<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
Amendment No. 2
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Act of 1934
ISM HOLDING CORP.
-----------------
(Name of Small Business issuer in its charter)
INDIANA 35-2020266
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5811 W. 73rd STREET, INDIANAPOLIS, IN 46268
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(Address of principal executive offices)
(317) 328-4858
--------------
(Issuer's telephone number)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
---------------------------------------
(Title of Class)
On September 30, 1999 the Registrant had outstanding 16,257,480 shares of Common
Stock par value $0.01 per share.
<PAGE>
ISM HOLDING CORP.
-----------------
FORM 10-SB
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PART I
- ------
ITEM 1 DESCRIPTION OF BUSINESS
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ITEM 3 DESCRIPTION OF PROPERTIES
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 5 DIRECTORS, OFFICERS, PROMOTERS & CONTROL PERSONS
ITEM 6 EXECUTIVE COMPENSATION
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8 DESCRIPTION OF SECURITIES
PART II
- -------
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
ITEM 2 LEGAL PROCEEDINGS
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
PART F/S
FINANCIAL STATEMENTS
PART III
- --------
ITEM I INDEX TO EXHIBITS
ITEM 2 DESCRIPTION OF EXHIBITS
SIGNATURES
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
From 1993 to 1996 the company operated primarily in the sports management
business servicing clients requiring corporate sponsorship. The company either
represented entities needing sponsorship, or corporations who required entities
as their representatives. While continuing these activities in late 1996 the
company began involvement in Team Ownership with an investment in a team in the
IRL. The following year the company became sole owners of teams in the IRL (Indy
Racing League). Significant personnel allocation, and nearly $100,000 of the
companies resources in 1998 were spent preparing for the growth in motorsports
via the opportunity to become public. Public resources should provide funding
for acquisitons in the growing sports sponsorship industry. Potential
acquisitions will be evaluated for their contribution to earnings and use of
capitol as a return on investment. Additionally, growing the sports sponsorship
through utilization of strategic alliances with existing corporate partners will
enhance the net income of the company. The company owns companies operating
under ISM Marketing, ISM Management, ISM Holding, ISM Racing, ISM Motorsports,
and International Sports Management. ISM Marketing sells sports sponsorships.
ISM Management represents entities placing sports sponsorships. ISM Racing and
Motorsports Operate race teams. International Sports Management represents
Atheletes in sponsorships and endorsements. All companies are 100% owned by ISM
Holding, with the exception of ISM Racing Corp. ISM Racing Corp. Has been merged
into ISM Motorsports Corp. All companies were consolidated under the financial
of ISM Holding. All inter-company transactions were eliminated. The company
continues in it's three tiered strategy, with core business emphasis on
Corporate representation in incremental revenue programs, securing Team
sponsorship and partner opportunities for strategic partners, and the
opportunities to expand Team Ownership and sponsorship opportunities for company
owned teams. ISM Holding company earns revenue as a percent of sale on
sponsorships. ISM Motorsports earns revenues through winnings, commissions on
corporate alliance incremental sales. This exists when through a motorsports
created alliance companies increase their sales and a percentage is paid to the
company as compensation. ISM Marketing, Management and International Sports
Management are paid on retainer and a percentage of revenue. Effective January
3, 2000. The company will eliminate Management and International Sports
Management, and all transactions of the former companies will be consolidated
into ISM Marketing. This consolidation will lower costs and eliminate
duplication of personnel and equipment. At that point the company will have two
operating divisions, Marketing and Motorsports. Both will be wholly owned
subsidiaries of ISM Holding. The companies business plan contains an objective
that within the next 3 years no single company will account for more than Ten
(10) % of revenue. Marketing will handle all sales and motorsports will handle
the implementation and excecution of the racing activities, either through
company owned teams or strategic alliances with teams owned by others. The
decision to own or have a strategic alliance will be based on profitability and
return on capitol. The company is evaluating acquisition opportunities, as well
as additional strategic partners for expanding the incremental revenue
opportunities the company's worldwide network provides.
MARKET ENVIRONMENT
The company operates in the Sports Management and Sales industry that has rapid
double digit annual growth. Corporate spending in sports is growing in excess of
30% annually, and with the companies experience in corporate sponsorship the
company expects it will increase it's Sports Management revenues consistant with
industry growth. Auto racing sponsorship values have been escalating at or above
20% annually. It is unknown if this trend will continue, as there is a trend
toward cost containment.
Additionally, the company has entered the internet that has exponential growth.
Although new to the internet, the company expects a growing part of the company
will be representing emerging companies seeking brand awareness for their
company. The sports marketing industry in the e-commerse segment is growing, as
corporate partners look for ways to reach the consumer.
INDUSTRY ANALYSIS
The Motorsports industry has recently begun to be inhabited by public entities.
Public companies own tracks, Public companies own apparel companies, and now
Public companies own Teams, and the Marketing of teams is now a public venture.
<PAGE>
MARKET SEGMENT
The company operates in Team Ownership, Marketing of Sports Sponsorship, and
Corporate representation of Companies involvement in sports. This three tiered
approach allows the company to continue to expand the customer base. Sports
spending by corporate america has been the base for sports growth in the last
few years. Team ownership, Team representation, and Corporate representation in
sports allows the company to participate in all areas of growth. If the sponsor
wants a demographic represented in a category that the company owns a team the
sale can be direct. If the company wants to meet a demographic the company does
not own, it can contract with a strategic partner to provide the services.
Finally, because of the vast experience in the industry, the company can
negotiate the clients involvement in sports by providing negotiation,
documentation and review of performance on behalf of the sponsor. This approach
provides valuable resources to the sponsor by allowing cross promotion with all
potential alliance partners.
COMPETITION
The Sports Marketing industry is There are over 10,000 companies that provide
services in the Sports Marketing and Management business. Specialization in
Motorsports allows the company to compete with approximently 200 companies With
extensive business experience is sports, the company is in a position to provide
expertise to corporate clients who desire representation in sports.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following is a discussion of the financial condition and results of
operation of the Company as of the date of this Registration Statement. This
discussion and analysis should be read in conjunction with the Company's audited
Consolidated Financial including the Notes thereto which are included elsewhere
in this Form 10-SB.
GENERAL
ISM Holding is located in Indianapolis Indiana, and has two main operating
divisions, ISM Marketing and ISM Motorsports. ISM Marketing sells corporate
sponsorships for company teams and other properties throughout the world. It
also uses it's strategic alliances to operate internet gaming sites worldwide.
The Motorsports company operates race teams. The company currently owns an Indy
Racing League team. Ownership in future teams will be dependant on financial
viability, and the decision to own and operate verses represent will be made
based on return on investment and return on capitol as well as risk reward
considerations. The internet gaming operation was started in the fourth quarter
1999. The industry is in an emerging growth industry and is heavily sensitive to
name recognition and traffic building. It is believed that the company can
provide considerable growth to this segment of the companies operation through
inventory of ad space provided through company contracts with internet
companies. In 1997 the company had revenues in sponsorship sales. In 1998 the
company had revenue from Team ownership and sponsorship sales. Team Ownership
was over 65% of the sales in 1998, with heavy concentration (85%) with one
customer. The company has concentrated on eliminating such concentrations, and
the business plan would be to eliminate concentrations where possible by
diversifying resourses.
1998 V. 1997
------------
Net Loss
For the year ended December 31, 1998, revenue was $9,272,139, an increase of
$4,450,419, or 93% from the $4,821,720 posted for the year ended December 31,
1997. Other Revenue, which is sponsorship revenues for clients increased from
$534,069 in 1997 to $1,006,419 in 1998, an increase of 88%.
ISM Holding recorded a net loss from operations in 1998 of $2,369,816 compared
to a net loss of $1,403,449 in 1997, an erosion of $966,367.The company made
extensive changes in the company operations to eliminate non-profitable
divisions. Athlete representation, a low margin group was not renewed. Margins
in athelete representations were as low as 3%, compared with 15% in sponsorship
sales, thus the concentration on sponsor sales. The company also elected to
alter it's Nascar ownership position as a result of Primary sponsor leaving the
sport. ISM Marketing will continue to sell sponsorships and concentrate
Marketing efforts with strategic partners in Nascar.
<PAGE>
COSTS AND EXPENSES
1997. Total Operating Expenses in 1998 increased $5,278,612, or 86% from
$6,097,158 in 1997. Labor and operations increased significantly as the Company
expanded operations.
Interest expenses in 1998 increased $243,957 to $266,185,. The increase results
from higher outstanding credit line balances.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NET LOSS
For the nine months ended September 30, 1999, revenue was $1,837,993, a decrease
of $5,638,734, over the $7,706,158 posted during the same period in 1998. Nascar
operations reduced revenue by $3,984,788 in 1999 compared to 1998. However, the
shortfall in revenue was more than offset by a reduction in expenses of
$8,528,893.
This resulted in a Decrease in Net Loss from $2,021,376 in 1998 to a loss of
$72,009 in 1999. The company eliminated overhead and fixed costs.
COSTS AND EXPENSES
Salaries and wages have been reduced in 1999 From $1,423,988 in 1998 to $325,987
in 1999. This is as a result of reduction in staff, as well as changes from
salary to commission. Executive salaries were eliminated due to lack of
profitability. Travel, driver salaries and general operating expenses were
lowered by a conscious budget cutting procedure implemented by the Board of
directors. The company continues to lower it's overhead through efforts to
eliminate expenses not contributing to company profits. Interest expense for the
nine months ended September 30, 1999 decreased $93,265 or 236%, from $220,961
for the same period in 1998. The decrease results from debt retirement.
LIQUIDITY AND CAPITAL RESOURCES
1998 V. 1997
------------
As of December 31, 1998, the Company had paid in capitol of $1,376,699 verses
$350,000 in 1997, an increase of $1,326,699. The increase in working capital was
substantially due to the issuance of common stock. The company issued 144 stock
for $1 million capitol infusion. During the year 1998 the company icreased
accounts payable and notes payable for the Nascar operation. As the inventories
were reduced the funds were used to reduce liabilities. The companies airplane
was not cost effective and was sold with board approval without gain or loss.
The debt acquired with the purchase was retired in the transaction.
The Company's Officer's have provided funds to the Company from time to time to
provide additional working capital. The company has negotiated a line of credit
from an equity investor should the company need additional funding for expansion
or acquisition. The officers of the company will provide the stock from their
holdings to the accredited investor eliminating the need for dilution at this
time.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
---------------------------------------------
As of September 30, 1999 the company had a total equity injected of $2,947,475.
The company has loans and notes payable totaling $1,118,955, a reduction of
$810,983 or 41.9% from 1997. The company also reduced Accounts payable from 1998
to 1999 by $301,023.
The Officer's have provided funds to the Company from time to time to provide
additional working capital.
RECENT ACCOUNTING PRONOUNCEMENTS
There is no impact on the Company's financial statement.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Registration Statement on Form 10-SB contains forward-looking statements
made pursuant to the safe harbor provisions of the Securities Litigation Reform
Act of 1995. Such statements consist of any statement other than a recitation of
historical facts and can be identified by words such as "may," "expect,"
"anticipate," "estimate," "hopes," "believes," "continue," "intends," "seeks,"
"contemplates," "suggests," "envisions" or the negative thereof or other
variations thereon or comparable terminology. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, including but not limited to, those risks associated
with economic conditions generally and the economy in those areas where the
Company has or expects to have assets and operations. Competitive and other risk
factors affecting the Company's operations, markets, products and services and
risks relating to existing litigation, attorney general investigations, taxes
owed, and associated costs arising out of the Company's activities and the
matters discussed in this report; risks relating to changes in interest rates
and in the availability, cost and terms of financing; risks related to the
performance of financial markets; risks related to changes in domestic and
foreign laws, regulations and taxes; risks related to changes in business
strategy or development plans; risks related to the outcomes of the pending
lawsuits against the Company and the associated costs; risks associated with
future profitability; and other factors discussed elsewhere in this report and
in documents filed by the Company with the Securities and Exchange Commission.
Many of these factors are beyond the Company's control. Actual results could
differ materially from these forward-looking statements. In light of these risks
and uncertainties, there can be no assurance that the forward-looking
information contained in this registration on Form 10-SB will, in fact, occur.
The Company does not undertake any obligation to revise these forward-looking
statements to reflect future events or circumstances and other factors discussed
elsewhere in this report and the documents filed by the Company with the
Securities and Exchange Commission.
YEAR 2000
The Company has reviewed internal computer systems and their capability of
recognizing the year 2000 and years thereafter. ISM Holding expects that any
costs relating to ensuring such systems to be year 2000 compliant will not be
material to the Company's financial condition or results of operation.
Additional information is in the notes to financial elsewhere in the filing.
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTIES
The Company's principal executive and administrative offices are located in a
leased premises in Indianapolis Indiana on a 6.5 acre site, which contains not
only these offices, but over 43,000 square feet of office and warehouse. The
administrative offices occupy approximately 2,500 square feet. The racing
operation currently occupies 12,000 square feet, and approximately 8,000 square
feet are subleased. Approximately 20,500 feet are available for sublease. The
Company does not anticipate that it will require any additional office or
warehouse facilities, as the current space is sufficient to meet current needs.
However, if additional office space is required in the future, the available
space will allow for needed expansion.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1999 by (i) each
person (or group of affiliated persons who to the knowledge of the company is
the beneficial owner of five percent or more of the Company's outstanding Common
Stock, (ii) each director and each Named Executive Officer of the Company and
(iii) all directors and executive officers of the Company as a group. Except as
otherwise noted, the Company believes that the persons listed in this table have
sole voting and investment power respecting all shares of Common Stock owned by
them. The business address of each director and named Executive Officer listed
below is the company's corporate address, 4500W. 96th Street Indianapolis, In.
46268.
Table 1. Security Ownership of Certain Beneficial Owners
Asia equities is an accredited investor in accordance with the rules and
regulations of the 504D. Asia equities has no beneficial ownership in the
securities owned by Management. There are no options, warrants or any
instruments allowing for acquisition of shares outstanding at this time.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND PERCENT
OF BENEFICIAL OWNER NATURE OF OF CLASS
BENEFICIAL OWNER
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Asia EQUITIES 2,500,000 15.4%
- ---------------------------------------------------------------------------------------
</TABLE>
Table 2. Security Ownership of Management
- -------- --------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4)
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND PERCENT
OF BENEFICIAL OWNER NATURE OF OF CLASS
BENEFICIAL OWNER
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock L.G. Hancher Jr. 4,536,000 27.8%
Common Stock G. D. Sallee 4,500,000 27.7%
Common Stock G.B. Outlaw 2,250,000 14.2%
</TABLE>
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of the date of this
Registration Statement with respect to the directors and executive officers of
the Company. A summary of the background and experience of each of these
individuals is set forth after the table. The executive officers serve at the
discretion of the Company's Board of Directors. None of the officers are related
to the other. At the present time the directors do not hold directors positions
with other Public companies.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
L.G. Hancher Jr 46 C.E.O., Director
Kevin Simpson* 47 Director
G.B. Outlaw 42 Director
* Mr. Simpson replaced Mr. Sallee, a director and co-founder, who left the
company to return to his legal practice in October of 1999. Mr. Hancher and Mr.
Outlaw have been board members since the companies 504D filing in July of 1998.
Mr. Sallee remains a shareholder.
Mr. Hancher has extensive sports management experience, and has operated
Motorsports teams For 15 years. Mr. Outlaw has been a marketing executive in
sports for 10 years, with extensive Experience in corporate sports sales. Mr.
Simpson has over 15 years experience operationally in Public companies.
Mr. Hancher, Simpson, and Outlaw have 2 year terms. Mr. Hancher and Mr. Outlaw
Expiring in 2000, and Mr. Simpson in 2001. The elections will take place at the
annual Board of Director and Shareholder meeting in 2000.
ITEM 6. EXECUTIVE COMPENSATION
As of the date of filing,the officers of the company, Mr. Hancher, Mr. Sallee,
and Mr. Outlaw do not take a salary, nor do they receive any compensation
covered by Item 402 of Reg S-B. Mr. Hancher as C.E.O. received $29,124 in wages
in 1999 accrued in 1998.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the preceding two years the Company has received loans from management
from time to time. The loans were at market interest rates, and unsecured.
Additionally, the company has negotiated an equity credit facility with Asia
Equities, a shareholder of record holding greater than 5% of the companies
common stock.
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has 50,000,000 authorized shares of Common Stock, $0.01 par value
per share, of which 16,257,480 shares are issued and outstanding as of September
30, 1999. All shares of Common Stock outstanding are legally issued, fully paid
and non-assessable. Holders of the Common Shares are entitled to one vote per
share with respect to all matters that are required by law to be submitted to a
vote of the shareholders. Holders of the Common Stock are not entitled to
cumulative voting. The common Stock has no redemption, preemptive or sinking
fund rights. Holders of the Common Stock are entitled to dividends, when, as and
if declared by the Board of Directors from funds legally available therefore.
Future dividend policy will be determined by the Board of Directors of the
Company in light of financial need and earnings, if any, of the Company and
other relevant factors. In the event of liquidation, dissolution or winding up
of the Company, holders of Common Stock are entitled to share proportionately
all the remaining assets of the Company, after satisfaction of the liabilities
of the Company.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock, par
value $0.01 per share, issuable in such series and bearing such voting,
dividend, conversion, liquidation and other rights and preferences as the Board
of Directors may determine without further action by the Company's shareholders.
As of the date hereof, there are no shares of Preferred Stock issued and
outstanding.
TRANSFER AGENT
The transfer agent for the Company is Atlas Stock Transfer Company, whose
address is 5899 S. State Street, Salt Lake City, Utah 84107.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON AND OTHER
STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
"ISMH." On December 11, 1997 the Board of Governors of the National Association
of Securities Dealers, Inc. ("NASD") approved a series of changes for the OTC
Bulletin Board which affect the Company. The principal changes include: (i) a
rule that only those companies that report their current financial information
to the Securities and Exchange Commission, banking or insurance regulators will
be included for quotation on the OTC Bulletin Board, (ii) that brokers must
review current financial statements on a company they are recommending before
they recommend a transaction in an OTC security, and (iii) that prior to the
initial purchase of an OTC security, every investor must receive a standard
disclosure statement prepared by the NASD emphasizing the differences between
the OTC securities and other market-listed securities, such as those traded on
the NASDAQ Stock Market, Inc. This Registration Statement is being filed on Form
10-SB with the Securities and Exchange Commission to register the Company's
Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended, to comply with the above-stated rule change. In the event the Company's
proposed Registration Statement is not declared effective, the Company's
securities would not be eligible for continued quotation on the OTC Bulletin
Board, which would materially and adversely affect the liquidity in the
Company's Common Stock.
<PAGE>
PRICE RANGE OF COMMON STOCK
In January of 1999, the Company obtained the symbol, "ISMH" and application was
made for trading on the NASD OTC Bulletin Board system. The first active trading
in the shares of the Company began in January 1999. The following table sets
forth for the periods indicated the high and low closing prices of the Company's
Common Stock as reported on the OTC Bulletin Board. The following quotations are
over-the-market quotations and, accordingly, reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
COMMON STOCK
QUARTER 1999 TRADE
HIGH
LOW
- ---------------------------------------------------
1st Quarter 3.00
.625
- ---------------------------------------------------
2nd Quarter 2.25
1.00
- ---------------------------------------------------
3rd Quarter 1.5625
.315
- ---------------------------------------------------
4th Quarter
- ---------------------------------------------------
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends in the foreseeable
future. The future payment of dividends is directly dependent upon future
earnings of the Company, its financial requirements and other factors to be
determined by the Company's Board of Directors, in its sole discretion. For the
foreseeable future, it is anticipated that any earnings which may be generated
from the Company's operations will be used to finance the growth of the Company,
and that cash dividends will not be paid to Common Stockholders.
<PAGE>
CONTROL OF THE COMPANY; POSSIBLE ISSUANCES OF PREFERRED STOCK
Due to the widely dispersed ownership of the issued and outstanding shares of
Common Stock of the Company and the number of shares owned by management, the
Company's officers and directors and will be able to influence the election of
all of the Company's directors and thereby control the operations of the
Company. In addition, the Board of Directors has the authority to issue up to
10,000,000 shares of preferred stock and to fix the dividend, liquidation,
conversion, redemption and other rights, preferences and limitation of such
shares without any further vote or action of the shareholders. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
preferred stock and dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or the rights of the holders of
the Company's Common Stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company. Although the Company has no
present intention to issue any additional shares of its preferred stock, there
can be no assurance that the Company will do so in the future. See Part 1, Item
8. "DESCRIPTION OF SECURITIES."
ITEM 2. LEGAL PROCEEDINGS
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. It is the opinion of management that the disposition or ultimate
resolution of such claims and lawsuits will not have a material adverse effect
on the consolidate financial position of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
T.J. Sullivan & Company is the Company's independent auditor at the present
time. Geo. S. Olive company was the auditor for the company in 1997. Upon review
by the board of directors, the company decided to change companies, based on
costs for like services. The Company has no disagreements with the reports
issued by either auditors.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In August of 1998, the Company offered and sold 4,000,000 shares of the
Company's common securities ($.01 par value) and realized, after expenses,
$995,000.00. The shares were sold for cash, directly by the Company's officers
in a Regulation D, Rule 504 offering, to only accredited investors. No
underwriter was involved.
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company will indemnify its directors and
executive officers and may indemnify its other officers, employees and agents.
The Company is also empowered under its Bylaws to enter into indemnification
agreements with its directors and officers and to purchase insurance on behalf
of any person it is required or permitted to indemnify.
There is no pending litigation or proceeding involving a director or officer of
the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
ITEM 6. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of the stockholders of the Company
during the past three years through the date of this Registration Statement.
PART F/S
The Company's financial statements for the years ending 1997 and 1998 have been
examined to the extent indicated in their reports T.J. Sullivan & Co.
independent certified accountants, and have been prepared in accordance with
generally accepted accounting principles and pursuant to Regulation S-B as
promulgated by the Securities and Exchange Commission and are included herein.
Additionally, included herein are the September 1999 interim financial
statements. Both are made a part of Part F/S of this form 10-SB.
PART III
ITEMS 1 AND 2. INDEX TO AND DESCRIPTION OF EXHIBITS
EXHIBIT NO. EXHIBIT NAME
- ----------- ------------
3(i) Certificate of Incorporation of ISM Holding, Inc.
3(i)(1) Certificate of Amendment of Certificate of
Incorporation of ISM Holding, Inc.
3(ii) Bylaws of ISM Holding, Corp.
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated Statement of income 2
Consolidated balance sheet 3
Consolidated statement of stockholders' equity (deficit) 4
Consolidated statement of cash flows 5
Notes to consolidated financial statements 6
<PAGE>
OLIVE
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
ISM Holding Corp. and Subsidiaries
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheet of ISM Holding Corp.
and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income and stockholders' equity (deficit), and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ISM
Holding Corp. and Subsidiaries at December 31, 1997, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/S/ Olive LLP
- -------------------
Indianapolis, Indiana
November 3, 1998
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Year ENDED DECEMBER 31 1997
- --------------------------------------------------------------------------------
Revenue
Sponsorship $ 4,287,651
Other, net 534,069
-------------
Total net revenue 4,821,720
-------------
Operating Expenses
Cost of racing equipment 2,475,940
Salaries and wages 1,460,664
Rent 281,403
Travel 243,751
Bad debts 201,851
Driver contracts 119,273
Payroll taxes 101,255
Other operating expenses 1,213,021
-------------
Total operating expenses 6,097,158
-------------
Operating loss (1,275,438)
Interest expense 22,228
-------------
Loss before income taxes (1,297,666)
Income taxes 105,783
-------------
NET LOSS $ (1,403,449)
=============
See notes to consolidated financial statements.
(2)
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31 1997
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSET
Cash $ 9,124
PROPERTY AND EQUIPMENT
Airplane $ 1,551,000
Transportation 171,000
Telephone and computer equipment 174,190
Furniture, fixtures, & equipment 149,812
------------
Total cost 2,046,002
Accumulated depreciation (152,505)
------------
OTHER ASSET 1,893,497
Note receivable-related party 6,000
------------
$ 1,908,621
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Lines of credit $ 300,000
Current maturities of long-term debt 578,480
Accounts payable 512,619
Accounts payable-related party 32,935
Accrued payroll and payroll taxes 129,359
Accrued federal and state income taxes 94,832
Other accrued expenses 9,957
------------
Total current liabilities $ 1,658,182
LONG TERM DEBT
Notes payable-related parties 45,000
Notes payable, net of current portion 1,316,513
------------
1,361,513
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value 1,000
Authorized-l,000 shares
Issued and outstanding-1,OOO shares
Additional paid-in capital 350,000
Accumulated deficit (1,462,074)
------------
(1,111,074)
------------
$ 1,908,621
============
See notes to consolidated financial statements.
(3)
<PAGE>
<TABLE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1,1997 1,000 $1,000 $ (31,125) $ (30,125)
Net Loss (1,403,449) (1,403,449)
Capital contribution $350,000 350,000
Payment of dividends
($27.50 Per share) (27,500) (27,500)
----------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 1,000 $1,000 $350,000 $(1,462,074) $(1,111,074)
================================================================
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE>
<TABLE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATING ACTIVITIES
Net loss $( 1,403,449)
Adjustments to reconcile net loss to net cash used by operating activities
Capital contribution in the form of racing equipment 350,000
Depreciation 131,276
Bad debt expense 201,851
Changes in assets and liabilities
Accounts receivable (133,721)
Accounts Payable 502,854
Accrued expenses 213,414
-------------
Net cash used by operating activities $ (137,775)
INVESTING ACTIVITIES
Purchases of property and equipment (458,857)
Issued notes receivable--related party (6,000)
Payments on notes receivable 17,054
-------------
Net cash used by investing activities (447,803)
FINANCING ACTIVITIES
Cash overdraft (1,791)
Proceeds from lines of credit 300,000
Proceeds from long-term debt 350,000
Reduction of long-term debt-related parties (20,000)
Reduction of long-term debt (6,007)
Dividends paid (27,500)
-------------
Net cash provided by financing activities 594,702
-------------
NET CHANGE IN CASH 9,124
CASH, BEGINNING OF YEAR 0
-------------
CASH, END OF YEAR $ 9,124
=============
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest $ 12,271
Cash paid for income taxes 31,565
Equipment acquisition through long-term debt 1,551,000
Capital contribution in the form of racing equipment 350,000
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ISM Holding Corp. (the Company) is a privately owned company incorporated in
Indianapolis, Indiana in 1997. The Company's "ore businesses include athlete
management and automobile racing. ISM Holding Corp. is the parent company of ISM
Racing Corp., which operates both NASCAR and Indy Racing League (IRL) Teams, and
three other wholly owned subsidiaries, ISM Management Corp., ISM Marketing
Corp., and ISM Aviation Corp. All material intercompany accounts and
transactions have been eliminated in consolidation.
Prior to 1997, the business was conducted under International Sports Management,
Inc. (ISM, Inc.). Its business included athlete management and obtaining
sponsorship agreements for various individuals and entities. ISM Inc. continues
to exist, however all transactions beginning October 1997 are those of ISM
Holding Corp. The NASCAR and IRL Teams began operations in June and October
1997, respectively.
The Company funds its operations primarily through sponsorship agreements and
various debt instruments. The NASCAR Team's primary sponsor is McIlhenny Co.,
which is recognized for its tabasco sauce and related products. The IRL Team did
not have a primary sponsor at the end of 1997; however, various associate
sponsors entered into agreements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH
Cash consists of bank deposits in federally insured accounts. At December 31,
1997, the Company's cash accounts exceeded federally insured limits by
approximately $8,000.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line and accelerated methods over a useful life of five years. Race
cars and car parts are expensed in the year purchased due to the short life span
of such assets. This is consistent with accounting practices within the racing
industry. When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged o income as incurred; significant renewals
and improvements are capitalized.
BAD DEBTS
The company uses the reserve method of accounting for bad debts on receivables.
(6)
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Federal income taxes have been provided only through October 1, 1997 because at
that date the stockholders elected to be treated as an S Corporation for income
tax purposes as provided in Section 1362(a) of the Internal Revenue Code. As
such, the corporate income or loss and credits are passed to the stockholders
and combined with their personal income and deductions to determine taxable
income on their individual tax returns. Income taxes included in these
consolidated financial statements are for income taxes incurred prior to
election as an S Corporation at October 1, 1997.
SPONSORSHIP REVENUE
The Company obtains a significant amount of financing through sponsorship
agreements. Various commercial enterprises will fund the Company's automobile
racing activities (in the form of cash or in-kind contributions) in exchange for
advertising on Company race cars and other equipment. Total in-kind
contributions recognized in sponsorship revenue for the year ended December
31,1997 were $295,000. An equal and corresponding amount was recognized in costs
of racing equipment.
NOTE 2 -LINE OF CREDIT
The Company has $200,000 and $100,000 revolving lines of credit that are due to
expire in October and November 1998, respectively. The lines are now due on
demand. At December 31, 1997, there was a total of $300,000 borrowed against
these lines. The lines are collateralized by substantially all of the Company's
assets and are guaranteed by two stockholders. Interest on the lines varies with
the bank's prime rate, which was 8.5% on December 31, 1977, and is payable
monthly.
NOTE 3 -LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 1997
- --------------------------------------------------------------------------------------------
<S> <C>
Note payable -7.5%, payable in monthly payments of $18,000 including interest,
final payment due November 20, 2000, collateralized by an airplane and all
related aircraft equipment $ 1,469,993
Note payable -5%, payable at maturity, final payment due January 18, 1998,
collateralized by substantially all Company assets and guaranteed by two
stockholders 350,000
Note payable -bearing no interest, payable in two monthly payments of $37,500,
final payment due February 1998, collateralized by an airplane and all
related aircraft equipment 75,000
------------
Current maturities: 1,894,993
(578,480)
------------
$ 1,316,513
============
</TABLE>
(7)
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The future maturities of long-term debt are as follows:
YEARS ENDING DECEMBER 31
- --------------------------------------------------------------------------------
1999 $ 91,666
2000 1,224,847
-----------
$1,316,513
===========
NOTE 4 -LEASES
The Company leases operating facilities and various items of equipment and
vehicles under noncancellable operating lease arrangements. These leases expire
at various dates through 2000. Rental expense for these leases included in the
income statement for the year ended December 31, 1997 was $281,403.
The Company also leases certain operating facilities and equipment on a
month-to-month basis approximating $15,000 per month. Beginning November 1998,
the Company will lease only operating facilities month-to-month at a rate of
$3,500 per month.
Minimum annual rental payments required under operating leases that have
remaining terms in excess of one year as of December 31, 1997 are as follows:
YEARS ENDING DECEMBER 31
- --------------------------------------------------------------------------------
1998 $ 529,488
1999 238,062
2000 87,201
-----------
$ 854,751
===========
NOTE 5 -INCOME TAX
Income tax expense consists of the following:
YEAR ENDED DECEMBER 31 1997
- --------------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $ 84,734
State 21,049
-----------
Total income tax expense $ 105,783
===========
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $(441,206)
Nondeductible expenses 5,998
Effect of state income taxes 13,892
Effect of change to S-Corp. status 527,099
----------
Actual tax expense $ 105,783
==========
(8)
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -EMPLOYEE BENEFITS
The Company maintains a 401(k) defined contribution plan for the benefit of
substantially all of its employees, which allows for both employee and Company
contributions. The Company contribution consists of a matching contribution of
50% of employee contributions. The Company's contributions to the plan totaled
$18,824 for 1997.
NOTE 7 -RELATED PARTY TRANSACTIONS
At December 31 1997, the Company had outstanding notes payable to two of its
stockholders totaling $45,000. and an outstanding note receivable from one
stockholder of $6,000. These notes are unsecured, payable upon demand, and bear
no interest. However, payment is not expected within the next fiscal year,
therefore amounts are classified as non-current.
NOTE 8 -CONTINGENT LIABILITIES
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. It is the opinion of management that the disposition or ultimate
resolution of such claims and lawsuits will not have a material adverse effect
on the consolidated financial position of the Company.
NOTE 9 -YEAR 2000
The Year 2000 issue is the result of potential problems with computer systems or
any equipment with computer chips that store the year portion of the date as
just two digits (e.g., 98 for 1998). Systems using this two-digit approach may
not be able to determine whether "00" represents the Year 2000 or 1900. The
problem, if not corrected, may make those systems fail altogether or, even
worse, allow them to generate incorrect calculations causing a disruption of
normal operations.
An assessment o the impact of the Year 2000 issue on the Company's computer
systems has not formally begun. The scope of such a project would include other
operational and environmental systems since they may be impacted if embedded
computer chips control the functionality of those systems.
The Company relies on third-party vendors and service providers for some of its
data processing capabilities and to maintain its computer systems.
Communications with these providers have not been initiated to assess the Year
2000 readiness of their products and services. Thus, the Company can give no
guarantee that the systems of these service providers and vendors on which the
Company's systems rely will be timely renovated.
Additionally, the company has yet to implement a plan to manage the potential
risk posed by the impact of the Year 2000 issue on its major sponsors. However,
losses attributed to the Year 2000 issue are not anticipated to be material to
the Company. However, there can be no guarantee that any loss incurred will be
immaterial.
The total cost to the Company of Year 2000 readiness activities is not
anticipated to be material to its financial position or result of operations in
any given year. No other specific projects have been deferred due to this issue.
(9)
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based upon current information, management believes that the Year 2000 issue
will not pose significant operational problems for its computer systems. This
belief is based on the ability of those vendors and service providers to
renovate, in a timely manner, the products and services on which the Company's
systems rely, including the Company's accounting software. However, the Company
can give no guarantee that these systems will be renovate in a timely manner.
NOTE 10 -CONCENTRATIONS
The Company Purchases many significant components (such as chassis and engine
parts) for its race cars from a limited number suppliers. Although several other
suppliers manufacture such components and management believes that the
components could be obtained from those sources on comparable terms, a change in
suppliers could cause operating delays and adversely affect the profitability
and short-term operating cash flows of the Company.
As noted, the company obtains a significant amount of financing through
sponsorship agreements. The sponsorship agreements typically have lives of one
to several years. The Company must continually renew such agreements or enter in
new ones in order to remain in operation without an adverse impact on the
organization.
NOTE 11 -INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT INDUSTRIES
<TABLE>
<CAPTION>
RACING OTHER ADJUSTMENTS/
YEAR ENDED DECEMBER 31 INDUSTRY INDUSTRIES CORPORATE ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue from unaffiliated entities $ 4,303,961 $ 517,759 $ 4,821,720
Intersegment fees $ 493,500 $ (493,500)
-------------------------------------------------------------------------------
Total net revenue $ 4,303,961 $ 517,759 $ 493,500 $ (493,500) $ 4,821,720
===============================================================================
Operating income (loss) $ (612,909) $ 406,617 $(1,069,146) $(1,275,438)
================================================================
Interest expense (22,228)
------------
Loss before income taxes $(1,297,666)
============
Identifiable assets a December 31, 1997 $ 516,544 $ 0 $ 1,671,384 $ (279,307) $ 1,908,621
===============================================================================
</TABLE>
The Company operates principally in the racing industry. Operations in the
racing industry and other industries are described in Note 1.
Operating income (loss) is equal to total net revenue less operating expenses.
In computing operating income (loss), none of the following items has been
deducted: interest expense and income taxes. Depreciation for the racing
industry, other industries and corporate, respectively, was $45,779, $0 and
$85,497. Capital expenditures for the racing industry, other industries and
corporate were $458,857, $0 and $1,551,000, respectively.
(10)
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Identifiable assets by industry are those assets that are used in the Company's
operations in each industry. Corporate assets primarily include an airplane and
other furniture and equipment, receivables, and cash. To reconcile industry
information with consolidated amounts, the following eliminations have been
made: $279,307 in intercompany receivables.
NOTE 12 -SUBSEQUENT EVENTS
There have been significant changes to the Company's corporate structure during
1998. During July, the Company sold ten shares of ISM Racing Corp. (Racing
Corp.) to the owner of Tyler Jets and Tyler Jet Motorsports. Simultaneously,
Racing Corp. redeemed all but ten of its shares owned by the Company. The
Company now owns 50% of the outstanding shares of the Racing Corp. Presently the
Company receives a 15% management fee as stated in the McIlhenny contract, but
does not participate in the day-to-day operations of the NASCAR Team However,
Bob Hancher, a major stockholder, officer and director of ISM Holding Corp.,
will continue his directorship over the racing operations.
All racing assets and liabilities were transferred the Company in the stock
redemption. The assets will be used to capitalize a new entity named ISM
Motorsports Corp. (ISM Motorsports). ISM Motorsports will operate as a C
corporation. All other of the Company's subsidiaries, except ISM, Inc., will
merge into the Company, and the merged entity will operate as a C Corporation
during the latter part of 1998.
The Company's Aircraft has been placed for sale during 1998.
In January 1998, the Company sold a trailer and leased it back under a
three-year operating lease. The monthly payment under the lease is $1,261 for a
total of $45,396 over three years. In April 1998, the Company sold an additional
trailer and leased it back under similar terms, with the exception of the
monthly payment, which is $1,600 per month for a total of $57,600 over three
years.
In February 1998, the Company issued a $30,000 note payable to a stockholder.
The loan is unsecured and non-interest bearing with no fixed terms of repayment.
In May 1998, the Company issued a $650,000 note payable to a bank due November
1998, and in July 1998, the Company issue a $750,000 note payable to a different
bank due January 1999. Interest on both notes varies with the respective banks'
prime rates and is payable monthly. The loans are collateralized by
substantially all assets of the Company and personal guarantees by two
stockholders. The former note has a first lien on the Company's assets and the
latter has a second lien.
In the first quarter of 1998, the Company requested an additional $100,000 line
of credit due November 1998. The bank agreed to increase the existing line of
credit to $200,000. The maturity date was unchanged, and it is now due on
demand.
A $200,000 private placement (Section 504(D)) took place in August 1998 for
400,000 shares at $.50 per share.
(11)
<PAGE>
Index to Financial Statements
Independent Auditors' Report ..........................................3
1998 Consolidated Income Statement.....................................4
1998 Consolidated Balance Sheet........................................5
1998 Statements of Stockholder's Equity................................6
1998 Statements of Cash Flows..........................................7
Notes to Financial Statements..........................................8
September 1999 Consolidated Statement of Income .......................10
September 1999 Consolidated Balance Sheet..............................11
Notes to Consolidated Financial Statements.............................12
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ISM Holding
By: /s/ L.G. Hancher Jr.
------------------------------
L.G. Hancher Jr. C.E.O.
Date: April 17, 2000
<PAGE>
ISM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements
DECEMBER 31, 1998
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Consolidated Statement of Income 4
Consolidated Balance Sheet 5
Consolidated Statement of Stockholders' Equity (Deficit) 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8
2
<PAGE>
TJ SULLIVAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
ISM Holding Corp. and Subsidiaries
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheet of ISM Holding Corp.
and Subsidiaries as of December 31, 1998, and the related consolidated
statements of income and stockholders' equity (deficit), and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ISM
Holding Corp. and Subsidiaries at December 31, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ TJ Sullivan & Company
Indianapolis, Indiana
November 12, 1999
3
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31
1998
- --------------------------------------------------------------------------------
Revenue
Sponsorship $ 8,265,720
Other, net 1,006,419
-------------
Total net revenue 9,272,139
Operating Expenses
Cost of racing equipment 4,142,380
Salaries and wages 1,853,666
Rent 251,164
Travel 1,189,441
Driver contracts 1,160,901
Payroll taxes 135,322
Other operating expenses 2,642,896
-------------
Total operating expenses 11,375,770
-------------
Operating Loss (2,103,631)
Interest Expense 266,185
-------------
NET LOSS $ (2,369,816)
=============
See notes to Consolidated Financial Statements.
4
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
YEAR ENDED DECEMBER 31
1998
- --------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSET
Cash $ 30,938
PROPERTY AND EQUIPMENT
Transportation equipment $ 40,945
Telephone and computer equipment 174,190
Furniture, fixtures, & equipment 115,207
------------
Total Cost 330,342
Accumulated depreciation (214,414)
------------
115,928
------------
$ 146,866
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Lines of credit $ 1,049,458
Note payable 750,000
Accounts payable 578,840
Accounts payable - related party 6,929
Other accrued expenses 31,755
-------------
Total current liabilities $ 2,416,982
LONG-TERM DEBT
Notes payable - related parties 22,500
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value 162,575
Authorized - 50,000,000 shares
Issued and outstanding - 16,257,480 shares
Additional paid-in capital 1,376,699
Accumulated deficit (3,831,890)
-------------
(2,292,616)
------------
$
$ 146,866
============
See notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NUMBER ADDITIONAL
OF COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES: JANUARY 1, 1998 100,000 $ 1,000 $ 350,000 $(1,462,074) $(1,111,074)
Net loss (2,369,816) (2,369,816)
Capital Contribution 16,157,480 161,575 1,026,699 1,188,274
-------------------------------------------------------------------------
BALANCES: DECEMBER 31, 1998 16,257,480 $162,575 $1,376,699 $(3,831,890) ($2,292,616)
==============================================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
6
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31
1998
- -----------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net loss $(2,369,816)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation 97,751
Gain on sale of assets (35,842)
Changes in assets and liabilities
Accounts payable 40,215
Accrued expenses (202,393)
------------
Net cash by operating activities $(2,470,085)
INVESTING ACTIVITIES
Sales of property & equipment 1,715,660
Payments on notes receivable - related party 6,000
------------
Net cash by investing activities 1,721,660
FINANCING ACTIVITIES
Proceeds from stock offering 1,188,274
Reduction of long-term debt - related parties (22,500)
Reduction of debt (395,535)
------------
Net cash provided by financing activities 770,239
------------
NET CHANGE IN CASH 21,814
CASH: BEGINNING OF YEAR 9,124
------------
CASH: END OF YEAR $ 30,938
============
</TABLE>
See notes to Consolidated Financial Statements.
7
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ISM Holding Corp. (the Company) became a public company, receiving its
OTCBB:ISMH symbol December 4, 1998 and began trading January 4, 1999. The
Company's core business is sponsorship solicitation for Company owned teams, or
for others. All material intercompany transactions between subsidiaries: ISM
Marketing, ISM Management, ISM Motorsports, ISM Racing, and ISM Aviation have
been eliminated in this consolidation.
The Company funds its operations through corporate sponsorship for its teams and
obtains sponsorship commissions from various people and entities. The
preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
effect reported amounts of assets, liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results may
differ from those estimates.
CASH
Cash consists of bank deposits in federally insured accounts.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line methods over a useful life of three to seven years. Racecars and
car parts are expensed in the year purchased due to the short life span of such
assets. This is consistent with accounting practices and standards within the
racing industry. When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged to income as incurred; significant renewals
and improvements are capitalized.
8
<PAGE>
INCOME TAXES
The Company has elected to be treated as an S - Corporation for income tax
purposes as provided in Section 1362(a) of the Internal Revenue Code. As such,
the corporate income or loss and credits are passed to the stockholders and
combined with their personal income and deductions to determine taxable income
on their individual tax returns.
SPONSORSHIP REVENUE
The Company obtains a significant amount of financing through sponsorship
agreements. Various commercial enterprises will fund the Company's automobile
racing activities (in the form of cash or in-kind contributions) in exchange for
advertising on Company racecars and other equipment. Total in-kind contributions
recognized in sponsorship revenue for the year ended December 31, 1998 were
$542,864. An equal and corresponding amount was recognized in costs of racing
equipment.
NOTE 2 - LINES OF CREDIT
The Company has $650,000, $200,000, and $200,000 revolving lines of credit that
have expired. The lines are now due on demand. At December 31, 1998, there was a
total of $1,049,458 borrowed against these lines. The lines are collateralized
by substantially all of the Company's assets and are guaranteed by two
stockholders. Interest on the lines was 13.75% on December 31, 1998, and is
payable monthly.
NOTE 3 - NOTE PAYABLE
The Company has a $750,000 90-day note payable that has matured at December 31,
1998. The note is collateralized by substantially all of the Company's assets
and is guaranteed by two stockholders. Interest is 8.5% and is payable monthly.
NOTE 4 - LEASES
The Company leases operating facilities and various items of equipment and
vehicles under noncancellable operating lease arrangements. These leases expire
at various dates during 1999 and 2000. Rental expense for these leases included
in the income statement for the year ended December 31, 1998 was $342,688.
During 1999 all leases, with the exception of the operating facility and one
vehicle, were transferred to eliminate liability for the Company. No new leases
will be entered into without Board of Director approvals.
9
<PAGE>
Minimum annual rental payments required under operating leases that have
remaining terms in excess of one year as of December 31, 1998 are as follows:
YEARS ENDING DECEMBER 31 1998
- --------------------------------------------------------------------------------
1999 $ 56,920
2000 $ 68,304
---------
$125,224
=========
NOTE 5 - EMPLOYEE BENEFITS
The employee benefit plan for company contribution to the 401K plan was
cancelled in June of 1999.
NOTE 6 - RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company had an outstanding note payable to one of its
stockholders totaling $22,500. This note is unsecured, payable upon demand, and
bears no interest. However, payment is not expected within the next fiscal year,
therefore the amount is classified as noncurrent.
NOTE 7 - CONTINGENT LIABILITIES
The Company is subject to claims and lawsuits that arise primarily in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the consolidate financial position of the Company.
NOTE 8 - SALE OF AIRCRAFT
In December 1998 the Company sold a Mitsubishi MU-300 airplane for $1,575,000.
The sales price, reduced by closing costs, equaled the Company's cost basis in
the airplane, therefore no gain or loss was recognized.
NOTE 9 - YEAR 2000
The Year 2000 issue is the result of potential problems with computer systems or
any equipment with computer chips that store the year portion of the date as
just two digits (e.g., 99 for 1999). Systems using this two-digit approach may
not be able to determine whether "00" represents the Year 2000 or 1900. The
problem, if not corrected, may make those systems fail altogether or, even
worse, allow them to generate incorrect calculations causing a disruption of
normal operations.
10
<PAGE>
An assessment of the impact of the Year 2000 issue on the Company's computer
systems has not formally begun. The scope of such a project would include other
operational and environmental systems since they may be impacted if embedded
computer chips control the functionality of those systems.
The Company relies on third-party vendors and service providers for some of its
data processing capabilities and to maintain its computer systems.
Communications with these providers have not been initiated to assess the Year
2000 readiness of their products and services. Thus, the Company can give no
guarantee that the system of these service providers and vendors on which the
Company's systems rely will be timely renovated.
Additionally, the Company has yet to implement a plan to manage the potential
risk posed by the impact of the Year 2000 issue on its major sponsors. However,
losses attributed to the Year 2000 issue are not anticipated to be material to
the Company. However, there can be no guarantee that any loss incurred will be
immaterial.
The total cost to the Company of Year 2000 readiness activities is not
anticipated to be material to its financial position or results of operations in
any given year. No other specific projects have been deferred due to this issue.
Based upon current information, management believes that the Year 2000 issue
will not pose significant operational problems for its computer systems. This
belief is based on the ability of those vendors and service providers to
renovate, in a timely manner, the products and services on which the Company's
systems rely, including the Company's accounting software. However, the Company
can give no guarantee that these systems will be renovated in a timely manner.
NOTE 10 - CONCENTRATIONS
The Company purchases significant components (such as chassis and engine parts)
for its racecars from a limited number of suppliers. Although few suppliers
exist, the Company believes components can be purchased from others on
comparable terms and prices without adversely affecting the Company.
As noted, the Company obtains a significant amount of financing through
sponsorship agreements. The sponsorship agreements typically have lives of one
to several years. The Company must continually renew such agreements or obtain
new ones in order to remain in operations without an adverse impact on the
organization.
11
<PAGE>
NOTE 11 - INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT INDUSTRIES
<TABLE>
<CAPTION>
RACING OTHER ADJUSTMENTS/
YEAR ENDED DECEMBER 31 INDUSTRY INDUSTRIES CORPORATE ELIMINATIONS CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue from unaffiliated entities $8,265,720 $1,006,419 $9,272,139
Intersegment fees $408,401 $(408,401)
-------------------------------------------------------------------------
Total net revenue $8,265,720 $1,006,419 $408,401 $(408,401) $9,272,139
=========================================================================
Operating income (loss) $(1,616,160) $ (499,462) $ 11,991 $(2,103,631)
=========================================================
Interest Expense (266,185)
--------------
Net Loss $(2,369,816)
==============
Identifiable assets at December 31,
1998 $ 293,127 $ 0 $ 37,215 $ 0 $ 330,342
=========================================================================
</TABLE>
The Company operates principally in the racing industry. Operations in the
racing industry and other industries are described in Note 1.
Operating income (loss) is equal to total net revenue less operating expenses.
In computing operating income (loss), interest expense has not been deducted.
Depreciation for the racing industry, other industries and corporate,
respectively, was $87,613, $0 and $10,138. Capital expenditures for the racing
industry, other industries and corporate were $33,840, $0 and $0 respectively.
NOTE 12 - SUBSEQUENT EVENTS
There have been significant changes to the Company's corporate structure in 1998
and 1999. The Company redeemed all its share in Racing Corp. to Tyler Jet
Motorsports in August of 1998. The Company no longer owns the Nascar team. The
Company sells sponsorships in Nascar through its marketing company, ISM
Marketing, Inc.
The Company sold its aircraft without gain or loss during 1998 and the aircraft
corporation was dissolved in early 1999.
12
<PAGE>
NOTE - 12 SUBSEQUENT EVENTS (CONTINUED)
During 1999 the Company has sold an additional $1,871,825 of common stock as of
November 10, 1999. The proceeds were primarily used to reduce debt.
In 1999 the Company has made principal payments against the lines of credit of
approximately $800,000 and has reached an agreement with the lender to pay the
remaining balance in seven monthly installments of $25,000 each with a $100,000
final payment in April 2000.
The Company is currently negotiating payment arrangements with National City
Bank, the holder of the $750,000 note. The Company's management believes
satisfactory arrangements will be agreed upon by the end of 1999.
13
<PAGE>
ISM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 1999
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated Statement of Income 3
Consolidated Balance Sheet 4
Notes to Consolidated Financial Statements 5
2
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Unaudited
3 QUARTERS ENDED
SEPTEMBER 30 1999
- --------------------------------------------------------------------------------
Revenue
Sponsorship $ 1,837,993
Other, net 229,443
------------
Total net revenue 2,067,424
Operating Expenses
Cost of racing equipment 509,405
Salaries and wages 380,112
Rent 114,300
Travel 35,549
Driver contracts 318,400
Payroll taxes 68,156
Other operating expenses 620,246
------------
Total operating expenses 2,046,168
Operating Income (Loss) 21,256
Interest Expense 93,265
------------
NET LOSS $ ( 72,009)
============
See notes to Consolidated Financial Statements.
3
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
QUARTER ENDED SEPTEMBER
1999
- --------------------------------------------------------------------------------
ASSETS
<CAPTION>
<S> <C> <C>
CURRENT ASSET
Cash $ 19,129
PROPERTY AND EQUIPMENT
Transportation equipment $ 246,235
Telephone and computer equipment 186,140
Furniture, fixtures, & equipment 126,260
-----------
Total Cost 558,635
Accumulated depreciation (268,120)
-----------
$ 309,644
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Lines of credit $ 779,263
Note payable 297,571
Accounts payable 305,260
Accounts payable - related party 6,929
Other accrued expenses 17,120
----------
Total current liabilities $ 1,406,143
LONG-TERM DEBT
Notes payable - related parties 22,500
------------
$ 2,947,475
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value 162,575
Authorized - 50,000,000 shares
Issued and outstanding - 16,257,480 shares
Additional paid-in capital 2,947,475
Accumulated deficit ( 3,903,899)
------------
( 956,424)
------------
$ 309,644
============
See notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ISM Holding Corp. (the Company) became a public company, receiving its
OTCBB:ISMH symbol December 4, 1998 and began trading January 4, 1999. The
Company's core business is sponsorship solicitation for Company owned teams, or
for others. All material intercompany transactions between subsidiaries: ISM
Marketing, ISM Management, ISM Motorsports, ISM Racing, have been eliminated in
this consolidation.
The Company funds its operations through corporate sponsorship for its teams and
obtains sponsorship commissions from various people and entities. The
preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
effect reported amounts of assets, liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results may
differ from those estimates.
CASH
Cash consists of bank deposits in federally insured accounts.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line methods over a useful life of three to seven years. Racecars and
car parts are expensed in the year purchased due to the short life span of such
assets. This is consistent with accounting practices and standards within the
racing industry. When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged to income as incurred; significant renewals
and improvements are capitalized.
5
<PAGE>
INCOME TAXES
The Company has elected to be treated as an S - Corporation for income tax
purposes as provided in Section 1362(a) of the Internal Revenue Code. As such,
the corporate income or loss and credits are passed to the stockholders and
combined with their personal income and deductions to determine taxable income
on their individual tax returns.
SPONSORSHIP REVENUE
The Company obtains a significant amount of financing through sponsorship
agreements. Various commercial enterprises will fund the Company's automobile
racing activities (in the form of cash or in-kind contributions) in exchange for
advertising on Company racecars and other equipment. Total in-kind contributions
recognized in sponsorship revenue for the year ended September 33,1999 were
$110,655. An equal and corresponding amount was recognized in costs of racing
equipment.
NOTE 2 - LINES OF CREDIT
The Company has revolving lines of credit that have expired. The lines are now
due on demand. At September, there was a total of $329,458 borrowed against
these lines. The lines are collateralized by substantially all of the Company's
assets and are guaranteed by two stockholders. Interest on the lines was 13.75%
on September 30, and is payable monthly.
NOTE 3 - NOTE PAYABLE
The Company has a $750,000 90-day note payable that has matured at September 30.
The note is collateralized by substantially all of the Company's assets and is
guaranteed by two stockholders. Interest is 8.5% and is payable monthly.
NOTE 4 - LEASES
The Company leases operating facilities and various items of equipment and
vehicles under noncancellable operating lease arrangements. These leases expire
at various dates during 1999 and 2000. Rental expense for these leases included
in the income statement for the year ended September 30 was $114,300.
During 1999 all leases, with the exception of the operating facility and one
vehicle, were transferred to eliminate liability for the Company. No new leases
will be entered into without Board of Director approvals.
Minimum annual rental payments required under operating leases that have
remaining terms in excess of one year as of December 31, 1998 are as follows:
YEARS ENDING DECEMBER 31 1998
- --------------------------------------------------------------------------------
1999 $ 56,920
2000 $ 68,304
---------
$125,224
=========
NOTE 5 - EMPLOYEE BENEFITS
The employee benefit plan for company contribution to the 401K plan was
cancelled in June of 1999.
NOTE 6 - RELATED PARTY TRANSACTIONS
At September 30, the Company had an outstanding note payable to one of its
stockholders totaling $22,500. This note is unsecured, payable upon demand, and
bears no interest. However, payment is not expected within the next fiscal year,
therefore the amount is classified as noncurrent.
NOTE 7 - CONTINGENT LIABILITIES
The Company is subject to claims and lawsuits that arise primarily in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the consolidate financial position of the Company.
NOTE 8 - YEAR 2000
The Year 2000 issue is the result of potential problems with computer systems or
any equipment with computer chips that store the year portion of the date as
just two digits (e.g., 99 for 1999). Systems using this two-digit approach may
not be able to determine whether "00" represents the Year 2000 or 1900. The
problem, if not corrected, may make those systems fail altogether or, even
worse, allow them to generate incorrect calculations causing a disruption of
normal operations.
An assessment of the impact of the Year 2000 issue on the Company's computer
systems has not formally begun. The scope of such a project would include other
operational and environmental systems since they may be impacted if embedded
computer chips control the functionality of those systems.
The Company relies on third-party vendors and service providers for some of its
data processing capabilities and to maintain its computer systems.
Communications with these providers have not been initiated to assess the Year
2000 readiness of their products and services. Thus, the Company can give no
guarantee that the system of these service providers and vendors on which the
Company's systems rely will be timely renovated.
7
<PAGE>
Additionally, the Company has yet to implement a plan to manage the potential
risk posed by the impact of the Year 2000 issue on its major sponsors. However,
losses attributed to the Year 2000 issue are not anticipated to be material to
the Company. However, there can be no guarantee that any loss incurred will be
immaterial.
The total cost to the Company of Year 2000 readiness activities is not
anticipated to be material to its financial position or results of operations in
any given year. No other specific projects have been deferred due to this issue.
Based upon current information, management believes that the Year 2000 issue
will not pose significant operational problems for its computer systems. This
belief is based on the ability of those vendors and service providers to
renovate, in a timely manner, the products and services on which the Company's
systems rely, including the Company's accounting software. However, the Company
can give no guarantee that these systems will be renovated in a timely manner.
NOTE 9 - CONCENTRATIONS
The Company purchases significant components (such as chassis and engine parts)
for its racecars from a limited number of suppliers. Although few suppliers
exist, the Company believes components can be purchased from others on
comparable terms and prices without adversely affecting the Company.
As noted, the Company obtains a significant amount of financing through
sponsorship agreements. The sponsorship agreements typically have lives of one
to several years. The Company must continually renew such agreements or obtain
new ones in order to remain in operations without an adverse impact on the
organization.
NOTE 10 - SUBSEQUENT EVENTS
During 1999 the Company has sold an additional $1,871,825 of common stock as of
November 10, 1999. The proceeds were primarily used to reduce debt.
In October 1999, Gary D. Sallee, Board Member and Co-Founder left the company to
return to his law practice. He was replaced by an outside director. Mr. Hancher,
Co-Founder, Chairman and C.E.O. will assume the responsibilities.
In 1999 the Company has made principal payments against the lines of credit of
approximately $800,000 and has reached an agreement with the lender to pay the
remaining balance in seven monthly installments of $25,000 each with a $100,000
final payment in April 2000.
The Company is currently negotiating payment arrangements with National City
Bank, the holder of the $750,000 note. The Company's management believes
satisfactory arrangements will be agreed upon by the end of 1999.
8
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
ISM HOLDING CORP.
I, SUE ANNE GILROY, Secretary of State of Indiana, hereby certify that Articles
of Incorporation of the above corporation have been presented to me at my of
office accompanied by the fees prescribed by law; that I have found such
Articles conform to law; all as prescribed by the provisions of the Indiana
Business Corporation Law, as amended.
NOW, THEREFORE, I hereby issue to such corporation this Certificate of
Incorporation, and further certify that its corporate existence will, begin June
25, 1997.
In Witness Whereof, I have hereunto set
[STATE OF INDIANA my hand and affixed the seal of the State
HERE] of Indiana, at the City of Indianapolis,
this Twenty-fifth day of June, 1997.
/s/ SUE ANNE GILROY
---------------------------------------
SUE ANNE GILROY, Secretary of State
/S/ Deputy
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
ARTICLES OF AMENDMENT
To Whom These Presents Come, Greeting:
WHEREAS, there has been presented to me at this office, Articles of Amendment
for:
ISM HOLDING CORP.
and said Articles of Amendment have been prepared and signed in accordance with
the provisions of the Indiana Business Corporation Law, as amended.
NOW, THEREFORE, I, SUE ANNE GILROY, Secretary of State of Indiana, hereby
certify that I have this day filed said articles in this office.
The effective date of these Articles of Amendment is July 29, 1998.
[STATE OF INDIANA In Witness Whereof, I have hereunto set my
SEAL HERE] hand and affixed the seal of the State of
Indian, at the City of Indianapolis, this
Twenty-ninth day of July, 1998
/s/ SUE ANNE GILROY
---------------------------------------
SUE ANNE GILROY, Secretary of State
/s/ Deputy
<PAGE>
APPROVED
AND
FILED
BY SECRETARY OF STATE
ARTICLES OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
ISM HOLDING CORP.
-----------------
The undersigned officers of ISM Holding Corp., (hereinafter referred to as
the "Corporation") existing pursuant to the provisions of the Indiana Business
Corporation Law as amended, (hereinafter referred to as the "Act"), desiring to
give notice of corporate action effectuating amendment of certain provisions of
its Articles of Incorporation, certify the following facts:
AMENDMENTS
----------
The exact text of Article IV of the Articles of Incorporation of the
Corporation is now as follows:
ARTICLE IV
----------
AUTHORIZED SHARES
-----------------
4.01. NUMBER OF SHARES. The total number of shares of which the
Corporation has authority to issue is Fifty Million (50,000,000).
4.02. TERMS OF SHARES.
a. COMMON STOCK. The total number of shares of common stock which
the Corporation is authorized to issue is Forty Million (40,000,000) and the par
value of each share of such common stock is one-hundredth of one cent ($.001)
for an aggregate value of Forty Thousand Dollars ($40,000.00).
b. PREFERRED STOCK. The total number of shares of preferred stock
which the Corporation is authorized to issue is Ten Million (10,000,000) and the
par value of each share of such preferred stock is one-hundredth of one cent
($.001) for an aggregate value of Ten Thousand Dollars ($10,000.00). The voting
powers, designations, preferences and relative, participating, optional or other
rights, if any, and the qualifications, limitations or restrictions, if any, of
the preferred stock, in one or more series, shall be fixed by one or more
resolutions providing for the issuance of such stock adopted by the
Corporation's board of directors (the "Board of Directors"), and the Board of
Directors is expressly vested with authority to adopt one or more such
resolutions.
The following Articles are hereby added to the Articles of Incorporation:
<PAGE>
ARTICLE VII
-----------
REDEMPTION
----------
7.01. Redemption. (a) Notwithstanding any other provisions of this
Articles of Incorporation to the contrary, outstanding shares of stock of this
Corporation held by Disqualified Holders (as hereinafter defined in subdivision
(ii) of paragraph (b) of this Article VII) shall always be subject to redemption
by this Corporation, by action of the Board of Directors, to the extent
necessary, in the sole judgement of the Board of Directors, to (I) prevent
Directors, to prevent the loss of; (ii) secure the renewal or reinstatement of;
or (iii) prevent the Corporation from being required to apply in the name of
such holder or holders for, any license or franchise from any governmental
agency held by this Corporation or any of its subsidiaries to conduct any
portion of the business of the Corporation or any of its subsidiaries, which
license or franchise is conditioned upon some or all of the holders of the stock
of this Corporation possessing prescribed qualifications. The terms and
conditions of such redemption shall be as follows:
(i) the redemption price of the shares to be redeemed
pursuant to this Article VIII shall be equal to the lesser of (A) the Fair
Market Value (as hereinafter defined in subdivision (I) of paragraph (b) of this
Article VII) of such shares and (B) the price paid for such shares by the
Disqualified Holder, provided that such Holder purchased such shares within the
year preceding the Redemption Date;
(ii) the redemption price of such shares may be paid in
cash. Redemption Securities (as hereinafter defined in subdivision (iv) of
paragraph (b) of this Article VII) or any combination thereof;
(iii) if less than 11 of the shares held by Disqualified
Holders are to be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the Board of Directors, which may include
selection first of the most recently purchased shares thereof, selection by lot,
on a pro rata basis, or selection in any other manner determined by the Board of
Directors;
(iv) at least ten days written notice of the Redemption Date
(as defined in subdivision (iii) of paragraph (b) of this Article VII) shall be
given to the record holders of the shares selected to be redeemed (unless waived
in writing by any such holder), provided that the Redemption Date may be the
date on which written notice shall be given to such record holders if the case
or Redemption Securities necessary to effect the redemption shall have been
deposited in trust for the benefit of such record holders and subject to
immediate withdrawal by them upon surrender of the stock certificates for their
shares to be released;
(v) on the Redemption Date, unless this Corporation shall
have defaulted in paying or setting aside for payment the cash or Redemption
Securities payable upon such
<PAGE>
redemption, any and all rights of Disqualified Holders in respect of the shares
so redeemed (including without limitation any rights to vote or participate in
dividends), shall cease and terminate, and from and after such Redemption Date
such Disqualified Holders shall be entitled only to receive the cash or
Redemption Securities payable upon redemption of the shares so redeemed; and
(vi) such other terms and conditions as the Board of
Directors shall determine.
(b) For purposes of this Article VII:
(I) "Fair Market Value" of a share of the stock of this
Corporation of any class or series shall mean (A) if stock of such class or
series is listed or admitted to trading by any national securities exchange or
automated quotation system, the average of the daily closing sale price of such
stock on the principal national securities exchange or automated quotation
system on which such securities are traded for the 10 consecutive trading day
immediately preceding the date of determination or (B) if stock of such class or
series is not then listed or admitted to reading on any national securities
exchange or automated quotation system, the value determined by the Board of
Directors of the Corporation;
(ii) "Disqualified Holder" shall mean any holder of shares
of any class or series of stock of this Corporation whose continued holding of
such stock, either individually or taken together with the holding shares of
stock of this Corporation by any other holder or holders of shares of stock of
this Corporation may result, in the sole judgement of the Board of Directors of
the Corporation, in (A) the loss of, (B) the failure to secure the renewal or
reinstatement of, or (C) a requirement that the Corporation, apply in the name
of such holder or holders for, any license or franchise from any governmental
agency held by this Corporation or any of its Subsidiaries;
(iii) "Redemption Date" shall mean the date fixed by the
Board of Directors for the redemption of any shares of stock of this Corporation
pursuant to this Article VII;
(iv) "Redemption Securities" shall mean any debt or equity
securities of this Corporation, any of its subsidiaries or any other
corporation, or any combination thereof, having such terms and conditions as
shall be approved by the Board of Directors and which, together with any cash to
be paid as part of the redemption price, in the sole opinion of the Board of
Directors has a value, at the time notice of redemption is given pursuant to
subdivision (iv) of paragraph (a) of this Article VIII, at least equal to the
redemption price required to be paid pursuant to subdivision (I) of paragraph
(a) of this Article VII;
(v) Any determination made in good faith by the Board of
Directors of the Corporation as to any matter arising under this Article VII
shall be final and conclusive as to all persons.
<PAGE>
ARTICLE VIII
------------
INDEMNIFICATION
---------------
8.01. INDEMNIFICATION. The Corporation, by action of the Board of
Directors, may indemnify its directors, officers, agents and/or employees to the
fullest extent permitted by the General Corporation Law of the State of Indiana,
as such law is amended from time to time.
ARTICLE IX
----------
AMENDMENTS
----------
9.01. AMENDMENTS. Any amendment hereof shall be made and effected only
as follows: (a) the Board of Directors shall adopt such amendment by the
affirmative vote of at least two-thirds (2/3) of the directors then in office at
a meeting of the Board of Directors called for that purpose or by written
resolution which sets forth and declares advisable the proposed amendment, and
the Board of Directors shall either call a special meeting of the stockholders
entitled to vote in respect thereof for consideration of such amendment or
direct that the proposed amendment shall thereafter be submitted for
consideration of such amendment or direct that the proposed amendment be
considered at the next annual meeting of stockholders; (b) such amendment shall
thereafter be submitted for consideration by the stockholders at such special or
annual meeting; and (c) each such proposed amendment shall be approved by the
affirmative vote of two-thirds (2/3) of the outstanding shares of each class and
series, if any, of capital stock of the Corporation entitled to vote thereon.
The aforementioned amendments were adopted by the Board of Directors of the
Corporation by Unanimous Written Consent on July 20, 1998 and shareholder action
was not required.
The manner of adoption of the Articles of Amendment and the vote by which
they were adopted constitute full legal compliance with the provisions of the
Act, the Articles of Incorporation, and the ByLaws of the Corporation.
I hereby verify, subject to the penalties of perjury, that the statements
contained herein are true, this 28 day of July, 1998.
/S/ Gary D. Sallee, President
------------------------------
Gary D. Sallee, President
AMENDED AND RESTATED
--------------------
CODE OF BY-LAWS
----------------
OF
--
ISM HOLDING CORP
----------------
ARTICLE 1
---------
Definitions and Abbreviations
-----------------------------
As used in this Code of By-Laws, when capitalized:
SECTION TERM DEFINITION
------- ---- ----------
1.1 "Corporation" means ISM Holding Corp.
1.2 "Act" when used in the text, means The
Indiana Business Corporation
Law, as amended from time to
time.
1.3 "Articles of mean the Articles of
Incorporation" Incorporation of the
Corporation, as amended from
time to time.
1.4 "By-Laws" means the Code of By-Laws of the
Corporation, as amended from
time to time.
ARTICLE 2
---------
IDENTIFICATION
--------------
SECTION 2.1. NAME. The name of the Corporation is ISM Holding Corp.
SECTION 2.2. REGISTERED OFFICE AND REGISTERED AGENT - POWER TO CHANGE.
The street address of the registered office of the Corporation is 10401 North
Meridian Street, Suite 202, Indianapolis, Indiana 46290; and the name and
address of its Registered Agent in charge of such office is Gary D. Sallee,
10401 North Meridian Street, Suite 202, Indianapolis, Indiana 46290. The
location of its registered office, or the designation of its Registered Agent,
or both, may be changed at any time, or from time to time, when authorized by
Code of By-Laws
Page 1
<PAGE>
the Board of Directors, by filing with the Secretary of State, on or before the
day any such change is effective, or within five (5) days after the death of the
Registered Agent or other unforeseen termination of his agency, a certificate
signed by the President or a Vice President, and the Secretary or an Assistant
Secretary of the Corporation, and verified under oath by one of such Officers
signing the same, stating the change to be made and reciting that such change is
made pursuant to authorization by the Board of Directors.
SECTION 2.3. SEAL. The Corporation may have and use a seal, which seal
shall be circular in form and mounted upon a metal die, suitable for impressing
the same upon paper. About the upper periphery of the seal shall appear the
words "ISM Holding Corp.", and about the lower periphery thereof the word
"Indiana". In the center of the seal shall appear the word "Seal." PROVIDED,
HOWEVER, that the use of said seal or an impression thereof shall not be
required upon, and shall not affect the validity of, any instrument whatsoever.
SECTION 2.4. FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of January in each year and end on the last day of December
next following.
ARTICLE 3
---------
CAPITAL STOCK
-------------
SECTION 3.1. CONSIDERATION FOR SHARES. The Board of Directors shall
cause the Corporation to issue the shares of stock of the Corporation for such
consideration as has been fixed by such Board.
SECTION 3.2. SUBSCRIPTION FOR SHARES. Subscriptions for shares of the
stock of the Corporation shall be paid to the Treasurer at such time or times,
in such installments or calls, and upon such terms as shall be determined, from
time to time, by the Board of Directors.
SECTION 3.3. PAYMENT FOR SHARES. The consideration for the issuance of
shares of the stock of the Corporation may be paid, in whole or in part, in
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money, in other property, tangible or intangible, or in labor actually performed
for, or services rendered to, the Corporation; PROVIDED, HOWEVER, that the part
of the surplus of the Corporation which is transferred to stated capital upon
the issuance of shares as a share dividend shall be deemed to be the
consideration for the issuance of such shares. When payment of the consideration
for which a share was authorized to be issued shall have been transferred to
stated capital upon the issuance of a share dividend, such share shall be
declared and taken to be fully paid and not liable to any further call or
assessment, and the holder thereof shall not be liable for any further payments
thereon. In the absence of actual fraud in the transaction, the judgment of the
Board of Directors as to the value of such property, labor or services received
as consideration, or the value placed by the Board of Directors upon the
Corporation assets in the event of a share dividend, shall be conclusive.
Promissory notes, uncertified checks, or future services shall not be accepted
in payment or part payment of any of the capital stock of the Corporation.
SECTION 3.4. CERTIFICATES FOR SHARES. Each holder of the shares of the
Corporation shall be entitled to a certificate, signed by the President or a
Vice President, and the Secretary or an Assistant Secretary of the Corporation,
stating the name of the registered holder, the number of shares represented
thereby, that such shares are no par value, and whether such shares have been
fully paid and are not liable to any further call or assessment. Such
certificates shall be in the form as may be approved by the Officers signing the
same, and shall meet all statutory requirements.
SECTION 3.5. CERTIFICATES ISSUED PRIOR TO PAYMENT. It any certificate
representing shares of the Corporation is issued, but the shares represented
thereby are not fully paid up, such certificate shall be legibly stamped to
indicate the per centum which has been paid up, and as further payments are made
thereon, the certificate shall be stamped accordingly.
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SECTION 3.6. VOTING RIGHTS OF SHARES. At every meeting of the
Shareholders, every Shareholder of the Corporation shall be entitled to one (1)
vote for each share standing in his name on the books of the Corporation;
PROVIDED, HOWEVER, that treasury shares and subscribed but unissued shares shall
not be voted. At each election for Directors, every Shareholder of the
Corporation shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are Directors to be elected and
tar whose ejection he has a right to vote, or to cumulate his votes by giving
one candidate as many votes as the number of such Directors multiplied by the
number of his shares shall equal, or by distributing such votes on the same
principle among any number of such candidates.
Nothing in these By-Laws shall be deemed to require any greater portion
of the shares to concur in any action taken by the Shareholders than is required
by law.
Any action required by law to be taken at a meeting of the Shareholders
of the Corporation, or any action which may be taken at the meeting of the
Shareholders, may be taken without a meeting if, prior to such action, a consent
in writing, setting forth the action so taken, shall be signed by all of the
Shareholders entitled to vote with respect to the subject matter thereof, and
such Written Consent is filed with the minutes of the proceedings of the
Shareholders. Such consent shall have the same effect as a unanimous vote of the
Shareholders, and may be stated as such in any Articles or documents filed with
the Secretary of State.
The By-Laws may provide for a record date for determining Shareholders
entitled to receive payment of any dividend or to determine Shareholders for any
other purpose.
SECTION 3.7. TRANSFER OF SHARES. The shares of the Corporation shall be
transferable only on the books of the Corporation upon surrender of the
certificate or certificates representing the same, properly endorsed by the
registered holder or by his duly authorized attorney, such endorsement or
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endorsements to be witnessed by one witness. The requirement for such witnessing
may be waived in writing upon the form of endorsement by the President, Vice
President or the Secretary of the Corporation.
SECTION 3.8. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
issue a new certificate for shares of the Corporation in the place of any
certificate theretofore issued and alleged to have been lost, stolen, or
destroyed, but the Board of Directors may require the owner of such lost,
stolen, or destroyed certificate, or his legal representative, to furnish
affidavit as to such loss, theft, or destruction, and to give a bond in such
form and substance, and with such surety or sureties, with fixed or open
penalty, as it may direct, to indemnify the Corporation against any claim that
may be made on account of the alleged loss, theft, or destruction of such
certificate.
ARTICLE 4
---------
Meetings of Shareholders
------------------------
SECTION 4.1. ANNUAL MEETING. There shall be an annual meeting of the
stockholders of ISM Holding Corp., (the "Corporation") during the months of
April, May or June of each year at 10:00 a.m. local time, or at such other date
or time as shall be designated from time to time by the board of directors of
the Corporation (the "Board of Directors") and stated in the notice of the
meeting, for the election of directors and for the transaction of such other
business as may come before the meeting. Failure to hold the Annual Meeting at
the designated time shall not work any forfeiture or a dissolution of the
Corporation.
SECTION 4.2. SPECIAL MEETINGS. A special meeting of the stockholders of
the Corporation may be called at any time by the written resolution or other
request of a majority of the members of the Board of Directors. Such written
resolution or request shall specify the purpose or purposes for which such
meeting shall be called.
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SECTION 4.3. NOTICE OF MEETINGS. Written notice of each meeting of
stockholders, whether annual or special, stating the date, hour and place
thereof, shall be served either personally or by mail not less than ten nor more
than sixty days before the meeting, upon each stockholder of record entitled to
vote at such meeting and upon any other stockholder to whom the giving of notice
of such a meeting may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called and shall indicate
that such notice is being issued by or at the direction of the Board of
Directors. If, at any meeting, action is proposed to be taken that would, if
taken, entitle stockholders to receive payment for their stock pursuant to the
General Corporation Law of the State of Indiana, the notice of such meeting
shall include a statement of that purpose and to that effect. If mailed, notice
shall be deemed to be delivered when deposited in the United States mail or with
any private express mail service, postage or delivery fee prepaid, and shall be
directed to each such stockholder at its address as it appears on the records of
the Corporation, unless such stockholder shall have previously filed with the
secretary of the Corporation a written request that notices intended for such
stockholder be mailed to some other address, in which case, it shall be mailed
to the address designated in such request.
SECTION 4.4 PLACE OF MEETING. All meetings of Shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the respective notices or waivers of notice thereof, or
proxies to represent Shareholders thereat.
SECTION 4.5. INSPECTORS. At each meeting of the stockholders, the polls
shall be opened and closed, the proxies and ballots shall be received and be
taken in charge, and all questions touching the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided by
one or more inspectors. Such inspectors shall be appointed by the Board of
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Directors before or at such meeting or, if no such appointment shall have been
made, then by the presiding corporate officer at the meeting. If, for any
reason, any of the inspectors previously appointed shall fail to attend the
meeting or shall refuse or be unable to serve, inspectors in place of any
inspectors so failing to attend or refusing or being unable to serve shall be
appointed in like manner.
SECTION 4.6. QUORUM. At any meeting of the stockholders, the holders of
one-third of the outstanding shares of each class and series, if any, of the
capital stock of the Corporation present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number shall be required by law, in which case, the
representation of the number so required shall constitute a quorum.
SECTION 4.7. BUSINESS. The president of the Corporation or, in his
absence, his designee, shall call meetings of the stockholders to order and
shall act as the chairman of such meeting: PROVIDED, HOWEVER, that the Board of
Directors or the executive committee, if any, may appoint any stockholder to act
as the chairman of any meeting in the absence of the president of the
Corporation. The secretary of the Corporation shall act as secretary at all
meetings of the stockholders, but in the absence of the secretary at any meeting
of the stockholders, the presiding corporate officer may appoint any person to
act as the secretary of the meeting.
SECTION 4.8. STOCKHOLDER PROPOSALS. No proposal by a stockholder shall
be presented for vote at an annual meeting of stockholders unless such
stockholder shall, not later than the close of business on the last business day
of the month of January, provide the Board of Directors or the secretary of the
Corporation with written notice of its intention to present a proposal for
action at the forthcoming meeting of stockholders. No proposal by a stockholder
shall be presented for vote at a special meeting of stockholders unless such
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stockholder shall, not later than the close of business on the tenth calendar
day following the date on which notice of such meeting is first given to
stockholders, provide the Board of Directors or the secretary of the Corporation
with written notice of its intention to present proposal for action at the
forthcoming special meeting of stockholders. Any such notice shall be given by
personal delivery or shall be sent via first class certified mail, return
receipt requested, postage prepaid and shall include the name and address of
such stockholder, the number of voting securities that such stockholder holds
beneficially (or if such stockholder of record does not won such shares
beneficially, including the executed consent and authorization of the beneficial
stockholder), the text of the proposal to be presented for vote at the meeting
and a statement in support of the proposal.
Any stockholder who was a stockholder of record on the applicable record
date may make any other proposal at an annual or special meeting of stockholders
and the same may be discussed and considered; PROVIDED HOWEVER, that unless
stated in writing and filed with the Board of Directors or the secretary prior
to the date set for the hereinabove, such proposal shall be laid over for action
at an adjourned, special or annual meeting of the stockholders taking place
sixty days or more thereafter, at a time, place and date to be determined by the
Board of Directors. This provision shall not prevent the consideration and
approval or disapproval at an annual meeting of reports of officers, directors,
and committees, but in connection with such reports, no new business proposed by
a stockholder, qua stockholder, shall be acted upon at such annual meeting
unless stated and filed as herein provided.
Notwithstanding any other provision of these Bylaws, the Corporation
shall be under no obligation to include any stockholder proposal in its proxy
statement materials or otherwise present any such proposal to stockholders at a
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special or annual meeting of stockholders if the Board of Directors reasonably
believes the proponents thereof have not complied with Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder; nor shall the Corporation be required to include any stockholder
proposal not required to be included in its proxy materials to stockholders in
accordance with any such section, rule or regulation.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend in person or by proxy at the time and place fixed in
accordance with the these Bylaws for an annual or special meeting, a majority in
interest of the stockholders present in person or by proxy may adjourn, from
time to time, without notice other than by announcement at the meeting, until
the requisite holders of the amount of the stock necessary to constitute a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified.
SECTION 4.09. VOTING; PROXIES. At all meetings of stockholders, a
stockholder entitled to vote may vote either in person or by proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the secretary of the Corporation at or before the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 4.10. VOTING BY BALLOT. The votes for directors, and upon the
demand of any stockholder or when required by law, the votes upon any question
before the meeting, shall be by ballot.
SECTION 4.11. VOTING LISTS. The corporate officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
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vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares of stock registered in the name of
each stockholder. Such list shall be open to examination of any stockholder, for
any purpose germane to such meeting, during ordinary business hours for a period
of at least ten days prior to the meeting, either at a place within the city in
which such meeting is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.
SECTION 4.12. VOTING OF STOCK OF CERTAIN HOLDERS. Shares of capital
stock of the Corporation standing in the name of another corporation, domestic
or foreign, may be voted by such officer, agent or proxy as the bylaws of such
corporation may prescribe, or in the absence of such provision, as the board of
directors of such corporation may determine.
Shares of capital stock of the Corporation standing in the name of a
deceased person, a minor ward or an incompetent person may be voted by such
person's administrator, executor, court-appointed guardian or conservator.
Shares of capital stock of the Corporation standing in the name of a trustee may
be voted by such trustee, either in person or by proxy.
Shares of capital stock of the Corporation standing in the name of a
receiver may be voted by such receiver, either in person or by proxy, and stock
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his name if authority to do so is contained in any
appropriate order of the court by which such receiver was appointed.
A stockholder whose stock is pledged shall be entitled to vote such
stock, either in person or by proxy, until the stock has been transferred into
the name of the pledgee; thereafter, the pledgee shall be entitled to vote,
either in person or by proxy, the stock so transferred.
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Shares of its own capital stock belonging to the Corporation shall not
be voted, directly or indirectly at any meeting and shall not be counted in
determining the total number of outstanding shares of capital stock at any given
time; however, shares of the Corporation's own capital stock held by it in a
fiduciary capacity may be voted in such manner as the instrument or order,
appointing such fiduciaries, may direct and shall be counted in determining the
total number of shares of outstanding capital stock at any given time. Where
shares are held jointly by three or more fiduciaries, such shares shall be voted
in accordance with the will of the majority. Where the fiduciaries, or a
majority of them, cannot agree, or where they are equally divided upon the
question of voting such shares, any court of general equity jurisdiction may,
upon petition filed by any of such fiduciaries, or by any party in interest,
direct the voting of such shares as it may deem for the best interests of the
beneficiaries, and such shares shall be voted in accordance with such direction.
SECTION 4.13. FIXING OF RECORD DATE. The Board of Directors may
prescribe a period not exceeding thirty days prior to meetings of the
Shareholders, during which no transfer of stock on the books of the Corporation
may be made; or in lieu of prohibiting the transfer of stock, may fix a day and
hour not more than thirty days prior to the holding of any meeting of
Shareholders as the time as of which Shareholders entitled to notice of, and to
vote at, such meeting shall be determined, and all persons who are holders of
record of voting shares at such time, and no others, shall be entitled to notice
of, and to vote at, such meeting.
SECTION 4.14. PROHIBITION AGAINST STOCKHOLDER ACTION BY CONSENT.
Effective August 3, 1998, the stockholders of the Corporation may only take
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action by vote at an annual or special meeting of the stockholders. The
stockholders of the Corporation may not take any action by consent (written or
otherwise) in lieu of taking action at an annual meeting of stockholders.
SECTION 4.15. ORDER OF BUSINESS. The order of business at Annual
Meetings, and so far as practicable at all other meetings of Shareholders shall
be:
Item 4.151. Proof of due notice of meeting.
--------------------------------------------------
Item 4.152. Call of roll.
--------------------------------
Item 4.153. Reading and disposal of any unapproved minutes
-----------------------------------------------------------------
Item 4.154. Annual reports of Officers and committees.
-------------------------------------------------------------
Item 4.155. Unfinished business.
---------------------------------------
Item 4.156. New business.
---------------------------------
Item 4.157. Election of Directors.
-----------------------------------------
Item 4.158. Adjournment.
-------------------------------
ARTICLE 5
---------
The Board of Directors
----------------------
SECTION 5.1. ELECTION AND QUALIFICATION. At the first Annual Meeting of
the Shareholders, and at each Annual Meeting thereafter, Directors shall be
elected by the holders of the shares of stock entitled by the By-Laws to elect
Directors, for a term of one year, and they shall hold office until their
respective successors are chosen and qualified. Until the first Annual Meeting,
and thereafter, unless changed by appropriate amendment of this Section, the
business of the Corporation shall be managed by a Board of four (4) Director(s);
PROVIDED, HOWEVER, that at any time when all the shares of the Corporation are
owned beneficially and of record by less than three (3) persons the number of
Directors may be less than three (3), but not less than the number of
Shareholders. Directors need not be Shareholders of the Corporation. No decrease
in the number of Directors at any time provided for by the Code of By-Laws shall
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become effective prior to the date of the first Annual Meeting for the election
of Directors that is held after the date on which the provision of the Code of
By-Laws making such change is adopted. Any vacancy occurring in the Board of
Directors caused by increase in the number of Directors, at any time provided
for by the Code of By-Laws, shall be filled by vote of the Shareholders at their
next Annual Meeting, or at any Special Meeting called for such purpose.
SECTION 5.2 VACANCIES. Any vacancies occurring in the Board of Directors
caused by resignation, death or other incapacity shall be filled by a majority
vote of the remaining members of the Board of Directors, until the next Annual
Meeting of the Shareholders. If the vote of the remaining members of the Board
shall result in a tie, such vacancy may be filled by vote of the Shareholders at
a Special Meeting called for the purpose.
SECTION 5.3. ANNUAL MEETING. The Board of Directors shall meet each year
immediately after the Annual Meeting of the Shareholders, at the place where
such meeting of the Shareholders has been held (either within or without the
State of Indiana), for the purpose or organization, election of Officers, and
consideration of any other business that may properly be brought before the
meeting. No notice of any kind to either old or new members of the Board of
Directors for such Annual Meeting shall be necessary.
SECTION 5.4. REGULAR MEETINGS. Regular monthly or other regular periodic
meetings of the Board of Directors may be held with notice by letter, telegram,
cable or radiogram, or without any notice whatever, and at such places and
times, as may be fixed from time to time by resolution of the Board of
Directors.
SECTION 5.5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the President or any Vice President, and
shall be called on the written request of any two Directors when the Board of
Directors consists of three Directors and upon the written request of a majority
of the Directors when the Board of Directors consists of more than three
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Directors. Notice of such a Special Meeting shall be sent by the Secretary or an
Assistant Secretary to each Director at his residence or usual place of business
by letter, telegram, cable or radiogram, at such time that, in regular course,
such notice would reach such place not later than during the second day
immediately preceding the day for such meeting, or may be delivered by the
Secretary or an Assistant Secretary to a Director personally at any time during
such second preceding day. In lieu of such notice, a Director may sign a written
waiver of notice either before the time of the meeting, at the time of the
meeting, or after the time of the meeting.
Any meeting of the Board of Directors for which notice is required shall
be a legal meeting, without notice thereof having been given, if all the
Directors, who have not waived notice thereof in writing, shall be present in
person.
SECTION 5.6. PLACE OF MEETINGS. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation (except as may
be provided by law), within and without the State of Indiana, at any office or
offices of the Corporation, or at any other place, as they may from time to time
by resolution determine.
SECTION 5.7. QUORUM. A majority of the actual number of Directors
elected and qualified, from time to time, shall be necessary to constitute a
quorum for the transaction of any business except the filling of vacancies, and
the act of a majority of the Directors present at a meeting, at which a quorum
is present, shall be the act of the Board of Directors, unless the act of a
greater number is required by the Act, by the Articles of Incorporation or by
the Code of By-Laws. A Director, who is present at a meeting of the Board of
Directors, at which action on any Corporation matter is taken, shall be
conclusively presumed to have assented to the action taken, unless (a) his
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dissent shall be affirmatively stated by him at and before the adjournment of
such meeting (in which event the act of such dissent shall be entered by the
secretary of the meeting in the minutes of the meeting), or (b) he shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. The right of dissent provided for by
either Clause (a) or Clause (b) of the immediately preceding sentence shall not
be available, in respect of any matter acted upon at any meeting, to a Director
who voted at the meeting in favor of such matter and did not change his vote
prior to the time that the result of the vote on such matter was announced by
the Chairman of such meeting.
SECTION 5.8. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if prior to such action a Written Consent to such
action is signed by all members of the Board or such committee as the case may
be, and such Written Consent is filed with the minutes of proceedings of the
Board or committee.
SECTION 5.9. REMOVAL. Any Director may be removed, either for or without
cause, at any Special Meeting of Shareholders called for that purpose by the
affirmative vote of a majority in number of shares of the Shareholders of record
present in person or by proxy and entitled to vote for the election of such
Director, if notice of the intention to act upon such matter shall have been
given in the notice calling such meeting. If the notice calling such meeting
shall so provide, the vacancy caused by such removal may be filled at such
meeting by vote of a majority of the Shareholders present and entitled to vote
for the election of Directors.
If less than the entire Board is to be removed, no one of the Directors
may be removed if the votes cast against his removal would be sufficient to
elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of Directors, at an election of the class of
Directors of which he is a part.
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Whenever the holders of the shares of any class are entitled to elect
one or more Directors, the provisions of this section shall apply, in respect of
the removal of a Director or Directors so elected, to the vote of the holders of
the outstanding shares of that class and not the vote of the outstanding shares
as a whole.
SECTION 5.10 POWERS OF DIRECTORS. The Board of Directors shall exercise
all the power of the Corporation, subject to the restrictions imposed by law, by
the Articles of Incorporation, or by this Code of By-Laws.
SECTION 5.11. DIVIDENDS. The Board of Directors shall have power to
declare and pay dividends upon the shares of the Corporation. Before payment of
any dividend, or the distribution of any profits, there may be set aside out of
the net profits of the Corporation such sum or sums as the Directors, from time
to time, in their absolute discretion think proper as a reserve fund to meet
contingencies or for equalizing as the Directors shall think conducive to the
best interest of the Corporation.
SECTION 5.12. COMPENSATION OF DIRECTORS. The Board of Directors is
empowered and authorized to fix and determine the compensation of Directors for
attendance at meetings of the Board; and additional compensation for such
additional services any of the Directors may perform for the Corporation.
ARTICLE 6
---------
Executive Committee
-------------------
SECTION 6.1. DESIGNATION OF EXECUTIVE COMMITTEE. The Board of Directors
may, by resolution adopted by a majority of the actual number of Directors
elected and qualified, from time to time, designate two or more of its number to
constitute an Executive Committee, which Committee, to the extent provided in
such resolution, shall have and exercise all of the authority of the Board of
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Directors in the management of the Corporation; but the designation of such
Committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it by the Act. No member of the Executive Committee shall continue to be a
member thereof after he ceases to be a Director of the Corporation. The Board of
Directors shall have the power at any time to increase or diminish the number of
members of the Executive Committee, to fill vacancies thereon, to change any
member thereof, and to change the functions or terminate the existence thereof.
SECTION 6.2. POWERS OF THE EXECUTIVE COMMITTEE. During the intervals
between meetings of the Board of Directors, and subject to such limitations as
may be required by law or by resolution of the Board of Directors, the Executive
Committee shall have and may exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
including power to authorize the seal of the Corporation to be affixed to all
papers which may require it. The Executive Committee may also from time to time
formulate and recommend to the Board of Directors for approval general policies
regarding the management of the business and affairs of the Corporation. All
minutes of meetings of the Executive Committee shall be submitted to the next
succeeding meeting of the Board of Directors for approval: but failure to submit
the same or to receive the approval thereof shall not invalidate any completed
or uncompleted action taken by the Corporation upon authorization by the
Executive Committee prior to the time at which the same should have been, or
were, submitted as above provided. The Executive Committee shall not have the
authority of the Board of Directors in reference to amending the Articles of
Incorporation, adopting an agreement or plan of merger or consolidation,
proposing a Special Corporate Transaction as defined in the Act, recommending to
the Shareholders a voluntary dissolution of the Corporation or a revocation
thereof, or amending these By-Laws.
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SECTION 6.3. PROCEDURES; MEETINGS; QUORUM. The Chairman of the Executive
Committee of the Corporation shall, if present, act as Chairman at all meetings
of the Executive Committee, and the Secretary of the Corporation shall, if
present, act as secretary of the meeting. In case of the absence from any
meeting of the Executive Committee of the Chairman of the Executive Committee,
or the Secretary of the Corporation, the Executive Committee shall appoint a
chairman or secretary, as the case may be, of the meeting. The Executive
Committee shall keep a record of its acts and proceedings. Regular meetings of
the Executive Committee, of which no notice shall be necessary, shall be held on
such days and at such places as shall be fixed by resolution adopted by a
majority of the Executive Committee. Special Meetings of the Executive Committee
shall be called at the request of any member of the Executive Committee, and
shall be held upon notice by letter, telegram, cable, or radiogram, delivered
for transmission not later than during the second day immediately preceding the
day for such meeting, or by word of mouth, telephone, or radiophone, received
not later than the day immediately preceding the day for such meeting. Notice of
any Special Meeting of the Executive Committee may be waived in writing, signed
by the member or members entitled to such notice, whether before or after the
time stated therein, and shall be equivalent to the giving of such notice.
Attendance of any member of the Executive Committee at a Special Meeting shall
constitute a waiver of notice of such Special Meeting. The Executive Committee
may hold its meetings within or without the State of Indiana, as it may from
time to time by resolution determine. A majority of the Executive Committee,
from time to time, shall be necessary to constitute a quorum for the transaction
of any business, and the act of a majority of the members present at a meeting
at which a quorum is present shall be the act of the Executive Committee. The
members of the Executive Committee shall act only as a Committee, and the
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individual members shall have no power as such. The Board of Directors may vote
to the members of the Executive Committee a reasonable fee as compensation for
attendance at meetings of such Committee.
ARTICLE 7
---------
The Officers
------------
SECTION 7.1. NUMBER. The Officers of the Corporation shall consist of
the Chairman of the Board, if any is elected by the Board of Directors, the
Chairman of the Executive Committee, if the Board of Directors shall, pursuant
to Article 6 of this Code of By-Laws, create an Executive Committee, the
President, one or more Vice Presidents, a Treasurer, a Secretary, a Controller,
if any is elected by the Board of Directors, and such other subordinate officers
as may be prescribed by this Code of By-Laws, or as may be chosen by the Board
of Directors or the Executive Committee at such time and in such manner and for
such terms as the Board of Directors or the Executive Committee, if any, may
prescribe. Any two or more offices may be held by the same person, except the
duties of the President and Secretary shall not be performed by the same person.
SECTION 7.2. ELECTION, TERM OF OFFICE AND QUALIFICATION. The Officers
shall be chosen annually by the Board of Directors. Each Officer shall hold
office until his successor is chosen and qualified, or until his death, or until
he shall have resigned, or shall have been removed in the manner hereinafter
provided.
SECTION 7.3. REMOVAL. Any Officer may be removed, either with or without
cause, at any time, by the vote of a majority of the actual number of Directors
elected and qualified, from time to time, at a Special Meeting called for the
purpose.
SECTION 7.4. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, or to the President or the Secretary.
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<PAGE>
Such resignation shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 7.5. VACANCIES. Any vacancy in any office because of death,
resignation, removal, or any other cause shall be filled for the unexpired
portion of the term in the manner prescribed in this Code of By-Laws for
election or appointment to such office.
SECTION 7.6. THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, who shall be chosen from among the Directors, shall preside at all meetings
of the Board of Directors if present, and shall, in general, perform all duties
incident to the office of Chairman of the Board and such other duties as, from
time to time, may be assigned to him by the Board of Directors.
SECTION 7.7 THE CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the
Executive Committee, if any, who shall be chosen from among the Directors, shall
have general supervision and direction over the business and affairs of the
Corporation, subject, however, to the control of the Board of Directors and the
Executive Committee. He shall, in general, perform all duties incident to the
office of the Chairman of the Executive Committee and such other duties as, from
time to time, may be assigned to him by the Board of Directors or the Executive
Committee.
SECTION 7.8 THE PRESIDENT. The President, who shall be chosen from among
the Directors, shall have active executive management of the operations of the
Corporation, subject, however, to the control of the Board of Directors, the
Executive Committee, if any, and the Chairman of the Executive Committee, if
any. He shall, in general, perform all duties incident to the office of
President and such other duties as, from time to time, may be assigned to him by
the Board of Directors, the Executive Committee, if any, or the Chairman of the
Executive Committee, if any.
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<PAGE>
SECTION 7.9. THE VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to him. At the
request of the President, any Vice President may, in the case of the absence or
inability to act of the President, temporarily act in his place. In the case of
the death of the President, or in the case of his absence or inability to act
without having designated a Vice President to act temporarily in his place, the
Vice President so to perform the duties of the President shall be designated by
the Board of Directors.
SECTION 7.10. ASSISTANT VICE PRESIDENTS. Each Assistant Vice President
(if one or more Assistant Vice Presidents be elected or appointed) shall perform
such duties as are from time to time delegated to him by the President, a Vice
President, or the Board of Directors. At the request of one of the Vice
Presidents, or in his absence or inability to act, the Assistant Vice President
designated by a Vice President shall perform the duties of such Vice President,
and when so acting shall have all the powers and be subject to all the
restrictions of a Vice President.
SECTION 7.11. THE SECRETARY. The Secretary shall keep or cause to be
kept in books provided for that purpose the minutes of the meetings of the
Shareholders and of the Board of Directors; shall see that all notices are duly
given in accordance with the provisions of this Code of By-Laws and as required
by law; shall be custodian of the records and of the seal of the Corporation and
see that the seal is affixed to all documents, the execution of which on behalf
of the Corporation under its seal is duly authorized in accordance with the
provisions of this Code of By-Laws; and, in general, shall perform all duties
incident to the Office of Secretary and such other duties as may, from time to
time, be assigned to him by the Board of Directors or by the President.
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<PAGE>
SECTION 7.12. THE TREASURER. The Treasurer shall be the financial
officer of the Corporation; shall have charge and custody of, and be responsible
for, all funds of the Corporation, and deposit all such funds in the name of the
Corporation in such banks, trust companies or other depositaries as shall be
selected by the Board of Directors; shall receive, and give receipts for, monies
due and payable to the Corporation from any source whatsoever; and, in general,
shall perform all the duties incident to the Office of Treasurer and such other
duties as, from time to time, may be assigned to him by the Board of Directors
or the President.
The Treasurer shall render to the President and the Board of Directors,
whenever the same shall be required, an account of all of his transactions as
Treasurer and of the financial condition of the Corporation. He shall, if
required so to do by the Board of Directors, give the Corporation a bond in such
amount and with such surety or sureties as may be ordered by the Board of
Directors, for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 7.13. THE CONTROLLER. The Controller, if any, shall be the chief
accounting officer of the Corporation; shall keep full and accurate accounts of
all assets, liabilities, commitments, receipts, disbursements, and other
financial transactions of the Corporation and its subsidiaries in books
belonging to the Corporation; shall cause regular audits of such books and
records to be made; shall see that all expenditures are made in accordance with
procedures duly established, from time to time, by the Corporation; shall render
financial statements at all regular meetings of the Board of Directors, and a
full financial report at the Annual Meeting of Shareholders, if called upon to
do so, and, in general, shall perform all the duties ordinarily
Code of By-Laws
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<PAGE>
connected with the Office of Controller and such other duties as, from time to
time, may be assigned to him by the Board of Directors, the Chairman of the
Executive Committee, or the President.
SECTION 7.14. SALARIES. The salaries of the Officers shall be fixed,
from time to time, by the Board of Directors. No Officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE 8
---------
Special Corporate Acts.
-----------------------
Negotiable Instruments, Deeds, Contracts and Stock
--------------------------------------------------
SECTION 8.1. EXECUTION OF CHECKS, DRAFTS, AND ORDERS FOR THE PAYMENT OF
MONEY. Unless otherwise directed by the Board of Directors, or unless required
by law, all checks, drafts, bills of exchange and orders for the payment of
money of the Corporation shall be signed by any one of the following Officers:
Chairman of the Board, Chairman of the Executive Committee, if any, President,
Vice President, Treasurer, Assistant Treasurer, if any, Secretary, Assistant
Secretary, or Controller, if any. The Board of Directors may designate such
other Officers and/or employees of the Corporation other than those Officers
named above or different combinations of such Officers and employees of the
Corporation who may, in the name of the Corporation execute in its behalf
checks, drafts, and orders for payment of money.
SECTION 8.2 EXECUTION OF DEEDS, CONTRACTS, NOTES, MORTGAGES, GUARANTEES,
ETC. Unless otherwise directed by the Board of Directors or unless otherwise
required by law, all deeds, mortgages, notes, and guaranties made by the
Corporation, and all other written contracts and agreements to which the
Corporation shall be a party, shall be executed in the name of the Corporation
by the Chairman of the Board, President, or any one of the Vice Presidents. Only
if required by applicable law shall the Secretary or an Assistant Secretary
Code of By-Laws
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<PAGE>
attest the signature of the party executing the instrument on behalf of the
Corporation and only when required by applicable law shall affix the corporate
seal thereto.
SECTION 8.3. ENDORSEMENT OF STOCK CERTIFICATES. Subject always to the
further orders and directions of the Board of Directors, any share or shares of
stock issued by any other corporation and owned by the Corporation (including
reacquired shares of stock of the Corporation) may, for sale or transfer, be
endorsed in the name of the Corporation by the President or one of the Vice
Presidents, and such endorsements shall be only attested by the Secretary or an
Assistant Secretary either with or without affixing thereto the corporate seal.
ARTICLE 9
---------
Amendments
----------
SECTION 9.1. IN GENERAL. Unless otherwise required by law, the power to
make, altar, amend or repeal this Code of By-Laws is vested in the Board of
Directors, but the affirmative vote of a majority of the actual number of
Directors elected and qualified, from time to time, shall be necessary to effect
any alteration, amendment or repeal of this Code of By-Laws.
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<FISCAL-YEAR-END> DEC-31-1999
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<PERIOD-END> SEP-30-1999
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<COMMON> 162575
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<TOTAL-LIABILITY-AND-EQUITY> 309644
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