SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31,1999.
Commission File Number 000-24885
FAR EAST VENTURES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 88-0378451
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(State of organization) (I.R.S. Employer
Identification No.)
Fifth Floor, 3660 Howard Hughes Parkway, Las Vegas NV 89109
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(Address of principal executive offices)
Registrant's telephone number, including area code (702) 735-5960
Registrant"s Attorney: Warren J. Soloski, Esq.
11300 W. Olympic Blvd., Suite 800
Los Angeles, CA 90064
(310) 477-9742, FAX (310) 473-1470
Securities to be registered pursuant to Section 12(b) of the Act,
None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.001 par value per share
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Issuer's revenues for its most recent fiscal year. $0.00
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the average of the high and low prices of the Common Stock
on the OTC Bulletin Board on March 1, 2000, was $10,621,000. For purposes of
this computation, all officers, directors, and 5% beneficial owners of the
registrant (as indicated in Item 12) are deemed to be affiliates. Such
determination should not be deemed an admission that such directors, officers,
or 5% beneficial owners are, in fact, affiliates of the registrant.
Number of shares of Common Stock, $0.001 Par Value, outstanding at March 1,
2000, was 8,800,000.
Documents incorporated by reference: None
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TABLE OF CONTENTS - 1999 FORM 10-KSB REPORT
Page
Numbers
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PART I
Item 1. Business 4
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7. Financial Statements 14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act 15
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain Beneficial Owners
and Management 20
Item 12. Certain Relationships and Related Transactions 20
Item 13. Exhibits and Reports on Form 8-K 21
Signatures 22
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
FAR EAST VENTURES, INC. (the "COMPANY") is a Nevada Corporation formed on
November 23, 1993. Its principal place of business is located at Fifth Floor,
3660 Howard Hughes Parkway, Las Vegas, NV 89109. The Company was organized to
engage in any lawful corporate business including, but not limited to,
participating in mergers with and acquisitions of other companies . The Company
has been in the developmental stage since inception and has no operating history
other than organizational matters until it acquired Churchill Resources, Inc. in
2000. The Company filed a form 10-SB with the Securities and Exchange
Commission in September, 1998, and became a reporting company on November 9,
1998, when the Form 10-SB became effective.
The Company was formed in 1993 by Mr. Peter Berney, an acquaintance of the
former officers and directors, and brother of former director Andrew Berney. Mr.
Berney sold most of his founder shares to the four former officers and directors
for cash shortly after forming the Company. The original purpose of the company
was to engage in any legal activity, including locating a merger candidate or
acquisition target. Management decided to file the Form 10SB in mid 1997 in
order to enhance the perceived value of the Company as a merger partner or
acquisition vehicle. The funds for preparing the Form 10-SB were provided by Mr.
Andrew Berney, a director of the Company.
The primary activity of the Company involved seeking a company or companies that
it could acquire or with whom it could merge until December 1999 when it entered
into an agreement with Churchill Resources Inc. The Company selected Churchill
because it had positioned itself to enter the horse racing and gaming business
with the proposed acquisition of the Orangeville Raceway asset outside Vancouver
Canada (Fraser Downs Raceway). The Company has signed a Letter of Intent in mid
March to acquire an additional horse racing property on Vancouver Island outside
Victoria Canada (Sandown Raceway).
The Board of Directors has elected to begin implementing the Company's principal
business purpose, described below under "Item 6, Plan of Operation". As such,
the Company can be defined as a racing and gaming company, whose primary purpose
at this time is to locate, evaluate and consummate, by merger or acquisition,
racing and/or gaming properties with a potential for substantial positive cash
flow.
ITEM 2. DESCRIPTION OF PROPERTIES.
In 1999, the Company neither owned nor leased any real or personal property. A
director provided office services at no charge. In late February the Company
leased office space in Las Vegas Nevada. Upon its completion of the Orangeville
Raceway assets, the Company will be leasing the racing facility in Surry,
British Columbia, Canada At this time the Company owns no real property. The
Companies landlord in its Las Vegas Nevada offices provides the Company with
certain photocopy and secretarial services for a fee based on usage..
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings and, to the
best of its knowledge, no such action by or against the Company has been
threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of the security holders by the Company during
the year ended December 31, 1999.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is quoted on the over-the-counter market in the
United States under the symbol FEVI. Management has undertaken discussions with
prospective market maker concerning the participation of such market maker in
the aftermarket for the Company's securities and management does intend to
initiate additional discussions at such time as the Company has consummated the
initial acquisition of a racing and/or a gaming property. There is no assurance
that a trading market will continue if the Company fails to acquire its target
racing and/or gaming properties.
After an acquisition of a racing and/or gaming property has been completed, the
Company's officers and Directors will most likely be the persons to contact
additional market makers. It is also possible that persons associated with the
entity that is acquired by the Company will contact prospective market makers.
The Company intends to use consultants to contact market makers.
Market Price
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The high and low interdealer prices for the quarter ended March 31, 2000, which
is the period during which an active trading market commenced, on the
over-the-counter market (without retail markup, markdown or commission) are as
follows:
Quarter Ended March 31, 2000 High $17.00 Low $1.88
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Effective August 11, 1993, the Securities and Exchange Commission adopted Rule
15g-9, which established the definition of a ""penny stock," for purposes
relevant to the Company, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions, For any transaction involving a penny stock,
unless exempt the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks, The broker or dealer must also deliver, prior to
any transaction in a penny stock a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the, basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
The National Association of Securities Dealers, Inc. (the "NASD'), which
administers NASDAQ, has recently made changes in the criteria for initial
listing on the NASDAQ Small Cap market and for continued listing. For initial
listing, a company must have net tangible assets of $4 million, market
capitalization of $50 million or net income of $750,000 in the most recently
completed fiscal year or in two of the last three fiscal years. For initial
listing, the common stock must also have a minimum bid price of $4 per share. In
order to continue to be included on NASDAQ, a company must maintain $2,000,000
in net tangible assets and a $1,000,000 market value of its publicly-traded
securities. In addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00 per share.
Management intends to strongly consider undertaking transactions with merger
and/or acquisition candidates which will allow the Company's securities to be
traded without the aforesaid limitations. However, there can be no assurances
that, upon a successful merger or acquisition, the Company will qualify its
securities for listing on NASDAQ or some other national exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of the Company to qualify its securities or to meet the relevant
maintenance criteria after such qualification in the future may result in the
discontinuance of the inclusion of the, Company's securities on a national
exchange, In such events, trading, if any, in the Company's securities may then
continue in the non NASDAQ over-the-counter market. As a result, a shareholder
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of. the Company's securities.
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Holders
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There are 36 holders of the Company's Common Stock. The former officers and
directors received their stock from Mr. Peter Berney either as a gift or as
payment for then-existing debts. A portion of the stock held by these four
individuals was given or sold to a number of their friends and business
acquaintances. All of the issued and outstanding shares of the Company's Common
Stock were issued in accordance with the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933.
Dividends
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The Registrant has not paid any dividends to date, and has no plans to do so in
the immediate future.
Recent Sales of Unregistered Securities
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In its acquisition of Churchill Resources, Inc. the Company issued Four Million
(4,500,000) unregistered shares during fiscal year 2000.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
NOTE REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS
This report includes projections of future results and "forward-looking
statements" as that term is defined in Section 27A of the Securities Act of 1933
as amended (the "Securities Act"), and Section 21 E of the Securities Exchange
Act of 1934 as amended (the "Exchange Act"). All statements that are included in
this Registration Statement, other than statements of historical fact, are
forward-looking statements, Although Management believes that the expectations
reflected in these forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations are disclosed in this Statement, including, without limitation, in
conjunction with those forward- looking statements contained in this Statement.
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Plan of Operation - General
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The Company's plan is to conclude its acquisition of the Fraser Downs Raceway
and Sandown Raceway in British Columbia and take over the day-to-day operation
of these facilities. The Company will attempt to secure from British Columbia
authorities the right to have gaming at its racing facilities. The Company is in
the process of investigating other racing and/or gaming entities for acquisition
or merger. At this time, the Company has no plan, proposal, agreement,
understanding, or arrangement to acquire or merge with any additional racing or
gaming entity. Members of management of the Company have had material
discussions with other racing and gaming entities
The Company may seek a business opportunity with a firm which only recently
commenced operations, or a developing company in need of additional funds to
expand into new products or markets or seeking to develop a new product or
service, or an established business which way be experiencing financial or
operating difficulties and needs additional capital which is perceived to be
easier to raise by a public company. The Company is interested in a business
opportunity that would involve acquiring or merging with a corporation which is
involved with the internet.
The Company filed its Form 10-SB on a voluntary basis because the primary
attraction with the Registrant as a merger partner or acquisition vehicle will
be its status as a SEC reporting company. The merger with Churchill Resources,
Inc. resulted in the Registrant issuing a significant number of common shares,
which created a substantial dilution to the existing shareholders.
Selecting additional business opportunities will be complex and extremely risky.
Because of general economic conditions, rapid technological advances being made
in some industries, and shortages of available capital, management believes that
there are numerous firms seeking the benefits of a publicly-traded corporation.
Such perceived benefits of a publicly traded corporation may include
facilitating or improving the terms on which additional equity financing may be
sought, providing liquidity for the principals of a business, creating a means
for providing incentive stock options or similar benefits to key employees,
providing liquidity (subject to restrictions of applicable statues) for all
shareholders, and other items. Potentially available business opportunities may
occur in many different industries and at various stages of development, all of
which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex.
Management believes that the Company will be able to benefit from the use of
"leverage" in the acquisition of a business opportunity. Leveraging a
transaction involves acquiring a business while incurring significant
indebtedness for a large percentage of the purchase price of that business.
Through leveraged transactions, the Company would be required to use less of its
available funds for acquiring the business opportunity and, therefore, could
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commit those funds to the operations of the business opportunity, to acquisition
of other business opportunities, or to other activities. The, borrowing involved
in a leveraged transaction will ordinarily be secured by the assets of the
business opportunity to be acquired. If the business opportunity acquired is not
able to generate sufficient revenue to make payments on the debt incurred by the
Company to acquire that business opportunity, the lender would be able to
exercise the remedies provided by law or by contract, These leveraging
techniques, while reduce the amount of funds that the Company must commit to
acquire a business opportunity, may correspondingly increase the risk of loss to
the Company. No assurance can be given as to the terms or availability of
financing for any acquisition by the Company. During periods when interest rates
are relatively high, the benefits of leveraging are not as great as during
periods of lower interest rates, because the investment in the business
opportunity held on a leveraged basis will only be profitable if it generates
sufficient revenues to cover the related debt and other costs of the financing.
Lenders from which the Company way obtain funds for purposes of a leveraged
buy-out may impose restrictions on the future borrowing, distribution, and
operating policies of the Company. It is not possible at this time to predict
the restrictions, if any, which leaden may impose, or the impact thereof on the
Company.
The Company has secured various financing sources and therefor believes it will
have sufficient capital with which to provide the owners of business
opportunities significant cash or other assets. During 1999 Churchill Resources,
Inc., which has now been acquired by the Company, entered into an agreement with
Crary, Onthank & O'Neil LLC to act as a financial advisor in connection with
raising a minimum of Six Million Dollars ($6,000,000.00) for use in the Fraser
Downs Raceway acquisition and for working capital. Management believes the
Company will offer owners of business opportunities the opportunity to acquire
an ownership interest in a public company at substantially less cost than is
required to conduct an initial public offering. The owners of the business
opportunities will, however, incur significant post-merger or acquisition
registration costs in the event they wish to register a portion of their shares
for subsequent sale. The Company will also incur significant legal and
accounting costs in connection with the acquisition of a business opportunity,
including the costs of preparing post-effective amendments, Forms 8-K,
agreements, and related reports and documents. Nevertheless, the officers and
directors of the Company have not conducted market research and are not aware of
statistical data which would support the perceived benefits of a merger or
acquisition transaction for the owners of a business opportunity. The Company
does not intend to make any loans to any prospective merger or acquisition
candidates or to unaffiliated third parties.
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The Company will not restrict its search for any specific kind of firms, but may
acquire an internet related venture which is in its preliminary or development
stage, which is already in operation, or in essentially any stage of its
corporate life. It is impossible to predict at this time the status of any
business in which the Company may become engaged, in that such business may need
to seek additional capital, may desire to have its shares publicly traded, or
may seek other perceived advantages which the Company may offer. However, the
Company does not intend to obtain funds in one or more private placements to
finance the operation .of any acquired business opportunity until such time as
the Company has successfully consummated such a merger or acquisition. The
Company also has plans to conduct an offerings under Regulation S.
Sources of Opportunities
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The Company will seek a potential business opportunity from all known sources,
but will rely principally on personal contacts of its officers and directors as
well as indirect associations between them and other business and professional
people. It is not presently anticipated that the Company will engage
professional firms specializing in business acquisitions or reorganizations.
Management, while not especially experienced in matters relating to internet
businesses, will rely upon their own efforts and, to a much greater extent, the
efforts of the Company's shareholders and potential financial partners. It is
anticipated that additionally consultants or advisors, other than the Company's
legal counsel, market makers and accountants, will be utilized by the Company to
effectuate its business racing and gaming opportunities.
As is customary in the industry, the Company may pay a finder's fee for locating
an acquisition or merger prospect. If any such fee is paid, it will be approved
by the Company's Board of Directors and will be in accordance with the industry
standards. Such fees are customarily between 1% and 5% of the size of the
transaction, based upon a sliding scale of the amount involved. Such fees are
typically in the range of 5% on a $1,000,000 transaction ratably down to 1% in a
$4,000,000 transaction.. Management has adopted a policy that such a finder's
fee or real estate brokerage fee could, in certain circumstances, be paid to any
employee, officer, director or 5% shareholder of the Company, if such person
plays a material role in bringing a transaction to the Company.
The Company may not have sufficient funds to undertake any significant.
research, development, marketing and manufacturing of any products which may be
acquired, Accordingly, if it acquires the rights to a product, rather than
entering into a merger or acquisition it would, most likely, seek debt or equity
financing or obtain financing from third parties, in exchange for which the
Company would probably be required to give up a substantial portion of its
interest in any acquired product. There is no assurance that the Company will be
able, either to obtain additional financing, beyond its current financing lines
of credit, or interest third parties in providing funding for the further
development, marketing and manufacturing of any products acquired.
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Evaluation of Opportunities
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The analysis of new business opportunities will be undertaken by or under the
supervision of the officers and directors of the Company (see "Management").
Management intends to concentrate on identifying prospective business
opportunities which may be brought to its attention through present associations
with management. In analyzing prospective business opportunities, management
will consider, among other factors, such matters as;
1. the available technical, financial and managerial resources
2. working capital and other financial requirements
3. history of operation, if any
4. prospects for the future
5. racing, gaming or internet related
6. the quality and experience of management services which may be
available and the depth of that management
7. the potential for further research, development or exploration
8. specific risk factors not now foreseeable but which then may be
anticipated to impact the proposed activities of the company
9. the potential for growth or expansion
10. the potential for profit
11. the perceived public recognition or acceptance of products, services
or trades
12. name identification
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Officers, directors and consultants of the Company will meet personally with
management and key personnel of any potential merger or acquisition target as
part of their investigation. To the extent possible, the Company intends to
utilize written reports and personal investigation to evaluate the above
factors. The Company will not acquire or merge with any company for which
audited financial statements cannot be obtained.
Opportunities in which the Company participates will present certain risks, many
of which cannot be adequately identified prior to selecting a specific
opportunity. The Company's shareholders must, therefore, depend on its
Management to identify and evaluate such risks, Promoters of some opportunities
may have been unable to develop a going concern or may present a business in its
development stage (in that it has not generated sufficient revenues from its
principal business activities prior to the Company's participation.) Even after
the Company's participation, there is a risk that the merged or acquired
enterprise may not become a going concern or advance beyond the development
stage. Other opportunities may involve new and untested products, processes, or
market strategies which may not succeed. The Company intends only to participate
in low risk mergers and acquisitions to limit the risk assumed by the Company
and, therefore, its shareholders.
The investigation of specific business opportunities and the negotiation,
drafting and execution of relevant agreements, disclosure documents and other
instruments will require substantial management time and attention and
substantial costs for accountants, attorneys and others. If a decision is made
not to participate in a specific business opportunity the cost therefore
incurred in the related investigation would not be recoverable. Furthermore,
even if an agreement is reached for the participation in a specific business
opportunity, the failure to consummate that transaction may result in the loss
of the Company of the related costs incurred.
Acquisition of Opportunities
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In implementing a structure for a particular business acquisition, the Company
may become a party to a merger, consolidation, reorganization, joint venture,
franchise, or licensing agreement with another corporation or entity. It may
also purchase stock or assets of an existing business. Once a transaction is
complete, it is possible that the present management and shareholders of the
Company will not be in control of the Company. In addition a majority or all of
the Company's officers and directors may, as part of the terms of the
transaction, resign and be replaced by new officers and directors without a vote
of the Company's shareholders.
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It is anticipated that securities issued in any such reorganization would be
issued in reliance on exemptions from registration under applicable Federal and
state securities laws. In some circumstances, however, as a negotiated element
of this transaction, the Company may agree to register such securities either at
the time the transaction is consummated, under certain conditions, or at
specified time thereafter, The issuance of substantial additional securities and
their potential sale into any trading market which may develop in the Company's
Common Stock may have a depressive effect on such market.
While the actual terms of a transaction to which the Company may be a party
cannot be predicated, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so called "tax free" reorganization under
Sections 368(a)(1) or 351 of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to obtain tax free treatment under the Code, it may be
necessary for the owners of the acquired business to own 80"/o or more of the
voting stock of the surviving entity. In such event, the shareholders of the
Company would retain less than 20% of the issued and outstanding shares of the
surviving entity, which could result in significant dilution in the equity of
such shareholders.
The manner in which each Company participates in an opportunity will depend on
the nature of the opportunity, the respective needs and desires of the Company
and other parties, the management of the opportunity, and the relative
negotiating strength of the Company and such other management.
With respect to any mergers or acquisitions, negotiations with target company
management will be expected to focus on the percentage of the Company which the
target company's shareholders would acquire in exchange for their shareholdings
in the target company. Depending upon, among other things, the target company's
assets and liabilities, the Company's shareholders will, in all likelihood, hold
a lesser percentage ownership interest in the Company following the acquisition.
The percentage ownership may be subject to significant reduction in the event
the Company acquires a target company with substantial assets. Any merger or
acquisition effected by the Company can be expected to have a significant
dilutive effect on the percentage of shares held by the Company's then
shareholders.
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Competition
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The Company is an insignificant participant among firms which engage in business
combinations with, or financing of, development-stage or young enterprises.
There are many established management and financial consulting companies and
venture capital firms which haw significantly greater financial and personal
resources, technical expertise and experience than the Company, in view of the
Company's limited financial resources and management availability, the Company
will continue to be at a competitive disadvantage vis-a-vis the Company's
competitors.
EMPLOYEES
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The Company's only employees at the present time are its officers and directors,
who will devote as much time as the Board of Directors determine is necessary to
carry out the affairs of the Company. At this time the Chief Operating Officer
is the only full-time employee. (See "Management.")
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplemental data required by this Item 7 follow
the index of financial statements appearing at Item 13 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On February 8, 2000 the Company decided to change accountants to a larger firm
giving the Company access to greater accounting resources and requested the
resignation of Barry L. Friedman, P.C., the Company's independent auditors.
In connection with its audits of the Company's financial statements for the
Company's most recent years, there is no disagreement with Barry L. Friedman,
P.C. on any matters of accounting principals or practices, financial statement
disclosure, or auditing scope or procedures which, if not resolved to the
satisfaction of Barry L. Friedman, P.C. would have caused Barry L. Friedman P.C.
to make reference to the matter in their report. Barry L. Friedman, P.C.'s
report on the Company's financial statements for each period for which Barry L.
Friedman performed an audit of the Company's financial statements contained no
adverse or disclaimer of opinion and was not modified or qualified as to
uncertainty, audit scope, or accounting principals. The decision to change
accountants was approved by the Board of Directors of the Company.
On February 8, 2000 the Board of Directors appointed Merdinger, Fruchter, Rosen
& Corso, P.C. to serve as the Company's independent auditors for the fiscal year
ended December 31, 1999.
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors of the Company serve until the next annual
meeting of the stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors.
There are no agreements for any officer or director to resign at the request of
any other person and none of the officers or directors named below are acting on
behalf of, or at the direction of, any other person.
The Company's officers and directors will devote their time to the business on
an "as needed" basis, which is expected to require 5-10 hours per month with the
exception of Mr. Fred Bilawey who is employed full time by the Company.
Information as to the directors and executive officers of the Company is as
follows:
Name/Address Age Position
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Harry Mentonis 48 Director, Chief Executive
3 Gem Avenue Officer (effective 4/1/00)
Egg Harbor Township, NJ 08234
Fred Bilawey 38 Director
3924 Lilac Haze, Chief Operating Officer
Las Vegas, NV 89147 Chief Financial Officer
Darryl Mills 45 Director, Secretary
2467 Asquith Court
Westbank, BC, Canada V4T2P6
HARRY MENTONIS, DIRECTOR AND CHIEF EXECUTIVE OFFICER
Mr. Mentonis was recently appointed to the Board of Directors of the
Company. Also Mr. Mentonis was appointed Chief Executive Officer of the
Company effective April 1, 2000. Mr. Mentonis brings to the Company 22
years of gaming experience after having held a variety of executive and
management level positions.
Mr. Mentonis attended Staten Island Community College, New York School
of Gaming, Atlantic City Community College, and the Casino Gaming
Institute. Mr. Mentonis is accomplished in Casino Management, Player
Development, Facilities Operations, International Planning and General
Business Gaming Development and Origination.
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Mr. Mentonis brings to the Company long term experience in handling a
wide range of casino and gaming issues. He possesses excellent negotiating
skills and works well with top corporate management. His leadership skills
have assisted in building highly professional and motivated staffs, and
planning and managing short and long term projects.
From May, 1995 to the present Mr. Mentonis has been employed as
Director of Player Development Casino Marketing at the Trump Plaza Hotel &
Casino, Atlantic City, New Jersey. During his employment he exceeded
revenue budget quotas each year by approximately 20%. He also developed new
business and promotional events to stimulate player participation,
increased high roller occupancy rates and structured telemarketing programs
to re-establish dormant customer relations.
From August 1987 to May 1995, Mr. Mentonis was employed by the Sands
Hotel Casino in Atlantic City, NJ where he held a variety of positions
finally reaching the positions of Director, Player Development Casino
Marketing. His responsibilities included managing a marketing staff of 27
representatives, delegation to senior marketing executives on job
performance responsibilities, develop a new organizational structure for
his department with the creation of monthly goals and/or targets.
Prior to being at the Sands Hotel and Casino Mr. Mentonis was employed
by Bally's Park Place Casino Hotel from September 1980 to August 1987 where
again he held a variety of positions finally reaching the position of head
of Casino Scheduling where he scheduled the work daily and weekly work
assignments for approximately 200 people.
FRED W. BILAWEY, DIRECTOR, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
Mr. Bilawey has been a Director and Officer of the corporation since
December 1999. From March 1999 to December 1999 Mr. Bilawey was General
Manager of the Moulin Rouge Casino in Las Vegas Nevada where he was
responsible of the re-opening of this 40,000 square foot gaming facility.
He developed and implemented an overall conceptual plan for the casino
including the providing of guidance and direction to both the Architect and
General Contractor, interviewed, hired and trained the senior management
and supervisory personnel, developed and submitted necessary documents to
the Nevada State Gaming Commission and develop and implement all Operations
Manuals and Human Resource packages for the casino.
16
<PAGE>
Mr. Bilawey was the General Manager of the Caribbean Cabana in Las
Vegas, Nevada from February 1997 to March 1999 where he was employed to
develop a Caribbean theme casino, bar and dining room that encompassed over
20,000 square feet. He designed the overall floor plan for the facility and
provided day to day "hands on" management.
Over the years Mr. Bilawey was the General Manager of various
restaurants and nightclubs and served as a consultant to others. He was
director of food and beverage for Hastings Park Racetrack in Vancouver,
B.C., Canada. Mr. Bilawey graduated with honors from McNally Composite High
School in Edmonton, Alberta Canada and was a pre-med student at Concordia
College in Edmonton.
DARRYL MILLS, DIRECTOR AND SECRETARY
Mr. Mills has been a Director and Secretary of the Company since
December 1999. Born in Edmonton Alberta Canada in 1954, Mr. Mills received
his formal education at the University of Saskatchewan and the University
of Regina. He holds a Certificate in Government Administration, Business
Communications Degree in Finance/Organization Design and he has completed
his course work for a Masters of Science Degree in Research Methodology.
Mr. Mills worked with the government for nearly 20 years. He had a
very successful career and held many progressively responsible positions
including: Auditor Assistant Director of Economic Development, Executive
Assistant to the Minister of Finance, Executive Director of Operations and
Project Coordinator.
Throughout his career, Mr. Mills has always taken a leading role in
developing and implementing new programs, and he is very knowledgeable
about the workings of government. He played a leading role in the
development of gaming regulations in Canada and is keenly aware of how the
industry operates.
Mr. Mills left government four years ago to establish his own
consulting firm in British Columbia. Since that time he has worked on many
different projects with organizations involved in gaming, finance,
accounting, merchant banking, healthcare, e-commerce and public service.
There is no family relationship between any of the officers and
directors of the Company. The Company's Board of Directors has not
established any committees.
17
<PAGE>
Conflicts of Interest
- ---------------------
Insofar as Mr. Darryl Mills is engaged in other business activities, management
anticipates he will devote only a minor amount of time to the Company's affairs.
The officers and directors of the Company may in the future become shareholders,
officers or directors of other companies which may be formed for the purpose of
engaging in business activities similar to those conducted by the Company. The
Company does not currently have a right of first refusal pertaining to
opportunities that come to management's attention insofar as such opportunities
may relate to the Company's proposed business operations.
The officers and directors are, so long as they are officers or directors of the
Company, subject to the restriction that all opportunities contemplated by the
Company's plan of operation which come to their attention, either in the
performance of their duties or in any other manner, will be considered
opportunities of, and be made available to the Company and the companies that
they are affiliated with on an equal basis. A breach of this requirement will be
a breach of the fiduciary duties of the officer or director. If a situation
arises in which wore than one company desires to merge with or acquire that
target .company and the principals of the proposed target company have no
preference as to which company will merge or acquire such target company, the
company of which the President/ Chief Executive Officer first became an officer
and director will be entitled to proceed with the transaction. Except as set
forth above, the Company has not adopted any other conflict of interest policy
with respect to such transactions.
Investment Company Act Of 1940
- ------------------------------
Although the Company will be subject to regulation under the Securities Act of
1933 and the Securities Exchange Act of 1934, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940
insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940 and, consequently, any violation of such Act
would subject the Company to material adverse consequences.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, file reports of ownership
and changes in ownership with the Securities and Exchange Commission. For the
fiscal year ended December 31, 1999, all reports were timely filed.
18
<PAGE>
ITEM 10. EXECUT1VE COMPENSATION
Prior to fiscal 2000, none of the Company's officers and/or directors received
any compensation for their respective services rendered to the Company, nor have
they received such compensation in the past. During fiscal 2000 the Company
expects to pay the following base monthly salaries:
Name Monthly Salary
---- --------------
Harry Mentonis $8,000.00
Fred W. Bilawey $6,000.00
Darryl Mills $3,500.00
Further, none of the directors are accruing any compensation pursuant to any
agreement with the Company.
It is possible that, after the Company successfully consummates a merger or
acquisition with an unaffiliated entity, that entity may desire to employ or
retain one or more members of the Company's management for the purposes of
providing services to the surviving entity, or otherwise provide other
compensation to such persons. However, the Company has adopted a policy whereby
the offer of any post-transaction remuneration to members of management will not
be a consideration in the Company's decision to undertake any proposed
transaction. Each member of management has agreed to disclose to the Company's
Board of Directors any discussions concerning possible compensation to be paid
to them by any entity which proposes to undertake a transaction with the Company
and further, to abstain from voting on such transaction. Therefore, as a
practical matter, if each member of the Company's Board of Directors is offered
compensation in any form from any prospective merger or acquisition candidate,
the proposed transaction will not be approved by the Company's Board of
Directors as a result of the inability of the Board to affirmatively approve
such a transaction..
It is possible that persons associated with management may refer a prospective
merger or acquisition candidate to the Company In the event the Company
consummates a transaction with any entity referred by associates of management,
it is possible that such an associate will be compensated for their referral in
the form of a finders fee. It is anticipated that this finders fee will be
either in the form of restricted common stock issued by the Company as part of
the terms of the proposed transaction, or will be in the form of cash
consideration. However, if such compensation is in the form of cash, such
payment may be tendered by the acquisition or merger candidate, if the Company
has insufficient cash available. The amount of such finder's fee, if any, cannot
be determined as of the date of this report, but is expected to be comparable to
consideration normally paid. in like transactions. No member of management of
the Company will receive any finders fee, either directly or indirectly, as a
result of their respective efforts to implement the Company's business plan
outlined herein. Persons "associated" with management is meant to refer to
persons with whom management may have had other business dealings, but who are
not affiliated with or relatives of management.
No retirement, pension, profit sharing, stock option or insurance program or
other similar programs have been adopted by the Registrant for the benefit of
its employees.
19
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth each person known to the Company, as of March 1,
2000, to be a beneficial owner of five percent (5%) or more of the Company's
common stock, by the Company's directors individually, and by all of the
Company's directors and executive officers as a group. Except as noted, each
person has sole voting and investment power with respect to the shares shown.
Shares
Name/Address Beneficially Percentage
Title of Class of Owner Owned Ownership(1)
- -------------- ------------ ------------ -------------
Common Churchill Resources, Inc. 4,500,000 51.14
4771 Sweetwater Blvd.,
Suite 125,
Sugarland, TX 77479
Common All Officers and Directors 0 0
(1) Based on 8,800,000 shares of common stock outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Board of Directors has passed a resolution which contains a policy that the
Company will not seek an acquisition or merger with any entity in which any of
the Company's Officers, Directors, principal shareholder or their affiliates or
associates serve as officer or director or hold any ownership interest.
Management is not aware of any circumstances under which this policy, through
their own initiative may be changed.
Management intends to undertake efforts to cause an orderly market to continue
in the Company's securities as the Company implements its business plan
described herein.
20
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K.
(a)(1) The following financial statements are contained on Pages F-1 through
F-11:
Report of Independent Auditor Merdinger, Fruchter, Rosen & Corso,
Certified Public Accountants dated March 3, 2000.
Balance Sheet as of December 31, 1999, and December 31, 1998,
Statement of Operations for the years ended December 31, 1999,
December 31, 1998, and from the period November 23, 1993 (inception)
to December 31, 1999.
Statement of Changes in Stockholder's Deficiency.
Statement of Cash Flows for the years ended December 31, 1999,
December 31, 1998, and the period from November 23, 1993 (inception)
to December 31, 1999.
Notes to Financial Statements for the years ended December 31, 1999
and December 31, 1998.
(a)(3) Exhibits
The following exhibits are filed with this report.
2.1 Reorganization Agreement with Churchill Resources, Inc. dated November
24, 1999 (filed herewith).
3.1 Articles of Incorporation (incorporated herein by reference to the
Company's Registration Statement on Form 10SB, SEC File No. 000-24885)
3.2 Bylaws of Registrant (incorporated herein by reference to the
Company's Registration Statement on Form 10SB, SEC File No. 000-24885)
10.1 Agreement with Crary, Onthank & O'Neil dated December 14, 1999 (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
(b) There have been 2 reports filed on Form 8-K for the final quarter of 1999.
These reports dealt with changes in the Board of Directors and officers of
the Company.
The Form 8-K dated December 15, 1999 dealt with the resignation of the
existing officers and directors and the appointment of new officers
and new directors. The report also set forth the change of the
principal offices of the registrant.
The Form 8-K dated December 27, 1999 addressed previously filed
incorrect information in regards to the appointment of officers and
directors. The incorrect information was filed on July 30, 1999.
21
<PAGE>
FAR EAST VENTURES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
INDEX
PAGE
INDEPENDENT AUDITORS' REPORT F-1
BALANCE SHEETS F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF STOCKHOLDERS' DEFICIENCY F-4
STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF FAR EAST VENTURES, INC.:
We have audited the accompanying balance sheets of Far East Ventures, Inc. (A
Development Stage Company) as of December 31, 1999 and 1998 and the related
statements of operations, stockholders' deficiency and cash flows for the years
then ended and for the period from November 23, 1993 (inception) to December 31,
1999. These financials statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Far East Ventures, Inc. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended and for the period from November 23, 1993 (inception)
to December 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 of the
accompanying financial statements, the Company has no established source of
revenue, which raises substantial doubt about its ability to continue as a going
concern. Management's plan in regard to these matters is also discussed in Note
1. These financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
MERDINGER, FRUCHTER ROSEN & CORSO, P.C.
Certified Public Accountants
Los Angeles, California
March 3, 2000
F-1
<PAGE>
FAR EAST VENTURES, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31,
----------------------
1999 1998
--------- ---------
TOTAL ASSETS $ - $ -
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 41,173 $ -
Officers advances 5,315 2,265
--------- ---------
TOTAL CURRENT LIABILITIES 46,488 2,625
LINE OF CREDIT - Stockholder 91,300 -
--------- ---------
TOTAL LIABILITIES 137,788 2,625
--------- ---------
STOCKHOLDERS' DEFICIENCY
Common stock, $0.001 par value;
50,000,000 shares authorized;
4,300,000 shares issued and outstanding 4,300 4,300
Deficit accumulated during the
development stage (142,088) (6,925)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (137,788) (2,625)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ - $ -
========= =========
The accompanying notes are an integral part of the financial statements
F-2
<PAGE>
FAR EAST VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period from
November 23,
For the Year Ended 1993
December 31, (inception) to
-------------------------- December 31,
1999 1998 1999
----------- ----------- --------------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ --
GENERAL AND ADMINISTRATIVE EXPENSES 132,880 1,411 139,805
INTEREST EXPENSE 2,283 -- 2,283
----------- --------- ------------
LOSS BEFORE TAXES (135,163) (1,411) (142,088)
PROVISION FOR INCOME TAXES -- -- --
----------- --------- ------------
NET LOSS $ (135,163) $ (1,411) $ (142,088)
=========== ========= ============
NET LOSS PER COMMON SHARE -
basic and diluted $ (0.03) $ -- $ (0.03)
=========== ========= ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING -
basic and diluted 4,300,000 4,300,000 4,300,000
=========== ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
FAR EAST VENTURES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
-------------------- Development
Shares Amount Stage Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at November 22, 1993 - $ - $ - $ -
Issuance of common stock
for cash on November 23, 1993
at $0.001 per share 4,300,000 4,300 -- 4,300
Net loss - - (4,108) (4,108)
--------- --------- --------- ---------
Balance at December 31, 1993 4,300,000 4,300 (4,108) 192
Net loss - - (39) (39)
--------- --------- --------- ---------
Balance at December 31, 1994 4,300,000 4,300 (4,147) 153
Net loss - - (39) (39)
--------- --------- --------- ---------
Balance at December 31, 1995 4,300,000 4,300 (4,186) 114
Net loss - - (389) (389)
--------- --------- --------- ---------
Balance at December 31, 1996 4,300,000 4,300 (4,575) (275)
Net loss - - (939) (939)
--------- --------- --------- ---------
Balance at December 31, 1997 4,300,000 4,300 (5,514) (1,214)
Net loss - - (1,411) (1,411)
--------- --------- --------- ---------
Balance at December 31, 1998 4,300,000 4,300 (6,925) (2,625)
Net loss - - (135,163) (135,163)
--------- --------- --------- ---------
Balance at December 31, 1999 4,300,000 $ 4,300 $(142,088) $(137,788)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
FAR EAST VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
from November
For the Year ended 23, 1993
December 31, (inception) to
--------------------- December 31,
1999 1998 1999
--------- --------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(135,163) $ (1,411) $(142,088)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 36 195
Changes in Assets and Liabilities:
Increase - organization costs (195)
Increase - accounts payable 41,173 - 41,173
Increase - officers advances 2,690 1,375 5,315
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (91,300) - (95,600)
--------- --------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Increase in line of credit 91,300 - 91,300
Issuance of common stock for cash - - 4,300
--------- --------- ---------
NET CASH PROVIDED BY FINANCING 91,300 - 95,600
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS - - -
CASH AND CASH EQUIVALENTS -
beginning of period - - -
--------- --------- ---------
CASH AND CASH EQUIVALENTS -
end of period $ - $ - $ -
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period -
Interest paid $ - $ - $ -
========= ========= =========
Income taxes paid $ - $ - $ -
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
FAR EAST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Far East Ventures, Inc. ("Company") is currently a development stage
company under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 7. The Company was incorporated under the laws
of the state of Nevada on November 23, 1993. It is management's
objective to seek a merger with an existing operating company (see
Note 4 - Subsequent Events).
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has no established source of revenue. This factor raises substantial
doubt about the Company's ability to continue as a going concern.
Without realization of additional capital, it would be unlikely for
the Company to continue as a going concern. The financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amount, or amounts and classification
of liabilities that might be necessary should the Company be unable to
continue in existence. It is management's objective to seek additional
capital through a merger with an existing operating company (see Note
4 - Subsequent Events "Acquisition").
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 revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
-----------------------------------
For certain of the Company's financial instruments including accounts
payable and advances and line of credit from stockholder, the carrying
amounts approximate fair value due to their short maturities.
F-6
<PAGE>
FAR EAST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
----------------------------
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances may exceed FDIC insured
levels at various times during the year.
Income Taxes
-----------
Income taxes are provided for based on the liability method of
accounting pursuant to SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes, if any, are recorded to reflect the tax
consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each
year-end.
Loss Per Share
--------------
During 1998, the Company adopted SFAS No. 128, "Earnings Per Share,"
which requires presentation of basic loss per share ("Basic LPS") and
diluted loss per share ("Diluted LPS"). The computation of Basic LPS
is computed by dividing loss available to common stockholders by the
weighted average number of outstanding common shares during the
period. Diluted LPS gives effect to all diluted potential common
shares outstanding during the period. The computation of Diluted LPS
does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on earnings. For
each of the periods presented, the Company does not have any potential
dilutive securities.
Comprehensive Income
--------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. As of December
31, 1999 and 1998, and for the period from November 23, 1993
(inception) to December 31, 1999, the Company has no items that
represent comprehensive income and, therefore, has not included a
schedule of comprehensive income in the accompanying financial
statements.
F-7
<PAGE>
FAR EAST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Impact of Year 2000 Issue
-------------------------
As of December 31, 1999, the Company does not have any computer
systems or customers and suppliers. Therefore, the issue of the year
2000 has no effect on the Company's current activities.
NOTE 2 - RELATED PARTY TRANSACTIONS
Office Space
------------
In 1999, the Company neither owned nor leased any real or personal
property. A director provided office services without charge. Such
costs are immaterial to the financial statements and, accordingly,
have not been reflected therein.
Officer Advances
----------------
Officers of the Company have advanced $5,315 and $2,625, as of
December 31, 1999 and 1998, respectively, to pay for general and
administrative expenses of the Company. These advances are short-term
in nature and due on demand.
Credit Facility
---------------
In September 1999, the Company entered into a borrowing agreement with
a company ("Lender"), which is a stockholder of the Company. Under the
agreement the Lender will advance up to $1,000,000 to the Company to
fund operations until the Company completes its acquisition of the
operating assets of Orangeville Raceway, Ltd (see Note 4 - Subsequent
Events "Acquisition". The advances accrue interest at a rate of 10%
and are due and payable within two years from the first advance date.
The Company will issue 1,500,000 shares of the Company's common stock
to the Lender. The shares are exchangeable by the Lender within two
years for the unpaid principal and accrued interest. If the Lender
does not exchange the shares, then the shares are payment for the
principal and all accrued interest. As of December 31, 1999, the
Company had borrowed $91,300 and as of March 3, 2000 the balance was
approximately $326,000.
F-8
<PAGE>
FAR EAST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - INCOME TAXES
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate 34.0%
Effect of Valuation Allowance ( 34.0)%
----------
Effective Income Tax Rate 0.0%
==========
At December 31, 1999 and 1998, the Company had net carryforward losses
of approximately $142,000 and $7,000, respectively. Because of the
current uncertainty of realizing the benefits of the tax carryforward,
valuation allowances equal to the tax benefits for deferred taxes have
been established. The full realization of the tax benefit associated
with the carryforward depends predominantly upon the Company's ability
to generate taxable income during the carryforward period.
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's deferred
tax assets and liabilities are as follows:
December 31,
--------------------------
1999 1998
---------- ------------
Deferred Tax Assets Loss
Carryforwards $ 48,300 $ 2,400
Less: Valuation Allowance ( 48,300) ( 2,400)
----------- ------------
Net Deferred Tax Assets $ - $ -
========== ============
Net operating loss carryforwards expire starting in 2019.
F-9
<PAGE>
FAR EAST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - SUBSEQUENT EVENTS
Consulting Agreements
---------------------
In January 2000, the Company issued to R.R.P., L.L.C., an unrelated
third party, 300,000 shares of the Company's common stock in
accordance with a consulting agreement. The shares have been valued in
accordance with FASB No. 123 "Accounting for Stock-Based Compensation"
at $1,274,880 based on the fair market value of the Company's common
stock on the date of issuance of the shares.
In January 2000, the Company has committed to enter into a consulting
agreement with the owner ("Consultant") of a company, which is a
stockholder of the Company. The agreement is for an investor and
public relations services to be rendered by the Consultant over a
twelve-month period. For the services rendered, the Consultant
received 500 shares of the Company's common stock. The shares have
been valued in accordance with FASB No. 123 "Accounting for
Stock-Based Compensation" at $2,100 based on the fair market value of
the Company's common stock on the date of issuance of the shares.
Private Placement and Advisory Services
---------------------------------------
In January 2000, the Company engaged Chanin Capital Partners, LLC
("CCP") and its affiliates to act as exclusive financial advisor
and/or agent to the Company in connection with acquisitions. CCP has
agreed to initiate a private placement of up to $100,000,000, on best
efforts, of senior secured debt, senior subordinated notes or equity.
For these services CCP will be paid a one-time advisory fee of $25,000
and a commission, based on percentage of funding, for any private
placement financing.
In December 1999, Churchill Resource, Inc. ("CRI") engaged Crary
Onthank and O'Neil LLC ("COO"), who have agreed to initiate a private
placement of up to $6,000,000, on best efforts, of senior secured
debt, senior subordinated notes or equity. The funds will be used for
CRI's acquisition of the operating assets of Orangeville Raceway, Ltd.
For these services, COO will be paid a one-time advisory fee of 25,000
shares of the Company's common stock and a commission, based on
percentage of funding, for any private placement financing.
F-10
<PAGE>
FAR EAST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - SUBSEQUENT EVENTS (Continued)
Acquisitions
------------
In January 2000, the Company completed an acquisition of CRI. The
Company issued 4,500,000 shares of its common stock for all of the
issued and outstanding common stock of CRI. After the acquisition, CRI
will have a majority ownership of the Company. Since CRI will be the
controlling stockholder, CRI will be the successor by merger to the
Company. Therefore, the acquisition will be accounted for as a
recapitalization of CRI and the historical and continuing financial
statement presentation will be that of the legal subsidiary, CRI, not
the legal parent, the Company. Due to the Company's lack of business
activity prior to the merger, no excess cost over fair value of net
assets acquired will be recorded.
In January 2000, the Company, formerly CRI, executed an asset purchase
agreement and paid an initial deposit of $100,000 to purchase the
operating assets of Orangeville Raceway, Ltd. The assets purchase
agreement closing is contingent upon regulatory approval from the
British Columbia Racing Authority.
F-11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAR EAST VENTURES, INC.
/s/ Fred W. Bilawey
By: -----------------------
Fred W. Bilawey, Director
Chief Operating Officer,
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Fred W. Bilawey Director, Chief Operating April 11, 2000
Officer, Chief Financial
Officer
/s/ Harry Mentonis Director, Chief Executive April 11, 2000
Officer
/s/ Darryl Mills Director, Secretary April 11, 2000
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Reorganization Agreement with Churchill Resources, Inc. dated November
24, 1999 (filed herewith).
3.1 Articles of Incorporation (incorporated herein by reference to the
Company's Registration Statement on Form 10SB, SEC File No. 000-24885)
3.2 Bylaws of Registrant (incorporated herein by reference to the
Company's Registration Statement on Form 10SB, SEC File No. 000-24885)
10.1 Agreement with Crary, Onthank & O'Neil dated December 14, 1999 (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
EXHIBIT 2.1
PLAN AND AGREEMENT OF REORGANIZATION
by exchange by
FAR EAST VENTURES, INC.
of its voting stock for
all voting stock of
CHURCHILL RESOURCES, INC.
FAR EAST VENTURES, INC., a Nevada corporation, hereinafter sometimes
called Buyer, and CHURCHILL RESOURCES, INC., a Delaware corporation, hereinafter
sometimes called Seller, agree as follows:
ARTICLE 1. PLAN OF REORGANIZATION
Plan Adopted
Section 1.01. A plan of reorganization of the parties hereto pursuant
to the provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986
is adopted as follows.
(a) Seller and its Shareholders will transfer to Buyer all of its
shares of its common stock.
(b) In exchange for the voting stock transferred by Seller and its
Shareholders, Buyer will issue and deliver to Seller Four Million Five
Hundred Thousand (4,500,000) newly issued restricted shares of its common
stock.
(c) Seller will wind up its affairs, pay-off its liabilities,
liquidate and distribute its assets, including the shares of common stock
of Buyer received pursuant to the exchange, and voluntarily dissolve.
Closing Date
Section 1.02. Subject to the conditions precedent set forth herein to
the obligations of the parties to consummate the transaction, the plan of
reorganization shall be consummated at the office of CHURCHILL RESOURCES, INC.,
5901-J Wyoming NE Suite 264, Albuquerque, NM 87109, on or before November 24,
1999, at 2:00 p.m., or such other place and date as may be fixed by mutual
consent of the parties. The date of such consummation is the "closing date"
referred to herein.
Due Diligence
Section 1.03. Buyer acknowledges that upon execution of this Agreement,
it has completed any and all due diligence which it wishes to undertake and
approves the assets of Seller.
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ARTICLE 2. COVENANTS, REPRESENTATIONS,
AND WARRANTIES OF SELLER
Legal Status
Section 2.01. Seller is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware, with corporate
power to own property and carry on its business as it is now being conducted.
Seller is duly qualified to do business in each jurisdiction in which the
character and location of its properties make such qualification necessary.
Subsidiaries
Section 2.02. Seller has no subsidiaries nor any interest in any other
corporation, firm, or partnership.
Capitalization
Section 2.03. Seller has an authorized capitalization of Fifteen
Hundred (1,500) shares of common stock. As of the date of this agreement
approximately One Thousand (1,000) shares of the common stock are validly issued
and outstanding, fully paid and non-assessable.
Financial Statements
Section 2.04. Seller has delivered to Buyer its latest unaudited
financial statement together with the latest balance sheet of Seller and the
related statements of income and retained earnings for the period then ended. As
soon as possible Seller shall provide audited financial statements of the Fraser
Downs Raceway assets. All such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and present fairly the financial position of Fraser Downs Raceway for its
latest fiscal year, and the results of operations for the period then ended
subject, however, to normal changes resulting from year-end audit of the
financial statements.
Businesses and Properties
Section 2.05. (a) Seller has delivered to Buyer materials regarding the
Fraser Downs Raceway assets which when acquired will be the businesses and
properties of Seller. The materials are substantially complete and the
information reported therein is correct in all material respects. Except as
previously disclosed to Buyer in writing, Seller does not know of any
circumstances, events, or other information, occurring prior to or subsequent to
April 30, 1999, which would adversely affect the values as of December 31, 1998,
or subsequent thereto, set forth in the list of properties.
(b) Except for business interests and properties sold or otherwise
disposed of in the ordinary course of business since April 30, 1999, on or
within sixty (60) days after the closing
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date Seller will have good and marketable title to all of the businesses
and interests in properties known as the Fraser Downs Raceway, real and
personal, reflected in the list as of April 30, 1999 free and clear of all
mortgages, liens, or encumbrances, other than the following:
(i) The lien of current taxes not yet due and payable.
(ii) Minor exceptions, not in the aggregate material.
(iii)Such imperfections of title as do not materially detract from or
interfere with the operations, value, or use of the properties
subject thereto or affected thereby, or materially affect the
title thereto.
(iv) A one time payment to the former owners of Fraser Downs Raceways
in the sum of Two Million Dollars ($2,000,000) due one (1) year
after receipt of regulatory approval of the transfer.
(c) All leases included among the properties, or to which any of the
properties are subject, are in good standing, valid and effective and, to
the best of Seller's knowledge, information, and belief after reasonable
investigation by Seller, there is not under any of such leases any existing
material default or event of default or event which with notice or lapse of
time or both would constitute a material default.
(d) The equipment, including racing related equipment of Seller,
included among the properties are in good condition and repair, subject
only to ordinary wear and tear.
(e) Except to the extent set forth in Schedule 5 hereto, there exists
no restriction on the right of Seller to convey, assign, and transfer all
of the properties, and convey good title thereto to Buyer.
Activities Since Balance Sheet Date
Section 2.06. Except as previously disclosed to Buyer in writing, since
April 30, 1999, Seller has not:
(a) Suffered any change in its financial condition or the operations
of its business, materially and adversely affecting its properties, or the
earning power thereof, nor suffered any damage, destruction or loss,
whether covered by insurance or not, materially and adversely affecting the
properties or the earning power thereof.
(b) Sold, exchanged, or otherwise disposed of any of its business or
properties or any interest therein.
(c) Except in the ordinary course of business, entered into any
agreement or arrangement selling, exchanging, or otherwise disposing of any
of its assets or granting any
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preferential or other right to purchase any of its assets or rights or
requiring the consent of any party to the transfer and assignment of such
assets or rights.
(d) Discharged or satisfied any lien or encumbrance or paid any
obligation or liability, absolute or contingent, other than current
liabilities shown on its balance sheet, including noncurrent liabilities so
shown which have become current by the passage of time, and current
liabilities incurred since that date in the ordinary course of business.
(e) Except current liabilities incurred or obligations under contracts
entered into in the ordinary course of business, incurred or agreed to
incur any contractual obligation or liability, absolute or contingent.
(f) Issued any stock, bonds, or other corporate securities, or any
options with respect thereto.
(g) Except to the extent consistent with past practice, granted any
increase in the compensation of, or paid any bonus to, any employee.
(h) Except in the ordinary course of business, waived any right or
claim having value. (i) Declared or paid any dividends, or made, or agreed
to make, any other distribution to any shareholder.
(i) Mortgaged or pledged or, except in the ordinary course of
business, subjected to lien, charge, or any other encumbrance any of its
assets, tangible or intangible.
(k) Entered into any transaction or transactions the effect of which,
considered as a whole, would be to cause its net ownership in any of its
businesses to be materially less than it was at such date.
(l) Sold, assigned, or transferred any patents, copyrights, or other
intangible assets.
(m) Had any labor troubles other than routine grievance matters, none
of which is material.
(n) Entered into any transaction other than in the ordinary course of
business.
(o) Made any expenditure for capital items, including construction and
work-in-process, or investment in stock of or advances in any form to
corporations or business firms in excess of twenty five thousand dollars
($25,000).
Schedules Furnished
Section 2.07. Seller has delivered to Buyer the schedules enumerated
below. To the extent that any such schedule identifies any contract, agreement,
or other instrument in general terms in lieu of specific descriptions thereof,
the schedule will be supplemented by setting forth
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specific descriptions as Buyer may request. If after the date hereof there shall
be any change in the matters reflected in any such schedule, Seller will deliver
to Buyer prior to the effective date appropriate supplements to the schedule so
affected, making such deletions, modifications, and additions as may be required
in order that Buyer shall have received complete and correct information as to
the matters to be reflected in each such schedule. Each of the schedules and any
supplement thereto, delivered by Seller to Buyer, is substantially complete and
the information reported therein or in any documents provided thereunder is
correct in all material respects as of the date of such schedule or supplement.
Off-Balance Sheet Liabilities and Obligations
(a) Schedule 1: This schedule lists all indebtedness or liabilities
affecting Seller or any of its assets or rights which arise under sale and
leaseback arrangements, through-put agreements, and any other agreements or
arrangements which fall within the category or concept of off-balance sheet
financing.
Guaranties
(b) Schedule 2: This schedule lists all indebtedness or liabilities of
any person, firm, or corporation which Seller has guaranteed or otherwise
become liable for, absolutely or contingently.
Certain Material Contracts
(c) Schedule 3: This schedule lists all agreements, contracts, and
other instruments, to the extent not listed in any other schedule, not
cancellable by Seller on ninety (90) days notice without penalty which
involve a payment or payments to be made by or to Seller, or a liability or
liabilities of or to Seller, in excess of twenty five thousand dollars
($25,000) any year.
Pending Litigation
(d) Schedule 4: This schedule lists all litigation and proceedings
pending or threatened in courts and governmental commissions and bureaus
affecting Seller or any of its properties or rights which are not fully
covered by insurance.
Restrictions on Transfer of Properties
(e) Schedule 5: This schedule lists any of the properties, the
transfer of which by Seller as herein contemplated is subject to any
restriction, or which requires the consent of any third party, pursuant to
a preferential or other right of purchase or otherwise, and describes in
detail each such restriction, consent requirement, or purchase right.
Options, Warrants, or Other Stock Purchase Rights
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(f) Schedule 6: This schedule lists all commitments by Seller to issue
shares of capital stock pursuant to outstanding options, warrants, or
rights of conversion.
Employment and Deferred Compensation Contracts
(g) Schedule 7: This schedule lists all employment, deferred
compensation, and similar contracts by which Seller is bound.
Insurance
(h) Schedule 8: This schedule lists all fire, liability, and other
insurance now in effect with respect to any of the properties of Seller.
Compliance With Laws and Regulations
Section 2.08. Seller is in compliance with all laws, regulations, and
orders applicable to its business.
Agreement Not Violative of Law or Instrument
Section 2.09. The execution and carrying out of this agreement and
compliance with the provisions thereof by Seller will violate, with or without
the giving of notice or passage of time, any provision of law applicable to the
Seller, and will not conflict with, or result in the breach or termination of
any provision of, or constitute a default under, or result in the creation of
any lien, charge, or encumbrance upon any of the businesses or properties,
pursuant to any corporate charter, bylaws, indenture, mortgage, deed of trust,
or other agreements or instrument to which Seller is a party or by which Seller
of any of its properties may be bound.
Taxes
Section 2.10. The respective amounts owed for the payment of all unpaid
federal, state, county, and local taxes, including current ad valorem taxes.
Seller has filed all federal, state, county, and other local tax returns which
are required to be filed, and will make payment of all taxes which have or may
become due pursuant to said returns or pursuant to any assessment received by
Seller.
Not in Default
Section 2.11. Seller has not received any notice of default and, to the
knowledge of any of its officers or directors, is not in default under.
(a) Any order, writ, injunction, or decree of any court or any
commission or other administrative agency. Any agreement or obligation to
which it is a party or by which it is bound or to which it may be subject.
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Not Obligated for Broker's Fee
Section 2.12. Seller has not incurred any obligation or liability,
contingent or otherwise, for a broker's or finder's fee in respect of the
matters provided for in this agreement.
Contract or Commitment Relating to Businesses or Properties
Section 2.13. Except as set forth in the list of business and/or
properties as of April 30, 1999, Seller does not have any lease, contract, or
commitment, written or oral, which relates to any of the properties, and it has
duly complied with all provisions of such lease, contract, or commitment set
forth in the list and is not in default with respect to any of them.
Litigation
Section 2.14. Except for matters disclosed in Schedule 4, there is no
litigation, proceeding, or governmental investigation pending, or, to the
knowledge of any of the officers or directors of Seller, threatened, affecting
Seller or any of its properties, or its right to enter into this agreement or to
perform its obligations hereunder, nor do any of such officers or directors know
of any ground for any such litigation, proceeding, or investigation.
Insurance
Section 2.15. Seller now has in force fire, liability, and other
insurance with respect to its properties as set forth in Schedule S and, except
in accordance with the written approval of Buyer pending the closing date, will
not change, increase, or decrease any such insurance.
Approval of Board
Section 2.16. The Board of Directors of Seller, acting at a special
meeting thereof called for the purpose and duly held on November 23, 1999, has
duly approved the transactions contemplated hereby and has authorized the
execution and delivery of this agreement by Seller, and the performance by
Seller.
Character of Statements
Section 2.17. The information provided and to be provided by Seller and
its officers and directors to Buyer pursuant to this agreement, for use in any
proxy statement or listing application, does not and will not contain any
statement which, at the time and in the light of the circum- stances under which
it is made, is false or misleading with respect to any material fact, and does
not and will not omit to state any material fact in order to make the statements
therein not false or misleading.
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ARTICLE 3. COVENANTS, REPRESENTATIONS,
AND WARRANTIES OF BUYER
Legal Status
Section 3.01. Buyer is a corporation duly organized; validly existing,
and in good standing under the laws of the State of Nevada, with corporate power
to own property and carry on its business as it is now being conducted.
Subsidiaries
Section 3.02. Buyer has no subsidiaries nor any interest in any other
corporation, firm, or partnership.
Capitalization
Section 3.03. Buyer has an authorized capitalization of Fifty Million
(50,000,000) shares of common stock. As of the date of this agreement Four
Million Three Hundred Thousand (4,300,000) shares of the common stock are
validly issued and outstanding, fully paid and non-assessable.
Financial Statements
Section 3.04. Buyer has delivered to Seller its latest balance sheet
and the related statements of income and retained earnings for the period then
ended. All such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis and
present fairly the financial position of Buyer.
Properties
Section 3.05. (a) Buyer has delivered to Seller a list as of October
31, 1999, of the properties of Buyer. The list is substantially complete and the
information reported therein is correct in all material respects. Except as
previously disclosed to Buyer in writing, Seller does not know or any
circumstances, events, or other information, occurring prior to or subsequent to
October 31, 1999, which would adversely affect the values as of October 31,
1999, or subsequent thereto, set forth in the list of the properties.
(b) Except for properties and interests in properties sold or
otherwise disposed of in the ordinary course of business since October 31,
1999, on the closing date Buyer will have good and marketable title to all
of the properties and interests in properties, real and personal, reflected
in the list as of October 31, 1999, free and clear of all mortgages, liens,
or encumbrances, other than the following:
(i) The lien of current taxes not yet due and payable.
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(ii) Minor exceptions, not in the aggregate material.
(iii)Such imperfections of title or easements as do not materially
detract from or interfere with the operations, value, or use of
the properties subject thereto or affected thereby, or materially
affect the title thereto.
(c) All leases included among the properties, or to which any of the
properties are subject, are in good standing, valid and effective and, to
the best of Buyer's knowledge, information, and belief after reasonable
investigation by buyer, there is not under any of such leases any existing
material default or event of default or event which with notice or lapse of
time or both would constitute a material default and in respect of which
Buyer has not taken adequate steps to prevent a default from occurring.
Activities Since Balance Sheet Date
Section 3.06. Except as previously disclosed to Seller in writing,
since October 31, 1999, Buyer has not:
(a) Suffered any change in its financial condition or the operations
of its business, materially and adversely affecting its properties, or the
earning power thereof, nor suffered any damage, destruction, or loss,
whether covered by insurance or not, materially and adversely affecting the
properties or the earning power thereof.
(b) Except in the ordinary course of business, sold, exchanged, or
otherwise disposed of, or entered into any agreement or arrangement to
sell, exchange, or otherwise dispose of, any of its properties, rights, or
any interest therein.
Litigation
Section 3.07. There are no actions or proceedings pending, or, to the
knowledge of Buyer, threatened against, by, or affecting the Buyer in any court
or before any govern- mental agency, domestic or foreign, which, if decided
adversely to the Buyer, would materially and adversely affect the condition or
operations, financial or otherwise, of Buyer. The Buyer, to its knowledge, is
not in default with respect to any order, writ, injunction, or decree of any
such court or agency.
Employment of Seller Employees
Section 3.08. At the closing, Buyer will offer to employ those
employees of Seller listed in Schedule 7, upon terms and conditions satisfactory
to Buyer.
Status of Shares Deliverable
Section 3.09. The shares of stock of Buyer deliverable pursuant to this
agreement, when issued and delivered as provided in this agreement, will be
validly issued and outstanding shares of common stock of Buyer, fully paid and
non-assessable, and will be voting stock of the Buyer.
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Approval of Board
Section 3.10. The Board of Directors of Buyer, acting at a special
meeting thereof called for the purpose and duly held on November____, 1999, has
duly approved the transactions contemplated hereby and has authorized the
execution and delivery of this agreement by Buyer, and the performance by Buyer.
The resolution giving such authorization and approval have not since been
altered, amended or revoked.
ARTICLE 4. CONDUCT OF BUSINESS OF
SELLER PENDING CLOSING
Preservation of and Access to Properties, Information,
and Documents
Section 4.01. From the date of this agreement until the closing date,
Seller will:
(a) Except for depreciation through ordinary wear and tear, maintain
and keep its businesses and properties in as good financial condition as at
present.
(b) Use its best efforts to perform all its obligations under
contracts relating to or affecting the businesses and/or its properties.
Submission to Shareholder
Section 4.02. Seller has secured approval of its outstanding shares,
for this agreement and the plan of liquidation and distribution contemplated by
Section 1.01 hereof.
Furnish Proxy and Listing Information
Section 4.03. Seller, and its officers and directors, will furnish to
Buyer such information as shall be needed for use in any proxy statement or
listing application which may be required or deemed desirable by Buyer in order
to consummate the transactions contemplated hereby.
Satisfy Conditions Precedent
Section 4.04. Seller will use its best efforts to cause the
satisfaction of all conditions precedent contained in this agreement.
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ARTICLE 5. CONDUCT OF BUSINESS
OF BUYER PENDING CLOSING
Carry on Business as Usual
Section 5.01. Pending the consummation of the plan of reorganization,
Buyer will carry on its business in substantially the same manner as heretofore.
Satisfy Conditions Precedent
Section 5.02. Buyer will use its best efforts to cause the satisfaction
of all conditions precedent contained in this agreement.
Negative Covenants
Section 5.03. Except with the prior written consent of Seller, Buyer
will not declare or pay any dividend, or declare or make any other distribution
to its shareholders.
Submission to Shareholders
Section 5.04. Buyer shall submit to its outstanding shares of each
class for their approval, if necessary, this agreement and the principal terms
of the shares-for-shares exchange described in it. Buyer shall use its best
efforts to cause its outstanding shares of each class to approve this agreement
in the manner required by Nevada's Corporation Law.
ARTICLE 6. CONDITIONS PRECEDENT
TO OBLIGATIONS OF BUYER TO CLOSE
Section 6.01. The obligations of the Buyer hereunder are, at its
option, subject to the conditions that on or before the closing date:
Proceedings and Instruments Approved by Counsel for Buyer
(a) All actions, proceedings, instruments, and documents required to
carry out this agreement, or incidental thereto, and all other related
legal matters shall have been approved by counsel for the Buyer.
Opinion of Counsel for Seller
(b) Buyer shall have received an opinion of Warren J. Soloski, counsel
for Seller, dated the closing date, in form and substance satisfactory to
Buyer and its counsel, to the effect that:
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(i) Seller is duly incorporated, validly existing, and in good
standing under the laws of its state of incorporation; and is
duly qualified to do business in each jurisdiction in which the
character and location of its properties make such qualification
necessary.
(ii) Seller has an authorized capitalization of fifteen hundred
(1,500) shares of common stock, of which one thousand (1,000)
shares are validly issued and outstanding, fully paid and
non-assessable.
(iii)Seller has complied with all laws, regulations, and orders
applicable to its business.
(iv) Seller is not in default under any order, writ, injunction, or
decree of any court or of any commission or other administrative
agency, nor under any agreement or obligation to which it is a
party or by which it is bound or December be subject.
(v) Except as set forth in the list of businesses and properties as
of October 31, 1999, Seller does not have any lease, contract, or
commitment, written or oral, which relates to any of the
properties, and it has duly complied with all provisions of such
lease, contract, or commitment set forth in the list and is not
in default with respect to any of them.
(vi) Except for matters disclosed in Schedule 4, such counsel does not
know or have reason to believe that there is any litigation,
proceeding, or investigation pending or threatened which might
result in any material adverse change in the properties,
business, or prospects or in the condition, financial or
otherwise, of Seller, or which questions the validity of this
agreement or of any action taken or to be taken by Seller or its
shareholders, including without limitation the liquidation and
dissolution proceedings of Seller, or by Buyer pursuant to or in
connection with the provisions of this agreement.
(vii)All corporate acts and other proceedings require to be taken by
or on the part of the Seller to authorize it to carry out this
agreement and to sell and transfer its properties as provided
herein, and to liquidate and dissolve, have been duly and
properly taken, including the approval and consent of
shareholders, and this agreement has been duly executed by the
Seller and is the valid and binding obligation of the Seller
enforceable in accordance with its terms.
(viii) No provision of the articles of incorporation or the bylaws of
Seller, or of any indenture, mortgage, or other agreement known
to such counsel, prevents Seller from transferring good title to
the properties in the manner contemplated by this agreement or
has or will result in a breach of the Seller's warranties
contained in Section 2.09.
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(ix) Except as set forth in the list of properties as of October 31,
1999, good and marketable title to all of the properties has been
or will be duly vested in the Buyer, free of all claims, liens,
and encumbrances.
(x) The issuance of shares of its common stock here- under by Buyer
to Seller and the transfer by the latter to its shareholders of
the shares upon its liquidation and dissolution do not require
the registration of the shares under the Securities Act of 1933.
Compliance With Terms, Conditions, and Covenants
(c) All the terms, conditions, and covenants of this agreement to be
complied with by the Seller on or before the closing date shall have been
complied with, and Seller shall have delivered to Buyer a certificate
signed by its chairman and treasurer to such effect.
Truth of Representations and Warranties
(d) The representations and warranties by Seller herein shall be
correct, as of the closing date, with the same force as though such
representations and warranties had been made on the closing date, and
Seller shall have delivered to Buyer a certificate signed by its chairman
and treasurer to such effect and as to such other matters as the Buyer may
reasonably request.
Permit Granted
(e) The Nevada Commissioner of Corporations or other official as
appropriate shall have granted to Buyer an appropriate permit, if
necessary, authorizing it to issue shares of its common stock in accordance
with this agreement.
Approval by Outstanding Shares
(f) The principal terms of this agreement and the shares-for-shares
exchange covered by it shall have been approved as required by the General
Corporation Law of Nevada and Delaware by the outstanding shares of each
class of both Buyer and Seller.
Stock Exchange Listing
(g) The shares of common stock of Buyer to be delivered to Seller
pursuant to this agreement shall have been duly listed on the Over The
Counter Electronic Bulletin Board, subject to official notice of issuance
or distribution or other formal condition
Commitment as to Investment Purpose
(h) All holders or owners of shares of capital stock of Seller deemed
by Buyer to be controlling or dominant shareholders of Seller, shall have
delivered to Buyer, in form
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satisfactory to Buyer, agreements to the effect that they are taking the
shares of common stock of Buyer to be delivered hereunder for purposes of
investment and that they will not sell or distribute any of the shares in a
manner which would result in a violation of the Securities Act of 1933 or
the regulations thereunder.
ARTICLE 7. CONDITIONS PRECEDENT TO
OBLIGATIONS OF SELLER TO CLOSE
Section 7.01. The obligations of the Seller hereunder are, at its
option, subject to the conditions that on or before the closing date:
Proceedings and Instruments Approved by Counsel for
Seller
(a) All actions, proceedings, instruments, and documents required to
carry out this agreement, or incidental thereto, and all other related
legal matters shall have been approved by Warren J. Soloski, counsel for
the Seller.
Opinion of Counsel for Buyer
(1) Seller shall have received an opinion of counsel for Buyer, dated the
closing date, in form and substance satisfactory to Seller and its
counsel, to the effect that:
(i) Buyer is duly incorporated, validly existing, and in good
standing under the laws of its state of incorporation.
(ii) Buyer has an authorized capitalization of fifty million
(50,000,000) shares of common stock of which three million
(4,300,000) shares are validly issued and outstanding, fully paid
and non-assessable.
(iii)Buyer is not in default under any order, writ, injunction, or
decree of any court or of any commission or other administrative
agency, nor under any agreement or obligation to which it is a
party or by which it is bound or may be subject.
(iv) Such counsel does not know or have reason to believe that there
is any litigation, proceeding, or investigation pending or
threatened which might result in any material adverse change in
the properties, business, or prospects or in the condition,
financial or otherwise, of Buyer, or which questions the validity
of this agreement or of any action taken or to be taken by Buyer,
or by Seller pursuant to or in connection with the provisions of
this agreement.
(v) All corporate acts and other proceedings require to be taken by
or on the part of the Buyer to authorize it to carry out this
agreement and to deliver the shares of common stock of Buyer
deliverable as provided herein have been duly and properly taken
and this agreement has been duly executed by the Buyer and is the
valid and binding obligation of the Buyer enforceable in
accordance with its terms.
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(vi) An appropriate permit, if necessary, by Buyer in connection with
the issuance of its common stock hereunder.
(vii)No provision of the articles of incorporation or the bylaws of
the Buyer, or of any indenture, mortgage, or other agreement,
known to such counsel, prevents the Buyer from issuing and
delivering to the Seller good title to all of the shares of
common stock of Buyer being delivered pursuant to the terms of
this agreement.
(viii) The shares of common stock of Buyer, on delivery of the
certificates representing said shares in accordance with the
terms of this agreement, will be duly and validly issued, fully
paid and non-assessable, and voting stock of Buyer and Seller
will have good title to such shares issued to it.
(ix) The assumption by Buyer of the debts, liabilities, and
obligations of Seller, as provided in this agreement, has been
duly and validly authorized, and the agreement evidencing such
assumption has been duly executed and delivered by Buyer and is
valid and binding upon Buyer in accordance with its terms.
(x) The issuance of shares of its common stock hereunder by Buyer to
Seller and the transfer by the latter to its shareholders of the
shares upon its liquidation and dissolution do not require the
registration of the shares under the Securities Act of 1933.
(xi) The shares of common stock of Buyer to be issued hereunder have
been duly authorized for listing on the Over The Counter
Electronic Bulletin Board.
Compliance With Terms, Conditions, and Covenants
(c) All the terms, conditions, and covenants of this agreement to be
complied with by Buyer on or before the closing date shall have been
complied with, and Buyer shall have delivered to Seller a certificate
signed by its chief executive officer to such effect.
Truth of Representations and Warranties
(d) The representations and warranties made by Buyer herein shall be
correct, as of the closing date, with the same force as though such
representations and warranties had been made on the closing date, and Buyer
shall have delivered to Seller a certificate signed by its chief executive
officer to such effect and as to such other matters as the Seller may
reasonably request.
15
<PAGE>
Favorable Tax Ruling
(e) Seller has not received a written ruling or rulings of the
Internal Revenue Service, to the effect that the sale of the assets and
business of Seller and the distribution to the shareholders of Seller of
the shares of common stock of Buyer in connection with the liquidation and
dissolution of Seller, all as contemplated herein, will not result in the
recognition of any taxable income or deductible loss by Seller or by its
shareholders.
No Substantial Adverse Change
(f) There shall have been no substantial adverse change in the
financial condition or operations of Buyer and no suspension of trading in
its stock on the Over The Counter Electronic Bulletin Board.
Approval of Shareholders
(g) All corporate proceedings requisite to the sale and transfer by
Seller and its Shareholders of its voting stock, and its liquidation and
dissolution, shall have been approved and consented to by the Shareholders
of Seller in the manner required by applicable law or other applicable
requirements.
Approval by Outstanding Shares
(h) The principal terms of this agreement have been approved, as
required by the General Corporation Law of Nevada and Delaware by the
outstanding shares of each class of both Buyer and Seller.
ARTICLE 8. CONSUMMATION OF
TRANSACTION
Consideration of Seller
Section 8.01. Except for cash, not exceeding ten thousand dollars
($10,000) in such amount as Seller shall deem necessary to pay all fees, costs,
and expenses incurred by it in carrying out this plan and agreement of
reorganization, Seller and Seller's shareholders will deliver to Buyer, on the
closing date, all of its voting shares or an affidavit that the certificate
representing the voting shares is lost. Except for minute books, stock books,
and corporate records which shall be delivered within a reasonable time after
its dissolution, Seller shall deliver to Buyer, on the closing date, possession
of all its properties so transferred to it. Seller shall use the retained cash
only to pay fees, costs, and expenses incurred by it in carrying out this plan
and agreement of reorganization and shall pay over to Buyer, at the expiration
of one hundred twenty (120) days after the closing date, any balance remaining.
Consideration of Buyer
Section 8.02. (a) Except for liabilities and obligations specified in
Subsection (b), upon receipt of the stock of Seller and Seller's Shareholders,
Buyer will assume, and will deliver to
16
<PAGE>
Seller, the appropriate instruments evidencing assumption by Buyer of all of the
liabilities and obligations of Seller reflected or referred to in its list of
properties and thereafter incurred in the ordinary course of business to and
including the closing date, including all obligations under agreements,
contracts, and other arrangements to which it is a part.
(b) Buyer shall assume and be responsible for any and all liabilities
of the Seller.
(c) Buyer shall cause to be delivered to Seller at the closing date
Four Million Five Hundred Thousand (4,500,000) shares of Buyer's restricted
common stock.
(d) The directors of Buyer shall tender to Seller resignations
effective upon closing of this transaction and Buyer shall allow cooperate
with Seller in the election of a new Board of Directors.
Dissolution of Seller
Section 8.03. (a) Promptly after the closing date, Seller shall proceed
with due diligence to wind up its affairs, liquidate, and distribute its assets,
including the shares of common stock of Buyer received pursuant to the exchange,
and voluntarily dissolve.
(b) In connection with the winding up of its affairs, Seller shall
proceed promptly after the closing date to prepare and file all income tax
returns and reports required under applicable law, state or federal,
covering all periods prior to the closing date for which tax returns and
reports have not previously been filed and, if requested in writing by
Buyer, shall file a request for prompt assessment under Section 6501(d) of
the Internal Revenue Code of 1986 for all open years. Expenses
Section 8.04. Each party hereto shall pay its own expenses incident to
this agreement and the transactions contemplated hereby, including all fees of
its counsel, accountants, and employees whether or not such transactions shall
be consummated.
ARTICLE 9. INTERPRETATION AND
ENFORCEMENT
Indemnification
Section 9.01. (a) Each party hereto agrees to protect, defend,
indemnify, and hold harmless the other party, its successors and assigns,
against and in respect of all loss, dam- age, or expense occasioned by any
breach by such indemnifying party of any of its representations, warranties,
covenants, or agreements contained herein.
17
<PAGE>
(b) Each party hereto will indemnify and hold harmless the other party
against and in respect of any claim for brokerage or other commission
relative to this agreement or to the transactions contemplated hereby,
based in any way on agreements, arrangements, or understandings claimed to
have been made by such party with any third party.
(c) Seller agrees to indemnify and hold harmless the Buyer from any
loss, damage, or expenses, including reasonable counsel fees, sustained or
incurred by Buyer by reason of any claim asserted against Buyer to pay or
discharge any liability or obligation of Seller not expressly assumed by
Buyer under the terms hereof.
Specific Performance
Section 9.02. Seller acknowledges that the voting common stock to be
transferred to Buyer pursuant to plan and agreement of reorganization are unique
and that Buyer will have no adequate remedy at law if Seller shall fail to
perform any of its obligations hereunder. In such event, Buyer shall have the
right, in addition to all other rights, and remedies, to specific performance of
this plan and agreement of reorganization.
Survival of Covenants, Representations, and Warranties
Section 9.03. All covenants, agreements, representations, and
warranties made hereunder and in any certificates delivered at the closing shall
be deemed to be material and to have been relied upon by Buyer and Seller,
notwithstanding any investigation made by Buyer and Seller or on their
respective behalf, and shall survive the closing.
Assignment
Section 9.04. Except with the written consent of the other party, the
rights and obligations under this agreement shall not be assignable by either
party. Nothing herein expressed or implied is intended to confer upon any
person, other than the parties hereto or their respective successors, assigns,
heirs, and legal representatives, any fights, remedies, or liabilities under or
by reason of this agreement.
Notices
Section 9.05. Any notice or other communication required or permitted
hereunder shall be deemed to be properly given when deposited in the United
States mails for transmittal by certified or registered mail, postage prepaid,
or when deposited with a public telegraph company for transmittal, charges
prepaid, if such communication is addressed:
(a) In the case of Seller, to: R. M. Frederick, at 5901-J Wyoming NE,
Suite 264, Albuquerque, NM 87109, or to such other person or address as
Seller may from time to time furnish to Buyer for the purpose.
(b) In the case of Buyer, to: Doug Ansell, at 3675 Pecos Mcleed, Suite
1400 , Las Vegas, NV 89121, or to such other person or address as Buyer may
from time to time furnish to Seller for the purpose.
18
<PAGE>
Entire Agreement; Counterparts
Section 9.06. This instrument and the exhibits hereto contain the
entire agreement between the parties with respect to the transaction
contemplated hereby. It may be executed in any number of counterparts, each of
which shall be deemed an original, but such counterparts together constitute
only one and the same instrument. A facsimile signature shall constitute an
original signature.
Controlling Law
Section 9.07. The validity, interpretation, and performance of this
agreement shall be controlled by and construed under the laws of the State of
Nevada, the state in which each the Buyer hereto is incorporated.
Executed on November ____, 1999, at Las Vegas, Nevada and Albuquerque,
New Mexico.
SELLER
CHURCHILL RESOURCES, INC.
By:____________________________
R, M. Frederick
BUYER
FAR EAST VENTURES, INC.
By:____________________________
Douglas Ansell
c:\wpdocs\churchil\reorg.n24
19
EXHIBIT 10.1
December 14, 1999
Ms. R. M. Frederick
Chairman and CEO
Churchill Resources, Inc.
4771 Sweetwater Blvd. Suite 125
Sugar Land, TX 77479
Dear Ms. Frederick:
This letter agreement (the "Agreement") confirms the understanding and agreement
between Crary, Onthank & O'Neil, LLC ("COO") and Churchill Resources, Inc.
("Churchill" or "the Company") whereby the Company engages COO as a
non-exclusive financial advisor in connection with the raising of capital
through a private placement of equity or other securities (the "Offering"),
which private placement will be in an amount and on terms satisfactory to the
Company in its sole judgment (Offering or other financing hereinafter
collectively a "Transaction"). We hereby confirm COO's interest in offering in a
private placement, as a non-exclusive placement agent, on a "best-efforts"
basis, a minimum of $6 Million of Churchill's securities, the proceeds of which
will be used to purchase Fraser Downs (and its subsidiaries and affiliates) and
to provide the company with working capital, upon the terms and conditions set
forth herein.
1. In connection with the Offering COO will: (a) advise Churchill with
respect to the form and structure of the Offering; (b) revise and expand, if
necessary, with the assistance of the Company, its existing acquisition plan,
business plan and write a private placement or information memorandum as
necessary; (c) identify and make initial contacts with institutional investors;
(d) act as placement agent and assist in negotiations with investors and (e)
provide any other financial advisory and investment banking services in
connection with the Offering as may be mutually agreed. COO will exercise all
reasonable efforts to complete the Offering successfully on terms satisfactory
to Churchill.
2. COO will be a financial advisor and placement agent to the Company for
an initial period of ninety days commencing on the date of the Agreement,
provided however, that either party may cancel the Agreement at any time upon
thirty (30) days written notice to the other party. Otherwise, this engagement
and the terms hereunder will be renewed automatically, on a month-to-month
basis, until a Transaction is successfully completed or until the engagement is
terminated. Within thirty (30) business days after the effective date of any
termination (the "Termination Date"), COO shall deliver to the Company a list of
all parties (the "Covered Parties") which COO has contacted or discussed a
Transaction prior to receipt of the notice of termination and shall, upon
request, return to the Company any confidential information provided to COO by
Churchill. The provisions concerning confidentiality, indemnification,
compensation and the Company's obligations to pay fees and reimburse expenses
contained herein and the Company's obligations contained in the Indemnification
Provisions (as hereinafter defined) will survive any termination. COO agrees not
to use any confidential information about the Company provided to it by
Churchill for any purposes other than in connection with a transaction and
related matters.
1
<PAGE>
3. As compensation for the services provided hereunder, the Company agrees
to pay the following fees and commissions:
(a) In consideration for COO's financial advisory services, the Company
will pay COO a non-refundable advisory fee of 25,000 freely-tradable
shares of the Company's common stock for the first four months of the
engagement, commencing upon the execution of the Agreement.
(b) Upon the closing of a Transaction (or upon a sale of the Company's
securities to a Covered Party within twelve months after the
Termination Date): (i) 9% of the gross proceeds raised in a
Transaction (or sale to a Covered Party) in the form of equity or
equity-linked securities; (ii) 3% of the gross proceeds raised in a
Transaction (or sale to a Covered Party) in the form of subordinated
debt, and (iii) 1% of the gross amount raised in a Transaction (or
sale to a Covered Party) in the form of senior debt (including lines
of credit or commitments to fund which are undrawn at any closing of a
Transaction).
(c) COO shall also receive warrants to purchase an amount of shares of
Churchill's common stock equal to five percent (5%) of the Company's
equity securities (or equity security equivalents) privately placed by
COO in the Offering (or otherwise sold to a Covered Party within
twelve months of the Termination Date). The warrants will be
exercisable for five (5) years and will have an exercise price of 100%
of the offering price per share of the Company's securities as
determined by the Offering. The warrants will also contain other
customary terms and conditions including piggy-back registration
rights, cashless exercise and anti-dilution rights triggered by
subsequent stock splits, stock dividends, recapitalizations or other
similar occurrences, which terms and conditions will be embodied in
documentation acceptable to the parties to the Agreement.
4. During the period that COO is engaged by the Company, the Company may
directly or indirectly initiate any discussions or other contacts, or solicit
any inquiries or indications of interest concerning this Offering and shall
promptly furnish COO with the names of all parties with whom the Company, its
directors, officers and its controlling shareholders have conducted any
discussions, received inquiries from or had any other related contacts
concerning any investment in securities (other than common stock) of the
Company. The Company shall also promptly inform COO of the identity of any third
party that subsequently makes any such inquiry or whose interest in a possible
investment in this Offering subsequently becomes known to the Company.
5. In addition to any fees that may be payable to COO, Churchill will
reimburse COO promptly upon request for the reasonable out-of-pocket expenses
incurred in connection with this engagement, including without limitation the
reasonable professional and legal fees and expenses incurred by COO. These
out-of-pocket fees and expenses reimbursable by the Company shall not exceed a
total of $20,000 unless approved by the Company in writing in advance.
2
<PAGE>
6. During the period that COO is engaged by the Company, the Company may
engage another investment banker or agent to solicit any inquiries or
indications of interest concerning this Offering. In that event, the Company
shall promptly furnish COO with the names of any additional investment bankers
that may be engaged and COO will subsequently meet with any additional
investment banker or agent to coordinate placement activities such that there is
an equitable division and assignment of candidates and no duplication of contact
activity.
7. In consideration of COO's services on behalf of the Company in
connection with the Offering, the Company agrees to indemnify and hold harmless
COO and each of its affiliates, stockholders, directors, officers, employees,
agents and controlling persons (within the meaning of Section 15 of the
Securities Act of 1934) to the extent and as provided for in the indemnification
and contribution provisions (the "Indemnification Provisions") attached hereto
as Addendum A and incorporated herein in their entirety.
8. If COO completes the Offering or any other Transaction pursuant to the
Agreement, COO may, at its expense, place an announcement, subject to
Churchill's consent, in any newspapers and periodicals it may select stating
that COO has acted as financial advisor, investment banker or placement agent
for the Company in the transaction.
9. Churchill represents that there are no brokers, representatives or other
persons that have an interest in compensation due from any of the transactions
contemplated hereunder other than a finder's fee for William W. Bolles.
10. The Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns. The Agreement represents the entire
understanding between the parties and all prior discussions and negotiations are
merged in it. The Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
If the foregoing is in accordance with your understanding of the terms of our
agreement, please sign and return the enclosed duplicate hereof.
Sincerely yours, Accepted and agreed to as of the date first above written.
CRARY, ONTHANK & O'NEIL, LLC CHURCHILL RESOURCES, INC.
/s/ Shane O'Neil /s/ R. M. Frederick
- ---------------- -------------------
Shane O'Neil R. M. Frederick
Principal Chairman & CEO
3
<PAGE>
ADDENDUM A
INDEMNIFICATION PROVISIONS
In connection with the engagement of Crary, Onthank & O'Neil LLC
("COO") by Churchill Resources, Inc. ("Churchill" or the "Company") pursuant to
a letter of agreement dated December 14, 1999, between the Company and COO, as
it may be amended from time to time (the "Agreement"), the Company hereby agrees
as follows:
1. To the extent permitted by law, the Company will indemnify COO and
its affiliates, stockholders, directors, officers, employees, agents
and controlling persons (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Act
of 1934) against all losses, claims, damages or liabilities, as the
same are incurred (including the reasonable fees and expenses of
counsel), relating to or arising out of its activities under the
Agreement, except to the extent that any losses, claims, damages or
liabilities (or actions in respect thereof) are found in a final
judgment by a court of law to have directly resulted from COO's willful
misconduct or gross negligence in performing the services described
therein.
2. Promptly after receipt by COO of notice of any claim or the
commencement of any action or proceeding with respect to which COO is
entitled to be indemnified under the Agreement, COO will notify the
Company in writing of such claim or of the commencement of such action
or proceeding, and the Company will assume the defense of such action
or proceeding, will employ counsel satisfactory to COO and will pay the
fees and expenses of such counsel. It is the intent of the parties, if
this is permitted by the applicable Canons of Ethics governing
attorneys and provided that no conflict of interest exists, hereto that
counsel for such action, if any, would be shared by the parties.
Notwithstanding the preceding sentence, COO will be entitled to employ
counsel separate from counsel for the Company and from any other party
in such action if COO and the Company or court of competent
jurisdiction reasonably determines that a conflict of interest exists
which makes representation by counsel chosen by the Company not
advisable or permitted, provided however that COO shall seek the
Company's consent which shall not unreasonably be withheld or delayed,
to the appointment of COO's counsel and the rates to be charged. In
such event, the Company will pay the reasonable fees and disbursements
of such separate counsel.
3. The Company agrees to notify COO promptly of the assertion against
it or any other person of any claim or the commencement of any action
or proceeding relating to a transaction contemplated by the Agreement.
A-1
<PAGE>
4. If for any reason the foregoing indemnity is unavailable to COO or
insufficient to hold COO harmless, then the Company shall contribute to
the amount paid or payable by COO as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to reflect
not only the relative benefits received by the Company on the one hand
and COO on the other, but also the relative fault of the Company on the
one hand and COO on the other that resulted in such losses, claims,
damages or liabilities, as well as any relevant equitable
considerations. The amounts paid or payable by a party in respect of
losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees and expenses incurred in
defending any litigations, proceeding or other action or claim.
5. It is understood and agreed that, in connection with COO's
engagement by the Company, COO may also be engaged to act for the
Company in one or more additional capacities, and that the terms of any
such additional engagement may be embodied in one or more separate
written agreements. These Indemnification Provisions shall apply to the
engagement under the Agreement and to any such additional engagement
and any modification of such additional engagement; provided, however,
that in the event that the Company engages COO to act as a dealer
manager in an exchange or tender offer or as an underwriter in
connection with the issuance of securities by the Company or to furnish
an opinion letter, such further engagement may be subject to separate
indemnification and contribution provision as may be mutually agreed
upon.
6. These Indemnification Provisions shall remain in full force and
effect whether or not the transaction contemplated by the Agreement is
completed and shall survive the termination of the Agreement, and shall
be in addition to any liability that the Company might otherwise have
to any indemnified party under the Agreement or otherwise.
CRARY, ONTHANK & O'NEIL, LLC CHURCHILL RESOURCES, INC.
/s/ Shane O'Neil /s/ R. M. Frederick
- ---------------- -------------------
Shane O'Neil R. M. Frederick
Principal Chairman & CEO
A-2
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