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As Filed With the Securities and Exchange Commission on June __, 1999
Registration No._____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM-10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
COUNTRY MAID FINANCIAL, INC.
(Name of Registrant in its charter)
WASHINGTON 34-1471323
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
COUNTRY MAID FINANCIAL, INC.
2500 SOUTH MAIN STREET
LEBANON, OREGON 97355
(541) 451-1414
(Address, including zip code and telephone number, including
area code, of Registrant's principal executive offices)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None None
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
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TABLE OF CONTENTS
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Page No.
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Item 1. Business 1
Item 2. Financial Information 16
Item 3. Properties 22
Item 4. Security Ownership of Certain Beneficial Owners and Management 24
Item 5. Directors and Executive Officers 25
Item 6. Executive Compensation 26
Item 7. Certain Relationships and Related Transactions 27
Item 8. Legal Proceedings 31
Item 9. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 31
Item 10. Recent Sales of Unregistered Securities 35
Item 11. Description of Registrant's Securities to be Registered 38
Item 12. Indemnification of Directors and Officers 39
Item 13. Financial Statements and Supplementary Data 39
Item 14. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 63
Item 15. Financial Statements and Exhibits 63
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ITEM 1
BUSINESS
COUNTRY MAID FINANCIAL, INC. ("Country Maid Financial" or the
"Company"), through its operating subsidiary Territorial Inns Management, Inc.,
a Nevada corporation ("TIM"), is engaged in the business of management and
operation of motel properties. The Company's portfolio currently consists of
seventeen motel properties in eight different states (Florida, Georgia,
Illinois, Kansas, Missouri, Oregon, Texas and Washington) and is negotiating to
acquire another ten properties. See "Item 2. Financial Information-Management's
Discussion and Analysis." The Company plans to continue to acquire management
agreements and motel operating leases with purchase options from motel owners
throughout the United States and potentially Canada. The Company has launched a
strategic plan to identify certain motel properties that can be acquired at a
value equivalent to approximately two and one-half to three times the annual
gross room revenue. The owners of certain motels have expressed a willingness to
accept a payment of approximately twenty percent (20%) of the motel's current
value in the form of preferred stock of the Company, as consideration for the
purchase option, and fixed annual lease payments in an amount equal to, on
average, approximately seven and one-fifth percent (7.2%) of the current value.
The Company's management believes these motel properties can be operated in such
a manner as to attain an average yield of approximately thirty-three percent
(33%) of the annual gross room revenue as net operating income. See "Item 1.
Business--Risk Factors." Unless otherwise noted, references to the Company
relate to Country Maid Financial and its subsidiary TIM, collectively.
The Company's principal executive offices are located at 2500 South Main
Street, Lebanon, Oregon, 97355 and its telephone number is (541) 451-1414.
THIS REGISTRATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THE RESULTS DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "ITEM 1. BUSINESS--RISK FACTORS"
AND ELSEWHERE IN THIS REGISTRATION STATEMENT. IN ADDITION TO THE OTHER
INFORMATION IN THIS DOCUMENT, ANY PROSPECTIVE INVESTOR IN SECURITIES OF THE
COMPANY SHOULD CAREFULLY CONSIDER "BUSINESS--RISK FACTORS" IN EVALUATING THE
COMPANY AND ITS BUSINESS.
BUSINESS DEVELOPMENT AND BACKGROUND
The Company was incorporated in April 1984 in the State of Washington
under the name Raywheel, Inc., a Washington corporation. The Company commenced
operations in Toledo, Ohio and moved its offices to Portland, Oregon in 1989.
The Company's name was changed to American Citadel, Inc. in December 1989. The
Company had a wholly-owned subsidiary, Security Bar, Inc., a Washington
corporation ("Security Bar"), which was engaged in the manufacturing and
marketing of a patented security alarm and lock bar to provide security for
sliding doors and windows. Security Bar was sold to an unrelated third party in
December 1993. In a transaction effective July 1, 1992, the Company acquired all
of the outstanding common stock of Country Maid Farms, Inc., a Nevada
corporation ("Country Maid Farms"). See "Item 7. Certain Relationships and
Related Transactions." Between 1994 and 1997, the Company, through its
wholly-owned subsidiary Country Maid Farms, was engaged in the production of
poultry eggs for the domestic wholesale egg market, and for the manufacture of
mayonnaise and other egg products. In March 1994, the Company's name was changed
to Country Maid Foods, Inc. to signify the Company's primary business of food
production.
Country Maid Farms had suffered losses for the fiscal years of 1996,
1997 and 1998. Although the Company had suffered losses prior to 1996 due to the
general downturn of the egg industry, the Company's wholesale egg business began
to fail mainly due to the damage to one farm in Puxico, Missouri from an ice
storm and a subsequent snow storm which forced the farm to cease operation
completely. Country Maid Farms had two other operating farms in Redfield, South
Dakota, of which one
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was a "layer farm" and the other was a "pullet farm." In 1997, Country Maid
Farms was the target of a claim for damages by an unrelated party, Dakota Best,
Inc., a South Dakota corporation. Although the officers of Country Maid Farms
did not agree with the claim, they determined that the costs and potential risks
of the lawsuit would far exceed the value of the "pullet farm" and agreed to
deed it to Dakota Best, Inc.
During the 1996 fiscal year, Country Maid Farms began marketing its eggs
to a breaker plant operated by another wholly-owned subsidiary of the Company,
Country Maid Egg Products, Inc., a Nevada corporation. The eggs were broken and
processed into basic ingredients to be sold to food production companies to
produce mayonnaise and other products that used eggs. However, on December 27,
1996, the owner of the breaker plant leased by an unrelated third party was
forced into a bankruptcy. The Company attempted to purchase the plant from the
bankruptcy trustee to continue its egg processing business which was, at that
time, the main source of revenue for Country Maid Farms. The District Court
ruled in favor of another purchaser and the Company, which had few alternatives
at the time, ceased the egg processing business.
As of July 31, 1998, Country Maid Farms had outstanding liabilities in
the estimated amount of $257,720. The assets of Country Maid Farms on October 6,
1998 consisted of the "layer farm" in Redfield, South Dakota, valued in
September 1998 at approximately $10,000, with a mortgage of approximately
$13,928.87, and the damaged farm and real estate in Puxico, Missouri which was
estimated to be worth approximately $60,000.
After a last attempt to restart the egg business by planning to market
gourmet eggs in 1998, which was never realized, the Company decided to change
its business.
During the third quarter of 1998, the Company entered into a Stock
Purchase Agreement with the shareholders of Territorial Inns Management, Inc., a
Nevada corporation, effective October 12, 1998, for the acquisition from its
shareholders of all of the outstanding and issued shares of Territorial Inns
Management, Inc., a Nevada corporation. Certain of the shareholders of TIM were
affiliates, officers, and employees of the Company. TIM was formed in August
1998 and had acquired the assets of Territorial Inns Management, Inc., an Oregon
corporation, which consisted of eleven motel management agreements. See "Item 7.
Certain Relationships and Related Transactions."
The Directors of the Company determined that the acquisition of TIM
provided the means for the Company to obtain significant assets and a lead to
the growing lodging industry, which had, according the industry analysts, been
generally successful in increasing its revenue per available room ("RevPAR")
since 1992, generating dramatic increases in profit growth over the previous ten
years. See "Item 1. Business--Industry Information" and "--Risk Factors."
INDUSTRY INFORMATION
LODGING INDUSTRY
The lodging industry had suffered a decline in the late 1980s when the
supply of hotels and other lodging facilities were outgrowing demand which lead
to the decrease of profitability of the industry. Since 1992, however, the
industry in general has returned to profitability and the estimated revenue and
profitability amount per available room ("RevPAR") has been steadily increasing:
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TOTAL U.S. LODGING INDUSTRY - ESTIMATED REVENUE & PROFITABILITY
AMOUNT PER AVAILABLE ROOM - 1992-1999(1)
(Thousands of Dollars)
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1992 1993 1994 1995 1996 1997 1998 1999
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Revenue $19.0 $19.5 $20.3 $21.1 $22.7 $24.3 $23.0-$25.0 $24.0-$26.0
GOP 29.5% 30.5% 36.2% 37.0% 38.2% 40.2% 42.9% 43.0%
Pre-Tax Inc $ 0.0 $ 0.7 $ 1.7 $ 2.6 $ 3.7 $ 4.8 $ 5.6 $ 6.2
</TABLE>
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GOP - Percent of Revenue
(1) "Lodging Outlook," Smith Travel Research, endorsed by the American Hotel
and Motel Association, December 1998. It should be noted that Smith
Travel Research has not provided any form of consultation, advice or
counsel regarding any aspects of, and is in no way associated, with this
Registration Statement.
The first quarter of 1999 compared with the same period in 1998 shows a
growth of 3.7% in room demand, RevPAR at 3.5% and room revenues at 7.5%.
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FIRST QUARTER RESULTS, 1999 V. 1998(1)
(1) "Lodging News" Newsletter, May 14, 1999 (data provided by Smith Travel
Research).
OPERATING STRATEGY
CAPITALIZATION OF EFFICIENT OPERATIONS
The Company seeks to maximize revenues through its marketing and
acquisition strategies and, more importantly, the delivery of quality
accommodations and motel services that result in satisfied and loyal guests. The
experience of the officers of the Company in the management of lodging
facilities provides the Company with an advantage in controlling the elements of
operation, including increasing revenue per room over cost of service,
purchasing, hiring, and the marketing to corporate and individual guests, all of
which are essential for achieving attractive returns for the Company.
Management is also experienced in other aspects of the ownership of
lodging properties such as accounting and asset and risk management. Combining
polished management skills with the ability to incorporate ownership issues in
its decision making, the Company strives to provide a full range of services to
motel owners and to operate facilities leased by the Company in a cost-effective
manner.
SERVICE EMPHASIS
The Company hires on-site managers and staff who are personable,
experienced and hands-on in all aspects of motel operation. The Company directs
its managers to be accessible and available to guests at all possible times. For
certain of the Company's properties, there are corporate clients who may
contract with the motels to provide lodging for their employees at a fixed or
discounted price. Other than common management tasks, on-site managers are
responsible for the marketing and contact with prospective corporate clients for
the motels. The managers are encouraged to participate in local business and
chamber of commerce activities to network with local companies to promote the
properties.
EXPERIENCED, HIGH QUALITY MANAGEMENT PERSONNEL
The Company believes that it has highly qualified and experienced
executives in its senior management positions. The Company's executive officers,
including the Chief Executive Officer, President, and Secretary/Director of
Operations, have worked together for an extended period of time to develop,
operate and manage motel properties. The Company provides hands-on training for
site managers during which the motel owner or the departing manager will
familiarize the new manager with the property first, followed by a review of the
Company's policies and procedures personally conducted by the Company's Director
of Operations. The Company believes that direct training on-site provides the
most detailed and applicable information to the managers and is more
advantageous than a formal group
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off-site training class. The Company believes that the quality and experience of
its key executives and motel personnel are important components of its ability
to consistently provide outstanding service to motel guests and motel owners
which will likely lead to strong financial results for its shareholders.
FRANCHISES
Certain of the Company's properties are franchises of national motel
chains. Of the seventeen motel properties currently operated and managed by the
Company, there is one Best Western, two Select Inns and nine Best Inns
franchises. The franchises provide marketing and a toll-free reservation system
for the motels. Customers have standard expectations and familiarity with
national franchises in certain regions. The motel franchisers may also have
agreements with suppliers and vendors for maintenance and furnishings in which
the individual motel franchise is invited to participate. The motels are
required to conform to the standards of the franchises. The fee paid to the
franchisers usually entails an enrollment fee and a fixed percentage of the
gross revenue of the motel thereafter payable on a monthly basis.
GROWTH STRATEGY
STRATEGIC MODEL
The Company plans to increase the number of properties in its portfolio
mainly through acquisitions of motel properties on a long-term lease basis with
rights of renewal in five-year intervals up to twenty years and an option to
purchase the property from the motel owner within the lease term for a fixed
price determined at the commencement of the lease. Management believes that, in
addition to acquiring traditional management agreements, its strategy of
acquiring motel operating leases with purchase options enables the Company to
achieve, through efficient and effective management, an expedient and
advantageous market penetration of the motel industry, which in turn increases
profitability for the Company. See "Item 1. Business--Risk Factors, History of
Substantial Losses, No Assurance of Profitability, and Uncertain Tax Effects of
Leases."
The options to purchase also enable the Company to compete effectively
for expansion opportunities to increase profitability and to provide a
competitive advantage over other management companies that do not offer such
purchase option terms to motel owners. The Company has identified certain motel
properties that can be acquired at a value, on average, equivalent to
approximately two and one-half to three times the annual gross room revenue.
Certain motel owners have expressed a willingness to accept, as consideration
for the purchase option, payment of approximately twenty percent (20%) of the
motel's current value, payable to the motel owners in the form of preferred
stock, convertible into common stock after twelve months of issuance, in private
offerings as permitted by the Securities Act of 1933 and rules and regulations
promulgated thereunder. See "Item 1. Business--Risk Factors, Competition, and
- --Uncertain Tax Effects of Lease" and "Item 11. Description of Registrant's
Securities to Be Registered."
The annual lease payments will generally equal approximately seven and
one-fifth percent (7.2%) of the motel value. Based on information provided by
certain owners of the motels, the Company's management believes that these motel
properties can be managed to attain an average yield of approximately
thirty-three percent (33%) of the annual gross room revenue as net operating
income. The diagram below shows a hypothetical example based on the financial
model of the Company's strategic plan to build a profitable structure. See "Item
1. Business--Risk Factors, Competition, and --Uncertain Tax Effects of Lease"
and "Item 11. Description of Registrant's Securities to Be Registered."
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LONG-TERM LEASE AGREEMENTS WITH PURCHASE OPTIONS
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COUNTRY MAID FINANCIAL, INC.
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MOTEL OWNER
TERRITORIAL INNS ----------------------------------
MANAGEMENT, INC. Lease with Option to Purchase Motel valued at 275%
("TIM") of gross revenue
(100+ rooms)
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REVENUE TO COMPANY PAYMENTS TO MOTEL OWNER:
Room Sales: $1,000,000 (1) Annual lease payments:
Operating Expenses: $ 670,000 7.2% of current value
Lease Payment: $ 198,000
Net Income (2) Purchase option consideration:
Before Taxes: $ 132,000 stock equal to 20% of total
(per motel) value of motel
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The Company's leases with options to purchase (the "Leases") generally
will be on a long-term basis with rights of renewal in five-year increments up
to twenty years exercisable at the Company's election. Lease payments generally
will either consist of a fixed annual amount, payable monthly, with no
additional rent based on the gross revenue or of a straight percentage lease
payment consisting of approximately twenty percent (20%) of the monthly gross
revenue of the property without a minimum payment. The Leases will be triple net
leases that require the Company to maintain the leased motels in good condition
and repair, and in conformity with all applicable legal requirements. The Leases
will provide that the motel owner be solely obligated to pay any outstanding
mortgages or liens on the properties.
The Leases generally will provide that the Company is responsible for
obtaining adequate and standard insurance for the properties and the Company may
be required to indemnify the motel owner for losses due to any failure to
maintain insurance or for other liabilities caused by the actions of the Company
or third parties on the property.
Motel owners may terminate the Leases upon an event of default, which
includes the failure to remit lease payments and any other uncured default of
the terms of the lease. Upon a termination due to an event of default, the
Company may be liable for the payments that would have been payable for the
remainder of the unexpired term of the lease unless the motel owners thereafter
lease the property to other tenants and the proceeds received are used to offset
amounts due under the terms of the Leases.
The Leases also will contain an option to purchase the properties for a
fixed price determined on the commencement date of the lease. The Company
generally may elect to exercise this option during the terms of the Leases upon
payment of the full price to motel owners. As consideration for the purchase
option, motel owners will receive a designated number of shares of preferred
stock or other securities of the Company, convertible into the common stock of
the Company twelve months after the date of issuance. The value of the preferred
stock ("Subscription Price"), and the number of shares of common for which the
preferred stock is convertible ("Conversion Shares"), is generally equal to
approximately twenty percent (20%) of the motel's market value at the
commencement of the lease. The preferred stock
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is convertible into the nearest whole number of shares of common stock the
Subscription Price would be able to purchase at the Company's average common
stock price ("Average Stock Price") which will be equivalent to the mean between
the closing bid and asked quotations for the Company's common stock in the
over-the-counter market as quoted on the National Association of Securities
Dealers Automated Quotation system ("Nasdaq"), or any other reliable quotation
system if the common stock is not listed on NASDAQ, for the sixty (60) trading
days last preceding the date of conversion. The preferred stock holder may be
entitled to a dividend of eight percent (8%) of the value of the preferred stock
payable either in monthly cash payments or quarterly issuance of the Company's
common stock. See "Item 11. Description of Registrant's Securities to Be
Registered."
MOTEL OWNERS
The Company believes that its strategic model will attract motel owners
who have the desire to sell the motels at the current market price but who may
be subjected immediately to high capital gains tax and/or recapture of
depreciation which tax the gain of the sale of the personal property as income.
The structure offered by the Company may be a tax delaying or saving transaction
to the motel owners who have substantial equity in the property. If the lease
with option to purchase is structured outside of the definition of a sale by the
Internal Revenue Code (the "Code"), the lease transaction will not trigger the
traditional capital gains tax until the option to purchase is exercised by the
Company. The motel owners may receive from the Company a consideration for the
grant of the option in an amount equal to about twenty percent (20%) of the
value of the property in the form of preferred stock of the Company. To the
extent the transaction qualifies under the Code, and depending on the liquidity
of the stock received by the motel owners, the lease with option to purchase may
allow the motel owners to receive some amount of cash flow as early as twelve
months after the date of the closing of the transaction without the burden of
taxes resulting from a sale of the property. Additionally, the motel owners will
be released of the motel management responsibilities and receive ongoing income
from the lease payments for the term of the lease. See "Item 1. Business--Risk
Factors, Uncertain Tax Effects of Leases and Dependence on Management Agreements
and On Certain Motel Owners."
THE COMPANY'S PORTFOLIO
BEST INNS
On or about November 9, 1998, the Company and Best Inns, Inc., a Kansas
corporation ("Best Inns Kansas"), executed a Letter of Intent which set forth
the terms for the Company to lease with an option purchase nine Best Inns motel
properties to be effective, as amended by the parties, March 1, 1999. The terms
of the Letter of Intent provide that the Company will receive the gross revenue
generated by the properties and pay to Best Inns a fixed annual lease payment of
$1,980,000 payable monthly, and the Company has an option to purchase the
properties for the total amount of $24,000,000. As consideration to Best Inns
for the option to purchase, the Company agreed to issue securities of the
Company with an aggregate value of $3,000,000.
On March 1, 1999, the previous management company of the Best Inns
properties voluntarily resigned from their duties and the Company assumed the
operation of the nine Best Inns properties pursuant the terms of the Letter of
Intent. The lenders for Best Inns Kansas and the Company are currently
negotiating the remaining terms of the agreement.
MANAGEMENT AGREEMENTS
The Company operates eight other motel properties and an apartment
complex under individual management agreements which set the management fee at a
fixed percentage, generally five percent (5%) of the gross revenue received from
the property. The motel owners are obligated to pay all expenditures with
limited authority to the Company to pay recoverable expenditures on the owners'
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behalf up to a limit amount of $5,000.
SUMMARY OF PORTFOLIO
The following table sets forth, as of April 30, 1999, certain
information with respect the Company's properties:
PROPERTIES
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Best Western I-35 Inn 78 Units Best Inns 91 Units
4014 Miller St. 1529 West Walnut Ave.
Bethany, MO 64424 Dalton, GA 30720
Select Inn 91 Units Best Inns 83 Units
100 Bulldog Blvd. 1209 North Keller Dr.
Borger, TX 79007 Effingham, IL 62401
Willow Springs 44 Units Best Inns 110 Units
5 "B" Street 8220 Dix Ellis Trail
Cheney, WA 99004 Jacksonville, FL 32256
Village Inn 27 Units Best Inns 116 Units
1110 W. Fm 468 1255 Franklin Rd.
Cotulla, TX 78014 Marietta, GA 30067
Nendels Inn & Suits 60 Units Best Inns 104 Units
2523 E. Wyatt Earp Blvd. 2700 W. DeYoung
Dodge City, KS 67801 Marion, IL 62959
Nendels Inn 106 Units Best Inns 153 Units
2811 West 2nd Ave. 222 S. 44th St.
Kennewick, WA 99336 Mt. Vernon, IL 62864
Select Inns 37 Units Best Inns 75 Units
Rt. 1 Box 60 2738 Graves Rd.
Tulia, TX 79088 Tallahassee, FL 32303
Colonial Motor Inn 53 Units Best Inns 89 Units
1405 North 1st St. 31 N. Green Bay Rd.
Yakima, WA 98901 Waukegan, IL 60085
Best Inns 107 Units Summer Hill Apartments 28 Units
1905 W. Market St. 1110 W. Fm 468
Bloomington, IL 61701 Cotulla, TX 78014
(Apartment Complex)
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COMPETITION IN THE LODGING INDUSTRY
The lodging industry is highly competitive. The Company's management of
motel properties competes with other national limited and full-service
management and acquisition companies and with various regional and local
well-known motel chains such as Travelodge, Motel 6 and Super 8.
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Although the Company is not aware of any direct competitors who are
currently approaching motel properties with a plan similar to the Company's
lease with option to purchase terms, there are numerous other management
companies who are competing with the Company for the management of the same
properties. Some of the more commonly known national management companies with
which the Company competes, either directly or indirectly, include The Peninsula
Group, Vista Host, Outrigger Hotels & Resorts, Hostmark Management Group, GF
Management, and Linchris Hotel Corp. The Company's targeted smaller,
economy-scale motel properties with an average size of approximately 100 rooms,
also compete with local, independently owned motel properties for travelers'
business. The Company anticipates that competition within this industry segment
will increase in the foreseeable future. A number of the Company's competitors
are larger, operate more motels and hotels, and have substantially greater
financial and other resources than the Company. In addition, some of the
Company's competitors operate properties that have locations superior to those
of the Company's properties. Competitive factors in the lodging industry include
room rates, quality of accommodations, name recognition, service levels and
convenience of location. There can be no assurance that demographic, geographic
or other changes in markets in which the Company's properties are located will
not adversely affect the convenience or desirability of certain of the Company's
motels. Furthermore, there can be no assurance that new or existing competitors
will not significantly lower rates or offer greater conveniences, services or
amenities, or significantly expand or improve facilities in a market in which
the Company's motels compete, thereby adversely affecting the Company's results
of operations.
The Company may also compete for acquisition, development and franchise
opportunities. The Company competes for these expansion opportunities with
national and regional motel companies, some of which have greater financial and
other resources than the Company. Competitive factors for expansion
opportunities include relationships with motel and lodging property owners and
investors, the availability of capital, financial performance, management fees,
lease payments, brand name recognition, marketing support, reservation system
capacity, and the willingness and ability to provide funds in connection with
new management and lease arrangements. The Company's failure to compete
successfully for expansion opportunities or to attract and maintain
relationships with motel owners and investors could adversely affect the
Company's results of operations. See "Item 1. Business--Risk Factors, Risks
Associated with Expansion."
FINANCIAL INFORMATION
The Company was not profitable in the last five fiscal years. See "Item
2. Financial Information--Selected Consolidated Financial Data" and "Item 13.
Financial Statements and Supplementary Data." Management believes that the
performance of the Company as reflected in the financial information provided in
this Registration Statement for the fiscal years ending March 31, 1995, 1996,
1997, 1998 and December 31, 1998 may not be indicative of current or future
operations of the Company because it ceased the operation of the egg business
and entered the lodging industry in October 1998. See "Item 1.
Business--Business Development and Background." The interim financial
information provided for March 31, 1999 may be more closely indicative of the
Company's current and future earning potential, however, the Company expects the
revenue to grow substantially as it acquires more motel properties in its
portfolio. See "Item 1. Business--Risk Factors and --Forward-Looking Statements"
and "Item 2. Financial Information--Management's Discussion and Analysis."
RESEARCH AND DEVELOPMENT
During the fiscal years ended March 31, 1997, March 31, 1998, and
December 31, 1998, the Company did not incur costs related to research and
development activities.
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GOVERNMENT REGULATIONS
The Company is not currently subject to direct regulation by any
government agency, other than employment, environmental, and business laws
applicable generally. There are currently few laws or regulations solely
applicable to motel management. There can be no assurance that the enactment of
laws affecting real estate in general will not decrease the growth of the
lodging industry, which in turn could decrease the profitability and demand for
the Company's services, increase the cost of doing business, or otherwise have
an adverse effect on the Company's business, operating results or financial
condition. The Company cannot predict the impact, if any, that future regulation
or regulatory changes might have on its business.
PROPRIETARY RIGHTS
The Company currently has no trademark or service mark applications
pending. It may be possible for unauthorized third parties to copy aspects of,
or otherwise obtain and use, the Company's business names, including but not
limited to Country Maid Financial and Territorial Inns Management. The Company
does not have any confidentiality agreements with its officers or employees.
Furthermore, there can be no assurance that any confidentiality agreements
entered into between the Company and its employees will provide meaningful
protection for the Company's proprietary information in the event of any
unauthorized use or disclosure of such proprietary information.
The failure to do any of the foregoing could have a material effect upon
the Company. In addition, there can be no assurance that the Company will have
the financial or other resources necessary to enforce or defend a proprietary
rights violation action. The Company has not undertaken any professional
searches to determine whether the names used by the Company to conduct business
infringe on the proprietary rights of other companies. Moreover, if the
Company's services infringe patents, trademarks or proprietary rights of others,
the Company could, under certain circumstances, become liable for damages, which
could have a material adverse effect on the Company.
SUBSIDIARY
The Company conducts its operations through its wholly-owned subsidiary,
Territorial Inns Management, Inc., a Nevada corporation ("TIM"), incorporated in
August 1998 and acquired in October 1998. TIM markets, operates, maintains and
provides the management services for the Company. All employees of the Company
are employed by TIM.
EMPLOYEES
As of April 30, 1999, the Company had approximately twenty-five (25)
full-time employees and thirty-three (33) part-time employees in administration,
on-site operations and property management. The Company's future success will
depend, in part, on its ability to continue to attract, retain and motivate
highly qualified management and operations personnel, for whom competition is
intense. From time to time, the Company may employ independent consultants or
contractors to support its property management and administrative organizations.
The Company's employees are not represented by any collective bargaining unit
and the Company has never experienced a work stoppage. The Company believes its
relations with employees are good. See "Item 1. Business--Risk Factors, Risks
Associated with Expansion."
RISK FACTORS
The following factors, and information provided elsewhere, should be
considered carefully in evaluating the forward-looking statements made by the
Company in this Registration Statement and in evaluating the Company's business
before making a decision concerning the purchase of its securities.
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HISTORY OF SUBSTANTIAL LOSSES; NO ASSURANCE OF PROFITABILITY
In the past three fiscal years, the Company has suffered losses. See
"Item 2. Financial Information." The Company experienced increased revenues for
the first quarter of 1999 but had not reached profitability. In the first three
months of 1999, the Company's gross revenue was $68,890. The Company's auditor
has indicated that the Company will continue as a going concern. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies attempting to penetrate a new industry. To
address these risks, the Company must, among other things, respond to
competitive bids on the properties the Company targets, continue to attract,
retain and motivate qualified persons, and improve service to customers. There
can be no assurance that the Company will be successful in addressing these
risks or that the Company can be operated profitably, which depends on many
factors, including the success of the Company's marketing program, the control
of expense levels and the success of the Company's business activities.
POSSIBLE UNDERCAPITALIZATION AND NEED FOR FUTURE FINANCING
In order to continue its operating and growth strategies, the Company
will be seeking equity and debt financing. If the Company is unable to obtain
financing, there can be no assurance that the Company will be able to
successfully implement its business plan or meet its working capital
requirements. In addition, the Company may experience rapid growth and may
require additional funds to expand its operations or enlarge its organization.
While the Company intends to explore a number of options in order to secure
alternative financing in the event anticipated financing is not obtained or is
insufficient, there can be no assurance that additional financing will be
available when needed or on terms favorable to the Company. The failure to
obtain sufficient financing may materially affect the Company's ability to
expand or to remain in business. See "Item 9. Market Price of and Dividends on
the Registrant's Common Equity and Related Stockholder Matters."
DEPENDENCE ON MANAGEMENT
Shareholders of the Company are fully dependent on management to conduct
the Company's business. Success of the business depends on the skills and
efforts of management and, to a large extent, on the active participation of the
Company's executive officers and key employees. Furthermore, the Company has not
entered into employment agreements with these officers and employees. The
inability to attract, retain and motivate qualified senior management, property
managers or other skilled employees could adversely affect the Company's
business.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The Company's business is subject to the operating risks inherent in the
lodging industry. These risks include changes in general and local economic
conditions, cyclical overbuilding in the lodging industry, varying levels of
demand for rooms and related services, competition from other motels, changes in
travel patterns, the recurring need for renovation, refurbishment and
improvement of motel properties, changes in governmental regulations that
influence or determine wages, prices and construction and maintenance costs,
changes in interest rates, the availability of financing for operating or
capital needs and changes in real estate taxes and other operating expenses.
Regulatory compliance, downturns or prolonged adverse conditions in real estate
or capital markets or in national or local economies will have a material
adverse effect on the Company's results of operations. See "Item 1.
Business--Competition in the Lodging Industry."
UNCERTAIN TAX EFFECTS OF LEASES
The success of the Company's plan to obtain leases with options to
purchase motel properties maybe materially affected by several tax related
issues. A motel owner who has substantial equity in the motel may be subjected
to high capital gains tax (and/or income tax from the recapture of depreciation)
\ 11
<PAGE> 14
on the equity if the property is sold at a market value that far exceeds the
owner's basis. If a motel owner leases the property to the Company in a
transaction that is not later determined as a sale under Internal Revenue Code
Section 1001, a motel owner may be able to delay or save the capital gains tax
until the exercise of the purchase option.
The Internal Revenue Service ("IRS") may under certain circumstances
define a lease with option to purchase as an installment sale, which will render
the amount received by the motel owner as consideration for the purchase option
and the lease payments taxable. The IRS and case law indicate that the
characterization of a transaction as a lease or a sale is based on facts and
circumstances surrounding the transaction. The factors used to characterize a
transaction as a lease include, but are not limited to: (i) the intent of the
parties; (ii) business reasons for the lease; (iii) the amount of the exercise
price of the option; (iv) consistency of treatment of transaction as a lease for
tax purposes; and (v) the form of rent to be paid. Other factors that have been
used to hold the transaction as an installment sale include, but are not limited
to: (i) the allocation of the risk of loss to tenant, (ii) the tenant's intent
to purchase the property, (iii) whether the sum of the lease payments and the
option price equal the fair market value of the property at the commencement of
the lease, and (iv) whether the tenant has the benefits and burdens of
ownership. These factors are not determinant jointly or severally. The Company
does not intend or expect the leases to be determined as installment sales
instead of operating leases, since the proposed terms appear to denote an
operating lease instead of a sale. However, there is no assurance nor can the
Company determine whether any one factor of the lease transactions contemplated
will be used by the IRS to characterize the transaction as an installment sale
so as to remove one of the incentives of the transaction to the motel owners.
Under the generally accepted accounting principles ("GAAP"), certain
lease transactions may be classified as a capital lease by an auditor based on a
number of factors which will negatively affect the parties' ability to
depreciate and amortize the motel for tax deduction purposes. If a lease meets
any of the factors, GAAP will treat the transaction as a capital lease and not
an operating lease. In the event that a transaction is determined as a capital
lease, it may be considered a factor in the characterization of the lease of the
transaction by the IRS or otherwise negatively affect the tax burden of the
parties.
If the transaction is characterized as a sale, the motel owner may also
be required to recapture the depreciation of the amount allocated to the
building and personal property so as to trigger a tax burden at the commencement
of the lease.
The Company has not sought the specific approval or guidance of the IRS
by way of a private letter ruling regarding the tax effects of the lease
transactions contemplated by the Company. The IRS may determine on a
case-by-case basis whether a specific lease and the facts surrounding the
transaction constitute a sale instead of a lease. There is no assurance that any
one transaction will not be defined or otherwise determined by the IRS as a sale
and, therefore, removing the tax deferring benefits of the transactions to a
motel owner. The Company may not be successful in its attempt to provide other
incentives to the motel owner sufficient to acquire the operation of the
property. The failure of the Company to continue to acquire more properties in
its portfolio will adversely and materially affect its profitability and results
of operation.
RISKS ASSOCIATED WITH EXPANSION
The Company's revenues, net income, obligations and liabilities may grow
substantially in the next several years as a result of adding new management
agreements, leases with options to purchase and from other incidental business
opportunities. The Company intends to continue to pursue an aggressive growth
strategy for the foreseeable future, but there can be no assurance that the
Company will successfully achieve its growth objectives. The Company is subject
to a variety of business risks generally associated with growing companies. The
Company's ability to pursue successfully new growth
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<PAGE> 15
opportunities will depend on many factors, including, among others, the
Company's ability to identify suitable growth opportunities, finance
acquisitions and renovations and successfully integrate new motels into its
operations. While the Company believes that it can obtain sufficient capital to
fund its growth strategy in the near term, this belief is primarily premised on
adequate cash being generated from operations. There can be no assurance that
the Company will generate adequate cash from operations. In addition, the
Company may seek additional debt or equity financing, depending upon the amount
of capital required to pursue future growth opportunities or address other
needs. There can be no assurance that such increase or additional financing will
be available to the Company on acceptable terms.
In addition, there can be no assurance that the Company will be able to
integrate successfully the new motels into its portfolio, or that the leases and
the management agreements will achieve revenue and profitability levels.
Furthermore, the Company's expansion could adversely affect the financial
performance of the Company's existing portfolio or its overall results of
operations. Acquiring the operation of new properties may present operating and
marketing challenges that are different from those currently encountered by the
Company. There can be no assurance that the Company will anticipate all of the
changing demands that expanding operations will impose on its management,
management information and reservation systems, and the failure to adapt its
systems and procedures could have a material adverse effect on the Company's
business.
DEPENDENCE ON MANAGEMENT AGREEMENTS AND ON CERTAIN MOTEL OWNERS
Management agreements are acquired, terminated, and renegotiated in the
ordinary course of the Company's business. The Company's Chief Executive Officer
and Director, C. Richard Kearns, who currently owns approximately fifty-three
percent (53%) of the Company's issued and outstanding common stock, has
interests in five motels managed by the Company. Nine of the seventeen motel
properties operated by the Company are owned by Best Inns, Inc., a Kansas
corporation. A material deterioration in the operating results of one or more of
these motel properties and/or a loss of the related management agreements could
adversely affect the value of the Company's investment in such motel properties.
In addition, the Company historically has relied on the affiliates of the
Company's executive officers who are motel owners and investors for various
acquisition, renovation, development and other expansion opportunities. Although
the Company believes that it enjoys satisfactory relationships with such motel
owners and investors, there can be no assurance that such relationships will
remain satisfactory or that such owners and investors will continue to provide
expansion opportunities in the future.
CONFLICTS OF INTEREST
The Company's Chief Executive Officer and Director, C. Richard Kearns,
and his affiliates are, collectively, parties to certain management agreements
as well as other business arrangements with the Company. In addition, Mr. Kearns
and certain of his affiliates were founders and principal shareholders of TIM
prior to the acquisition by the Company. See "Item 7. Certain Relationships and
Related Transactions--Acquisition of Territorial Inns Management, Inc."
Although the Company believes that its management agreements with these
persons are on terms no less favorable to the Company than those that could have
been obtained from unaffiliated third parties, there can be no assurance that
these parties will continue to transact business with the Company or that their
ownership positions with the Company will not influence the terms on which they
transact business with the Company in the future. The shareholders of the
Company also recently approved a Stock Redemption Agreement wherein the Company
will redeem up to 2,500,000 shares of common stock from Mr. Kearns, without cash
consideration, in an amount equal to the number of shares of common stock sold
to certain selected investors who are creditors of Mr. Kearns. See "Item 7.
Certain Relationships and Related Transactions." The foregoing could give rise
to conflicts of interest.
13
<PAGE> 16
The Board of Directors of the Company usually requires that any material
transaction between the Company and related parties be approved by a majority of
the directors not affiliated with the transaction (the "Independent Directors"),
if any, based upon such Directors' determination that the terms of the
transaction are no less favorable to the Company than those that could have been
obtained from unrelated third parties. The Directors may also seek the approval
of the shareholders of the Company to ratify any transaction that may involve a
conflict of interest.
RISKS ASSOCIATED WITH OWNING OR LEASING REAL ESTATE
The Company is planning to acquire lease agreements with purchase
options in its portfolio. Accordingly, the Company will be subject to varying
degrees of risk generally related to leasing and managing real estate. These
risks include, among others, changes in national, regional and local economic
conditions, local real estate market conditions, changes in interest rates and
in the availability, cost and terms of financing, liability for long-term lease
obligations, inclement regional weather conditions, the potential for uninsured
casualty and other losses, the impact of present or future tax and environmental
legislation and compliance with environmental laws, and adverse changes in
zoning laws and other regulations, many of which are beyond the control of the
Company. In addition, real estate investments are relatively illiquid,
therefore, the ability of the Company to vary its portfolio in response to
changes in economic and other conditions may be limited.
SIGNIFICANT LEASE OBLIGATIONS
The Company's continuing efforts to lease motel properties will cause
the Company to incur significant financial obligations. There is no assurance
that the gross revenue it receives from the operation of the properties will be
sufficient to meet the terms of the leases. The degree to which the Company is
leveraged, as well as its lease payment obligations, could have important
consequences to holders of common stock, including: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations may be dedicated
to the payment of lease payments, thereby reducing the funds available to the
Company for its operation; and (iii) certain of the Company's future
indebtedness may contain financial and other restrictive covenants, including
those restricting the incurrence of additional indebtedness, the creation of
liens, the payment of dividends and sales of assets and imposing minimum net
worth requirements. There can be no assurance that the Company's operating
results and revenue will be sufficient for the payment of the Company's
indebtedness. In addition, the Company's liabilities could increase its
vulnerability to adverse general economic and lodging industry conditions and
could impair the Company's ability to take advantage of significant business
opportunities that may arise.
CONTROL BY PRINCIPAL SHAREHOLDERS
As of April 30, 1999, the Company's Chief Executive Officer and
Director, C. Richard Kearns, beneficially owned approximately fifty-three
percent (53%) of the outstanding shares of the Company's common stock and the
Company's officers and directors collectively owned an aggregate of seventy
percent (70%) of the outstanding shares of the Company's common stock. The
Articles and Bylaws of the Company provide that the Board of Directors is
elected and shareholder action is taken pursuant to the majority votes of the
common stock shareholders. The ownership of the common stock by Mr. Kearns and
other officers and directors of the Company ensure such parties' ability to
control the election of the members of the Board of Directors and will enable
such parties to control the management and affairs of the Company.
See "Item 7. Certain Relationships and Related Transactions."
COMPETITION
As discussed above, the market for economy motels and lodging properties
is highly
14
<PAGE> 17
competitive. There are no substantial barriers to initial entry, and the Company
expects competition to persist, intensify and increase in the future. By adding
more motel properties to its portfolio, the Company will gain more experience
and recognition in the lodging industry. There can be no assurance that
competitors will not develop management terms or models that render the
Company's plans obsolete or less marketable, or that the Company will be able to
compete successfully. See "Item 1. Business--Competition in the Lodging
Industry."
LACK OF DIVERSIFICATION
The Company does not intend to invest at this time in any other assets,
businesses or securities other than what is described in this Registration
Statement. The Company will be subject to the risks associated with lack of
diversification.
SEASONALITY AND QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The lodging industry is seasonal in nature. Quarterly earnings may be
adversely affected by events beyond the Company's control, such as poor weather
conditions, economic factors and other considerations affecting travel. In
addition, the loss of one or several management agreements or leases and the
timing of achieving incremental revenues from additional motels also may
adversely impact earnings. If the Company loses a management agreement or lease
that has capitalized acquisition costs, the Company may record a write-off of
the remaining book value of such capitalized costs, which could have a material
adverse effect on the operating results during the period in which the write-off
occurred.
ENVIRONMENTAL MATTERS
Under various federal, state, local and foreign environmental laws,
ordinances and regulations ("Environmental Laws"), a current or previous owner
or operator of real property may be liable for the cost of removal or
remediation of hazardous or toxic substances on, under or in such property. Such
laws often impose liability without regard to whether the owner or operator knew
of, or was responsible for, the release of such hazardous or toxic substances.
The presence of contamination from hazardous or toxic substances, or the failure
to remediate such contaminated property properly, may adversely affect the
owner's ability to sell or rent such real property or to borrow using such real
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances also may be liable for the cost of removal or
remediation of such substances at the disposal or treatment facility, whether or
not such facility is or ever was owned or operated by such person.
The operation and removal of certain underground storage tanks also are
regulated by federal and state laws. In connection with the operation of its
motel properties, including those leased or managed by the Company, it could be
held liable for the cost of remedial action with respect to such regulated
substances and storage tanks and claims related to them. In addition to clean-up
actions brought by federal, state and local agencies, the presence of hazardous
or toxic substances on a motel property also could result in personal injury or
similar claims by private plaintiffs.
The Company has not performed, or received the results from, any
environmental investigations on any of its leased or managed properties.
Additionally, environmental laws and conditions are subject to frequent change.
There can be no assurance that environmental liabilities or claims will not
arise and adversely affect the Company in the future.
FORWARD-LOOKING STATEMENTS
"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
A number of the matters and subject areas discussed in the preceding
"Risk Factors" section, and elsewhere in this Registration Statement, that are
not historical or current facts deal with potential future circumstances and
developments. The discussion of these matters and subject areas is qualified by
the
15
<PAGE> 18
inherent risks and uncertainties surrounding future expectations generally, and
also may materially differ from the Company's actual future experience involving
any one or more of these matters or subject areas. The operation and results of
the Company's business also may be subject to the effect of other risks and
uncertainties in addition to the relevant qualifying factors identified in the
"Risk Factors" section, and elsewhere in this Registration Statement, including
but not limited to the following:
The ability of the Company to maintain the expected level of revenue of
each property, the economy of the lodging industry, the adequacy of the
Company's systems and infrastructure to meet the Company's expansion, marketing
plans and customer demand, the success of efforts to improve and satisfactorily
address issues relating to the management and the operations of the properties;
The ability of the Company to obtain a profitable margin based on the
number of motel properties managed and leased by the Company and the sufficiency
of the gross revenue of the properties to provide financial viability to the
Company's business; and
The Company's competitors' decision to enter into similar markets and
their ability to use resources to acquire motel properties ahead of the Company.
ITEM 2
FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
FISCAL YEAR END DATA
The following table sets forth certain selected consolidated financial
data for the Company. The selected statement of operations data and balance
sheet data of the Company for the fiscal year ended March 31, 1995 are derived
from the Company's unaudited Combined Financial Statements. The selected
statement of operations and balance sheet data of the Company for the fiscal
years ended March 31, 1996, 1997 and 1998, and December 31, 1998, are derived
from the Company's audited Financial Statements, of which, the fiscal years
ended March 31, 1998 and December 31, 1998, are included elsewhere in this
Registration Statement.
The selected consolidated financial data set forth below should be read
in conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and related Notes, Management's Discussion and Analysis of
Financial Condition and other financial information included elsewhere in this
Registration Statement.
16
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED MARCH 31
------------ ----------------------------------------------------
December 31,
1998(1) 1998 1997 1996 1995
------------ ---------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Egg revenues -- 0 5,715,711 3,772,678 3,586,036
Management revenues 37,515 -- -- -- --
Other revenues 0 0 0 0 0
Total revenues 37,515 0 5,715,711 3,772,678 3,586,036
Operating expenses:
Cost of egg sales (includes feed costs and
depreciation) -- -- 5,091,817 3,507,399 3,685,106
General and administrative expenses
85,979 -- 569,605 434,060 382,169
Total operating expenses 85,979 -- 5,661,422 3,941,459 4,067,275
Operating loss (48,464) -- 54,294 (168,781) (481,239)
Other income(loss) 0 0 (62,715) (152,862) (54,620)
Net loss (48,464) (1,960,324) (8,481) (321,643) (535,859)
CONSOLIDATED BALANCE SHEET DATA:
Current assets 68,180 0 1,639,860 1,922,614 797,881
Net fixed assets 0 0 334,630 356,410 948,920
Stock holdings 0 0 -- -- 1,000,000
Other assets 60,000 0 252,850 253,310 24,326
Total assets 128,180 0 2,227,340 2,532,334 2,771,127
Current liabilities 116,644 0 913,099 1,064,028 1,034,506
Long-term debt 0 0 -- -- 1,306,488
Other liabilities 1,173,695 1,742,652 1,096,564 1,312,153 0
Total liabilities 1,290,339 1,742,652 2,376,181 2,340,994
Shareholders' equity (1,162,159) (1,742,652) 217,672 156,153 1,144,119
Total liabilities and shareholders' equity
128,180 0 2,227,340 2,532,334 2,771,127
Primary Earnings (loss) per share
(.0188) (0.7606) (0.0002) (0.0070) --
</TABLE>
(1) The Company changed the fiscal year end from March 31 to December 31,
effective October 1998.
INTERIM PERIOD DATA
The following table sets forth certain selected consolidated financial
data for the Company. The selected statement of operations and balance sheet
data of the Company for the interim period ended
17
<PAGE> 20
March 31, 1999, are derived from the Company's unaudited first quarter 1999
Financial Statements.
The selected financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Financial
Statements and related Notes, Management's Discussion and Analysis of Financial
Condition and other financial information included elsewhere in this
Registration Statement.
<TABLE>
<CAPTION>
INTERIM PERIOD ENDED
March 31,1999
--------------------
<S> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Management revenues 68,890
Other revenues 0
Total revenues 68,890
Operating expenses:
Cost of egg sales (includes feed costs and 0
depreciation)
General and administrative expenses 138,623
Total operating expenses 138,623
Operating loss (69,733)
Net loss (69,733)
CONSOLIDATED BALANCE SHEET DATA:
Current assets 65,993
Net fixed assets --
Stock holdings --
Other assets 60,000
Total assets 125,993
Current liabilities 155,190
Long-term debt 0
Other liabilities 1,032,695
Total liabilities 1,187,885
Shareholders' equity (1,061,892)
Total liabilities and shareholders' equity 125,993
Primary Earnings (loss) per share (0.0271)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Selected
Consolidated Financial Data, Financial Statements, and the related Notes thereto
included elsewhere in this Registration Statement.
OVERVIEW OF CURRENT OPERATIONS
As of March 31, 1999, the Company's revenues are derived mainly from
management fees paid for the operation of approximately seventeen motel
properties. The management agreements currently provide for the Company to
receive approximately five percent (5%) of the total gross revenue received from
each of the properties in addition to all expenses and salaries of employees
working on the
18
<PAGE> 21
properties to be paid by the owners of the motels. The amount of management fees
collected during the first quarter of 1999 was $68,890. The total outstanding
management fees due and advances for costs and expenses to be reimbursed by the
motel owners as of March 31, 1999 was $61,444.
CHANGE OF FISCAL YEAR
Effective October 1, 1998, the Company changed its fiscal year to end on
December 31 from March 31 to make the financial records of the Company
correspond with the motel operations of TIM.
RESULTS OF OPERATIONS
During the fiscal years ending March 31, 1992 through March 31, 1997,
the Company was in the wholesale egg business. The business began to fail mainly
due to the loss of the operation of a large farm in Puxico, Missouri from a
natural disaster, the loss of the egg breaking and processing business in
December 1996, and the overall downturn of the egg industry during that period.
The Company was no longer able to sustain or continue the egg business after
1997 and ceased the egg production business in 1997. In October, 1998, the
Company sold its wholly-owned subsidiary, Country Maid Farms, to two principal
shareholders and directors of the Company who assumed the liabilities of the
Company. See "Item 7. Certain Relationships and Related Transactions--Sale of
Country Maid Farms."
In September 1998, the Company entered an agreement to acquire
Territorial Inns Management, Inc, a Nevada corporation, ("TIM") as its
wholly-owned operating subsidiary to conduct the management of motels. TIM had
eleven management contracts at the time of the Company's acquisition. As of
March 31, 1999, there were agreements to manage eighteen properties in TIM's
portfolio. The management fees collected in the last quarter of 1998 was
$37,515, and the outstanding balance of receivables and advances to properties
was $68,180.
The Company plans to acquire leases with options to purchase from motel
owners. The Company will operate the leased motels and receive the total gross
revenue from the motels. A fixed annual lease payment or a percentage,
approximately twenty percent (20%) of the gross revenue of the leased motel,
will be payable to the motel owner as rent on a monthly basis. Management
expects the gross revenue received by the Company to increase substantially upon
the acquisition of the leases. Although the Company received affirmative
responses to its proposals, there is no assurance that the Company will be able
to obtain the leases and meet the demands of the motel owners during actual
negotiation of the leases.
SALARIES AND PAYROLL TAXES
Salaries and payroll tax expenses were $47,909 for the fiscal year ended
December 31, 1998. This amount was a substantial increase from the previous
fiscal year ended March 31, 1998, during which, the Company was not operating
and, therefore, did not pay a material amount as salaries. Growth in salaries
and payroll taxes has been directly related to development and support of the
Company's entrance into the lodging industry in October 1998. The Company had
acquired the management and operation of a total of eighteen properties by the
end of the first quarter of 1999 and had twenty-five (25) full-time and
thirty-three (33) part-time employees which included administrative, management
and maintenance staff of the motel properties. The Company expects salaries and
payroll expenses to grow as it continues to acquire the operation of more motel
and lodging properties in its portfolio. The Company has no assurance that the
revenue generated by the properties will be sufficient to pay for the increased
expenses and salaries which will be dependent on the number of properties
managed and the financials demands of each property, and the revenue generated
from the motels which may vary from season to season. See "Item 1.
Business--Risk Factors, Seasonality and Quarterly Fluctuations in Operating
Results."
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<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
Since October 1998, the Company has financed its operations and capital
expenditure requirements through income from the management of properties and
through private offerings of common stock. During the last quarter of 1998, the
Company received $37,515 as management fees and had raised $60,000 from an
individual investor. This is a substantial increase from the fiscal year ended
March 31, 1998 when no revenue was received and the Company did not attempt to
raise any funds.
During 1999, the Company anticipates the monthly revenue from operations
to steadily increase. This increase may be offset by the capital expenditures
related to acquiring new operations and adding new employees. The Company has a
Letter of Intent to acquire the operations of ten motel properties located in
Minnesota, North Dakota, South Dakota and Wisconsin from an unrelated third
party. The lease will be a triple net lease where the Company will pay for all
expenses and costs of operations and pay a fixed annual lease payment of
$1,750,000, payable in equal monthly installments. The Company may also elect to
exercise its option to purchase the property upon the payment of $18,000,000 to
the motel owner. The consideration for the option will be the issuance of
$3,500,000 of preferred stock with a cash dividend rate of eight percent (8%)
paid monthly and registration rights to sell $500,000 of the convertible
preferred stock at the Company's initial public offering. Concurrently, the
Company has also entered into a Letter of Intent with the same third party to
acquire thirty-five percent (35%) of its issued and outstanding stock with an
option to purchase the remaining sixty-five percent (65%) upon the payment of
$2,500,000, exercisable during the period beginning two years from the closing
date and expiring five years after the closing date. The Company is conducting
further negotiation and due diligence of the properties prior to finalizing the
transactions. In the event that the Company and motel owner do not come to an
agreement on all the terms of the lease agreement with option to purchase, the
transaction may not close within the time frame anticipated by the Company. See
"Item 1. Business--Risk Factors, Uncertain Tax Effects of Leases."
Accounts receivable of the Company totaled $68,180 at December 31, 1998,
which is comprised of receivables of management fees and amounts due for
advances to properties.
During the first quarter of 1999, the Company reduced related party debt
from $1,173,695 at December 31, 1998 to $1,053,695 at March 31, 1999. See "Item
7. Certain Relationships and Related Transactions--Shareholder Loans."
The Company anticipates future operations and capital expenditures to be
funded by private and public offerings of the Company's stock and the revenue
received from the operations of the motel properties.
EARNINGS (LOSS) PER SHARE
The Company's net loss per share at fiscal year end December 31, 1998
was ($.0188), while the net loss per share for the fiscal years ended March 31,
1997 and March 31, 1996 were ($.0002) and ($.0070), respectively. It should be
noted that these figures were somewhat impacted by the lack of operation during
the first three quarters of 1998 and the issuance of additional shares in
connection with the Company's acquisition of TIM effective October 12, 1998,
resulting in more outstanding shares at the end of fiscal year ending December
31, 1998.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
which establishes standards for the reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full set of
general purpose financial statements ("SFAS No. 130"). SFAS No. 130 requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and
20
<PAGE> 23
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company believes the adoption of SFAS No.
130 will have no significant impact on the Company's consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
of an Enterprise and Related Information" (SFAS No. 131) which establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes the related
disclosures about products and services, geographic areas and major customers.
Provisions of SFAS No. 131 are effective for fiscal years beginning after
December 15, 1997. The Company believes that adoption of SFAS No. 131 will have
no significant impact on the Company's consolidated financial statements.
YEAR 2000 COMPLIANCE
Certain important operations of the Company, including but not limited
to guest registrations, accounting and employee record keeping, electronic and
telephone systems, and other computerized systems are dependent upon the proper
and continuous operation of the Company's computer systems in its principal
office and in a number of the individual properties managed by the Company. The
Company is aware of potential risks associated with programming codes at
different levels of operation in existing computer systems as the year 2000
approaches, including the real time clock, system BIOS, operating systems, and
applications. The year 2000 problem ("Y2K") is perceived to be pervasive and
complex, and the Company has no way of determining at this time the extent of
the effect when the computer systems' internal clocks turn from "99" to "00." It
is the Company's goal to ensure that computer systems in its principal office
and certain property sites are properly backed-up or otherwise able to function
properly, based on the untested opinions and representations of experts and
computer professionals, after the date change from 1999 to 2000 ("Y2K
Compliant"). However, the actual operation of computers or effects will remain
unknown until after January 1, 2000.
One issue of concern is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information may generate erroneous data or fail.
Therefore, in an attempt to minimize the effects of Y2K, the Company has taken
the following steps:
1. The Company has entered into an agreement with a third-party supplier to
replace all nine Best Inns properties with Y2K Compliant computer systems for
all aspects relating to the management of the motel facility including
reservations, guest check-in, accounting and other record keeping functions. In
March, 1999, conversion of the computer system at one Best Inns property was
completed and a conversion of the computer system at another Best Inns is
scheduled for May 1999. The Company endeavors to replace the remaining seven
computer systems at the rate of one property per month and complete the
replacements for all nine Best Inns prior to year 2000. The Company estimates
the cost for the purchase of each system at each Best Inns property to be
approximately $14,000. The Company expects to generate sufficient revenues from
the Best Inns properties to cover the costs of purchasing the replacements,
however, there is no assurance that revenues will not decrease to a level where
the Company will not be able to complete the replacements. The Company's
alternatives to purchasing the computer systems will be leasing or purchasing
the computers on credit terms, or installing enabler cards designed to allow the
computers to make the necessary Y2K conversions.
2. The Company has requested a review and proper upgrade for its Novell
server network located in its principal office in Lebanon, Oregon. The Company
has already replaced one of its computers with a
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<PAGE> 24
Y2K Compliant computer and expects to replace all of its principal office
computers prior to the year 2000. The Company's alternatives to purchasing the
computer systems will be leasing or purchasing the computers on credit terms, or
installing enabler cards designed to allow the computers to make the necessary
Y2K conversions.
3. The computer systems in the Best Western Franchise located in Bethany,
Missouri has been replaced with a Y2K Compliant system under the direction of
the franchisor.
4. Other than the ten properties mentioned above, the Company has seven
other motel properties that are not yet on any automated or computer systems.
All operations and record keeping tasks including accounting, reservations and
registrations of guests in these properties are conducted in manual ledgers or
other means without the assistance of computers. The Company does not believe
that the Y2K issue will affect the internal operations of these properties other
than to the extent that each of these properties are reliant on third parties,
including utilities and third party suppliers who may be subject to Y2K risks.
Significant uncertainty exists concerning the potential costs and
effects associated with Y2K compliance as applied to the Company. Even though
the Company's business is not solely dependent on computer systems, its business
may be likely affected to some extent if its systems are not Y2K Compliant by
the turn of the century or if the local utilities companies including telephone
services, electricity and gas companies, and other suppliers are not Y2K
Compliant. The Company has not made an independent review or verification with
each of its suppliers to determine whether they are Y2K Compliant. Even if the
Company has installed what it believes to be Y2K Compliant computer systems in
its principal office and the managed motel properties, due to the general lack
of knowledge regarding the Y2K issue there can be no assurances that the systems
will indeed function properly as expected. In the event that any of the
Company's or its suppliers' computer systems are not Y2K Compliant or do not
function properly, there may be material adverse effects on the Company's
business, results of operations and financial condition, including but not
limited to, the inability of each property to provide lodging services to its
guests, loss of reservation or registration data, and loss of accounting and
administrative information. Although the Company has made efforts to back up
each of its systems in its principal place of business, there is no assurance
that such effort will be successful and that the Company will not be affected.
ITEM 3
PROPERTIES
The Company leases approximately 5,020 square feet for its executive
offices located at 2500 South Main Street, Lebanon, Oregon under a five-year
operating lease that commenced on October 1, 1998 and expires October 1, 2003.
The co-owner of the building where the executive office space is located is the
Company's Chief Executive Officer, C. Richard Kearns. See "Item 7. Certain
Relationships and Related Transactions--Principal Office Lease." The Company
pays rent in the amount of $4,000 each month. The lease provides that, after
giving written notice not less than two months prior to the end of the term, the
Company may extend the lease for three additional renewal terms of five years
each, for a period of up to twenty years. The Company believes that its current
facilities are adequate and are suitable for their current use.
The Company manages and operates a total of eighteen properties. The
Company is in negotiations to obtain the Best Inns motels under an agreement
where the Company will operate the motels and receive the monthly gross revenue
of each property and pay to Best Inns, Inc. a fixed monthly payment.
Additionally, the agreement includes an option for the Company to purchase the
properties. The Company manages the remaining properties for a fixed percentage
of the gross revenue of each. See "Item 1. Business--Growth Strategy, Long-Term
Lease Agreements with Purchase Options and --The Company's Portfolio, Management
Agreements."
22
<PAGE> 25
PROPERTIES
<TABLE>
<S> <C> <C> <C>
Best Western I-35 Inn 78 Units Best Inns 91 Units
4014 Miller St. 1529 West Walnut Ave.
Bethany, MO 64424 Dalton, GA 30720
Select Inn 91 Units Best Inns 83 Units
100 Bulldog Blvd. 1209 North Keller Dr.
Borger, TX 79007 Effingham, IL 62401
Willow Springs 44 Units Best Inns 110 Units
5 "B" Street 8220 Dix Ellis Trail
Cheney, WA 99004 Jacksonville, FL 32256
Village Inn 27 Units Best Inns 116 Units
1110 W. Fm 468 1255 Franklin Rd.
Cotulla, TX 78014 Marietta, GA 30067
Nendels Inn & Suits 60 Units Best Inns 104 Units
2523 E. Wyatt Earp Blvd. 2700 W. DeYoung
Dodge City, KS 67801 Marion, IL 62959
Nendels Inn 106 Units Best Inns 153 Units
2811 West 2nd Ave. 222 S. 44th St.
Kennewick, WA 99336 Mt. Vernon, IL 62864
Select Inns 37 Units Best Inns 75 Units
Rt. 1 Box 60 2738 Graves Rd.
Tulia, TX 79088 Tallahassee, FL 32303
Nendels Inn 53 Units Best Inns 89 Units
1405 North 1st St. 31 N. Green Bay Rd.
Yakima, WA 98901 Waukegan, IL 60085
Best Inns 107 Units Summer Hill Apartments 28 Units
1905 W. Market St. 1110 W. Fm 468
Bloomington, IL 61701 Cotulla, TX 78014
(Apartment Complex)
</TABLE>
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<PAGE> 26
ITEM 4
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 30, 1999
regarding the beneficial ownership as of April 30, 1999 of the Company's common
stock by (a) each person known by the Company to be a beneficial owner of more
than five percent (5%) of the outstanding common stock of the Company, (b) each
director of the Company, (c) each executive officer of the Company, and (d) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
(3)
(1) (2) Shares (4)
Title Name and Address Beneficially Percentage
of Class of Beneficial Owner Owned(1) of Class(2)
------------ ------------------- ------------ -----------
<S> <C> <C> <C>
Common Stock C. Richard Kearns(3) 4,192,751(4) 52.83
2500 South Main Street
Lebanon, OR 97355
Common Stock John C. Moneymaker 375,595 4.73
1930 E. Meadowmere
Springfield, MO 65807
Common Stock Terrence J. Trapp 550,000 6.93
274 Snyder Mtn. Rd.
Evergreen, CO 80439
Common Stock Ellis Stutzman 220,000 2.77
2500 South Main Street
Lebanon, OR 97355
Common Stock Mark D. Owen 220,000 2.77
2500 South Main Street
Lebanon, OR 97355
Common Stock Thomas J. Krueger 990,000(5) 12.47
522 Diving Hawk Trail
Madison, WI 53713
Common Stock All Officers and 5,558,346 70.03
Directors
as a Group (5 persons)
</TABLE>
(1) Pursuant to applicable rules of the Securities and Exchange Commission,
"beneficial ownership" as used in this table means the sole or shared
power to vote shares (voting power) or the sole or shared power to
dispose of shares (investment power). Unless otherwise indicated the
named individual has sole voting and investment power with respect to
the shares shown as beneficially owned. In addition, a person is deemed
the beneficial owner of those securities not outstanding which are
subject to options, warrants, rights or conversion privileges if that
person has the right to acquire beneficial ownership within sixty days
after April 30, 1999.
(2) Percentage of beneficial ownership is based upon 7,936,928 shares of
common stock outstanding as of April 30, 1999. For each individual, this
percentage includes common stock of which the individual has the right
to acquire beneficial ownership either currently or within sixty days of
April 30, 1999, including, but not limited to, upon the exercise of an
option; however, the common stock is not deemed outstanding for the
purpose of computing the percentage owned by any other individual.
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<PAGE> 27
(3) The Company has entered into a Stock Redemption Agreement with Mr.
Kearns to redeem up to 2,500,000 shares of the common stock of the
Company from Mr. Kearns. See "Item 7. Certain Relationships and Related
Transactions--Stock Redemption Agreement."
(4) Shares beneficially owned by Mr. Kearns include 110,000 shares held by
Northwestern Capital, LLC, a Washington limited liability company, of
which Mr. Kearns is the sole shareholder.
(5) Shares beneficially owned by Mr. Krueger include 935,000 shares held by
Cascade Pacific Equity Corp., of which Mr. Krueger is the sole
shareholder.
ITEM 5
DIRECTORS AND EXECUTIVE OFFICERS
Management of the Company is vested in its Board of Directors and
executive officers. The directors are elected by the shareholders. The officers
of the Company hold office at the discretion of the Board of Directors. There
are currently three directors who were elected for a three-year term at the
Company's annual meeting of shareholders held on April 30, 1999.
The directors and executive officers of the Company and their respective
ages as of April 30, 1999 are as follows:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD WITH THE
NAME AGE COMPANY
------------------------ -------- -------------------------------------
<S> <C> <C>
C. Richard Kearns 51 Chief Executive Officer, Director,
Chairman of the Board
John C. Moneymaker 51 Director
Terrence J. Trapp 50 Director
Ellis J. Stutzman 44 President
Mark D. Owen 35 Secretary/Treasurer, Director of
Operations
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
Following is a discussion of the business background of each director
and executive officer. C. Richard Kearns, Ellis J. Stutzman and Mark D. Owen are
full-time employees of the Company. Directors Terrence J. Trapp and John C.
Moneymaker devote only such time as may be necessary for the Company's business
and affairs:
C. Richard Kearns. Mr. Kearns has served as a director of the Company
since 1992 and as Chief Executive Officer and Chairman of the Board since
October 1, 1998. He has also served as a director and as Chief Executive Officer
of Territorial Inns Management, Inc., a Nevada corporation ("TIM") since August
12, 1998. Mr. Kearns has over twenty years of experience as a motel owner and
operator, and has participated in the management of over 35 motel properties.
Between May 1988 and August 1997, Mr. Kearns was Chairman of the Board and Chief
Executive Officer of Nendels Corporation, a motel franchise company, which in
1994, became Skylink Telecommunications Corporation, a telecommunications
company.
John C. Moneymaker. Mr. Moneymaker has been a director of the Company
since 1992 and served as President of the Company from March 1994 to September
1998. He has also served as a director and as Chief Executive Officer of TIM
since August 12, 1998. He has over ten years of experience in the motel business
as an owner. In addition, Mr. Moneymaker also has been in the egg business since
1973. Between 1976 and 1989, Mr. Moneymaker owned and operated Moneymaker Feed
25
<PAGE> 28
in Missouri which was in the business of egg production and animal feed
production. Mr. Moneymaker is the co-owner of a motel in Texas. He is currently
also a licensed real estate agent and specializes in motel sales and
acquisitions.
Terrence J. Trapp. Mr. Trapp has served as a director of the Company
since October 1, 1998. He has also served as a director of TIM since August 12,
1998. He has over seventeen years of experience in the hospitality industry and
twenty-five years of experience in the telecommunications industry. He began his
career at AT&T as a manager for approximately eight years. Thereafter, he worked
as an executive with numerous telecommunications and hospitality communications
companies, including serving as Vice President of Marketing with International
Telephone & Telegraph Corp. for four years, where he was instrumental in
developing and marketing programs designed for specific needs within the
hospitality industry. From 1994 to 1996, Mr. Trapp was President of Northwest
Hospitality Management in Portland, Oregon, a hospitality telecommunications
company, where he focused on direct sales and company strategy. Between May 1994
and the present, he has served as President of U.S. Communications Unlimited,
Inc., a telecommunications company. Since 1992, Mr. Trapp has owned and operated
Synergy Network Communications, Inc., a telecommunications company. From
February 1996 to November 1997, Mr. Trapp served as Vice-Chairman for Skylink
Telecommunications Corporation, where his responsibilities included overseeing
the sales and operations of its wholly-owned subsidiaries, "Comtel" and "Skylink
America, Inc." Mr. Trapp has also worked with the communications divisions of
McDonnell Douglas and Computer Sciences Corporation.
Ellis J. Stutzman. Mr. Stutzman has served as President of the Company
and TIM since October 1, 1998. He provides daily management and analysis for all
properties and supervises management and accounting staff in the corporate
office. Mr. Stutzman has over fifteen years of experience in hospitality
management and is a licensed real estate agent in the State of Oregon. Between
1973 and 1983, Mr. Stutzman was a real estate agent for Dan Stutzman Real Estate
where he gained experience in real estate development, appraisal, office
management, and income generation for both commercial and residential
properties. He also served on the Executive Board of the Linn-Benton Title
Company. Between 1983 and and the present, Mr. Stutzman was a partner of
Territorial Inns, an Oregon partnership, which has owned, operated, and managed
numerous motels. His duties have included on-site selection, construction,
financing, valuation, accounting, property rehabilitation, personnel, and the
acquisition and sale of motels. Since 1994, Mr. Stutzman has focused in the area
of motel purchasing and financing. He currently has ownership interests in
several motel properties and is a co-owner of the Best Western I-35 Inn in
Bethany, Missouri.
Mark D. Owen. Mr. Owen has served as Secretary/Treasurer of the Company
and TIM since October 1, 1998. He has approximately fourteen years of experience
in the management of motel properties. In 1985 and 1986, Mr. Owen was the
assistant general manager for Best Western Kings Way Inn in Portland, Oregon. At
Best Western, Mr. Owen participated in all facets of the motel and restaurant
operation including front desk, night audits, housekeeping, maintenance, and
banquet functions, and group tours. From 1986 to the present, Mr. Owen has been
employed by various management entities and responsible for the supervision of
up to thirty independent and franchised motel operations, offering full and
limited service accommodations, where his duties have included recruiting staff;
hiring and training managers; developing and implementing motel policies and
procedures; sales and marketing; purchasing; property renovations and
reconditioning; cost control; quality assurance; purchasing property; liability
and worker's compensation insurance coverage; development of operational
budgets; monitoring and analyzing property financial statements; compliance
assurance with governmental regulations including Occupational Safety and Health
Act ("OSHA") and Americans with Disabilities ("ADA"); and assisting with the
sales, acquisitions, and financing of properties. Since 1995, Mr. Owen is also
the owner of two motels in Texas and Kansas, and since 1990 has also owned and
managed a storage unit complex.
26
<PAGE> 29
SIGNIFICANT EMPLOYEES AND CONSULTANTS
Other than the directors and executive officers listed above, the
Company does not have significant employees or consultants as defined in Item
401(c) of Regulation S-K.
DIRECTOR COMPENSATION
Except for reimbursement of expenses, payment of health insurance and
applicable taxes for the insurance payments, directors of the Company generally
do not receive material compensation for services rendered as a director. The
Company does not compensate its directors for committee participation or for
performing special assignments for the Board of Directors.
ITEM 6
EXECUTIVE COMPENSATION
The following table sets forth information with regard to all
compensation paid to C. Richard Kearns, the Company's Chief Executive Officer,
for services rendered the Company during the fiscal year ended December 31,
1998. No compensation was made to the executive officers by the Company during
the fiscal years ending March 31, 1998 and March 31, 1997, nor did any of the
executive officers receive total annual salary, bonus and other compensation in
excess of $100,000 during any of the last three fiscal years.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------ ----------------------------
SECURITIES
UNDERLYING
NAME AND FISCAL YEAR STOCK OPTIONS/
PRINCIPAL POSITION ENDING SALARY OTHER AWARDS WARRANTS
- -------------------------- --------------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C>
C. Richard Kearns(1) Dec. 31, 1998 $0.00 $1814.17 -(2)
Chief Executive Officer
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Kearns became the Company's Chief Executive Officer as of October 1,
1998. The amount paid to Mr. Kearns is for the payment of health
insurance and applicable payroll taxes.
(2) There were no shares or options awarded as compensation to the Named
Officers during the last three fiscal years.
OPTION GRANTS
No stock options were granted to any officer of the Company during the
last three fiscal years.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There are no outstanding options, warrants, or stock appreciation rights
as of the end of the last three fiscal years.
ITEM 7
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has previously entered into certain transactions with
various parties, which had, at the time of the transaction, material direct or
indirect relationships with the Company, its officers,
27
<PAGE> 30
directors, or principal shareholders, their respective affiliates, or other
persons associated with the foregoing, as set forth below.
SALE OF COUNTRY MAID FARMS, INC.
Between 1994 and 1997, the Company, through its wholly-owned subsidiary
Country Maid Farms, was engaged in the production of poultry eggs for the
domestic wholesale egg market, and for the manufacture of mayonnaise and other
egg products. The Company had acquired Country Maid Farms effective July 1, 1992
from John C. Moneymaker, C. Richard Kearns and a third party in a Stock Purchase
Agreement. Pursuant to the agreement, the Company issued 280,360 (giving effect
to the 100:1 reverse stock split effective October 9, 1998) shares and
contingent options which were never triggered to the individual shareholders of
Country Maid Farms.
Country Maid Farms suffered losses for fiscal years 1996, 1997 and 1998.
Although Country Maid Farms suffered losses prior to 1996, the Company's
wholesale egg business began to fail mainly due to the damage to one farm in
Puxico, Missouri from an ice storm and a subsequent snow storm which forced the
farm to cease operation. Country Maid Farms had two other operating farms in
Redfield, South Dakota, of which, one was a "layer farm" and the other was a
"pullet farm." In 1997, Country Maid Farms was the target of a claim by Dakota
Best, Inc., a South Dakota corporation, which claimed that it suffered damages
on the "pullet farm." Although the officers of Country Maid Farms did not agree
with the claim, they determined that the costs and potential risks of the
lawsuit would far exceed the value of the farm. The officers granted the deeded
the "pullet farm" to Dakota Best, Inc. to avoid the unnecessary fees and costs
of a lawsuit.
During the 1996 fiscal year, Country Maid Farms began marketing its eggs
to a breaker plant operated by another wholly-owned subsidiary of the Company,
Country Maid Egg Products, Inc., a Nevada corporation. The eggs were broken and
processed into basic ingredients to be sold to food production companies to
produce mayonnaise and other products that used eggs. This business generated a
substantial amount for revenue for the Company. However, on December 27, 1996,
the owner of the plant operated by Country Maid Egg Products, Inc. was forced
into a bankruptcy sale. The Company attempted to purchase the plant to continue
its egg processing business, which was, at that time, the main source of revenue
for Country Maid Farms. The Bankruptcy Court ruled in favor of another purchaser
and thereafter Country Maid Egg Products, Inc. was forced to cease its egg
processing business which resulted in Country Maid Farms losing its last source
of revenue.
As of July 31, 1998, Country Maid Farms had outstanding liabilities in
the estimated amount of $257,720. The assets of Country Maid Farms on October 6,
1998 consisted of the "layer farm" in Redfield, South Dakota, valued in
September 1998 at approximately $10,000, with a mortgage of approximately
$13,928.87, and the damaged farm and real estate in Puxico, Missouri which was
estimated to be worth approximately $60,000.
On October 6, 1998, the Company entered into a Stock Purchase Agreement
with its Chief Executive Officer and Director, C. Richard Kearns, and Director,
John C. Moneymaker, wherein Mr. Kearns and Mr. Moneymaker purchased all of the
issued and outstanding stock of Country Maid Farms. The consideration for the
sale was an agreement by Mr. Kearns and Mr. Moneymaker to assume the liabilities
of Country Maid Farms and to indemnify the Company from any debts of Country
Maid Farms that were guaranteed by the Company, other than any liability for
violations of environmental law.
ACQUISITION OF TERRITORIAL INNS MANAGEMENT, INC.
In September 1998, after its decision to cease the egg business and sell
Country Maid Farms, the Board of Directors and the officers of the corporation
developed a strategic plan for improving its results of operations by a change
in the Company's focus to the hospitality industry. During the second quarter of
1998, the Company entered into a Stock Purchase Agreement effective October 12,
1998 ("Stock Purchase Agreement") for the acquisition of Territorial Inns
Management, Inc., a Nevada corporation ("TIM") with the shareholders of TIM.
28
<PAGE> 31
The Directors of the Company determined that the acquisition of TIM
provided the means for the Company to obtain significant assets. The assets of
TIM consisted of eleven motel management agreements. These management agreements
were purchased by TIM in a transaction effective September 28, 1998 from an
Oregon corporation of which the Company's Chief Executive Officer, C. Richard
Kearns, was a principal shareholder.
In exchange for the shares of TIM, the Company issued a total of
6,250,000 shares of its common stock to the shareholders of TIM, some of whom
are directors and executive officers of the Company, and other related parties,
including C. Richard Kearns (3,600,000 shares), John C. Moneymaker (200,000
shares), Terrence J. Trapp (500,000 shares), Ellis J. Stutzman (200,000 shares),
Mark D. Owen (200,000 shares), Northwestern Capital, LLC, a limited liability
company solely owned by Mr. Kearns (100,000 shares), Thomas J. Krueger (50,000
shares), and Cascade Pacific Equity Corp., of which Mr. Krueger is the sole
shareholder (850,000 shares).
The Company's Chief Executive Officer and Chairman of the Board, Mr.
Kearns, was a principal shareholder of TIM. Mr. Kearns owned approximately 57.6%
of TIM. As of September 30, 1998, before the acquisition of TIM, Mr. Kearns
beneficially owned a total of 104,600 shares of the 485,217 shares of the total
issued and outstanding common stock of the Company, which constituted
approximately 21.56%. These figures have been adjusted to give effect to the
100:1 reverse stock split effective October 9, 1998. See "Item 11. Description
of Registrant's Securities to Be Registered--Common Stock, Reverse Stock Split."
After the acquisition, Mr. Kearns beneficially owned 3,811,460 shares of the
6,850,825 shares of the issued and outstanding common stock of the Company,
which constituted approximately 55.64%, as of January 1, 1999. The transaction
substantially increased Mr. Kearns' percentage of ownership and control of the
Company. Based on the gross revenue of the management agreements of TIM, the
substantial losses and debts of the Company, and the benefits of the acquisition
including providing a means to enter into the lodging industry, the Board of
Directors determined that the transaction was fair and unanimously adopted and
ratified the Stock Purchase Agreement on September 28, 1998. The Board of
Directors did not obtain a fairness opinion. The shareholders of the Company
ratified the transaction at a duly noticed meeting of shareholders on April 30,
1999.
STOCK REDEMPTION AGREEMENT
As of April 30, 1999, Mr. Kearns, Chief Executive Officer and Chairman
of the Board of the Company, beneficially owned approximately 4,192,751 shares
of common stock of the Company which constituted 52.83% of the Company.
With the approval of the Board of Directors and the shareholders, the
Company entered into a Stock Redemption Agreement with Mr. Kearns, effective May
1, 1999. The Company agreed to conduct an offering of up to 2,500,000 shares of
its common stock to certain creditors of Mr. Kearns. The consideration to the
Company for the shares sold under this offering will be a redemption of common
stock owned by Mr. Kearns equal to the number of shares sold. The Company will
not receive any cash consideration. The Stock Redemption Agreement provides
additional consideration to the Company, in exchange for the Company's agreement
to pay the costs of the offering, in the form of the redemption of an additional
10,000 shares of common stock from Mr. Kearns. The Company is expecting to sell
approximately 2,500,000 shares which will reduce the number of shares
beneficially held by Mr. Kearns to 1,692,751 constituting approximately 21.33%
of the issued and outstanding shares of the Company's common stock.
29
<PAGE> 32
CERTAIN MANAGEMENT AGREEMENTS
Officers and directors of the Company have ownership interest in certain
properties managed by the Company. The Chief Executive Officer and Chairman of
the Board, C. Richard Kearns, is a partner in the ownership of certain motels
managed by the Company, including Best Western I-35 Inn, Bethany Missouri, and
Willow Springs, Cheney, Washington. Mr. Kearns is also a partner in Lodging
Hospitality Associates, an Oregon partnership, ("LHA") which claims title
ownership of Colonial Motor Inn, Yakima, Washington and Nendels Inn, Kennewick,
Washington. LHA is the tenant of Select Inn, Tulia, Texas, also managed by the
Company.
Mr. Kearns is also a partner of Territorial Inns, an Oregon partnership,
which is the managing member of Lodging Hospitality Associates LLC ("LHA LLC").
LHA LLC is a tenant of the Select Inn, Borger, Texas which is co-owned by John
C. Moneymaker, a director of the Company.
The President of the Company, Ellis J. Stutzman, is a partner in the
ownership of Best Western I-35 Inn.
CERTAIN MOTEL PROPERTY ACQUISITIONS
The Company may retain Southeast International Hotel Brokers Company
("Southeast"), a motel brokerage company, to assist the Company in the search
and negotiation of potential motel properties for acquisition purposes. Director
John C. Moneymaker is an agent of Southeast and may receive a portion of the
commission paid to Southeast as compensation for his services as a real estate
agent. There is no written agreement between Southeast and the Company. The
amount of the commission earned by Southeast may range from two to ten percent
(2% - 10%) of the amount of the purchase option price of the motel to be paid at
the closing of the transaction. Mr. Moneymaker may receive an amount which
equals twenty to fifty percent (20% - 50%) of the total commission paid to
Southeast. Mr. Moneymaker is neither an owner nor a director of Southeast. Mr.
Moneymaker has agreed to inform any motel owner who may enter into negotiation
with the Company of his directorship with the Company. As of April 30, 1999, Mr.
Moneymaker has not yet earned any commission from the Company's motel
acquisition activities.
SHAREHOLDER LOANS
C. Richard Kearns and John C. Moneymaker have been personally advancing
money to the Company, since prior to 1995, to continue its operation despite the
losses suffered by its operating subsidiary Country Maid Farms. As of March 31,
1999, the total amount due to Mr. Kearns and Mr. Moneymaker was $1,032,695. The
Company currently has no set arrangement with these principal shareholders as to
a repayment date and will make payments toward the loans as authorized by the
Board of Directors. One payment of One Hundred and Twenty Thousand Dollars
($120,000) was made toward the balance of the loan in March 1999 to Mr. Kearns.
PRINCIPAL OFFICE LEASE
The Company entered into a lease agreement with its Chief Executive
Officer, C. Richard Kearns, and his spouse, effective October 1, 1998, for the
lease of approximately 5,020 square feet for its executive offices in Lebanon,
Oregon. The lease provides that the monthly rent payment is $4,000 per month for
a term of five years, renewable for three additional terms.
The Company may be subject to various conflicts of interest arising out
of the relationship of the Company, its Board of Directors, affiliates and the
common shareholders. If conflicts do arise, they will not be resolved through
arms length negotiations but through the exercise of management's judgment
consistent with its fiduciary responsibility to the shareholders and the
Company's objectives and policies. The directors will minimize and resolve
conflicts by putting their fiduciary responsibility to the
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<PAGE> 33
shareholders ahead of personal interests. Certain directors of the Company will
only devote so much of their time to the business of the Company as in their
judgment is reasonably required and must decide how to allocate their time and
services among the Company and other entities with which they are involved.
The Company intends that all future transactions, including loans,
between the Company and its officers, directors, principal shareholders and
their affiliates will be approved by a disinterested majority of the Board of
Directors, agreed on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and, to the extent advisable by the
Board of Directors, recommended to shareholders for ratification.
ITEM 8
LEGAL PROCEEDINGS
To the best of the Company's knowledge, there are no material legal
actions pending against the Company.
ITEM 9
MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the OTC Bulletin Board under the
symbol "CMFI." The following table sets forth the range of high and low bid
prices for the Company's common stock on a quarterly basis for the two most
recent fiscal years and the three months ended March 31, 1999, as reported by
the OTC Bulletin Board Research Service (which reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions), unless otherwise stated. The foregoing and
following information should not be taken as an indication of the existence of
an established public trading market for the Company's common stock.
QUARTERLY COMMON STOCK PRICE RANGES(1)
<TABLE>
<CAPTION>
High Low
Period: Fiscal Year ending March 31, 1998
- -----------------------------------------
<S> <C> <C> <C>
First Quarter ending June 30, 1997 10.00 6.00
Second Quarter ending September 30, 1997 7.50 3.00
Third Quarter ending December 31, 1997 4.25 1.50
Fourth Quarter ending March 31, 1998 6.75 2.25
Period: Fiscal Year ending December 31, 1998
- --------------------------------------------
Second Quarter ending June 30, 1998 3.00 2.50
Third Quarter ending September 30, 1998 7.00 2.25
Fourth Quarter ending December 31, 1998 4.3125/7.00(2) 2.00/1.50(2)
Period: Fiscal Year ending December 31, 1999
First Quarter ending March 31, 1999 4.625 1.625
</TABLE>
(1) On October 9, 1998, the Company effectuated a reverse stock split in the
ratio of 100:1 for all of the outstanding and issued common stock. The
information provided in this table gives effect to the reverse stock
split.
(2) The Company disagrees with the bids provided by the OTC Bulletin Board
Research Service for the fourth quarter of 1998. As recorded by the
Company, the bid was 7.00 and the low bid was 1.50.
31
<PAGE> 34
The approximate number of record holders of the Company's common stock as
of April 30, 1999 was 205 shareholders inclusive of those brokerage firms
and/or clearing houses holding the Company's common shares for their clientele
(with each such brokerage house and/or clearing house being considered as one
holder). The aggregate number of shares of common stock outstanding as of
April 30, 1999 was 7,936,928 shares.
DIVIDENDS POLICY
The Board of Directors does not contemplate or anticipate paying any
cash dividends upon its common stock in the foreseeable future based on the
Company's present financial status and its contemplated financial requirements.
The Company declared a stock dividend effective April 7, 1999 awarding
one share of common stock for every one hundred shares of common stock to all of
its shareholders of record as of April 7, 1999.
SHARES ELIGIBLE FOR FUTURE SALE
In general, Rule 144 under the Securities Act of 1933, as amended ("Rule
144") provides that securities may be sold without registration if there is
current public information available regarding the Company and the securities
have been held at least one year. Rule 144 also includes restrictions on the
amount of securities sold and the manner of sale, and requires notice to be
filed with the SEC. Under Rule 144, a minimum of one year must elapse between
the later of the date of the acquisition of the securities from the issuer or
from an affiliate of the issuer, and any resale under the Rule. If a one-year
period has elapsed since the date the securities were acquired, the amount of
restricted securities that may be sold for the account of any person within any
three-month period, including a person who is an affiliate of the issuer, may
not exceed the greater of one percent (1%) of the then outstanding shares of
common stock of the issuer or the average weekly trading volume in the
over-the-counter ("OTC") market during the four calendar weeks preceding the
date on which notice of sale is filed with the SEC. If a two-year period has
elapsed since the date the securities were acquired from the issuer or from an
affiliate of the issuer, a seller who is not an affiliate of the issuer at any
time during the three months preceding a sale is entitled to sell the shares
without regard to volume limitations, manner of sale provisions or notice
requirements.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET
As of April 30, 1999, a substantial majority of the 7,936,928
outstanding shares of common stock held by existing shareholders were issued and
sold by the Company in private transactions in reliance on exemptions from the
registration provisions of the Securities Act of 1933, as amended, and are
restricted securities within the meaning of Rule 144. Of the outstanding shares,
including shares held by affiliates, 48,521,682 were issued on or before April
30, 1998, and may be currently eligible for resale in the open market, if any,
in compliance with Rule 144. The sale in the public market of these shares of
restricted common stock under Rule 144 may depress prevailing market prices of
the common stock.
OUTSTANDING OPTIONS AND WARRANTS
As of April 30, 1999, there were no outstanding stock options or
warrants for the Company's securities.
NO ASSURANCE OF ESTABLISHED PUBLIC TRADING MARKET
Although the common stock of the Company trades on the OTC Bulletin
Board, there can be no assurance that a regular trading market for the
securities will be sustained. The OTC Bulletin Board is an unorganized,
inter-dealer, over-the-counter market which provides significantly less
liquidity than The Nasdaq Stock Market. Quotes for stocks included on the OTC
Bulletin Board are not listed in the financial sections of newspapers as are
those for The Nasdaq Stock Market. Therefore, prices for
32
<PAGE> 35
securities traded solely on the OTC Bulletin Board may be difficult to obtain
and holders of common stock may be unable to resell their securities at or near
their original offering price or at any price. Furthermore, the NASD has
proposed certain regulation changes that affect the OTC Bulletin Board, which,
if and when implemented, will affect both issuers and market makers. The effect
on the OTC Bulletin Board cannot be determined at this time. In the event the
Company's securities are not included on the OTC Bulletin Board and do not
qualify for Nasdaq, quotes for the securities may be included in the "pink
sheets" for the over-the-counter market.
NEW OTC BULLETIN BOARD ELIGIBILITY STANDARDS
In 1998, the NASD amended Rule 6530, relating to the eligibility
standards of OTC Bulletin Board companies, to require that a member's
eligibility for quotation in its service include the registration of its
securities pursuant to Section 12 of the Securities Exchange Act of 1934
("Exchange Act") and thereafter compliance with the reporting requirements of
the Exchange Act.
The NASD has provided the currently eligible companies who are not yet
registered pursuant to Section 12 of the Exchange Act a phase-in period to file
the necessary information with the SEC. The phase-in schedule is determined in
alphabetical order by the name of the company. Unless otherwise permitted by the
NASD, the Company is required to be properly registered under the Exchange Act
and the information declared effective by the SEC by October 1999. There is no
assurance that the Company will be declared effectively registered under the
Exchange Act within the time frame allowed. The Company thereafter will be
required to be current in the filing of periodic reports pursuant to Section
15(d) of the Exchange Act. There is also no assurance that the Company will not
be delisted by the NASD from the OTC Bulletin Board for failure to timely file
the proper periodic report. The Company's failure to be effectively registered
or timely file the proper periodic report may negatively affect the ability of
the Company's shareholders to trade stock on the OTC Bulletin Board and the
value of the Company's stock.
PRICE VOLATILITY
The market price of the common stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations from time to time in recent years that often have been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of the
common stock of the Company.
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON
MARKETABILITY OF SECURITIES.
The Securities and Exchange Commission (the "SEC") has adopted
regulations which generally define "penny stock" to be any equity security that
is not traded on a national securities exchange or Nasdaq and that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. If the Company's securities are trading at
less than $5.00 per share on the OTC Bulletin Board, the Company's securities
may become subject to rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors. Accredited investors generally have assets
in excess of $1,000,000 or an individual annual income exceeding $200,000 or,
together with the investor's spouse, a joint income of $300,000. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require, among other things, the delivery, prior to the transaction, of a
risk disclosure document mandated by the SEC relating to the penny stock market
and the risks associated therewith. The broker-dealer must also disclose the
commission payable to both the broker-dealer and
33
<PAGE> 36
the registered representative and current quotations for the securities. If the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the penny stock rules may restrict the ability of broker-dealers
to sell the Company's securities and may affect the ability of shareholders of
the Company to sell their securities in the secondary market.
ITEM 10
RECENT SALES OF UNREGISTERED SECURITIES
The following unregistered securities of the Company have been issued in
the period from May 30, 1996 through May 30, 1999:
<TABLE>
<CAPTION>
(a) (b) (c) (d)
Date, Amount, Title Purchasers/Target Class Consideration Exemption
------------------- ----------------------- ----------------- -----------------
<S> <C> <C> <C>
June 15, 1996 One non-affiliate Shareholder Section 4(2) of
500,000 Common person relation services Securities Act of
1933
September 3, 1996 Two non-affiliate $3,000,000 Section 4(2) of
1,500,000 Common(1) corporation Securities Act of
1933
October 25, 1996 One non-affiliate Legal services Section 4(2) of
40,000 Common Securities Act of
1933
December 18, 1998 Shareholders of Stock-for-stock Section 4(2) of
6,250,000 Common Territorial Inns exchange Securities Act of
Management, Inc.(2) (Acquisition of 1933
TIM) and
Rule 506
February 19, 1999 One accredited $60,000 Rule 506
40,000 Common non-affiliate person ($1.50 per share)
February 4, 1999 One non-affiliate Shareholder Section 4(2) of
75,000 Common corporation relations services Securities Act of
1933
March 22, 1999 One accredited $50,000 Rule 506
40,000 Common non-affiliate person ($1.25 per share)
April 5, 1999 One non-affiliate Retainer for Section 4(2) of
150,000 Common person shareholder Securities Act of
relations services 1933
March 22, 1999 One accredited $50,000 Rule 506
40,000 Common non-affiliate person ($1.25 per share)
March 23, 1999 One accredited $120,000 Rule 506
60,000 Common non-affiliate person ($2.00 per share)
</TABLE>
34
<PAGE> 37
(1) The Company issued 1,500,000 shares of common stock in the name of two
third-party corporations in advance pending the closing of a corporate
acquisition which later terminated without performance. The Company
requested the transfer agent to cancel the certificates. The third party
had notified the transfer agent by telephone to dispute the
cancellation. The Company has not received any complaint or otherwise
been contacted by these parties.
(2) Pursuant to the Stock Purchase Agreement whereby the Company acquired
all of the outstanding and issued common stock of Territorial Inns
Management, Inc., a Nevada corporation ("TIM"), effective October 12,
1998, the Company issued an aggregate of 6,250,000 shares of common
stock to the shareholders of TIM. See "Item 7. Certain Relationships and
Related Transactions--Acquisition of Territorial Inns Management, Inc."
There were seventeen shareholders of TIM, including C. Richard Kearns,
John C. Moneymaker, Terrence J. Trapp, Ellis Stutzman, Mark D. Owen,
Candy Johnson, all of whom are directors and/or employees of the
Company. The remaining shareholders of TIM were not affiliated with the
Company.
ITEM 11
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of up to
four hundred and ninety million (490,000,000) shares of common stock, no par
value. Each share has the same rights, privileges and preferences. Holders of
the shares of common stock have no preemptive rights to acquire additional
shares or other subscription rights. The shares of common stock are not subject
to redemption provisions or future calls by the Company. All outstanding shares
of common stock are fully paid and nonassessable.
The holders of shares of common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. They
are not entitled to cumulate their votes for the purpose of electing directors
of the Company. Holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of legally available
funds.
In the event of liquidation, dissolution, or winding-up of the Company,
either voluntarily or involuntarily, the holders of the outstanding shares of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights and have no rights to
convert their common stock into any other securities.
As of April 30, 1999 there were 7,936,928 shares of common stock
outstanding which were held of record by 205 shareholders. There were no
outstanding stock options or warrants of common stock.
REVERSE STOCK SPLIT
On October 9, 1998, the Company effectuated a reverse stock split in the
ratio of 100:1 for all of the outstanding and issued common stock. Prior to the
reverse stock split, there were 48,521,682 total shares outstanding. Immediately
subsequent to the reverse stock split, there were 485,285 total shares
outstanding. The total number of shares authorized by the Company was not
changed.
STOCK DIVIDEND
The Company declared a stock dividend March 16, 1999, effectuated April
7, 1999, to all shareholders of record as of 5:00 p.m. Pacific Standard Time on
the same day, wherein each holder of at least ten shares of common stock of the
Company was awarded one share of common stock for every ten owned. Prior to the
issuance of shares based on the stock dividend, there were 7,215,285 shares of
common stock outstanding and issued. Subsequent to the distribution of the stock
dividend, there were
35
<PAGE> 38
7,936,928 shares outstanding. The total number of shares authorized by the
Company was not changed.
PREFERRED STOCK
Pursuant to the Articles of Incorporation, as amended, the Company has
authorized 10,000,000 shares of preferred stock, no par value. As of April 30,
1999, there was no preferred stock issued and outstanding. The Company's Board
of Directors has the authority to determine the price, rights, preferences,
privileges and restrictions thereof, including voting rights, without any
further vote or action by the Company's shareholders. The voting and other
rights of the holders of common stock could be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock could have the effect of
delaying, deferring or preventing a change in control of the Company.
The Board of Directors has designated three classes of preferred stock:
Class A, Series I; Class B, Series I; and Class C, Series I. The Company plans
to authorize and issue preferred stock to motel owners from whom the Company
will acquire leases with options to purchase as consideration for the purchase
options. The number of preferred shares issued will be dependent upon the value
of the motel property. The Company anticipates granting preferred stock, which
would be convertible into common stock of the Company, in a value equal to
twenty percent (20%) of the total value of the motel on the commencement date of
the subject lease. Certain motel owners may receive cash or stock dividends
depending on the class of preferred stock issued by the Company.
To the extent permitted by law, the Company will pay a cash dividend to
the holders of Class A, Series I preferred stock, which will be payable monthly
beginning thirty (30) days after the date of issuance at a rate of eight percent
(8%) per annum, based on the previously determined Subscription Price. The
holders of Class B, Series I preferred stock will receive a stock dividend,
issued quarterly, in an amount equal to eight percent (8%) per annum of the
Subscription Price based on the price of the common stock. Holders of Class C,
Series I preferred stock do not have rights to any dividends. The terms, rights
and preferences common to the three different classes of preferred stock are
summarized as follows:
CONVERSION
The preferred stock is convertible at the option of the holder, but not
earlier than twelve (12) months after the Subscription Date unless previously
redeemed by the Company, into the nearest whole number of common stock
("Conversion Shares") the Subscription Price would be able to purchase at the
Company's average common stock price ("Average Stock Price") for the sixty (60)
trading days last preceding the date of conversion. The Average Stock Price is
equivalent to the mean between the closing bid and asked quotations for the
Company's common stock in the over-the-counter market as quoted on the National
Association of Securities Dealers Automated Quotation system ("Nasdaq"), or any
other reliable quotation system if the common stock is not listed on Nasdaq.
Unless the Company, at its election, acts to obtain effectiveness of a
registration statement under the Securities Act covering the Conversion Shares,
the preferred stock shall be converted into restricted common stock as the term
"restricted" is defined in Rule 144 under the Securities Act. The Company has no
obligation to register the Conversion Shares.
REDEMPTION
The preferred stock is redeemable at any time at the option of the
Company, in whole or in part, upon payment by the Company, in its sole
discretion, of the redemption price consisting of the Average Stock Price of the
Conversion Shares plus an amount equal to all declared and accrued dividends.
36
<PAGE> 39
LIQUIDATION
If there is a liquidation of the Company, a holder of the preferred
stock is entitled to a pro rata liquidation preference in an amount equal to the
Subscription Price plus any accrued dividends to the date of distribution,
before any distribution or payment to the holders of common stock or any other
security ranking junior to the class.
VOTING
The preferred stock is entitled to one vote per share together as one
class with common shareholders on all matters upon which common shareholders are
entitled to vote.
REGISTRATION RIGHTS
The Company has a Letter of Intent to acquire the operations of ten
motel properties located in Minnesota, North Dakota, South Dakota and Wisconsin
from an unrelated third party. The lease will be a triple net lease where the
Company will pay for all expenses and costs of operations and pay a fixed annual
lease payment of $1,750,000, payable in equal monthly installments. The Company
may also elect to exercise its option to purchase the property upon the payment
of $18,000,000 to the motel owner. The consideration for the option will be the
issuance of $3,500,000 of preferred stock with a cash dividend rate of eight
percent (8%) paid monthly and registration rights to sell $500,000 of the
convertible preferred stock at the Company's initial public offering.
TRANSFER AGENT
American Securities Transfer and Trust. Inc. is transfer agent and
registrar for the Company's common and preferred stock.
WASHINGTON TAKEOVER ACT
The Company is subject to the Washington Takeover Act ("WTA")
promulgated under 23B.19.010, et seq. of the Revised Code of Washington ("RCW")
which provides that any "significant business transactions," which includes a
merger, a share exchange consolidation, the sale or encumbrance of assets, and
other enumerated transactions, are forbidden for a five-year-period, unless
approved by a majority of the board of directors prior to the share acquisition
if certain "acquiring persons(1)" obtain ten percent (10%) or more of the stock
of a "target corporation(2)."
The WTA requires that an acquiring person negotiate with the target
corporation's board of directors prior to acquisition to avoid the statutory
prohibitions. The board of directors, in making its decision, must exercise its
responsibilities and duties of loyalty and of care and cannot use the WTA as a
blanket veto over the acquiring person's proposal. If the acquiring person does
not obtain the approval of the board of directors prior to its acquisition of
the shares, a significant business transaction may proceed, following the
five-year moratorium, if the significant business transaction complies with the
"fair price" provisions of RCW 23B.19.040(2) or if it is approved at a
shareholders' meeting held at least five years after the acquiring person
purchased its shares. Any transaction that violates the WTA is void.
(1) "Acquiring person" means a person or group of persons who beneficially
owns ten percent or more of the outstanding voting shares of the target
corporation. The term "acquiring person" does not include a person who
acquires its shares by gift, inheritance, or in a transaction in which
no consideration is exchanged; exceeds the ten percent threshold as a
result of action taken solely by the target corporation, such as
redemption of shares, unless that person, by its own action, acquires
additional shares of the target corporation; beneficially was the owner
of ten percent or more of the outstanding voting shares prior to the
37
<PAGE> 40
time the target corporation had a class of voting shares registered with
the securities and exchange commission pursuant to section 12 or 15 of
the exchange act; or beneficially was the owner of ten percent or more
of the outstanding voting shares prior to the time the target
corporation amended its articles of incorporation to provide that the
corporation shall be subject to the WTA.
(2) "Target corporation" means: Every domestic corporation, if the
corporation has a class of voting shares registered with the securities
and exchange commission pursuant to section 12 or 15 of the exchange
act; or the corporation's articles of incorporation have been amended to
provide that such a corporation shall be subject to the provisions of
this chapter, if the corporation did not have a class of voting shares
registered with the securities and exchange commission pursuant to
section 12 or 15 of the exchange act on the effective date of that
amendment.
ITEM 12
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation currently provide for the
limitation of liability of directors to the Company and its shareholders to the
fullest extent permitted by the Washington Business Corporation Act ("WBCA").
The Company may also indemnify its officers and directors to the fullest extent
permitted by law from any action or proceeding whether criminal, civil,
administrative or investigative by reason of the service of such officer or
director to the Company.
Section 23B.08.300(4) of the WBCA provides that a director is not liable
for any action taken as a director, or any failure to take any action, if the
director performed the duties of the director's office in the following manner:
in good faith; with the care an ordinarily prudent person in a like position
would exercise under similar circumstances; and in a manner the director
reasonably believes to be in the best interests of the corporation. The
directors are entitled to rely on information, opinions, reports, or statements,
including financial statements and other financial data, if the same is prepared
by any of the following: an officer of the Company whom the director reasonably
believes to be reliable and competent in the matters presented; legal counsel,
public accountants, or other persons as to matters the director reasonably
believes are within the person's professional or expert competence; or a
committee of the board of directors of which the director is not a member if the
director reasonably believes the committee merits confidence. An exception is
provided by the WBCA that the director is not acting in good faith if the
director has knowledge concerning the matter in question that makes reliance
otherwise permitted unwarranted.
Directors and officers are protected under the "business judgment rule,"
which generally shields business decisions made by directors and officers from
hindsight judgment by the courts as long as the decisions were made in good
faith and without a corrupt motive.
The WBCA applies to any negligent conduct of the directors. A
corporation is not permitted to limit the liability of a director for acts or
omissions that involve intentional misconduct, a knowing violation of law,
conduct regarding liability for unlawful distributions, or for any transaction
from which the director will personally receive a benefit in money, property or
services to which the director is not legally entitled.
As of April 30, 1999, there was no pending litigation or proceeding
involving a director, officer, employee or agent of the Company where
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for
indemnification.
38
<PAGE> 41
ITEM 13
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
FISCAL YEARS ENDING DECEMBER 31, 1998 AND MARCH 31, 1998
Report of Independent Certified Public Accountants 42
Financial Statements (Audited) 43
Consolidated Balance Sheets 43
Consolidated Statements of Income 44
Consolidated Statements of Cash Flows 45
Consolidated Statement of Stockholders' Equity 46
Notes to Consolidated Financial Statements 47
FIRST QUARTER ENDING MARCH 31, 1999
Report of Independent Certified Public Accountants 54
Financial Statements (Unaudited) 55
Consolidated Balance Sheets 55
Consolidated Statements of Income 56
Consolidated Statements of Cash Flows 57
Consolidated Statement of Stockholders' Equity 58
Notes to Consolidated Financial Statements 59
</TABLE>
39
<PAGE> 42
COUNTRY MAID FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1998
40
<PAGE> 43
COUNTRY MAID FINANCIAL, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountant's Report............................................1
Balance Sheet..................................................2
Statement of Net Income(Loss)..................................3
Statement of Retained Earnings(Deficit)........................4
Statement of Cash Flows........................................5
Notes to Financial Statements..................................6
</TABLE>
41
<PAGE> 44
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
Board of Directors
COUNTRY MAID FINANCIAL, INC.
Lebanon, Oregon
We have audited the balance sheet of COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
as of March 31, 1998 and December 31,1998, and the related statements of net
income, retained earnings, and cash flows for the year ended March 31, 1998 and
the nine months ended December 31, 1998. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of COUNTRY MAID FINANCIAL, INC.
and SUBSIDIARY as of March 31, 1998 and December 31, 1998, and the results of
its operations and its cash flows for the periods then ended, are in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency. These factors raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
THOMAS J. HARRIS CPA
April 29, 1999
Seattle, Washington
42
<PAGE> 45
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ----------
<S> <C> <C>
ASSETS
Current Assets
Cash in Bank 0 0
Receivables From and Advances to Properties 68,180 0
Prepaid Expenses 0 0
---------- ----------
Total Current Assets 68,180 0
---------- ----------
Fixed Assets: Net 0 0
---------- ----------
Other Assets
Goodwill 60,000
---------- ----------
Total Other Assets 60,000 0
---------- ----------
TOTAL ASSETS 128,180 0
========== ==========
LIABILITIES
Current Liabilities
Bank overdraft 22,032 0
Accounts Payable 15,521 0
Accrued Payroll & Payroll Taxes 79,091 0
---------- ----------
Total Current Liabilities 116,644 0
---------- ----------
Long Term Debt
Total Long Term Debt 0 0
---------- ----------
Other Liabilities
Due to Stockholders 1,173,695 1,173,695
Excess Liabilities From Discontinued Operations 0 568,957
---------- ----------
Total Other Liabilities 1,173,695 1,742,652
---------- ----------
TOTAL LIABILITIES 1,290,339 1,742,652
---------- ----------
STOCKHOLDER'S EQUITY
Common Stock 490,000,000 shares authorized, no par value,
6,775,285 and 485,217 issued and outstanding December
and March 1998 respectively 2,739,639 2,679,639
Retained Earnings (deficit) (3,901,798) (4,422,291)
TOTAL STOCKHOLDERS' EQUITY (1,162,159) (1,742,652)
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 128,180 0
========== ==========
</TABLE>
The accompanying notes are an Integral part of these financial statements
43
<PAGE> 46
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF NET INCOME(LOSS)
FOR THE PERIODS ENDED MARCH 31, 1998 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ -----------
<S> <C> <C>
REVENUES
Management Fees $ 37,515 $ 0
-------- -----------
EXPENSES:
Payroll & Payroll Taxes $ 47,909
Insurance $ 5,593
Interest $ 2,015
Miscellaneous $ 285
Professional Fees $ 3,626
Rent $ 12,000
Repairs $ 66
Supplies $ 5,068
Telephone $ 4,665
Travel $ 3,524
Utilities $ 1,228
-------- -----------
Total Expenses $ 85,979 $ 0
-------- -----------
NET INCOME (LOSS) FROM OPERATIONS $(48,464) $ 0
Loss From Discontinued Operations $ 0 $(1,960,324)
-------- -----------
NET INCOME (LOSS) $(48,464) $(1,960,324)
======== ===========
Primary earnings(loss) per share from
operations $(0.0188) $ 0.0000
======== ===========
Primary earnings(loss) per share $(0.0188) $ (0.7606)
======== ===========
</TABLE>
The accompanying notes are an Integral part of these financial statements
44
<PAGE> 47
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1998 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) From Operations $(48,464) $ 0
Increase (Decrease)
Due From Properties (68,180)
Accounts Payable 15,521
Accrued Payroll & Payroll Taxes 19,091
--------
Net cash Flow From Operations $(82,032)
CASH FLOWS FROM INVESTING ACTIVITIES
0
--------
CASH FLOWS FROM FINANCING ACTIVITIES 0
--------
Issuance of Common Stock 60,000
--------
Net ash Flows $(22,032)
Cash Balance Beginning 0
--------
Cash Balance Ending $(22,032)
========
</TABLE>
All transactions of the discontinued operations have been excluded from this
statement.
The accompanying notes are an Integral part of these financial statements
45
<PAGE> 48
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIODS ENDED MARCH 31, 1998 AND DECEMBER 31,1998
<TABLE>
<CAPTION>
Total
Number Common Retained Stockholder
of Shares* Stock Earnings Equity
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, March 31, 1997 485,285 2,679,639 (2,461,967) 217,672
Net loss (1,960,324) (1,960,324)
---------- ---------- ---------- ----------
Balance, March 31, 1998 485,285 2,679,639 (4,422,291) (1,742,652)
Shares issued in acquisition of TIM 6,250,000 0 0
Shares issued for cash 40,000 60,000 60,000
Net loss (48,464) (48,464)
Excess Liabilities of
Discontinued Operations 568,957 568,957
---------- ---------- ---------- ----------
Balance, December 31, 1998 6,775,285 2,739,639 (3,901,798) (1,162,159)
========== ========== ========== ==========
</TABLE>
*=After 1 for 100 reverse split
The accompanying notes are an Integral part of these financial statements
46
<PAGE> 49
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF THE COMPANY
Country Maid Financial, Inc. ("Company") was incorporated in April 1984 in the
State of Washington under the name Raywheel, Inc. The Company commenced
operations in Toledo, Ohio and moved its offices to Portland, Oregon in 1989.
The Company's name was changed to American Citadel, Inc. in December 1989. In a
transaction effective July 1, 1992 the Company acquired Country Maid Farms, Inc.
("Farms") issuing 28,036,000 shares of its common stock to the shareholders of
Country Maid Farms, Inc. to acquire total ownership. The merger was accounted of
as a recapitalization of Country Maid Farms, Inc. and a reverse acquisition of
American Citadel, Inc. with Country Maid Farms, Inc. as the surviving
corporation. Stockholders' equity during 1993 was adjusted to reflect this
recapitalization.
In March 1994, American Citadel, Inc. name was changed to Country Maid Foods,
Inc. to signify its primary business of food production. Through its wholly
owned subsidiary, Country Maid Farms, Inc., the Company was engaged in the
production of poultry eggs for the domestic egg market and for the manufacture
of mayonnaise and other egg products. Country Maid Farms, Inc. contracts with
farms in Nebraska and Missouri.
Prior to the acquisition of Country Maid Farms, the Company had another
wholly-owned subsidiary, Security Bar, Inc., a Washington corporation ("Security
Bar") through which it conducted its business. Security Bar was sold to an
unrelated third party in December 1993.
The Company started a new corporation Country Maid Egg Products, Inc. ("Egg
Products"), a Nevada corporation, October 11, 1996. Egg Products is a wholly
owned subsidiary used to broker the Farm's eggs and operate a breaker plant
under a lease agreement with a third party. Egg Products primarily purchases
Farm's eggs.
In September 1998, the Company determined that the chicken egg business it was
conducting through its wholly-owned subsidiary Country Maid Farms, Inc., a
Nevada corporation was not profitable and did not generate sufficient income for
the Company. The Company had been unprofitable for the last several years and
had experienced significant losses during its operating history. The Company's
cash flows from operations have not been sufficient to fund its operating
activities. The Company determined that conventional financing was unavailable
to the Company at that time. In addition, management did not believe that an
equity or debt offering of its securities would succeed without a positive
change of the Company's business or an infusion of value into the Company
through a recapitalization. Therefore, management opted to sell the subsidiary
to two shareholders for their assumption of the underlying debt.
In September 1998, the name was changed to Country Maid Financial, Inc. upon the
Board's decision to enter management and financing in the lodging industry. The
Company's principal executive offices are in Lebanon, Oregon.
During the third quarter of 1998, the Company negotiated the terms of the Stock
Purchase Agreement dated September 30, 1998 ("Stock Purchase Agreement") for the
acquisition of Territorial Inns Management Inc. ("TIM"), a Nevada corporation.
The Directors of the Company determined that the acquisition of TIM provided the
potential for the Company to obtain significant assets and shareholder equity.
The Company acquired all of the issued and outstanding common stock of TIM
effective October 12, 1998 when TIM became a wholly owned subsidiary of the
Company.
The Company, through its operating subsidiary TIM, is engaged in providing
management of motel properties for a fee and by acquiring operating leases with
options to purchase. TIM currently is in the process of acquiring several within
the next six months. The Company plans to continue to acquire motel operating
leases, with
47
<PAGE> 50
management agreements, and purchase options from motel owners throughout the
United States and potentially Canada. The Company has identified certain motel
properties that can be acquired at a value equivalent to 2.5 to 3.0 times the
annual room gross revenue. The owners of these motels have expressed a
willingness to accept a purchase option payment of up to twenty percent (20%) of
the motel portfolio's current value and annual lease payments in an amount equal
to seven and one-fifth percent (7.2%) of the portfolio value. The Company's
management believes that these motel properties can be managed in such a manner
as to yield thirty-three percent (33%) of the annual gross room revenue as net
operating income of the Company.
The Board of Directors has changed the Company's fiscal year to the calendar
year January thru December.
DEFERRED INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Statement
No. 109 requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Earnings per share have been calculated as if the 1 for 100 reverse split had
been made as of the beginning of the fiscal year ended March 31, 1998. The
weighted average method for shares outstanding has been used to compute earnings
per share.
2. INVENTORY:
All inventories were sold at March 31, 1998.
3. TRADE ACCOUNTS RECEIVABLE
As of March 31, 1998 all accounts receivable had been received.
4. NOTES RECEIVABLE
The Company had notes receivable at March 31, 1998 as follows:
<TABLE>
<S> <C>
Cletus Miller 248,500.00
----------
TOTAL $ 248,500.00
</TABLE>
On January 3, 1996, the Company sold the Puxico, Missouri farm with attached
buildings and some equipment to Cletus Miller for a note receivable of
$250,000.00. After the first four years, during which time interest would not
accrue, the unpaid balance would accrue interest at 10% per annum. Repayment of
the note was to be made by the buyer paying $1.00 per hog sold from the premises
during the first year and $5.00 per hog sold during the next six years. During
fiscal 1998 this note was discounted and sold, the proceeds were used to pay
some of the creditors.
5. SHORT-TERM BORROWING
48
<PAGE> 51
Farms had a $1.4 million line of credit agreement with Continental Grain
Company. Interest of 4.9% was due monthly. Monthly principal repayments were
based on the age and number of flocks maintained. Draws were limited based on
current flock levels. The agreement required that the Company purchase pre-mix
feed solely from Wayne Feeds, a subsidiary of Continental Grain Company. The
line of credit was collateralized by real property accounts receivable,
inventory, and stockholder guarantees. The outstanding balance on the line was
$211,181 at March 31, 1998. Payments on the line were $3,000 per month during
1998. As described in Note 1 the Management decided to dispose of the Company's
subsidiary, Country Maid Farms, Inc. The disposition was completed by agreement
with two of the Company's shareholders who assumed all of the debt of the
subsidiary in return for its assets.
6. LONG-TERM DEBT
Long-term debt at March 31, 1998 consisted of the following:
<TABLE>
DUE DATE INTEREST RATE PAYMENT BALANCES
<S> <C> <C> <C> <C>
Boatmen's Bank Of Southern, MO 04/25/01 9.75% $2,000.00/mo. $ 61,481
Wayne Feeds 02/15/98 variable 3,000.00/mo. 211,181
Yale Financial 03/99 6.8% 189.33/mo. 2,014
Pallet Jack
Percy & Lelham Gerig 02/00 15% 997.50/mo. 19,082
--------
Total Long-Term Debt $293,758
Current Portion $ 66,607
--------
Long-Term Debt net of current portion $227,151
--------
</TABLE>
All of the above debt was assumed in the disposition of the subsidiary
as explained in Note 12.
7. INCOME TAXES
As discussed in Note 1, the Company adopted Statement No. 109 in 1993 and has
applied the provisions of Statement No. 109 retroactively to July 1, 1989. The
cumulative effect of this change in accounting for income taxes had been applied
to July 1, 1990 retained earnings.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1998 are
presented below:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Deferred Tax Assets:
Taxable (income) loss 1,960,324 (532,493)
Loss carryforward 2,866,147 4,826,147
----------- -----------
TOTAL 4,826,471 4,293,978
Tax rate 34% 34%
Deferred Tax Assets 1,641,001 1,459,953
Deferred Tax Assets Valuation Allowance (1,641,001) (1,459,953)
----------- -----------
NET DEFERRED TAX ASSET $ 0 $ 0
</TABLE>
49
<PAGE> 52
Due to cumulative losses in recent years and the uncertainty of future earnings
the probability of deriving any benefits from the deferred tax asset is
unlikely. In addition the Tax Reform Act of 1986 severely reduces the
deductibility of these losses due to the changes in ownership discussed in Notes
1 and 9.
50
<PAGE> 53
8. DISPOSAL OF COUNTRY MAID FARMS, INC.
As described in Note 1 the Management decided to dispose of the Company's
subsidiary, Country Maid Farms, Inc. The disposition was completed by agreement
with two of the Company's shareholders who assumed all of the debt of the
subsidiary in return for its assets. The sale is summarized as follows:
<TABLE>
<S> <C>
LIABILITIES:
Bank overdraft $ 1,870
Accounts payable 180,146
Accrued expenses 121,608
Long term debt 334,296
Other liabilities 461,000
----------
Liabilities assumed (including loans from shareholders) $1,098,920
----------
ASSETS:
Prepaid expenses 9,170
Fixed assets, net 272,243
Other assets 248,550
----------
Assets taken (book value) 529,963
----------
Excess liabilities from discontinued operations $ 568,957
----------
</TABLE>
The market value of the assets of the subsidiary is not known but it is unlikely
that the value is anywhere near the total liabilities assumed by the
shareholders.
The measurement date for the disposition of the Farm is August 14, 1998, and the
disposal date is October 6, 1998.
9. ACQUISITION OF TERRITORIAL INNS MANAGEMENT, INC.
As described in Note 1 the Company acquired all of the outstanding stock of TIM.
The transaction is being accounted for as a pooling of interests as required by
APB Opinion No. 16, Business Combinations, as such goodwill was recorded from
this transaction as follows:
<TABLE>
<S> <C>
Liabilities assumed $60,000
-------
Goodwill $60,000
-------
</TABLE>
The Company issued 6,250,000 shares of common stock in the acquisition of TIM.
The major assets of TIM consisted of management contracts for eleven hotel
properties with gross annual receipts of approximately $10,600,000, of which a
five percent (5%) is paid to the Company as a management fee.
10. RELATED PARTY TRANSACTIONS
Effective October 1, 1998, the Company began a five year lease for office space
from one of the Company's shareholders. The amount of the lease is $4,000.00 per
month.
At March 31, 1999, the Company had interest free advances from stockholders of
$1,032,695. Proceeds from the sale of common stock were used to pay some of the
loans to shareholders during the quarter ended March 31, 1999.
51
<PAGE> 54
11. CONTRACTS
On or about November 9, 1998, the Company and Best Inns, Inc., a Kansas
corporation (Best Inns Kansas), executed a Letter of Intent which set forth the
terms for the Company to lease with an option to purchase nine Best Inns motel
properties to be effective, as amended by the parties, March 1, 1999. The terms
of the Letter of Intent provide that the Company receives the gross revenue
generated by the properties and pays to Best Inns a fixed annual lease payment
of $1,980,000 payable monthly, and the Company has an option to purchase the
properties for the total amount of $24,000,000. As consideration to Best Inns
for the option to purchase, the Company agreed to issue securities of the
Company with an aggregate value of $3,000,000.
On March 1, 1999, the outgoing management company of the nine Best Inns
properties voluntarily resigned and the Company assumed the operation of the
nine properties of Best Inns pursuant to the terms of the Letter of Intent. The
lenders for Best Inns Kansas and the Company are currently negotiating the
remaining terms of the final lease with option to purchase agreement.
52
<PAGE> 55
COUNTRY MAID FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENT
UNAUDITED
MARCH 31, 1999 AND 1998
53
<PAGE> 56
COUNTRY MAID FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
MARCH 31, 1999 AND 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountant's Report............................................1
Balance Sheet(Unaudited).......................................2
Statement of Income(Loss) .....................................3
Statement of Cash Flows........................................4
Statement of Shareholders' Equity..............................5
Notes to Financial Statements..................................6-9
</TABLE>
54
<PAGE> 57
INDEPENDENT ACCOUNTANT'S REPORT
- --------------------------------------------------------------------------------
Board of Directors
COUNTRY MAID FINANCIAL, INC.
LEBANON, OREGON
We have compiled the balance sheet of COUNTRY MAID FINANCIAL, INC. and
SUBSIDIARY as of March 31, 1999, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements that
which is the representation of management. We have not audited or reviewed the
accompanying financial statements and, accordingly, do not express an opinion or
any form of assurance on them.
Thomas J Harris, CPA
April 29, 1999
Seattle, Washington
55
<PAGE> 58
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash in Bank 4,549 0
Receivables from and advances to properties 61,444 0
Prepaid Expenses 0 0
---------- ----------
Total Current Assets 65,993 0
---------- ----------
Fixed Assets: Net 0 0
---------- ----------
Other Assets
Goodwill 60,000 0
---------- ----------
Total Other Assets 60,000 0
---------- ----------
TOTAL ASSETS 125,993 0
========== ==========
LIABILITIES
Current Liabilities
Accounts Payable 103,095 0
Accrued Payroll & Payroll Taxes 52,095 0
---------- ----------
Total Current Liabilities 155,190 0
---------- ----------
Long Term Debt
---------- ----------
Total Long Term Debt 0 0
---------- ----------
Other Liabilities
Excess liabilities from discontinued operations 0 568,957
Due to Stockholders 1,032,695 1,173,695
---------- ----------
Total Other Liabilities 1,032,695 1,742,652
---------- ----------
TOTAL LIABILITIES 1,187,885 1,742,652
---------- ----------
STOCKHOLDER'S EQUITY
Common Stock 490,000,000 shares authorized, no par value,
6,950,285 issued and outstanding 3,059,639 2,679,639
Retained Earnings (deficit) (4,121,531) (4,422,291)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (1,061,892) (1,742,652)
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 125,993 0
========== ==========
</TABLE>
The accompanying notes are an Integral part of these financial statements
56
<PAGE> 59
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF NET INCOME(LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Management fees $ 68,890 $ 0
----------- -----------
EXPENSES:
Payroll & payroll taxes $ 54,457
Insurance $ 7,522
Interest $ 0
Miscellaneous $ 2,279
Professional fees $ 39,961
Promotional $ 1,336
Rent $ 12,000
Repairs $ 1,270
Supplies $ 5,223
Telephone $ 3,257
Travel $ 9,284
Utilities $ 2,034
----------- -----------
Total Expenses $ 138,623 $ 0
----------- -----------
NET INCOME (LOSS) FROM OPERATIONS $ (69,733) $ 0
Loss from discontinued operations $ 0 $(1,840,324)
----------- -----------
NET INCOME (LOSS) $ (69,733) $(1,840,324)
=========== ===========
Primary earnings(loss) per share from operations $ (0.0271) $ 0.0000
=========== ===========
Primary earnings(loss) per share $ (0.0271) $ (0.7140)
=========== ===========
</TABLE>
The accompanying notes are an Integral part of these financial statements
57
<PAGE> 60
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) From Operations $ (69,733) $ 0
Increase (Decrease)
Due From Properties 6,736
Accounts Payable 87,574
Accrued Payroll & payroll taxes (26,996)
--------- ---------
Net cash Flow from operations $ (2,419) $ 0
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments on shareholder loans (141,000) 0
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common stock 170,000
--------- ---------
Net Cash Flows $ 26,581 $ 0
Cash Balance Beginning (22,032) 0
--------- ---------
Cash Balance Ending $ 4,549 $ 0
========= =========
</TABLE>
All transactions of the discontinued operations have been excluded from this
statement.
The accompanying notes are an Integral part of these financial statements
58
<PAGE> 61
COUNTRY MAID FINANCIAL, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Total
Number Common Retained Stockholder
of Shares* Stock Earnings Equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, March 31, 1997 485,285 2,679,639 (2,461,967) 217,672
Net loss (1,960,324) (1,960,324)
---------- ---------- ---------- ----------
Balance, March 31, 1998 485,285 2,679,639 (4,422,291) (1,742,652)
Shares issued in acquisition of TIM 6,250,000 0 0
Shares issued for cash 40,000 60,000 60,000
Net loss (48,464) (48,464)
Excess Liabilities of
Discontinued Operations 568,957 568,957
---------- ---------- ---------- ----------
Balance, December 31, 1998 6,775,285 2,739,639 (3,901,798) (1,162,159)
Shares issued for cash 100,000 170,000 170,000
Shares issued for services 75,000 150,000 150,000
Costs advanced for sale of common stock (150,000) (150,000)
Net loss (69,733) (69,733)
---------- ---------- ---------- ----------
Balance, March 31, 1999 6,950,285 3,059,639 (4,121,531) (1,061,892)
========== ========== ========== ==========
</TABLE>
*=After 1 for 100 reverse split
The accompanying notes are an Integral part of these financial statements
59
<PAGE> 62
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF THE COMPANY
Country Maid Financial, Inc. ("Company") was incorporated in April 1984 in the
State of Washington under the name Raywheel, Inc. The Company commenced
operations in Toledo, Ohio and moved its offices to Portland, Oregon in 1989.
The Company's name was changed to American Citadel, Inc. in December 1989. In a
transaction effective July 1, 1992 the Company merged with Country Maid Farms,
Inc. ("Farm") issuing 28,036,000 shares of its common stock to the shareholders
of Country Maid Farms, Inc. to acquire total ownership. The merger was accounted
of as a recapitalization of Country Maid Farms, Inc. and a reverse acquisition
of American Citadel, Inc. with Country Maid Farms, Inc. as the surviving
corporation. Stockholders' equity during 1993 was adjusted to reflect this
recapitalization.
In March 1994, American Citadel, Inc. name was changed to Country Maid Foods,
Inc. to signify its primary business of food production. Through its wholly
owned subsidiary, Country Maid Farms, Inc., the Company was engaged in the
production of poultry eggs for the domestic egg market and for the manufacture
of mayonnaise and other egg products. Country Maid Farms, Inc. contracts with
farms in Nebraska and Missouri.
Prior to the acquisition of Country Maid Farms, the Company had another
wholly-owned subsidiary, Security Bar, Inc., a Washington corporation ("Security
Bar") through which it conducted its business. Security Bar was sold to an
unrelated third party in December 1993.
The Company started a new corporation Country Maid Egg Products, Inc. ("Egg
Products"), a Nevada corporation, October 11, 1996. Egg Products is a wholly
owned subsidiary used to broker the Farm's eggs and operate a breaker plant
under a lease agreement with a third party. Egg Products primarily purchases
Farm's eggs.
In September 1998, the Company determined that the chicken egg business it was
conducting through its wholly-owned subsidiary Country Maid Farms, Inc., a
Nevada corporation was not profitable and did not generate sufficient income for
the Company. The Company had been unprofitable for the last several years and
had experienced significant losses during its operating history. The Company's
cash flows from operations have not been sufficient to fund its operating
activities. The Company determined that conventional financing was unavailable
to the Company at that time. In addition, management did not believe that an
equity or debt offering of its securities would succeed without a positive
change of the Company's business or an infusion of value into the Company
through a recapitalization. Therefore, management opted to dispose of the
subsidiary by distributing the assets for assumption of the underlying debt.
In September 1998, the name was changed to Country Maid Financial, Inc. upon the
Board's decision to enter management and financing in the lodging industry. The
Company's principal executive offices are in Lebanon, Oregon.
During the third quarter of 1998, the Company negotiated the terms of the Stock
Purchase Agreement dated September 30, 1998 ("Stock Purchase Agreement") for the
acquisition of Territorial Inns Management Inc. ("TIM"), a Nevada corporation.
The Directors of the Company determined that the acquisition of TIM provided the
potential for the Company to obtain significant assets and shareholder equity.
The Company acquired all of the issued and outstanding common stock of TIM
effective October
60
<PAGE> 63
12, 1998 when TIM became a wholly owned subsidiary of the Company. As described
in Note 1 the Management decided to dispose of the Company's subsidiary, Country
Maid Farms, Inc. The disposition was completed by agreement with two of the
Company's shareholders who assumed all of the debt of the subsidiary in return
for its assets.
The Company, through its operating subsidiary TIM, is engaged in providing
management of motel properties for a fee and by acquiring operating leases with
options to purchase. TIM currently is in the process of acquiring several within
the next six months. The Company plans to continue to acquire motel operating
leases, with management agreements, and purchase options from motel owners
throughout the United States and potentially Canada. The Company has identified
certain motel properties that can be acquired at a value equivalent to 2.5 to
3.0 times the annual room gross revenue. The owners of these motels have
expressed a willingness to accept a purchase option payment of up to twenty
percent (20%) of the motel portfolio's current value and annual lease payments
in an amount equal to seven and one-fifth percent (7.2%) of the portfolio value.
The Company's management believes that these motel properties can be managed in
such a manner as to yield thirty-three percent (33%) of the annual gross room
revenue as net operating income of the Company.
The Board of Directors has changed the Company's fiscal year to the calendar
year January thru December.
DEFERRED INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Statement
No. 109 requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Earnings per share have been calculated as if the 1 for 100 reverse split had
been made as of the beginning of the fiscal year ended March 31, 1998. The
weighted average method for shares outstanding has been used to compute earnings
per share.
2. INCOME TAXES
As discussed in Note 1, the Company adopted Statement No. 109 in 1993 and has
applied the provisions of Statement No. 109 retroactively to July 1, 1989. The
cumulative effect of this change in accounting for income taxes had been applied
to July 1, 1990 retained earnings.
61
<PAGE> 64
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1999 are
presented below:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Deferred Tax Assets:
Taxable (income)loss 57,733
Loss carryforward 3,889,798
-----------
TOTAL 3,947,531
-----------
Tax rate 34%
-----------
Deferred Tax Assets 1,342,161
Deferred Tax Assets Valuation Allowance (1,342,161)
-----------
NET DEFERRED TAX ASSET $ 0
-----------
</TABLE>
Due to cumulative losses in recent years and the uncertainty of future earnings
the probability of deriving any benefits from the deferred tax asset is
unlikely. In addition the Tax Reform Act of 1986 severely reduces the
deductibility of these losses due to the changes in ownership discussed in Notes
1 and 12.
3. DISPOSAL OF COUNTRY MAID FARMS, INC.
As described in Note 1 the Management decided to dispose of the Company's
subsidiary, Country Maid Farms, Inc. The disposition was completed by agreement
with two of the Company's shareholders who assumed all of the debt of the
subsidiary in return for its assets. The sale is summarized as follows:
<TABLE>
<S> <C>
LIABILITIES:
Bank overdraft $ 1,870
Accounts payable 180,146
Accrued expenses 121,608
Long term debt 334,296
Other liabilities 461,000
----------
Liabilities assumed (including loans from shareholders) $1,098,920
----------
ASSETS:
Prepaid expenses 9,170
Fixed assets, net 272,243
Other assets 248,550
----------
Assets taken (book value) 529,963
Excess liabilities from discontinued operations $ 568,957
----------
</TABLE>
The market value of the assets of Farms is not known but it is unlikely that the
value is anywhere near the total liabilities assumed by the shareholders.
The measurement date for the disposition of Farms is August 14, 1998 and the
disposal date is October 6, 1998.
62
<PAGE> 65
4. ACQUISITION OF TERRITORIAL INNS MANAGEMENT, INC.
As described in Note 1 the Company acquired all of the outstanding stock of TIM.
The transaction is being accounted for as a pooling of interests as required by
APB Opinion No. 16, Business Combinations, as goodwill was recorded from this
transaction as follows:
<TABLE>
<S> <C>
Liabilities assumed $60,000
-------
Goodwill $60,000
-------
</TABLE>
The Company issued 6,250,000 shares of common stock in the acquisition of TIM.
The major assets of TIM consisted of management contracts for eleven hotel
properties with gross annual receipts of approximately $10,600,000, of which
five percent (5%) is paid to the Company as management fees
5. RELATED PARTY TRANSACTIONS
Effective October 1, 1998 the Company began a five year lease for office space
from one of the Company's shareholders. The amount of the lease is $4,000.00 per
month.
At March 31, 1999, the Company had interest free advances from stockholders of
$1,032,695. Proceeds from the sale of common stock were used to pay some of the
loans to shareholders during the quarter ended March 31, 1999.
6. CONTRACTS
On or about November 9, 1998, the Company and Best Inns, Inc., a Kansas
corporation(Best Inns Kansas), executed a Letter of Intent which set forth the
terms for the Company to lease with an option to purchase nine Best Inns motel
properties to be effective, as amended by the parties, March 1, 1999. The terms
of the Letter of Intent provide that the Company receives the gross revenue
generated by the properties and pays to Best Inns a fixed annual lease payment
of $1,980,000 payable monthly, and the Company has an option to purchase the
properties for the total amount of $24,000,000. As consideration to Best Inns
for the option to purchase, the Company agreed to issue securities of the
Company with an aggregate value of $3,000,000.
On March 1, 1999, the outgoing management company of the nine Best Inns
properties voluntarily resigned and the Company assumed the operation of the
nine properties of Best Inns pursuant to the terms of the Letter of Intent. The
lenders for Best Inns Kansas and the Company are currently negotiating the
remaining terms of the final lease with option to purchase agreement.
63
<PAGE> 66
ITEM 14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with accountants on
accounting or financial disclosure which fall within the scope of Item 304 of
Regulation S-K.
ITEM 15
FINANCIAL STATEMENTS AND EXHIBITS
LIST OF FINANCIAL STATEMENTS FILED AS PART OF
REGISTRATION STATEMENT
FISCAL YEARS ENDING DECEMBER 31, 1998 AND MARCH 31, 1998
Report of Independent Certified Public Accountants
Financial Statements (Audited)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to Consolidated Financial Statements
FIRST QUARTER ENDING MARCH 31, 1999
Report of Independent Certified Public Accountants
Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to Consolidated Financial Statements
64
<PAGE> 67
LIST OF EXHIBITS AS REQUIRED BY
ITEM 601 OF REGULATION S-K
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3.1 Restated Articles of Incorporation
3.2 Bylaws
4.1 Specimen Common Stock Certificate
4.2 Certificate of Designation of Preferred Stock dated May 10, 1999
10.1 Form of Management Agreement of Territorial Inns Management,
Inc. (Schedule of Properties)
10.2 Form of Property Management Agreement of Territorial Inns
(Schedule of Terms of Agreements)
10.3 Property Management Agreement between Territorial Inns
Management, Inc. and JKLM and for Summer Hill Apartments,
Cotulla, TX
10.4 Stock Purchase Agreement dated September 30, 1998 between
Country Maid Financial, Inc. and Shareholders of Territorial
Inns Management, Inc.
10.5 Office Lease Agreement dated October 1, 1998, between Country
Maid Financial, Inc. and C. Richard Kearns and Dixie Kearns,
10.6 Stock Purchase Agreement dated October 6, 1998 between Country
Maid Farms, Inc. and C. Richard Kearns and John C. Moneymaker
10.7 Stock Redemption Agreement dated May 1, 1999 between Country
Maid Financial, Inc. and C. Richard Kearns
21.1 List of Company Subsidiaries
27.1 Financial Data Schedule
</TABLE>
65
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
COUNTRY MAID FINANCIAL, INC.
(Registrant)
Date: By: /s/ C. Richard Kearns
-------------------------------------
C. Richard Kearns
-------------------------------------
Chief Executive Officer
66
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<S> <C> <C>
3.1 Restated Articles of Incorporation 67
3.2 Bylaws 73
4.1 Specimen Common Stock Certificate 87
4.2 Certificate of Designation of Preferred Stock dated May 10, 1999 89
10.1 Form of Management Agreement of Territorial Inns Management,
Inc. (Schedule of Properties) 96
10.2 Form of Property Management Agreement of Territorial Inns
Management, Inc. (Schedule of Terms of Agreements) 104
10.3 Property Management Agreement between Territorial Inns
Management, Inc. and JKLM and for Summer Hill Apartments,
Cotulla, TX 111
10.4 Stock Purchase Agreement dated September 30, 1998 between
Country Maid Financial, Inc. and Shareholders of Territorial
Inns Management, Inc. 121
10.5 Office Lease Agreement dated October 1, 1998, between Country
Maid Financial, Inc. and C. Richard Kearns and Dixie Kearns, 136
10.6 Stock Purchase Agreement dated October 6, 1998 between Country
Maid Farms, Inc. and C. Richard Kearns and John C. Moneymaker 138
10.7 Stock Redemption Agreement dated May 1, 1999 between Country
Maid Financial, Inc. and C. Richard Kearns 147
21.1 List of Company Subsidiaries 154
27.1 Financial Data Schedule 155
</TABLE>
67
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
COUNTRY MAID FINANCIAL, INC.
A WASHINGTON CORPORATION
Pursuant to the provisions of RCW 23B.10.070 of the Washington Business
Corporation Act, the following Restated Articles of Incorporation are submitted
for filing.
ARTICLE I.
NAME
The name of the Corporation is Country Maid Financial, Inc.
ARTICLE II.
DURATION
The period of its duration is perpetual.
ARTICLE III.
REGISTERED OFFICE AND AGENT
The registered office of the Corporation in the State of Washington is
2300 - 130th Avenue NE, Suite A103, Bellevue, Washington 98005 and the
registered agent for the Corporation is Jones Law Group, PLLC.
ARTICLE IV.
PURPOSES AND POWERS
The purposes and powers of the Corporation are:
1. To engage in any lawful activities for which corporations may be
organized.
2. To do anything which shall appear necessary or beneficial to the
Corporation in connection with (a) its operation, (b) accomplishment of
its purposes, or (c) exercise of its powers set forth in these Articles.
<PAGE> 2
ARTICLE V.
CAPITALIZATION
The total number of shares of all classes of stock which the Corporation shall
have authority to issue is 490,000,000 shares of common stock, no par value, and
10,000,000 of preferred stock, no par value.
No capital stock, after the amount of the subscription price or par value has
been paid, is subject to assessment to pay the debts of the Corporation.
The power to issue all classes, kinds and series of stock permitted by law is
expressly vested in the Board of Directors, subject to this Article.
ARTICLE VI.
CONSENT TO ACTION
Any action which may be taken at a meeting of the shareholders or Directors may
be taken without a meeting if all shareholders or Directors entitled to vote on
the action consent in writing to the action taken. The written consent shall
have the same force and effect as a unanimous vote of the shareholders or
Directors.
ARTICLE VII.
CUMULATIVE VOTING
No shareholder shall be entitled to cumulate his votes for election of
Directors.
ARTICLE VIII.
PREEMPTIVE RIGHTS
Unless otherwise determined by the Board of Directors, shareholders of the
Corporation have no preemptive rights. No shareholder of the Corporation shall
be entitled, as a matter of right, to purchase or subscribe for any stock of any
class which the Corporation may issue or sell, whether or not exchangeable for
any stock of the Corporation of any class or classes and whether out of unissued
shares authorized by the Articles of Incorporation of the Corporation as
originally filed or by any amendment thereof or out of shares acquired in the
future. Nor, unless otherwise determined by the Board of Directors, shall any
holder of any shares of the capital stock of the Corporation be entitled, as a
matter of right, to purchase or subscribe for any obligation which the
Corporation may issue or sell that shall be convertible into or exchangeable for
any shares of the stock of the Corporation of any class or classes, or to which
shall be attached or appurtenant to any warrant or warrants or any other
instrument or instruments that shall confer upon the holder or holders of such
obligation the right to subscribe for or purchase from the Corporation any
shares of its capital stock of any class or classes.
2
<PAGE> 3
ARTICLE IX.
BOARD OF DIRECTORS
The number of Directors shall be fixed by the Bylaws of the Corporation. The
Board of Directors consists of three Directors, whose names and addresses are:
C. Richard Kearns
2500 S. Main
Lebanon, Oregon 97355
John C. Moneymaker
2500 S. Main
Lebanon, Oregon 97355
Terrence J. Trapp
2500 S. Main
Lebanon, Oregon 97355
ARTICLE X.
CONFLICTS OF INTEREST
No contracts or other transactions between the Corporation and any other
corporation, and no act of the Corporation shall in any way be affected or
invalidated by the fact that any of the Directors of the Corporation is
pecuniarily or otherwise interested in, or is a Director or officer of, such
other corporation; and any Director individually, or any firm of which any
Director may be a member, may be a party to, or may be pecuniarily or otherwise
interested in any contracts or transactions of the Corporation, provided that
the fact that he or such firm is so interested shall be disclosed or shall have
been known to the Board of Directors or a majority thereof.
ARTICLE XI.
AMENDMENT OF BYLAWS AND ARTICLES
The Corporation reserves the right to amend, change or repeal any provision
contained in these Articles of Incorporation, in the manner now or hereinafter
prescribed by law, and all rights and powers conferred by these Articles of
Incorporation on shareholders and directors are subject to this reserved power.
The Board of Directors is expressly authorized to make, alter or repeal any or
all of the Bylaws of the Corporation, to the fullest extent provided by the
Washington Business Corporation Act.
3
<PAGE> 4
ARTICLE XII.
DIRECTORS
The members of the governing Board shall be known as Directors. The Directors of
the Corporation need not be stockholders. The number of Directors may at any
time be increased or decreased by the Directors at any annual or special
meeting. Any directorship to be filled by reason of an increase in the number of
Directors may be filled by the Board of Directors for a term of office
continuing only until the next election of Directors.
If there are nine or more Directors, or if the Corporation is a public
Corporation, the Board of Directors shall be divided into three classes, Class
I, Class II, and Class III, which shall be as nearly equal in number as
possible. Each Director shall serve for a term ending on the date of the third
annual meeting following the annual meeting at which the Director was elected;
provided however, that each initial Director in Class I shall hold office until
the first annual meeting of stockholders; each initial Director in Class II
shall hold office until the second annual meeting of stockholders, and each
initial director in Class III shall hold office until the third annual meeting
of stockholders.
The number of Directors may at any time be increased or decreased by the
unanimous vote of the Board of Directors provided that no decrease shall have
the effect of shortening the term of any incumbent Director. In the event of any
increase or decrease in the authorized number of Directors, (a) each Director
then serving shall nevertheless continue as a Director of the class of which he
is a member until the expiration of his current term, or his prior death,
retirement, resignation or removal, and (b) the newly created or eliminated
directorships resulting from the increase or decrease shall be apportioned by
the Board of Directors among the three classes of Directors so as to maintain
the classes as nearly equal as possible.
Directors may be removed from office for cause only. In addition, the approval
of stockholders representing not less than a majority of each class of the
issued and outstanding stock entitled to vote at the election of Directors shall
be required for removal of any Director.
Notwithstanding any of the foregoing provisions of this Article, each Director
shall serve until his successor is elected and qualified or until his death,
retirement, resignation or removal. Should a vacancy occur or be created,
whether arising through death, resignation or removal of a Director or through
an increase in the number of Directors of any class, the vacancy shall be filled
by a majority vote of the remaining Directors of the class in which the vacancy
occurs, or by the sole remaining Director of that class if only one Director
remains, or by the majority vote of the remaining Directors of the other two
classes if there be no remaining member of the class in which the vacancy
occurs. A Director so elected to fill a vacancy shall serve for the remainder of
the then present term of office of the class to which he was elected.
4
<PAGE> 5
ARTICLE XIII.
USE OF CAPITAL SURPLUS
The Board of Directors shall have power to determine the use and disposition of
any surplus or net profits over and above the stated capital. The Board may
distribute to its shareholders out of capital surplus of the Corporation a
portion of its assets, in cash or property, subject to statutory provisions. The
Board may apply such surplus or accumulated profits to the acquisition of the
bonds, capital stock or other obligations of the Corporation. The Board shall
have absolute discretion to determine the manner and terms of such acquisition.
Shares of capital stock so acquired may be resold unless they have been retired
in order to decrease the Corporation's stated capital.
ARTICLE XIV.
RESERVES AND WORKING CAPITAL
The Board of Directors shall have power to determine the amount to be set aside
from the earnings of the Corporation as working capital before paying any
dividends or distributing any profits. The Board shall have absolute discretion
to determine amounts to be set aside from the profits of the Corporation. Such
amounts may be used as additional working capital, as a fund for the payment and
retirement of the indebtedness of the Corporation, whether funded or otherwise,
or as a surplus fund such beneficial corporate purposes as the Board may
determine.
ARTICLE XV.
QUORUM OF SHAREHOLDERS
A quorum at a meeting of shareholders is constituted by the representation in
person or by proxy of forty percent (40%) of the shares entitled to vote. Shares
shall not be counted to make up a quorum for a meeting if voting of them at the
meeting has been enjoined or for any reason they cannot be lawfully voted at the
meeting. The shareholders present at a duly held meeting at which a quorum is
present may continue to do business until adjournment in spite of the withdrawal
of enough shareholders to leave less than a quorum.
ARTICLE XVI.
ISSUANCE OF SHARES IN SERIES
The shares of any preferred or special class may be divided into and issued in
series. If not otherwise determined by these Articles, the Board of Directors
shall have authority to divide any or all classes into series, and fix and
determine the relative rights and preferences of the shares of any series so
established.
5
<PAGE> 6
ARTICLE XVII.
INDEMNIFICATION
To the fullest extent permitted by the Washington Business Corporation
Statute as it presently exists or as may hereafter be amended, a
director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of
the fact that he or she, his or her testator or intestate is or was a
director, officer or employee of the Corporation or any predecessor of
the Corporation or serves or served at any other enterprise as a
director, officer or employee at the request of the Corporation or any
predecessor to the Corporation.
Neither any amendment nor repeal of this Article XVII, nor the adoption
of any provision of the Corporation's Articles of Incorporation
inconsistent with this Article XVII, shall eliminate or reduce the
effect of this Article XVII in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article
XVII, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
I certify that I am an officer of the above named Corporation and am authorized
to execute this application on behalf of the Corporation.
Dated: May , 1999
COUNTRY MAID FINANCIAL, INC.
Mark D. Owen, Secretary
6
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
COUNTRY MAID FINANCIAL, INC.
A WASHINGTON CORPORATION
ADOPTED MAY 1, 1999
1.0 OFFICES
1.1 The registered office of Country Maid Financial, Inc. in the
State of Washington shall be Jones Law Group, PLLC, 2300 130th Avenue NE, Suite
A-103, Bellevue, Washington 98005. The Corporation may establish other offices
either within or without the State of Washington, at such place or places as the
Board of Directors may from time to time appoint or the business of the
Corporation may require.
2.0 BOARD OF DIRECTORS
2.1 General Powers and Duties. Subject to the provisions of the
Revised Code of Washington and any limitations in the Articles of Incorporation
or these Bylaws relating to action required to be approved by the stockholders
or by the outstanding shares, the business and affairs of the Corporation shall
be managed and all corporate powers shall be exercised by or under the direction
of the Board of Directors. The Board of Directors may elect any member of the
Board as Chairman. He shall, if present, preside at all meetings of the Board of
Directors. He shall have other powers and duties as the Board prescribes, but
shall not be considered an officer of the Corporation by virtue of his duties as
Chairman.
2.2 Number, Tenure and Qualifications. The number of Directors of
the Corporation shall be no fewer than one (1) nor more than nine (9). The
number of Directors may at any time be increased or decreased by the Directors
or by the shareholders at any regular or special meeting provided that no
decrease shall have the effect of shortening the term of any incumbent Director
except as otherwise provided in these Bylaws. Directors shall be elected at the
annual meeting of shareholders, and except as provided below in this section,
the term of office of each Director shall be until the next annual meeting of
shareholders and the election and qualification of his successor. Any
directorship to be filled by reason of an increase in the number of Directors
may be filled by the Board of Directors for a term of office continuing only
until the next election of Directors, or by shareholders for the term of office
associated with the class to which Directors are elected. Directors need not be
shareholders of the Corporation or residents of the State of Washington.
If there are three or more directors, the Board of Directors may be
divided into three classes, Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each Director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
the Director was elected; provided that each initial Director in Class I shall
hold office until the first annual meeting of shareholders; each initial
Director in Class II shall hold office until the second annual meeting of
shareholders, and each initial director in Class III shall hold office until the
third annual meeting of shareholders. Not withstanding the foregoing provisions,
each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation or removal.
<PAGE> 2
2.3 Regular Meetings. A regular meeting of the Board of Directors
shall be held without notice other than the notice given by these Bylaws
immediately after and at the same place as the annual meeting of shareholders.
Additional regular meetings shall be held at the principal office of the
Corporation in the absence of any designation in the resolution.
2.4 Special Meetings. Special meetings of the Board of Directors for
any purpose or purposes may be called by or at the request of the President,
Chairman of the Board or any two directors, and shall be held at the principal
place of business of the Corporation or at any other place as the Directors may
determine.
2.5 Action of Directors by Communications Equipment. Any regular or
special meeting of the Directors may be called and held over telephone or other
electronic means, and communication from a Director by telephone or other
electronic means constitutes attendance at the meeting so held.
2.6 Notice. Notice of any special meeting shall be given at least
forty-eight (48) hours before the time fixed for the meeting, by written or oral
notice delivered personally or mailed to each Director at his business address,
by facsimile, by telegram, or by teletype, wire or wireless equipment which
transmits a facsimile of the notice. If mailed, the notice shall be deemed to be
delivered when deposited in the United States mail, with postage prepaid, not
less than five (5) days prior to the commencement of the above stated notice
period. If notice is given by telegram, the notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. Any Director
may waive notice of any meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of the meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of the
meeting.
2.7 Quorum. Except as otherwise required by law, a majority of the
number of Directors fixed by these Bylaws, or as amended, shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
but if less than a majority is present at a meeting, a majority of the Directors
present may adjourn the meeting from time to time without further notice. At an
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
notified. The Directors present at the duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Directors to leave less than a quorum, if any action taken is approved by at
least a majority of the remaining Directors.
2.8 Board Decisions. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. However, an actual majority shall be required for:
(a) Recommending to the shareholders an amendment to the
Articles of Incorporation;
(b) Adopting a plan of merger or consolidation;
(c) Recommending to the shareholders the sale, lease,
exchange, mortgage, pledge, or other disposition of all or substantially
all the property and assets of the Corporation other than in the usual
and regular course of its business;
(d) Recommending to the shareholders a voluntary dissolution
of the Corporation or a revocation of the Corporation;
(e) Amending the Bylaws of the Corporation;
2
<PAGE> 3
(f) Filling vacancies on the Board of Directors;
(g) Authorizing or approving reacquisition of shares, except
according to a formula or method prescribed by the Board of Directors;
(h) Authorizing or approving the issuance, sale or contract
for sale of shares, or determining the designation and relative rights,
preferences and limitations of a class or series of shares, except that
the Board of Directors may authorize a committee to do so within the
limits specifically prescribed by the Board of Directors.
2.9 Vacancies. Any vacancy occurring in the Board of Directors,
including one created by an increase in the number of Directors, shall be filled
by the affirmative vote of a majority of the remaining Directors, though less
than a quorum of the Board of Directors, or by a sole remaining Director. A
Director elected to fill a vacancy not created by an increase in the number of
Directors shall be elected for the unexpired term of his predecessor in office.
A Director elected to fill a vacancy created by an increase in the number of
directors shall be elected for a term of office continuing until the next
election of Directors.
2.10 Board Action By Written Consent Without A Meeting. Unless
otherwise restricted by the Articles of Incorporation or these Bylaws, 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 all
members of the board or committee, as the case may be, consent thereto in
writing and the written consent signed by each director is filed with the
minutes of proceedings of the board or committee. Written consents representing
actions taken by the Board of Directors or committee may be executed by telex,
telecopy or other facsimile transmission and such facsimile shall be valid and
binding to the same extent as if it were an original.
2.11 Compensation. Unless otherwise restricted by the Articles of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of the Directors or reimburse the Directors for their
expenses, if any, for attendance at each meeting of the Board of Directors,
including a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
2.12 Presumption of Assent. A Director who is present at a meeting of
the Board of Directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment of the meeting or shall forward his dissent by registered
mail to the Secretary of the Corporation immediately after the adjournment of
the meeting. The right to dissent shall not apply to a Director who voted in
favor of the action.
2.13 Approval of Loans to Officers. The Corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or other
employee of the Corporation or of its subsidiary, including any officer or
employee who is a director of the Corporation or its subsidiary, whenever, in
the judgment of the Directors, such loan, guaranty or assistance may reasonably
be expected to benefit the Corporation. The loan, guaranty or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the Corporation. Nothing in this section contained shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of the
Corporation at common law or under any statute.
3
<PAGE> 4
2.14 Executive Committee. By resolution passed by a majority of the
entire Board of Directors, the Board of Directors may designate one (1) or more
committees, each committee to consist of one (1) or more Directors, to
constitute an executive committee to the extent provided in the resolution and
shall have and may exercise all the authority of the Board of Directors in the
management of the Corporation, but no such committee shall have the power or
authority to:
(a) Recommend to the shareholders the amendment to the
Articles of Incorporation;
(b) Adopt a plan of merger or consolidation;
(c) Recommend to the shareholders the sale, lease, exchange,
mortgage, pledge, or other disposition of all or substantially all the
property and assets of the Corporation otherwise than in the usual and
regular course of its business;
(d) Recommend to the shareholders a voluntary dissolution of
the Corporation or a revocation of the Corporation;
(e) Amend the Bylaws of the Corporation.
(f) Fill vacancies on the Board of Directors;
(g) Authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the Board of Directors;
(h) Authorize or approve the issuance, sale or contract for
sale of shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except that
the Board of Directors may authorize a committee to do so within the
limits specifically prescribed by the Board of Directors;
(i) Take any action expressly required by the Revised Code
of Washington to be submitted to shareholders of the Corporation for
approval.
2.15 Standards of Conduct for Directors. A Director shall discharge
the duties of a Director, including the duties as a member of a committee, in
good faith, with the care an ordinarily prudent person in a like position would
exercise under similar circumstances and in a manner the Director reasonably
believes to be in the best interests of the Corporation.
In discharging the duties of a Director, a Director is entitled to rely
in good faith upon information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by (1)
an officer or employee of the Corporation whom the Director reasonably believes
to be reliable and competent in the matters presented; (2) legal counsel, public
accountants or other persons as to matters the Director reasonably believes are
within the professional or expert competence of such legal counsel, public
accountants or other persons who have been selected with reasonable care by or
on behalf of the Corporation; or (3) a committee of the Board of Directors of
which the Director is not a member if the Director reasonably believes the
committee merits confidence.
A Director is not liable for any action taken as a Director, or any
failure to take any action, if the Director performed the duties of the
Director's office in compliance with these Bylaws.
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3.0 SHAREHOLDERS
3.1 Annual Meeting. The annual meeting of the shareholders of the
Corporation shall be held on such date, time and in such place, either within or
without the State of Washington, as may be designated by resolution of the Board
of Directors each year. At the meeting, directors shall be elected and any other
proper business may be transacted.
3.2 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or by the Board of Directors and shall be called by the President
at the request of the holders of not less than a majority of the outstanding
shares of the Corporation entitled to vote at the meeting.
3.3 Place of Meeting. The Board of Directors may designate any place
within or outside of the State of Washington as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by a majority of shareholders entitled to vote at a
meeting may designate any place, either within or without the State of
Washington, as the place for the holding of the meeting.
3.4 Notice of Meeting. Written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days, except as otherwise required by statute,
before the date of the meeting, either personally or by mail, by or at the
direction of the President, Secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at the meeting. If
mailed, the notice shall be deemed to be delivered when deposited in the United
States mail with postage prepaid, addressed to the shareholder at his address as
it appears on the stock transfer books of the Corporation. Any shareholder may
waive notice of any meeting by written notice signed by him or his duly
authorized attorney-in-fact, either before or after the meeting.
3.5 Record Date. For the purpose of determining the shareholders
entitled to notice of, or to vote at, any meeting of shareholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors and which record date shall not be more
than sixty (60) days nor less than ten (10) days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day preceding the date of
notice, or if notice is waived, at the close of business on the day preceding
the date of the meeting. Written notice of any meeting of shareholders, if
mailed, is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. An affidavit of the Secretary or an Assistant Secretary of the
Corporation shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
For the purpose of determining the shareholders entitled to consent to
any corporate action of the Corporation in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than ten (10) days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining shareholders entitled to consent to corporate action
of the Corporation in writing without a meeting, when no prior action by the
Board of Directors is required under Washington law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation. If no record date has been fixed by the
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<PAGE> 6
Board of Directors and prior action by the Board of Directors is required under
Washington law, the record date for determining which shareholders are entitled
to consent to corporate action of the Corporation in writing without a meeting
shall be at the close of business on the day on which the Board of Directors
adopts a resolution taking such prior action.
For the purpose of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which date shall be not more that sixty (60) days prior to such action. If
no record date is fixed, the record date for determining shareholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
3.6 Quorum. Forty percent (40%) of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than forty percent
(40%) of the outstanding shares is represented at a meeting, then either (a) the
Chairman of the meeting or (b) a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At the adjourned
meeting at which a quorum is present or represented, any business may be
transacted that might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders.
3.7 Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. The proxy shall be filed with the Secretary of the Corporation
before or at the time of the meeting. Any solicitation of proxies by the
Directors or management of the Corporation shall be made by mailing the proxies
by certified mail or providing them to the shareholder in an alternative
acceptable manner at least not less than ten (10) days nor more than sixty (60)
days before the date of the meeting for which the proxies are solicited. Each
shareholder as of the record date shall receive a proxy. Proxies shall describe
the location and purpose of the meeting and the matter or business for which the
proxy is solicited. No proxy shall be valid after eleven (11) months from the
date it is received by the secretary of the Corporation or other officer or
agent authorized to tabulate votes unless otherwise provided in the proxy.
3.8 Voting of Shares. Subject to the provisions of any applicable
law, each outstanding share entitled to vote shall be entitled to one vote on
each matter submitted to a vote at a meeting of the shareholders. No shareholder
shall be entitled to cumulate his votes for election of directors.
3.9 Consent to Action. Any action which may be taken at a meeting of
the shareholders may be taken without a meeting if a consent in writing setting
forth the action so taken is signed in original, facsimile or counterpart form
by shareholders holding at least a majority of the voting power.
3.10 Action of Shareholders by Communications Equipment. Shareholders
may participate in a meeting of shareholders by means of telephonic device by
means of which all persons participating in the meeting can hear each other at
the same time, and participation by these means shall constitute presence in
person at a meeting.
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3.11 Shareholder's Right of Inspection. Any shareholder, in person or
by attorney or other agent, upon written demand under oath stating the purpose
thereof, has the right during usual hours for business to inspect for any proper
purpose the Corporation's stock ledger, a list of its shareholders, and its
other books and records and to make copies or extracts therefrom.
4.0 OFFICERS
4.1 Number. The officers of the Corporation shall be a Chief
Executive Officer, President, none, one or more Vice Presidents (the number of
Vice Presidents to be determined by the Board of Directors), a Secretary, a
Chief Financial Officer, a Controller and a Treasurer each of whom shall be
elected by the Board of Directors. Other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors. Any
two or more offices may be held by the same person.
Each officer has the authority and shall perform the duties set forth in
these Bylaws or, to the extent consistent with these Bylaws, the duties
prescribed by the Board of Directors or by direction of an officer authorized by
the Board of Directors to prescribe the duties of other officers.
4.2 Election and Term of Office. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. If the election of officers is not held at the meeting, the
election shall be held as soon thereafter as is convenient. Each officer shall
hold office until his successor has been duly elected and qualifies or until his
death or until he resigns or is removed in the manner provided by these Bylaws.
4.3 Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation would be served by that removal, but the
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
4.4 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term in the manner prescribed by
these Bylaws for the regular election or appointment of such office.
4.5 Standards of Conduct for Officers. An officer with discretionary
authority shall discharge the duties of an officer under that authority in good
faith, with the care an ordinarily prudent person in a like position would
exercise under similar circumstances, and in a manner the officer reasonably
believes to be in the best interests of the Corporation.
In discharging the duties of an officer, an officer is entitled to rely
in good faith upon information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by (1)
an officer or employee of the Corporation whom the officer reasonably believes
to be reliable and competent in the matters presented or (2) legal counsel,
public accountants or other persons as to matters the officer reasonably
believes are within the professional or expert competence of such legal counsel,
public accountants or (3) other persons who have been selected with reasonable
care by or on behalf of the Corporation.
An officer is not acting in good faith if the officer has knowledge
concerning the matter in question that makes reliance otherwise permitted by
these Bylaws unwarranted.
An officer is not liable for any action taken as an officer, or any
failure to take any action, if the officer performed the duties of the office in
compliance with these Bylaws.
If any certificate or report made or public notice given by an officer
of the Corporation shall be
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<PAGE> 8
false or fraudulent in any material representation, any officer knowingly and
intentionally signing the same shall be jointly and severally and personally
liable to any person who has become a creditor or stockholder of the Corporation
upon the faith of any such material representation therein to the amount of the
debt contracted upon the faith thereof if not paid when due, or the damage
sustained by any purchaser of or subscriber to its stock upon the faith thereof.
The liability imposed by this section shall exist in all cases where the
contents of any such certificate, report or notice of any material
representation therein shall have been communicated either directly or
indirectly to the person so becoming a creditor or stockholder and he became
such creditor or stockholder upon the faith thereof.
4.6 Powers and Duties of the Chief Executive Officer. The Chief
Executive Officer shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, at all meetings of the Board of Directors.
He shall have ultimate responsibility and authority for management including but
not limited to, the power to appoint committees, officers, agents or employees
from time to time as he may, in his discretion, decide is appropriate to assist
in the conduct of the affairs of the Corporation. He shall enforce these Bylaws
and generally shall supervise and control the business, affairs and property of
the Corporation. He shall have general and active supervision over the
Corporation's officers and may sign, execute and deliver in the name of the
Corporation corporate documents, instruments, powers of attorney, contracts,
bonds and other obligations.
4.7 Powers and Duties of the President. The President shall have the
authority and perform such duties as the Board of Directors authorizes or
directs. If no Chief Executive Officer has been appointed, or in the event of
the death of the Chief Executive Officer or his or her inability to act, the
President shall perform the duties of the Chief Executive Officer, except as may
be limited by resolution of the Board, with all the powers of, and subject to
all of the restrictions upon, the Chief Executive Officer.
4.8. Duties of the Vice President(s). The Vice President(s) shall
have the authority and perform duties as the Board of Directors or Chief
Executive Officer may authorize or direct.
4.9 Duties of the Secretary. The Secretary shall subscribe the
minutes of all meetings of the shareholders and the Board of Directors. He shall
mail notices to the shareholders and the Directors of the Corporation of the
holding of any meeting as prescribed by these Bylaws. If the Corporation has a
seal, the secretary shall be the custodian of the seal and shall affix it to
minutes, notices or other instruments executed by the Corporation as required.
He shall have the authority and perform other duties as the Board of Directors
or Chief Executive Officer may authorize or direct.
4.10 Duties of the Assistant Secretary. The Assistant Secretary, in
the event of the appointment of an assistant secretary by the Board of
Directors, shall, in the Secretary's absence or in the case of the Secretary's
inability to act or in case it shall be inconvenient for the Secretary to so
act, perform the duties of the secretary as may be necessary. He shall have the
authority and perform other duties as the Board of Directors or Chief Executive
Officer may authorize or direct.
4.11 Duties of the Chief Financial Officer. The Chief Financial
Officer for the Corporation shall have charge of and be responsible for all
funds and securities belonging to the Corporation and shall keep and deposit the
funds for and on behalf of the Corporation in a bank or banks to be designated
by the Board of Directors. In the absence of a designation he may select the
bank or banks in which to deposit the funds. He shall have the authority and
perform other duties as the Board of Directors or Chief Executive Officer may
authorize or direct.
4.12 Duties of the Controller. The Controller for the Corporation
shall be charged with
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certain duties in relation to the fiscal affairs of the Corporation, principally
to examine and audit the accounts, to keep records, and report the financial
situation from time to time. He shall have the authority and perform other
duties as the Board of Directors may authorize or direct.
4.13 Duties of the Treasurer. The Treasurer shall have the authority
and perform such duties as the Board of Directors authorize or direct.
4.14 Subordinate Officers and General Managers. The Board of
Directors may create subordinate offices and employ subordinate officers or
agents as it from time to time deems expedient and may fix the compensation of
the officers or agents and define their powers and duties, provided the powers
and duties do not constitute a delegation of the authority as is reposed in the
Directors by law, which shall be exercised and performed exclusively by them.
The Board of Directors shall also have the power to appoint a General Manager,
who shall hold office at the pleasure of the Board. The Board of Directors shall
have the power to delegate to the General Manager the executive power and
authority as it may deem necessary to facilitate the handling and management of
the Corporation's property and interests.
4.15 Salaries. The salaries of the officers shall be fixed from time
to time by the Board of Directors and no officer shall be prevented from
receiving a salary by reason of the fact that he is also a Director of the
Corporation.
5.0 CONTRACTS, CORPORATE FUNDS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts. Without limiting any powers elsewhere granted by
these Bylaws to the President or other officer of the Corporation, the Board of
Directors may authorize any officer or officers, agent or agents, to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation, and the authority may be general or confined to specific
instances.
5.2 Corporate Funds. All funds of the Corporation shall be under the
supervision of the Board of Directors and shall be handled and disposed of in
the manner and by the officers or agents of the Corporation as provided in these
Bylaws or as the Board of Directors may authorize by proper resolutions from
time to time.
5.3 Loans. No loans shall be contracted on behalf of the Corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. The authority may be general or
confined to specific instances.
5.4 Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money, notes, or other evidence of indebtedness issued in the
name of the Corporation shall be signed by an officer or officers, agent or
agents of the Corporation and in a manner as shall from time to time be
determined by resolution of the Board of Directors.
5.5 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in banks,
trust companies, or other depositories as the Board of Directors may in its
discretion select.
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6.0 CERTIFICATES FOR SHARES; TRANSFERS
6.1 Certificates for Shares. Certificates representing shares of the
Corporation shall be in a form as shall be determined by the Board of Directors.
The certificates shall be signed by the President or a Vice President, if any.
If the Corporation has more than one shareholder, the certificate shall also be
signed by the Treasurer, the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented by the
certificates are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in case of a lost,
destroyed, or mutilated certificate a new one may be issued on the terms and
indemnity to the Corporation as the Board of Directors may prescribe.
6.2 Registrar. The registrar is the person designated by the
Corporation to keep official shareholder records, including names and addresses
of shareholders and number of shares owned. The registrar may hold one or more
offices or no offices of the Corporation.
6.3 Transfer of Shares. Transfer of shares of the Corporation shall
be made in the manner specified in the Uniform Commercial Code. The Corporation
shall maintain stock transfer books and any transfer shall be registered only on
request and surrender of the stock certificate representing the transferred
shares, duly endorsed. The Corporation shall have the absolute right to
recognize as the owner of any shares of stock issued by it, the person or
persons in whose name the certificate representing the shares stands according
to the books of the Corporation for all proper Corporation purposes, including
the voting of the shares represented by the certificate at a regular or special
meeting of shareholders, and the issuance and payment of dividends on the
shares.
6.4 Shares of Another Corporation. Shares owned by the Corporation
in another corporation, domestic or foreign, may be voted by an officer, agent
or proxy as the Board of Directors may determine or, in the absence of a
determination, by the President of the Corporation.
6.5 Subscriptions. Subscriptions to the shares shall be paid at
times and in installments as the Board of Directors may determine. The Board of
Directors may adopt resolutions prescribing penalties for default on
subscription agreements.
7.0 FISCAL YEAR
7.1 The fiscal year of the Corporation is the calendar year unless
otherwise changed by the Board of Directors. The Board of Directors may change
the fiscal year of the Corporation from time to time.
8.0 DIVIDENDS
8.1 Subject to the restrictions of the Revised Code of Washington,
the Board of Directors may from time to time declare, and the Corporation may
pay, dividends on its outstanding shares in the manner and on the terms and
conditions provided by law and its Articles of Incorporation.
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9.0 SEAL
9.1 The Board of Directors may adopt a corporate seal, which shall
be circular in form and shall have inscribed on it the name of the Corporation,
the year incorporated, the state of incorporation and the words "corporate
seal." The seal shall be stamped or affixed to documents as may be prescribed by
law or by the Board of Directors.
10.0 CONFLICT OF INTEREST
10.1 No contract or other transaction between the Corporation and one
or more of its Directors or any other corporation, firm, association or entity
in which one or more of its Directors are directors or officers or are
financially interested, shall be either void or voidable because of the
relationship or interest or because the Director or Directors are present at the
meeting of the Board of Directors or a committee of Directors which authorizes,
approves or ratifies a contract or transaction or because his or their votes are
counted for that purpose, if:
(a) The material facts of a relationship or interest are
disclosed or known to the Board of Directors or committee which in good
faith authorizes, approves or ratifies the contract or transaction by a
vote or consent sufficient for the purpose without counting the votes or
consents of the interested Director(s); or
(b) The material facts of a relationship or interest is
disclosed or known to the shareholders entitled to vote and they in good
faith authorize, approve or ratify a contract or transaction by vote or
written consent; or
(c) The contract or transaction is fair and reasonable as to
the Corporation at the time it is authorized, approved and ratified by
the Board of Directors, committee designated by the Board of Directors,
or the shareholders.
11.0 NOTICE AND CONSENT
11.1 Waiver of Notice. Whenever any notice is required to be given to
any shareholder or Director of the Corporation under the provisions of these
Bylaws, the Articles of Incorporation, or by law, a waiver in writing, signed in
original, facsimile or counterpart by the person or persons entitled to notice,
whether before or after the time stated in the notice, shall be deemed
equivalent to the giving of a notice. Any shareholder or Director may waive
notice of any meeting by a notice signed by him or his duly authorized attorney,
either before or after the meeting. Attendance of a shareholder or Director of
the Corporation at a meeting shall constitute waiver of notice of a meeting
except where a shareholder or Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or adjourned.
11.2 Consent to Action. Any action which may be taken at a meeting of
the shareholders, may be taken without a meeting if a consent in writing setting
forth the action so taken is signed in original, facsimile or counterpart by
shareholders holding at least a majority of the voting power. Any action which
may be taken at a meeting of the Board of Directors may be taken without a
meeting if written consent is signed by all members of the Board or Directors
entitled to vote on the action. The consent shall have the same force and effect
as a unanimous vote of the shareholders or Directors. Notice requirements of
these Bylaws which apply to meetings of shareholders and Directors are deemed
waived by all Directors and shareholders if a Consent to Action is signed in
lieu of holding an actual meeting.
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12.0 RESTRICTIONS ON TRANSFER
12.1 Transfer of shares. No securities of this Corporation or
certificates representing the securities shall be transferred in violation of
any law or of any restriction on transfer set forth in the Articles of
Incorporation or amendments to the Articles, or the Bylaws; or contained in any
buy/sell agreements, right of first refusal, or other agreement restricting a
transfer which has been executed by the Corporation, or filed with the Secretary
of the Corporation and signed by the parties to the agreement. The Corporation
shall not be bound by any restrictions not so filed and noted.
12.2 Restrictive Legend. The Corporation and any party to any
agreement shall have the right to have a restrictive legend imprinted upon any
of the certificates and any certificates issued in replacement or exchange or
with respect to them.
13.0 AMENDMENTS
13.1 Except as expressly reserved to the Board of Directors by the
Revised Code of Washington for certain modifications, the power to alter, amend
or repeal the Articles of Incorporation is vested exclusively in the
shareholders and must be approved by a majority vote of all classes of
shareholders having the right to vote. Unless the board determines that, because
of a conflict of interest or other special circumstances, it should make no
recommendation to the shareholders, amendments to the Corporation's Articles of
Incorporation shall be recommended to the shareholders by the Board of
Directors.
13.2 Changes in and additions to the Bylaws by the Board of Directors
shall be reported to the shareholders at their next regular or special meeting
and shall be subject to the approval or disapproval of the shareholders at the
meeting. If no action is then taken by the shareholders on a change in or
addition to the Bylaws, the change or addition shall be deemed to be fully
approved and ratified by the shareholders.
14.0 INDEMNIFICATION AND LIABILITY
14.1 Indemnification of Directors. The Corporation shall indemnify
officers and Directors to the fullest extent possible under Washington law,
against expenses (including attorney's fees), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the Corporation. For purposes of this section, a "director" or "officer" of the
Corporation includes any person (a) who is or was a director or officer of the
corporation, (b) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (c) who was a director or officer of a corporation which
was a predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
14.2 Neither the Corporation, its Directors nor its officers will be
in any way liable to the shareholders where legal counsel has been relied on in
a matter.
14.3 Indemnification of Others. The Corporation shall have the power,
to the maximum extent and in the manner permitted by the Revised Code of
Washington, to indemnify each of its employees and agents (other than directors
and officers) against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the Corporation. For purposes of this section, an "employee" or "agent"
of the Corporation (other than a director or officer) includes any person (a)
who is or was an employee or agent of the Corporation, (b) who is or was serving
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at the request of the Corporation as an employee or agent of another corporation
partnership, joint venture, trust or other enterprise, or (c) who was an
employee or agent of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
CERTIFICATION AS TO THE BYLAWS OF THE CORPORATION
I, the undersigned, being the Secretary of the Corporation do hereby
certify the foregoing to be the Bylaws of the Corporation.
Mark D. Owen, Secretary
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EXHIBIT 4.1
SPECIMEN COMMON STOCK CERTIFICATE
NUMBER SHARES
SPECIMEN COUNTRY MAID FINANCIAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
COMMON STOCK
CUSIP 222356 20 6
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF NO PAR VALUE EACH OF
COUNTRY MAID FINANCIAL, INC.
transferable only on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This Certificate and
the shares represented hereby are subject to the laws of the State of
Washington, and to the Articles of Incorporation and Bylaws of the Corporation,
as now or hereafter amended. This certificate is not valid until countersigned
by the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
CORPORATE
SEAL
SECRETARY-TREASURER CEO
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1506
Denver, Colorado 80201
By
----------------------------------------
Transfer Agent & Registrar
Authorized Signature
<PAGE> 2
COUNTRY MAID FINANCIAL, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ............ Custodian .............
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..................................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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_____ Shares of the Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint ______________________________________
attorney-in-fact to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated
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NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership in
an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
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<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION
OF
COUNTRY MAID FINANCIAL, INC.
A WASHINGTON CORPORATION
Country Maid Financial, Inc. ("Company"), a corporation organized and existing
under and by virtue of the Washington Business Corporation Act,
DOES HEREBY CERTIFY:
A. That the Board of Directors of the Company, by unanimous vote at a special
meeting of directors, adopted a resolution on April 29, 1999 proposing and
declaring advisable the following:
RESOLVED, that the Board of Directors pursuant to the authority
expressly vested in it by the Articles of Amendment to the Company's
Articles of Incorporation, filed with the Secretary of State on
September 23, 1998, designate 500,000 shares of Convertible Class A
Series I Preferred Stock. The powers, designations, preferences and
rights are as follows:
CLASS A SERIES I PREFERRED
1.0 DIVIDENDS
1.1 The holders of Class A Series I Preferred Stock are entitled to
cumulative dividends from the date of issue, when and if declared by the Board
of Directors, out of profits or capital legally available for that purpose
according to RCW 23B.06.400, at a rate of eight percent (8%) per annum of the
subscription price which is the amount paid by the holder to the Company as
consideration for the certain number of preferred stock received as recognized
by the Board of Directors ("Subscription Price"). The dividend will be payable
monthly beginning thirty days after the first date of issue. The Board of
Directors has no right to declare a dividend to common shareholders or other
securities ranking junior to the Preferred Stock unless all prior dividends on
the Class A Series I Preferred Stock are paid in full. Distribution by the
Company of dividends on capital stock may result in certain tax effects to
shareholders. No right to any dividends shall accrue to holder under this
paragraph in the event the Company shall fail to declare dividends.
2.0 CONVERSION
2.1 The Class A Series I Preferred Stock is convertible at the
option of the holder, but not earlier than twelve (12) months after the date of
the holder's subscription of the Preferred Stock ("Subscription Date"), unless
previously redeemed by the Company, into the nearest whole number of common
stock ("Conversion Shares") the Subscription Price would be able to purchase at
the Company's average common stock price ("Average Stock Price") which will be
equivalent to the mean between the closing bid and asked quotations for the
Company's common stock in the over-the-counter market as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or any
other reliable quotation system if the common stock is not listed on NASDAQ, for
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the 60 trading days last preceding the date of conversion.
2.2 Unless the Company, at its election, acts to obtain effectiveness of
a registration statement under the Securities Act covering the Conversion
Shares, the Class A Series I Preferred Stock shall be converted into restricted
common stock as the term "restricted" is defined in Rule 144 under the
Securities Act. The Company has no obligation to register the Conversion Shares.
2.3 Conversion eliminates all rights and preferences resulting from the
Class A Series I Preferred Stock. The Company covenants that the Conversion
Shares, when issued, will be validly issued, fully paid and non-assessable.
2.4 No fractional share of common stock will be issued upon conversion
of the Class A Series I Preferred Stock, but if the conversion results in a
fractional share, the Company will, at its option, either round the fractional
share upward to the next whole integer or pay to the converting holder an
amount, in U.S. funds, not less than the cash conversion value of the fractional
interest.
2.5 In the event the Board of Directors of the Company acts to convert
Class A Series I Preferred Stock, the Company will take all steps reasonably
necessary to permit the conversion of the Class A Series I Preferred Stock and
the issuance of the Conversion Shares under the applicable state securities laws
of those states in which the Class A Series I Preferred Stock is originally
sold. The Company will take any reasonable steps which it determines, in its
sole discretion, are necessary to permit the conversion of the Class A Series I
Preferred Stock and the issuance of the Conversion Shares under the laws of any
other state in which the holder then resides, on the written request to do so by
the holder, but in no event shall the Company be required to consent to the
general service of process in any state other than those states in which the
Class A Series I Preferred Stock being offered is originally sold. If the holder
resides in any state where the Company cannot, with the exercise of reasonable
diligence and without consenting to general service of process, obtain an
exemption for the issuance of the Conversion Shares, the holder may not, as a
result, be able to receive the Conversion Shares in exchange for Class A Series
I Preferred Stock and the Company is under no obligation to issue the Conversion
Shares in those circumstances.
3.0 REDEMPTION
3.1 The Class A Series I Preferred Stock is redeemable at any time at
the option of the Company, in whole or in part, upon payment by the Company, in
its sole discretion, of the redemption price consisting of the Average Stock
Price of the Conversion Shares as described above in paragraph 2.1 plus an
amount equal to all declared and accrued dividends ("Redemption Price"). Upon
notice of redemption, Preferred Stockholders shall have a 30-day period after
delivery of the Company's notice to convert the Preferred Stock into Conversion
Shares.
3.2 No mandatory sinking fund payments or other similar provisions have
been established to redeem the aggregate principal amount of the Class A Series
I Preferred Stock issued, together with dividends, if any.
4.0 LIQUIDATION
4.1 If there is a liquidation of the Company, a holder of Class A Series
I Preferred Stock is entitled to a pro rata liquidation preference in an amount
equal to the Subscription Price plus any accrued dividends to the date of
distribution, before any distribution or payment to the holders of common stock
or any other security ranking junior to this class and series of Class A Series
I Preferred Stock .
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<PAGE> 3
5.0 VOTING
5.1 The Class A Series I Preferred Stock is entitled to one vote per
share together as one class with common shareholders on all matters upon which
common shareholders are entitled to vote.
6.0 MISCELLANEOUS
6.1 There are no restrictions on the Company's ability to sell, lease,
or encumber the assets of the Company. There are no restrictions requiring the
maintenance of any asset ratio or the creation or maintenance of reserves by the
Company. Holders of Class A Series I Preferred Stock have no preemptive rights.
The Class A Series I Preferred Stock, on issuance against full payment of the
purchase price, will be fully paid and nonassessable.
B. That the Board of Directors of the Company, by unanimous vote at a special
meeting of directors, adopted a resolution on April 29, 1999, proposing and
declaring advisable the following:
RESOLVED, that the Board of Directors pursuant to the authority
expressly vested in it by the Certificate of Incorporation, designate
500,000 shares of Convertible Class B Series I Preferred Stock. The
powers, designations, preferences and rights are as follows:
CLASS B SERIES I PREFERRED
1.0 STOCK DIVIDENDS
1.1 The holders of Class B Series I Preferred Stock are entitled to
cumulative stock dividends from the date of issue, at a rate of eight percent
(8.0%) per annum of the Subscription Price, payable quarterly, by the issuance
of the common stock of the Company based on the Average Stock Price, which will
be equivalent to the mean between the closing bid and asked quotations for the
Company's common stock in the over-the-counter market as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or any
other reliable quotation system if the common stock is not listed on NASDAQ, for
the 30 trading days last preceding the date of conversion. The Board of
Directors has no right to declare a dividend to common shareholders or other
securities ranking junior to the Class B Series I Preferred Stock unless all
prior dividends on the Class B Series I Preferred Stock have been paid in full.
No right to any dividends shall accrue to holder under this paragraph in the
event the Company shall fail to declare dividends.
2.0 CONVERSION
2.1 The Class B Series I Preferred Stock is convertible at the option of
the holder, but not earlier than twelve (12) months after the date of the
holder's subscription of the Preferred Stock ("Subscription Date"), unless
previously redeemed by the Company, into the nearest whole number of common
stock ("Conversion Shares") the Subscription Price would be able to purchase at
the Company's average common stock price ("Average Stock Price") which will be
equivalent to the mean between the closing bid and asked quotations for the
Company's common stock in the over-the-counter market as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or any
other reliable quotation system if the common stock is not listed on NASDAQ, for
the 60 trading days last preceding the date of conversion.
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<PAGE> 4
2.2 Unless the Company, at its election, acts to obtain effectiveness of
a registration statement under the Securities Act covering the Conversion
Shares, the Class B Series I Preferred Stock shall be converted into restricted
common stock as the term "restricted" is defined in Rule 144 under the
Securities Act. The Company has no obligation to register the Conversion Shares.
2.3 Conversion eliminates all rights and preferences resulting from the
Class B Series I Preferred Stock. The Company covenants that the Conversion
Shares, when issued, will be validly issued, fully paid and non-assessable.
2.4 No fractional share of common stock will be issued upon conversion
of the Class B Series I Preferred Stock, but if the conversion results in a
fractional share, the Company will, at its option, either round the fractional
share upward to the next whole integer or pay to the converting holder an
amount, in U.S. funds, not less than the cash conversion value of the fractional
interest.
2.5 In the event the Board of Directors of the Company acts to convert
Class B Series I Preferred Stock, the Company will take all steps reasonably
necessary to permit the conversion of the Class B Series I Preferred Stock and
the issuance of the Conversion Shares under the applicable state securities laws
of those states in which the Class B Series I Preferred Stock is originally
sold. The Company will take any reasonable steps which it determines, in its
sole discretion, are necessary to permit the conversion of the Class B Series I
Preferred Stock and the issuance of the Conversion Shares under the laws of any
other state in which the holder then resides, on the written request to do so by
the holder, but in no event shall the Company be required to consent to the
general service of process in any state other than those states in which the
Class B Series I Preferred Stock being offered is originally sold. If the holder
resides in any state where the Company cannot, with the exercise of reasonable
diligence and without consenting to general service of process, obtain an
exemption for the issuance of the Conversion Shares, the holder may not, as a
result, be able to receive the Conversion Shares in exchange for Class B Series
I Preferred Stock and the Company is under no obligation to issue the Conversion
Shares in those circumstances.
3.0 REDEMPTION
3.1 The Class B Series I Preferred Stock is redeemable at any time at
the option of the Company, in whole or in part, upon payment by the Company in
its sole discretion of the redemption price consisting of the Average Stock
Price of the Conversion Shares as described above in paragraph 2.1 plus an
amount equal to all declared and accrued dividends ("Redemption Price"). Upon
notice of redemption, Preferred Stockholders shall have a 30-day period after
delivery of the Company's notice to convert the Preferred Stock into Conversion
Shares.
3.2 No mandatory sinking fund payments or other similar provisions have
been established to redeem the aggregate principal amount of the Class B Series
I Preferred Stock issued, together with dividends, if any.
4.0 LIQUIDATION
4.1 If there is a liquidation of the Company, holder of Class B Series I
Preferred Stock is entitled to a pro rata liquidation preference in an amount
equal to the Subscription Price per share plus any amount equal to the value of
the declared and accrued stock dividends to the date of distribution, before any
distribution or payment to the holders of common stock or any other security
ranking junior to this class and series of Class B Series I Preferred Stock.
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<PAGE> 5
5.0 VOTING RIGHTS
5.1 The Class B Series I Preferred Stock is entitled to one vote per
share together as one class with common shareholders on all matters upon which
common shareholders are entitled to vote.
6.0 MISCELLANEOUS
6.1 There are no restrictions on the Company's ability to sell, lease,
or encumber the assets of the Company. There are no restrictions requiring the
maintenance of any asset ratio or the creation or maintenance of reserves by the
Company. Holders of Class B Series I Preferred Stock have no preemptive rights.
The Class B Series I Preferred Stock, on issuance against full payment of the
purchase price, will be fully paid and nonassessable.
C. That the Board of Directors of the corporation, by unanimous vote at a
special meeting of directors, adopted a resolution on April 29, 1999, proposing
and declaring advisable the following:
RESOLVED, that the Board of Directors pursuant to the authority
expressly vested in it by the Certificate of Incorporation, designate
500,000 shares of Convertible Class C Series I Preferred Stock. The
powers, designations, preferences and rights are as follows:
CLASS C SERIES I PREFERRED
1.0 NO DIVIDENDS
1.1 The holders of Class C Series I Preferred Stock are not entitled to
dividends.
2.0 CONVERSION
2.1 The Class C Series I Preferred Stock is convertible at the option of
the holder, but not earlier than twelve (12) months after the date of the
holder's subscription of the Preferred Stock ("Subscription Date"), unless
previously redeemed by the Company, into the nearest whole number of common
stock ("Conversion Shares") the Subscription Price would be able to purchase at
the Company's average common stock price ("Average Stock Price") which will be
equivalent to the mean between the closing bid and asked quotations for the
Company's common stock in the over-the-counter market as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or any
other reliable quotation system if the common stock is not listed on NASDAQ, for
the 60 trading days last preceding the date of conversion.
2.2 Unless the Company, at its election, acts to obtain effectiveness of
a registration statement under the Securities Act covering the Conversion
Shares, the Class C Series I Preferred Stock shall be converted into restricted
common stock as the term "restricted" is defined in Rule 144 under the
Securities Act. The Company has no obligation to register the Conversion Shares.
2.3 Conversion eliminates all rights and preferences resulting from the
Class C Series I Preferred Stock. The Company covenants that the Conversion
Shares, when issued, will be validly issued, fully paid and non-assessable.
2.4 No fractional share of common stock will be issued upon conversion
of the Class C
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<PAGE> 6
Series I Preferred Stock, but if the conversion results in a fractional share,
the Company will, at its option, either round the fractional share upward to the
next whole integer or pay to the converting holder an amount, in U.S. funds, not
less than the cash conversion value of the fractional interest.
2.5 In the event the Board of Directors of the Company acts to convert
Class C Series I Preferred Stock, the Company will take all steps reasonably
necessary to permit the conversion of the Class C Series I Preferred Stock and
the issuance of the Conversion Shares under the applicable state securities laws
of those states in which the Class C Series I Preferred Stock is originally
sold. The Company will take any reasonable steps which it determines, in its
sole discretion, are necessary to permit the conversion of the Class C Series I
Preferred Stock and the issuance of the Conversion Shares under the laws of any
other state in which the holder then resides, on the written request to do so by
the holder, but in no event shall the Company be required to consent to the
general service of process in any state other than those states in which the
Class C Series I Preferred Stock being offered is originally sold. If the holder
resides in any state where the Company cannot, with the exercise of reasonable
diligence and without consenting to general service of process, obtain an
exemption for the issuance of the Conversion Shares, the holder may not, as a
result, be able to receive the Conversion Shares in exchange for Class C Series
I Preferred Stock and the Company is under no obligation to issue the Conversion
Shares in those circumstances.
3.0 REDEMPTION
3.1 The Class C Series I Preferred Stock is redeemable at any time at
the option of the Company, in whole or in part, upon payment by the Company in
its sole discretion of the redemption price consisting of the Average Stock
Price of the Conversion Shares as described above in paragraph 2.1 ("Redemption
Price"). Upon notice of redemption, Preferred Stockholders shall have a 30-day
period after delivery of the Company's notice to convert the Preferred Stock
into Conversion Shares.
3.2 No mandatory sinking fund payments or other similar provisions have
been established to redeem the aggregate principal amount of the Class C Series
I Preferred Stock issued.
4.0 LIQUIDATION
4.1 If there is a liquidation of the Company, holder of Class C Series I
Preferred Stock is entitled to a pro rata liquidation preference in an amount
equal to the Subscription Price per share, before any distribution or payment to
the holders of common stock or any other security ranking junior to this class
and series of Class C Series I Preferred Stock.
5.0 VOTING RIGHTS.
5.1 The Class C Series I Preferred Stock is entitled to one vote per
share together as one class with common shareholders on all matters upon which
common shareholders are entitled to vote.
6.0 MISCELLANEOUS
6.1 There are no restrictions on the Company's ability to sell, lease,
or encumber the assets of the Company. There are no restrictions requiring the
maintenance of any asset ratio or the creation or maintenance of reserves by the
Company. Holders of Class C Series I Preferred Stock have no preemptive rights.
The Class C Series I Preferred Stock, on issuance against full payment of the
purchase price, will be fully paid and nonassessable.
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IN WITNESS WHEREOF, the Company has caused this certificate to be signed
by C. Richard Kearns, its Chief Executive Officer.
COUNTRY MAID FINANCIAL, INC.
a Washington corporation
By: C. Richard Kearns, Chief Executive Officer
State of Oregon
County of
I certify that I know or have satisfactory
evidence that C. Richard Kearns is the
person who appeared before me, and said
person acknowledged that he signed this
instrument, on oath stated that he was
authorized to execute the instrument and
acknowledged it as the Chief Executive
Officer of Country Maid Financial, Inc. to
be the free and voluntary act of such party
for the uses and purposes mentioned in the
instrument.
Dated:
Signature
Title
My appointment expires
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<PAGE> 1
EXHIBIT 10.1
MANAGEMENT AGREEMENT
DATED:
BETWEEN: Territorial Inns Management, Inc. ("MANAGER")
a Nevada corporation
AND: , Inc., ("OWNER")
a corporation
1.0 RECITALS
1.1 MANAGER has experience in the field of motel management and has
operated motels in various areas throughout the United States for several years.
1.2 OWNER is the owner of the motel properties listed on Exhibit A
attached hereto and made a part hereof (individually, a "PROPERTY" and
collectively, the "PROPERTIES"), and is desirous of engaging the Manager for the
purposes of applying its knowledge and experience in the field of motel
management and as advisor of the Properties.
2.0 SERVICES
2.1 MANAGER does hereby agree to apply its knowledge and experience in
the field of motel management for the benefit of OWNER, as those abilities may
be applied to the PROPERTIES. The services shall be evidenced by application of
market criteria, cost criteria, purchasing criteria and employment criteria
available to MANAGER and developed by the MANAGER, all for the purposes of
managing the PROPERTIES. The MANAGER shall also act in an advisory capacity to
OWNER in the event any recommendations of MANAGER would have the effect of
requiring an administrative and/or corporate action to implement the operations
of OWNER.
2.2 The specific services to be performed by the MANAGER and the powers
conferred to MANAGER for the performance of the services, are as follows:
(a) to oversee the application of budgetary controls and criteria in
the operation of the PROPERTIES in accordance with an approved
budget.
(b) to set up and oversee all financial reporting procedures necessary for
proper, expeditious and usable monthly, quarterly or annual accounting for the
PROPERTIES.
(c) to set up and oversee the analysis of all financial reports relative to
operation, and report to OWNER as to deficiencies in the operation which result
in certain operational expenses or income as a result of operation being
adversely in deviation with the budgetary criteria set up for each specific
category.
(d) to pay all operational bills, including but not limited to, rent, taxes,
payroll, insurance and disposable operational items from amounts authorized to
be disbursed from the concentration accounts
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and certain other bank accounts of OWNER in accordance with an approved budget.
(e) to have full power, authority and responsibility to, on behalf of OWNER,
operate the PROPERTIES in the following particulars:
(1) including the staffing of the PROPERTIES with adequate
personnel, with complete authority to hire and discharge
said personnel at the sole discretion of MANAGER All
personnel so hired, including an on site manager shall
be hired for or in behalf of OWNER and payment for their
compensation shall be paid out of the funds of OWNER as
earlier set out herein;
(2) to order supplies and other materials from any
designated source, at the sole discretion of the
MANAGER;
(3) to determine the type and amount of promotional sales
aids to be used for the PROPERTIES;
(4) to determine and contract for, on behalf of OWNER any
and all work to be performed at the PROPERTIES in
connection with the capital improvement program and any
and all other necessary repairs required on the
PROPERTIES in accordance with an approved budget;
(5) to keep OWNER advised as to any necessary compliance
with all local, state and federal laws which govern the
operation of the PROPERTIES;
(6) to do any and all other things not herein enumerated
which are required for the successful and economical
operation of the PROPERTIES.
(f) to contract for and maintain property damage, liability, workmen's
compensation and all other necessary insurance to adequately protect OWNER and
its property. The amount of insurance to be carried shall be jointly determined
by MANAGER and OWNER. All insurance premiums shall be paid for out of OWNERS
funds;
(g) to hire and contract for services, on OWNERS behalf, of accountants,
attorneys and any and all other professional services required, not only for the
operation of the PROPERTIES but for the protection of any and all other
professional services required but for the protection of any and all legal
rights arising therefrom. Any and all employment so contracted shall be at the
sole expense of OWNER and the OWNER shall be liable for the fees incurred for
said performances.
2.3 All of the above-outlined services and the advice pertaining thereto
shall be rendered in consideration for the management fee provided for herein,
but in no respect by the rendering of these services shall any of the costs of
performance of those services not directly employed by the MANAGER as employees
of the MANAGER be the responsibility of or be paid by the MANAGER, i.e.,
accountants, lawyers, operational employees and on site manager.
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<PAGE> 3
3.0 MANAGEMENT FEE
3.1 OWNER does hereby engage the services of the MANAGER for the purpose
of managing the PROPERTIES and for those services shall pay to MANAGER the
following amounts only, which fees shall be based upon the aggregate performance
of the PROPERTIES as a group:
(a) a base management fee payable monthly equal to ___% per annum of gross
revenues after the payment of all sales taxes ("ADJUSTED GROSS REVENUES") (the
"BASE MANAGEMENT FEE");
[THE COMPANY MAY ELECT TO INCLUDE AN INCENTIVE FEE]
(b) a first level incentive fee equal to ___% of ADJUSTED GROSS REVENUES (to a
total of 5.0% of ADJUSTED GROSS REVENUES) payable monthly with any necessary
adjustments at the end of the calendar year in question, if the Properties have
achieved a level of net operating income (without deduction for a first level
incentive fee) sufficient to pay debt service on the loan as set forth in the
loan agreement (the "FIRST LEVEL INCENTIVE FEE"); and
(c) a second level incentive fee equal to ___% of ADJUSTED GROSS REVENUES (to a
total of 6.0% of ADJUSTED GROSS REVENUES) payable at the end of the calendar
year in question, if the PROPERTIES have achieved a level of net operating
income equal to the projections prepared by the noteholders as set forth in the
loan agreement (the "SECOND LEVEL INCENTIVE FEE"). The SECOND LEVEL INCENTIVE
FEE shall be payable thirty (30) days following the delivery of audited
financial statements to the noteholders for the calendar year to which said
installment relates.
3.2 The amount to be paid MANAGER under this AGREEMENT shall be the
total compensation received by MANAGER and shall be used by MANAGER to pay all
the employees of MANAGER as well as any and all expenses of MANAGER incurred in
the performance of its duties hereunder. All employees necessary for the
operation of the PROPERTIES, including on site motel managers, shall be the
expense of OWNER and shall not be a setoff in any manner against the management
fee to be paid MANAGER under the terms of this AGREEMENT. It is contemplated
under the terms of this AGREEMENT that the employees of the MANAGER will operate
out of the offices of the MANAGER located in Lebanon, Oregon, and will be
separate and distinct from the operational employees necessary for the direct
management and operations of the PROPERTIES.
4.0 TERM OF AGREEMENT
4.1 All parties to this AGREEMENT are aware of the costs and expenses
which will necessarily be incurred by MANAGER in preparation for and beginning
the performance required of it under the terms and conditions of this AGREEMENT,
and it is therefore agreed by the parties that the primary term of this
AGREEMENT shall be for a term of not less than five (5) years and that OWNER
may, at its sole option, extend the term of this AGREEMENT for one (1)
additional period of not less than five (5) years by giving verbal or written
notice of its intention to so exercise its option, thirty (30) days prior to the
expiration of the primary term of this AGREEMENT.
4.2 The parties may terminate this AGREEMENT for a material breach of
the AGREEMENT.
5.0 MANAGER/OWNER RELATIONSHIP
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<PAGE> 4
5.1 Nothing contained in this AGREEMENT, nor any the definitions or
designations contained in this AGREEMENT, shall make the relationship created by
this AGREEMENT of MANAGER to OWNER anything other than that of an independent
contractor. The acts of MANAGER shall not be binding upon or criteria liability
for or on behalf of OWNER without OWNER'S express consent; except, that neither
the acts of the employees of the OWNER, nor the acts of any persons who were or
are hired by the MANAGER on behalf of OWNER, nor the acts of those whose
services are contracted for by the MANAGER on behalf of the OWNER, shall in
anyway be the responsibility of or create any liability on the part of the
MANAGER to the OWNER or to any third persons. OWNER shall indemnify and hold
harmless the MANAGER from any liability or responsibility of the acts of all
persons other than MANAGER or MANAGER'S employees.
6.0 LIMITATION OF MANAGER AUTHORITY
6.1 MANAGER shall have no authority and shall not without the consent of
the OWNER:
(a) obligate OWNER for, or otherwise purchase or lease any capital
item costing more than five thousand dollars ($5,000), including
but not limited to equipment or redecorating or structural
changes;
(b) utilize any company funds for any purpose not directly connected
with the operation of the PROPERTIES;
7.0 COVENANTS
7.1 MANAGER will comply with all the rules and regulations of the OWNER
and shall be governed by the decisions of the OWNER and shall follow such
instructions and directives that may be given to it by OWNER from time to time.
7.2 OWNER acknowledges that MANAGER will reveal to it various trade
secrets and confidential information including but not limited to methods of
operation and training methods. OWNER covenants that it will not disclose to
anyone, either during or after the term of this AGREEMENT, any trade secrets or
confidential information disclosed by MANAGER by virtue of its association with
OWNER under the terms of this AGREEMENT.
8.0 NOTICES
8.1 Any notice required or permitted to be given under this AGREEMENT
shall be in writing and shall be deemed to have been given when deposited in the
United States Postal Service, registered or certified mail, postage prepaid,
return receipt requested, and addressed as follows:
If to MANAGER: With a copy to
Territorial Inns Management, Inc. Jones Law Group, P.L.L.C.
P.O. Box 942 2300 130th Avenue N.E.
Lebanon, OR 97355 Bellevue, WA 98005
If to OWNER: With a copy to:
---------------------------------- -----------------------------
---------------------------------- -----------------------------
---------------------------------- -----------------------------
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8.2 Either party may, from time to time by notice, as provided,
designate a different address or addresses to which notice shall be sent.
9.0 GENERAL PROVISIONS
9.1 Entire Agreement. This AGREEMENT constitutes the sole and only
agreement between the parties and supersedes any prior understanding either oral
or written between the parties. This AGREEMENT cannot be amended, altered or
abridged in any paragraph, unless it is done in writing signed by both parties.
9.2 Severability. If any term or provision of this AGREEMENT or the
application to any person or circumstance shall to any extent be invalid or
unenforceable in any jurisdiction, the remainder of this AGREEMENT and
application of such term or provision to persons or circumstances other than
those to which it is held invalid or unenforceable or in any other jurisdiction
shall not be affected, and each term or provision of this AGREEMENT shall be
valid and enforceable to the fullest extent permitted by law.
9.3 No Waiver. No waiver or modification of any of the provisions of
this AGREEMENT shall be valid unless in writing and signed by or on behalf of
the party granting such waiver or modification. No waiver by any party of any
breach or default hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed a waiver of any other breach or default,
nor shall it in any way affect any of the other terms or conditions of this
AGREEMENT or the enforceability thereof.
9.4 Non Assignment and Successors. Neither this AGREEMENT nor any of the
rights or duties hereunder may be assigned, transferred, or delegated without
prior written agreement of both parties. This AGREEMENT shall be binding upon
and, shall inure to the benefit of the parties and their respective successors
and permitted assigns.
9.5 Attorneys' Fees. If any party brings any suit or action against the
other for relief, declaratory or otherwise, arising out of this AGREEMENT, the
prevailing party shall have and recover against the other party all costs and
disbursements, including reasonable attorneys fees, in the action and on appeal.
9.6 Choice Of Law/Venue. This AGREEMENT shall be governed by the laws of
the State of Oregon. Any legal disputes resulting from the execution or
performance of this AGREEMENT shall be brought solely in the Courts of the State
of Oregon, Linn County.
9.7 Counterparts. This AGREEMENT may be signed in counterparts.
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10.0 EXECUTING SIGNATURES
10.1 IN WITNESS WHEREOF, the parties have signed this AGREEMENT.
MANAGER: OWNER:
TERRITORIAL INNS MANAGEMENT, INC.
- --------------------------------- ---------------------------------
By: By:
------------------------------ ------------------------------
Its: Its:
----------------------------- -----------------------------
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EXHIBIT A
THE PROPERTIES
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SCHEDULE OF PROPERTIES
UNDER FORM OF MANAGEMENT AGREEMENT (EXHIBIT 10.1)
Best Western I-35 Inn
4014 Miller St.
Bethany, MO 64424
Owner: Territorial Inns, an Oregon
partnership
Select Inn
100 Bulldog Blvd.
Borger, TX 79007
Owner: LHA, LLC
Willow Springs
5 "B" Street
Cheney, WA 99004
Owner: C.R. Kearns
Select Inns
Rt. 1 Box 60
Tulia, TX 79088
Owner: LHA, LLC
The terms for each of the above referenced properties are the same.
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EXHIBIT 10.2
PROPERTY MANAGEMENT AGREEMENT
Dated:
Between:
And: Territorial Inns Management Company Inc., an Oregon Corporation
________________________ (hereinafter referred to as "Owner") is the owner of
the _________________________________________ (hereinafter referred to as
"Property"). References to "Owner" in this agreement recognizes the owner as
with whom this agreement is made.
Territorial Inns Inc. (hereinafter referred to as "Manager") is a management
company whose stockholders are in the business of owning and operating motels.
Whereas, the Owner desires to employ the Manager for the management of the
Property, and the Manager is willing to accept such employment subject to the
terms and conditions hereinafter set forth;
Now Therefore, in consideration of the foregoing and of the terms and conditions
hereinafter set forth, the Manager and the Owner hereby agree to the following:
1. Employment of the Manager. The Owner hereby employs the Manager to
act as the general operating manager of the Property, and grants to the Manager
the authority to direct, supervise, and manage the operation of the property on
behalf of the Owner and for the owner's account, in conjunction with the Owner's
board of directors.
2. Term of Agreement The term of this agreement shall be from
________________ until ____________________.
3. Management Fee. The management fee paid by the Owner to the Manager
each month shall be __% of the gross room revenue of the Property for the
immediately preceding month. Fees are to be paid after debt service and
operating expenses but before Owner's draws. Management fees will accrue in any
event. Management fees are to be paid monthly and are due by the 5th day of the
month based on the revenues of the preceding month.
4. Ownership of Property, Description. The Owner owns the property and
agrees to provide all equipment, furniture, fixtures, inventory, and other
personal property appurtenant to and necessary for the operation of the lodging
facility and restaurant.
5. Manager's Duties. During the term of this agreement , the Manager
shall use it's best efforts in the management and operation of the business,
services and sales of the Property. The Manager's right to manage and operate
the Property shall be exclusive to the Manager except that the Manager shall be
subject to policy and procedures approval by the Owner's board of directors. In
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pursuance of the foregoing, the Manager shall have the following duties and
perform the following services:
5.1 Use its best efforts and due diligence in the renting of all rooms
and facilities to desirable guests and tenants.
5.2 Receive, consider, and handle the complaints of all tenants, guests,
or users of any of the services of the facilities of the property.
5.3 Establish and maintain price and rate schedules for all services and
facilities of every kind or nature connected with the operation of the
Property and to collect all receipts and income derived from the same.
5.4 Hire, promote, discharge, and in all other ways supervise the work
of all employees and staff connected with the property pursuant to
paragraph 12 below.
5.5 Establish and maintain an accounting system for the purpose of
bookkeeping, cost control, budget, payroll records, all reports and
taxes incident thereto, and such other accounting and clerical services
as are necessary for the proper management of the Property.
5.6 Pay in the Owners name all labor expenses at property and maintain
payroll records.
5.7 Enter into contracts in the name of and at the expense of the Owner
for the furnishings to the Property of electricity, gas, water, steam,
telephone, cleaning, pest control, elevator and boiler maintenance, air
conditioning maintenance, television maintenance, and for any other
utilities or services which the Manager determines are necessary and
proper to conduct the business at the Property.
5.8 With prior consent of the Owner, arrange of the making or
installing, at Owner's expense and in the name of the Owner, of
alterations, repairs, maintenance, replacements, equipment, or the
installation and the purchasing of materials and supplies incidental to
the property.
5.9 Keep and maintain such accounts of deposit in a banking
institution(s), pursuant to paragraph 6 below, as the Manager deems
appropriate for the orderly control of all funds and monies received by
the Manager for or on behalf of the Owner, with the Owner's approval in
connection with the business of the property.
5.10 Generally do all things and take all actions which the Manager, in
its sole discretion, deems necessary or appropriate for the operation
and management of the Property within the terms of this agreement.
Owner's board of directors reserve the following management rights without
obligation to Manager:
5.11 To ask for reports on and review the complaints of tenants, guests,
or users of any of the services or facilities of the property and make
suggestions to the Manager for handling the complaints.
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5.12 Review the bookkeeping system.
5.13 Review requests for alterations, repairs, maintenance,
replacements, equipment, or the installation and the purchasing of
materials and supplies incidental to the operation of the property.
5.14 Review bank accounts, receipts and deposits.
5.15 Review all contracts, expenditures, payments and disbursements
approved by the Manager.
5.16 Review periodic reports required under paragraph 11.
5.17 Make periodic inspections of the property pursuant to paragraph 18.
6. Deposit of Funds/Books of Account. Subject to the terms and
conditions of this agreement, all revenues from Property operation shall be
deposited in one or more accounts established by the Owner. Accounts shall be
maintained exclusively for the benefit of Owner and not commingled with any of
Manager's funds.
7. Expenditures. Out of such accounts, Owner will pay for all
obligations and expenditures properly incurred for and on the account of the
property, including Manager's compensation and expense reimbursement, insurance
premiums, taxes, and expenses for supplies, repairs, maintenance and
improvements.
8. Business Name. The business name shall be conducted under the name of
the _________________.
9. Advertising. The Manager shall arrange and contract for, at the
Owner's expense, all advertising and promotion which the Manager may deem
necessary for the operation of the property, not to exceed $10,000 (plus
billboard advertising) annually without the Owner's written consent. If any
advertising is done in conjunction with advertising of other lodging
establishments owned or managed by the Manager, the cost of such advertising
shall be prorated among the various businesses and properties benefited.
10. Credit Cards. The Owner authorizes the Manager to accept such credit
cards as the Manager may determined from time to time and establish and maintain
an appropriate credit card billing system.
11. Books of Account. Owner shall keep and maintain the Property's book
of account in accordance with GAAP so as to properly reflect the Property's
receipts and disbursements.
12. Employees. The Manager shall hire, promote, discharge, and supervise
the work of the executive staff, including a general manager, assistant
managers, department heads, auditors, accountants and the like. Through such
executive staff, the Manager the Manager shall supervise the hiring, promotion,
discharge and work of all other operating and service employees performing
services in or about the property, all in the name of the Owner's payroll. The
Manager shall not be liable to any employees for their wages or compensation,
nor to the Owner or others for any act or omission of the
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part of such employees. The Manager will properly file in a timely manner all
operational reports for payroll, taxes and insurance. In the event that the
Manager pays any employee from it's own funds, it will be reimbursed, in full,
by Owner. The Manager may, with the Owner's approval, assign one or more of the
Manager's employees to the property on a temporary basis, in which event the
Owner agrees to reimburse the Manager for all the actual expenses of that
employee, including salary, transportation to and from the Property and for all
room and board of such employee while at the Property.
13. Legal Action The Manager may institute , in it's own name or in the
name of the Owner, at the expense of the Owner, with Owner's approval, any
necessary legal action or proceedings to collect charges, rent or other income
from the property or oust or dispossess guests, tenants, or other persons in
possession, or to cancel or terminate any tenancy. The Manager may, but shall
not be required to, pursue or defend any other legal actions or proceedings in
any way connected with the operations of business of the property.
14. Licenses. The Owner owns or possesses all necessary licenses and
permits required for the operation of the Property. At it's own expense, the
Owner will keep all such necessary licenses and permits in full force and effect
during the term of this agreement, and agrees to execute and deliver all
applications necessary to keep such permits and licenses current.
15. Insurance. The Owner shall obtain and the Manager shall maintain at
Owner's expense, through companies agreed upon by parties hereto, such policies
of insurance, including but not limited to public and employer's liability,
workman's compensation, fire and extended coverage, liability and such other
customary insurance as the Manager deems necessary for the protection of the
interests of the Property, the Owner and the Manager. All policies of insurance
shall name the Owner and the Manager and such other parties as may be required
by the provisions of any mortgage as the insured thereunder as their respective
interests may appear.
16. Debt Service and Ad valorem Taxes. From Owner funds, Manager shall
make all payments of real and personal property taxes and principal and interest
on notes, mortgages, contracts, and capital leases. Evidence of payment shall be
submitted to the Owner upon request.
17. Compliance with Laws and Regulations. The Manager and the Owner
agree that each shall make all reasonable efforts, but only at the Owner's
expense, to comply with all applicable laws, rules, regulations, requirements,
and ordinances of any federal, state or municipal authority, and the
requirements of any insurance companies covering any of the risks against which
the property is insured. The Owner agrees to keep in full force and effect any
franchise or licensing agreements relating to the business of the Property, and
the Manager agrees to operate the Property in keeping with such franchise or
licensing agreement.
18. Inspection by Owner. The Manager shall accord to the Owner and it's
duly authorized agents the right to enter upon any part of the Property at all
reasonable times for the purpose of examining or inspecting the Property, it's
records or its operation or for any other purpose which Owner, in it's
discretion, shall deem advisable.
19. Owner's Credit. The Manager shall not pledge the Owner's credit
without the Owner's prior consent except as may be in keeping with the terms and
scope of this agreement. The Manager shall not, in the name of the Owner, borrow
any money or execute any promissory note or other encumbrance without the prior
consent of the Owner.
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20. Travel Expense. Parties hereto agree that expenses of travel to and
from the property that is made by Management personnel and appointees for the
purpose of management business shall be paid by owner within 30 days from
completion of travel.
21. Liability/Indemnity. The Manager shall not be liable to Owner or to
any other person for any act or omission, negligent, tortious, or otherwise, of
the Manager or any agent or employee of the Manager or the Owner in the
performance of this agreement, except only in the case of fraud or gross
negligence of the Manager. The Owner hereby agrees to indemnify and hold
harmless the Manager from and against any liability, loss, damage, cost or
expense, (including attorney's fees) which might be incurred by or maintained
against the Manager by reason of any such act or omission, or from any other
cause arising out of the Manager's association with the Property.
23. Termination. Either party may terminate this agreement by giving 60
days notice of such termination to the other party. Such notices shall be in
written form and delivered to the other party at the following addresses:
___________________________________________________Owner
___________________________________________________Manager
24. Applicable Law. This agreement shall be governed by and construed
pursuant to the laws of the State of Texas.
25. Amendment. This agreement shall not be changed, amended or otherwise
modified except by another agreement in writing signed by Owner and Manager.
26. Assignment, Binding Effect. This agreement may not be assigned by
either party without the prior consent of the other party. This agreement shall
be binding upon and inure to the benefit of the respective parties hereto and
their heirs, personal representatives, successors and permitted assigns.
27. Supplemental Schedule. The Supplemental Schedule attached to this
agreement shall be deemed to be a part of this agreement for all purposes.
Agreed to and dated this_______day of ________, 199________
Manager Owner
Territorial Inns Management Company Inc.
- ---------------------------------------------
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SUPPLEMENTAL SCHEDULE
This Supplemental Schedule is attached to the Territorial Inns
Management Co Inc. contract dated_________________________and is to be a part
thereof for all purposes.
Owner
-----------------------------------------
Address
-----------------------------------------
Name of Property
--------------------------------
Address of Property
-----------------------------
Term of Agreement:
Banking Institution for Owner's account (s)
------
Minimum working funds balance in Manager's Accounts $
Management Fee: The Management fee to be paid to the Manager each month shall be
____ of the gross room revenue, as defined in the Management Contract.
Manager: Owner
--------------------------- ---------------------------
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SCHEDULE OF TERMS OF AGREEMENTS
UNDER FORM OF PROPERTY MANAGEMENT AGREEMENT (EXHIBIT 10.2)
(1) Nendels Inn, Kennewick, WA
Effective date: January 1, 1994
Term: Terminable upon 60 days written notice
Management Fee: 2.5% of gross room revenue
(2) Colonial Motor Inn, Yakima, WA
Effective date: January 1, 1994
Term: January 1, 1994 to December 31, 1999
Management Fee: 5% of gross room revenue
(3) Village Inn, Cotulla, TX
Effective date: June 14, 1994
Term: June 14, 1994 to December 31, 1999
Management Fee: 5% of gross room revenue
(4) Nendels Inn, Dodge City, KS
Effective Date: April 29, 1996
Term: 5 years commencing April 29, 1996
Management Fee: 5% of gross room revenue
Additional provisions:
Additional paragraph in Section 3:
If the Property has a food and/or beverage operation, and the Owner
wishes to retain the Manager to conduct the operation of that business,
the management fee shall be calculated at the rate of 3% of the gross
food sales and 3% of the gross beverage sales. If the Owner has leased
such an operation to a third party, then the Manager shall receive 3% of
the lease amount monthly.
Property Rehabilitation:
If requested, the Manager agrees to plan, arrange for, order and oversee
installation of capital expense and rehabilitation at the property in
the amount of $50,000. per year. This service shall be included in the
management fee agreed to in separate paragraph of this agreement. If
such expenses exceed $50,000 in any given year the Manager will then be
paid 3% of the cost of any amount over $50,000. If additional staff is
needed for such installation, Owner agrees to pay salary and expenses
over and above the 3% named above.
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EXHIBIT 10.3
PROPERTY MANAGEMENT AGREEMENT
DATE : July 24 ,1996
BETWEEN : JKLM FAMILY LIMITED PARTNERSHIP, an Oregon limited partnership
("Owner")
and
TERRITORIAL INNS MANAGEMENT CO., INC., an Oregon corporation
("Manager").
R E C I T A L S :
Owner is the owner of the Summer Hill Apartments in Cotulla, Texas
(hereinafter referred to as the "Property"). Manager is in the business of
managing, operating and maintaining motel and apartment properties.
Owner desires to employ, engage and appoint Manager as its managing
agent for the Property, and Manager is desirous of accepting this appointment,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, Owner and Manager agree as follows:
1. Appointment. The Owner hereby appoints and employs Manager as the
exclusive managing agent for the Property, and Manager hereby accepts such
appointment.
2. Term. This Agreement shall commence as of the date hereof and shall
remain in effect until terminated as hereinafter provided.
3. Management Fee.
3.1 Fee. Owner shall pay Manager a monthly fee in the amount of
ten percent (10%) of the Gross Room Revenue of the Property for the immediately
preceding month. Management fees are to be paid monthly and are due by the fifth
(5th) day of the month based on the revenues of the preceding month.
3.2 Gross Room Revenue. For purposes of this section, Gross Room
Revenue shall mean all of the rents paid, less any tenant credit or adjustment,
and shall exclude deposits such as cleaning deposits, pet deposits, and security
deposits.
4. Manager's Duties. Manager shall manage, coordinate, and supervise the
operation, maintenance and management of the Property. Manager shall have such
responsibilities, and shall perform and take or cause to be performed or taken
all such services and actions customarily performed or taken by managing agents
of property of similar nature, location and character to that of the Property as
Manager shall deem necessary or advisable for the proper management of the
Property, including,
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without limitation, the duties set forth in 4.1 through 4.10 below. Unless other
specifically provided in this Agreement, all services and actions that Manager
is required or permitted to perform or take or cause to be performed or taken
under this Agreement in connection with the management of the Property shall be
performed or taken as the case may be on behalf of Owner and at Owner's sole
expense.
4.1 Rentals. Manager shall rent all apartments on terms and
conditions satisfactory to Owner to desirable tenants.
4.2 Enforcement. Except as directed otherwise by Owner, Manager
shall monitor the compliance of all tenants with the terms and conditions of
their rental agreements and take all such actions as Manager shall deem
necessary or advisable to enforce all the rights and remedies of Owner under the
rental agreements to protect the interests of Owner, including without
limitation, the preparation and delivery to tenants of late payment, default,
and other appropriate notices. With the prior written consent of Owner, Manager
may retain counsel, collection agencies, and such other persons as Manager may
deem appropriate or advisable to enforce by legal action the rights and remedies
of Owner against any tenant in default in the performance of its obligations
under a rental agreement. Manager shall promptly notify Owner of the progress of
any such legal action.
4.3 Dispute Resolution. Manager shall receive and use its best
efforts to attend to and resolve all complaints of tenants and shall attempt to
resolve any complains, disputes, or disagreements by or among tenants but shall
not expend more than Two Hundred Dollars ($200) to settle any dispute with the
tenant without the prior written consent of Owner.
4.4 Rates. Manager shall establish and maintain price and rates
schedules for all services and facilities of every kind or nature connected with
the operation of the Property and shall collect all revenues derived therefrom
for the account of Owner.
4.5 Advertising. Manager shall, at the expense of and with the
prior approval of Owner, hire such advertising services and place such
advertisements which the Manager may deem necessary for the operation of the
Property.
4.6 Compliance. Manager shall take or cause to be taken all
appropriate actions affecting the Property as Manager deems advisable to comply
with all legal requirements applicable to the Property and those of any Board of
Fire Underwriters or similar agency.
Notwithstanding limitations set forth in Section 8.3 of this
Agreement, Manager may without owner's prior written approval, take or cause to
be taken such actions without limitation as to cost, the failure to do so would
or might in Manager's judgment, expose Owner or Manager to criminal liability,
provided that in each instance Manager shall, before taking or causing to be
taken such action, use reasonable efforts under the circumstances to notify
Owner or the need for the action and to obtain Owner's approval. Manager and
Owner shall each promptly notify the other of any violation, order, rule or
determination of any governmental authority or Board of Fire Underwriters or
similar agency that affects the Property.
4.7 Maintenance. Manager shall cause the building to be
maintained in good and safe condition comparable to that of other properly
maintained properties of similar type and location to that of the Property.
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To the capacity of all equipment and systems located in or
servicing the property, Manager shall cause all such equipment and systems to be
operated effectively and maintained in good repair. Further, Manager shall cause
to be provided or made available to tenants those services which Owner is
required to provide or make available under rental agreements.
Manager shall enter into such service and maintenance contracts
as Manager shall deem necessary or appropriate for the operation and maintenance
of the building, including without limitation, telephone service, utilities,
elevator, boiler and air conditioning maintenance, landscape maintenance, pest
control, rubbish removal, and fuel. Manager shall purchase in reasonable
quantities and at reasonable prices all supplies as Manager shall deem necessary
or appropriate for the proper operation and maintenance of the Property.
4.8 Repairs. With the prior written consent of Owner, Manager
shall cause such ordinary and necessary repairs to be made to the Property on
all equipment and systems located in or servicing the Property, and shall cause
such interior alterations and declarations to be made in the Property as Manager
shall deem necessary or advisable for its proper operation and maintenance.
The prior approval of Owner shall not be required for emergency
repairs regardless of the cost of such repairs if, in the reasonable opinion of
Manager, such repairs are immediately necessary for the preservation or
protection of the Property or the safety of Tenants and other personnel in or on
the Property, or are otherwise required to avoid the suspension of any necessary
services to the Property, provided that in each such instance Manager shall,
before causing any such emergency repair to be made, use reasonable efforts
under the circumstances to notify Owner of the emergency situation and obtain
its approval of that repair.
4.9 Property Rehabilitation. Manager shall plan, arrange for,
order and oversee installation of capital improvements and rehabilitation of the
Property as authorized in writing by Owner on a project-by-project basis, which
authorization must be given before commencing such project. In the event the
project costs do not exceed Six Thousand Dollars ($6,000) per year there shall
be no additional fee for such services. In the event the project costs exceed
Six Thousand Dollars ($6,000) in a year,
(a) Manager shall provide Owner with a detailed cost
budget in advance of commencing the work;
(b) The Owner shall pay Manager a fee of four percent (4%)
of the costs in excess of Six Thousand Dollars ($6,000)
upon completion of the project, in addition to the
Management Fee; and
(c) With the prior written consent of Owner, Manager shall
hire such additional personnel as Owner and Manager agree
are required to complete the project and Owner shall pay
the salary and employment related expenses of such
personnel.
4.10 Miscellaneous. Generally do all things and take all actions
necessary or appropriate for the operation and management of the Property within
the terms of this Agreement.
5. Employees.
5.1 Hiring. To the extent Manager deems necessary for the conduct
of the management
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of the Property, Manager shall hire personnel who, in each instance, shall be
employees of Owner (and not of Manager), provided, however, that any personnel
hired by Manager whose wages are not provided for in the budget shall be
employees of Manager and their wages and fringe benefits shall be paid by
Manager without reimbursement by Owner. Manager shall direct and supervise all
personnel hired by Manager in the performance of their duties and shall
discharge those of them whose employment Manager shall determine to be
unnecessary or undesirable. Manager shall use due care in the selection of
personnel and employees on Owner's behalf and, having used such care, shall have
no responsibility or liability for any act or admission, tortious or otherwise,
of any such employee.
5.2 Wages. Manager shall pay all wages and other benefits
properly payable to the employees hired by Manager, maintain adequate payroll
records, remit to the property authorities all required income and social
security withholding taxes on employment insurance payments, workers
compensation payments and such other amounts with respect to wages and other
benefits payable to such employees as may be required under applicable law,
together in each case with all required reports or other filings, and shall
maintain and administer all medical, disability and other insurance benefits and
other fringe benefits as may from time to time be required under any union or
other agreements or arrangements pertaining to the employment of such personnel.
5.3 Labor Contracts. Manager shall perform Owner's obligations
under all union and other labor contracts affecting the employees of Owner who
are rendering services in connection with the management of the Property, and
shall monitor and enforce all of Owner's rights thereunder.
5.4 Assigned Employees. The Manager may, with the Owner's prior
written approval, assign one or more of Manager's employees to the Property on a
temporary basis, in which event the Owner agrees to reimburse the Manger for all
the actual expenses of that employee, including wages, transportation to and
from the Property and reasonable room and board of such employee while at the
Property.
6. Limitations on Manager's Powers and Authority.
6.1 Expenditures. Except to the extent provided for in any
approved budget or as otherwise specifically provided in this Agreement with
respect to emergency situations or otherwise, Manager shall not, without the
prior written approval of Owner, incur any single expense for a repair,
alteration, service, supply or other matter whatsoever that would involve a cost
in excess of Five Hundred Dollars ($500), except that air conditioners may be
replaced at a cost of not more than $1,200.
6.2 Owner's Credit. The Manager shall not pledge the Owner's
credit without the Owner's prior written consent. The Manager shall not in the
name of Owner borrow any money or execute any promissory note or other
encumbrance without the prior written consent of the Owner.
7. Deposit of Funds/Books of Account.
7.1 Operating Accounts. Manager shall open and maintain an
account or accounts ("Operating Accounts") as Manager shall deem necessary or
appropriate in a banking institution in the State of Texas, designated from time
to time by Owner in Manager's name as agent for owner. Manager shall deposit in
the Operating Accounts all funds collected by Manager under this Agreement.
Manager shall make deposits into or withdrawals from the Operating Accounts as
Manager shall deem necessary or advisable in connection with the management of
the Property, provided, however, that all funds deposited in the Operating
Accounts shall be and remain Owner's property. Expenditures made from such
account shall include without limitation the Manager's compensation and expense
reimbursements,
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insurance premiums, real and personal property taxes, payments of amounts due on
mortgages, contracts and capital leases affecting the Property and expenses for
supplies, repairs, maintenance and improvements as incurred subject to the terms
of this Agreement.
7.2 Security Deposits. Manager shall deposit and maintain in
separate accounts approved by Owner in accordance with applicable laws all
security deposits, if any, of tenants.
7.3 Monthly Reports. Manager shall prepare and deliver to Owner a
monthly report for each month not later then the 25th day of the next following
month setting forth statements of collections, disbursements, delinquencies,
uncollectible accounts, balances of Operating Accounts, accountants payable, and
other matters relating to the management of the Property. These statements shall
upon Owner's request be accompanied by appropriate documentation of expenditures
made by Manager under this agreement.
7.4 Remittances Within 25 Days After the End of Each Month.
Manager shall remit to Owner all unexpended funds in the Operating Accounts on
or before the 25th day of each month to the extent that the funds in the
Operating Accounts exceed the amount reasonably estimated by Manager as
necessary to provide for working capital.
7.5 Books and Records. Manager shall establish and maintain an
accounting system for the purpose of bookkeeping, cost control, budget, payroll
records, all reports and taxes incident thereto, and such other books of
accounts, records, and documentation pertaining to the operation and maintenance
of the Property as are customarily maintained by managing agents of properties
similar in location and size to that of the Property. Manager shall prepare or
cause to be prepared and filed all returns and other reports relating to the
Property, other than income tax returns, as may be required by any governmental
authority.
8. Operating Budgets.
8.1 Budget for First Operating Year. Manager shall prepare and
submit to Owner prior to August 1, 1996 for Owner's approval a pro forma budget
for the operation and maintenance of the Property covering the period from
August 1, 1996 through December 31, 1996. Manager shall manage the Property
consistent with and subject to the cost limitations set forth in the budget as
the same may be adjusted with the prior written consent of Owner.
8.2 Annual Budgets. Manager shall prepare and submit to Owner for
its approval at least thirty (30) days before the beginning of each calendar
year a proposed pro forma budget for all costs pertaining to the operation and
maintenance of the Property during the calendar year. Each budget shall be in
substantially the same form as the approved budget in effect for the prior
calendar year and, shall set forth expenditures on an annual basis. At the
request of Owner, Manager shall make such reasonable modifications to each
proposed pro forma budget it prepares in accordance with this Agreement until
Owner shall have approved the budget in writing, which approval shall not be
unreasonably withheld or delayed.
8.3 Limitations of Approved Budgets Except as Otherwise
Specifically Provided in this Agreement. Manager shall incur costs and expenses
in connection with the operation and maintenance of the Property during any
calendar year within the limitations established by the budget for the operating
year. Manager shall not, without Owner's prior written consent, incur costs and
expenses to exceed the budgeted amount except as otherwise herein provided with
respect to emergency situations.
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Manager shall not be required to obtain Owner's prior approval with respect to,
and Owner shall consent to adjustments to the budget, for the following:
(a) Costs and expenses relating to utility charges, real
estate taxes, insurances, or other matters that are not
within Manager's reasonable control in which, if not
incurred, would or might in Manager's judgment, adversely
and materially affect the operation and maintenance of the
Property; and
(b) Other costs and expenses that this Agreement
specifically provides Manager may incur without
limitation.
In addition, if any calendar year shall commence before Owner
shall have approved the pro forma budget for that year, Manager shall use its
reasonable judgment in incurring costs and expenses relating to the operation
and maintenance of the Property until a budget for such year shall be in effect,
and in doing so, shall be guided by the budget for the prior calendar year.
9. Owners' Duties.
9.1 Information. Owner shall make readily available to Manager
any information in its possession pertaining to the layout of the buildings, the
construction of the buildings, the heating, air conditioning, ventilating,
plumbing, electrical and other mechanical systems and equipment servicing the
property, as Manager may reasonably request. Owner shall also provide Manager
with copies of or access to all agreements, licenses, certificates, contracts,
bills, notices and other documents pertaining to the Property.
9.2 Insurance. The Owner shall obtain and the Manager shall
maintain at Owner's expense, through companies agreed upon by Owner and Manager
(which in all cases shall be an insurance company licensed to do business in the
State of Texas), such policies of insurance, including but not limited to public
and employers liability, workmens compensation, fire and extended coverage,
liability and other insurance as may be necessary for the protection of the
interests of Owner and Manager or as Manager otherwise may reasonably request in
the performance of management of the Property. All policies of insurance shall
name the Owner and the Manager and such other parties as may be required by the
provisions of any mortgage as the insured thereunder as their respective
interests may appear.
9.3 Deposit of Funds. Upon the execution of this Agreement, Owner
shall deposit with Manager funds in an amount sufficient to pay the expenses
shown in the budget as the anticipated expenditures of Manager under this
Agreement for the first month of the term hereof. Owner shall also promptly
deposit with Manager funds in such amounts as may be shown in the monthly
statements delivered by Manager to Owner as necessary additional funds for the
operation and maintenance of the Property. Further, if due to an emergency
situation or otherwise at any time Manager shall notify Owner in writing that
the balances of the operating accounts are insufficient to fund the management
of the Property, Owner shall promptly supply Manager with the necessary funds.
Manager shall deposit all the funds delivered by Owner to Manager as provided
above in the appropriate Operating Account.
10. Owner's Access to Property and Records. Owner shall have rights to
periodically inspect the Property and to review all records with respect to the
Property, and Manager shall furnish any or all such records as may be requested
by Owner, including but not limited to the following:
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(a) the bookkeeping system;
(b) requests for alterations, repairs, maintenance, replacements,
equipment for the installation and the purchasing of materials
and supplies incidental to the operation of the Property;
(c) bank accounts, receipts and deposits;
(d) all contracts, expenditures, payments and disbursements; and
(e) periodic reports.
11. Credit Cards. The Owner authorizes the Manager to accept such credit
cards as the Manager may determine from time to time and establish and maintain
an appropriate credit card billing system.
12. Business Name. The business of the Property shall be conducted under
the name of the Summer Hill Apartments or such other name as Owner may hereafter
determine in its sole discretion.
13. Licenses. At Owner's expense, Manager shall keep all necessary
licenses and permits required for the operation of the Property in full force
and effect during the term of this Agreement, and Owner shall execute and
deliver any documentation as requested by Manager to keep such permits and
licenses current.
14. Compliance with Laws and Regulations. The Manager and the Owner
agree that each shall make all reasonable efforts, at the Owner's expense, to
comply with all applicable laws, rules, regulations, requirements and ordinances
of any federal, state or municipal authority, and the requirements of any
insurance companies covering any of the risks against which the Property is
insured, with respect to the proper operation and maintenance of the Property.
15. Travel Expense. The parties agree that expenses of travel to and
from the Property that is made by Manager personnel and agents for the purpose
of managing the Property shall be borne by the Manager up to four visits per
calendar year. If there are special visits required due to unexpected
circumstances, the Owner will bear those costs subject to agreement in advance
by the parties. All travel shall be economy class.
16. Indemnification.
16.1 Scope. Owner shall indemnify and hold harmless Manager, its
principals officers, directors, shareholders, partners, employees, and agents
(individually and collectively, the "Indemnitees") from and against all
liabilities, claims, suits, damages, judgments, costs and expenses of whatever
nature, including reasonable counsel fees and disbursements, to which the
Indemnitees may become subject by reason of or arising out of any injury to or
death of any person(s), damage to property, loss of use of any property, or
otherwise in connection with the performance or nonperformance of Manager's
obligations under this Agreement. Owner shall promptly reimburse the Indemnitees
for all amounts, including reasonable attorneys' fees and disbursements, which
they or any of them are required to pay in connection with or in defense of any
of the matters for which they or any of them are entitled to indemnification as
set forth above.
16.2 Conditions. The obligations of Owner to indemnify, hold
harmless and reimburse the Indemnitees under Section 16.1 are subject to the
following conditions:
(a) The Indemnitees shall promptly notify Owner of any
matter with respect to which Owner is required to
indemnify, hold harmless, or reimburse the Indemnitees;
and
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(b) The Indemnitees shall not take any actions, including
an admission of liability, which would bar Owner from
enforcing any applicable coverage under policies of
insurance held by Owner or would prejudice any defense of
Owner in any appropriate legal proceedings pertaining to
any such matter or otherwise prevent Owner from defending
itself with respect to any such matter.
16.3 Excluded Matters. Notwithstanding the foregoing, Owner shall
not be required to indemnify, hold harmless, or reimburse the Indemnitees with
respect to any matter to the extent the same is covered by insurance or resulted
from the gross negligence or willful malfeasance of the Indemnitees or actions
taken by the Indemnitees outside of the scope of the Manager's authority under
this Agreement or any express or implied direction of Owner.
17. Timely Performance. Owner and Manager shall each perform all of
their respective obligations under this Agreement in a proper, prompt and timely
manner. Each shall furnish the other with such information and assistance as the
other may from time to time reasonably request in order to perform its
responsibilities under this Agreement. Owner and Manager each shall take all
such actions as the other may from time to time reasonably request and other
cooperate with the other so as to avoid or minimize any delay or impairment of
either party's performance of its obligations under this Agreement.
18. Assignment.
18.1 Permissible Assignments. Neither Owner nor Manager may
assign this Agreement without the prior written consent of the other, provided,
however, that either party may assign this Agreement to a successor corporation
or partnership, a parent company, a wholly owned subsidiary corporation, or an
entity which controls, is controlled by, or is under common control with Owner
or Manager, as the case may be.
18.2 Assumption and Release. Each permitted assignee of this
Agreement shall agree in writing to personally assume, perform, and be bound by
all of the terms, covenants, conditions and agreements contained in this
Agreement, and thereupon the assignor of this Agreement shall be relieved of all
obligations under this Agreement except those which shall have accrued before
the effectiveness of such assignment.
19. Termination. Either party may terminate this agreement by giving
sixty (60) days prior written notice of such termination to the other party.
Within fifteen (15) days after the expiration or termination of this
Agreement, Manager shall pay over to Owner
(i) any balance of funds held by Manager on Owner's
account pursuant to this Agreement; and
(ii) all books, records, leases, agreements and other
documents that are necessary or pertinent to the future
management of the Property.
The provisions of this section shall survive the expiration or
termination of this Agreement.
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20. Notices.
20.1 General. Any and all notices or other communications given
under this Agreement shall be deemed to have been properly given when delivered,
if personally delivered, or three (3) days after the date mailed if sent
certified or registered mail, return receipt requested and postage prepaid, and
addressed to the parties at the following addresses:
If to Manager, to: Territorial Inns Management Co., Inc.
1784 S Main Rd.
Box 942
Lebanon, OR 97355
If to Owner, to: JKLM Family Limited Partnership
EZL Corporation, General Partner
P. O. Box 631
Camp Sherman, OR 97330
Any notice delivered by either party in any manner other than
those described above shall be deemed properly given when received. Either party
may change its address for the giving of notices under this Agreement by
delivering to the other party ten (10) days' written notice of this change of
address.
20.2 Emergency Notices. Either party may give the other notice of
emergency situations, orally (personally, by telephone, or otherwise) or by
telecopy, telex, telegram, or other method, provided that the party giving any
emergency notice as provided above in this paragraph shall confirm the same by
written notice in accordance with Section 20.1 above.
21. Governing Law. The parties expressly agree that this Agreement shall
be governed by, interpreted under, and construed and enforced in accordance with
the laws of the state of Oregon, except to the extent that the laws of the State
of Texas must be applied under conflict of law principles by reason of the situs
of the Property in Texas. The parties hereby consent and waive any objections to
the jurisdiction and venue of any state or federal court of general jurisdiction
in Multnomah County, Oregon, with respect to any action or proceeding relating
in any way to this Agreement and agree any action brought by one party against
the other relating to this Agreement shall be brought in such a court in
Multnomah County, Oregon.
22. Amendment. This Agreement shall not be changed, amended or otherwise
modified except in writing signed by Owner and Manager.
23. Authorities. Each individual executing this Agreement on behalf of a
partnership, corporation or other entity warrants that such individual is
authorized to do so and that this Agreement will constitute the legally binding
obligation of such entity.
24. Attorney Fees. If any suit, action, or proceeding shall be
instituted to enforce or interpret this Agreement, the prevailing party shall be
entitled to recover from the losing party, in addition to costs, such sums as
the court may adjudge reasonable for the prevailing parties' attorney fees in
such suit, action, proceeding or any appeal thereof.
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<PAGE> 10
25. Facsimile Transmission: Facsimile transmission of any signed
original document, and retransmission, shall be the same as delivery of an
original. At the request of either party, the parties will confirm facsimile
transmitted signatures by signing an original document.
26. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
27. Waiver of Breach. The waiver by any party of strict performance of
any provisions in this Agreement shall not operate or be construed as a waiver
of any subsequent breach.
28. Integration. This Agreement contains the entire agreement among the
parties hereto pertaining to the subject matter hereof, and supersedes all prior
agreements and contemporaneous agreements, oral and written, except those
contemplated hereunder or not inconsistent herewith.
29. Captions. Captions in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
30. Effective Date. This agreement shall be effective as of the date of
the closing of the transaction wherein the Owner acquires its title to and
ownership in the Property.
OWNER:
JKLM FAMILY LIMITED PARTNERSHIP, an
Oregon limited partnership ("Owner")
EZL CORPORATION, an Oregon corporation,
General Partner
By:
--------------------------------------
MANAGER:
TERRITORIAL INNS MANAGEMENT
COMPANY, INC., an Oregon corporation
By:
--------------------------------------
10
<PAGE> 1
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
DATE: September 30, 1998
BETWEEN: COUNTRY MAID FINANCIAL, INC.,
a Washington corporation ("PURCHASER")
AND: FRANK A. BADGER
C. DIAN GERSTNER TRUST
PHILLIP GERSTNER
AL HEINONEN
CANDY JOHNSON
C. RICHARD KEARNS
THOMAS J. KRUEGER
JOHN C. MONEYMAKER
MARK D. OWEN
ELLIS STUTZMAN
BRIAN G. SUMPTION
JOHN J. TOLLEFSEN
TERRENCE J. TRAPP
JERRY WEAVER
DIANNE WHITEHEAD
CASCADE PACIFIC EQUITY CORP.,
a Washington corporation
NORTHWESTERN CAPITAL, LLC,
a Washington limited liability company
TERRITORIAL INNS MANAGEMENT, INC.,
a Nevada corporation ("SELLERS")
1.0 RECITALS
1.1 This Stock Purchase Agreement contemplates a reorganization
described in Internal Revenue Code Section 368(b). PURCHASER is a Washington
corporation. Those individuals and legal entities named above who constitute
selling shareholders of Territorial Inns Management, Inc., a Nevada corporation
("TIM"), are collectively referred to as "SELLERS." SELLERS own one hundred
percent (100%) of the outstanding common stock of TIM. SELLERS and PURCHASER are
collectively referred to as the "Parties."
1.2 SELLERS desire to sell, and PURCHASER desires to purchase, all of
the issued and outstanding shares ("TARGET SHARES") of the common stock of TIM
owned by the SELLERS, for the consideration and on the terms set forth in this
AGREEMENT. Each share of TIM common stock will be exchanged 6,250 shares of
common stock of COUNTRY MAID FINANCIAL, INC.
1.3 In consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows:
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2.0 DEFINITIONS
2.1 "AGREEMENT" means this Stock Purchase Agreement and all attached
Exhibits and Schedules, the terms of which are incorporated by reference herein.
2.2 "APPLICABLE CONTRACT" means any contract material to the operation
of PURCHASER's business under which PURCHASER has or may acquire any rights, or
under which PURCHASER has or may become subject to any obligation or liability,
or by which PURCHASER or any of the assets owned or used by PURCHASER may become
bound.
2.3 "CLOSING" or "CLOSING DATE" means the date and time as of which the
exchange of shares actually takes place which shall occur on October 12, 1998,
or such later date as the Parties may mutually agree upon.
2.4 "COUNTRY MAID COMMON STOCK" means the common stock of COUNTRY MAID
FINANCIAL, INC., a Washington corporation, no par value.
2.5 "COUNTRY MAID FINANCIAL, INC." means COUNTRY MAID FINANCIAL, INC., a
Washington corporation with its principle place of business located at 2500 Main
Street, Lebanon, Oregon 97355
2.5 "EFFECTIVE DATE" means October 12, 1998.
2.6 "EXCHANGE AGENT" means the transfer agent, TranSecurities
International, Inc., 2510 North Pines, Suite 202, Spokane, Washington 99206 or
any other entity designated to transfer PURCHASER securities.
2.7 "GAAP" means United States generally accepted accounting principles
as in effect from time to time.
2.8 "HAZARDOUS MATERIALS" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any environmental law, including any mixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
2.9 "PERSON" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
2.10 "TIM COMMON STOCK" means the authorized common stock of TIM, par
value of $.001 per share. The number of shares beneficially owned by each of the
SELLERS is set forth on Schedule B accompanying this AGREEMENT.
2.11 "TIM" means Territorial Inns Management, Inc., a Nevada corporation
with its principal place of business located at 2500 Main Street, Lebanon,
Oregon 97355
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<PAGE> 3
3.0 SALE AND TRANSFER OF SHARES
3.1 Subject to the terms and conditions of this AGREEMENT, SELLERS shall
sell to PURCHASER all of SELLERS' right, title and interest in their shares of
TIM COMMON STOCK ("TARGET SHARES"). In exchange, PURCHASER shall issue and
distribute COUNTRY MAID COMMON STOCK to SELLERS as follows:
3.1.1 As of the EFFECTIVE DATE, each Target Share shall be
converted into the right to receive 6,250 shares of fully paid and nonassessable
shares of COUNTRY MAID COMMON STOCK immediately following the EFFECTIVE DATE.
3.1.2 No share of TIM COMMON STOCK beneficially owned by SELLERS
shall be deemed to have any rights other than those set forth above after the
EFFECTIVE DATE.
3.2 Procedure for Share Exchange
3.2.1 At CLOSING, each SELLER shall surrender to PURCHASER an
outstanding certificate or certificates representing all shares of TIM COMMON
STOCK beneficially owned by SELLER, or in the alternative, SELLER shall provide
PURCHASER with fully executed stock transfer documents, in form acceptable to
the EXCHANGE AGENT and counsel for COUNTRY MAID FINANCIAL, INC., sufficient for
the record holder of the Target Shares to use in surrendering SELLER's
certificates to PURCHASER. In exchange, at CLOSING, each SELLER shall receive in
exchange a certificate or certificates representing the number of shares of
COUNTRY MAID COMMON STOCK into and for which the shares of TIM COMMON STOCK
therefore represented by the surrendered certificate or certificates shall have
been converted and exchanged as provided in this Agreement.
3.2.2 No fractional share of common stock will be issued upon
exchange into COUNTRY MAID FINANCIAL, INC. COMMON STOCK. If the exchange results
in a fractional share, COUNTRY MAID FINANCIAL, INC. will, at its option, either
round the fractional share upward to the next whole integer or pay to the holder
an amount, in U.S. funds, not less than the cash value of the fractional
interest.
3.2.3 Until surrendered and exchanged, each outstanding
certificate representing shares of TIM COMMON STOCK shall be deemed for all
purposes to evidence ownership of and to represent the number of shares of
COUNTRY MAID COMMON STOCK into and for which the shares of TIM COMMON STOCK
shall be converted and shall be entitled to be exchanged as provided in this
Agreement. If any certificate representing COUNTRY MAID COMMON STOCK is to be
issued in a name other than that in which the certificate representing TIM
COMMON STOCK surrendered is registered, it shall be a condition of such issuance
that the certificate so surrendered shall be properly endorsed or accompanied by
a stock power and otherwise in proper form for transfer and that the PERSON
requesting such issuance shall pay to COUNTRY MAID FINANCIAL, INC. or its
transfer agent any transfer or other taxes required by reason of the issuance of
certificates representing COUNTRY MAID COMMON STOCK in a name other than that of
the registered holder of the certificate surrendered, or establish to the
satisfaction of COUNTRY MAID FINANCIAL, INC. or its transfer agent that the tax
has been paid or is not applicable. An additional condition of transfer may be
imposed on the transferor to establish the transfer's compliance with federal
securities laws and relevant state securities laws.
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<PAGE> 4
4.0 REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 SELLERS represent and warrant to PURCHASER as follows that the
statements contained in this Section 4.0 are correct and complete as of the date
of this Agreement and will be correct and complete as of the CLOSING DATE except
as set forth in the disclosure schedule accompanying this Agreement as Schedule
A and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 4.0.
4.2 The authorized capital stock of TIM consists of: (i) 20,000,000
shares of TIM COMMON STOCK, of which, on the date of this Agreement 1,000 shares
are issued and outstanding, and (ii) 1,000,000 shares of TIM PREFERRED STOCK, of
which, on the date of this Agreement, no shares have been issued.
4.3 The execution and delivery to PURCHASER by SELLERS of this
AGREEMENT, constitutes the legal, valid, and binding obligation of SELLERS,
enforceable against SELLERS in accordance with its respective terms. SELLERS
have the absolute and unrestricted right, power, authority, and capacity to
execute and deliver this AGREEMENT and any SELLERS' closing documents, if
required, and to perform their obligations under this AGREEMENT and the SELLERS'
closing documents.
4.4 To the best of SELLERS' knowledge, information and belief, neither
the execution and delivery of this AGREEMENT nor the compliance with and
fulfillment of the terms and provisions of this AGREEMENT:
(a) will result in the breach of any term or provision of, or
constitute a default under or conflict with the Articles of Incorporation or
Bylaws of TIM;
(b) is prohibited by or requires any notification, consent,
authorization, or any judgment, order, writ, injunction, or decree which is
binding upon TIM, except for such approvals or other action or inaction as may
be required under the securities or corporate laws of the various states or
other jurisdictions.
4.5 No Seller is or will be required to give any notice to or obtain any
consent from any PERSON in connection with the execution and delivery of this
AGREEMENT or the consummation or performance of any of its terms and provisions.
4.6 SELLERS are and will on the CLOSING DATE be the record and
beneficial owners and holders of the TARGET SHARES, as set forth on Schedule B
accompanying this AGREEMENT. All of the outstanding equity securities of TIM
have been duly authorized and validly issued and are fully paid and
nonassessable.
4.7 No representation or warranty of SELLERS in this AGREEMENT omits to
state a material fact necessary to make the statements herein, in light of the
circumstances in which they were made, not misleading. There is no fact known to
any Seller that has specific application to Seller, other than general economic
or industry conditions, and that materially adversely affects the value or
ownership of the Target Shares that has not been previously disclosed to
PURCHASER or set forth in this AGREEMENT.
4.8 SELLERS and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this AGREEMENT.
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<PAGE> 5
5.0 REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 PURCHASER is a corporation organized, validly existing, and in good
standing under the laws of the State of Washington.
5.2 This AGREEMENT constitutes the legal, valid, and binding obligation
of PURCHASER, enforceable against PURCHASER in accordance with its terms.
PURCHASER has the full power and authority (including full corporate power and
authority) to execute and deliver this AGREEMENT and to perform its obligations
hereunder unless otherwise stated in this AGREEMENT.
5.3 Neither the execution nor the delivery of this AGREEMENT, nor the
compliance with and fulfillment of its terms and provisions:
(a) will result in the breach of any term or provision of, or
constitute a default under or conflict with the Articles of Incorporation or
Bylaws of PURCHASER; and
(b) is prohibited by or requires any notification, consent,
authorization, or any judgment, order, writ, injunction, or decree which is
binding upon PURCHASER, except for such approvals or other action or inaction as
may be required under the securities or corporate laws of the various states or
other jurisdictions.
5.4 It is the present intention of PURCHASER to continue the historic
business purpose of TIM and to continue to use TIM's historic business assets in
a business within the meaning of Federal Tax Regulation Section 1.368-1 (d).
5.5 PURCHASER and its agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this AGREEMENT.
5.6 PURCHASER has or will make available to SELLERS unaudited financial
statements of PURCHASER for the fiscal years ended and unaudited preliminary
financial information for the twelve-month period ended 1997. The financial
statements will present fairly the financial position and results of operations
of PURCHASER as of the dates and for the periods indicated therein in accordance
with GAAP; provided, however, that the unaudited financial statements for the
twelve-month period ended 1997 are preliminary, are subject to normal
adjustments of a type consistent with prior years and may be presented without
footnotes and certain financial statement disclosures normally required under
GAAP.
5.7 The books of account, minute books, stock record books, and other
records of PURCHASER, all of which have been made available to SELLERS, are
complete and correct and have been maintained in accordance with sound business
practices. The minute book of PURCHASER contains accurate and complete records
of all meetings held of, and corporate actions taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of PURCHASER.
5.8 There is no pending legal proceeding that has been commenced by or
against PURCHASER or that otherwise relates to or may materially affect the
business of, or any of the assets owned or used by PURCHASER, or that
challenges, or that may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the terms and provisions of this
AGREEMENT. To the knowledge of PURCHASER no such proceeding has been threatened,
and no event has occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any such proceeding.
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<PAGE> 6
5.10 Prior to CLOSING, PURCHASER shall make available to SELLERS, upon
request, a complete and accurate list of all APPLICABLE CONTRACTS and if
requested shall make the APPLICABLE CONTRACTS available to SELLERS for review at
the offices of PURCHASER.
5.11 To the best of PURCHASER's knowledge, PURCHASER has substantially
complied in all material respects with all labor and employment laws, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining, Americans with Disabilities Act, and the payment of social security
taxes. There is no unfair labor practice charge, complaint, or other action
against the PURCHASER pending or, to PURCHASER's best knowledge, threatened
before the National Labor Relations Board and the corporation is not subject to
any order to bargain by the National Labor Relations Board;
5.12 Except as otherwise disclosed on Schedule A, to the best of its
knowledge, information and belief, PURCHASER is not now, and at all times has
not been in violation of or liable under, any environmental law. Except as
otherwise disclosed on Schedule A, PURCHASER has no basis to expect, nor has any
actual or threatened order, notice, or other communication from (i) any
governmental body or private citizen acting in the public interest, or (ii) the
current or prior owner or operator of any facilities, of any actual or potential
violation or failure to comply with any environmental law, or of any actual or
threatened obligation to undertake or bear the cost of any environmental,
health, and safety liabilities with respect to any of the facilities or any
other properties or assets (whether real, personal, or mixed) in which PURCHASER
has had an interest, or with respect to any property or facility at or to which
HAZARDOUS MATERIALS were generated, manufactured, refined, transferred,
imported, used, or processed by PURCHASER. There are no pending, or to the
knowledge of PURCHASER threatened, claims, encumbrances, or other restrictions
of any nature, resulting from any environmental, health, and safety liabilities
or arising under or pursuant to any environmental law, with respect to or
affecting any of the facilities or any other properties and assets in which
PURCHASER has or had an interest.
6.0 COVENANTS
6.1 The Parties agree as follows with respect to the period from and
after the execution of this AGREEMENT:
6.1.1 Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this AGREEMENT.
6.2 From and after the date of this AGREEMENT to and including the
CLOSING DATE, SELLERS will cause TIM to:
6.2.1 Give any notices to third parties and obtain any third
party consents that PURCHASER may request in connection with this AGREEMENT.
6.2.2 Grant PURCHASER, its agents, employees, accountants and
attorneys, full access to, and the opportunity to examine and make copies of,
all such books, records, documents, instruments and papers of and pertaining to
TIM as PURCHASER may request.
6.2.3 Without the express written consent of PURCHASER, not
engage in any transaction other than as contemplated by or described in this
AGREEMENT, except in the ordinary course of business;
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and
6.2.4 Maintain all governmental and nongovernmental permits,
licenses consents, approvals and waivers necessary for its continued existence.
6.3 From and after the date of this Agreement to and including the
CLOSING DATE, SELLERS will cause TIM to not do the following acts without the
express written consent of PURCHASER:
6.3.1 Issue any shares of its common stock of any class (whether
out of stock now authorized but unissued, stock held in its treasury, or stock
hereafter created or authorized), or become committed to do so;
6.3.2 Split-up, combine, or reclassify any of its outstanding
stock, or become committed to do so;
6.3.3 Grant or issue any options, warrants or rights to acquire,
or any security convertible into or exchangeable for or which in any manner
confers on the holder thereof the right to acquire, any shares of any class its
capital stock, or become committed to do so;
6.3.4 Purchase, redeem, or otherwise acquire for a consideration
any shares of its capital stock of any class, or become committed to do so; or
6.3.5 Declare or pay any dividend on, or make any other
distribution or payment with respect to, any share or shares of its capital
stock of any class, or become committed to do so.
6.4 Without the express written consent of PURCHASER, except in the
ordinary course of business, from and after the date of this Agreement to and
including the CLOSING DATE, SELLERS will cause TIM to not:
6.4.1 Create, incur or otherwise become directly or indirectly
liable (whether as endorser, guarantor, surety or otherwise) for any
indebtedness, or become committed to do so.
6.4.2 Make any investment (whether by acquisition or stock,
capital contribution, or otherwise) in, or loan or advance to, any PERSON
whatsoever, or become committed to do so.
6.4.3 Grant any salary or other compensation to any PERSON or
become committed to do so; or
6.4.4 Enter into any employment agreement with any PERSON
whatsoever.
6.5 From and after the date of this AGREEMENT to and including the
CLOSING DATE, PURCHASER will use its best efforts to preserve intact the current
business organization of PURCHASER, keep available the services of the current
officers, employees, and agents of PURCHASER, and maintain the relations and
good will with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with PURCHASER.
6.6 From and after the date of this AGREEMENT to and including the
CLOSING DATE, SELLERS will cause TIM to otherwise report to PURCHASER concerning
any material change in the status of the business, operations, and finances of
TIM. SELLERS will promptly notify PURCHASER in writing if
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<PAGE> 8
(i) SELLERS become aware of any fact or condition that causes or constitutes a
breach of any of SELLER's representations and warranties as of the date of this
AGREEMENT, or (ii) if SELLERS become aware of the occurrence after the date of
this AGREEMENT of any fact or condition that would, except as expressly
contemplated by this AGREEMENT, cause or constitute a breach of any such
representation or warranty had the representation or warranty been made as of
the time of occurrence or discovery of the fact or condition.
6.7 Prior to the closing, SELLERS will not directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any PERSON relating to any
transaction involving the sale of the business or assets of TIM (other than in
the ordinary course of business).
7.0 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of PURCHASER to effect the stock purchase contemplated by
this AGREEMENT shall be subject to performance and compliance by SELLERS of each
and all of the covenants and agreements of SELLERS contained in this AGREEMENT
and to the satisfaction of each and all of the following conditions precedent:
7.1 The representations and warranties contained in this AGREEMENT shall
be true and correct on and as of the CLOSING DATE, with the same force and
effect as if made on and as of the CLOSING DATE.
7.2 SELLERS shall have performed and complied with all of their
covenants stated in this AGREEMENT in all material respects through the CLOSING
DATE.
7.3 There shall not be any judgment, order, decree, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by this AGREEMENT.
8.0 TERMINATION
8.1 This AGREEMENT may, by written notice given prior to or at the
CLOSING, be terminated as follows:
(a) by either PURCHASER or SELLERS if a material breach of any
provision of this AGREEMENT has been committed by the other party and such
breach has not been waived;
(b) by mutual written consent of PURCHASER and SELLERS; or
(c) by either PURCHASER or SELLERS if the CLOSING has not
occurred (other than through the failure of any party seeking to terminate this
AGREEMENT to comply fully with its obligations under this AGREEMENT) on October
12, 1998, or such later date as the Parties may mutually agree upon.
8.2 Each Party's right of termination is in addition to any other rights
it may have under this AGREEMENT or otherwise, and the exercise of a right of
termination will not be an election of remedies; provided, however, that if this
AGREEMENT is terminated by a party because of a breach of the AGREEMENT by the
other party or because one or more of the conditions to the terminating party's
obligations under this AGREEMENT is not satisfied as a result of the other
party's failure to comply with its
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<PAGE> 9
obligations under this AGREEMENT, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
9.0 INDEMNIFICATION
9.1 All representations, warranties, covenants, and obligations in this
AGREEMENT, and any other certificate or document delivered pursuant to this
AGREEMENT will survive the CLOSING. The right to indemnification, payment of
damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this AGREEMENT or the
CLOSING DATE, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
9.2 SELLERS, jointly and severally, and PURCHASER mutually agree to
indemnify and hold each other harmless along with their respective
representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim, arising, directly or indirectly, from or in
connection with any breach of any representation, warrant, covenant or
obligation made by the other Party in this AGREEMENT.
10.0 GENERAL PROVISIONS
10.1 PURCHASER will bear the expenses incurred in connection with the
preparation, execution, and performance of this AGREEMENT and its terms and
conditions, including all fees and expenses of agents, representatives, counsel,
and accountants.
10.2 The Parties agree to furnish upon request to each other such
further information, and to execute and deliver to each other such other
documents, and to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this AGREEMENT
and the documents referred to in this AGREEMENT.
10.3 The rights and remedies of the parties to this AGREEMENT are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this AGREEMENT or the
documents referred to in this AGREEMENT will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this AGREEMENT or the documents referred to in this AGREEMENT can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this AGREEMENT or the documents referred to in this AGREEMENT.
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<PAGE> 10
10.4 This AGREEMENT supersedes all prior agreements between the parties
with respect to its subject matter and constitutes (along with the documents
referred to and incorporated in this AGREEMENT) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This AGREEMENT may not be amended except by a written agreement
executed by the party to be charged with the amendment.
10.5 Neither party may assign any of its rights under this AGREEMENT
without the prior consent of the other parties, except that PURCHASER may assign
any of its rights under this AGREEMENT to any subsidiary of PURCHASER. This
AGREEMENT will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this AGREEMENT will be construed to give any PERSON
other than the parties to this AGREEMENT any legal or equitable right, remedy,
or claim under or with respect to this AGREEMENT or any provision of this
AGREEMENT. This AGREEMENT and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this AGREEMENT and their successors
and assigns.
10.6 If any provision of this AGREEMENT is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this AGREEMENT
will remain in full force and effect. Any provision of this AGREEMENT held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
10.7 The headings in this AGREEMENT are provided for convenience only
and will not affect its construction or interpretation.
10.8 With regard to all dates and time periods set forth or referred to
in this AGREEMENT, time is of the essence.
10.9 This AGREEMENT will be governed by the laws of the State of Oregon
without regard to conflicts of laws principles. Exclusive venue for any dispute
in connection with this AGREEMENT shall be in the Circuit Court, Linn County,
Oregon.
10.10 This AGREEMENT may be signed in as many counterparts is as
necessary and all signatures so executed shall constitute one AGREEMENT, binding
on all Parties as if each was a signatory on the original.
11.0 NOTICES
Any party may give any notice, request, demand, claim, instruction, or
other document under this section using any other means but no such notice,
request, demand, claim, instruction, or other document shall be deemed to have
been duly given unless and until it actually is received by the individual for
whom it is intended at the address stated below. Any party may change its
address for any purpose by giving notice of the change of address to the other
party in the manner provided in this section.
If to SELLERS:
Frank A. Badger C. Dian Gerstner Trust
2052 Englewood Drive 1020 NW Pulver Lane
East Grand Rapids, MI 49506 Albany, OR 97355
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Phillip Gerstner Al Heinonen
P.O. Box 306 3004 Oakwood Avenue SE
Fox, OR 97831 Albany, OR 97321
Candy Johnson C. Richard Kearns
P.O. Box 942 P.O. Box 942
Lebanon, OR 97355 Lebanon, OR 97355
Thomas J. Krueger John C. Moneymaker
522 Diving Hawk Trail 1930 E. Meadowmere
Madison, WI 53713 Springfield, MO 65807
Mark Owen Ellis Stutzman
P.O. Box 942 P.O. Box 942
Lebanon, OR 97355 Lebanon, OR 97355
Brian G. Sumption John J. Tollefsen
633 East Third Street 16212 Bothell Way SE
Richland Center, WI 53581 Mill Creek, WA 98012
Terrence J. Trapp Jerry Weaver
274 Snyder Mountain Road 39150 Gribbs Road
Evergreen, CO 80439 Lebanon, OR 97355
Dianne Whitehead Cascade Pacific Equity Corp.
725 Harmony 7600 Terrace Avenue, Suite 205
Lebanon, OR 97355 Middleton, WI 53562
Northwestern Capital, LLC Territorial Inns Management, Inc.,
P.O. Box 942 a Nevada corporation
Lebanon, OR 97355 P.O. Box 942
Lebanon, OR 97355
If to PURCHASER: With a copy to:
Country Maid Financial, Inc. Jones Law Group, PLLC
P.O. Box 942 2300 130th Avenue N.E., Suite A-103
Lebanon, OR 97355 Bellevue, WA 98005
12.0 SIGNATURES
12.1 IN WITNESS WHEREOF, the parties have executed and delivered this
AGREEMENT as of the date first written above.
PURCHASER:
COUNTRY MAID FINANCIAL, INC.
a Washington corporation
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By: C. Richard Kearns, Date
Chief Executive Officer
SELLERS:
Territorial Inns Management, Inc.,
a Nevada corporation
Ellis Stutzman, President Date
Frank A. Badger Date
C. Dian Gerstner Trust Date
Phillip Gerstner Date
Al Heinonen Date
Candy Johnson Date
C. Richard Kearns Date
Thomas J. Krueger Date
John C. Moneymaker Date
Mark D. Owen Date
Ellis Stutzman Date
Brian G. Sumption Date
John J. Tollefsen Date
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Terrence J. Trapp Date
Jerry Weaver Date
Dianne Whitehead Date
Cascade Pacific Equity Corp., Date
a Washington corporation
By Its Authorized Representative
Northwestern Capital, LLC, Date
a Washington limited liability company
By Its Authorized Representative
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SCHEDULE A
DISCLOSURE SCHEDULE
(pursuant to Section 5.12)
1. There is currently only one lawsuit outstanding that may affect the assets of
the Company entitled State of South Dakota Department of environment and Natural
Resources v. Country Maid Foods, Inc., a Missouri corporation, regarding
allegations of environmental violations, a copy of the complaint is available
upon request by any of the SELLERS.
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<PAGE> 15
SCHEDULE B
<TABLE>
<S> <C>
Northwestern Capital, LLC 16 Shares
John J. Tollefsen 16 Shares
John C Moneymaker 32 Shares
Terrence J. Trapp 80 Shares
Ellis Stutzman 32 Shares
Mark D. Owen 32 Shares
Candy Johnson 8 Shares
Dianne Whitehead 16 Shares
Al Heinonen 8 Shares
Jerry Weaver 8 Shares
Phillip Gerstner 8 Shares
C. Dian Gerstner Trust 8 Shares
C. Richard Kearns 576 Shares
Brian Sumption 8 Shares
Tom Krueger 8 Shares
Frank Badger 8 Shares
Cascade Pacific Equity Corp. 136 Shares
TOTAL NUMBER OF SHARES 1,000 SHARES
</TABLE>
15
<PAGE> 1
EXHIBIT 10.5
OFFICE LEASE AGREEMENT
DATED: October 1, 1998
BETWEEN: C. RICHARD KEARNS and DIXIE KEARNS, ("LESSOR")
husband and wife
AND: COUNTRY MAID FINANCIAL, INC., a Washington ("LESSEE")
corporation
1.0 RECITALS
1.1 LESSOR leases to LESSEE and LESSEE leases from LESSOR 5,020 square
feet of office space located at 2500 S. Main Street, Lebanon, Oregon, 97355
("PREMISES").
2.0 TERM; RENEWAL
2.1 The term of this LEASE shall commence on October 1, 1998, and shall
continue for a period of five (5) years unless sooner terminated as provided
herein or by law.
2.2 If LESSEE is not in default under this LEASE, LESSEE shall have the
option to extend the term of this LEASE for three (3) renewal terms of five (5)
years, upon the same terms and conditions as those set forth in this LEASE,
except that the rental price may be adjusted as mutually agreed between the
parties. LESSEE shall give LESSOR at least two (2) months' written notice to
LESSOR of its intention to exercise each option.
3.0 RENT
3.1 LESSEE shall pay to LESSOR rent in the sum of Four Thousand Dollars
($4,000) payable on the first day of each month, at a place LESSOR may from time
to time designate in writing.
3.2 This AGREEMENT shall be triple net to the LESSOR. LESSEE shall pay
for all service and utilities provided to the premises along with any
maintenance and repairs that may be necessary to keep the premises in as good a
condition as on the COMMENCEMENT DATE, normal wear and tear excepted.
4.0 MISCELLANEOUS
4.1 Choice Of Law/Venue. This LEASE shall be governed by the laws of the
State of Oregon. Any legal disputes resulting from the execution or performance
of this LEASE shall be brought solely in the Courts of the State of Oregon, Linn
County.
4.2 Entire Agreement. This LEASE represents the entire and integrated
agreement between the parties and supersedes all prior negotiations,
representations, or agreements, either written or oral, and shall not be changed
or terminated except by written amendment signed by the parties.
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<PAGE> 2
4.3 Attorney Fees. Should either party employ an attorney to institute
any legal action to enforce any of the provisions of this LEASE, the prevailing
party shall be entitled to recover reasonable attorney fees, costs, charges, and
expenses expended or incurred therein at trial, on appeal, and otherwise,
including any fees and expenses of the arbitrator if one is appointed.
4.4 Termination. Either party may terminate this LEASE with thirty days
written notice to the non-terminating party.
5.0 SIGNATURES
5.1 IN WITNESS WHEREOF, the Parties have signed this AGREEMENT.
LESSOR: LESSEE:
COUNTRY MAID FINANCIAL, INC., a
Washington corporation
C. RICHARD KEARNS
DIXIE L. KEARNS By: ELLIS J. STUTZMAN, Its President
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EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
DATE: October 6, 1998
BETWEEN: C. RICHARD KEARNS
JOHN C. MONEYMAKER ("PURCHASERS")
AND: COUNTRY MAID FINANCIAL, INC.,
a Nevada corporation ("SELLER")
1.0 RECITALS
1.1 SELLER desires to sell, and PURCHASERS desire to purchase, all of
the issued and outstanding shares ("TARGET SHARES") of the common stock of
COUNTRY MAID FARMS, INC., a Nevada corporation, owned by the SELLER, for the
consideration and on the terms set forth in this AGREEMENT.
1.2 In consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows:
2.0 DEFINITIONS
2.1 "AGREEMENT" means this Stock Purchase Agreement and all attached
Exhibits and Schedules, the terms of which are incorporated by reference herein.
2.2 "CLOSING" or "CLOSING DATE" means the date and time as of which the
sale shall occur on October 6, 1998, or such later date as the Parties may
mutually agree upon.
2.3 "CM FARMS" means COUNTRY MAID FARMS, INC. a Nevada corporation with
its principal place of business located at 2500 South Main Street, Lebanon,
Oregon 97355.
2.4 "COUNTRY MAID FINANCIAL, INC." means COUNTRY MAID FINANCIAL, INC., a
Washington corporation with its principle place of business located at 2500 Main
Street, Lebanon, Oregon 97355.
2.5 "EFFECTIVE DATE" means October 6, 1998.
2.6 "HAZARDOUS MATERIALS" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any environmental law, including any mixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
2.7 "PERSON" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
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3.0 SALE AND TRANSFER OF SHARES
3.1 Subject to the terms and conditions of this AGREEMENT, SELLER shall
sell to PURCHASERS all of SELLER'S right, title and interest in the 329,680
shares of CM FARMS COMMON STOCK ("TARGET SHARES") currently owned by SELLER. In
exchange, PURCHASERS shall indemnify SELLER from any outstanding liabilities of
CM FARMS, Inc., excluding any liability for violations of environmental law, in
particular relating to the lawsuit by the State of South Dakota as stated in
Schedule A.
4.0 REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 SELLER represent and warrant to PURCHASERS as follows that the
statements contained in this Section 4.0 are correct and complete as of the date
of this Agreement and will be correct and complete as of the CLOSING DATE except
as set forth in the disclosure schedule accompanying this Agreement as Schedule
A and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 4.0.
4.2 The authorized capital stock of CM FARMS consists of: (i)
190,000,000 shares of CM FARMS COMMON STOCK, of which, on the date of this
Agreement 329,680 shares are issued and owned by SELLER, and (ii) 10,000,000
shares of CM FARMS PREFERRED STOCK, of which, on the date of this Agreement, no
shares have been issued.
4.3 The execution and delivery to PURCHASERS by SELLER of this
AGREEMENT, constitutes the legal, valid, and binding obligation of SELLER,
enforceable against SELLER in accordance with its respective terms. SELLER has
the absolute and unrestricted right, power, authority, and capacity to execute
and deliver this AGREEMENT and any SELLER's closing documents, if required, and
to perform its obligations under this AGREEMENT and the SELLER's closing
documents.
4.4 To the best of SELLER's knowledge, information and belief, neither
the execution and delivery of this AGREEMENT nor the compliance with and
fulfillment of the terms and provisions of this AGREEMENT:
(a) will result in the breach of any term or provision of, or
constitute a default under or conflict with the Articles of Incorporation or
Bylaws of Country Maid Foods, Inc.;
(b) is prohibited by or requires any notification, consent,
authorization, or any judgment, order, writ, injunction, or decree which is
binding upon Country Maid Foods, Inc., except for such approvals or other action
or inaction as may be required under the securities or corporate laws of the
various states or other jurisdictions.
4.5 SELLER is not required to give any notice to or obtain any consent
from any PERSON, other than the approval of its shareholders, in connection with
the execution and delivery of this AGREEMENT or the consummation or performance
of any of its terms and provisions.
4.6 SELLER is and will on the CLOSING DATE be the record and beneficial
owners and holders of the TARGET SHARES. All of the outstanding equity
securities of CM FARMS have been duly authorized and validly issued and are
fully paid and nonassessable.
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<PAGE> 3
4.7 No representation or warranty of SELLER in this AGREEMENT omits to
state a material fact necessary to make the statements herein, in light of the
circumstances in which they were made, not misleading. There is no fact known to
SELLER that has specific application to SELLER, other than general economic or
industry conditions, and that materially adversely affects the value or
ownership of the TARGET SHARES that has not been previously disclosed to
PURCHASERS or set forth in this AGREEMENT as disclosed on Schedule A.
4.8 SELLER and its agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this AGREEMENT.
5.0 REPRESENTATIONS AND WARRANTIES OF PURCHASERS
5.1 This AGREEMENT constitutes the legal, valid, and binding obligation
of PURCHASERS, enforceable against PURCHASERS in accordance with its terms.
PURCHASERS have the full power and authority to execute and deliver this
AGREEMENT and to perform their obligations hereunder unless otherwise stated in
this AGREEMENT.
5.3 Neither the execution nor the delivery of this AGREEMENT, nor the
compliance with and fulfillment of its terms and provisions:
(a) is prohibited by or requires any notification, consent,
authorization, or any judgment, order, writ, injunction, or decree which is
binding upon PURCHASERS, except for such approvals or other action or inaction
as may be required under the securities or other applicable laws of the various
states or other jurisdictions.
5.4 PURCHASERS and their agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this AGREEMENT.
5.5 There is no pending legal proceeding that has been commenced by or
against PURCHASERS or that otherwise relates to or may materially affect the
business of, or any of the assets owned or used by PURCHASERS, or that
challenges, or that may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the terms and provisions of this
AGREEMENT. To the knowledge of PURCHASERS no such proceeding has been
threatened, and no event has occurred or circumstance exists that may give rise
to or serve as a basis for the commencement of any such proceeding.
6.0 COVENANTS
6.1 The Parties agree as follows with respect to the period from and
after the execution of this AGREEMENT:
6.1.1 SELLER will hold a shareholders' meeting within 120 days of
the CLOSING DATE pursuant to the requirements of Nevada Revised Statutes
to obtain shareholders approval of this AGREEMENT. Unless otherwise
agreed to by the Parties in the event that approval cannot be obtained
from the shareholders, this AGREEMENT shall be rescinded and SELLER
shall have no further obligations to PURCHASERS and PURCHASERS shall
have no further obligations to SELLER.
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<PAGE> 4
6.1.2 Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this AGREEMENT.
6.2 From and after the date of this AGREEMENT to and including the
CLOSING DATE, SELLER will cause CM FARMS to:
6.2.1 Give any notices to third parties and obtain any third
party consents that PURCHASERS may request in connection with this
AGREEMENT.
6.2.2 Grant PURCHASERS, its agents, employees, accountants and
attorneys, full access to, and the opportunity to examine and make
copies of, all such books, records, documents, instruments and papers of
and pertaining to CM FARMS as PURCHASERS may request.
6.2.3 Without the express written consent of PURCHASERS, not
engage in any transaction other than as contemplated by or described in
this AGREEMENT, except in the ordinary course of business; and
6.2.4 Maintain all governmental and nongovernmental permits,
licenses consents, approvals and waivers necessary for its continued
existence.
6.3 From and after the date of this Agreement to and including the
CLOSING DATE, SELLER will cause CM FARMS to not do the following acts without
the express written consent of PURCHASERS:
6.3.1 Issue any shares of its common stock of any class (whether
out of stock now authorized but unissued, stock held in its treasury, or
stock hereafter created or authorized), or become committed to do so;
6.3.2 Split-up, combine, or reclassify any of its outstanding
stock, or become committed to do so;
6.3.3 Grant or issue any options, warrants or rights to acquire,
or any security convertible into or exchangeable for or which in any
manner confers on the holder thereof the right to acquire, any shares of
any class its capital stock, or become committed to do so;
6.3.4 Purchase, redeem, or otherwise acquire for a consideration
any shares of its capital stock of any class, or become committed to do
so; or
6.3.5 Declare or pay any dividend on, or make any other
distribution or payment with respect to, any share or shares of its
capital stock of any class, or become committed to do so.
6.4 Without the express written consent of PURCHASERS, except in the
ordinary course of business, from and after the date of this Agreement to and
including the CLOSING DATE, SELLER will cause CM FARMS to not:
6.4.1 Create, incur or otherwise become directly or indirectly
liable (whether as endorser, guarantor, surety or otherwise) for any
indebtedness, or become committed to do so.
6.4.2 Make any investment (whether by acquisition or stock,
capital contribution, or
4
<PAGE> 5
otherwise) in, or loan or advance to, any PERSON whatsoever, or become
committed to do so.
6.4.3 Grant any salary or other compensation to any PERSON or
become committed to do so; or
6.4.4 Enter into any employment agreement with any PERSON
whatsoever.
6.5 From and after the date of this AGREEMENT to and including the
CLOSING DATE, PURCHASERS will use its best efforts to preserve intact the
current business organization of PURCHASERS, keep available the services of the
current officers, employees, and agents of PURCHASERS, and maintain the
relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with PURCHASERS.
6.6 From and after the date of this AGREEMENT to and including the
CLOSING DATE, SELLER will cause CM FARMS to otherwise report to PURCHASERS
concerning any material change in the status of the business, operations, and
finances of CM FARMS. SELLER will promptly notify PURCHASERS in writing if (i)
SELLER become aware of any fact or condition that causes or constitutes a breach
of any of SELLER's representations and warranties as of the date of this
AGREEMENT, or (ii) if SELLER become aware of the occurrence after the date of
this AGREEMENT of any fact or condition that would, except as expressly
contemplated by this AGREEMENT, cause or constitute a breach of any such
representation or warranty had the representation or warranty been made as of
the time of occurrence or discovery of the fact or condition.
6.7 Prior to the closing, SELLER will not directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any PERSON relating to any
transaction involving the sale of the business or assets of CM FARMS (other than
in the ordinary course of business).
7.0 CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATION TO CLOSE
The obligation of PURCHASERS to effectuate the stock purchase
contemplated by this AGREEMENT shall be subject to performance and compliance by
SELLER of each and all of the covenants and agreements of SELLER contained in
this AGREEMENT and to the satisfaction of each and all of the following
conditions precedent:
7.1 The representations and warranties contained in this AGREEMENT shall
be true and correct on and as of the CLOSING DATE, with the same force and
effect as if made on and as of the CLOSING DATE.
7.2 SELLER shall have performed and complied with all of their covenants
stated in this AGREEMENT in all material respects through the CLOSING DATE.
7.3 There shall not be any judgment, order, decree, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by this AGREEMENT.
8.0 TERMINATION
8.1 This AGREEMENT may, by written notice given prior to or at the
CLOSING, be terminated as follows:
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<PAGE> 6
(a) by either PURCHASERS or SELLER if a material breach of any
provision of this AGREEMENT has been committed by the other party and such
breach has not been waived;
(b) by mutual written consent of PURCHASERS and SELLER; or
(c) by either PURCHASERS or SELLER if the CLOSING has not
occurred (other than through the failure of any party seeking to terminate this
AGREEMENT to comply fully with its obligations under this AGREEMENT) on October
6, 1998, or such later date as the Parties may mutually agree upon.
8.2 Each Party's right of termination is in addition to any other rights
it may have under this AGREEMENT or otherwise, and the exercise of a right of
termination will not be an election of remedies; provided, however, that if this
AGREEMENT is terminated by a party because of a breach of the AGREEMENT by the
other party or because one or more of the conditions to the terminating party's
obligations under this AGREEMENT is not satisfied as a result of the other
party's failure to comply with its obligations under this AGREEMENT, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
9.0 INDEMNIFICATION
9.1 All representations, warranties, covenants, and obligations in this
AGREEMENT, and any other certificate or document delivered pursuant to this
AGREEMENT will survive the CLOSING. The right to indemnification, payment of
damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this AGREEMENT or the
CLOSING DATE, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
9.2 SELLER and PURCHASERS mutually agree to indemnify and hold each
other harmless along with their respective representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage (including incidental and consequential damages), expense
(including costs of investigation and defense and reasonable attorneys' fees) or
diminution of value, whether or not involving a third-party claim, arising,
directly or indirectly, from or in connection with any breach of any
representation, warrant, covenant or obligation made by the other Party in this
AGREEMENT.
10.0 GENERAL PROVISIONS
10.1 SELLER will bear the expenses incurred in connection with the
preparation, execution, and performance of this AGREEMENT and its terms and
conditions, including all fees and expenses of agents, representatives, counsel,
and accountants.
10.2 The Parties agree to furnish upon request to each other such
further information, and to execute and deliver to each other such other
documents, and to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this AGREEMENT
and the documents referred to in this AGREEMENT.
6
<PAGE> 7
10.3 The rights and remedies of the parties to this AGREEMENT are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this AGREEMENT or the
documents referred to in this AGREEMENT will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this AGREEMENT or the documents referred to in this AGREEMENT can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this AGREEMENT or the documents referred to in this AGREEMENT.
10.4 This AGREEMENT supersedes all prior agreements between the parties
with respect to its subject matter and constitutes (along with the documents
referred to and incorporated in this AGREEMENT) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This AGREEMENT may not be amended except by a written agreement
executed by the party to be charged with the amendment.
10.5 Neither party may assign any of its rights under this AGREEMENT
without the prior consent of the other parties. This AGREEMENT will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
AGREEMENT will be construed to give any PERSON other than the parties to this
AGREEMENT any legal or equitable right, remedy, or claim under or with respect
to this AGREEMENT or any provision of this AGREEMENT. This AGREEMENT and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this AGREEMENT and their successors and assigns.
10.6 If any provision of this AGREEMENT is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this AGREEMENT
will remain in full force and effect. Any provision of this AGREEMENT held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
10.7 The headings in this AGREEMENT are provided for convenience only
and will not affect its construction or interpretation.
10.8 With regard to all dates and time periods set forth or referred to
in this AGREEMENT, time is of the essence.
10.9 This AGREEMENT will be governed by the laws of the State of Oregon
without regard to conflicts of laws principles. Exclusive venue for any dispute
in connection with this AGREEMENT shall be in the Circuit Court, Linn County,
Oregon.
10.10 This AGREEMENT may be signed in as many counterparts is as necessary and
all signatures so executed shall constitute one AGREEMENT, binding on all
Parties as if each was a signatory on the original.
11.0 NOTICES
7
<PAGE> 8
11.1 Any party may give any notice, request, demand, claim, instruction,
or other document under this section using any other means but no such notice,
request, demand, claim, instruction, or other document shall be deemed to have
been duly given unless and until it actually is received by the individual for
whom it is intended at the address stated below. Any party may change its
address for any purpose by giving notice of the change of address to the other
party in the manner provided in this section.
If to SELLER: With a copy to:
COUNTRY MAID FINANCIAL, INC. Jones Law Group, PLLC
P.O. Box 942 2300 130th Avenue N.E., Suite A-103
Lebanon, OR 97355 Bellevue, WA 98005
If to PURCHASERS:
C. Richard Kearns John C. Moneymaker
2500 Main Street 1930 E. Meadowmere
Lebanon, OR 97355 Springfield, MI 65807
12.0 SIGNATURES
12.1 IN WITNESS WHEREOF, the parties have executed and delivered this
AGREEMENT as of the date first written above.
SELLER:
COUNTRY MAID FINANCIAL, INC.
a Washington corporation
- ------------------------------ ----------------------
By: Ellis Stutzman, President Date
PURCHASERS:
- ------------------------------ ----------------------
C. Richard Kearns Date
- ------------------------------ ----------------------
John C. Moneymaker Date
8
<PAGE> 9
SCHEDULE A
DISCLOSURE SCHEDULE
(pursuant to Section 4.0 et seq.)
1. There is currently only one lawsuit outstanding that may affect the assets of
the Country Maid Farms, Inc. entitled State of South Dakota Department of
environment and Natural Resources v. Country Maid Financial, Inc., a Missouri
corporation, regarding allegations of environmental violations, a copy of the
complaint is available upon request by the PURCHASERS.
9
<PAGE> 1
EXHIBIT 10.7
STOCK REDEMPTION AGREEMENT
DATE: May 1, 1999
BETWEEN: C. RICHARD KEARNS
("SHAREHOLDER")
AND: COUNTRY MAID FINANCIAL, INC.,
a Nevada corporation ("COMPANY")
(jointly referred to as "PARTIES")
1.0 RECITALS
1.1 The COMPANY desires to redeem, and SHAREHOLDER desires to cancel and
return to the COMPANY, up to Two Million Five Hundred Thousand (2,500,000)
shares of the issued and outstanding shares of common stock owned by
SHAREHOLDER, for the consideration and on the terms set forth in this AGREEMENT.
1.2 In consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the PARTIES agree as follows:
2.0 DEFINITIONS
2.1 "AGREEMENT" means this Stock Redemption Agreement and all attached
Exhibits and Schedules, the terms of which are incorporated by reference herein.
2.2 "CLOSING" or "CLOSING DATE" means the date as of which the COMPANY
completes the offering as stated in Section 6.0 and upon the date which
SHAREHOLDER will authorize the number of shares as specified in Section 3.0 to
be canceled and redeemed by the COMPANY, or such later date as the PARTIES may
mutually agree upon.
2.3 "COUNTRY MAID FINANCIAL, INC." or the "COMPANY" means COUNTRY MAID
FINANCIAL, INC., a Washington corporation with its principal place of business
located at 2500 Main Street, Lebanon, Oregon 97355.
2.4 "EFFECTIVE DATE" is May 1, 1999.
2.5 "PERSON" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
2.6 "SELECTED INVESTORS" refers to the individuals listed on the
attached Schedule A, who are creditors of SHAREHOLDER in his individual
capacity.
1
<PAGE> 2
3.0 REDEMPTION OF SHARES
3.1 Subject to the terms and conditions of this AGREEMENT, the COMPANY
shall redeem up to Two Million Five Hundred Thousand (2,500,000) shares of the
issued and outstanding shares of common stock ("TARGET SHARES") from SHAREHOLDER
in an amount equal to the number of shares the COMPANY is able to sell to
SELECTED INVESTORS in an offering conducted within the requirements of the
Regulation D promulgated under the Securities Act of 1933. At the completion of
the offering, as consideration to the COMPANY, the SHAREHOLDER agrees to permit
the COMPANY to redeem an additional Ten Thousand shares of the common stock of
the COMPANY.
4.0 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
4.1 SHAREHOLDER represents and warrants to COMPANY as follows that the
statements contained in this Section 4.0 are correct and complete as of the date
of this Agreement and will be correct and complete as of the CLOSING DATE.
4.2 The SHAREHOLDER is the beneficial owner, as defined in the
Securities Act of 1933, free of any liens or encumbrances, of 4,192,606 shares
of the common stock of the COMPANY.
4.3 The execution and delivery to COMPANY by SHAREHOLDER of this
AGREEMENT, constitutes the legal, valid, and binding obligation of SHAREHOLDER,
enforceable against SHAREHOLDER in accordance with its respective terms.
SHAREHOLDER has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this AGREEMENT and any of SHAREHOLDER'S closing
documents, if required, and to perform his obligations under this AGREEMENT and
SHAREHOLDER'S closing documents.
4.4 To the best of SHAREHOLDER'S knowledge, information and belief, the
execution and delivery of this AGREEMENT and the compliance with and fulfillment
of the terms and provisions of this AGREEMENT:
(a) will not result in the breach of any term or provision of
any contract to which SHAREHOLDER is a party; and
(b) is not prohibited by or requires any notification, consent,
authorization, or any judgment, order, writ, injunction, or decree which
is binding upon SHAREHOLDER, except for such approvals or other action
or inaction as may be required under the securities or corporate laws of
the various states or other jurisdictions.
4.5 SHAREHOLDER is not required to give any notice to or obtain any
consent from any PERSON in connection with the execution and delivery of this
AGREEMENT or the consummation or performance of any of its terms and provisions.
4.6 No representation or warranty of SHAREHOLDER in this AGREEMENT omits
to state a material fact necessary to make the statements herein, in light of
the circumstances in which they were made, not misleading. There is no fact
known to any SHAREHOLDER that has specific application to SHAREHOLDER, other
than general economic or industry conditions, and that materially adversely
affects the value or ownership of the TARGET SHARES that has not been previously
disclosed to COMPANY or set forth in this AGREEMENT.
2
<PAGE> 3
4.7 SHAREHOLDER and his agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this AGREEMENT.
5.0 REPRESENTATIONS AND WARRANTIES OF COMPANY
5.1 This AGREEMENT constitutes the legal, valid, and binding obligation
of COMPANY, enforceable against COMPANY in accordance with its terms. COMPANY
has the full power and authority to execute and deliver this AGREEMENT and to
perform its obligations hereunder unless otherwise stated in this AGREEMENT.
5.3 Neither the execution nor the delivery of this AGREEMENT, nor the
compliance with and fulfillment of its terms and provisions:
(a) will violate any provisions of the Bylaws or Articles of
Incorporation, as amended of the COMPANY as of the execution date of
this AGREEMENT;
(b) is prohibited by or requires any notification, consent,
authorization, or any judgment, order, writ, injunction, or decree which
is binding upon COMPANY, except for such approvals or other action or
inaction as may be required under the securities or corporate laws of
the various states or other jurisdictions.
5.4 COMPANY and its agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this AGREEMENT.
6.0 COVENANTS
6.1 The PARTIES agree as follows with respect to the period from and
after the execution of this AGREEMENT:
(a) Each of the PARTIES will use its reasonable best efforts to
take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this AGREEMENT.
6.2 From and after the date of this AGREEMENT to and including the
CLOSING DATE, COMPANY will:
(a) cause all necessary and advisable filings and documents to be
prepared and properly filed pursuant to the requirements of the
Securities Act of 1933 and all other applicable stated and federal law;
and
(b) give any notices to third parties and obtain any third party
consents that COMPANY may request in connection with this AGREEMENT.
6.3 From and after the date of this AGREEMENT to and including the
CLOSING DATE, SHAREHOLDER will not sell, convey, or grant security interest to
any third parties for at least Two Million Five Hundred Ten Thousand (2,510,000)
of the common stock currently owned by SHAREHOLDER.
3
<PAGE> 4
7.0 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATION TO CLOSE
7.1 The obligation of COMPANY to effect the stock redemption and
offering to SELECTED INVESTORS contemplated by this AGREEMENT shall be subject
to performance and compliance by SHAREHOLDER of each and every covenant and
agreement of SHAREHOLDER contained in this AGREEMENT and to the satisfaction of
each and all of the following conditions precedent:
(a) The representations and warranties contained in this
AGREEMENT shall be true and correct on and as of the CLOSING DATE, with
the same force and effect as if made on and as of the CLOSING DATE;
(b) SHAREHOLDER shall have performed and complied with all of his
covenants stated in this AGREEMENT in all material respects through the
CLOSING DATE; and
(c) There shall not be any judgment, order, decree, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by this AGREEMENT.
8.0 CONDITIONS PRECEDENT TO SHAREHOLDER'S OBLIGATION TO CLOSE
8.1 The obligation of SHAREHOLDER to effect the stock redemption as
contemplated by this AGREEMENT shall be subject to performance and compliance by
the COMPANY of each and every covenant and agreement of COMPANY contained in
this AGREEMENT and to the satisfaction of each and all of the following
conditions precedent:
(a) The representations and warranties contained in this
AGREEMENT shall be true and correct on and as of the CLOSING DATE, with
the same force and effect as if made on and as of the CLOSING DATE.
(b) The COMPANY shall have performed and complied with all of
their covenants stated in this AGREEMENT in all material respects
through the CLOSING DATE.
(c) There shall not be any judgment, order, decree, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by this AGREEMENT.
9.0 TERMINATION
9.1 This AGREEMENT may, by written notice given prior to or at the
CLOSING, be terminated as follows:
(a) by either COMPANY or SHAREHOLDER if a material breach of any
provision of this AGREEMENT has been committed by the other party and
such breach has not been waived; or
(b) by mutual written consent of COMPANY and SHAREHOLDER.
4
<PAGE> 5
9.2 Each Party's right of termination is in addition to any other rights
it may have under this AGREEMENT or otherwise, and the exercise of a right of
termination will not be an election of remedies; provided, however, that if this
AGREEMENT is terminated by a party because of a breach of the AGREEMENT by the
other party or because one or more of the conditions to the terminating party's
obligations under this AGREEMENT is not satisfied as a result of the other
party's failure to comply with its obligations under this AGREEMENT, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
10.0 INDEMNIFICATION
10.1 All representations, warranties, covenants, and obligations in this
AGREEMENT, and any other certificate or document delivered pursuant to this
AGREEMENT, will survive the CLOSING. The right to indemnification, payment of
damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this AGREEMENT or the
CLOSING DATE, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 SHAREHOLDER and COMPANY mutually agree to indemnify and hold each
other harmless along with their respective representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage (including incidental and consequential damages), expense
(including costs of investigation and defense and reasonable attorneys' fees),
or diminution of value, whether or not involving a third-party claim, arising,
directly or indirectly, from or in connection with any breach of any
representation, warrant, covenant or obligation made by the other Party in this
AGREEMENT.
11.0 NOTICES
11.1 Any party may give any notice, request, demand, claim, instruction,
or other document under this section using any other means but no such notice,
request, demand, claim, instruction, or other document shall be deemed to have
been duly given unless and until it actually is received by the individual for
whom it is intended at the address stated below. Any party may change its
address for any purpose by giving notice of the change of address to the other
party in the manner provided in this section.
If to SHAREHOLDER:
C. Richard Kearns
765 Harmony Street
Lebanon, OR 97355
If to COMPANY: With a copy to:
Country Maid Financial, Inc. Jones Law Group, PLLC
P.O. Box 942 2300 130th Avenue N.E., Suite A-103
Lebanon, OR 97355 Bellevue, WA 98005
5
<PAGE> 6
12.0 GENERAL PROVISIONS
12.1 The COMPANY will bear the expenses incurred in connection with the
preparation, execution, and performance of this AGREEMENT and its terms and
conditions, including all fees and expenses of agents, representatives, counsel,
and accountants.
12.2 The Parties agree to furnish upon request to each other such
further information, and to execute and deliver to each other such other
documents, and to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this AGREEMENT
and the documents referred to in this AGREEMENT.
12.3 The rights and remedies of the parties to this AGREEMENT are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this AGREEMENT or the
documents referred to in this AGREEMENT will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law:
(a) no claim or right arising out of this AGREEMENT or the
documents referred to in this AGREEMENT can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice or
demand as provided in this AGREEMENT or the documents referred to in
this AGREEMENT.
12.4 This AGREEMENT supersedes all prior agreements between the parties
with respect to its subject matter and constitutes (along with the documents
referred to and incorporated in this AGREEMENT) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This AGREEMENT may not be amended except by a written agreement
executed by the party to be charged with the amendment.
12.5 Neither party may assign any of its rights under this AGREEMENT
without the prior consent of the other parties, except that COMPANY may assign
any of its rights under this AGREEMENT to any subsidiary of COMPANY. This
AGREEMENT will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this AGREEMENT will be construed to give any PERSON
other than the parties to this AGREEMENT any legal or equitable right, remedy,
or claim under or with respect to this AGREEMENT or any provision of this
AGREEMENT. This AGREEMENT and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this AGREEMENT and their successors
and assigns.
6
<PAGE> 7
12.6 If any provision of this AGREEMENT is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this AGREEMENT
will remain in full force and effect. Any provision of this AGREEMENT held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
12.7 The headings in this AGREEMENT are provided for convenience only
and will not affect its construction or interpretation.
12.8 With regard to all dates and time periods set forth or referred to
in this AGREEMENT, time is of the essence.
12.9 This AGREEMENT will be governed by the laws of the State of Oregon
without regard to conflicts of laws principles. Exclusive venue for any dispute
in connection with this AGREEMENT shall be in the Circuit Court, Linn County,
Oregon.
12.10 This AGREEMENT may be signed in as many counterparts is as
necessary and all signatures so executed shall constitute one AGREEMENT, binding
on all PARTIES as if each was a signatory on the original.
13.0 SIGNATURES
13.1 IN WITNESS WHEREOF, the parties have executed and delivered this
AGREEMENT as of the date first written above.
COMPANY:
COUNTRY MAID FINANCIAL, INC.
a Washington corporation
- ----------------------------------- --------------------------
Ellis Stutzman, Its President Date
SHAREHOLDER:
- ----------------------------------- --------------------------
C. Richard Kearns Date
7
<PAGE> 1
EXHIBIT 21.1
COMPANY SUBSIDIARIES
Territorial Inns Management, Inc., a Nevada corporation
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED STATEMENT OF OPERATIONS AND BALANCE SHEETS FOR THE FISCAL YEAR
ENDED MARCH 31, 1998, AND THE UNAUDITED STATEMENT OF OPERATIONS AND BALANCE
SHEETS FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 4,549 0
<SECURITIES> 0 0
<RECEIVABLES> 61,444 68,180
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 65,993 68,180
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 125,993 128,180
<CURRENT-LIABILITIES> 155,190 116,644
<BONDS> 0 0
0 0
0 0
<COMMON> 3,059,639 2,739,639
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 125,993 128,180
<SALES> 0 0
<TOTAL-REVENUES> 68,890 37,515
<CGS> 0 0
<TOTAL-COSTS> 138,623 85,979
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (69,733) (48,464)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (69,733) (48,464)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (69,733) (48,464)
<EPS-BASIC> (0.03) (0.02)
<EPS-DILUTED> 0 0
</TABLE>
