deposited in the United States
mail as provided above; provided, that in the event the check or other medium
by which any payment shall be made shall prove not to be immediately
collectible on the date of payment, such payment shall not be deemed to have
been made until cash in the amount of such payment shall actually be received
by the person entitled to receive such payment.
<PAGE> 5
4.04 Registration of transfer of any share of the 1998 Series A
Convertible Preferred Stock on the stock records maintained by or for the
Corporation to a person other than the transferor shall constitute a transfer
of any right which the transferor may have had to receive any declared but
unpaid dividends as of the date of transfer, and the Corporation shall have no
further obligation to the transferor with respect to such unpaid dividends.
5. Conversion.
-----------
5.01 Each share of the 1998 Series A Convertible Preferred Stock
is convertible into common stock, $0.001 par value (the "Common Stock"), of
the Corporation at the times, in the manner, and subject to the conditions
provided in this section 5.
5.02 Each share of the 1998 Series A Convertible Preferred Stock
may be converted at any time at the election of the holder of the presentation
and surrender of the certificate representing the share, duly endorsed, with
written instructions specifying the number of shares of the 1998 Series A
Convertible Preferred Stock to be converted and the name and address of the
person to whom certificate(s) representing the Common Stock issuable on
conversion are to be issued at the principal office of the Corporation.
5.03 Each share of 1998 Series A Convertible Preferred Stock may
be convertible into Common Stock of the Corporation at the rate of one (1)
share of Common Stock for each shares of 1998 Series A Convertible Preferred
Stock (the "Conversion Rate"). The conversion rate shall be subject to
adjustment pursuant to subsection 5.04.
5.04 In order to prevent dilution of the rights granted
hereunder, the Conversion Rate and liquidated voting rights shall be subject
to adjustment from time to time in accordance with this subsection 5.04.
(a) In the event the Corporation shall declare a dividend or
make any other distribution on any capital stock of the Corporation payable in
Common Stock, options to purchase Common Stock, or securities convertible into
Common Stock of the Corporation shall at any time subdivide (other than by
means of a dividend payable in Common Stock) its outstanding shares of Common
Stock into a greater number of shares or combine such outstanding stock into a
smaller number of shares, then in each such event, the Conversion Rate in
effect immediately prior to such combination shall be adjusted so that the
holders of the 1998 Series A Convertible Preferred Stock shall be entitled to
receive the kind and number of shares of Common Stock or other securities of
the Corporation which they would have owned or have been entitled to receive
after the happening of any of the events described above, had such shares of
the 1998 Series A Convertible Preferred Stock been converted immediately prior
to the happening of such event or any record date with respect thereto; an
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date for such event.
(b) If any capital reorganization or reclassification of the
capital stock of the Corporation, consolidation or merger of the Corporation
with another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that holder of
Common Stock shall be entitled to receive stock, securities, or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful
<PAGE> 6
adequate provisions shall be made whereby the holders of the 1998 Series A
Convertible Preferred Stock shall thereafter, subject to prior redemption by
the Corporation, have the right to acquire and receive on conversion of the
1998 Series A Convertible Preferred Stock such shares of stock, securities, or
assets as would have been issuable or payable ( as part of the reorganization,
reclassification, consolidation, merger, or sale) with respect to or in
exchange for such number of outstanding shares of the Corporation's Common
Stock as would have been received on conversion of the 1998 Series A
Convertible Preferred Stock immediately before such reorganization,
reclassification, consolidation, merger, or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interests
of the holders of the 1998 Series A Convertible Preferred Stock to the end
that the provisions hereof (including without limitations provisions for
adjustments of the Conversion rate and for the number of shares issuable on
conversion of the 1998 Series A Convertible Preferred Stock) shall thereafter
be applicable in relation to any shares of stock, securities, or assets
thereafter deliverable on the conversion of the 1998 Series A Convertible
Preferred Stock. In the event of a merger or consolidation of the Corporation
with or into another corporation or the sale of all or substantially all of
its assets as a result of which a number of shares of Common Stock of the
surviving or purchasing corporation greater or lesser than the number of
shares of Common Stock of the Corporation outstanding immediately prior to
such merger, consolidation, or purchase are issuable to holders of Common
Stock of the Corporation, then the Conversion Rate in effect immediately prior
to such merger, consolidation, or purchase shall be adjusted in the same
manner as though there was a subdivision or combination of the outstanding
shares of Common Stock of the Corporation.
(c) No adjustment shall be made in the Conversion Rate of
the number of shares of Common Stock issuable on conversion of 1998 Series A
Convertible Preferred Stock:
(i) In connection with the offer and sale of any
shares of 1998 Series A Convertible Preferred Stock;
(ii) In connection with the issuance of any Common
Stock, securities, or assets on conversion or redemption of shares of 1998
Series A Convertible Preferred Stock;
(iii) In connection with the issuance of any shares
of Common Stock, Securities, or assets on account of the anti-dilution
provisions set forth in this subsection 5.04;
(iv) In connection with the purchase or other
acquisition by the Corporation of any capital stock, evidence of its
indebtedness, or other securities of the Corporation; or
(v) In connection with the sale or exchange by the
Corporation of any Common Stock, evidence of its indebtedness, or other
securities of the Corporation, including securities containing the right to
subscribe for or purchase Common Stock or other preferred stock of the
Corporation.
5.05 The Corporation covenants and agrees that:
(a) The shares of Common Stock, securities, or assets
issuable on any conversion of any shares of 1998 Series A Convertible
Preferred Stock shall have been deemed to have been issued to the person on
<PAGE> 7
the Conversion Date, and on the Conversion Date, such person shall be deemed
for all purposes to have become the record holder of such Common Stock,
securities, or assets.
(b) All shares of Common Stock or other securities which may
be issued on any conversion of the 1998 Series A Convertible Preferred Stock
will, on issuance, be fully paid and nonassessable and free from all taxes,
liens, and charges with respect to the issue thereof. Without limiting the
generality of the foregoing, the Corporation will from time to time take all
such action as may be requisite to assure that the par value of the unissued
Common Stock or other securities acquirable on any conversion of the 1998
Series A Convertible Preferred Stock is at all times equal to or less than the
amount determined by dividing the par value of a share of 1998 Series A
Convertible Preferred Stock by the number of shares of Common Stock or other
securities issuable on conversion of such share.
(c) The issuance of certificates for Common Stock or other
securities on conversion of the 1998 Series A Convertible Preferred Stock
shall be made without charge to the registered holder thereof for any issuance
tax in respect thereof or other costs incurred by the Corporation in
connection with the conversion of the 1998 Series A Convertible Preferred
Stock and the related issuance of Common Stock or other securities.
6. Redemption
----------
6.01 Subject to the requirements and limitations of the
corporation laws of the state of Nevada, the Corporation shall have the right
to redeem shares of the 1998 Series A Convertible Preferred Stock on the
following terms and conditions.
6.02 Shares of the 1998 Series A Convertible Preferred Stock are
subject to redemption by the Corporation at any time after March 25, 1999,
pursuant to written notice of redemption given to the holders thereof on not
less than 30 days, specifying the date on which the 1998 Series A Convertible
Preferred Stock shall be redeemed (the "Redemption Date"). Subsequent to
notice of redemption and prior to the Redemption Date, shares of 1998 Series A
Convertible Preferred Stock may still be converted to Common Stock pursuant to
section 5. The Corporation may redeem a portion or all of the issued and
outstanding shares of 1998 Series A Convertible Preferred Stock; provided,
that in the event that less than all of the outstanding shares of 1998 Series
A Convertible Preferred Stock are redeemed, such redemption shall be pro rata
determined on the basis of the number of shares of 1998 Series A Convertible
Preferred Stock held by each holder reflected on the stock records of the
Corporation and the total number of shares of 1998 Series A Convertible
Preferred Stock outstanding.
6.03 The redemption price for each share of 1998 Series A
convertible Preferred Stock shall be $2.50 per share plus any unpaid
dividends, if applicable, on such share as of the Redemption Date (the
"Redemption Price"). The Redemption Price shall be paid in cash.
6.04 Redemption of the 1998 Series A Convertible Preferred Stock
shall be made in the following manner:
(a) The Corporation shall notify the transfer agent of the
Corporation's Common Stock (the "Transfer Agent"), of its intention to redeem
the 1998 Series A Convertible Preferred Stock. Such notice shall include a
<PAGE> 8
list of all holders of the 1998 Series A Convertible Preferred Stock
outstanding as of the most recent practicable date and a statement of the
number of shares of 1998 Series A Convertible Stock to be redeemed and the
manner in which the Redemption Price is to be paid. At least ten (10) days
prior to the date that written notice of redemption is given to the holders of
the 1998 Series A Convertible Preferred Stock, the Corporation shall make
appropriate arrangements with the Transfer Agent for the delivery of funds
and/or Common Stock necessary to make payment of the Redemption Price for all
shares of the 1998 Series A Convertible Preferred Stock redeemed by the
Corporation.
(b) On the Redemption Date, shares of the 1998 Series A
Convertible Preferred Stock subject to redemption shall be automatically
redeemed unless earlier converted pursuant to section 5. The holder of any
shares of 1998 Series A Convertible Preferred Stock so redeemed shall be
required to tender the certificates representing such shares, duly endorsed,
to the Transfer Agent in exchange for payment of the Redemption Price and
reissuance of the balance of the 1998 Series A Convertible Preferred Stock not
otherwise converted or redeemed. On such surrender, the Transfer Agent shall
cause to be issued and delivered a check, with all reasonable dispatch to the
holder and such name or names as the holder may designate.
(c) The Transfer Agent shall periodically, but not less
frequently than monthly, provide to the Corporation an accounting of the 1998
Series A Convertible Preferred Stock tendered for redemption and the funds or
Common Stock disbursed pursuant thereto. Following the expiration of a period
of 120 days following the Redemption Date, the Transfer Agent shall provide to
the Corporation a complete accounting of the 1998 Series A Convertible
Preferred Stock redeemed and a list of all shares of 1998 Series A Convertible
Preferred Stock remaining unconverted and not returned to the Corporation for
redemption. Any certificates representing 1998 Series A Convertible Preferred
Stock received by the Transfer Agent subsequent to the return of funds to the
Corporation will be promptly delivered to the Corporation. The Corporation
shall pay all costs associated with establishing and maintaining any bank
accounts for funds deposited with the Transfer Agent, including the costs of
issuing any checks.
7. Additional Provisions
---------------------
7.01 No change in the provisions of the 1998 Series A Convertible
Preferred Stock set forth in this Designation affecting any interests of the
holders of any shares of 1998 Series A Convertible Preferred Stock shall be
binding or effective unless such change shall have been approved or consented
to by the holders of 1998 Series A Convertible Preferred Stock in the manner
provided in the corporation laws of the state of Nevada, as the same may be
amended from time to time.
7.02 The shares of 1998 Series A Convertible Preferred Stock
shall be transferable only on the books of the Corporation maintained at its
principal office, on delivery thereof duly endorsed by the holder or by his
duly authorized attorney or representative or accompanied by proper evidence
of succession, assignment, or authority to transfer. In all cases of transfer
by an attorney, the original letter of attorney, duly approved, or an official
copy thereof, duly certified, shall be deposited and remain with the
Corporation. In case of transfer by executors, administrators, guardians, or
other legal representatives, duly authenticated evidence of their authority
shall be produced and may be required to be deposited and remain with the
<PAGE> 9
Corporation in its discretion. On any registration or transfer, the
Corporation shall deliver a new certificate representing the share of 1998
Series A Convertible Preferred Stock so transferred to the person entitled
thereto.
7.03 The Corporation shall not be required to issue any
fractional shares of Common Stock on the conversion or redemption of any share
of 1998 Series A Convertible Preferred Stock.
7.04 Any notice required or permitted to be given to the holders
of the 1998 Series A Convertible Preferred Stock under this Designation shall
be deemed to have been duly given if mailed by first class mail, postage
prepared to such holders at their respective addresses appearing on the stock
records maintained by or for the Corporation and shall be deemed to have been
given as of the date deposited in the United States mail.
IN WITNESS WHEREOF, the foregoing Designation of Rights, Privileges, and
Preferences of 1998 Series A Convertible Preferred Stock of the Corporation
has been executed this 26th day of March, 1998.
ATTEST: QUILL INDUSTRIES, INC.
By /S/ Roman Isip, Secretary By /S/ R. Lee Matzig, President
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On March 26, 1998, before me the undersigned, a notary public in and for
the above county and state, personally appeared R. Lee Matzig and Roman Isip,
who being by me duly sworn, did state, each for themselves, that he, R. Lee
Matzig, is the president, and that he, Roman Isip, is the secretary, of QUILL
INDUSTRIES, INC., a Nevada corporation, and that the foregoing Designation of
Rights, and Preferences of 1998 Series A Convertible Preferred Stock of QUILL
INDUSTRIES, INC., was signed on behalf of such corporation by authority of a
resolution of its board of directors, and that the statements contained
therein are true.
WITNESS MY HAND AND OFFICIAL SEAL.
/S/ Elliott N. Taylor, NOTARY PUBLIC
<PAGE> 1
Exhibit 4 - Material Contracts
10.01 - AGREEMENT FOR SALE AND PURCHASE OF ASSETS
THIS AGREEMENT made and entered into this the day of March, 1998, by and
between OSTRICH PRODUCTS AMERICA, L.L.C., a Texas limited liability company,
hereinafter called "Seller" and QUILL INDUSTRIES, INC., a Nevada corporation,
hereinafter called "Purchaser".
W I T N E S S E T H :
WHEREAS, the Seller is a Texas limited liability company that owns
certain real and personal properties; and,
WHEREAS, the Seller is desirous of selling such property to Purchaser,
and the Purchaser is desirous of purchasing such assets from the Seller on the
terms and conditions hereinafter set out.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein made, it is hereby agreed by and between the parties hereto
as follows:
I
CLOSING DATE
The closing date of the sale herein provided for shall take place on or
before March 24, 1998, or such other date as the parties may mutually agree
upon. The closing of the sale shall take place on the closing date at such
place as the parties may mutually agree upon.
II
PROPERTY TO BE SOLD
At the closing, the Purchaser agrees to purchase and acquire from the
Seller, and the Seller agrees to sell, transfer and assign to the Purchaser,
by Bill of Sale, and Warranty Deed, the following described property:
(a) All of the real property together with any improvements thereon
described on Exhibit A attached hereto.
(b) All of the personal property described on the Bill of Sale attached
hereto as Exhibit B.
III
VALUE OF ASSETS
Both parties agree that the value of the assets being conveyed herein is
as set out on Exhibit C attached hereto.
IV
CONSIDERATION FOR SALE
The agreed purchase price for the real and personal property hereinafter
described shall be the sum of ONE MILLION DOLLARS ($1,00O,000.00) payable at
Closing by delivery of the following:
(a) A cashier or bank check in the sum of Five Hundred Thousand Dollars
($50O,000);
<PAGE> 2
(b) A non-interest bearing promissory note in the amount of Two Hundred
Fifty Thousand Dollars ($25O,000), payable within 30 days from the date of
Closing.
(c) A certificate representing 10O,000 shares of the Purchaser's 1998
Series A Convertible Preferred Stock, with such rights, preferences, and
privileges as described in the Designation of Rights, Preferences, and
Privileges attached hereto as Exhibit D be delivered to the Seller within 30
days of Closing.
V
REPRESENTATIONS AND WARRANTIES
The Seller hereby represents and warrants that:
(a) The Seller has good and marketable title to all of the assets being
conveyed herein and none of the properties and assets are subject to any
mortgage, pledge, lien, encumbrance or other charge of any kind or character.
(b) That none of the assets being conveyed herein are being held under
any lease, conditional sale, or other contract contemplating the disposal of
such property or assets, and no liens, pledges, charges, or encumbrances of
any kind or nature whatsoever will be placed against the assets of the Seller.
(c) The Seller is not involved in any undisclosed actions, litigation,
proceedings, investigations or claims which might materially or adversely
affect the assets of the Seller, or which would prevent or hamper the
transactions contemplated by this agreement.
(d) That Seller has good and indefeasible title to the real property to
be conveyed hereunder and that there are no liens, encumbrances or other
charges of any kind or character against said property.
(e) That the Seller is organized under the Laws of the State of Texas and
is in good standing and qualified to do business in the State of Texas.
(f) That Seller has filed all required tax returns and made all required
tax deposits with all governmental authorities.
The Purchaser hereby represents and warrants that:
(a) That the Purchaser is organized under the laws of the State of Nevada
and is in good standing and qualified to do business in the State of Nevada.
That all necessary resolutions will be been taken to enter into this agreement
and perform this transaction contemplated by this agreement and to authorize
the of officers of the Purchaser to effectuate this contract.
(b) That this agreement, when properly authorized and executed by the
Purchaser, will be a binding agreement and enforceable against Purchaser. That
this transaction will not violate any provisions of any Articles of
Organization, Regulations, or any law, rule, order or regulations or any
agreement or instrument to which Purchaser is a party.
<PAGE>
<PAGE> 3
VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations, warranties, covenants and agreements of the Seller
and Purchaser herein set forth and all certificates and documents delivered
pursuant hereto and in connection with this agreement shall survive the
closing of this transaction and the same shall be deemed to have been material
and to have been relied upon by the party to whom directed. In case of any
breach of any representation, warranty, covenant or agreement, the breaching
party agrees to make payment to the aggrieved party in cash at Odessa, Ector
County, Texas, of any sums that the aggrieved party may suffer as a result of
any such breach, provided, that there shall be no liability on the part of the
breaching party unless such matter for which payment is sought shall have been
brought to the attention of the breaching party by the aggrieved party in
writing in time sufficient for the breaching party to file a timely answer and
appear and defend against any such alleged breach. In this connection, the
aggrieved party will give every cooperation to the breaching party in making
such defense in third party actions.
VII
GOVERNING LAW
This agreement is executed, delivered and intended to be performed in the
State of Texas, and shall be construed and enforced in accordance with and
shall be governed by the laws of the State of Texas, in all respects,
including matters of validity and performance.
VIII
AD VALOREM TAXES
It is understood and agreed that all Ad Valorem Taxes covering the real
and personal properties above described shall be pro rated to the date of
closing.
IX
SIGNATURES
All parties agree that each may rely upon the facsimile signature of the
other party as if same were an original.
IN WITNESS WHEREOF, this instrument is executed in duplicate originals
the date first above written.
SELLER:
OSTRICH PRODUCTS AMERICA, L.L.C.
BY: /S/ Mike Englezakis, Manager
BUYER:
QUILL INDUSTRIES, INC.
BY: /S/ R. Lee Matzig, President
<PAGE>
<PAGE> 4
10.02 - AGREEMENT FOR SALE AND PURCHASE OF ASSETS
THIS AGREEMENT made and entered into this the 26th day of May, 1998, by
and between STARIAD INVESTMENTS LIMITED, a Cyprus corporation qualified to do
business in the State of Texas, hereinafter called "Seller" and QUILL
INDUSTRIES, INC., a Nevada corporation, hereinafter called "Purchaser".
W I T N E S S E T H:
WHEREAS, the Seller is a Cyprus corporation authorized to do business in
the State of Texas that owns certain real and personal properties; and
WHEREAS, the Seller is desirous of selling such property to Purchaser,
and the Purchaser is desirous of purchasing such assets from the Seller on the
terms and conditions hereinafter set out.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein made, it is hereby agreed by and between the parties hereto
as follows:
I
CLOSING DATE
The closing date of the sale herein provided for shall take place on or
before ______, or such other date as the parties may mutually agree upon. The
closing of the sale shall take place on the closing date at such place as the
parties may mutually agree upon.
II
PROPERTY TO BE SOLD
At the closing, the Purchaser agrees to purchase and acquire from the
Seller, and the Seller agrees to sell, transfer and assign to the Purchaser,
by Bill of Sale attached hereto as Exhibit A, and Warranty Deed attached
hereto as Exhibit B. the following described property, subject to Purchaser
obtaining title insurance in form satisfactory to Purchaser:
(a) All of the real property together with any improvements thereon
described on Exhibit C attached hereto.
(b) All of the personal property described on Exhibit D attached
hereto.
III
VALUE OF ASSETS
Both parties agree that the value of the assets being conveyed herein is
as set out on Exhibit E attached hereto.
IV
CONSIDERATION FOR SALE
The agreed purchase price for the real and personal property hereinabove
described shall be the sum of ONE MILLION DOLLARS ($ 1,000,000.00) payable at
Closing by delivery to the Seller of a Convertible Promissory Note in face
amount of $1,000,000, payable over a period of three years or convertible to
up to 400,000 shares of the Purchaser's restricted Common Stock all in
accordance with the terms of the Convertible Promissory Note, a form of which
has been attached hereto as Exhibit F to this Agreement.
<PAGE> 5
V
SECURITY AND COLLATERAL FOR PURCHASE PRICE
All obligations of Purchaser under this Agreement (including, but not
limited to, all obligations under the Convertible Promissory Note) shall be
secured by a First Lien Deed of Trust on all real property being conveyed
herein in the form as attached as Exhibit F as well as a first lien on all
other assets which shall be secured by the filing of UCC-1 s covering the
personal property.
VI
The Seller will present at closing Seller's corporate resolution
authorizing this transaction in the form as attached hereto as Exhibit G.
VII
REPRESENTATIONS AND WARRANTIES
The Seller hereby represents and warrants that:
(a) The Seller has good and marketable title to all of the assets being
conveyed herein and none of the properties and assets are subject to any
mortgage, pledge, lien, encumbrance or other charge of any kind or character.
(b) That none of the assets being conveyed herein are being held under
any lease, conditional sale, or other contract contemplating the disposal of
such property or assets, and no liens, pledges, charges, or encumbrances of
any kind or nature whatsoever will be placed against the assets of the Seller.
(c) The Seller is not involved in any undisclosed actions, litigation,
proceedings, investigations or claims which might materially or adversely
affect the assets of the Seller, or which would prevent or hamper the
transactions contemplated by this agreement.
(d) That Seller has good and indefeasible title to the real property to
be conveyed hereunder and that there are no liens, encumbrances or other
charges of any kind or character against said property.
(e) That the Seller is a Cyprus corporation qualified to do business in
the State of Texas.
(f) That Seller has filed all required tax returns and made all required
tax deposits with all governmental authorities.
The Purchaser hereby represents and warrants that:
(a) That the Purchaser is organized under the laws of the State of Nevada
and is in good standing and qualified to do business in the State of Nevada.
That all necessary resolutions will be been taken to enter into this agreement
and perform this transaction contemplated by this agreement and to authorize
the of officers of the Purchaser to effectuate this contract.
(b) That this agreement, when properly authorized and executed by the
Purchaser, will be a binding agreement and enforceable against Purchaser. That
this transaction will not violate any provisions of any Articles of
Organization, Regulations, or any law, rule, order or regulations or any
agreement or instrument to which Purchaser is a party.
<PAGE> 6
VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations, warranties, covenants and agreements of the Seller
and Purchaser herein set forth and all certificates and documents delivered
pursuant hereto and in connection with this agreement shall survive the
closing of this transaction and the same shall be deemed to have been material
and to have been relied upon by the party to whom directed. In case of any
breach of any representation, warranty, covenant or agreement, the breaching
party agrees to make payment to the aggrieved party in cash at Odessa, Ector
County, Texas, of any sums that the aggrieved party may suffer as a result of
any such breach, provided, that there shall be no liability on the part of the
breaching party unless such matter for which payment is sought shall have been
brought to the attention of the breaching party by the aggrieved party in
writing in time sufficient for the breaching party to file a timely answer and
appear and defend against any such alleged breach. In this connection, the
aggrieved party will give every cooperation to the breaching party in making
such defense in third party actions.
IX
It is agreed that Mike Englezakis may continue to occupy and live in the
main house located on the real property being conveyed herein until June 30,
1999. Although Mike Englezakis shall have the right to occupy said premises,
he shall not be obligated to do so. Mike Englezakis shall be responsible for
timely paying all utilities directly used by the house. Additionally, Mike
Englezakis shall pay the wages (but not payroll taxes, worker's compensation
or similar items) of Quill employee Manuel Holguin.
Additionally, the buffalo owned by Mike Englezakis presently located on
the premises may remain on the premises until June 30, 1999. The expense of
maintaining said buffalo shall be that of Mike Englezakis.
X
GOVERNING LAW
This agreement is executed, delivered and intended to be performed in the
State of Texas, and shall be construed and enforced in accordance with and
shall be governed by the laws of the State of Texas, in all respects,
including matters of validity and performance.
XI
AD VALOREM TAXES
It is understood and agreed that all Ad Valorem Taxes covering the real
and personal properties above described shall be pro rated to the date of
closing.
IN WITNESS WHEREOF, this instrument is executed in duplicate originals
the date first above written.
SELLER:
STARIAD INVESTMENTS LIMITED
BY: /S/ Mike Englezakis
PURCHASER:
QUILL INDUSTRIES, INC.
BY: /S/ R. Lee Matzig
<PAGE> 7
10.03 - Form of Quill Senior Ranching and Ranching Associate Contract
This contract, dated ________, is between Quill Industries' Inc. and Quill
Ranching Associate _____________________ (Associate).
In consideration for fees, goods and services, these parties agree to the
following:
1. Upon signing this contract; Associate agrees to pay Quill Industries the
sum of ______________ as a participation fee. This is a one-time fee, and is
not refundable except as provided below.
2. Quill Industries agrees to provide the Associate with _____ ostrich chicks.
Shipment of the chicks will be coordinated and scheduled with the Associate
Within twelve months from original shipping date, a minimum of _____ of the
best birds will be selected for Associates, breeder stock Quill Industries and
Associate will share the proceeds from the sale of Quill Grow out Birds,
within thirty (30) days after their removal from the Associates facility.
Associated share of the proceeds will be fifty percent (50%) and no less than
____________________ dollars ($______) for each ostrich sent to slaughter. A
Grow out Bird is defined as all birds not selected as breeder stock located at
Associate's facility.
3. Quill Industries and the Associate may choose to participate in a growout
option each year. The grow out option is specifically designed to allow the
Quill Industries Ranching Associate to update, increase. and replace ostriches
in his breeder flock each year. This will be accomplished by allowing the RA
to add up to 10% of the grow-out birds each year to his breeder flock. The
amount of grow out chicks sent to an associate each year will be based on
qualities of chicks available at the time and the desire and ability of each
associate. Each grow out contract will be for approximately twelve (12) months
and these ostriches will generally be designated for slaughter.
4. At all times, the ostrich chicks, breeder birds, and ostrich eggs at the
Associate's facilities are the exclusive property of Quill Industries. If
Quill Industries should default on any payment due the Associate, the Breeder
Stock and eggs on their facility will become exclusive property of the
Associate as payment in full. Default is defined as any payment past due over
sixty (60) days.
5. Associate agrees to maintain the ostriches and eggs on their facility in
accordance with the Quill Industries Ranching Standard Operating Procedures
(RSOP) (under separate cover). These rules will be updated by Quill no more
than quarterly.
6. Quill Industries agrees to pay Associate a commission of fifty percent
(50%) of the net amount on any sale made by Quill of ostriches or eggs from
the Associate's facility. The net amount is defined as the gross sales price
less a ten percent (10%) selling commission.
7. Quill Industries agrees to pay Associate an additional commission of ten
percent (10%) of the gross amount on any sale off ostriches or eggs from the
Associate's facility, if such sale is created and consummated by the
Associate. Associate may not make any sale of ostriches or eggs without
written approval of Quill.
<PAGE> 8
8. Quill Industries has first right of refusal to transfer any eggs produced
by ostriches on the Associate's ranch to the Quill Industries Central Ranching
Facility. On any eggs transferred to Quill Industries, the Associate will earn
a commission based on the following schedule. Years one through ten -
___________________ dollars ($_____) per fertile egg or current market price
at time of transfer (which ever is lower) for fertile ostrich eggs. The egg
commission will be paid monthly. This contract is renewable at seventy five
dollars ($75.00) per fertile ostrich egg or current market price at time of
transfer (whichever is lower) for fertile ostrich eggs' provided the Associate
continues to meet the standards as set forth in the RSOP.
9. Associate must use an approved feed as set forth in the RSOP
10. Associate must maintain minimum levels of production in the raising of
ostrich chicks, maintenance of ostrich breeder stock, and egg laying from
breeder stock. These minimum levels of production are calculated by taking the
quarterly average production levels for all Quill Industries Associates,
including the Quill Industries Central Ranching Operation, and multiplying
these figures times eighty percent (80%). In the event that such other Quill
Industries Associate information is not available, then the minimum production
levels as set forth in the RSOP will be used. If Associate does not maintain
these minimum production levels, then Quill Industries has the right to remove
the ostrich birds and eggs from the Associate's facility and cancel this
contract.
11. This is an exclusive contract for ratite production between Associate and
Quill Industries. The Associate may not. at any time during this contract,
maintain, trade or sell any non- Quill Industries ratites. Due to the need to
maintain a disease-free environment for ostrich production., the Associate
must remove any existing stock in ratites, or other birds of any kind, on the
Associate's facility before this contract begins.
12. Associate must construct such facilities and purchase such equipments at
the Associate's expenses as deemed necessary by Quill Industries for proper
maintenance of ostriches on the Associate's ranch. These required facilities
and equipment are detailed in the RSOP. No ostrich chicks will be shipped from
Quill Industries to Associate until such facilities and equipment are in
place. Quill Industries has the complete right of inspection for this purpose.
13. Should Quill Industries determine that the Associate is not operating
according to the RSOP, or is not maintaining the minimum production levels
necessary as defined above, Quill Industries reserves the right to remove all
ostriches and eggs from the Associate's facility and cancel this contract. A
refund, equal to the participation fee less any monies paid to-date by Quill
Industries to Associate, will be made within ninety (90) days following the
removal of all Quill Industries assets. If Quill Industries has sustained
damage due to the improper care of Quill Industries birds and eggs, or
Associate has illegally sold, transferred, stolen or damaged Quill Industries
birds or eggs, then Quill Industries shall have the right to retain such
amounts as necessary to cover such damages.
14. Associate will maintain proper and adequate records of ostrich production
as detailed in the RSOP.
15. Quill Industries reserves the right to audit any Associate's operations or
records at any time during regular business hours.
<PAGE> 9
16. This is the complete agreement between the parties mentioned herein. No
other conditions or representations, written or oral, will modify or supersede
this agreement. Any disputes of this agreement will be litigated in the City
of Fort Worth, Texas.
Signed: Dated
------------------------------ ----------------
Quill Industries, Inc.
Signed: Dated
------------------------------ ----------------
Ranching Associate
Ranching Associate Name
------------------------
Mailing Address
-------------------------------
City, State, Zip
-------------------------------
Telephone 1 Telephone 2
---------------- -----------------------
<PAGE>
<PAGE> 10
10.04 - Convertible Secured Promissory Note dated May 26, 1998
Date: May 26, 1998 $1,000,000.00
QUILL INDUSTRIES, INC.
CONVERTIBLE SECURED PROMISSORY NOTE
NON-INTEREST BEARING
---------------------------------------------------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR
SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE
SECURITIES ACT OR THE LAWS OF THE APPLICABLE STATE OR A "NO-ACTION" OR
INTERPRETIVE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER AND ITS
COUNSEL TO THE EFFECT THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT AND SUCH STATE STATUTES.
------------------------------------------------
QUILL INDUSTRIES, INC., a corporation duly organized and existing under
the laws of the state of Nevada (hereinafter referred to as the "Company"),
for value received, hereby promises to pay to STARIAD INVESTMENTS LIMITED, a
Cyprus corporation (hereinafter referred to as the "Holder"), the sum of ONE
MILLION DOLLARS ($1,000,000)in accordance with the terms of this promissory
note (the "Note") at the offices of Holder's counsel 4001 East 42nd Street,
Suite 200, Odessa, Texas 79762, in such lawful money of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debt, until the face amount hereof is paid or made
available for payment as herein provided.
This Note is subject to the following further terms and material
provisions:
1. Term and Payments. The term of this Note shall be three years from
the date hereof and the payments towards reduction of the face amount of the
Note shall be made as follows:
(a) A payment of $500,000 on or before the first anniversary date
(the "First Payment"), unless the Holder gives the Company written notice of
the Holder's intent to convert the First Payment to 200,000 shares of the
Company's common stock, $0.001 par value (the "Common Stock"), in accordance
with the provisions for conversion as set forth in section 2 of this Note.
(b) A payment of $250,000 on or before the second anniversary
date (the "Second Payment"), unless the Holder gives the Company written
notice of the Holder's intent to convert the Second Payment to 100,000 shares
of the Company's Common Stock, in accordance with the provisions for
conversion as set forth in section 2 of this Note.
(c) A payment of $250,000 on or before the third anniversary date
(the "Third Payment"), unless the Holder gives the Company written notice of
the Holder's intent to convert the Third Payment to 100,000 shares of the
Company's Common Stock, in accordance with the provisions for conversion as
set forth in section 2 of this Note.
<PAGE> 11
2. Conversion. Subject to, and in compliance with, the provisions
contained herein, the Holder of this Note is entitled, at the Holder's option,
within 15 days prior to the First, Second or Third Payment Date of this Note
(or in case this Note or some portion hereof shall have been called for
prepayment prior to such First, Second or Third Payment Date, then, in respect
of this Note or such portion hereof, until and including, but not after, the
close of business within 15 days of the date of notice of prepayment), to
convert this Note or any portion of the face amount then due, into fully paid
and nonassessable Common Stock at a conversion price of $2.50 per share (the
"Conversion Price"). The conversion right shall be exercised with conversion
occurring by surrender of this Note, duly endorsed (if so required by the
Company) or assigned to the Company or in blank, to the Company at its
offices, accompanied by written notice to the Company, in the form attached
hereto, that the Holder elects to convert that portion of the face amount of
the Note to be converted.
3. Limitations on Right on Conversion. Following receipt of the
written notice of intention of the Holder to convert that portion of the Note
then due, the Company shall take such steps as it deems appropriate to permit
conversion of that portion of the Note as specified in the notice without
registration or qualification under applicable federal and state securities
laws; provided, that in no event shall the Company be required to consent to
the general service of process or qualify as a foreign corporation in any
jurisdiction where the Holder resides is such jurisdiction is different from
such Holder's residence when the Note was originally offered and sold. In
order to comply with exemptions from the registration requirements of the
Securities Act and certain states securities statutes, the Company may require
the Holder to make certain representations and execute and deliver to the
Company certain documents as a condition to exercise of the conversion rights
hereunder, all in form and substance satisfactory to the Company as determined
in its sole discretion. In the event the Company reasonably determines that
the Note cannot be converted in compliance with applicable federal and state
securities laws in the absence of registration or qualification under such
statutes, the Company shall be under no obligation to permit conversion of the
Note and issue any shares of Common Stock pursuant hereto.
4. Adjustment in Conversion. The Conversion Price and shares of
Common Stock issuable upon conversion of this Note may be subject to
adjustment from time to time as follows:
(a) If the Company shall subdivide the outstanding Common Stock
into a greater number of shares or combine the outstanding Common Stock into a
smaller number of shares, or issue by reclassification any of its Common
Stock, the conversion price in effect immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive after the occurrence
of the First, Second or Third Payment, the number of shares to which the
Holder would have been entitled had such portion of the Note been converted
immediately prior to the occurrence of such event.
(b) No fraction of a share of Common Stock shall be issued upon
conversion, but in lieu thereof the Company, notwithstanding any other
provision hereof, may pay therefor in cash at the fair value of the fractional
share of Common Stock at the time of conversion; and
(c) Neither the purchase or other acquisition by the Company of
any shares of Common Stock nor the sale or other disposition by the Company of
any shares of Common Stock shall affect any adjustment of the Conversion Price
or be taken into account in computing any subsequent adjustment of the
Conversion Price.
<PAGE> 12
5. Prepayment. This Note is subject to prepayment, in whole or in
part, at the election of the Company at any time, upon not less than 15 days
notice. Prepayment shall be effected by paying the amount equal to the
outstanding face amount of the Note. On the date fixed for prepayment by the
Company, the amount due shall be paid in cash or certified funds. Any portion
of the face amount which is prepaid only in part shall be presented for
notation thereon by the Company of such partial prepayment.
6. Creation of Security Interest. In connection with the issuance
of this Note, the Company grants to the Holder a security interest in and to
any and all real and personal property which is the subject of the Purchase
and Sale Agreement between the Company and the Holder dated May __, 1998 (the
"Purchase and Sale Agreement"), and represented by a First Lien Deed of Trust
attached as Exhibit F thereto and a Form UCC-1.
7. Satisfaction and Discharge of Note. This Note shall cease to be
of further effect (except as to any surviving rights of transfer, or exchange
of Notes herein expressly provided for) when:
(a) The Company has paid or caused to be paid all sums payable
hereunder by the Company; and
(b) All the conditions precedent herein provided for relating to
the satisfaction and discharge of this Note have been complied with.
8. Events of Default. "Events of Default," when used herein, whatever
the reason for such event of default and whether it shall be voluntary or
involuntary or be effected by operation of law pursuant to any judgement,
decree, or order of any court or any order, rule, or regulation of any
administrative or government body or be caused by the provisions of any
paragraph herein means any one of the following events:
(a) Default in the payment of any portion of the Note when due
or otherwise; or
(b) Default in the performance or breach of any covenant or
warranty of the Company in this Note (other than a covenant or warranty, the
breach or default in performance of which is elsewhere in this section
specifically dealt with), the related Purchase and Sale Agreement, First Lien
Deed of Trust or any other documents related to such Purchase and Sale
Agreement and continuation of such default or breach for a period of 30 days
after there has been given to the Company by registered or certified mail, by
the Holder, a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a notice of default
hereunder; or
(c) The entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment, or composition of or in respect of the Company under the Federal
Bankruptcy Act or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuation of
any such decree or order unstayed and in effect for a period of 30 consecutive
days; or
<PAGE> 13
(d) The institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or a filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Act or any other applicable federal or state law; or
(e) The consent by the Company to the filing of any such
petition or the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or of any substantial
part of its property), or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Company
in furtherance of any such action.
9 Suit for Enforcement. If an event of default occurs and is
continuing, the Holder may, in its discretion, proceed to protect and enforce
any rights it may have under this Note, or any other instrument pertaining to
this Note. Any such action to enforce the Holder's rights may be brought in
the state court, Ector County, Texas, or in the federal district court,
Western District of Texas, Midland-Odessa Division, or in any other court of
competent jurisdiction as the Holder shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant
or agreement under this Note or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
10 Notices; Waiver. Where this Note provides for notice to the
Holder of any event, such notice shall be sufficiently given if in writing and
sent by courier providing for delivery within 72 hours or mailed, registered,
postage prepaid, to the Holder, at its address as it appears in the records
maintained by the Company, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. Where the
Note provides for notice to the Company, such notice shall be sufficiently
given if in writing and mailed, registered, postage prepaid, to the Company at
its address set forth above (or at such other address as shall be provided to
the Holder in the manner for giving notices set forth herein), not later than
the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. Where this Note provides for notice in any manner,
such notice may be waived in writing by the person entitled to receive such
notice, whether before or after the event, any such waiver shall be equivalent
of such notice.
11. Restrictions. The Holder, by acceptance hereof, represents and
warrants as follows:
(a) The Note is being acquired for the Holder's own account to
be held for investment purposes only and not with a view to, or for, resale in
connection with any distribution of such Note or any interest therein without
registration or other compliance under the Securities Act, and the Holder
hereof has no direct or indirect participation in any such undertaking or in
underwriting such an undertaking.
(b) The Holder hereof has been advised and understands that the
Note has not been registered under the Securities Act and the Note must be
held and may not be sold, transferred, or otherwise disposed of for value
unless they are subsequently registered under the Securities Act or an
exemption from such registration is available; except as set forth herein, the
Company is under no obligation to register the Note under the Securities act;
in the absence of such registration, sale of the Note may be impracticable;
<PAGE> 14
the Company will maintain stop-transfer orders against registration of
transfer of the Note. The Company may refuse to transfer the Note and/or the
Common Stock unless the holder thereof provides an opinion of legal counsel
reasonably satisfactory to the Company or a "no-action" or interpretive
response from the Securities and Exchange Commission to the effect that the
transfer is proper; further, unless such letter or opinion states that the
Note and/or Common Stock are free from any restrictions under the Securities
Act, the Company may refuse to transfer the Note and/or the Common Stock to
any transferee who does not furnish in writing to the Company the same
representations and agree to the same conditions with respect to such Note or
Common Stock if any set forth herein. The Company may also refuse to transfer
the Note if any circumstance is present reasonably indicating that the
transferee's representations are not accurate.
12. Severability. In case any provision in this Note shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
13. Governing Law. This Note shall be governed by and construed and
interpreted in accordance with the laws of the state of Texas.
14. Legal Holidays. In any case where any date provided herein shall
not be a business day, then (notwithstanding any other provision of this Note)
the event required or permitted on such date shall be required or permitted,
as the case may be, on the next succeeding business day with the same force
and effect as if made on the date upon which such event was required or
permitted pursuant hereto.
15. Delay or Omission; No Waiver. No delay or omission of the Holder
to exercise any right or remedy accruing upon any event of default shall
impair any such right or remedy or constitute a waiver of any such event or
default or any acquiescence therein. Every right or remedy given hereby or by
law may be from time to time, and as often as may be deemed expedient.
16. Miscellaneous. This Note is subject to the following additional
terms and conditions:
(a) If this Note is placed with any attorney for collection, or
if suit be instituted for collection, or if any other remedy provided by law
is pursued by the Holder, because of any default in the terms and conditions
herein, then in either event, the Company agrees to pay reasonable attorneys'
fees, costs, and other expenses incurred by the Holder in so doing.
(b) None of the rights and remedies of the Holder shall be
waived or affected by failure or delay to exercise them. All remedies
conferred on the Holder shall be cumulated and none is exclusive. Such
remedies may be exercised concurrently or consecutively at the Holder's
option.
(c) This Note is negotiable and transferable, subject to
compliance with the provisions of paragraph 11 hereof.
DATED effective as of the 26th day of May, 1998.
ATTEST: QUILL INDUSTRIES, INC.
By /S/Roman Isip, Secretary By /S/ R. Lee Matzig, President
<PAGE> 15
[FORM OF EXERCISE FOR CONVERSION]
Date:-------------------------------
QUILL INDUSTRIES, INC.
2415 Avenue J, Suite 114
Arlington, Texas 76006
Re: Conversion of Note
Gentlemen:
The undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note or the portion hereof designated, into shares of
Common Stock, $0.001 par value per share, of Quill Industries, Inc., in
accordance with the terms of this Note, and directs that the shares issuable
and deliverable upon the conversion, together with any check in payment for
fractional shares, be issued in the name of and delivered to the undersigned
unless a different name has been indicated below.
If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay any transfer taxes payable with respect
thereto.
______________________________________
(Signature)
FILL IN FOR REGISTRATION OF SHARES
___________________________________ _____________________________________
(Printed Name) (Social Security or Tax I.D. Number)
___________________________________
(Street Address)
___________________________________ _______________________________________
(City, State, and Zip Code) Portion to be converted (if less than
all)
<PAGE>
<PAGE> 16
10.05 - Promissory Note Between the Registrant and Philip R. Lacerte
PROMISSORY NOTE
Principal amount $250,000 Date: May 1, 1998
FOR VALUE RECEIVED, the undersigned, Quill Industries, Inc. ("Borrower"
or "Undersigned") hereby jointly and severally promise to pay to the order of:
Philip R. Lacerte the sum of Two Hundred Fifty Thousand Dollars ($250,000),
together with interest thereon at the rate of 6% per annum on the unpaid
balance due over 90 days.
Said sum shall be paid in lawful money of the United States to Philip R.
Lacerte in person in Dallas, Texas or as the holder of this note may from time
to time designate.
If note is not paid in full within 90 days, a lien on the O.P.A. assets
owned by Borrower shall be recorded in the Ector County Courthouse in Odessa,
Texas.
In the event this note shall be in default and placed for collection,
then the borrower agrees to pay all reasonable attorney fees and costs of
collection.
The undersigned and all other parties to this note, whether as endorsers,
guarantors or sureties, agree to remain fully bound until this note shall be
fully paid and waive demand, presentment and protest and all notices hereto
and further agree to remain bound, notwithstanding any extension,
modification, waiver, or other indulgence or discharge or release of any
obligor hereunder or exchange, substitution, or release of any collateral
granted as security for this note. No modification or indulgence by any holder
hereof shall be binding unless in writing, and any indulgence on any one
occasion shall not be an indulgence for any other or future occasion. Any
modification or change in terms, hereunder granted by any holder hereof, shall
be valid and binding upon each of the undersigned, notwithstanding the
acknowledgment of any of the undersigned, and each of the undersigned does
hereby irrevocably grant to each of the others power of attorney to enter into
any such modification on their behalf. The rights of any holder hereof shall
be cumulative and not necessarily successive. This note shall take effect as a
sealed instrument and shall he construed, governed and enforced in accordance
with the laws of the State of Texas.
/S/ R.L. Matzig
- --------------------------
Borrower
[ARTICLE] 5
[CIK] 0001065188
[NAME] QUILL INDUSTRIES INC.
<TABLE>
<S> <C> <C> <C>
[PERIOD-TYPE] 6-MOS YEAR YEAR
[FISCAL-YEAR-END] DEC-31-1998 DEC-31-1997 DEC-31-1996
[PERIOD-START] JAN-01-1998 JAN-01-1997 JAN-01-1996
[PERIOD-END] JUN-30-1998 DEC-31-1997 DEC-31-1996
[CASH] 75,105 10,298 149
[SECURITIES] 0 0 0
[RECEIVABLES] 2,500 0 0
[ALLOWANCES] 0 0 0
[INVENTORY] 43,222 0 0
[CURRENT-ASSETS] 120,827 10,298 149
[PP&E] 3,335,426 1,229,205 868,435
[DEPRECIATION] (44,792) (79,767) (10,077)
[TOTAL-ASSETS] 3,411,711 1,160,086 859,057
[CURRENT-LIABILITIES] 287,954 225,402 388,284
[BONDS] 0 0 0
[PREFERRED-MANDATORY] 0 0 0
[PREFERRED] 100 0 0
[COMMON] 2,627,372 1,734,512 434,758
[OTHER-SE] (2,616,879) (2,122,592) (938,634)
[TOTAL-LIABILITY-AND-EQUITY] 3,411,711 1,160,086 859,057
[SALES] 34,765 7,778 0
[TOTAL-REVENUES] 34,765 7,778 0
[CGS] 0 0 0
[TOTAL-COSTS] 309,143 1,067,967 216,497
[OTHER-EXPENSES] 0 (57,889) 0
[LOSS-PROVISION] 0 0 0
[INTEREST-EXPENSE] 0 (65,880) 0
[INCOME-PRETAX] (491,287) (1,183,958) (216,497)
[INCOME-TAX] 0 0 0
[INCOME-CONTINUING] 0 0 0
[DISCONTINUED] 0 0 0
[EXTRAORDINARY] 0 0 0
[CHANGES] 0 0 0
[NET-INCOME] (491,287) (1,183,958) (216,497)
[EPS-PRIMARY] (0.05) (0.27) (0.06)
[EPS-DILUTED] (0.05) (0.27) (0.06)
</TABLE>
