U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12 (b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Far West Group, Inc., A Nevada Corporation
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Nevada 86-0867960
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or
organization)
1665 East 18th Street, Suite 113
Tucson, Arizona
85719
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(Address of principal (zip code)
executive offices)
520-740-1119
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Issuer's telephone number
Securities to be registered under section 12 (g) of the Act:
Title of each class Name of each exchange on which
to be so registered: each class is to be registered:
Common Stock None
Securities to be registered under section 12(g) of the Act:
80 million shares of Common Stock, Par Value $.0001 per share
-------------------------------------------------------------
(Title of Class)
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PART I
Form 10-SB Item Location
Item Number Caption Information Page
1. Description of Business 3-8
2. Management's Discussion And
Analysis or Plan of Operations 8-12
3. Description of Property 12
4. Security Ownership of Certain
Beneficial Owners and Management 12
5. Directors, Executive Officers,
Promoters and Control Persons 12-15
6. Executive Compensation 15-16
7. Certain Relationships and Related
Transactions 16
8. Description of Securities 16-17
PART II
1. Market Price and Dividends on
the Registrant's Common Equity
and Other Shareholders Matters 17-18
2. Legal Proceedings 18
3. Changes in and Disagreements
With Accountants 18-19
4. Recent Sales of Unregistered
Securities 19
5. Indemnification of Directors
and Officers 19-20
PART III
1. Index to Exhibits 20-21
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PART I
Item 1. Business
General
FarWest Group, Inc. (The "Company" or "FarWest") was
organized under the laws of the State of Nevada in July 1996 to
serve as a water technology company dedicated to advanced water
filtration and purification. In July of 1996, the Company was
merged with Pro Vantage Corporation, an inactive public company
which was incorporated in the State of Florida in 1992. FarWest
was the surviving company in that merger. Concurrently, the
FarWest Pump Company ("Pump Company"), an Arizona corporation
formed in 1986 became a wholly owned subsidiary of the Company.
From July 1996 through December 31, 1998, the Company operated
FarWest Pump Company as an operating subsidiary. The operations
of Pro Vantage were discontinued in July, 1996, immediately
following the merger with FarWest Group, Inc. As of January 1,
1999, the Company has no operating subsidiaries.
In January 1997 the Company entered into a manufacturing and
marketing license agreement with Lawrence Livermore National
Laboratories ("Lawrence Livermore") whereby the Company obtained
the rights to Lawrence Livermore's patented Capacitive
Deionization Technology (CDT). (That technology is described
below.) The manufacturing and marketing license is effective for
the life of the patents (up to 17 years), with most such patents
expiring in the year 2010. To maintain the license the Company
must make contracted minimum annual royalty payments to Lawrence
Livermore, in the amount of $25,000 per year. Although the
Company has in the past failed to make the minimum annually
royalty payment when due, the Company has recently brought its
obligations to Lawrence Livermore current and has made all
minimum royalty payments due, including the payment due on
February 28, 2000. The agreement provides that Lawrence
Livermore can terminate the license agreement in the event that
the Company fails to perform many of its obligations under the
agreement by giving the Company 60 days notice within which to
cure its obligations under the license agreement. The Company
has never received such a notice from Lawrence Livermore and, as
mattered above, has recently made all payments due to date. In
the future, as the Company begins active production of products
covered by the license from Lawrence Livermore, the Company will
owe Lawrence Livermore royalty payments varying from 1 percent of
product revenue to a maximum of 5 percent of product revenue.
The variation is determined the volume of sales, as well as the
use of different portions of the Lawrence Livermore technology in
products which are the source of the revenues which determine the
royalties that must be paid. Although FarWest is the only
licensee for the carbon aerogel technology which is the basis of
the Company's capacitive deionization technology, the license is
non-exclusive in that Lawrence Livermore could license other
entities to use some or all of the technology covered by the
license with the Company.
In March of 1999 the Company's Board of Directors agreed to
accept an offer from Pump Company management to acquire the
outstanding shares of the Pump Company, retroactive to January 1,
1999. The stock sales agreement was completed in May of 1999 for
deferred payments totaling $270,000 to be paid to the Pump Company
management for assuming all existing liabilities, approximately
$650,000. FarWest, in July 1999, expanded its facilities to
include general administration offices and a pilot manufacturing
facility.
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In early January, 2000, the Company announced that it had
entered into an investment contact with Asea Brown Boveri, Inc.
("ABB") with respect to a variety of topics. (That contract is
included as an exhibit to this Form 10-SB.) ABB agrees, to the
terms of the investment agreement, to purchase from the Company
250,000 shares of the Company's common stock as a purchase price
of $2 per share on or before December 31, 1999. That purchase
was completed and provided resources for the Company's
activities, including the payment of amounts due to Lawrence
Livermore under the license agreement described above. In
addition, ABB shall purchase from the Company an additional
250,000 shares of the Company's common stock at a purchase price
of $2 on a date on or before January 31, 2000. In addition, ABB
has obtained options to acquire an additional 250,000 shares of
FarWest Group common stock at a purchase price of $2 per share on
each of March 30, 2000 and April 30, 2000. As a result, if ABB
were to exercise those options, the Company would receive
additional funding in the amount of $500,000 on March 30, 2000
and an additional $500,000 on April 30, 2000. In the event that
ABB exercises its options on both March 30, 2000 and April 30,
2000, ABB has a further option, expiring on April 30, 2001, in
which to acquire a number of shares granting ABB a 51 percent
ownership position in the Company. Although the final terms of
any such arrangement are subject to completion at the time that
ABB exercises its option, the expectation is that the purchase of
such stock would occur at the then current marketprice for the
Company's shares of common stock.
In addition ABB has registration rights with respect to the
shares it owns and a right of first refusal to purchase, pro
rata, a portion of any common stock (or other securities of the
Company), that are convertible into common stock that the Company
may from time to time propose to sell. In addition, the Company
has agreed that one member designated by ABB will be appointed to
the Company's Board of Directors after ABB has acquired 500,000
shares of the Company's common stock. In addition, three of the
Company's officers and directors, Mr. Clark Vaught, Mr. Dallas
Talley and Mr. Chris Sheppard, have entered into agreements with
ABB granting ABB a right of first refusal with regard to the sale
or transfer of any shares of the Company held by such officer.
In addition, those shareholders have agreed to vote any shares
they may hold in favor of certain transactions with ABB,
including a sale of all or substantially all of the Company's
assets to ABB, in favor of ABB's exercise of the option,
described above, to acquire at least 51 percent of the Company's
outstanding stock or to vote in favor of an acquisition of the
Company by ABB. Those shareholder agreements expire on June 30,
2001 unless, prior to that date, ABB has exercised its option to
acquire a 51 percent ownership interest in the Company.
In addition to the rights granted above, the investment
agreement between the Company and ABB grants ABB the exclusive
right to review information relating to the technology covered by
the Lawrence Livermore License and an option to acquire the
Company's rights to the technology through a purchase, exclusive
license or such other arrangement as will provide ABB with the
opportunity to commercialize the technology. That option to
acquire the Company's rights will expire upon the purchaser's
failure to exercise either of the options to acquire stock
expiring on March 30, 2000 and April 30, 2000, or if both such
options are exercised, on April 30, 2001. To exercise the
option, the Company and ABB must negotiate in good faith the
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terms and conditions of a purchase, license or other arrangement
pursuant to which ABB would acquire the rights in question. In
the event that ABB has not exercised its option to acquire a 51
percent ownership interest in the company prior to the time that
it exercises the option to license, purchase or otherwise acquire
the technology, the Company may retain rights to the technology
that will permit the Company to commercialize that technology in
fields or businesses which, in ABB's sole judgment, will not
compete with ABB's commercialization of the technology in its
intended fields of use.
The Technology
The Company's capacitive deionization technology, or CDT,
uses deionization to convert a contaminated water supply into a
"clean" water stream and a waste stream. As implemented by the
Company, the technology involves coating pairs of electrodes with
a carbon coating known as carbon aerogel. The carbon aerogel is
porous and has an extremely high ratio of ion collection area to
surface area, due to the structure of the areogel. In fact, the
ion collection area presented by carbon aerogel is greater than
60,000 times the surface area of the electrode. In the
Company's system, a salt water or impure water stream is passed
through an electrostatic field established between pairs of
electrodes coated with carbon aerogel. The negative electrode
attracts positively charged ions, such as calcium or magnesium,
while the positive electrode attracts negatively charged ions
such as chloride or nitrate. Those ions are pulled out of
suspension the water stream and held by the electrodes, in the
carbon aerolgel, until either the power is turned off or the
electrode charge is reversed. As a result, with a relatively low
application of energy, the Company's technology is able to remove
a wide variety of contaminants or other molecules from a water
stream through the creation and holding of charged particles.
FarWest is a development-stage technology company which has
completed development of its first release CDT unit and expects
to commence in-house prototype manufacture and construction of
demonstration and pilot water treatment plants for clients in the
first quarter of 2000. As discussed above, the Company obtained
a license to develop and manufacture a carbon aerogel CDT
product, covered by Lawrence Livermore Patents, for commercial
use in the desalination, filtration, and purification of water.
The Lawrence Livermore license authorized FarWest to
manufacture, market and enhance the CDT, specifically in the
fields of:
Desalination and Brackish Water
Groundwater remediation
Pure water for Boiler Applications
Ultrapure water for manufacturing
Nuclear Waste remediation
Medical Applications
Bottled water for drinking
The aerogel product licensed from Lawrence Livermore
Laboratories in January 1997 operated at low voltage levels
(compatible with solar energy sources) with resulting favorable
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operating economics, but the cost of manufacture with the
original technology was too high to be commercially competitive.
Therefore, initial Company efforts were focused on cost reduction
programs. Those programs, aimed at reducing the manufacturing
cost of carbon aerogel, included improvements related to
utilizing equally effective but less costly materials as a base
for the carbon aerogel and developing systems which allow the
waste stream to access both sides of carbon aerogel, as opposed
to the single side of carbon aerogel which could be accessed in
the form in which the technology was developed by Lawrence
Livermore. In addition, the Company continues its efforts to
develop proprietary improvements to further reduce the cost of
manufacturing and operation of the CDT system.
Since 1997 with expenditures of over $900,000, FarWest has
increased the cost-effectiveness of the original aerogel product
by approximately 15 times. (The Company's expenditures also
included research and development spending of $234,000 in 1998
and research and development expenditures of approximately
$430,000 in 1999.) The Company believes that its current version
of the CDT product is competitive with other water remediation
methods, particularly for brackish water(up to 10,000 parts total
disolved solids (TDS) per million), in light of its low power and
other operating cost advantages. CDT, as developed by the
Company, has been reviewed by Lawrence Livermore and several
large companies familiar with Reverse Osmosis and other water
treatment systems. Officials from foreign governments such as
Jordan and South Africa have indicated an interest in the
Company's technology and the response from those government
officials, as well as the interest in the technology shown
by ABB and other significant companies, lead the Company to
believe that the technology will be competitive. The Company
believes that CDT is the only available economically viable
alternative to Reverse Osmosis, the most widely used system, for
a broad spectrum of large-scale brackish water purification
applications.
While the basic carbon aerogel patent is owned by the U.S.
Government, through Lawrence Livermore, there are a number of
improvements in other materials and processing which have been
developed by, and are proprietary to FarWest, and need not be
licensed back to Lawrence Livermore. The Company believes that
the improvements account for the significant improvement in cost
effectiveness of CDT. It is expected that one or more of these
proprietary improvements will be patented by FarWest and certain
others may be maintained as "trade secrets" to avoid disclosing
them in patent filings. Although to date the company has not
obtained patents on any of its improvements on the base
technology license from Lawrence Livermore, the Company is
continuing to evaluate with its counsel and with ABB the best
policy regarding protection of intellectual property rights.
Those strategies could include filing patents with regard to
certain of the improvements, treating the improvements and
developments as trade secrets or pursuing other intellectual
property strategies for the protection of the technology
developed by the Company from the Lawrence Livermore technology.
The Business
In 1998 the Company began a marketing effort to bring its
carbon aerogel technology to the attention of the water treatment
market. The Company believes that potential customers for the
Company's CDT technology will initially include government
organizations in developing nations, particularly those in the
middle east, north Africa and Asian Pacific geographic areas
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where access to sufficient amounts of potable water is of
concern. In addition to government organizations seeking to
insure appropriate water supplies for their citizens, the Company
believes that international and humanitarian groups will also be
interested in pursuing the Company's technology as a means of
providing humanitarian relief in areas suffering from water
shortages. The Company also believes that potential users of its
technology include corporations in both the United States and
other major global markets that require water purification and
filtration. The Company believes that its technology could have
market applications in industries such as electronic
manufacturing, medical manufacturing and multiple waste water
treatment applications. In order to reach its prospective
customers, Farwest expects to concentrate on water industry
seminar presentations, technology papers and technology
demonstrations to reach its target market. In addition, the
Company intends to use its currently limited internet resources
to provide access to information about its technology to
potential international customers. The Company's marketing
efforts are occurring in the context of the pervasive world-wide
search for water safe to drink and water suitable for
agriculture, industry, and other applications. CDT is capable of
treating a wide range of water inputs and can provide from a
single CDT system a range of outputs, geared to the ultimate use
of purified water, that is, human consumption, agriculture, or
ultra-pure water for industrial and medicinal use. CDT is thus
not confined to a particular niche in the water treatment
industry. The industry as a whole has become a focus of interest
among the sources of international grant and loan financing due
to the belief that a global water crisis appears imminent.
The Company shifted its emphasis in 1999 to bring its
prototype manufacturing capability on-line to satisfy at least
the first group of three demonstrations and one pilot plant for
which it had already committed [Arizona Public Service, for
industrial water and solar power use; Carlsbad, Cal., for
municipal water; Beatrix Mines South Africa, for mining effluent;
and the Kingdom of Jordan for municipal water, in negotiation].
The Company expects to be significantly dependent on only the
agreement with the Kingdom of Jordan. Under that agreement, the
Company and the Kingdom of Jordan will establish a pilot plant
which will have the capacity to produce 100,000 gallons of
drinking water per day and will carry an estimated value of
approximately $1,200,000. The drinking water will be processed
from a brackish water input with installation of the pilot plant
to be completed by September of 2000. If the pilot plant is
successfully operated for 6 to 12 months, the Kingdom of Jordan
and the Company will expand the relationship to create a
production plant producing over 20 million gallons of drinking
water per day.
To manufacture the large quantities of carbon aerogel
expected to be required to meet future industrial demands, beyond
the limited requirements of demonstration and pilot plant
facilities, FarWest must arrange major plant financing perhaps,
in part, against delivery contracts, or as joint venture
operations. The Company is currently exploring strategic
corporate partnerships as well as evaluating suitable out-
sourcing manufacturing partnerships for short-term requirements.
Sales and Marketing
FarWest expects to operate primarily as a supplier of CDT
units and the related electronic control systems to builders of
new water treatment plants or as replacement technology for other
water treatment equipment as it becomes obsolete or too costly to
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operate and maintain. The CDT units will represent a substantial
part of the cost of new or renovated water treatment facilities.
The Company does not expect to develop its own capability to
act as prime contractor for engineering, constructing, operating,
and owning treatment plants. It will engineer and construct
pilot plants, and will support the planning, proposing, training,
and maintenance activities of prime contractors who contract to
install CDT-based plants. The Company expects to sell
purchasers, both private and governmental, on the merits of using
CDT, either alone or in conjunction with prime contractors where
it has entered into selling or strategic relationships.
For some countries, FarWest is negotiating with potential
partners, local or international, capable of engineering and
executing major water treatment plant construction and subsequent
operation. The recently established alliance with ABB, which is
described above, will provide some of the resources necessary for
the Company to continue its activities and to provide the
financing for demonstrations and pilot plant described above. In
addition to financing from equity investments made by ABB, the
contract with the Kingdom of Jordan includes an initial payment
of $300,000 with additional progress payments during the
construction of the CDT system.
Discontinued Operations Well Drilling and Pump Services
FarWest Pump Company was formed to provide drilling and pump
services in Arizona and Western New Mexico. It included an
operating division, Arizona Well Services, which provided
wholesale parts services to FarWest Pump and other clients. In
the fourth quarter of 1998 discussions were initiated with Pump
Company management for the purchase of Pump Company. In March
1999, the Company's Board of Directors agreed to sell FarWest
Pump to its management team effective January 1, 1999. A
Purchase Agreement was entered into May 24, 1999, whereby the
stock of FarWest Pump was acquired by the Pump Company Management
team for deferred guaranteed payments from the Company of two
hundred seventy thousand ($270,000.00) dollars as consideration
for the assumption of all net liabilities (over $650,000) of the
Pump Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations
Financial Condition and Results of Operations
The Company has recently completed its development stage
operations. Plans are to begin pilot operations in the first
quarter of 2000. From execution of the Lawrence Livermore
licenses in January 1997 through the current period, the Company
has concentrated its efforts primarily on improving the cost
performance basis of the CDT technology.
During 1997, 1998, and for the first three quarters of 1999,
the Company did not generate revenues although the pilot
contracts were received during the period. The Company currently
is negotiating additional pilot contracts and alliances; however,
revenue recognition will not occur prior to FY 2000.
The Company was funded initially through the merger of the
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Pump Co. and investment by the principal shareholder. Since 1998
funding has been through private placements, which totaled
approximately $800,000. Private placement opportunities combined
with management funding are expected to continue in early 2000.
In addition, the equity financing received from ABB pursuant to
the agreement described above is expected to provide the
operating capital required by the Company until the Company
begins to receive funding from the Kingdom of Jordan pursuant to
the contract with that country. In addition, the Company has
discussed with its auditors the status of the Company necessary
to eliminate the going concern opinion included with respect to
the financial statements included in this Form 10. The Company
has been informed by its auditors that if ABB exercises the
equity options described above in April of 2000, the auditors
would expect, subject to final verification of the Company's
financial condition, to eliminate any going concern opinion.
Operations for the Next Twelve Months
Business opportunities for the next twelve months include
international CDT systems sales to governments and major multi-
national industrial corporations and U.S. pilot sales. Several
opportunities are now being discussed including: governments,
humanitarian trust funds, industrial joint ventures, market
sectors, and geographic distribution agreements. As indicated
above, the Company is engaged in a variety of pilot plants
activities. Those activities can be categorized into two
sectors: the first; the pilot plant is operated at Company
expense to continue the development of the Company's CDT
technology and to prove the concept for which a larger production
plant might be established. A second type of pilot program is to
produce revenue and/or gain contracts for larger production CDT
systems, to be built in the future. Pilot contracts usually last
from 3 to 12 months. Although some contracts, such as the pilot
program with the Kingdom of Jordan described above will generate
revenue for the Company, the Company does not expect to require
funds beyond the equity investment to be provided by ABB and
payments made by the Kingdom of Jordan under its contract in
order to complete the other pilot programs referenced in this
Form 10-SB.
The Company recognizes the financial investment required to
support the potential business opportunities which are being
discussed. There is no guarantee that the Company can complete
the funding necessary to develop the manufacturing and
engineering infrastructure to complete the potential CDT orders.
The Company is currently discussing financing options which
include:
-Corporate Partnership for Manufacturing which could be
expanded to include marketing services;
-Joint ventures with an international investment group; and
-European government-sponsored program.
In addition, a religious humanitarian fund is evaluating
equity investment in the Company and CDT installation
opportunities in the Mid-East. Management believes that there is
a probability of obtaining the required financing for the next
twelve months through one of the above. However, there is no
assurance that such funding will be obtained in the time cycle
required to support ongoing Company operations.
Limited Operating History
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The Company, although having completed its development
stage, has had a limited operating history upon which an
evaluation of its future performance and prospects could be made.
The Company's prospects must be considered in light of the risks,
expenses, delays, problems, and difficulties frequently
encountered in the establishment of a new business in an emerging
and evolving industry. Since inception, the Company has
generated no revenues and has incurred operating losses resulting
in a working capital deficit. Inasmuch as the Company will have
an increasing level of operating expenses and will be required to
make significant up-front expenditures in connection with the
proposed development of its business, the Company anticipates
that losses will continue for at least the next twelve months or
until such time as the Company is able to generate sufficient
revenues to finance its operations and the costs of continuing
expansion. There can be no assurance that the Company will be
able to generate significant revenues or achieve profitable
operations. In addition to the efforts described above, the
Company will engage in a variety of research and development
activities during the next 12 months. The Company will continue
to seek to improve the price performance and efficiency of the
carbon aerogel. In addition, the Company will seek to increase
the efficiency of power utilization and power recapture, as well
as seeking to automate manufacturing and increase the ability to
monitor and control its pilot systems through the internet.
Need for Additional Financing
The Company is dependent upon the proceeds of proposed
offerings of the Company's securities to implement its business
plan and to finance its working capital requirements. Should the
Company's plans or its assumptions change or prove to be
inaccurate or offering proceeds be insufficient to fund the
Company's operations, the Company would be required to seek
additional financing sooner than anticipated. Management is
confident it will be able to continue obtaining equity investment
principally through private placements such as pursuant to the
Agreement with ABB.
There can be no assurances given that the Company will be
successful in generating sufficient revenues from its planned
activities or in raising sufficient capital to allow it to
continue as a going concern which contemplates increased
operating expenses, acquisition of assets and the disposition of
liabilities in the normal course of business. These factors can
affect the ability of the Company to implement its general
business plan including the completion of the required
manufacturing facilities and continued proprietary CDT product
improvements.
As disclosed above, the Company recently expanded its
facility and is engaged in preliminary discussions for the
development of a new facility at Lawrence Livermore in which the
Company's operations would be housed. Final decisions regarding
any such future activity will be dependent on the Company's
ability to negotiate a transition to a new facility which does
not involve any capital investment by the Company, but instead
involves only monthly lease payments in a range acceptable to the
Company. As a result, the Company's activities with regard to
possible expansion of its physical facilities are not expected to
have a significant adverse effect on the Company's budget or
working capital.
As disclosed elsewhere herein, full utilization of the
Company's CDT technology will require the establishment of a
carbon aerogel production facility, to produce the CDT systems
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incorporating the aerogel technology and the capacity of
deionization technology. The Company believes that that
production facility will have an initial cost of approximately $5
million. Although the Company has no commitments with any party
to provide such funding the funding of such facility is being
discussed with both organizations skilled and the establishment
of manufacturing facilities and financial parties considering
additional investment. ABB is also evaluating the business
potential for establishing an aerogel manufacturing facility as
part of the relationship between the Company and ABB.
Technology
Capacitive Deionization Technology which was licensed from
Lawrence Livermore has been and remains the foundation of the
Company's future. The Company has concentrated its efforts on
adding proprietary enhancements to CDT to provide insulation from
not only other technologies but as protection if Lawrence
Livermore decided to consider other licensees. Any other licensee
would have to license Lawrence Livermore's 1996 CDT Technology
and avoid FarWest's proprietary rights and trade secrets to enter
the market. FarWest has discussed the possibility of obtaining
an exclusive license from Lawrence Livermore; however, there is
no guarantee that continuing negotiations with Lawrence Livermore
will result in any exclusive arrangement with respect to the CDT
technology.
Other Business Matters
Government Approvals and Regulations. The Company
understands the governmental approvals, particular those from the
Environmental Protection Agency with respect to emission controls
at any aerogel manufacturing facility established by the Company,
will be necessary for the establishment of the Company's
operations. In addition, the Company believes that compliance
with federal, state and local laws or regulations which have been
enacted or adopted to regulate the environment have not to date,
nor are they expected to have a material effect on the future,
upon the Company's operations, product development, capital
expenditures, earnings, competition or financial position. The
expenditures required to allow the Company to comply with
Environmental Protection Agency statutes and regulations must be
included in any financing package obtained to establish the
manufacturing facilities which will become subject to the
environmental regualtions.
Year 2000. The Company did not experience any year 2000
problems and has confirmed that status by reviewing and testing
its computer systems after January 1, 2000. None of the third
parties with which the Company engages in business have
experienced any year 2000 problems that, to the best of the
Company's knowledge, had any effect on the Company itself.
Reporting Comprehensive Income. Statement of Financial
Accounting Standards No. 130 establishes standards for reporting
and display of comprehensive income, its components, and
accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by
owners and distributions to owners. The company will be required
to show its pension liability adjustments and foreign currency
translation adjustments in comprehensive income.
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Accounting for Post-Retirement Benefits. The Company provides no
post-retirement benefits; therefore, FASB No.106 will have no
impact on the Company's financial position or operations.
Inflation. The Company does not expect the current rate of
inflation to have any effect on its operations in the foreseeable
future.
Information regarding and factors affecting forward-looking
statements. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or
performances and underlying assumption, and other statements
which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The Company's
expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis,
including without limitations, management's examination of
historical operating trends, data contained in the Company's
records and other data available from third parties, but there
can be no assurance that management's expectations, beliefs, or
projections will result, or be achieved, or accomplished.
Item 3. Properties
The Company maintains administrative offices at 1665 East
18th Street, Suite 113, Tucson, Arizona 85719. There is
approximately 1,500 square feet of administrative space. At the
same location the company has completed a prototype system
assembly facility of approximately 3,000 square feet. This is
leased space which offers expansion capability as needed.
The company is in discussions with an investment group in
Livermore, California to build a Research and Development Center
at Lawrence Livermore which would be operational within the next
year. The Corporate Headquarters may also be relocated to this
Livermore, California location within the next year. However, at
this time the Company has no definitive agreements for any
additional or different facilities and will pursue any such
arrangements only if financial resources are available.
Item 4. Security Ownership of Certain Beneficial Owners and
Management
Item 5 sets forth the number of shares of common stock of
holders of the Company known to the Company and to beneficial
owners of more than five (5%) percent of its Common Stock at
December 31, 1999.
Item 5. Directors and Officers of Registrant
(a)As of December 31, 1999, the following persons served as
directors of the Registrant.
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Shares
Director Beneficially Owned %
Name and Age Position Since of Outstanding Stock
Clark Vaught (49) Chairman of 1996 2,675,000 33.07%
The Board
CEO and Director
Dallas Talley (66) President 1998 600,000 7.43%
Financial Officer
and Director
Chris Sheppard (42) Vice President 1997 425,000 5.24%
Director
Thomas Friezen (41) Director 1996 252,000 3.12%
Dr. Nicholas Yensen (53) Director 1997 130,000 1.61%
All Officers and Directors as a Group 4,082,000 50.45%
(as of September 30, 1999)
No officer or director listed in the foregoing table has any
options, warrants, conversion rights or privileges to acquire
additional shares which are exercisable during the sixty days
after the date hereof.
(b) Executive Officers
The executive officers of Registrant are identified in
subpart (a) above.
Management
The FarWest Management team has extensive experience in the
establishment and management of entrepreneurial and publicly-held
technology companies.
Clark Vaught, Chairman, CEO, and principal shareholder,
founded FarWest Pump and developed it into today's FarWest Group.
His background with Westinghouse Hanford Systems aptly prepares
him for the technology driven CDT market. Management experience
includes large aquifer development projects; water management for
White Sands Missile Range, and several Arizona City programs.
Dallas Talley, President, also currently serving as
Financial Officer, has over twenty years of high tech senior
executive experience. He has been CEO of Qantel Business
Computers, a New York Stock Exchange listed company, and of two
NASDAQ technology companies. He has also been a founder/director
of several emerging companies, was executive partner in an
International Technology Marketing and Licensing partnership and
served as a director of the American Electronics Association and
as Chairman of its Silicon Valley Chapter.
13
<PAGE>
Chris Sheppard, Vice President, has had management
experience in several high technology fields. This includes the
"Star Wars" SDI program where he consulted for Lockheed and
Martin Marietta. He has been employed at Lawrence Livermore
National Laboratories and other National Laboratories. His
background also includes experience as Chief Mechanical Engineer
for Kaman Aerospace.
At September 30, 1999, the Company employed five people full
time and six consultants on a part-time basis.
The future success of the Company depends to a significant
extent upon certain senior management, technical personnel, and
development personnel. The Company also believes that its future
success will depend in large part on its ability to hire and
retain highly skilled technical, managerial, and marketing
personnel, as well as to attract and retain replacements for or
additions to such personnel in the future. Demand for new,
specially trained and experienced personnel has increased
worldwide. The loss of certain key employees or the Company's
inability to attract and retain other qualified employees could
have a material adverse effect on the Company's business. In
order to reduce this risk to the Company, the Company's legal
counsel has recently prepared employment contracts for Mr.
Vaught, Mr. Talley and Mr. Sheppard. Each of those agreements
has a two year term, effective on January 1, 2000 and ending on
December 31, 2001. However, each agreement is automatically
extended by an additional year upon each anniversary of the
agreement. The conntracts will be submitted to the Board of
Directors for approval at the March 2000 meeting. The Company's
Board of Directors will evaluate the need for the Company to
enter into future employment agreements with other employees.
Board of Directors.
The Company's Board of Directors currently consists of five
(5) members. The Company's By-laws permit the Board of Directors
to consist of any number of members greater than two (2), as
determined by the then-current Board of Directors.
Employees who serve on the FarWest Board of Directors
include Mr. Vaught, Mr. Talley, and Mr. Sheppard, who are
identified above in "Management". Other Directors are:
Tom Friezen is CFO of a $150 million Food Processing
Cooperative. He manages the financial operations and oversees
the legal activities of the company.
Dr. Nick Yensen has served as a director and consultant to
the company. Dr. Yensen is a recognized expert in saltwater
technology. He is president of NyPa International, with
subsidiaries and projects throughout the world.
14
<PAGE>
At the annual meeting of shareholders to be held on May 11,
2000, the Company's Board of Directors intends to nominate two
additional prospective directors for election by the Company's
shareholders. One of those nominees will be the individual
designated by ABB to serve on the Company's Board of Directors.
The other individual who it is planned to nominate is Mr. Takeshi
Ogata. Mr. Ogata has been a senior executive with Itochu
Corporation, Tokyo, Japan. Within Itochu, he has served as
Senior Managing Director as well as President of Itochu
Construction and President of Itochu Electronics and Aerospace.
He is currently Chairman of Itochu's Inno Micro Corporation.
FarWest is in discussion with other experienced executives
and professionals to join the Board of Directors on completion of
corporate financing, and plans to expand the Board of Directors
to seven Members.
Item 6. Executive Compensation
Summary Compensation Table
Annual Other
Compensation non-cash
Name and Principal Position Year Salary Compensation2 Total
Clark Vaught 1999 $37,500 $105,000 $142,500
Dallas Talley 1999 $37,500 $105,000 $142,500
Chris Sheppard 1999 $37,500 $ 37,625 $ 75,125
Clark Vaught 1998 $96,000 $ - $ 96,000
Dallas Talley 1998 $72,000 $ - $ 72,000
Chris Sheppard 1998 $72,000 $ - $ 72,000
Clark Vaught 1997 $72,000 $ - $ 72,000
Dallas Talley1 1997 $ - $ - $ -
Chris Sheppard 1997 $60,000 $ - $ 60,000
Clark Vaught - Chairman of the Board, Chief Executive Officer.
Dallas Talley President, Financial Officer, and Director.
Chris Sheppard - Vice President Development and Director.
15
<PAGE>
1 Mr. Talley joined the Company in March 1998.
2 Represents the issuance of Common Stock in satisfaction of
accrued, unpaid salary.
There are currently no Long-Term Compensation programs in effect
for officers or directors.
1998-1999 Stock Option Grants
NONE
The Company does not provide cash compensation for the
members of the Company's Board of Directors, in their roles as
directors. (Directors who are employees receive the compensation
described above for their services as employees of the Company.)
However, each director is reimbursed for direct expenses incurred
due to service on the Board of Directors. Each director who is
not an employee also is granted an option to acquire 100,000
shares of the Company's Common Stock, for three years service on
the Board of Directors. One third of the options granted to
each "outside" director are vested on the date of grant and one
third on each of the next two anniversaries of the date they
joined the Board of Directors.
Item 7. Certain Relationships and Related Transactions
Pump Company Management approached the Company's Board of
Directors to acquire the Pump Company in late 1998. The
Company's Board of Directors,at its March 1999 meeting,approved
the sale of the Pump Company to the Pump Company's management
team effective as of January 1, 1999. As discussed in Item 6, to
induce the Pump Company management to assume Pump Company's net
liabilities of approximately, $650,000, FarWest agreed to pay
Pump Company $70,000 upon financing. In addition, the Company
has an account payable of 207,000 to Mr. Clark Vaught, the
Company's chairman which Mr. Vaught agreed to assign to the Pump
Company. As of January 31, 2000 the Company has paid to the Pump
Company $200,000 according to the agreement. In addition,
$70,000 will be paid to the Pump Company upon ABB exercising
their March option or upon other significant equity investments
whichever occurs first.
The only investments within the past two years (1998 and
1999) involving management were the paymentof accrued salaries
through the issuance of restricted common stock. Mr. Vaught and
Mr. Talley each converted $105,000 of salaries accrued during the
last two years to stock as indicated in Item 6. No other
director, officer, or beneficial owner of over 5 percent of a
class stock had involvement in any transaction exceeding $60,000.
Item 8. Description of Securities
(a)Common Stock
16
<PAGE>
The Company is authorized to issue 80,000,000 shares of
Common Stock with a par value of $0.001 per share. As of January
31, 2000, there were 8,090,532 shares of Common Stock outstanding
on a fully diluted basis, including options and warrants to
purchase 1,360,000 shares of Common stock at prices from $0.50 to
$2.00 per share. The holders of Common Stock are entitled to one
vote for each share held of record on each matter submitted to a
vote of stockholders. There is no cumulative voting for election
of directors. Subject to the prior rights of any series of
Preferred Stock, which may from time to time be outstanding in
the future, the holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor, and, upon the
liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment
of liabilities and payment of accrued dividends and liquidation
preference on the Preferred Stock, if any. Holders of Common
Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities.
(b)Preferred Stock
The Company is authorized to issue up to 20,000,000 shares
of Preferred Stock with a par value of $0.01 per share. The
Preferred Stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may
include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation,
conversion, redemption rights, and sinking fund provisions.
PART II
Item 1. Market for Registrant's Common Stock and Related
Stockholder Matters
(a)Stock Prices and Dividend Information
The Common Shares of the Company traded on the NASDAQ Over-
the-Counter market under the trading symbol "FWST" from July 1996
through December 2, 1999, at which time the Company's shares were
removed from the NASDAQ Over-the-Counter system and began to
trade in the "pink sheets." The following NASDAQ supplied table
sets forth for the period indicated the high and low bid prices
during the period prior to December 2, 1999. The quotations
below reflect inter-dealer prices, without retail markup,
markdown or commission and may not represent actual transactions.
For current price information, FWST shareholders are encouraged
to consult publicly available sources.
1999 High Low
First Quarter 1 1/8 1/4
Second Quarter 5 1/4 2 1/32
Third Quarter 3 1/8 1 1/2
1998
First Quarter 1 1/4 5/16
Second Quarter 3/4 5/16
17
<PAGE>
Third Quarter 3/4 1/2
Fourth Quarter 9/16 1/4
1997
First Quarter 1 3/8 1/8
Second Quarter 1/2 1/4
Third Quarter 1 1/4
Fourth Quarter1 3/16 1/4
At January 31, 2000, the Company had 6,730,532 Common
Shares outstanding and had approximately one hundred and twenty
(120) shareholders of record.
The Company has no fixed dividend policy. The Board of
Directors from time to time having regard to operating results,
capital requirements and general financial condition and
requirements will consider dividend distributions. The Company
has paid no dividends at any time. For the foreseeable future,
it is anticipated that the Company will use all available cash
flows to finance its growth and that dividends will not be paid
to shareholders.
(b)Reports to Security Holders
Prior to the filing of this Form 10, the Company has not
been obligated to file quarterly or annual reports with the SEC.
The Company will now become obligated to file those reports with
the SEC. The public may read and copy any material files with
the SEC at the SEC's Public Relations Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and/or obtain information on
the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the Company has become an
electronic filer and as such, all items filed by the Company with
the SEC which contain reports, information statements, and other
information regarding issuers that file electronically with the
SEC, will be available at the SEC's website. That site is
available at http://www.sec.gov. The Company also maintains an
Internet site which contains information about the Company. The
site is available at http//www.farwestgroup.com.
Item 2. Legal Proceedings
The Registrant is not a party to any pending legal
proceeding nor is its property the subject of any pending legal
proceeding of any material consequence.
Item 3. Changes in and Disagreements with Accountants
There have been no disagreements on accounting and financial
disclosures from the inception of the Company through to the date
of this Registration Statement.
On November 1, 1997, the Company's shareholders approved the
appointment of Jackson & Rhodes P.C. as the Company's auditors
for the periods ending December 31, 1997, December 31, 1998, and
December 31, 1999. The Company's audited financial statements
for the period ending December 31, 1997 and December 31, 1998 and
18
<PAGE>
the unaudited financial statement for the period September 30,
1999 are a part of this Registration Statement. The statements
for the years ending December 31, 1998 and 1997 were audited by
Jackson & Rhodes, as indicated in their report with respect
hereto, and are included in reliance upon the authority of said
firm as experts in giving said report.
Item 4. Recent Sales of Unregistered Securities
In April 1999, the Company issued 626,500 shares of Common
Stock of the Company to a group of investors under Rule 504 of
Regulation D as additional capital for the Company. The Company
received $283,250 for those shares. The market price of the
company shares of the Company when this private placement was
subscribed ranged from $0.25 to $0.75 during the months of March
and April 1999, prior to the transaction. The pricing of the
placement ($0.32 to $0.50) was determined with reference to the
mid-range of prices during the prior month with a discount to
reflect the restrictive nature of these securities.
In March of 1999, the Company issued 1,643,000 shares to a
group including directors, officers, employees, consultants, and
service providers as compensation for services previously
furnished the Company. These shares, which have a two year
restriction, were issued at a rate of $0.175 per share bid based
on the discounted average bid price of the common stock at the
closing quarter's prices. The shares were issued in reliance
upon Section 4(2) of the Securities Act of 1933.
In July, 1999, the Company issued 253,332 shares of its
common stock upon the partial conversion of a convertible
promissory note issued by the Company in January, 1998. The
issuance of such stock was completed in reliance upon Section
4(2) of the Securities Act of 1933.
In September, 1999, the Company issued a warrant for the
purchase of 300,000 shares of its Common Stock, with an exercise
price of $0.50 per share and expiring in 2002. The warrant was
issued in settlement of a dispute with a party which had sought
to obtain financing for the Company. The warrant was issued in
reliance upon the exemption found in Section 4(2) of the
Securities Act of 1933.
Item 5. Indemnification of Directors and Officers
The Bylaws of the Company and the statutes of the State of
Nevada give the Company the power to indemnify any director,
officer, manager, employee or agent, who was or is a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, against
certain liabilities and expenses incurred in connection with the
action, suit or proceeding. The Bylaws of the Company provide
that the Company shall indemnify any such directors, officers,
managers, employees or agents to the full extent provided under
applicable provisions of the Nevada Statutes. These provisions
do not affect the availability of equitable remedies, such as an
action to enjoin or rescind a transaction involving a breach of
fiduciary duty, although, as a practical matter, equitable relief
may not be available. In the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended.
19
<PAGE>
As a result, the above provisions may not limit liability of the
directors for violations of, or relieve them from the necessity
of complying with, the federal securities laws.
PART III
Item 1. Index to Exhibits
The Company attaches the following material exhibits to this
Registration Statement.
1.Financial Statements
Consolidated financial statements of FarWest Group, Inc.
Page
(a)Report of Independent Certified Accountants. 23
(b)Consolidated Balance Sheets for the years
ended December 31,1997 and December 31, 1998
and the nine months ended September 30, 1998
and September 30, 1999. 24
(c)Consolidated Statements of Operations for
the years ended December 31, 1997 and
December 31, 1998 and the nine months ended
September 30, 1998 and September 30, 1999. 25
(d)Consolidated Statements of Changes in
Stockholders' Equity for the two years ended
December 31, 1997 and December 31, 1998 and
the nine months ended September 30, 1998. 26
(e)Consolidated Statements of Cash Flows for
the years ended December 31, 1997 and
December 31, 1998 and the nine months ended
September 30, 1998 and September 30, 1999. 27
(f)Notes to the Consolidated Financial
Statements 28-38
2.Exhibits Regulation S-K
Designated Number
(a) Stock Purchase Agreement (REVISED) between FarWest
Group, Inc. and New Pumpco dated May 24, 1999 for the
acquisition of 100% of FarWest Pump Co. effective
January 1, 1999. (2)
(b)*The Articles of Merger of Pro Vantage, Inc. into
FarWest Group, Inc. dated July 2, 1996 (filed as Exhibit
2.6to Registration Statement form 10SB dated
November 22, 1999 Registrant No. CIK
#0001098584 and incorporated herein by reference).
20
<PAGE>
(c)*Articles of Incorporation of Registration
(filed as Exhibit 2.1 Registration Statement form
10SB Registrant No. CIK #0001098584 of Registrant
and incorporated herein by reference). (3)(i)
(d)*By-laws of Registrant (filed as Exhibit 2.2
Registration Statement form 10SB Registrant No.
CIK #0001098584 of Registrant and incorporated
herein by reference). (3)(ii)
(e)*Specimen Copy of Common Stock Certificate
(filed as Exhibit 2.3 to registration Statement under
the Securities Exchange Act and incorporated herein
by reference).
(f)*Option and Warrant Agreements and Text of Warrant
(filed as Exhibit 2.4 and 2.5 to Registration Statement
on Form 10SB, Registration CIK #0001098584, of
Registrant incorporated herein by reference). (10)
(g)Investment Agreement between FarWest Group, Inc. and
Asea Brown Boveri, Inc. dated December 29, 1999. (10)
*Previously filed.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
By: [s] Dallas Talley
Dallas Talley, President
and Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Registrant and in the capacity and on the date set
forth following their name.
Signature Capacity Date
[s] Clark Vaught Chairman and CEO February 14, 2000
Clark Vaught
[s] Dallas Talley President and Financial
Dallas Talley Officer February 14, 2000
[s] Chris Sheppard Vice President February 14, 2000
Chris Sheppard
[s] Tom Friezen Director February 14, 2000
Tom Friezen
[s] Nicholas Yensen Director February 14, 2000
Nicholas Yensen
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
FarWest Group, Inc.
We have audited the accompanying consolidated balance sheets
of FarWest Group, Inc. and subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of operations,
stockholders equity (deficit) and cash flows for the years then
ended. These consolidated financial statements are the
responsibility of the Company s management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of FarWest Group, Inc. as of
December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended, 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's significant
operating losses and its working capital deficit and
stockholders deficit raise substantial doubt about its ability
to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
Jackson & Rhodes P.C.
Dallas, Texas
November 19, 1999(except for Notes 2 and 9, which
are as of January 31, 2000)
23
<PAGE>
FARWEST GROUP, INC.
BALANCE SHEETS
Assets
September 30, December 31,
1999 1998 1997
Current assets: (Unaudited)
Cash $ 30,199 $ - $ 3,211
Accounts receivable 25,000 28,704 3,143
Total current assets 55,199 28,704 6,354
Furniture and equipment 5,435 2,952 2,952
Less accumulated depreciation (3,218) (1,968) (984)
2,217 984 1,968
Total Assets $ 57,416 $ 29,688 $ 8,322
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued
liabilities $ 406,917 $ 597,959 $137,000
Accounts payable to shareholder
(Note 3) 207,059 127,809 32,448
Net liabilities of discontinued
operations (Note 2) 658,401 620,075 581,928
Total current liabilities 1,272,377 1,345,843 751,376
Convertible debt (Note 5) 100,000 200,000 100,000
Commitments and contingencies
(Note 6) - - -
Stockholders' equity:
Preferred stock, $.0001 par value,
20,000,000 shares authorized;
60,000 issued and outstanding
at September 30, 1999 and
December 31, 1998 6 6 -
Common stock, $.0001 par value,
80,000,000 shares authorized;
6,114,912, 3,591,480 and
3,191,480 shares issued and
outstanding 611 359 319
Additional paid-in capital 2,227,420 699,525 527,289
Accumulated deficit (3,542,998) (2,216,045)(1,370,662)
Total stockholders' equity(deficit)(1,314,961) (1,516,155) (843,054)
Total Liabilities and
Stockholders' Equity $ 57,416 $ 29,688 8,322
See accompanying notes to financial statements.
24
<PAGE>
FARWEST GROUP, INC.
STATEMENTS OF OPERATIONS
Nine Months Ended Years
September 30, Ended December 31,
1999 1998 1998 1997
(Unaudited)(Unaudited)
Revenues $ - $ - $ - $ -
Operating expenses:
Common stock and options
issued for services 900,005 52,054 69,405 227,500
General and administrative 407,520 489,716 408,778 245,114
1,307,525 541,170 478,183 472,614
Loss from operations (1,229,792) (541,170) (478,183) (472,614)
Other income (expense):
Interest expense (3,500) (51,512) (56,539) (7,000)
Total other expense (3,500) (51,512) (56,539) (7,000)
Loss from continuing
operations (1,311,025) (592,682) (534,722) (479,614)
Discontinued operations (Note 2):
Loss from disontinued
operations (15,928) (240,051) (310,661) (347,491)
Net loss $(1,326,953) $(832,733) $(845,383) $(827,105)
Loss per common share:
From continuing
operations $(0.24) $(0.18) $(0.16) $(0.33)
Net loss $(0.24) $(0.25) $(0.25) $(0.58)
Weighted average common
shares outstanding 5,502,316 3,347,036 3,408,147 1,433,147
See accompanying notes to financial statements.
25
<PAGE>
FARWEST GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997 and the Nine Months
Ended September 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Additional
Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
Balance, December 31, 1996 - $ - 1,081,480 $108 $ - $(543,557) $ (543,449)
Common shares issued for services - - 910,000 91 227,409 - 227,500
Common shares issued for accounts
payable to shareholder - - 1,200,000 120 299,880 - 300,000
Net loss - - - - - (827,105) (827,105)
Balance, December 31, 1997 - - 3,191,480 319 527,289 (1,370,662) (843,054)
Shares issued for cash 60,000 6 400,000 40 172,236 - 172,282
Net loss - - - - - (845,383) (845,383)
Balance, December 31, 1998 60,000 6 3,591,480 359 699,525 (2,216,045) (1,516,155)
Shares issued for cash - - 626,500 63 283,188 - 283,251
Shares issued to convert debt - - 253,332 25 126,641 - 126,666
Shares issued for services
rendered in 1999 and 1998 - - 1,643,600 164 287,466 - 287,630
Stock options issued as
compensation - - - - 830,600 - 830,600
Net loss - - - - - (1,326,953) (1,326,953)
Balance, September 30, 1999
(unaudited) 60,000 $ 6 6,114,912 611 $2,227,420 $(3,542,998) $(1,314,961)
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
FARWEST GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
Nine Months Ended September 30, Years Ended December 31,
1999 1998 1998 1997
Cash flows from operating activities:
Net loss $(1,326,953) $(832,733) $(845,383) $(827,105)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,250 494 984 984
Shares issued for services 69,405 - - 227,500
Stock options issued as compensation 830,600 - - -
Changes in operating assets and liabilities:
Accounts receivable 3,704 (1,857) (25,561) (2,574)
Accounts payable and accrued liabilities 53,849 489,979 460,959 62,000
Net assets of discontinued operations 38,326 (67,026) 38,147 430,079
Net cash used in operating activities (329,819) (411,143) (370,854) (109,116)
Cash flows from investing activities:
Purchase of furniture and equipment (2,483) - - (2,952)
Cash flows from financing activities:
Net advances from shareholder (Note 3) 79,250 135,650 95,361 15,279
Sale of common and preferred shares 283,251 172,282 172,282 -
Proceeds from convertible debt - 100,000 100,000 100,000
Net cash provided by financing activities 362,501 407,932 367,643 115,279
Net increase (decrease) in cash and cash
equivalents 30,199 3,211) (3,211) 3,211
Cash at beginning of year - 3,211 3,211 -
Cash at end of year $30,199 $ - $ - $ 3,211
Supplemental disclosure:
Total interest paid $ - $ - $ - $ -
</TABLE>
Non-cash transactions:
During 1997, the Company issued 1,200,000 common shares for
$300,000 in accounts payable to a shareholder.
During 1999, the Company issued 1,643,600 common shares for
services rendered in 1999 and 1998, of which $218,225 had been
accrued in 1998.
During 1999, the Company issued 253,332 common shares to convert
$100,000 in convertible debt and $26,666 in accrued interest.
See accompanying notes to financial statements.
27
<PAGE>
1. Summary of Significant Accounting Policies
Description of Business
FarWest Group, Inc. (the "Company" or "FarWest" ) was
organized under the laws of the state of Nevada in July 1996 to
serve as a water technology company dedicated to advanced water
filtration and purification. In July 1996 the Company merged with
Pro Vantage Corporation ("Pro Vantage"), an inactive public company
which had been incorporated in the state of Florida in 1992.
FarWest was the surviving corporation. Concurrently, the FarWest
Pump Company ("Pump Company"), an Arizona Coproration, became a
wholly owned subsidiary of the Company. The transaction with Pro
Vantage was accounted for as a "reverse acquisition" whereby
FarWest acquired Pro Vantage in a transaction accounted for as a
purchase. The purchase price has been determined based on the fair
value of the Pro Vantage's net assets at the date of acquisition.
Because Pro Vantage was inactive and had no assets or liabilities,
the purchase price was determined essentially to be zero and no
goodwill was recognized in the transaction.
In January 1997 the Company entered into a manufacturing and
marketing license agreement with Lawrence Livermore National
Laboratories ( Lawrence Livermore ) whereby the Company obtained
the rights to Lawrence Livermore's patented Capacitive
Deionization Technology ( CDT ). The company has the rights to
develop and manufacture a carbon aerogel CDT product for
commercial use in the desalination, filtration and purification
of water. The manufacturing and marketing license is effective
for the life of the patents (up to 17 years). To maintain the
license the Company must make contracted annual royalty payments
to Lawrence Livermore beginning with $30,000 per year, then
becoming a percentage of revenue. The Company was in arrears on
its royalty payments to Lawrence Livermore as of September 30,
1999, but has become current on its payments subsequently.
The Company has completed development of its first release CDT
unit and expects to commence in-house prototype manufacture and
construction of demonstration and pilot water treatment plants for
clients in the first quarter of 2000.
See Note 2 regarding the Company's sale of Pump Company to
Pump Company management.
Going Concern
The Company's financial statements have been presented on
the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty. The Company is reporting cumulative net losses
from continuing operations since January 1, 1997 of
28
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Going Concern (Continued)
$2,999,441 as of September 30, 1999 and has utilized $809,780 in
cash from operations during the same period. The following is a
summary of management's plan to raise capital and generate
additional operating funds.
The Company was funded initially through investment by the
principal shareholder. Since 1998 funding has been principally
through private placements. Private placement opportunities
combined with management funding are expected to continue through
the fourth quarter of 1999.
Business opportunities for the next twelve months include
international CDT systems sales to governments and major multi-
national industrial corporations and U.S. pilot sales. Several
opportunities are now being discussed including: governments,
humanitarian trust funds, industrial joint ventures, market
sectors and geographic distribution agreements.
The Company recognizes the financial investment required to
support the potential business opportunities which are being
discussed. There is no guarantee that the Company can complete
the funding necessary to develop the manufacturing and
engineering structure to manufacture and install the potential
CDT orders. The company is currently discussing financing
options which include: a Corporate Partnership for Manufacturing
which could be expanded to include marketing services; joint
ventures with an international investment group; and a European
government-sponsored program. In addition, a religious
humanitarian fund is evaluating equity investment and CDT
installation opportunities in the Mid-East. Management believes
that there is a probability of obtaining the required financing
for the next twelve months through one of the above.
The Company is dependent upon the proceeds of proposed
offerings of the Company's securities to implement its business
plan and to finance its working capital requirements. Should the
Company's plans or its assumptions change or prove to be
inaccurate or offering proceeds are insufficient to fund the
Company's operations, the Company would be required to seek
additional financing sooner than anticipated. Management is
confident it will be able to continue raising funds in the
balance of 1999 as it has in the early part of 1999, principally
through private placements. With the filing of a Form 10-SB in
the fourth quarter of 1999 and becoming a Securities and Exchange
Commission fully reporting Company, management anticipates that
additional funding may be more likely in 2000.
There can be no assurances given that the Company will be
successful in generating sufficient revenues from its planned
activities or in raising sufficient capital to allow it to
continue as a going concern which contemplates increased
operating expenses,
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<PAGE>
1. Summary of Significant Accounting Policies (Continued)
acquisition of assets and the disposition of liabilities in the
normal course of business. These factors can affect the ability
of the Company to implement its general business plan including
the completion of the required manufacturing facilities and
continued proprietary CDT product improvements.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant
intercompany balances and transactions are eliminated in
consolidation.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments, with an
original maturity of three months or less when purchased, to be
cash equivalents.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is
computed principally by the straight-line method based on the
estimated useful lives of five to seven years.
Net Loss Per Common Share
In March 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 provides a different
method of calculating earnings per share than was formerly used
in APB Opinion 15. SFAS 128 provides for the calculation of
basic and diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number
of common shares outstanding for the period. Dilutive earnings
per share reflects the potential dilution of securities that
could share in the earnings of the Company. The Company
was required to adopt this standard in the fourth quarter of
calendar 1997. Because the Company's potential dilutive
securities are antidilutive, the accompanying presentation
30
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Net Loss Per Common Share (Continued)
is only of basic loss per share. The numerator in the basic
per share calculation is the loss from continuing operations and
net loss, respectively. The denominator in the calculation is
weighted average shares for each period.
Stock-Based Compensation
The Company has issued stock options. Compensation costs
arising from such options will be recorded as an expense. The
measurement date for determining compensation costs is the date
of the grant. Compensation cost is the excess, if any, of the
market value of the stock at date of grant over the amount the
employee must pay to acquire the stock. The Company measures
compensation costs using the intrinsic value based method of
accounting for stock issued to employees.
Income taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). The objective of the asset and
liability method is to establish deferred tax assets and
liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when
such amounts are realized or settled. Under SFAS 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.
Research and Development
Research and development expenditures are expensed when
incurred. Research and development expenses amounted to
$420,000, $170,000, $234,000 and $287,000 for the nine months ended
September 30, 1999 and 1998 and the years ended December 31, 1998
and 1997, respectively.
Accounts Receivable
Accounts receivable at each balance sheet date represented non-
revenue type items. The receivables at September 30, 1999 were for
loans to potential joint venture partners. Receivables at December
31, 1998 represented cash advanced to a professional services
organization to support an international business opportunity. This
receivable was collected in 1999.
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2. Discontinued Operations
Pump Company was formed to provide drilling and pump
services in Arizona and Western New Mexico. It includes an
operating division, Arizona Well Services, which provided
wholesale parts services to Pump and other companies.
In the fourth quarter of 1998 discussions were initiated
with Pump Company management for the purchase of the Pump
Company. In March 1999 the Company's Board of Directors agreed
to sell Pump Company to its management, effective January 1, 1999.
In order to induce Pump Company management to assume the net
liabilities of Pump Company, FarWest agreed to pay Pump Company
$70,000 to be paid on March 31, 2000. In addition, on January 31,
2000, FarWest paid $200,000 to Pump Company to satisfy a FarWest
payable to Clark Vaught, Chairman who has assigned the receivable
to Pump Company.
The Company has accounted for the Pump Company in the
accompanying financial statements as a discontinued operation.
Because the Pump Company has net liabilities, the Company will
record a gain on the transaction when the sale closes. The sale
was closed in November 1999.
Pump Company had revenues of approximately $3,000,000,
$1,665,000, $2,250,000 and $3,180,000 for the periods ended
September 30, 1999 and 1998 and December 31, 1998 and 1997,
respectively.
Following is a description of the remaining assets and
liabilities of the Pump Company at each balance sheet date:
September December 31,
30, 1999 1998 1997
Current assets $ 319,723 $ 210,586 $ 228,541
Net property, plant and equipment 677,166 630,393 1,255,900
Notes payable (402,772) (454,361) (923,627)
Accounts payable and accrued
liabilities (945,873) (588,465) (709,809)
Accounts payable-shareholder (306,645) (418,228) (432,933)
Net liabilities of discontinued
operations $(658,401) $(620,075) $(581,928)
3. Related Party Transactions
A principal shareholder, Clark Vaught, Chairman, has loaned the
Company funds at various times. The payable is included in accounts
payable to shareholder in the accompaning balance sheet. While the
funds were not loaned under a note agreement, the Company has
accrued interest at 8% on the balances payable. The accrued
interest has been added to the amounts payable.
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4. Income Taxes
There were no significant temporary differences between the
Company's tax and financial bases, except for the Company's net
operating loss carryforwards amounting to approximately
$1,840,000, $1,350,000 and $830,000 at September 30, 1999 and
December 31, 1998 and 1997, respectively. These carryforwards
will expire, if not utilized, in 2012-2014.
The Company has deferred tax assets amounting to
approximately $625,000, $450,000 and 280,000 at September 30,
1999, and December 31, 1998 and 1997, respectively, related to
the net operating loss carryovers. The realization of the
benefits from these deferred tax assets appears uncertain due to
recurring net losses. Accordingly, a valuation allowance has
been recorded which offsets the deferred tax assets at the end of
each period.
5. Convertible Debt
During December 1997 and January 1998, the Company issued
$200,000 in 7% convertible debt. The debt is convertible into
shares of the Company s common stock at $.50 per share until
January 15, 2001. During 1999, the holder of the debt converted
$100,000 of principal and $26,666 of accrued interest into
253,332 shares of common stock. The note is collateralized by
750,000 shares of Company common stock.
6. Capital Stock
During 1997, the Company issued 1,200,000 common shares for
$300,000 accounts payable to Clark Vaught, Chairman of the Board
of Directors. The stock was valued by a consultant to the Company
at $.25 per share based on the thin trading in the Company's shares
and a two-year restriction on trading of the shares.
During 1998 and the nine months ended September 30, 1999, the
Company issued common shares for cash as follows:
No. of Price
Date Shares Per Share Amount
Private placement May-98 400,000 $ 0.36 $142,282
Private placement March-99 160,000 $ 0.31 $ 50,000
Private placement April-99 466,500 $ 0.50 233,251
Total 1999 626,500 $283,251
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6. Capital Stock(Continued)
During 1998, the Company issued 60,000 shares of preferred
stock for cash of $30,000. The shares pay no dividends and each
share is convertible into one share of common stock.
The Company has issued stock options to nonemployees. A
summary of the status of stock options is set forth below:
Period Ended
September 30, 1999
Weighted Average
Stock Options Shares Exercise Price
Outstanding, beginning or period - $ -
Granted 410,000 $0.82
Exercised - $ -
Forfeited/expired - $ -
Outstanding, end of period 410,000 $0.82
Options exercisable, end of period 410,000 $0.82
Fair value for the stock underlying stock options was
determined using information available from other stock sale
transactions at or near the grant date. In management's opinion,
these transactions between willing parties included the best
information available at the time of grant to estimate the market
value of the common stock of the Company. These fair values were
used to determine the compensatory components of the stock
options granted. The weighted average grant date fair value of
options issued during the period ended September 30, 1999 was $2.03.
Compensation costs for employee options are recognized as an
expense in an amount equal to the excess of the fair market value
of the stock at the date of measurement over the amount the
employee must pay. The measurement date is generally the grant
date. There were no options issued to employees as of September
30, 1999. The Company recorded $830,600 in compensation expense
during the nine months ended September 30, 1999 under FASB
Statement 123 for options issued to non-employees. There is no
future compensation expense to be recorded in subsequent periods
as of September 30, 1999. Using the fair value method, the fair
value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1999: dividend
yield of 0.0 percent; expected volatility of 783 percent; risk
free interest rates of 4.5 percent; expected lives of two years.
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6. Capital Stock(Continued)
Compensation expense for non-employees is recognized in
accordance with Statement of Financial Accounting Standards No.
123 based on the fair value of the consideration received or the
fair equity instruments issued, whichever is more reliably
measurable. During the periods ended December 31, 1997 and
September 30, 1999, the Company utilized the fair value of the
equity instruments issued to recognize expense for shares issued
to non-employees. Following is a summary of the common shares
issued for services rendered during the year ended December 31, 1997
and the nine months ended September 30, 1999:
Number
Date of Shares Expense
Employees compensation Nov-97 250,000 $ 62,500
Legal services Nov-97 10,000 2,500
Directors compensation Nov-97 600,000 150,000
Marketing Nov-97 50,000 12,500
Total for 1997 910,000 $227,500
Employees compensation Mar-99 1,415,000 $247,625
Professional services Mar-99 202,600 35,455
Marketing Mar-99 8,500 1,488
Reasearch and Development Mar-99 7,500 1,313
Legal services Mar-99 10,000 1,750
Total for 1999 1,643,600 $287,630
The expense for the above services was recognized based upon the
market value of the common stock at the time it was committed to be
issued, discounted 30% for the restricted (Rule 144) nature of the
shares and the thin market for the shares.
7. Commitments and Contingencies
Lease Commitments
The Company leases office space under an operating lease
which expires in May 2000. Future minimum rental commitments
amount to $12,650.
Rent expense for the nine months ended September 30, 1999 and
1998 and the years ended December 31, 1998 and 1997 amounted to
$8,409, $34,501, $38,056 and $11,020, respectively.
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7. Commitments and Contingencies (Continued)
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the requirements
of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including
cash and cash equivalents and notes and accounts payable approximate
carrying value due to the short-term maturity of the instruments.
The fair value of the convertible debt is estimated to be $405,000,
$120,000 and $61,000 as of September 30, 1999, December 31, 1998 and
1997, respectively, based on the underlying value of the conversion
rights of the debt, discounted for its two-year holding restrictions.
The fair value of financial instruments classified as current
assets or liabilities including cash and cash equivalents and
notes and accounts payable approximate carrying value due to the
short-term maturity of the instruments.
Concentration of Credit Risk
The Company invests its cash and certificates of deposit
primarily in deposits with major banks. Certain deposits, at
times, are in excess of federally insured limits. The Company
has not incurred losses related to its cash.
Uncertainty Due to the Year 2000 Issue
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date-
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using year 2000
dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000 and, if
not addressed, the impact on operations and financial reporting
may range from minor errors to significant systems failure which
could impact the Company s ability to conduct normal business
operations. It is not possible to be certain that all aspects of
the Year 2000 issue affecting the Company will be fully resolved.
8. New Accounting Pronouncements
SFAS 129
Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129"),
effective for periods ending after December 15, 1997, establishes
standards for disclosing information about an entity's capital
structure. SFAS 129 requires disclosure of the pertinent rights
and privileges of various securities outstanding (stock, options,
warrants, preferred stock, debt and participating rights)
including dividend and liquidation preferences, participant
rights, call prices and dates,
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<PAGE>
8. New Accounting Pronouncements (Continued)
conversion or exercise prices and redemption requirements. Adoption
of SFAS 129 has had no effect on the Company as it currently
discloses the information specified.
SFAS 130
Statement of Financial Accounting Standards (SFAS) 130,
"Reporting Comprehensive Income", establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
This pronouncement had no effect on the Company's financial
statements.
SFAS 131
SFAS 131, "Disclosure about Segments of a Business
Enterprise", establishes standards for the way that public
enterprises report information about operating segments in annual
financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas
and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance. This accounting pronouncement has
had no effect on the Company's financial statements for the
SFAS 132
Statement of Financial Accounting Standards (SFAS) 132,
"Employers' Disclosure about Pensions and Other Postretirement
Benefits," revises standards for disclosures regarding pensions
and other postretirement benefits. It also requires additional
information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis. This
statement does not change the measurement or recognition of the
pension and other postretirement plans. The financial statements
are unaffected by implementation of this new standard.
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<PAGE>
7. New Accounting Pronouncements (Continued)
SFAS 133
Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of
a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for sale security, or
a foreign-currency-denominated forecasted transaction. Because
the Company has no derivatives, this accounting pronouncement has
no effect on the Company's financial statements.
9. Subsequents Events
On January 6, 2000, the Company entered into an agreement with
ABB, Inc., an international conglomerate specalizing in technology.
The terms of the agreement are summarized as follows:
ABB contracted to purchase 500,000 shares of FarWest common
stock at $2.00 per share in two payments. The payments of $500,000
each were received on December 31, 1999 and January 31, 2000. ABB
has options to acquire an additional 250,000 shares of FarWest common
stock at $2.00 per share on March 30, 2000 and 250,000 shares on
April 30, 2000. After making the April 30, 2000 payment completing a
total investment of $2,000,000, ABB has a twelve-month option to
acquire a 51% equity position in the Company. This purchase would
be at the then current market price. ABB is entitled to one
position on the Company's Board of Directors after the first two
years.
ABB will work with the Company to develop its technology in the
future.
10. Restatement
An error in the Company's financial statement for the period
ended September 30, 1999 was discovered by management subsequent
to their issuance. Certain currently exercisable stock options were
believed by management, in error, to be exercisable in the future.
The effect of the error was to understate net loss and additional
paid in capital by $77,733. The Company's unaudited financial
statements for the period ended September 30, 1999 have been
restated to correct the error.
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<PAGE>
EXHIBIT EX-2.1 ("REVISED")
STOCK PURCHASE AGREEMENT
(REVISED)
THIS AGREEMENT is made and entered into this 24th day of
May 1999, by and between Far West Group,("Seller") and New Pumpco,
("Purchaser");
WHEREAS, the Seller is the record owner and holder of
the issued and outstanding shares of the capital stock of Far West
Pump Co,("Corporation"), a Arizona corporation, which Corporation
has issued capital stock of 1,000 shares of $.01 par value common
stock, and
WHEREAS, the Purchaser desires to purchase 100.0% (one
hundred percent) or 1,000 shares of said stock and the Seller
desires to sell 100.0% of said stock, upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE,in consideration of the mutual covenants
and agreements contained in this Agreement, and in order to
consummate the purchase and the sale of the Corporation's Stock
aforementioned, it is hereby agreed as follows:
1. PURCHASE AND SALE:
Subject to the terms and conditions hereinafter set
forth, at the closing of the transaction contemplated hereby, the
Seller shall sell, convey, transfer, and deliver to the Purchaser
certificates representing such stock; and the Purchaser shall
purchase from the Seller the Corporation's Stock in consideration
Of the purchase price set forth in this Agreement. The
certificates representing the Corporation's Stock shall be duly
endorsed for transfer or accompanied by appropriate stock
transfer powers duly executed in blank, in either case with
signatures guaranteed in the customary fashion. The closing of
the transactions contemplated by this Agreement("Closing"), shall
be held at 10:00 AM, on November 30, 1999, at Seller's offices,
or such other place, date and time as the parties hereto may
otherwise agree.
2. AMOUNT AND PAYMENT OF PURCHASE PRICE.
Seller will assign a $200,000 Note Payable to Clark
Vaught currently owed by the Seller and the Seller will make an
additional payment of $70,000 in cash to the Purchaser. Such debt
assignment and payment will be in full satisfaction of 100%
transfer of the former subsidiary of the Seller to the Purchaser
in consideration for the Purchaser assuming all net liabilities
of the corporation at closing.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby warrants and represents:
(a) Organization and Standing.
Corporation is a Nevada corporation duly organized,
validly existing and in good standing under the laws of Nevada
and has the corporate power and authority to carry on its
business as it is now being conducted. A copy of said Corporate
Charter and good standing certificate is hereby attached as
exhibit "A".
(b) Restrictions on Stock.
The Seller is not a party to any agreement, written, or
oral, creating rights in respect to the Corporation's Stock in
any third person or relating to the voting of the Corporation's
Stock.
Seller is the lawful owner of the Stock.
There are no existing warrants, options, stock purchase
agreements, redemption agreements, restrictions of any nature,
calls or rights to subscribe of any character relating to the
stock, nor are there any securities convertible into such stock.
The stock issued is in accordance with existing rules
and regulation and exemptions to the S.E.C. rules.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND
PURCHASER.
Seller and Purchaser hereby represent and warrant that
there has been no act or omission by Seller, Purchaser or the
Corporation which would give rise to any valid claim against any
of the parties hereto for a brokerage commission, finder's fee,
or other like payment in connection with the transactions
contemplated hereby.
5. TITLE TO PROPERTIES AND ASSETS.
The Corporation has good, absolute and marketable title
to all its properties and assets.
To the best of the Seller s knowledge and belief, the
Corporation owns, possesses, and has good title to all copyrights,
trademarks, trademarks rights, patents, patent rights, and
licenses necessary in the conduct of its' business. To the best
of the Seller's knowledge and belief, the Corporation has the
unrestricted right to use all trade secrets, customer lists,
manufacturing and other processes incident to the manufacture,
use or sale of any and all products presently sold by it.
6. GENERAL PROVISIONS
(a) Entire Agreement. This Agreement (including the
exhibits hereto and any written amendments hereof executed by the
parties) constitutes the entire Agreement and supersedes all
prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
(b) Sections and Other Headings. The section and
other headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation
of this Agreement.
(c) Governing Law. This agreement, and all
transactions contemplated hereby, shall be governed by, construed
and enforced in accordance with the laws of the State of Arizona.
IN WITNESS WHEREOF, this Agreement has been executed
by each of the individual parties hereto on the date first above
written.
Signed, sealed and delivered in the presence of:
PURCHASER SELLER
New Pumpco Far West Group
By: /s/ C. Crews By: /s/ Dallas Talley
C. Crews Dallas Talley
President
EXHIBIT EX-10.3
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF SHARES. 2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. 3
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. 6
4. LEGENDS. 6
5. CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. 7
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS. 7
7. COVENANTS OF THE COMPANY 8
8. RIGHT OF FIRST REFUSAL 9
9. OPTIONS TO ACQUIRE ADDITIONAL SHARES. 10
10. AGREEMENT REGARDING THE TECHNOLOGY 10
11. GOVERNING LAW AND JURISDICTION. 11
12. ENTIRE AGREEMENT. 11
13. FINDER'S FEES. 11
14. MISCELLANEOUS 11
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INVESTMENT AGREEMENT
This Investment Agreement (the "Agreement") is entered into
as of December 29, 1999, by and between Asea Brown Boveri Inc., a
Delaware corporation ("Purchaser"), and FarWest Group, a Nevada
corporation (the "Company").
Recitals
1. The Company is in possession of confidential and
proprietary information relating to various technologies,
including but not limited to Capacitive Deionization, and set
forth in certain patents, patent applications and confidential
information which includes technical know how , (all of which is
hereinafter referred to as the "Technology") some of which is
owned outright by the Company and some of which is licensed by
the Company under a license agreement between the Company and the
Regents of the University of California as manager of the
Lawrence Livermore National Laboratory ( the "License
Agreement"); and
2. The Company desires to enter into a mutually
satisfactory relationship with the Purchaser to promote, market
and develop commercial products, systems, and/or technologies
and/or products incorporating the teachings of the Technology;
and
3. Purchaser desires to acquire, in consideration of cash
payments, shares of the Company and the exclusive right to study
the Technology for a period of six (6) months with an exclusive
right to negotiate the terms of an exclusive license, purchase
agreement or other agreement which would provide Purchaser the
opportunity to commercialize the Technology, and the Company
desires to grant the right to study the Technology and to enter
into such a license, purchase or other agreement relating to the
Technology subject to the mutual agreement of the parties; and
4. The Purchaser desires to obtain certain rights related to
the purchase of shares of the Company in connection with these
transactions and the Company desires to grant such rights.
Now, Therefore, in consideration of the mutual promises and
covenants herein Purchaser and Company agree as follows:
1. Purchase and Sale of Shares.
1.1 Purchase and Sale of Shares. Purchaser shall purchase
from the Company, and the Company shall sell to Purchaser two
hundred fifty thousand (250,000) shares of the Company's common
stock (the "Shares") at a purchase price of Two Dollars ($2.00)
per Share on a date on or before December 31, 1999. (the "First
Closing"). Purchaser shall purchase from the Company, and the
Company shall sell to Purchaser an additional two hundred fifty
thousand (250,000) shares of the Company's common stock (the
"Additional Shares") at a purchase price of Two Dollars ($2.00)
per Share on a date on or before January 31, 2000 (the "Second
Closing").
1.2 Deliveries. At the First Closing, Purchaser shall
deliver to the Company $500,000 (the "First Purchase Price").
The First Purchase Price shall be payable in cash by check or
wire
2
<PAGE>
transfer made payable to the Company and the Company shall
deliver to Purchaser a certificate representing Purchaser's
ownership of the Shares. At the Second Closing, Purchaser shall
deliver to the Company $500,000 (the "Second Purchase Price").
The Second Purchase Price shall be payable in cash by check or
wire transfer made payable to the Company, and the Company shall
deliver to Purchaser a certificate representing Purchaser's
ownership of the Additional Shares.
2. Representations and Warranties of the
Company.
The Company hereby represents and warrants to Purchaser as
of the First Closing and the Second Closing as follows:
2.1 Due Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Nevada. The Company has the corporate power and
authority to own or lease its properties, rights and assets and
to conduct its business as presently proposed to be conducted.
The Articles of Incorporation and By- Laws of the Company
attached as exhibits to the Company's Form 10-SB filed with the
United States Securities and Exchange Commission (the "SEC") as
of November 29, 1999 (the "Form 10-SB") are correct and complete
as of the First Closing and the Second Closing and will not be
amended prior to the Second Closing.
2.2 Authority. The Company has full corporate power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly
and validly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and to general equitable principles.
2.3 No Violation. The execution, delivery and performance
by the Company of this Agreement do not and will not (i) violate
or breach the Articles of Incorporation or bylaws of the Company,
(ii) violate or conflict with any applicable law, (iii) violate,
breach, cause a default under or otherwise give rise to a right
of termination, cancellation or acceleration with respect to
(presently, or with the giving of notice or the passage of time)
any material agreement, contract or instrument to which the
Company is a party or by which its assets are bound, or
(iv) result in the creation or imposition of any lien, pledge,
mortgage, claim, charge or encumbrance upon any assets of the
Company.
2.4 No Third Party Consent. Assuming the accuracy of
Purchaser's representations and warranties in Section 3, no
consent, authorization, license, permit, registration or approval
of, or exemption or other action by, any governmental authority
or other person is required in connection with the Company's
execution and delivery of this Agreement or with the performance
by the Company of its obligations hereunder, except: (i) in each
case for any consent, authorization, license, permit,
registration or approval as have been obtained and remain in full
force and effect; (ii) transactions contemplated by Sections 9(c)
and 10 of this Agreement which may require shareholder approval
consistent with the requirements of Nevada law.
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2.5 Authorized Capital. The authorized capital stock of
the Company is as set forth in Item 8 of the Form 10-SB. The
Shares and the Additional Shares will, upon issuance pursuant to
the terms of this Agreement, be duly and validly authorized and
issued, fully paid and nonassessable. All of the issued and
outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid and non-
assessable and have been issued in compliance with applicable
Federal and state securities' laws.
2.6 Subsidiaries The Company's subsidiaries are as set
forth in the Form 10-SB. Other than as set forth in the Form 10-
SB the Company has no equity, partnership or membership interest
in any corporation, association or business entity.
2.7 SEC Filings and Qualification as a Small Business
Issuer. The Company has filed all forms, reports and documents
required to be filed with the SEC (collectively, the "Company SEC
Reports"). The Company is qualified as a small business issuer
as defined under Regulation S-B. The Company SEC Reports
(i) complied in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading. There are no amendments
which have not yet been filed with the SEC but which are required
to be filed, to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to
the Exchange Act.
2.8 Financial Statements. The financial statements of the
Company set forth as Exhibit 1 to the Form 10 SB (the "Financial
Statements") were prepared in accordance with generally accepted
accounting principles consistently applied during the periods
covered thereby, are correct and complete, in all material
respects, and fairly present the financial position of the
Company on the dates of such statements and the results of the
operations of the Company for the periods covered thereby.
2.9 Absence of Undisclosed Liabilities. Except as and to
the extent reflected or reserved against in the most recent
balance sheet set forth in the Financial Statements (the "Balance
Sheet"), the Company has no material accrued or contingent
liability or liabilities arising out of any transaction or state
of facts existing prior to the date hereof other than
liabilities incurred in the ordinary course of business
subsequent to the date of the Balance Sheet which individually
or in the aggregate are not material to the financial condition
or operating results to the Company taken as a whole.
2.10 Absence of Certain Developments. Since the date of
the Balance Sheet there has been (i) no material adverse change
in the condition (financial or otherwise) of the Company or in
the assets, liabilities, properties or business of the Company
and (ii) no acquisition or disposition of any assets (or any
contract or arrangement therefor), nor any other transaction or
commitment by the Company otherwise than for fair value in the
ordinary course of business.
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2.11 Title to Properties. The Company's title to,
ownership of and rights to the assets, tangible and intangible
(including the Technology), which are used in its business are as
set forth in the Form 10-SB and the Exhibits thereto.
2.12 Tax Matters. Except as set forth in Exhibit 2.12
attached hereto: (i) the Company has filed all tax returns
required to be filed by it and has paid all taxes owed by it,
except taxes which have not yet accrued or otherwise become due
or for which adequate provision has been made in the Financial
Statements; (ii) all material taxes and other material
assessments and levies which the Company is required to withhold
or collect have been withheld and collected and have been paid
over to the proper governmental authorities; (iii) no controversy
with respect to taxes of any type is pending or, to the knowledge
of the Company, threatened.
2.13 Contracts and Commitments. Except as set forth in the
Form 10-SB, the Company is not a party to any contract,
obligation or commitment of any kind which involves a potential
commitment in excess of $100,000 or which is otherwise material
and not entered into in the ordinary course of business.
2.14 Intellectual Property Rights. The License Agreement
is in full force and effect, the Company has not received notice
of termination or intent to terminate the License Agreement and
also the Company owns or possesses adequate rights to use all of
the Technology which is not subject to the License Agreement.
To the knowledge of the Company, the present business activities
and products of the Company do not infringe, in any material
respect, any rights of others and the Company has not received
any written notice or other claim from any person asserting such
infringement.
2.15 Litigation. There is no litigation or governmental
proceeding or investigation pending or, to the knowledge of the
Company, threatened (i) against the Company affecting any of the
Company's properties or assets, including without limitation, the
Technology, (ii) to the knowledge of the Company, against any
officer or key employee of the Company with respect to the
Company's business activities, nor to the knowledge of the
Company has there occurred any event or does there exist any
condition on the basis of which any litigation, proceeding or
investigation might properly be instituted.
2.16 No Solicitation or Advertisement. Neither the Company
nor any person acting on its behalf has engaged, in connection
with the offering of the Shares or the Additional Shares to the
Purchaser, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the
Securities Act.
2.17 Securities Act Registration. Assuming that the
representations and warranties of the Purchasers contained herein
are true, it is not necessary in connection with the offer, sale
and delivery of the Shares or the Additional Shares in the manner
contemplated by this Agreement to register the Shares or the
Additional Shares under applicable federal or state securities
or blue sky laws regulating the issuance or sale of securities.
2.18 Compliance with Laws. To its knowledge the Company is
in material compliance with all laws, regulations and ordinances
which apply to its business and has all material
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franchises, permits, licenses and other rights and privileges
necessary to permit it to own its property and to conduct its
business as it is presently conducted.
3. Representations and Warranties of
Purchaser.
Purchaser hereby severally represents and warrants to the
Company as follows:
3.1 Purchase for Investment. Purchaser is experienced in
evaluating and investing in companies such as the Company.
Purchaser is acquiring the Shares for investment for its own
account and not with a view to, or for resale in connection with,
any distribution. Purchaser understands that the Shares have not
been registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Act which
depends upon, among other things, the bona fide nature of the
investment intent as expressed herein.
3.2 No Sale without Registration. Purchaser acknowledges
that the Shares must be held indefinitely unless subsequently
registered under the Act or an exemption from such registration
is available. Purchaser is aware of the provisions of Rules 144
and 144A promulgated under the Act and the limitations on resales
of securities imposed thereby.
3.3 Accredited Investor Status. Purchaser is a
sophisticated investor with such knowledge and experience in
financial and business matters so as to be capable of evaluating
the merits and risks of a prospective investment in the Shares
and is capable of bearing the economic risks of such investment.
The Purchaser is an "accredited investor" as that term is defined
in Rule 501(a) of Regulation D under the Securities Act.
3.4 Authorization. Purchaser has full power and authority
to enter into this Agreement and to carry out the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Purchaser and constitutes a valid and
binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equitable principles.
3.5 No Other Representations. Purchaser acknowledges that
neither the Company nor any of its officers, directors,
stockholders or agents has made any representation or warranty,
either express or implied, to Purchaser regarding the Company,
the Shares or the investment contemplated by this Agreement,
except for the representations and warranties of the Company set
forth in Section 2 hereof.
4. Legends.
All certificates representing any of the shares of Stock
subject to the provisions of this Agreement shall have endorsed
thereon the following legend:
(a)"THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW
OF ANY STATE OR OTHER JURISDICTION. THESE SECURITIES MAY BE
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OFFERED, SOLD, PLEDGED OR TRANSFERRED ONLY PURSUANT TO ANY
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND IN COMPLIANCE
WITH APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION."
(b) Any legend required to be placed thereon by applicable
blue sky laws of any state.
5. Conditions to Purchaser's Obligations
at the Closing.
The obligation of the Purchaser to purchase the Shares and
the Additional Shares is subject to the fulfillment to the
satisfaction of the Purchaser of each of the following
conditions:
5.1 Representations and Warranties Correct; Performance of
Obligations. The representations and warranties made by the
Company in this Agreement shall be true and correct when made,
and shall be true and correct on the date of each of the First
Closing (with regard to the Shares) and the Second Closing (with
regard to the Additional Shares) with the same force and effect
as if they had been made on and as of said dates, and the Company
shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the
First Closing (with regard to the Shares) and on or prior to the
Second Closing (with regard to the Additional Shares)..
5.2 Securities Laws. On the date of both of the First
Closing and the Second Closing the Company shall have complied
with the qualification or exemption requirements of applicable
federal and state securities laws.
5.3 Consents and Waivers. The Company shall have obtained
any and all consents and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement
which need to be obtained prior to each of the First Closing and
the Second Closing.
5.4 Absence of Material Adverse Change. Prior to both the
First Closing and the Second Closing the Company shall have
represented to the Purchaser that no material change has occurred
with respect to Company's business, financial condition, assets
or operations, and prior to the Second Closing, Purchaser's due
diligence review of the Company does not reveal facts which are,
in the reasonable business judgment of the Purchaser, materially
adverse to the financial and legal status of the Company.
5.5 Officer's Certificate. At the First Closing and the
Second Closing, the Purchaser shall have received the certificate
of the Chief Executive Officer or Chief Operating Officer of the
Company to the effect that all conditions stated in this
Section 5 to the Purchaser's obligations at each of the Closings
have been satisfied.
6. Conditions to the Company's
Obligations.
The obligations of the Company under this Agreement are
subject to the fulfillment at or before the Closing of each of
the following conditions:
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6.1 Representations and Warranties; Performance of
Obligations. The representations and warranties of the Purchaser
contained in Section 3 shall be true as of the date of each of
the First Closing (with regard to the Shares) and the Second
Closing (with regard to the Additional Shares); and the Purchaser
shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to each of
the First Closing (with regard to the Shares) and the Second
Closing (with regard to the Additional Shares).
6.2 Consents and Waivers. The Purchaser shall have
obtained any and all consents and waivers necessary or
appropriate for consummation of the transactions contemplated by
this Agreement which need to be obtained prior to each of the
First Closing and the Second Closing.
7. Covenants of the Company
The Company covenants and agrees that it will observe the
following covenants:
7.1 Research and Development Program. The Company shall
immediately after the First Closing prepare with the Purchaser a
research and development program between the parties (the
"Research and Development Agreement").
7.2 Information Rights. The Company hereby covenants and
agrees that it will furnish as soon as possible after the end of
each fiscal year and in any event within ninety (90) days
thereafter, the consolidated balance sheet of the Company and its
subsidiaries, if any, as at the end of such fiscal year, the
audited consolidated (if the Company has any subsidiaries)
financial statements of the Company for such fiscal year,
including a balance sheet and income and cash flow statements.
In addition, the Company shall provide the Purchaser and its
agents reasonable access to the Company and its facilities, books
and records, contracts and assets and shall cause the directors,
employees, accountants, and other agents and representatives of
the Company to cooperate fully with the Purchaser in connection
with its due diligence investigation of the Company referred to
in Section 5.4 of this Agreement.
7.3 Board of Directors Member or Observer. The Company
agrees to nominate and cause to be elected a member of the Board
of Directors selected by the Purchaser, or to allow one
authorized representative of the Purchaser (the "Representative")
to attend all meetings of the Board of Directors of the Company
in a nonvoting observer capacity, and shall provide such
Representative with such notice of and other information with
respect to such meetings as are delivered to the directors of the
Company. The Purchaser agrees to take reasonable measures to
maintain the confidentiality of all financial and other
confidential proprietary information of the Company obtained by
it as a result.
7.4 Registration Rights.
(a) If the Company shall receive at any time after six (6)
months after the effective date of a registration statement for a
public offering of securities of the Company in the United States
(other than a registration statement relating either to the sale
of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan
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or an SEC Rule 145 transaction), a written request from the
Purchaser that the Company file a registration statement under
the Securities Act then the Company shall, within ten (10) days
of the receipt thereof and shall use its best efforts to effect
as soon as practicable, and in any event within 60 days of the
receipt of such request, the registration under the Securities
Act of the shares owned by the Purchaser which the Purchaser
requests to be registered within twenty (20) days of the mailing
of such notice by the Company.
(b) Provided that the Purchaser has purchased the Shares
and the Additional Shares and has exercised the Equity Options,
if the Purchaser intends to distribute its shares which are to be
registered (the "Registrable Securities") covered by its request
by means of an underwriting, the Purchaser shall so advise the
Company as a part of its request and the Company shall include
such information by written notice. The underwriter will be
selected by the Purchaser and shall be reasonably acceptable to
the Company. The Purchaser shall enter into an underwriting
agreement in customary form with the underwriter or underwriters
selected for such underwriting. If the underwriter advises the
Purchaser in writing that marketing factors require a limitation
of the number of shares to be underwritten, then the number of
shares of Registrable Securities that may be included in the
underwriting shall be allocated based upon the amount of
Registrable Securities of the Company owned by the Purchaser;
provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded
from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Purchaser requesting a registration statement pursuant
to this section, a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of
such registration statement, the Company shall have the right to
defer such filing for a period of not more than 120 days after
receipt of the request of Purchaser; provided, however, that the
Company may not utilize this right more than once in any twelve-
month period.
(d) All expenses other than underwriting discounts and
commissions incurred in connection with registrations, filings or
qualifications, including (without limitation) all registration,
filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the
Purchaser selected with the approval of the Company, which
approval shall not be unreasonably withheld, shall be borne by
the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding
begun if the registration request is subsequently withdrawn at
the request of the Purchaser.
8. Right Of First Refusal
For purposes of maintaining the Purchaser's proportionate
ownership of the equity of the Company, the Company shall grant
to the Purchaser at the First Closing a right of first refusal
(the "Right of First Refusal") to purchase, pro rata, a portion
of any common stock and preferred stock of the Company whether or
not authorized on the date hereof, and rights, options, or
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warrants to purchase common stock or preferred stock and
securities of any type whatsoever that are, or may become,
convertible into common stock or preferred stock that the Company
may from time to time propose to sell and issue. Such pro rata
share, for purposes of this Right of First Refusal, is the ratio
of (X) the sum of the number of shares of common stock then owned
by the Purchaser and the number of shares of common stock
issuable upon the conversion of the other equity securities, if
any, then owned by the Purchaser, to (Y) the sum of the total
number of shares of common stock then outstanding and the total
number of shares of common stock issuable upon the conversion of
the total number of equity securities then outstanding.
9. Options to Acquire Additional Shares.
(a) The Company hereby grants to the Purchaser an
exclusive, irrevocable option, exercisable prior to March 30,
2000 to purchase two hundred fifty (250,000) shares of the
Company's shares of equity at a price of $2.00 per share (the
"First Option"). The shares issuable under the option will be
issued in a private placement and will not be registered.
(b) The Company hereby grants to the Purchaser an
exclusive, irrevocable option, exercisable prior to April 30,
2000 to purchase two hundred fifty (250,000) shares of the
Company's shares of equity at a price of $2.00 per share (the
"Second Option," together with the First Option, the "Equity
Options"). The shares issuable under the option will be issued
in a private placement and will not be registered.
(c) Purchaser shall have the option to purchase, and, the
Company shall have the obligation to sell, upon the closing of
the Second Option, such additional number of shares of the
Company's equity that permit Purchaser to acquire one (1) percent
more than fifty (50) percent of the outstanding shares of the
Company on a fully diluted basis (The "Top Up Option"). The Top
Up Option to acquire up to shall expire twelve (12) months from
the date of the closing of the Second Option.
10. Agreement Regarding The Technology
(a)Upon the First Closing, the Company shall grant the
Purchaser the exclusive right to review information relating to
the Technology in connection with the Research and Development
Agreement and otherwise and the option to acquire the Technology
through purchase, exclusive license, or such other agreement as
shall provide the purchaser the opportunity to commercialize the
Technology. This option to acquire the Technology shall expire
upon the Purchaser's failure to exercise either of the Equity
Options, or, if the Equity Options are exercised, on April 30,
2001. To exercise this option to acquire the Technology,
Purchaser shall give the Company notice of its exercise prior to
its expiration and the Company and the Purchaser shall then
proceed to immediately negotiate in good faith the terms and
conditions of the purchase, license or other agreement pursuant
to which Purchaser shall acquire the Technology. The expiration
date of this option shall be extended to allow such agreement to
be completed. Purchaser shall only be entitled to acquire such
rights to the Technology which the Company owns or to which it
has license rights. Provided, however, that if Purchaser has not
exercised the Top Up Option at the time that it exercises the
option to license, purchase or otherwise acquire the Technology,
then in that event the license, purchase or other agreement shall
provide, without limiting Purchaser's rights to the Technology,
that the Company may retain such rights to the Technology
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as will permit the Company to commercialize the Technology in
fields or businesses which in the sole judgment of the Purchaser
will not compete with Purchaser's commercialization of the
Technology.
(b)The acquisition of the Technology by the Purchaser shall
be effective only upon the Company and the Purchaser entering
into a mutually acceptable agreement. During the period of the
Purchaser's exclusive right to review information relating to the
Technology and while the agreement relating to the Technology is
being negotiated if the Purchaser exercises its option regarding
the Technology, the Company shall not provide information
concerning the Technology to any third persons without the prior
written consent of the Purchaser and shall not negotiate any
agreement relating to the Technology with any third persons
without the prior written consent of the Purchaser.
11. Governing Law and Jurisdiction.
This Agreement shall be governed in all respects by the laws
of the State of Delaware as such laws are applied to agreements
between Delaware residents entered into and to be performed
entirely within Delaware. Any legal action or non-binding
mediation relating to this Agreement or the enforcement of any
provision of this Agreement may be brought, sited or otherwise
commenced in the State of Delaware or any state or federal court
located in the State of Delaware.
12. Entire Agreement.
This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subject
matter hereof.
13. Finder's Fees.
Each of the parties hereto represents and warrants that it
has not retained any finder or broker in connection with the
transactions contemplated by this Agreement, except that the
Company has used a finder in connection with the proposed
transaction with the Purchaser. The Company shall be solely
responsible for paying all fees and expenses of said finder.
14. Miscellaneous
14.1 Successors and Assigns. The provisions of this
Agreement shall bind and inure to the benefit of the respective
successors, assigns, heirs, executors, and administrators of the
parties hereto.
14.2 Survival of Representations and Warranties. The
representations, warranties, covenants, promises and agreements
contained in this Agreement shall survive and remain in full
force and effect after the Closing.
14.3 Notices. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall
be delivered by hand, by facsimile, by courier, or mailed by
first class certified or registered mail, return receipt
requested, postage prepaid to the to
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the addresses of the Company and the Purchaser set forth on the
signature page or as an Exhibit hereto, or at such other address
as may have been furnished in writing. Notices provided in
accordance with this Section 14.3 shall be deemed delivered upon
personal delivery, facsimile confirmation, confirmation of
delivery by courier, receipt by certified mail, or 48 hours after
deposit in the mail in accordance with the above.
14.4 Entire Agreement. This Agreement, together with the
instruments and other documents hereby contemplated to be
executed and delivered in connection herewith, contains the
entire agreement and understanding of the parties hereto, and
supersedes any prior agreements or understandings between or
among them, with respect to the subject matter hereof.
14.5 Amendments and Waivers. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be
amended and the observance of any term of this Agreement by a
party hereto may be waived (either generally or in a particular
instance and either retroactively or prospectively) with the
written consent of the other parties hereto. No waivers of or
exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or
provision.
14.6 Counterparts. This Agreement may be executed in
several counterparts by facsimile copy, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
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In Witness Whereof, the parties hereto have executed this
Agreement as of the date set forth in the first paragraph hereof.
Asea Brown Boveri Inc.
By: /s/ Richard Burt
Name: Richard Burt
Title: Vice President
FarWest Group
By: /s/ Dallas Talley
Name: Dallas Talley
Title: President
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<PAGE> Exhibit 2.12
1. FarWest Pump Company, an affiliate of the Company, has
an outstanding Internal Revenue Service obligation of
approximately $315,000 which can be satisfied for approximately
$250,000. The Company may be required to cover such outstanding
amounts.
2. The Company has an outstanding obligation of $200,000
owed to Clark Vaught. Clark Vaught has assigned such rights to
payment to FarWest Pump Company pursuant to a sale of FarWest
Pump Company to FarWest Pump Company's management and Clark
Vaught. In connection with such sale, the Company agreed to pay
$70,000 to FarWest Pump Company's management to assume
liabilities. The $200,000 and $70,000 will be designated to
cover FarWest Pump Company's obligations to the Internal Revenue
Service. The Company has scheduled a meeting with the Internal
Revenue Service in January regarding the payment schedule.
3. The Company has not filed its 1998 and 1999 income tax
returns, both years for which the Company experienced net
operating losses. The Company expects to file such returns in
January.
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